Vertical AI agents face a hard path to software margins

Transcript

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

1. 24:31

   and like CJ will be okay with me sharing this is like the we were talking about like vertical specific AI solutions and like what does the future look like for these solutions and we were generally expression expressing an overall bearishness with vertical specific AI solutions in different functions or industries and part of it is just from our vantage point of spending all day in like the guts of enterprises, there is so much nuance and so much inertia. And so like so many systems you have to wrangle and people you have to wrangle. And also when a buyer out of a vertical solution is expecting truly a one of one experience, like we're in this, we are in an age where people are expecting one of one software solutions. And so if you're expecting that. It's no wonder that every software company is basically building up a team of FDEs

2. 25:29

   because there's just this convergence happening of services and software when every company wants all this nuance that was not traditionally expected from software. And so I think it's really interesting to think about, yeah, like four vertical specific solutions. Either one, how will they be able to do this at software margins if everyone expects a one-of-one solution? And also, why should we not expect frontier models to just gobble them up?

3. 25:59

   Yeah. So to give some concrete examples, you're talking like Harvey for lawyers. Yep. Open evidence for doctors. These are the classic examples of people that are winning their domains. And you're bearish on them? I would say generally bearish on them, correct. Wow. Well, so far you've been wrong. and you know i think that the the answer very simply is like access to data that chat gp is not going to have which is like very common that's a that is a moat obviously anthropic and open ai are also acquiring those same data sources but they're just not as dedicated uh you know as as uh you know these guys are going to be um they do have innovations uh if you look if you've like tried it harvey um they have like the tabular review that lagora also have them we've had the cto on the podcast um where they

4. 26:43

   They have affordances and UIs and all that that is just customized because they only serve them. The pitch is focus, basically. Focus, affordances, maybe. What do you mean by affordances? In the way that you care about the last mile for your customers, they care about their last mile in terms of the software. And as long as people train in that software, it never goes away. As a banker or in my finance career, I could always access the same exact information from the NASDAQ, from the New York Stock Exchange.

5. 27:12

   but why do I pay $50,000 a year for Bloomberg? Well, it's just like that's what everyone, all my peers do, and it's all consolidated for me, and it's all specialized for me so I don't make mistakes or whatever. It's tied into my trading system or my chat or whatever, my news system. No, I think people play for Bloomberg as the social network. I think people love the DMs in Bloomberg. There's that.

6. 27:34

   There's that. But as a trader, I know I actually use that for trading. Yeah, yeah, yeah. So, I mean, I think there's a bunch of integrations and tools, And I think ultimately it's hard to be bearish on any of them, mostly because the demand for software, the demand for tooling to do your job is just huge. And some of it, yes, is going to be fulfilled by horizontal, generalized tools like the Claws and ChatGPTs.

7. 27:55

   And some of it, you're just going to want something better. And I always think about maybe the success of Superhuman as an email client. Everyone has Gmail, but here's just premium Gmail with more stuff for people who live in email all day long. And that's a market. It maybe wasn't the largest startup in the world, but I think reasonable people can disagree how large each thing is. Yeah, totally. I think what's not to be disagreeing with is the total market's going to grow and all rising tide is going to lift all boats.

8. 28:26

   And then you're just talking percentage pressure market at that point. Yeah, I agree with that. Totally agree. I think there's even, there's like a differentiation between some new app built from the ground up with AI involved. That's what comes to mind when I think about Superhuman. I love Superhuman. I don't even spend a ton of time in email, but anything that has... No, you pay $30 a month just to not worry about it.

9. 28:46

   Anything that has cool hotkeys, I'm into. Yeah. But when I think about, I guess, products where they are really pushing some agent as the product that is doing work in some specific vertical, unless there is some very strategic compliance data, whatever it might be, moat, I think those are going to struggle going forward. As we start to see, like, quite literally the ability to either spin up your own really quickly, continue to compound as the models get better, or just, you know, those tasks start to fall into the world of the models just generally.

10. 29:23

    But anything that has this, like, app and tool built around it, kind of to my previous point, changes the process and has an agent on top of it. And I think, like, that kind of builds on the same philosophy, and I think that can still be super helpful, and those will be successful. Yeah. Oh, OK. So there is a related view about this that maybe isn't quite as spicy as yours, which is basically, it's not like nobody wants to use.

11. 29:49

    People probably don't want to use the agent that you built. They want to use the agent that they already have. And they want to plug in your data into their agent. So everyone is sitting on some part of your data. And they're like, use my agent, please. Please pay me that $20 a month. But you can't just stack up all these $20 a month subscriptions. Ultimately, probably a small set of companies are going to own the interface, and then everyone just plugs into that overall agent, which I agree with.

12. 30:14

    Then it's interesting that Salesforce, being one of the system of record companies, the biggest probably, or the most well-known, is embracing that path as, like, you will not use our agents. We will just provide APIs and MCPs for you to plug into your stuff. Yeah, which is kind of cool.