Final week, OpenAI introduced that it has employed Fidji Simo, the CEO of Instacart, to turn into the CEO of its purposes division. From Reuters:

Instacart head Fidji Simo will step down to hitch OpenAI as its chief of purposes, CEO and co-founder Sam Altman stated on Thursday, including she is going to report back to him and that he’ll stay head of the Microsoft-backed ChatGPT maker … The announcement comes two days after OpenAI dialed again a big restructuring plan, with its nonprofit father or mother retaining management in a transfer that’s prone to restrict Altman’s energy.

The information is noteworthy for just a few causes. The primary is that Instacart is a profitable enterprise: its inventory is up 34% on a year-over-year foundation, and the corporate beat analyst expectations on each income and earnings in Q1 2025. Whereas OpenAI just lately raised cash at a $300BN valuation — in comparison with Instacart’s $11BN market capitalization — it’s nonetheless uncommon for the CEO of a publicly traded firm to decamp for a non-CEO function in an organization working in a very unrelated class.

The second is that it signifies that the enterprise fashions of Instacart and OpenAI are prone to turn into far more comparable. As I remarked when Instacart filed its S-1, Instacart is an promoting and subscription enterprise: the corporate’s promoting income progress outpaced that of transactions in Q1 2025 (14% vs. 8%, respectively), with transaction income capturing the Instacart+ subscription enterprise. Instacart operates a $1BN promoting enterprise that probably contributed disproportionately to the corporate’s $106MM of internet earnings in Q1.

Fidji Simo was recruited to steer Instacart from Meta, the place she served as the overall supervisor of the Fb app and reported on to Mark Zuckerberg. However extra considerable than having run the Blue app on the finish of her tenure with the corporate, Simo is credited with having constructed the corporate’s income engine: advertisements within the cellular Information feed. As Antonio Garcia Martinez, a former product supervisor on the advertisements group at Meta (then, Fb) remarks in his memoir, Chaos Monkeys (emphasis mine):

For all of the Sturm and Drang, Fb’s quarter-saving gold mine, the factor that catalyzed the inventory out of the post-IPO doldrums, wasn’t Customized Audiences or FBX. A 3rd product, the one different novel advertisements product Fb launched throughout its harried IPO interval, code-named “Neko,” was that savior. The product itself, like so many, was merely the mixture of two in any other case disparate domains: Fb’s ever-addictive Information Feed and advertisements stock on the Fb cellular app, as a substitute of the desktop web site. That’s it: advertisements in Information Feed, whereas the person was on his or her cellular gadget—that’s what saved Fb. The particular person most accountable for this coup was a product supervisor with the inconceivable title of Fidji Simo. She was considered one of two workplace wives of mine (sure, I used to be an workplace Mormon), who had began her profession in Fb Advertisements as a lowly product marketer. She had in a short time and assuredly navigated herself up the Fb company ladder, touchdown herself the product supervisor job the place Advertisements and the remainder of the corporate overlapped, putting herself within the bigger Fb (and Zuck) highlight.

Again in March, in an interview with Ben Thompson, Sam Altman, OpenAI’s CEO, remarked that the corporate wasn’t at present significantly contemplating promoting as a monetization technique:

At the moment, I’m extra excited to determine how we will cost folks some huge cash for a very nice automated software program engineer or different form of agent than I’m making some variety of dimes with an promoting based mostly mannequin.

However OpenAI was virtually actually within the final levels of negotiations with Simo on the time of the interview. And it appears inconceivable — frankly, inconceivable — that Altman may concurrently imagine that promoting represented a possibility sized at “some variety of dimes” and that Simo, who deployed some of the profitable promoting merchandise ever conceived, was the very best particular person to run OpenAI’s purposes division. These two notions are incompatible.

Clearly, OpenAI will monetize with advertisements. Hiring Simo represents such an on-the-nose acknowledgment of that indisputable fact that I virtually didn’t write this piece. Besides that OpenAI’s admission that promoting is its path ahead on monetization serves to dispel a standard false impression (actually, a fallacious, superstitious tech dogma) that promoting is however considered one of many monetization methods which are all equally able to attaining optimum income for scaled client expertise merchandise. This isn’t true. If maximizing income is a corporation’s goal perform, and its product can doubtlessly attain a scale of billions of customers, then promoting stands alone as its optimum monetization technique.

That is the crux of the freemium mannequin: a product with doubtlessly billions of customers ought to be given away without cost as a way to attain them. Consideration is an asset. The product use circumstances able to agglomerating the eye of a whole bunch of tens of millions or billions of individuals are, virtually as a bi-product of their accessibility and broad breadth, probably not those greatest positioned to derive most worth from that focus.

Fortunately, promoting exists. Companies can bid on that focus: not within the combination, for a complete product’s person base, however for people, based mostly on what is thought about them. The asset of consideration will be atomized right down to a single person and bought to the product that may greatest monetize it. Promoting is an identical market that allocates consideration to the agency positioned to greatest activate it. I talk about this concept in Digital Promoting, Demand Routing, and the Millionaires’ Mall:

One problem with optimizing for conversions is that, in an ecosystem as huge and principally heterogeneous because the web — even within the context of particular, scaled merchandise — the presence at any given second of a person that 1) has an curiosity in some product and a couple of) possesses the disposable earnings to buy that product is uncommon. Digital promoting doesn’t create client demand; reasonably, digital promoting ought to search to route current demand to the merchandise that greatest serve it. An environment friendly digital promoting channel matches client demand for a product with probably the most satisfying and fulfilling variant of that product. An promoting channel shouldn’t be a requirement manufacturing unit however a requirement freeway: the extra effectively an advert channel can route client demand to merchandise, the extra financial worth it produces.

OpenAI will introduce promoting. It has constructed a generational product, ChatGPT, that has succeeded in aggregating consideration at a rarefied scale: the corporate revealed in April that it has 500MM weekly customers (WAU). However simply 4% of these customers are subscribers. The rest will probably be monetized with advertisements. This isn’t a design choice; it’s an optimization train and a business necessity.