Lenny's Podcast: Product | Career | Growth
00:05:38 · Benedict Evans
I do a presentation every six months and I just published one yesterday, and one of the comments was, "Benedict, this is 80 slides of saying we don't know," which is slightly facetious, but also kind of true. Well, unquestionably, we are already in that moment in software, and then there's a conversation about, well, what does Agentic and AI software development, three separate things that merge together, mean for the future of the software industry? There's one extreme which is no one really believes, which is, "hey, you'll just vibe create your in Stripe." And no one actually believes that, although briefly you don't believe that, but clearly there's a whole bunch of questions about what this means for the software industry, and how much stuff you'll be able to do yourself, or how much more software there will be. And that's one whole conversation. But the other extreme is, if you're in a law firm, this is all very interesting, but how exactly do we use this, and how do we work out how not to be the next story that we've submitted something with hallucinations in it, and how many associates are we going to hire next year? What does this mean for us? One of the analogies I used in the presentation is, imagine you're an accountant seeing the first software spreadsheets in the late '70s, and this is mind-blowing. You change the interest rate here, and all the other numbers change. And it does a week of work for you in like 30 seconds. And we can talk about what that meant for the accounting industry, but clearly if you're an accountant, this is obviously mind-blowing. But if you were a lawyer looking at that, or journalist looking at that, you'd think, "Well, that's very clever and my accountant should see this," but that's not what I do. I might use it for my time sheet next week if it didn't cost 10 or $15,000 to get the Apple 2 and the monitor and the printer to run it, which is what it costs if you adjust replacing. But that's not what I do. And you need Word processor, which actually came very shortly afterwards. And so that's sort of the moment that we're in of, there's some people like software developers are the accountant seeing VisiCalc. "Oh, my God, this changes everything." Before VisiCalc and after VisiCalc, before Claude Code and after Claude Code. A lot of other people are picking it up using it to varying degrees, but slightly puzzled.
00:08:35 · Benedict Evans, Lenny Rachitsky
So, there's a bunch of survey data that I put in the presentation that, even if you look at like 13 to 18 year olds or something, it's still like 15, 20% of people are daily active users, and another 20% are weekly active users. And then the other 60% of those people in that demographic how on you say they are not using this. So, there's a sort of very widespread of who gets it, and a very wide... Which I think also maps, this is kind of almost a separate point, maps to this sort of jagged frontier question of, where does this work? Where does it not work? Can you tell where it's going to work? Is it intuitive to know where it would work? Can you tell after it worked? Can you work out for yourself what you would do with this? And all of those intersect with your software developer. There's a lot of other people who are like, people are having a moment or they're not, or again, we're in that kind of 1997 moment of, "Okay, what is this?" [00:09:45] S1: Along those lines, something you've been writing a bit about is, this unexpected investment in professional services/consulting services/forward deployed engineers, all the AI labs, at least the two big ones, OpenAI and Anthropic, are investing in buying massive consultancies and PE firms. Talk about just what's happening there, why that's happening.
00:10:06 · Benedict Evans
[00:10:06] S0: Well, it's funny, I was kind of groping for a joke last night when I wrote my newsletter and couldn't quite get to land it. But something like, we know the joke that a machine learning scientist is a statistician who lives in San Francisco. And there's something in there of like a forward deployed engineer is like an Accenture outsource software developer who lives in San Francisco, or works in San Francisco. I mean, joking apart, if you have any experience of professional services, companies do not have lots of people sitting around waiting to build a big new project, or do a big new piece of analysis, or build a big new piece of technology, or a new product, or work out how they're going to redesign their stores, or work out where the store should be, or try and work out why the churn is too high. All of those kinds of questions are reasons why you hire Bain, BCG, McKinsey on one side, or Accenture, Infosys, whoever on the other, or you hire a branding agency, or you hire an arch firm of architects or whatever. And it's always like, well, we could hire some architects, but why on earth would we want to have 15 architects on staff when we would just go and hire an architecture firm, and we just go and hire an ad agency? And so we are supposed to completely reimagine all of the internal workflows of your company, and work out which of them could be automated really quickly with AI. That's a project. That's a project that needs like five or 10 people to sit down and spend a month or two working it out. And then actually doing it is another project. Okay, so you need to plug these three vertical systems into these two horizontal systems and build a bunch of new workflows and train people to do that. Well, guess what? Who's going to do that? Because you don't have a bunch of people sitting around not doing anything. So, on the one side, this is part of the model of some PE firms, which is that they provide support to their portfolio companies to do stuff. And on the other side, that's why you hire, depending on what you're trying to do, you hire Bain, or you hire Accenture, or you hire publicists to help you work that out.
00:12:13 · Lenny Rachitsky
[00:12:13] S1: What's really just funny about this trend is you would think consultants were going to be gone. No, we don't need all these people anymore. AI is going to do their work. Instead, the most cutting edge AI labs are the ones most investing in these folks. I think it's pretty surprising.
00:12:29 · Benedict Evans
[00:12:29] S0: Well, one of the strands in my presentation, so I split the presentation into three sections. There's a section on capital, which is basically, where is all this CapEx going and are the model labs going to have differentiation? And then there's a section on deployment, which is basically, what does it mean for the software industry? And then the third section is, how does this change stuff? And one of the sort of strands I tried to pull together in the section on change is, what's the hard part of the job? Is the hard part of the job writing the code line by line? Is the hard part of the job giving you the SKU, or making the PowerPoint? Or is the hard part of the job something else? Is it the task or the job? And pulling that apart, sometimes the task is the job. The classic example is like an elevator attendant. If I live in a building that has an attended elevator, we have a manual elevator, so there's no button. There's a lever and the dormant drives you to your floor. It's a vertical speed cut. It's like one of those cramps in San Francisco. They drive you to the store, to your floor. And then those all got automated after the '50s, and now you press a button, and pressing the button is a job. So there were some things where the button, the job was a task and the task got automated. What happens much more, and this is why people talked about the Jevons paradox is this pricey elasticity, because the Jevons paradox is just price elasticity, applied price elasticity. If you make it cheaper to do something, what happens? Do you do the same for less money? Or do you do more for the same amount of money? Or do you do more for more money because you've got new ROI? And if you look at something like the history of accounting, or indeed professional services, this is a joke I made on Twitter back when it was Twitter, was like, young people won't believe this, but before Excel, junior investment bankers worked really long hours. And now thanks to Excel, Goldman's associates will work at lunchtime on Fridays. It's like, well, why is that not what happened? You could make the same point as software development. Before IDEs, and libraries, and operating systems, developers had to write all the code. Now if you write an iPhone app, 90% of the code is written for you by Apple. Apple wrote the modem driver, and the graphics drivers, and the file system.
00:14:37 · Benedict Evans
You don't need to write any of that. So, we've got intents as many engineers now. Well, no. And so then you kind of have to look at an industry and work out, well, which is it and what is the hard part? One of the analogies that occurred to me here is to look at the history of e-commerce, which is that what Amazon does is it gets you the SKU if you know what the SKU is. If you know what SKU you want, you want that microphone stand. This part number, you can go to Amazon and get it. If you don't know what microphone to get, probably shouldn't start on Amazon. Multiply that by many, many, many product categories. And so what Amazon does is get you the SKU, but knowing what SKU you want is another job. Claude Code can write you the code, but what code do you want? It can make you the features. Sure, but what features do you want? Who's your customer? What's the right product for that customer? How are you going to take it to market? And long way of answering a question, why do you hire McKinsey? Are you hiring them to get a 75-slide deck? Well, narrowly, Claude cowork will make a really, really crappy version of that. And you'll get all this kind of AI grifters on LinkedIn and Twitter and so on saying, "Hey, I made a McKinsey deck with Claude," and you look at it and you think, "Yeah, that's a bunch of doc crap." That's not what you'd get from McKinsey. But even if it was, that's not what you paid them for. What you actually pay Bain to do is to go and walk all over your company and work out. Yes, but why is it that you didn't do that? And how do the politics of this work? And what do you actually need to do? And let's go and talk to your customers and work out what they actually think, as opposed to what's on the first page of Google. It's all the other stuff. And the PowerPoint is just like the task, but that's not what you hired them for. The same with Amazon versus the retailer, the same with software development. So you've got that kind of split. The other analogy that occurred to me here is looking at the sort of class of industry that got steamrolled by the internet, because they had those two things and you could split the part. So you had the physical manufacturing or physical distribution, and then you had the other, the thing, what was the actual thing? Classic examples would be newspapers and recorded music.