Simpro Group CEO on CRM, ADBE & the Battle to Monetize AI

SPEAKER_1 (0:00)

Let's bring Miley back in, turn our attention to the software industry with Fred Voccola, who's the chairman and CEO of Simpro Group. Fred, thanks so much for your time, good afternoon. Obviously, we've kicked off earnings officially now. As for the tech reporting season, how high is the bar as far as showing monetization this time around, do you think?

Fred Voccola (0:19)

Yeah, well, thanks for having me. I think the bar's getting higher. I think the investment community and the software community, I think all of us are becoming a little smarter about what AI actually means for the software industry.

What we're finding is the entrenched software players, those folks that have systems of record for their customers, they're providing the software that runs their customers business. They're in a really nice position to start offering advanced AI applications usually in the form of digital workers, that they can monetize and charge to their customers and bring value of AI to their customers. We're starting to see that happening now at scale among some of the larger software providers around the world that are that system of record for their customers.

SPEAKER_3 (1:07)

And Fred, are you viewing this quarter as a sort of inflection point where we need to see that AI driven revenue growth justifying a lot of these very high valuations, especially as you mentioned, that investors are starting to smarten up here, we're paying more attention, and also we're starting to perhaps see the divide between those who are really scaling and showing how they're scaling versus those who are a bit more still in the hype cycle.

Fred Voccola (1:36)

Yeah, I think, I'm not sure if it's this quarter or next quarter or the quarter after, but it's definitely happening now.

If now can be taken inside of a 12 month window, I think that what's challenging is to really understand how each company is monetizing their AI initiatives for their customers. Some companies, Simpro is an example of one, where we have very specific skews that are AI products that we sell to our customers. Other companies are embedding new AI functionality into their current products they're offering, and just raising their prices 12, 15, 18, 20 percent, and monetizing the growth that way. So one of the challenges for investors is to understand how the monetization of delivering AI to their customers, the software companies are actually doing. But I do agree, the time is now. It's no longer a promise. Those that are going to deliver AI to their customers and be able to monetize it, it's happening in the next quarter to several quarters.

SPEAKER_1 (2:47)

We have certainly seen a meaningful recovery across software stocks. I mean, investors seem to be wrapping their arms around this sector a lot more than we'd seen during that whole SaaSpocalypse episode. And we've obviously seen valuations recover. We've seen also investors very much trying to sift through these companies and pick the winners and the losers. I mean, just yesterday, you had a double upgrade for CRM and a double downgrade for Adobe. So do you believe the AI disruption fears are still lingering as an overhang over this sector?

Fred Voccola (3:19)

Yeah, I personally believe the AI fears are very justified and very real. It's just it's not going to impact every software company the same way.

Two software companies are very similar to saying the manufacturing sector. If you look at a manufacturer of shoes, say Nike versus a manufacturer of earth moving equipment, say Caterpillar, those two companies are completely different with completely different drivers. The same can be said for software. So take a company like Adobe. Adobe is not necessarily the system of record for their customers, whereas Salesforce is.

So Salesforce is much better positioned to leverage the knowledge of their customers, which exists in the form of data, to deliver AI powered applications. Adobe, a great company, is not in that same type of position. So Adobe is being forced to create net new products to leverage AI, where their advantages in delivering those aren't as great as a company like Salesforce or ServiceNow that happens to be the system of record for their customer.

SPEAKER_3 (4:27)

So Fred, if system of record and proprietary data and existing customer relationships are all a part of the secret sauce and the recipe here that's going to make a successful software company, how difficult then is it for any new AI native company to replicate those advantages and compete?

Fred Voccola (4:47)

I think it's very difficult, very difficult. I see it in our business today.

It's very easy, especially with AI right now. It's very easy to build a software application and to build a native AI application takes weeks. It's not challenging. But what makes AI good is AI creates digital workers, and those digital workers need to be trained, just like a human worker needs to be trained on how to do their job. Digital workers get trained by data and knowledge, and that data and knowledge comes from the systems of record that run the businesses, that control the workflows that these AI native companies are trying to build. And what's happening is companies like Simpro, or Salesforce, or ServiceNow, and others, we are not allowing other people access to our data, because we want to be the people who provide these digital workers to our customers, and not allow third-party companies to ride on the coattails of the system of record data that we contain.