EP 150: Bret Taylor (CEO, Sierra): A New Class of Software Winners

Logan Bartlett (0:00)

Bret, thank you for doing this.

Bret Taylor (0:01)

Thanks for having me.

Logan Bartlett (0:01)

I'm glad we got it on the calendar. It's a good time to do it. You guys recently announced a new round. Congratulations.

Bret Taylor (0:08)

Thank you. I appreciate it.

Logan Bartlett (0:09)

It's a nice milestone on the journey, a good testament to what you guys have built to date and where you're headed over time.

Bret Taylor (0:16)

Yeah, it's a milestone, but I think that's the way to put it.

Raising financing is just adding fuel to get to the place you want to go. And I think for an entrepreneur like me and my co-founder Clay, we want to create an enduring, durable company. And so it's just that, just a milestone. But it's a good time to reflect. We're really proud. I think we're the clear leader in the space we operate, which is AI agents for customer experience, customer service. But I always talk about how similar this AI wave is to the original internet wave. And AltaVista was first, and Google is the one who writes the history book. So we need multiple years of sustained, impeccable execution, basically, from here. And then I'll be happy. But I'm excited for the monster.

Logan Bartlett (1:03)

There's the Norm MacDonald joke that the good guys always won in history. Because you get to define the terms of success in that way. I guess, what do you think, to that end, when you're making that comparison to internet versus AI, where do you think the parallels exist? And what do you think breaks down as you kind of think about comparing the two?

Bret Taylor (1:24)

One thing that I think is quite similar is there were some very obvious bets on the internet, like search and e-commerce being two of the most prominent, and payments. You don't need to be that savvy about the internet to think, wow, it might be useful if people could buy things digitally. And the question was, who will own that market? Will Amazon and buy.com have very different strategies, even different portfolios of products that they initially sold? Amazon clearly had a much better both strategy execution, there's a lot of details they got right. Look at the search market, I mentioned AltaVista on Google, but one of the more impressive technical companies that we competed against was Ink to Me. They had a really good engineering team, and I could tell you why PageRank was better, but they had a solid team. But they had a B2B business model, they essentially licensed their search engine to Portals, and that left out the opportunity to create AdWords, which turned out to be the greatest business model of all time. So there's so many details that dictate whether you're the one. You turn into Google or AltaVista or Ink to Me. But going back to your question, what's interesting about the AI market is there are a few areas that are obviously going to be impacted by AI. Software engineering, customer service, content marketing, visual effects industry, there's probably others. Different TAM, the legal industry. And as a consequence, you know, it's not like I got this great idea, hey, have I told you, oh my gosh, AI for customer service. It's not, the concept is obvious. The question is, do you have the right product? Do you have the right go-to-market model? That's why I mentioned the Ink to Me, Google thing. Are you B2B? Are you B2C? What is the packaging? What is the form factor that will become dominant? As a consequence, it's an intensely competitive time, just like my recollection of the dot-com era is.

I think that's really interesting. You have very clear markets with very intense competition. That's different than other markets. I think when the mobile phone came out, some of those categories like ride-sharing wasn't like a self-evident market and then there was a couple of great insights and it created the Ubers and the Lifts of the world. I think right now, many of the biggest markets are already known. As a consequence, one of our company values is actually competitive intensity, which is unusual. It's the first line of that is we know we're not entitled to our success. I think it's a really important part of being successful in this era. Where it breaks down, I think it's shifted the landscape of what is a software company.

I love the example of Harvey, who's a company I really admire. I can't think of a great legal tech company. I'm sure there are a couple. I don't mean that in a backhanded way towards any of them. But it wasn't like if you went through the top 10 enterprise software companies in public markets, there's not one in legal tech. There's ERP systems and CRM systems and all these others. It's just not one of the key categories. In part because the TAM for selling productivity enhancement to lawyers is not that big. But now all of a sudden with Harvey, if you're actually doing the work and doing the antitrust review, all of a sudden the total addressable market looks huge because the addressable market of legal advice and legal labor is actually quite large. So that's really interesting to me because I think we've, the traditional perception of where there are addressable markets in software I think has been upended because agents aren't simply productivity enhancements for people but actually doing a job. And as a consequence I think how you evaluate the value of a piece of software starts to move away from traditional software productivity metrics. And think about a Sierra agent that actually makes a sale for you. The way you would value that is not really even related to AI or software. The way you would value it is basically one of the margins on that sale. What would be the commission you would pay a person to make that sale? And so as a consequence I think it really has dramatically shifted the traditional view of how to value software. Just as either a venture capitalist or an economist, it's really changed the markets. And I think I'm excited for that. I think it's going to be a really positive thing for our industry.