Lenny's Podcast: Product | Career | Growth
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.
00:43:34 · Benedict Evans
[00:43:34] S0: Yeah. I mean, there's like a version of the Drake meme of like he says, "I don't like that. I do like this." It's like, "I don't like GPT wrappers. I do like harnesses." So yeah, I did spend some time talking about this in the presentation I did at the end of last year, that if the product is a commodity, then the distribution is what matters. And I wrote a thing about ChatGPT earlier this year, OpenAI earlier this year, how do they compete. Well, there's an obvious comparison that a lot of people made is with web browsers. The fundamentally web browser, and there's a distinction here I think between the web browser as product and web browser rendering engine, in that the rendering engine can be better or worse, but the browser product is just like a really thin wrapper for a rendering engine. There's an input box and an output box. And like, what else? And which is like, what's the last innovation in browser design? Tab browsing, which was 20 years ago, 25 years ago. And every now and then somebody tries to innovate in browser design and it never works because you found the Platonic ideal. It's like trying to innovate in smartphone design. It's a glass rate angle. There's nothing you can do there. And so what happened, of course, is that Microsoft uses distribution to break in. Then of course, what also happens is setting aside the lawsuit, is that it turns out the winning browsers doesn't matter anyway because the value is further up stack. And so Microsoft, we use browsers for like five, six years, and it doesn't matter, and it doesn't get them anything. So clearly what's happening now is that Google is using distribution to drive Gemini. And what's the difference between Gemini and Claude? And if you're using this stuff all day, then you know, but like normal person, there's no difference. And the same thing with Meta, if you look at survey data on which our M people use, even before the news thing, like the Llama thing, Meta was behind, it was up there between ChatGPT and Gemini, which if you're in tech, people have completely written it off, but it was like they sprayed it on every service surface. It wasn't that bad. It was fine.
00:45:30 · Benedict Evans
So distribution of an adequate product when the field is basically commodity distribution on brand become a big deal, you could see that in the strategy, OpenAI strategy late last year was, people called it Everything, Everywhere, Yesterday. And so they were just trying everything to work out how they would get that. How can we get a flyway or how can we get distribution? How can we get something that sticks? How can we get something that people uses before Google, and Meta, and Amazon spray it everywhere and get everybody using that one? And then you've got the inertia and the power of the default and like, why would you switch? Obviously Apple is kind of the last penny to drop here. There was this sort of slightly weird opening idea, and now there's even weirder story that OpenAI want to sue Apple. Good luck with that. The funny thing about the Apple deal thing is just, not to go off on a tangent, but if you go back and watch the WWDC from 2024, the whole second half of it is Apple Intelligence. That was like the most compelling vision of a personal AI assistant, still the most compelling vision I've seen. They then couldn't ship it, but then neither was anybody else. And you watch it again and you're like, "Okay, so you want tool using a Agentic on device, AI with no prompt injection and no hallucinations, and a completely standardized API system across 10,000 apps with intents that all work perfectly." I'm like, "Well, that sounds good to me, but I'm not surprised they couldn't ship it." But nobody else would ship that. But that vision was great. I really want to see what happens at WWDC in a month. Do they actually ship that now, powered by Gemini? But that's also another point, is like, okay, there's going to be the AI intelligence, whatever we call, a Gemini intelligence on Android, and then there's going to be Apple intelligence on iOS, which is powered by Gemini, but it's not going to be the same set of products. The model's just like the dumb thing underneath the, funny way of putting it, the dumb thing underneath that power's a feature. The model is the commodity that powers different decisions about what the feature should be and what different distribution. And in that situation, of course, Apple's got a billion devices that can run this on edge.