Photo Credit: Leszek St?pie? from Pixabay

Cloud infrastructure provider Cloudflare (NYSE: NET) is in the news this week because of its recent action of allowing users to block AI bots from scraping their websites. AI models rely on access to information to finetune their responses. But Cloudflare is making it simpler for users to block these bots from learning from their websites for free.

Cloudflare’s Financials

Revenues for the first quarter grew 27% to $479.1 million, ahead of the Street’s estimates by 2%. Adjusted EPS $0.16 was in line with analyst estimates.

During the quarter, it added 30 new customers with more than $100,000 in annual revenues. Its total customer base grew 27% to 250,819 paying customers.

For the second quarter, Cloudflare forecast revenues of $500-$501 million and an adjusted EPS of $0.18. The market was looking for revenues of $500.9 million and an EPS of $0.19. It expects to end the year with revenues of $2.09-$2.094 billion and an EPS of $0.79-$0.80. The market was looking for revenues of $2.09 billion and an EPS of $0.79 for the year.

Cloudflare’s AI Lockdown

Last week, Cloudflare announced the addition of a capability that will allow website owners to block AI bots from accessing their website without permission. Cloudflare controls nearly 20% of internet traffic, and it has seen a significant increase in the number of AI data crawlers on the web.

Big tech including OpenAI and Google have built AI systems that scroll across the internet to train their models on information. Website publishers and authors are not happy with the free access that these models have had to their websites. Earlier this year, Reddit sued OpenAI for training its model on Reddit without seeking permission. While some publishers such as The Times have entered into licensing agreements for its editorial content with AI companies, not all publishers have managed that.

Last year, Cloudflare announced plans to arrive at a solution which would charge AI companies a fee for accessing content on user’s website. It wanted to lay a foundation for a new type of marketplace in which publishers could distribute their content to AI companies and be compensated for it. Besides learning from the websites, AI crawlers are scraping the internet for content by going to websites, gathering information, and returning it to the user in a way that they don’t need to access the original source.

According to a recent report, Google’s AI overview search feature that provides an AI summary of search results had resulted in 40% less traffic to origin sites. This is expected to impact website traffic and revenue from online advertising.

To counter this, Cloudflare announced the beta release of Pay per Crawl. Website owners can now choose the level of access they grant to AI crawlers. Owners can decide to completely block AI crawlers from their websites, or charge them a fee for access, or give them completely free access. New websites set up with Cloudflare will default to blocking all AI crawlers unless site owners grant permission.

Several media publishers are welcoming this release as they believe the pay wall will help control the blatant theft of content. Several publishers including TIME, Fortune, Conde Nast, The Atlantic, and many more have agreed to block AI bots by default. But it remains to be seen how the move will impact SEO and giants like OpenAI and Google.

Several AI developers, including OpenAI have declined to participate in the program. There is skepticism around the results that Cloudflare’s tool will deliver. Some believe that the tool will add complexity to search as visibility may now depend not just on ranking, but on crawler access settings, payment policies, and bot authentication.

The move may empower publishers, but it will also make content less visible to end users. It is too early to comment on how the move will impact Google. Google AI Mode and AI Overviews can not be blocked without blocking a site from Google Search, a move most publishers will be averse to. Cloudflare is hopeful that Google will come to the table to talk about how to retain index searching while agreeing to the paywall method for AI scraping. 

Cloudflare’s stock is currently trading at year high levels of $192.90 with a market capitalization of $66.8 billion. The stock has been climbing from the 52-week low of $69.26 that it had fallen to a year ago.

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