Uncapped #42 | Bret Taylor from Sierra

**Bret Taylor** (0:00)
Clearly, in three years, we could talk about what are the best practices to set up a software team that's optimized for this technology. We'll know what those best practices are. And right now, we're just figuring them out in real time. And my hypothesis is the companies that figure it out first will move the fastest. It's fascinating to me.

**Jack Altman** (0:20)
Bret, thanks a bunch for doing this with me. I'm super excited for it.

**Bret Taylor** (0:23)
Thanks for having me.

**Jack Altman** (0:24)
So you're one of the best people to ask this following question, which is, what is your view on the SaaS Apocalypse? If we can call it that?

**Bret Taylor** (0:31)
SaaS Mageddon.

**Jack Altman** (0:32)
SaaS Mageddon. So basically, it's like, you know, in public markets, all of these companies are trading way down. You know, you go on X and everybody's talking about how, like, you know, software can now be written in two seconds. And so there's no moats anymore in software. And so it's leading a lot of people to ask, like, where does durability come from? And so I just wanted to sort of start with this topic because, you know, you've built your own companies, you've been the co-CEO at Salesforce, you're now building, like, one of the, you know, fastest growing AI startups there is, you're on the board of OpenAI. How do you see software, like, in this moment, in February 26?

**Bret Taylor** (1:07)
So first, I think the market isn't necessarily reflecting an indictment of individual companies. I think it's more of a broad view of, like, the bigger questions you were saying, i.e. every software stock is down, but I don't think that means every software company is equally disadvantaged. It's just basically anxiety about the future. I think it's a few things. We can talk about, sort of, defensibility broadly. I think it's a really interesting question. I think if you look at the history of enterprise software, a lot of the value has gone to the big systems of record. So ERP systems, CRM systems, like the core databases that Oracle, you know, sort of famously powered in the early days of software, and then you end up with all the softwares and service companies, SAP, Forkday, SalesForce, ServiceNow. If you look at what a system of record is, it's essentially a database with a bunch of workflows around it. And to date, those workflows are manipulated by people clicking on buttons in a web browser or filling out forms.

**Jack Altman** (2:05)
If you had to like synthesize pre-AI, like why were those businesses so good? Was it the source of truth thing and that there had to be some immutable thing? And so the database row, is that what it was? Was it the ecosystem of the integrations? Like what do you attribute the success of systems of record to?

**Bret Taylor** (2:20)
So, I think the reason why a system of record has always been the most valuable is, it is the anchor tenant of your technology deployments. You know, if you wanted to create a workflow for a quote to cache or something like that, you had to integrate with your ERP system and your CRM system. So, as a consequence, you know, the companies that sort of owned those databases could either develop that functionality as an add-on, like a new SKU, or if it was a third party company, they would often be a part of the ecosystem, like Salesforce's App Exchange or whatever the Marketplace equivalent is for SAP. And so you ended up with a lot of value in those systems, which meant switching costs were just really high, because it was sort of this, that system plus all the partners that integrated with it sort of created gravity and high switching costs. And then similarly, you just end up accruing a lot of value, either by collecting rent from your ecosystem or developing premium add-ons on top. And so it sort of became the sun and the solar system, for each of the different lines of business that these systems were sold into. And then you'd end up where you'd get a scale. So you'd get sales capacity scale. So the larger you grow, the more sales people you have, you can reach more and more people. Then there's the proverb, no one gets fired for buying IBM, which obviously is somewhat dated expression. But it sort of was like, hey, if you're going to put in a new ERP systems, no one's going to blame you for choosing SAP, because everyone chose SAP.

**Jack Altman** (3:46)
If you choose something new and it doesn't work perfectly, big trouble.