Lenny's Podcast: Product | Career | Growth
00:23:33 · Brian Balfour
[00:23:33] S1: Yeah. We'll go through them quick. You know? I I think everybody's probably... Google's an interesting one because it played out, over a much longer period of time. You know? Facebook happened over the course of about in five ish years, something like that. Google kind of did it, like, very slowly over years, but, same thing. Right? Massive... Early massive competition against Yahoo. I don't know. AltaVista. I... Lycos, you name them all. Right? That was even before my... That that was even before my time. Right? They were first to really identify these data moats and incentivizing essentially web developers content folks to optimize, you know, for their search algorithms. It create this great, great distribution mechanism. Everybody's kind of building content and everything, you know, for them. But over time, slowly but surely, right, they did two things. One is more and more of that real estate became ads that they were monetizing. So they're suppressing organic distribution in order to push people towards the ads, as well as absorbing a bunch of the highest value first party use cases, things like travel, you know, as an example, or even like, you know, like restaurant search and like all those types of things, you know, the Yelp, former Yelp CEO and founder has has been, you know, been out there saying a lot a lot of things about about these practices. So same same exact cycle. Mobile went through the exact same cycle. Right? IOS created a new distribution mechanism. They were in massive... They they had a ton of competition among different phones when they first started on. They found the defensibility was more about the apps. They got in all the developers, created the the App Store, like all of these types of things. But over time, we've seen more and more restrictions there on that front. And then most recently, right, like we've seen this happen in smaller places too. LinkedIn, as an example, first went through this wave with company pages. Right? They were like, ah, companies, you know, come on, promote your company page, bring in more users, like all that type of stuff. And then get all these followers. And then of course, they get almost no distribution now through your company page because they're pushing you towards ads.
00:25:35 · Brian Balfour, Lenny Rachitsky
And then they recently just did this with personal profiles too, which is they really boosted distribution for individuals to create content for that platform. They then introduced the thought leader ad format, a way to monetize those those individual posts, and now you've seen them really pull back on that organic distribution. So this happens in big forms, and it happens, even in in smaller use cases as well. But once again, the steps of the cycle are exactly the same. And the key part about this too is it... The broad trend is that the cycles seem to be getting shorter and shorter and shorter and shorter. So you actually have a smaller amount of time to play the game. [00:26:11] S0: Okay. And the big here is, yes, this will end maybe not great for you, but there's this magical period when they're open to Yes. Customers and users where you can grow like crazy because they want everyone to come and they give you a distribution. And what you're saying essentially is ChatGPT potentially some other platform maybe, is about to enter this mode.
00:26:35 · Brian Balfour
[00:26:35] S1: Yeah. Well, let me first... Before we get to ChatGPT, I think the natural reaction when when you first realize this, is screw them. I'm not playing that game. Right? Like, that that... That's what I feel like most people, like, how how they react. Right? Because, because the unfortunate truth is is that a lot of companies don't predict that last stage and end up in a really hard, hard position. Right? So many companies got completely killed during the crash of the Facebook social platform. Apple's 30% tax basically destroyed a bunch of types of applications and business models because it just you couldn't you feel like it was just wasn't like margin effective. All so many companies built on, you know, SEO loops, right, that are in serious, serious trouble right now if that's their only channel. So so all of these things. Right? And so I think the natural reaction is, yeah, like, like, why would I play this game if I'm a startup or or a company? Like... And you can even see this with, like, ChatGPT as an example. Right? They just launched these, like, deep research connectors. One of them was my former company HubSpot. And, you know, if you sat inside HubSpot and you were just thinking in isolation, you would be like, well, why would I want to make all of my data accessible through ChatGPT and have like all of the usage you start to accrue there. Right? It doesn't really make sense in isolation, but we don't operate in isolation. Once again, we operate in a competitive environment. And what's going to happen is that if you don't do it, your competitors are going to certainly go to the new platform, and your customer expectations change, and you have to rise to those customers' expectations. They're going to start expecting you to be in these new experiences and all these things. And so it ends up being a prisoner's dilemma, Right? Which is like, you... There is no opting out of the game. You have to play the game. And and so it's better to be early than than to be super late, to this game, especially if you are a start up. Right? That that... That's kind of like the the the key, that... That's kind of like the key opportunity. And so we'll talk a little bit more about how to play the game more, but it's it's it's better to be early as well as than than the key...
00:28:53 · Brian Balfour, Lenny Rachitsky
The harder part about it is is anticipating that last stage of the cycle and figuring out how to sequence away from something before that last cycle comes. So I think that's the key part. But let me pause there, and then I'll talk a little bit about ChatGPT and and some of my reasoning behind that. [00:29:12] S0: Cool. So what you're saying is not only is there going to be this big opportunity to grow. If you don't take advantage of it, somebody in your space will. So it's not only there's an opportunity, but this is something you need to do because you might miss the boat. And I think about companies like Zynga that grew on Facebook and then became massive companies. And, you know, if they didn't do that, they would have missed the boat. Someone else would have eaten at lunch. I don't know. I'm thinking about the Technology Bros Podcast on Twitter right now, TBPN, where they basically figured out on Twitter, you can create this like live stream and you see it all day in your Twitter feed just like, hey, they're broadcasting and it's a really cool distribution channel. So so I think there's like a big call to arms here on most of just the opportunities emerging, and you basically need to pay attention. You can't opt out. That's right. That's right. Okay. Exactly. Chat. Yeah. So let's talk ChatGPT.
00:30:02 · Brian Balfour
[00:30:02] S1: So look. Like like, let's go through this cycle. We are right now. We're in that competitive environment. Like we said, like, all those players we talked about, ChatGPT, Claude, Gemini, all these folks, they're... They are battling it out. Right? And and we've seen this with, you know, the talent awards, especially over the past, you know, month month or so. And and so there's no clear winner yet, but there's consensus around, the category. The second thing is then, okay, what's the moat? Has the moat been identified and who seems to have identified it the first or is furthest along? I think there's... My hypothesis, and I think there's a lot more consensus around this now than there might have even been three months ago is that the moat is really about is about context and memory. You know, these models, you know, by themselves, if you compare them side by side, you know, they they kind of generate the same results. And so that the actual difference maker is which one has more of your context and and and because it's the context plus the model that produces the best output. And then and then that kind of starts to accrue to this loop around memory. The more you use it, the more it's able to store memory around you, which kind of feeds more personalized context, which produces better outputs. Right? And it ends up being an... You know, another one of those flywheels, another one of those another one of those loops. And so if you look at who's farthest on this, it definitely is ChatGPT. Right? Like, were kind of the first ones to memory. They've been investing a lot in these different types of data connectors, essentially context connectors, you know, gathering all of this context. And so you can really start to see it in the usage. But the second thing is in one of the pushbacks I've gotten on my prediction has been, well, what about Google and Gemini? They have so much distribution through Chrome and all of this other stuff. Right? But it was Deedy Das, who's a VC at Menlo Ventures, actually published some good data on retention of all of these different ones. And, I think the second reason I predict ChatGPT is, like, if you look at history once again, it was never the person who had the biggest distribution at the moment of time. It was the one that had the best retention and engagement.
00:32:15 · Brian Balfour, Lenny Rachitsky
Google had the best retention and engagement over the others. Facebook had... Was smaller but had way better retention and engagement over the others. Right? So on and so forth. And so, the the data that Deedy published, clearly showed that both the retention curves, which I know you and I have both written about at, you know, at exhaustion, level off at significant portions higher than all the other platforms as well as those retention curves have been shifting up dramatically over time. You can start to see the effects of of memory, and they have the very elusive smile curve. Right? The ones that you just like... And the only other times I've seen, you know, all of those dynamics very few times in my career, and they tend to be the folks like Slack and and, like, all of the big winners. It's... There... It's just, like, so elusive. [00:33:04] S0: And the smile curve just to... Just to have people haven't done with that is essentially retention goes up over time. It goes down a little bit, and then you come back to it and you use it more.