CODE RED: No More Ads in ChatGPT (For Now...)

Hey builders,

OpenAI just declared "Code Red."

Sam Altman sent an internal memo this week shifting priorities away from ads and back to improving ChatGPT. Why? Because they're bleeding users for the first time.

Since Gemini 3 launched two weeks ago, ChatGPT's daily active users dropped 6%. Add Claude Opus 4.5 to the mix, and suddenly the AI king isn't looking so untouchable.

But here's what actually matters for you: while everyone's panicking about ads, the real opportunity is staring us in the face.

ChatGPT apps.

Let me break it down.

Watch Our Full Deep Dive into this Topic

The Ad Confusion

People are freaking out on X about ads appearing in ChatGPT. Screenshots everywhere showing Target and Peloton recommendations that make zero sense.

The plot twist is that these aren't ads.

They're apps that are already in ChatGPTs App Store that are now getting organic distribution. OpenAI even confirmed it publicly. They are testing the way apps on ChatGPT will get free distribution when people do a related search query.

The problem? Nobody can tell the difference. When you ask about Windows BitLocker and get shown Target, it feels like an ad. When you discuss a podcast and Peloton appears, trust breaks.

OpenAI is learning the hard way that AI recommendations need to be significantly more relevant than Google search results. The trust bar is higher because people treat ChatGPT like objective truth, not a search engine.

Why OpenAI Needs This to Work

Here's the reality: OpenAI has over $1 trillion in spending commitments and maybe $20 billion in revenue. Right now that math doesn't work.

Meanwhile, Google and Meta print money. They can afford to wait, watch OpenAI stumble through monetization, then copy what works and avoid what doesn't.

OpenAI doesn't have that luxury. They need revenue. Fast.

But they also can't afford to lose users right now. Not with Gemini and Claude breathing down their neck. That's why ads got delayed and "code red" got declared.

The Distribution Play Nobody's Talking About

While everyone debates ads, smart players are realising there is a more important at play here:

OpenAI is about to give away free distribution to now 850+ million users.

It’s the AI-native distribution opportunity we’ve been waiting for.

→ Someone asks how to book a hotel in New York
→ An app appears directly in the chat
→ One click, problem solved
→ That app gets saved to the user's memory
→ Next time they book travel, that app appears first

This is the iPhone App Store moment all over again. Except faster.

The apps that get discovered early and used will build memory advantages. Just like SEO, just like the App Store, the early movers compound their advantage.

So, We’re Coining a New Term…

We're watching the birth of CAO (ChatGPT App Optimization).

These are my own words (let’s hope it catches on) but I believe a whole new industry is about to open up around how to optimise apps on ChatGPT.

New rules for a new game:

→ App naming matters more than you think
→ Metadata determines discoverability
→ Prompts during setup affect future recommendations
→ User memory creates compounding distribution

You can see more on the advise OpenAI is giving around this here:

We’ve been doing a TON of research into this space and will share more on this very soon.

Where This Goes

My prediction: every major AI company will eventually run ads. Google, Meta, OpenAI - all of them.

But the companies that aren't desperate for revenue (Google, Meta) will let OpenAI figure out what works first. They'll watch. They'll learn. Then they'll execute better.

OpenAI is basically running the most expensive A/B test in history for their competitors.

But that doesn't change the opportunity. Apps in ChatGPT represent a distribution channel that hasn't existed since the iPhone launched in 2007.

If you have a product that could work in this environment, you need to be building now. Not later.

The platform is wide open. The distribution subsidy period won't last forever.

Quick Reminder

We're tracking all of this at appsonchatgpt.com - every public app, how they work, how to build, how to optimize for discovery.

Everything's free. Community included - you can join the discord here:

As always, feel free to drop me a reply with feedback or questions.

Happy building,

Elliot

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