# AI products can build switching costs through accumulated learning

Markdown copy of https://realalpha.app/s/ai-products-can-build-switching-costs-through-accumulated/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Aaron Levie](https://realalpha.app/people/aaron-levie/) · Aaron Levie is cofounder and CEO of Box.
- Host: [Logan Bartlett](https://realalpha.app/people/logan-bartlett/) · Managing director, Redpoint Ventures · Backs enterprise software companies like Ramp, Cribl, Cyera and Legora.
- Show: The Logan Bartlett Show
- Episode: [Box CEO on Enterprise AI Trends No One is Talking About Yet](https://realalpha.app/v/g9E7iCnYOoI/), Mar 28, 2025
- Moment: 18:21 to 26:44 of the episode (8 min), playing on https://realalpha.app/s/ai-products-can-build-switching-costs-through-accumulated/; the episode from there: https://realalpha.app/v/g9E7iCnYOoI/?t=1101

## Quote

> “So, you know, so the more black box or obfuscated or non-UI oriented it is, to me, **doesn't necessarily correlate** to its stickiness.”
> — [Aaron Levie](https://realalpha.app/people/aaron-levie/) at [26:02](https://realalpha.app/v/g9E7iCnYOoI/?t=1562) · The Logan Bartlett Show

## Takeaways

1. Competition still limits pricing, even in AI.
2. Customer data and workflows can compound a product’s advantage.
3. A learned system can be sticky without a workflow-heavy interface.

## About this segment

Aaron Levie says AI does not change the competitive value of references, data and workflows, and that accumulated learning can make a product sticky even without a rich UI. That gives software companies a path to defensibility beyond familiar screens.

From “Box CEO on Enterprise AI Trends No One is Talking About Yet”, Mar 28, 2025. [Watch the full episode](https://realalpha.app/v/g9E7iCnYOoI/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[18:34](https://realalpha.app/v/g9E7iCnYOoI/?t=1114) that any law of market dynamics, you know, changes because of AI. So, you know, but I would say that has probably been true in, you know, venture startup land kind of forever, which is, you know, the CRM, I bet there was a CRM market map from Gartner in 96, that was like 47 companies that did CRM and somehow only Siebel and like one or two others made it to the other end. And so, you know, did they temporarily cause a deflationary impact on the price of maybe what Siebel could have charged if they were left alone, for sure, to still create a great, you know, outcome for Siebel. And, you know, you know, there's a version of the world where it doesn't sell the Oracle and they, you know, pivot the company and now it's a, you know, $100 billion company. So I guess, I guess it's 100% true, but nothing about AI seems to follow a different law of how these

[19:29](https://realalpha.app/v/g9E7iCnYOoI/?t=1169) things play out, which is competition will suppress, you know, what you could like maximally charge. And it keeps kind of all the players in check. But eventually you get like some degree of network effects, some degree of like, you know, reference customers that tell each other, you know, that you can all use, you know, X thing and, and, and so on. And, you know, like just apropos the timing of this conversation, like my, my, my dad was asking like, what, how did Wiz get sold for, you know, the $30 billion and we're Wiz customer. And I think the technology is fantastic um how does that happen in a world where like obviously there's like 500 security startups like well how does one break out and it's there's a little flywheel where like your product's just 20 better then you get a few more reference customers and then and

[20:16](https://realalpha.app/v/g9E7iCnYOoI/?t=1216) then you learn faster and then your product is another 20 better faster and then you get slightly better you know people working on it and and it kind of spins out and then all of a sudden you have one with escape velocity, you know, outpacing the rest of the category, but yet probably there's still a second and third and fourth player that are pretty good and they'll probably also grow and then they'll get acquired. So I think AI, I mean, I don't, I don't see a different dynamic playing out in AI for any reason. And so, and so then the things you probably want to do to like maximize your moats are, you know, again, the same lessons probably from 35 years ago in enterprise software, which is, you know, get data, do workflows, you know, make sure you've got, make sure you've got a, you know, kind of enough happening within your ecosystem that keeps customers to have some kind of, there's like a, like a compounding value, more data that comes into the system, you know, the next run of the AI agent, you know, gets just a little bit smarter.

[21:11](https://realalpha.app/v/g9E7iCnYOoI/?t=1271) You know, there's going to be a lot of network effects on the embeddings of your data. So you could, as a single programmer, you could probably switch between Cursor, Windsurf, and, you know, Replit and a few others. But as a network of 500 engineers in a company, and I've done embeddings on the whole code base, and I'm talking to all the different, you know, systems it's wired up to, wow, change management on that, you know, becomes a lot harder.

[21:38](https://realalpha.app/v/g9E7iCnYOoI/?t=1298) So I think we're going to see a lot of very similar, maybe this will be bad news for everybody in AI, but it's going to look a lot like SaaS and the lessons are going to look a lot like SaaS. And so you want data, you want workflows, you want strong customer references and you want to build a network effect around your customers. And I think it's going to play out like that. And then maybe the one thing that we just have to be prepared for is there might be some pricing dynamics right now in play in AI that won't necessarily last forever, which is like right now you can kind of comp it to labor in some areas.

[22:13](https://realalpha.app/v/g9E7iCnYOoI/?t=1333) And that probably feels like a little bit of a temporary advantage that you might have when ultimately it'll probably be more comp to like typical software margin structures. And that'll just be a journey that, you know, the industry goes through as we kind of land to the terminal business model. Yeah, I guess we don't need to belabor this point. The two things that I do wonder about with AI specifically is, are the solutions that are maybe less workflow UI centric in some ways, there's like the, the SaaS world. Traditionally, we had all these screens and logins and, you know, the workflow that existed on top. And so maybe security in that way is actually the right analogy because there's definitely dashboards and integration points and all that with security, but ultimately the work is getting done oftentimes outside of those screens, right?

[23:04](https://realalpha.app/v/g9E7iCnYOoI/?t=1384) It's pulling in all the data in some ways. And so, yeah, it's just something we've been noodling internally. And what do you conclude because of that? I think the things that are just tapping into the work automation, be it customer support or SDR or whatever it is, ultimately, because there's less workflow embedded into it, the change from one to the next, I think there's less friction associated with that change.

[23:35](https://realalpha.app/v/g9E7iCnYOoI/?t=1415) And so you can swap it out. You see, it's almost like a meme on the internet of people going from, you know, cursor to Codium or whatever it is. And that's not the right analogy because that actually has some workflow around it. But it does feel like people are a little more willing to switch than at least I had historically experienced. Where, I mean, in truth, what's the difference between Asana and Monday and Trello or whatever?

[23:54](https://realalpha.app/v/g9E7iCnYOoI/?t=1434) Well, the difference is like, you got to switch your entire team onto something different in a meaningful way versus when the work is actually being done outside of the UI. It might just be one-click change, which just leads to a little bit, I don't know, more ability to price shop, more ability to do other stuff. But I guess that it ties back to the integration, similar to security. Yeah, yeah. So that's the thing.

[24:17](https://realalpha.app/v/g9E7iCnYOoI/?t=1457) So the question is, so it used to be the network, the stickiness was I had 100 people that all learned how to use it. to use the buttons and, and then there was data behind the buttons. And so, man, that's a lot of, that's a lot of change. But the question would be like, is there going to be an analogy where, you know, it's inverted where you still, the AI, you know, it's, it's APIs, it's APIs into your other systems.

[24:43](https://realalpha.app/v/g9E7iCnYOoI/?t=1483) It's the APIs into your e-commerce thing. It's then the logic around when to make the decision about the e-commerce thing. So I think. And it's self-reinforcing and learning, right? And so like, at some extent you get all the data, get all the integrations. But then there's ultimately some algorithm or whatever, some AI thing on top that's learned on top of itself. So sure, you could switch, but then it's a cold start to start over.

[25:02](https://realalpha.app/v/g9E7iCnYOoI/?t=1502) Because I could underwrite the exact opposite of this point, which is that when you have a learning system, that learning system will probably perform better than your people did. and so previously you could change out you could swap out software and and there wasn't like so much ip in the heads of the people about how that software worked because we're we're just like okay click the next button and whatever but like but like the ai is going to track every event it's done in history and and you know and and just get a little bit better and and the signal will just get a little bit better and it'll it'll you know have a little bit more fine-tuning or it'll have a little bit better instructions to the model. And then that becomes some opaque data source to you, the customer that is inside this AI product that just makes the thing always perform

[25:56](https://realalpha.app/v/g9E7iCnYOoI/?t=1556) five or 10% better in a way where you can't just go to people and say, here's the new sheet of paper for how to use this new product we just implemented. You almost have now created your own, you know, for all intents and purposes, model for doing customer support or coding in your product. So, you know, so the more black box or obfuscated or non-UI oriented it is, to me, doesn't necessarily correlate to its stickiness. And in fact, maybe it could be the opposite. I heard you say that cloud was pure efficiency. And maybe there goes back to