The 2 Lessons Silicon Valley Relearns Every Decade

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First and foremost, if you're watching on camera right now, Neil and I are crying. We'll go over that in a moment while we're crying. But this guy, Ben Thompson from Stratichery. Stratichery?

He was on the Patrick O'Shaughnessy podcast. So... The same thing that Silicon Valley learns every two years or every 10 years, rather, is one, consumers do not want to pay for software. And two, consumers do not care about being productive.

What does that mean? Look at Dropbox. Nobody wants, remember early days of Dropbox? What ends up happening was this. Dropbox had to go more B2B because they realized that only businesses were willing to pay for storage, right?

Because they were charging individuals like 20 bucks a month, but most people don't want to pay for that. So ChatGPT is learning that most people don't want to pay for these subscriptions. It's better, he was saying that they're better off just starting in advertising first, right? So he's saying, had they leaned into advertising immediately, as soon as ChatGPT was hit, they would have a great ad product right now.

And so charging people money is hard. Giving people things for free is easy, right? So you look at Meta, for example. Google as an example, right? Meta, Google.

Amazon's a big ad business, but they didn't start out like that. Who else is a good example of this? Amazon, oh, sorry, sorry. Meta, Google, who else?

All the social networks. X. TikTok? Yeah, TikTok, Snap. Yeah. So when you have the volume, you're better off just giving it away for free or charging ads and then charging businesses too.

So when Anthropic started, they started off just charging mostly businesses. They went businesses first, right? So I think it's really interesting that Ben calls this out because he's been a tech writer for a very, very long time. Like you and I have read his stuff for years and years.

And so, again, the two lessons are one, consumers do not want to pay for software and two, consumers do not care about being productive. So let's go back to consumers not wanting to pay for software.

If you want to talk specifically about the social networks, whether you consider it a service or a software, I get it. It's all similar concepts. Quite a few of them have tried charging for different things, including showing of no ads. But if you look, majority of the revenue still comes from ads and not subscriptions because the majority of the people don't want to pay for no ads.

We'd rather see ads than pay... money and not show ads because one actually costs us money the other you know you can ignore skip check out your phone at the same time and which is very common there's a lot of people there's been studies on this that have streaming services at the lower tiers so they're being shown ads but they pull out their phones at the same time as ads appear and my sister is a great example did you know her amazon prime account shows ads

Like, no joke, her Amazon Prime account shows ads and she has money. Although I did, this sounds bad, but I think I'm pretty sure I logged into her TV with my username because I was tired of seeing the ads when I was at her house. It doesn't sound bad because seriously, my Disney Plus, I was watching last week and I think I was part of a bundle and they started adding ads into it. And I got so angry that I like went through my phone and I immediately added to the next level.

So I will happily pay. But what's happening is Disney's, they're kind of squeezing other people. So if you're part of this legacy bundle, we're adding ads for it. And it almost doesn't even matter if you're paying, if you're lower tier now.

Yeah, so I do see that. And if you look at software as a service, the biggest software as a service companies I know are all B2B. Microsoft is a great example. B2B.

Salesforce is a good example. B2B. Atlassian is a good example. B2B. SAP is another great example. B2B. I don't know if you saw the announcement that happened a few days ago.

I don't know exactly when this podcast comes out. Salesforce announced a partnership with... Anthropic. Anthropic. Yeah, I saw that. That was yesterday.

What is it called? AJ Claude? Or Claude Force. Claude Force. There you go. And that's going up. I think Salesforce stock popped 23-ish percent. I could be off.

Do you know the details of the partnership? I didn't look into it. I saw the videos popping up on my YouTube. So there's a whole interview with Dario, Mark Benioff.

And I don't know who the other person is. They're interviewing or filming. I do know Benioff also gave an interview with Kramer. But to go specifics about software, he straight up said on the interview, there is no SaaSpocalypse.

Everyone said there's going to be seat compression. They're seeing more seats being added, more people paying and more companies paying for their software.

And he said something that was actually quite entertaining. He's like within a, and I'm paraphrasing here and I could be off on my mile radius. He's like within a mile or half a mile or five miles. He's like, you can have three or four, whatever the biggest AI companies.

And he's like, they've all added They all use Slack. They all use Salesforce. He's like, they've added more seats and they're paying more for the software than they did a year ago.

And he was just breaking down how businesses keep paying for it. I do agree with that. I think there's actually another nuance here if you're actually going to leverage this for marketing.

Smaller businesses also don't like paying for software. So if you can figure out how to give the low end of the market something for free and then use...

that virality because you're giving it away for free to capture more word of mouth, more digital PR. And that helps you get a smaller percentage of larger companies filling out their form and applying to work with you or use your software, buy it or whatever it may be or service. You can then create...

a really good flywheel that's affordable, collect a lot of leads, and sell them. By the way, speaking of the SaaS apocalypse, you look at the stock market. So everyone's like, okay, this NVIDIA is going up again. All the stocks are going up.

But here's the thing. without going too much into markets and finance, you look at the government, the treasury, they're doing buybacks, right? They're trying to bring the 30-year yield down, right? So interest rate, they're trying to bring it down.

The reason for that is because they're trying to, one of our mutual friends who listens to this podcast, George Gammon, I was watching one of his videos. And so he's saying, look,

Treasury is trying to bring interest rates down because they are trying to make sure that these hyperscalers, when they're issuing bonds, they're issuing loans on their side, that they can keep up. Because if the 30-year yield is too high, then if it's 8%, they have to charge 9% or 10%. And then they're not going to be able to pay back. those loans.

And so his argument is that the treasurer is trying to make sure that the hyperscales can continue to spend because that is what's propping up the market right now. And the argument is like, I saw one of our mutual friends, you know, one of his videos day on like, how many of you are actually productive with AI and it's making money for your company, right? And so like,

I just want us to react to this because, you know, you and I might have different opinions. We might have the same opinions. But, you know, do we think that this is a this is a bubble right now? Because, you know, Salesforce is saying they're seeing seat expansion.

They're seeing more usage overall. You see you see the SaaS company like Atlassian is crushing it. Right. And so do we think we're going to see more net growth?

And is this build out this AI build out worth it or is it a bubble? If you're building an e-commerce brand, you should check out DTC Pod, hosted by Ramon Berrios and Blaine Bolas on the HubSpot Podcast Network. They speak with founders, marketers, creators, agencies, and platform experts about what it actually takes to grow a direct-to-consumer business from paid ads and influencer marketing to conversion, email, brand building, and consumer trends. I particularly enjoyed their conversations around scaling a brand without losing what made customers care in the first place.

Listen to DTC Pod wherever you get your podcasts. All right. So I wanted to take a moment to tell you about my podcast co-host Neil's agency called NP Digital, and they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as Ubersuggest and Answer to Public.

All you have to do is go to npdigital.com to learn more, and we'll see you on the other side. I look at it from a different lens on whether it's a bubble or not. I look at it as you have a lot of crap companies in the AI space and you have a much smaller pool of amazing companies.

I don't see, thank you. I don't see these amazing companies going bankrupt or anything like that. Forget this concept of are people buying too many chips or do you actually need as much memory? Think about the world and how we're going to actually market within 10 years.

My personal belief, there's going to be robots everywhere. There's going to be AI integrated into cars, fridges, homes, toilets. I'm not trying to create disgusting images, but it's already starting with toilets. The Chinese toilet will go to you and you can, you know, get out of your bed.

No, not even that. They're building toilets right now that analyzes your feces and tells you how healthy you are and what you need to do to adjust. I think that is actually very valuable. And you get auto-delivered to you.

Yes, it can roam around in your house. But I don't think people need to deliver to them. It's more so you can go to your bathroom and then... No, no, no. I mean, you could have the supplements or whatever delivered to you.

Oh, I thought you meant the toilet would follow you around in the house. No, there is one that follows you around in China. I'm like, dude, that's disgusting. Yeah, yeah, that's disgusting.

Yeah. For all of that, whether they can run these models in a more efficient way from a CPU or GPU or memory perspective, I think it doesn't matter because the usage is going to not be double, triple, quadruple. I think it's going to be way more than even 10x what it is right now.

Secondly, I think this is going to open up a whole new opportunity for marketers. Let's use a toilet example. I don't want to get graphic here. I like that example.

But that's an easy one because you just mentioned supplements. If something's wrong for you, I would partner with that toilet company and have them try to promote my supplement company before someone else's and do a rev share deal. That's a great partnership. Or a fridge.

Imagine your fridge. Imagine the ingredients in your fridge and it telling you what you can make that's remaining from it. Or it can even tell you, hey, Neil, you're using Blue Diamond almond milk, silk milk. We can give you a promo, a free carton.

I saw the laughter. It's making my nose running. We can give you a free carton of silk milk. Try it out. It'll be delivered in the next five minutes and you or your kids will love it.

Similar tastes, but it's half the cost and it's organic. I'm making up this pitch here, but imagine being a food company and partnering with, I believe it'll be controlled more by like the Googles of the world because you already have the ad inventory and the advertisers, which people plug into them. Just like how X has a partnership with Google, right?

And this will allow marketers to push more products and services in the right moments in life when people are actually in that moment, right? In which they're using their toilet or in their car or opening up their fridge.

Those create very marketable moments that work out really well. And the closest example I have to this that people kind of see right now is end caps in grocery stores. So I don't know how often you go to a grocery store that's not Erwan. I only go to Erwan.

Yeah. So Air One is probably a bad example of this because they don't have the tech for advertising. You can do some grocery stores have a lot of crazy cool advertisements that when you're walking around, depending on the aisles you're in, they push you with stuff. You're like, oh, that actually looks interesting.

Let me try it out. It's like right there in your face. specifically when you're going down the right appropriate aisle. It's not like they're pushing me tomatoes when I'm in the cereal aisle, right?

They would push me a unique cereal being like, hey, check out this cereal. It tastes just as good, but it has lower fat, lower sugar, and it has protein, right? That's a great example of me trying to buy cereal and seeing it added right then and there of a product that I can just pick up and get. So here's what I think the future of marketing is going to look like from a, even the future in general, right?

So let's use health, for example. So I sleep on my eight sleep, right? It has all my health data. So then you imagine you have a toilet that's connecting, collecting data from your stools every day, okay?

And then you have all these other connectors, maybe your aura ring, and then it's connected to like function health. All these platforms are going to connect with each other, right? They're probably going to share data. By the way, you're going to have to pay for these partnerships too.

And then it's going to come up with custom supplements for you or custom whatever it is exactly. Here's the other thing. You're also going to have Neuralink. We haven't even thought about that, where you can just think your thoughts.

Whatever you're typing into your vibe coding right now, you're having all your different agents build. What if you just think it? And that just happens a lot faster, right? And then all of a sudden, you're going to have agents marking the agents, right?

And so there's going to be way more data sharing. Okay, that's opportunity for money, which wasn't there before, right? Agents marking the agents, that's another opportunity over here. And then the more compute you have, the more agents you're going to have.

And so it's not even, I think Neil's being conservative on purpose, but I think genuinely, you probably think it's 100x more. I'm probably a little more aggressive, maybe 1,000x more. And

We probably can't even fathom this because we've never seen this before. If you look at marketing 20 years ago, there wasn't social media, right? Was it 20 years ago? Was there social?

No, no real strong social media. YouTube wasn't even that strong yet, right? Podcasts weren't even that strong yet. Twitter was maybe just starting off, right?

20 years ago, you're not even riding Uber. I was riding sidecars. It was mine. MySpace back then, which didn't do well in the long run. And look how much has changed in 20 years.

You look at the next 20 years, the world is going to be unrecognizable. We're going to be dinosaurs by then. We're going to be 60 years old. Okay. We're going to be right.

And so I think the way George is looking at it, it makes sense. But I just don't think we know what's coming. And I think when you have all of these hyperscalers spending all of their free cash flow, like you have a lot of smart people that work there. They can't all be dumb at the same time.

You know what I mean? So, well, People hate on the Googles and the Amazons for spending so much on CapEx, on data centers. Yeah. But if you look at their earnings, they tell you how they have much more demand in the billions, in many cases, hundreds of billions that they have to meet.

I don't see these companies just foolishly spending money for demand that doesn't exist. They already have people that are throwing money at them. They can't collect the money fast enough because they can't meet the demand. Yep.

And let's just look at our companies for a second. Like, is demand slowing down? No, it's not slowing down. Am I looking at, am I working more? Yeah, but that's also by choice.

But yeah, I am working more naturally. It's also more fun too. So I'm looking at my own experience. I'm looking at my company. I'm looking at other people's companies too.

I'm looking at what's happening out there. I think, sure, there's definitely like a, maybe there's short term, there's going to be a correction. But I think long term, like it's just like the internet. Long term, the internet worked out, you know.

Yeah. And if you think about the bubble that happened in the dotcom boom, it was a lot of companies that were worth billions of dollars that are making little to no money. I think the big thing that's different here is you have a lot of companies that are actually making a substantial amount of money and they have high growth. The problem that you're facing is a lot of these companies have terrible unit economics or just economics in general, and they're losing a lot of cash.

But you're going to have the ones who survive or survive, the others will fail. And you're going to have a lot of dead corpses or dead AI companies. And the stronger will just get stronger, similar to the dot-com era when it first happened in the early 2000s. And I think you'll have a lot more getting stronger.

Yes. It'll balance out. So we hope you enjoyed that one. If you want more case studies like this, let us know and we'll see you tomorrow.