Moneying AI products remains a major challenge for startups. Many employ subscription models, but they work in a limited market, excludes millions of potential users.
Koah, a San Francisco-based startup, is pursuing another option. The company has secured $5 million in seed funding to integrate ads into AI applications.
The round was led by Forerunner with support from Andrew Karam, co-founder of South Park Commons and Applovin.
Investors describe Koah as building a layer that lacks in the AI ecosystem. A sustainable way for consumer AI applications to generate revenue.
Subscription
Subscriptions were effective in the early stages of AI adoption. Many early users were experts willing to pay $20 a month for access.
However, the model cannot drive global growth. Koah co-founder and CEO Nic Baird explained the issue.
Developers can create AI apps that attract millions of users in Latin America. However, these users are unlikely to pay high monthly fees.
The cost of running the AI model remains the same, but subscription revenues don't cover it. But advertising offers a path forward.
Read again: Google brings ads to AI chatbots
KOAH AD structure
Koah does not build ads for platforms such as ChatGpt. Instead, it focuses on small applications developed on top of large AI models.
These include tools for productivity, education and creative work. Koah is already active in many of these apps.
Examples include AI assistant Luzia. Heal, a parenting app. Reiner, Student Research Tool. And Deepai, a creative platform.
Advertisers include Upwork, General Medicine and Skillshare. Ads are labeled as sponsored content and appear during related interactions.
For example, users who ask about their startup strategy can see Upwork ads that provide freelance support.
This design is intentional. The company plans to display ads at useful moments, not as random interruptions.
Measure early results
There is serious skepticism. Some people think that ads don't work in AI chat. Others have tested solutions from older AdTech companies such as Admob and Applovin, and success is limited.
Koah argues that the model is more effective. According to Baird, the click-through rate reaches 7.5%. Early partners earn up to $10,000 within the first month.
Importantly, Koah reports minimal negative impacts on engagement. In fact, the company's long-term goal is to make the ads useful enough to increase engagement.
Investor interest
Nicole Johnson, partner at Forerunner, highlighted the challenge. She noted that subscription fatigue is authentic, and users' churn often continues.
“Multiple revenue models for consumer AI are inevitable,” she explained. History shows that advertising plays a central role.
Pioneers see Koah as they build the infrastructure needed for small developers. Without it, many consumer apps struggle to cover costs or rely entirely on venture capital.
This allows developers to expand their reach without sacrificing stability.
Place ads in the sales funnel
Koah believes that AI chat is the midpoint of the customer journey. Social media generates recognition. Search engines will encourage final purchases. The AI conversation lies between these two stages.
Users often ask AI for recommendations or product details. However, you rarely complete your purchases within the chat.
Instead, they will move to Google or another platform to buy. Koah aims to grasp this intention at the right moment and direct it towards relevant advertisers.
