Lenny's Podcast: Product | Career | Growth
00:34:49 · Benedict Evans
Can the model companies keep building these like Claude for X, Claude for Y things, which to me look very much like what you see if you hit file new in Excel. It's like the tablets, but all of those are actually billion-dollar companies as well. And if not, no, does it all have to be "apps"? Whatever app means. And if it all has to be apps who builds those, well, they can't all get built by the model labs, just as they didn't all get built by Microsoft. And so if they're all built by other companies, does their notion models have leverage up the stack the way Windows did? Or is this more like AWS where, if you're, I don't know, an engineering company or a law firm buying a piece of software, you don't care which cloud it runs on? And you don't have to standardize on AWS because that's where all the software is. And the developers all standardize on AWS because all the customers use AWS. That's not how it works. That's how Windows or iOS works, but that's not how AWS works. And so it does sort of seem to me that if the chatbot isn't the UX, and it needs to be apps, and the model companies aren't going to build that, and the models themselves are basically commodities, at least as you can see them as users, then why would the model companies have pricing power? And wouldn't all the value be further up the stack? Aren't you basically, have you got like three to six companies selling a commodity at marginal cost? Now, obviously the semi-analyst guys are like, "No, no, no, no, no. There's going to be infinite pricing power forever." I'm sorry, I'm exaggerating. But I think you have to really important to draw a distinction between where are we now, where you have radical price disequilibrium, and you've got these, what's the guy, the OpenClaw guy spent one and a half million dollars on token this last month. But that's somebody getting like a 50 grand mobile data built in 2010. That's temporary. What is the steady state equilibrium point where all of these lines on the chart kind of get lined up, and we don't have this kind of weird, crazy stuff going on? And then will you have pricing power, or have you got like three or four or five companies kind of all selling the same thing? And so then you should have a pricing price. You should have lower pricing and lower margins, and the value you've got stack.
00:37:04 · Lenny Rachitsky
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00:38:28 · Benedict Evans
[00:38:28] S0: Yeah. I mean, this is a very sort of deterministic thesis, which is, the models companies, crucially what I said is the models don't seem to have no after effects. So there doesn't seem to be a winner takes all effect where one of these will run away ahead of the other. So you should have competition indefinitely. If you have competition indefinitely, you don't have primary really radical differentiation of what the product is. Then why would you have pricing power? And meanwhile, if you need to have thousands of applications that are all different built by different people, those can't all be built by the model people. So, it should end up looking more like cloud than it looks like Windows. Now that may be completely wrong, and one of the points I make in the presentation is like, imagine having this conversation about the internet in 1997, what would you have got right? Or indeed having it about mobile in 2000. You would've missed almost all of it. You certainly would've said that a has-been PC company from [inaudible 00:39:28] would win the whole thing. And no one would've said that. And a search company with a weird logo like, "Search, what's that got to do with mobile?" "No, forget it, you're an idiot." So we should presume we don't know, but they're all this sort of basic building blocks of like, well, but why would they have pricing power? I don't know, when I was a baby analyst in '99, went to see a dotcom company in the UK that was trying to do online selling computer cars, components online. And they had this whole model and this whole story in the brand and buy the whole thing and we went up to see them, and we're on the train back from Birmingham, and this just senior banker called David Tate. We're all sitting talking about it, and Tate says, "It's a low margin reseller, one time sells." "You can say dotcom all you like, it's a low margin reseller." And I think that's the crux of this, is they're undifferentiated commodity infrastructure providers. There's a lot of science to it, but there's a lot of science in mobile. I mean, what do you pay for flat panel screen? There's Nobel Prizes in flat panel screens. There's still a low margin commodity. I look forward to be proving wrong, proven wrong, but like, hey, that's what it looks like now.
00:40:39 · Lenny Rachitsky, Benedict Evans
[00:40:39] S1: This is great. So I know you're not an investor. I know you didn't actually do investing at a16z even though you work for A16Z. [00:40:45] S0: Partner. [00:40:46] S1: Partner. Just sit around and pontificate partner. Are there companies you would invest in? If there are a couple companies you'd invest in now, is there some on that list, or categories even?
00:40:57 · Benedict Evans
[00:40:57] S0: I mentioned briefly that I was an analyst. I was a sell side equity analyst. I was not a very good sell side equity analyst, but partly because I was not interested in talking to clients, partly because I was not interested in share prices, which would seem to be like a disqualification to be an equity analyst. There's a huge difference between being right and being early, and there's a huge difference between the right company and the right price. Now, deterministically, you can look across the market and say, well, it's like the bell curve IQMium, and the guy with 50 and the guy with 200 are both saying, "Jeff Bezos, smart guy, I buy stock." And you can certainly overthink all of this. And you can look at Google, Apple, Facebook, Amazon, and say, "Hard to see a problem for them really with all of this." You can certainly see questions for all of them, and one of them may drop the ball, but it's worth remembering what happened in mobile. The internet was just like a big obvious platform shift. The funny thing about mobile is that some companies missed it completely, and for some of them it really didn't change anything. For Google, it didn't change anything. For Meta, this was great. This is a way better way to do social than on PC, because you've got a camera, and notifications, and it's on your phone all the time with you. Amazon, what does this change? It doesn't change everything. I mean, I'm massively oversimplifying here, but the point is now, meanwhile, Yahoo Mail fails to make the jump, there are companies that were already kind of dying that failed to make the jump, maybe eBay. You could argue about individual names. The point is that we went through that shift and it didn't change anything for half the industry. Half the internet industry. And so I think that you could propose a little bit of that here. While Steven Jay Sinofsky at A16Z who used to run Windows would always say, "Incumbents always try and make the new thing a feature." And sometimes they're right, sometimes it's a feature.
00:42:56 · Lenny Rachitsky
[00:42:56] S1: Actually, along those lines, something I wanted to get your take on. There's this thread that's been happening across a bunch of guests, which is around distribution becoming a bigger and bigger moat, because as software is easier to build, everyone's launching products, everyone's trying to compete for attention, it's getting harder and harder. It's always been hard to get people's attention, but it's just like the noise in the market is just going up like crazy. And to me that tells me distribution is becoming a more and more valuable skill and asset. And it also tells me incumbents are going to be a lot more successful because they already have distribution versus a startup that's trying to break through.