Bret Taylor on AI and the Future of Software | Ep. 42

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, and we'll know what those best practices are. And right now, we're just figuring them out in real time, and, like, my hypothesis is the companies that figure it out first will move the fastest. It's fascinating to me.

Jack Altman 0:20 [upbeat music] Bret, thanks so much 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-pocalypse, if we can call it that?

Bret Taylor 0:31 SaaSmageddon.

Jack Altman 0:32 SaaSmageddon. So basically, it's like-

Bret Taylor 0:33 [chuckles]

Jack Altman 0:33 -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, a broad view of, like, the, 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. Um, 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, of software. All-- and then you end up with all the software as a service companies, SAP, Workday, Salesforce, ServiceNow.

Jack Altman 1:54 Yep.

Bret Taylor 1:55 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 the-- 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, 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, you know, create a workflow for a quote to cash 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, uh, an add-on, like a, a new SKU, or if it was a third-party company, they would often be a part of the, the ecosystem, like Salesforce's AppExchange 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, uh, y- that system plus all the partners that integrated with it, sort of created gravity and, 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, you know, for each of the different lines of business that these systems of record were sold into. And then you'd end up where you'd get a, a scale. So you'd get, um, sales capacity scale, you know, so the larger you grow, the more salespeople you have, you can reach more and more people. Then there's the proverb, "No one gets fired for buying IBM," which, uh-

Jack Altman 3:36 Yeah

Bret Taylor 3:36 ... you know, obviously a somewhat dated-

Jack Altman 3:38 Yeah

Bret Taylor 3:38 - you know, expression, but it sort of was like, "Hey, if you're gonna put in a new ERP systems, no one's gonna blame you for choosing SAP-

Jack Altman 3:44 Yep

Bret Taylor 3:45 - because everyone chose SAP, right?"

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

Bret Taylor 3:49 Then you're, you're this... Yeah.

Jack Altman 3:50 Yeah.

Bret Taylor 3:50 So all those things sort of accrue. But then the question is now that all of a sudden that a lot of those start getting chipped away with AI agents. You know, first, could you just vibe code it in a weekend? So does it change build versus buy? So that's one risk. Does it change when you come up on that renewal?

Jack Altman 4:05 Mm-hmm.

Bret Taylor 4:05 Are you gonna make a different decision? Secondly, I actually think the more fundamental thing is: What is the role of that system of record if AI agents are doing most of the work? So rather than people clicking around on an ERP system to onboard a vendor, if you just delegate to an AI agent to do it-

Jack Altman 4:20 Yeah

Bret Taylor 4:21 ... all of that is sort of invisible to you, and all of a sudden, it goes from being an application to sort of a database.

Jack Altman 4:26 Right.

Bret Taylor 4:26 Similarly, if you imagine a CRM system, and rather than having people staring at it all day to-

Jack Altman 4:31 Yeah

Bret Taylor 4:31 ... manage their leads, contacts, and opportunities-

Jack Altman 4:32 Yeah

Bret Taylor 4:32 ... if you just say, "Hey, generate me some leads-"

Jack Altman 4:34 In other words, like, does a, does a system of record have a place in the world if nobody logs into it?

Bret Taylor 4:40 And it does, but the real question is, like: How valuable is it? How important is it? You know, when you go back to my metaphor on the solar system here, how, how important is that gravity versus the gravity of the agents-

Jack Altman 4:51 Yep

Bret Taylor 4:51 ... you know, running around it? And it's just really interesting because if you imagine you're running a sales team, you know, how much do you value the database of leads versus the agent that generates the leads?

Jack Altman 5:00 Mm-hmm.

Bret Taylor 5:01 And along, in, like, ancient history, three years ago, those are the same thing.

Jack Altman 5:04 Yeah.

Bret Taylor 5:04 But now you're like, "Gosh, I actually probably care more about the lead, the lead generation," and how it's stored and tracked is actually maybe a more tactical part of it. So there's all sorts of... And that's true of every system of record. This isn't, you know, I just know CRM systems-

Jack Altman 5:17 Yeah

Bret Taylor 5:18 ... you know, pretty well, and if you look at ITSM, which is like the place ServiceNow plays, or, uh, ERP systems, which is Workday, SAP, Oracle, et cetera, the- all these questions start coming up. And so what's interesting, though, is I think every single one of those companies could transform and benefit from AI. I really do believe that. You know, you saw what Microsoft did in the cloud transformation, and they went from being dependent on Windows revenue-

Jack Altman 5:40 Mm-hmm

Bret Taylor 5:40 ... to going to Active Directory and Azure and all those other things. But it was really awkward. You know, I think folks like you and me, back in the day, used to probably dismiss Microsoft. I mean, I certainly did. I, I did not-- I didn't foresee them becoming as powerful as, and strong as they are today, but it was good leadership, good technology. But I don't think the market knows, like, who is Siebel Systems and who is Microsoft-

Jack Altman 6:00 Yeah

Bret Taylor 6:00 ... in this, like, landscape of software companies.... probably no one knows what Siebel Systems was. That was the company that Salesforce beat to become the cloud CRM.

Jack Altman 6:08 Right. Yeah.

Bret Taylor 6:08 So can you actually develop this ecosystem of agents around your platform? And, you know, will it become more valuable than the platform you had? And then on top of it, the existential risk of, you know, is the value of software just going to zero? I don't necessarily believe that, but you look at all of that, and if you're just an investor in public markets, you're like: "I'm gonna sit on the sidelines of this." [chuckles]

Jack Altman 6:27 Yeah, makes sense.

Bret Taylor 6:28 "I'm gonna let the market play out a little bit."

Jack Altman 6:29 Yeah.

Bret Taylor 6:30 And I think that's sort of what's going on-

Jack Altman 6:31 Totally

Bret Taylor 6:31 -in a lot of these.

Jack Altman 6:32 Yeah, I mean, you can never know for sure who's gonna turn into the next Microsoft, but you can kind of try to think about, like, who has the structural ability to expand, like, who's got the right with customers to make the expansions, and then which products will be easier. So like, you know, in the database question, is it easier for today's databases to build agents on top, or is it easier for a modern agent to go say: "Well, I'm gonna go out build a database at some point because I can-- I could do that, and I've got the customer relationship"? And how do you think about, like, what creates the rights to expand?

Bret Taylor 7:03 I think all the incumbents sort of have a right to win in a lot of ways. You know, in the same way we talked about, you know, why a system of record is powerful, I think you could say the same logic for all the agents running on top. The dynamic that plays out, though, not just with AI, is when a new technology comes out, like the web browser or-

Jack Altman 7:20 Mm-hmm

Bret Taylor 7:20 ... the smartphone, rarely is the expertise on how to do exceptional things with that technology at the incumbents. So first, if you, uh... There's this thing in enterprise software, there's a phrase called best of breed and best of platform. Best of platform means, "Hey, we're a Microsoft shop. We just buy Microsoft stuff." And it sounds silly, but actually there's a lot of logic to it. Like, A, you get sort of-

Jack Altman 7:41 Yeah

Bret Taylor 7:41 ... good procurement leverage. B, everything works together.

Jack Altman 7:45 You don't have to deal with a ton of people.

Bret Taylor 7:46 There's probably some benefits-

Jack Altman 7:48 Yeah

Bret Taylor 7:48 ... all sorts of things.

Jack Altman 7:49 Yeah.

Bret Taylor 7:49 What ends up happening when new technologies come out is you-- the pendulum swings from best of platform back to best of breed, because when the new plat-- let's say when the web browser came out-

Jack Altman 7:58 It's much easier to get a ten X experience.

Bret Taylor 8:00 A hundred percent. And also just think of the, like, pre- and post-web browser enterprise software. Like, you're running, like, client-server Windows software and, like, it's a completely different skill set to make a web application, as you and I know.

Jack Altman 8:12 Totally.

Bret Taylor 8:13 And so at the time, like, there's this window of time where best of breed competitors are, are light years ahead of the incumbents.

Jack Altman 8:18 That's right.

Bret Taylor 8:19 And it's a race. So basically, can the best of breed upstarts-

Jack Altman 8:23 Yep

Bret Taylor 8:24 -turn into get scale before the incumbents figure out the technology? And that's what was going on right now. So like, I would argue very few of the incumbents have any credible, like, decent AI technology, but they will. It's, like, inevitable they will.

Jack Altman 8:38 You know what I don't understand? Why is that? Like, what's the real reason for it? 'Cause like, I see these companies that have, let's call it infinite resources, roughly speaking. They ought to be able to hire who they want. They ought to know what the products could look like. They ought to be able to try them. They ought to be... Like, why is it so hard for like, let's say, legacy companies to, like, catch up quickly, you know, versus like an AI startup with fifty engineers seems to, you know, outperform, you know, the teams that are ten or whatever times bigger at a big company.

Bret Taylor 9:09 I, I-

Jack Altman 9:09 Is it cultural? Is it systems? Is it-

Bret Taylor 9:11 I like the phrase strategy tax. Uh, I ca- I don't remember who to, uh, attribute that to. We could pull up ChatGPT and ask. I think the idea is, like, in these moments of big platform shifts, what were your strengths can become weaknesses. So let's just take Siebel Systems and the birth of the web browser. They have a, a, you know, on-premises CRM, um, system. When you say: "Okay, like, let's compete with this cloud-native CRM system in, in Salesforce," you start to say: "Well, I don't want to just start from scratch. Like, we've got all these assets, so how do we do it in a way that takes advantage of all of our assets?" And so all of a sudden, you're like: "Okay, let's not just build a great product. Let's transition from this product to that product, and what if someone wants on-premises, too? And, you know, that's our strength. We should play to that strength." And you start, like, basically making all these decisions that, like, you know, sound really clever because you're playing to your, your strengths, and in practice of the technology wave is bigger than the category, which I think the web was, as an example. You end up sort of basically, um, chipping away at sort of doing a pure play value proposition. It can also happen with business models, though. So, you know, in that time, you'd have perpetual licensed software, and moving to software-as-a-service, that's a huge change for a business to make.

Jack Altman 10:26 Yeah.

Bret Taylor 10:27 Uh, for your customers, it goes from being, um, CapEx to OpEx. For you, as a company, it changes ratable revenue. I mean, Adobe, uh, Shantanu did this at Adobe. Very few companies can make that transition.

Jack Altman 10:39 Yeah.

Bret Taylor 10:40 And you have to sell it differently. You have to compensate salespeople differently.

Jack Altman 10:43 Totally.

Bret Taylor 10:44 Revenue recognition is different. So you have the product strategy tax, you have the business model strategy tax, you have... Even like incentives of salespeople, there's a strategy tax because, you know, you don't want to just have your business collapse overnight, so you can't just... Uh, it's so easy for a clever Silicon Valley to be like: "Just pivot!" I'm like, yeah, if you're a public company, you have to, you know, go in front of your investors every single quarter and be like-

Jack Altman 11:06 Yeah

Bret Taylor 11:06 ... "Hey, guys, I know our revenue just went off a cliff, but trust me, it's gonna turn around next quarter." Like, there's-- you don't survive that. So you just compound all those things, and all of a sudden, you're like: "Why does a fifty-person company succeed?" Well, they have none of those. All of the advantages that you had all of a sudden become anchors that are holding you back from actually doing the right thing. And that's why, you know, I, I always like to remind our company, Sierra, that, you know, the wave that we're riding of large language models and this next generation of AI is greater than any company riding it. And so, like, don't fight AI. [chuckles] It's gonna happen with or without us. And i- if you go back to the internet, if we were talking in nineteen ninety-five or something, and we'd probably be like: "Search is a category. E-commerce is a category. Oh, digital payments, that's definitely gonna happen." I don't know which... I-- Google hadn't been founded yet. I guess Amazon probably had around then. PayPal, probably not founded yet. The categories are obvious. The categories are, like, whether or not-

Jack Altman 12:06 Yeah

Bret Taylor 12:06 ... any of those founders existed-

Jack Altman 12:07 Yeah

Bret Taylor 12:07 ... all of the, the would-be winners.

Jack Altman 12:09 And it's the same now.

Bret Taylor 12:10 It is the same now. So, like, everyone knows what's gonna happen, and it's like you're competing for the privilege of winning. And so in a world where the technology is that-... remarkably powerful, the strengths of the incumbents start to wither in the face of the technical change, and that's why it's, uh, you tend to get new, new great companies. Like the companies that are enduring tend to be-

Jack Altman 12:32 Mm-hmm

Bret Taylor 12:32 -created in platform shifts more than

Bret Taylor 12:34 any other time.

Jack Altman 12:34 I'd actually be curious on this topic of sort of, you know, there's these obvious things, and within AI, I would say, you know, no- not to discredit your insight, but support I would count as an obvious thing, like in a good way.

Bret Taylor 12:46 Yeah.

Jack Altman 12:46 It looks like it works. And you did it, you know, early enough that you were able to get, you know, to a place, you know, at the right time, but other people did, too. And so in some ways, I'm like, you have been playing both in a very blue ocean, you know, wide fields, like, you know, the incumbents are sort of like categorically different. And so, like, it seems like inevitable that we're gonna have agents doing support, and so there's that. And then on the other side, you know, a lot of other companies see the same thing, a lot of other people have been building it. So before getting into the specifics, I'm just curious, like experientially, day-to-day, does, does your sort of operation of the company feel competitive or, like, wide open?

Bret Taylor 13:26 It feels competitive, and it feels like a really big market. Um, so it doesn't feel particularly demand-constrained, which is a really great feeling. As a fellow entrepreneur, it's like you don't get to-

Jack Altman 13:36 So you feel like there's lots of demand, and there's like a contest with each sort of situation?

Bret Taylor 13:42 Yeah, that's right. The way it feels, it feels like there's sort of too much capital available. Uh, put another way, there's obviously going to be competition in, in meaningful markets. It feels like there's sort of too many competitors that don't necessarily have strong differentiation. I think it's probably healthy, though. I think that, you know, uh, there will be a culling, you know, just a- as the market progresses. But it does feel, you know, quite competitive. I'll just sort of give you maybe, like, a quick glimpse of the past couple years. So we've had a remarkable growth rate at Sierra. We, we closed one hundred million in seven quarters, one hundred and fifty million in eight quarters, which has exceeded my expectations. But this past year has felt like an inflection point. So the first year of our company's history, we would often go in and be explaining to clients what an agent was. The term was, was novel, um, and it was part of our marketing-

Jack Altman 14:31 Mm-hmm

Bret Taylor 14:31 ... explaining what an agent was. Number two, people would be talking about, "Hey, AI is maybe non-deterministic." They wouldn't necessarily use that word, but that would be what they would be describing. You know, "How can we trust this technology directly engaging with our customers or consumers? What are the risks?" Now, the conversation is: "Clearly, we need this yesterday."

Jack Altman 14:52 Mm-hmm.

Bret Taylor 14:52 I mentioned this to you earlier, but over a quarter of our companies have ten billion or more in revenues. We're talking big companies. We serve most of the Fortune twenty, as an example. And so these are big companies that are coming in and saying: "We've evaluated it. We know what we want. Uh, we've heard of you. We've done all this evaluation. Here's an RFP. [chuckles] You know, like, let's go." And as a consequence, because the market has matured and, you know, uh, by the illustration of the existence of things like RFPs, you end up in more competitive conversations, and then it's a question of like: "Why Sierra?" You know, "Why Sierra?" And you know, I'm happy to talk more about that. I mean, I obviously love to, as I could tell you-

Jack Altman 15:27 Yeah

Bret Taylor 15:27 ... all the reasons we're the greatest, but you end up in this world where you're not explaining what the word agent means anymore.

Jack Altman 15:32 Yeah.

Bret Taylor 15:32 You're saying: "Here's why we're the right partner for you"-

Jack Altman 15:34 Yeah

Bret Taylor 15:34 ... which is a very different conversation.

Jack Altman 15:35 Well, what-- I mean, so like, you know, they're like: "Yeah, I'm bought in on an agent." It's like: "Why is it Sierra?" Like, what have you found is like the most important thing that makes you win?

Bret Taylor 15:43 So one thing we really did uniquely at Sierra, the reason why over a quarter of our customers have over ten billion in revenue, is we've tried to serve more complex, more regulated industries. You know, we want-- We serve most of the US healthcare insurance market, as an example. We serve US banks, Spanish banks, UK banks. Like, and these are companies that I, you know, as you-- if you know the industry, they're regulated by everybody. [chuckles]

Jack Altman 16:06 Yeah. Yeah.

Bret Taylor 16:07 It's easy to make a demo in AI. It's why, like, you can go on X and just see a thousand demos, and, like, demos are cheap.

Jack Altman 16:13 Mm-hmm.

Bret Taylor 16:13 But making an agent sort of industrial-grade is hard, and we've really uniquely been able to make agents that can actually have complex conversations. The other thing that we do really uniquely is, in addition to, I think, having a really easy-to-use product, is we help companies move faster. Um, uh, we went, uh, live with Cigna in, in two months-

Jack Altman 16:32 That's crazy

Bret Taylor 16:33 ... which is remarkable.

Jack Altman 16:34 For Cigna?

Bret Taylor 16:34 Yeah.

Jack Altman 16:35 I mean, how big is Cigna?

Bret Taylor 16:36 It's a Fortune twenty, um, healthcare company, and I was on stage with Sachin, who's, who runs their AI practice there at the health conference, and he was talking about this. And part of that is like, how can you show up at a... Like, we're really great at AI. Cigna's really great at healthcare. How do you bring those two together to move extremely fast? And so for a lot of our clients, like, the reason they bring us on is they, "Can you help us move quick, move quickly?" And that requires knowledge of AI and knowledge of business, and I think we sort of show up with a, a greater sense of maturity there.

Jack Altman 17:05 You mentioned like, um, you know, that the pricing scheme was one of the difficult things, you know, in the past era.

Bret Taylor 17:10 Yeah.

Jack Altman 17:11 You know, we don't have to, like, belabor it, but obviously, you know, going from, you know, just buying a license to a cloud subscription, and now usage-based is, like, the future. Like, what are you feeling is important in, you know, as you have created and probably continue to iterate on pricing, like, what are the important levers for agent companies?

Bret Taylor 17:31 We do something specific at Sierra that I'm sort of an evangelist for, which is outcomes-based pricing. So it turns out our industry, the outcome is usually well-defined. So in a service context, it's could the AI agent solve the problem? Uh, in a sales context, we do a lot of sales agents as well. Could it make the sale? You probably, uh, your company's paid your salespeople commissions, right?

Jack Altman 17:50 Yeah.

Bret Taylor 17:50 Like, that's when you can measure the outcome, you want to incentivize the outcome. The interesting thing about agents is they're autonomous, um, or can be autonomous. And so if the outcome is measurable and trackable, what an interesting opportunity to actually charge for that. And if you look at the history of software, like, let's take advertising. We went from impression-based ads-

Jack Altman 18:11 Mm

Bret Taylor 18:11 ... to cost-per-click ads, to now for mobile ads, you can do pay-per-install, as at least that's my understanding. And then you had, you know, enterprise software. You went from on-premises licenses to subscription-based software and, you know, could outcome-based software be the next? And what's so neat about that is, for a company-... What a interesting and accountable business model, and I think there's some challenges to it because, you know, you obviously put some revenue at risk, but I don't think most advertising tech people would say CPC ads put revenue at risk. It's like the opposite, right? Because the closer you get to the outcome, the more valuable it is for the companies. They're actually willing to, to invest in it. And so my view is, to the degree agents have a measurable outcome, outcome-based pricing feels like the secular business model for agents, and I think it's quite both disruptive and I think a huge step forward.

Jack Altman 19:03 Why is it better than token-based? So like, you know, if those are like, uh, you know, I guess sort of like the two reasonable options now, why is an outcome better than token-based, even over the long term?

Bret Taylor 19:16 Let's say you had an AI agent to generate leads for your sales team. What do you care about? You care about the number and quality of the leads, right? And so you really don't care how many tokens the model uses. In fact, it's not obvious to me that, like, there's a correlation between used tokens and leads generated. Uh, and in fact, in, in, in the same way, there's no correlation in a SaaS product between the cost to serve and the quality of the product. You know, you can have a really good engineer write it or a really bad engineer write it-

Jack Altman 19:50 Right.

Bret Taylor 19:50 -so it really comes to the quality of the product. The reason why I don't think token-based makes sense is it's charging for an input that is uncorrelated with the output that your clients actually care about. And I think this is actually, uh, you know, I'm a huge believer in applied AI, but I actually define applied AI as, can you describe your value proposition without, without mentioning models? Because if you think about, hey, we can answer the phone and solve eighty percent of phone calls without human intervention, with a CSAT score of four point eight out of five, that's-- you don't mention models. I mean, models are an input to that, but not output. If you have to mention token utilization, it's probably a tool. It's probably not an applied AI... It's not an application of AI, it's just sort of like a tool around AI. And I actually think that, uh, the closer you get to a business outcome, like it's actually, you should charge for the business outcome, which is uncorrelated with tokens. And I also think it's almost a measure of, are you actually an applied [chuckles] AI company?

Jack Altman 20:51 Yeah.

Bret Taylor 20:52 If you can, if you don't have to talk about tokens.

Jack Altman 20:54 Do you think that there will be markets either where things get so competitive that people have to price based off of like, cost rather than value? Like, could that happen? Or maybe the other format for it would be if you can't describe the outcome cleanly. Like for example, code- coding, which we both probably think is super important, obviously, it's like a little harder to say what the outcome is there versus like usage or something like that. So like, what are the conditions where like tokens do make sense?

Bret Taylor 21:22 Yeah. So I mean, there was this old Apple site where they had sort of like Apple folklore kind of thing, and I think there was this one boss at Apple that made people fill out a form saying, "How many lines of code did you write?" And this engineer infamously wrote a negative number because he had just like refactored a bunch of stuff. It's my-- it's like the good analog, historical analog for why tokens don't matter. Because it was, he was- it was his way of saying, you know, "Fuck the man," like-

Jack Altman 21:46 Mm-hmm.

Bret Taylor 21:46 - "Your lines of code has nothing to do with my value." And he was doing it to sort of like, you know, piss off a middle manager to make that point. But what's interesting is like in the world of software engineering, people truly understand, like the customers of those right now are software engineers who intimately understand these models. So there's a little bit of a, the customer, uh, uh, product market fit. So it's a, it's a nuanced point, but I'll say like, where I see it might happen. So right now, if you're evaluating a software engineering agent, a coding agent, um, you're probably comparing it to the cost of a software engineer. Um, if you fast-forward five years, you probably will be comparing it to the cost of other coding agents. So I think the second-order effect as AI becomes prevalent is you, uh, you know, you're, you're just-- you're, you're the reference point for its value will change. The thing I would say is that's true where you're thinking about a cost center, but if you're thinking about top-line revenue growth, that doesn't necessarily apply.

Jack Altman 22:44 Yeah.

Bret Taylor 22:44 And if you go to my example of an AI agent generating leads for your sales team, depending on what you're selling, a lead is a lead is a lead.

Jack Altman 22:50 Yeah.

Bret Taylor 22:50 Um, and you probably will value quantity and quality of leads, and there's a math equation.

Jack Altman 22:54 Mm-hmm.

Bret Taylor 22:55 And that probably will be remain independent of token costs-

Jack Altman 23:00 Yeah

Bret Taylor 23:00 -is my guess. And so I think a large part of AI is productivity and, and reducing, you know, costs, and there's a big part of it, but the other side of it is outcomes. And so could you imagine a world in four or five years where, you know, there's one coding agent that can actually produce something of greater value for your company? Will you value that, or you just look at the token cost? I think probably you'll start looking for value, is my guess. Will they all be the same? I don't know. You know, it's like the-

Jack Altman 23:28 Yeah.

Bret Taylor 23:28 Well, I was just reflecting on over the past year, there have been all these articles about has, like, AI progress slowed down? And then in our world of software engineering, it's been the opposite. Like, every new model comes out and you're like, "Oh my gosh, it can write increasingly complex software." My theory of that is, it depends on what you're testing. So if you're using ChatGPT for trip planning, you probably haven't seen a material change over the past year and a half because you reached sort of sufficient intelligence-

Jack Altman 23:56 Yeah

Bret Taylor 23:56 ... for trip planning-

Jack Altman 23:57 Yeah

Bret Taylor 23:57 -a long time ago. If you're using an AI to write Rust code, Codex is like mind-blowing right now. So I think the, one of the interesting things when I think about like second, third-order effects and like the progress of AI is, you know, where you, will you pass the horizon where like every model-

Jack Altman 24:15 Yeah

Bret Taylor 24:15 -is sufficient in that task? And then there'll be some things where like the frontier continues to move, and-

Jack Altman 24:19 Yeah

Bret Taylor 24:20 ... it's hard to imagine, but it's just like we're in a crazy

Bret Taylor 24:22 time.

Jack Altman 24:22 Where are we at with support agents right now? Like, is, are there still edge cases, last mile things, like that AI can't do still?

Bret Taylor 24:30 ... Yeah, we are, though I imagine a lot of the technical problems, uh, as opposed to product problems, will become easier, but there, there's a lot of them still. Um, so you know, we at Sierra support most spoken languages in the world, and, you know, if you want to support, um, Cantonese and Tagalog, most of the good voice models, you know, don't come from, like, the traditional Western model companies.

Jack Altman 24:57 Mm-hmm.

Bret Taylor 24:58 Um, similarly, uh, one of our clients is Safelite AutoGlass, so it's like roadside assistance, and it turns out that, like, car horns, background noise, kids talking in the background, you know, are actually all fairly hard, uh, problems to solve. And even in some of the advanced voice mode stuff, if you are in a noisy environment, it, it, uh, constantly thinks it's being interrupted and things like that, so you end up having to build-

Jack Altman 25:18 Mm

Bret Taylor 25:18 ... proprietary voice activity detection, multiple speaker detection, all these other things. We develop all this technology 'cause we need to be the best now, and I think we are the best now. And you're like, "Okay, that's probably gonna be a commodity two years from now, one year from now." I mean, who knows? But you have to do it 'cause you need to be the best at every stage of your company's existence. And I think then you're in a-- the way we think about the world is, we have a product, which is called Agent Studio or Agent OS, and we're to make the, the o- in three years, you'll judge us by our product, and right now we're probably... They don't, our clients don't really put it this way, but judge by the technology.

Jack Altman 25:52 Yeah.

Bret Taylor 25:52 But if you go back to nineteen ninety-six, I remember when Netscape had a web server and Apache was new and da, da, da. Like, no one cares how you serve web pages now, like, it's a commodity.

Jack Altman 26:01 Yeah, yeah.

Bret Taylor 26:01 But at the time, that was what you sold, and now you have increasingly higher order website building, like Shopify. So I just think the AI agent market's gonna take that progression. We're going from a tech-centric sales cycle to a product-centric sales cycle.

Jack Altman 26:14 It's interesting that you're obviously having to be the best at something that you know is gonna get commoditized.

Bret Taylor 26:20 Yeah.

Jack Altman 26:20 Which is probably not something... I don't know if you've ever had to experience something like that in your... I mean, for that to be true, you just have to be in the middle of an insane rate of change. But that means you have teams who are putting, like, you know, a lot of their life force for two years into something that everybody knows is just for two years, but it still matters nonetheless.

Bret Taylor 26:37 It's crazy. I mean, if you look at traditional, I'll just say enterprise software, consumer's a little different, but you think about you're building up this asset, your intellectual property. There's a fancy name for it.

Jack Altman 26:45 Nice word.

Bret Taylor 26:45 It's like, look at this platform that we're building, and, like, we took so many years to build it, and it's got all these features, and now you're like: I'm building this, and I'm a hundred percent certain we'll throw it away in the next fourteen months.

Jack Altman 26:56 It's a sandcastle, yeah.

Bret Taylor 26:57 But I have to build it, because if I don't, I can't serve the bank that has a big, you know, business in Hong Kong or whatever it might be, where they-- we need Cantonese support. So th- that is the reality right now, and so I actually think... I've been thinking a lot about this, actually, just because, uh, I think it was Toby Lucow sort of said something provocative around, you know, when generating the code is, is easy, it's almost like the, the system and the prompts that are actually the durable asset. Uh, you know, put another way, could you sort of terraform your software from scratch? You know, it's the prompts that led to it. I do think that is sort of the software of the future in a lot of ways, where how do you encode the infinite number of little product decisions that you made? Um, because so much of that is encoded in, in code today. Um, I mean, if you think about, like, a product requirements document versus the code, what percentage of the, uh, emergent product that comes out of it is in code? Almost, like, ninety percent. Like, a lot of the little detail-

Jack Altman 27:52 Yeah

Bret Taylor 27:52 ... are in there. I think a little bit it's like software companies of the future and the products that they make are just gonna take a really different shape, uh, in the future, and I, I'm so excited to be a part of it. I, I mean, I think it's really fascinating. I think there's something really interesting about AI impacting the software engineering industry almost first and most.

Jack Altman 28:12 Yeah.

Bret Taylor 28:13 Uh, because, like, we're disrupting the craft of making what we're building in real time, and it's fascinating.

Jack Altman 28:20 Yeah.

Bret Taylor 28:20 It's a fascinating time.

Jack Altman 28:21 I think there's a prevailing idea in tech that AI is moving so fast that, like, young founders have this massive advantage, and I mean this with no offense. You're not old, but you're also, you're not the youngest-

Bret Taylor 28:31 You're saying I'm old. I got it.

Jack Altman 28:32 No, no!

Bret Taylor 28:32 Yeah, yeah, yeah.

Jack Altman 28:33 But you're the youngest founder-

Bret Taylor 28:34 Yeah

Jack Altman 28:34 ... and you have one of the most successful AI startups there is. And it does seem like you've brought a lot of your previous experiences to what you're doing, but I can tell from talking to you that you also are just rethinking everything. And so I'm curious your own experience for yourself and for other founders you look around at, like, do you think, by and large, young founders have the advantage? What does it take for more experienced founders to have the advantage?

Bret Taylor 28:57 You know, I'm always a big believer... There was, I don't know if it's a real quote, but I- some VC said, you know, like, uh, "Why was this, you know, founder able to, you know, conquer this market where so many others had failed?" And they said, "Well, he was too naive to know it couldn't be done." And there's a certain element of that that I, I love because you end up with this kind of naiveté that is actually sort of a form of principled, first principles thinking that a lot of young founders have. You know, you just don't know why this messy, bad product, you know, dominates the market. You think there's a better, faster, cheaper way to do it, and because you, you don't have any of the hard-won lessons that can end up, uh, you know, oversimplified analogies g- keeping you from actually taking that leap, you can end up with, you know, Tony made DoorDash and didn't care about, you know, say, Webvan, Monzo, or whatever it was called.

Jack Altman 29:50 Yeah, yeah.

Bret Taylor 29:51 I can't remember all the, the, the dot-com, uh, bubble companies. But I do think, especially in enterprise software, uh, the experience that, that, uh, some of our team members bring, including the old man, me and Clay, bring to it, really does matter. You know, part of the reason we're able to serve, you know, so much of the Fortune one hundred is we can go into a bank or a healthcare payer, a healthcare provider, a revenue cycle management firm, or a big telecommunications company and understand their business. Under-- we're working with one large medical device company that's consolidating forty of their call centers into one, and we can have a discussion about, like, the change management of doing that. And that's not really a tech problem, but it does require, you know, understanding business, and I think there's like- we always joke at Sierra, it's like the, the Venn diagram, like, there's a circle of people understand, like, next generation of AI-

Jack Altman 30:45 Mm-hmm

Bret Taylor 30:45 ... and the people who understand business, and we're, like, the company right in the middle of that, and maybe the only one.

Jack Altman 30:50 Yeah.

Bret Taylor 30:50 And that matters because, I don't know, there was that sort of infamous MIT study saying all these AI projects fail. It's like, none of ours do, and that's our value proposition. Like, we can actually help you go live, and I think the experience has benefited us.

Jack Altman 31:03 Yeah. I'm curious, like, if you can point to what has created the lead you have so far, and obviously, I know you're just getting started, but at the moment, you do, you know, you've, you've, you've pulled away in a big way, and, um, I'm sure there's a lot of just, like, daily blocking and tackling, but I'm curious if there are any, like, foundational decisions that you've made or strategic approaches that, you know, over the last couple years, you look back at and you're like, "That was pretty essential to make this happen?"

Bret Taylor 31:28 ... I think there's two almost independent, um, areas of investment. Not, not-- They're not independent, but they're like, uh, very different. One is the product, and one is our sort of our go-to-market and partnership model, and they're both really intentionally built. On the product side, we've tried to balance ease of use and of extensibility because when you serve really large companies with very comp-- that have been around for two hundred years, you know, you need to work with mainframes, you need to work with a thousand different systems. You've done ten acquisitions. There's all the, like, enterprises are messy. And so that's why you tend to have, you know, most, uh, I'll say, enterprise software that's designed for larger companies tends to be quite extensible. Often, that extensibility comes at a cost, which is: Is it easy to get up and running? And so, as a product designer, like, one of the things I've just spent a lot of time thinking about is, like, we're trying to have our cake and eat it, too. Like, can you go live in two months and still be maximally extensible? And I'm really proud of the product we've built, and some of that is born from experience of what does extensibility mean. And I think we have an opinionated view of what it means and have been able to accommodate, like, some fairly exotic deployment requests and still do it fast. That's really unique. The second thing is our go-to-market and partnership model, becau- we knew when we started the company we wanted to work with the largest companies in the world. Not only, but we wanted to be able to work with the largest companies in the world and have focused on that, and as a consequence, we just have a really unique partnership model. Um, there's sort of a fashionable thing to talk about, forward-deployed engineering in Silicon Valley. We don't call it that, and it's a very unique model 'cause it's not all about technology. Like, most of our clients build and maintain their agents themselves. It's pretty easy to do, but we show up, and we help you be successful. And so it's like, we'll just show up. Like, we're not gonna let you fail. Like, and I think that is a very different... Because we have this outcomes model, outcomes-based pricing model, we don't get paid unless it works.

Jack Altman 33:23 Yeah.

Bret Taylor 33:23 And so-

Jack Altman 33:23 How much of that is technical versus, like, change management?

Bret Taylor 33:27 It's a mix of both. Uh, you know, I don't know if it's fifty-fifty, but-

Jack Altman 33:31 Do you do it as two people, or it's one person who does both?

Bret Taylor 33:33 We have a mix of roles. Uh, we've sort of evolved that. Uh, we try to hire really technical people in all roles, though, because part of our, our secret is we want, we wanna be, like, be your trusted partner in AI. So you want the person who is working with you every day to be the most knowledgeable AI person you know. [chuckles]

Jack Altman 33:50 It's like a, like a forward deployed change management engineer.

Bret Taylor 33:53 Yeah. Yeah, exactly. [chuckles]

Jack Altman 33:54 It's crazy what we're doing.

Bret Taylor 33:55 And so, and what's really neat about it is, if you're, like, a really talented technical person who wants to go transform an industry, you can do it at Sierra. I mean, you can go in, and, like, we're working with most of the healthcare insurance companies. Like, you wanna change-

Jack Altman 34:06 Yeah

Bret Taylor 34:07 ... healthcare costs? And, you know, like, what a cool vantage point to do it. So we've been able to attract some really remarkable

Bret Taylor 34:12 people, too.

Jack Altman 34:12 You said that it's not just support agents now.

Bret Taylor 34:15 Yeah.

Jack Altman 34:15 So, like, what else are you finding shoots in?

Bret Taylor 34:18 I'll give you one of my favorite relationships with Rocket. So based in Detroit, remarkable story. Uh, you know, their founder's done more for Detroit than I think any one person's done for any city, just like, remarkable company. But they own Redfin, which is a home search site, Rocket Mortgage, which, uh, is, like, the number one consumer mortgage originator in the country, and then they, uh, bought a mortgage servicing firm recently as well. And you can go to redfin.com and use an AI agent to search for a house. You can go to rocket.com and finance that house with an AI agent, and then you can, with the acquisition they did of this mortgage servicing firm, you can then, when you're servicing your mortgage, you'll talk on the phone with a, an AI agent as well. So, like, everything from finding a house-

Jack Altman 35:02 Yeah

Bret Taylor 35:02 ... to originating the mortgage to servicing that mortgage, I think is pretty cool.

Jack Altman 35:05 Yeah.

Bret Taylor 35:05 And, like, they have an amazing CTO named Shan Malhotra, like, pretty visionary, uh, and I love their CEO, Varun, too, but it's like everything from finding a house all the way through servicing. It's kind of what we believe a lot of businesses will do, is like, look at their entire customer lifecycle from, uh, you know, I'll say purchase consideration, which is a fancy way of saying, like, browsing. I think homes are probably one of the more considered purchases that you could do. They're executing the purchase, they're having issues with it, all the way through, you know, retention. And for a lot of-- for example, a lot of our telecommunications customers, their AI agent is actually doing negotiations.

Jack Altman 35:42 Mm.

Bret Taylor 35:42 So, like, you've probably negotiated your cable bill at some point.

Jack Altman 35:45 Probably.

Bret Taylor 35:45 You know, probably. And so our AI agents are doing billions of dollars of negotiations for everything from, you know, uh, ca-- satellite radio subscriptions to cable television subscriptions.

Jack Altman 35:57 Yeah.

Bret Taylor 35:57 It's pretty cool. I mean, it's, like, really, uh, you know, over a billion dollars in mortgage folders a month.

Jack Altman 36:02 Basically, just, like, all transactional communications eventually.

Bret Taylor 36:05 The way I think about it is, website is a technology, but your dot-com, the one with your brand at the top, is your website.

Jack Altman 36:12 Mm-hmm.

Bret Taylor 36:13 We're sort of doing that for agents. It's sort of like agents will do a lot of things. The one with your brand at the top that your customers go to, whether it's buying or servicing, we would like to help you make that. And I think it's, it's an interesting, a- as agents go, um, it's pro- often interacting with other agents, right? If you think about a, a home and auto insurance company, you know, you may have a, a claim adjudication agent, you know, that's quite complicated. So our agent that's having the phone conversation when you're in the fender bender-

Jack Altman 36:44 Yeah

Bret Taylor 36:44 ... will interact with that. But it is almost the intersection of all of the, that technology because it's sort of your, your front door. And our whole hypothesis is, every company needed a website in 1997-

Jack Altman 36:55 Yeah

Bret Taylor 36:55 ... every company needs a, an agent in 2027, and, like, we wanna be that, that company.

Jack Altman 37:00 What's the nuance about, like, agent builders, though? 'Cause I know you have, like, a view that, like, just being, like a generic agent builder is not the right thing.

Bret Taylor 37:07 Yeah, I mean, I've been surprised how many enterprise-- like, large incumbent enterprise software companies, like, their first foray into AI was you can... an agent-building tool.... It just feels inevitably to be a commodity in my mind, because, uh, you know, maybe making a website was hard in nineteen ninety-five, but today there's like a million ways to make a website, and most of them are open source. So you have like cool companies like Vercel, which I love, but it's not like there's a huge market for this stuff. Um, and, and in practice, I think the same will happen with agent building. Um, I think OpenAI will have a great tool, probably all the foundation model companies will. There will be open source packages like LangChain and LangGraph.

Jack Altman 37:49 Mm-hmm.

Bret Taylor 37:50 The idea that you, you have the right to win there, I don't know if anyone has the right to win there, just because it's just a technology. It's a horizontal technology, and I just believe in open source, and it's just gonna, um, become a commodity. So my belief if-- where there's value is really going to be in agents that do things, and you'll, uh, hire those agents and purchase those agents for what they do. So I believe in companies like Sierra, I believe in companies like Harvey. I really admire what they do, and, you know, they have an agent that will do an antitrust review. Uh, you know, I think there'll be a finance agent that audits your financials. There will be one that helps you onboard a, you know, supply chain vendor. There'll be one that, uh, you know-- If you just think about onboarding a new vendor, it's like there's a procurement process-

Jack Altman 38:36 Yeah.

Bret Taylor 38:36 ... there's a legal process, there's a contract review process. Whether or not it's completely autonomous or human-in-the-loop, all of that could be augmented with an AI, and I'm like, "That's a product."

Jack Altman 38:44 Yeah.

Bret Taylor 38:44 Agent building is not a product. Agent building is a technology.

Jack Altman 38:47 Yep. Speaking of the platforms, um, aside from being the founder of Sierra, you're also on the board of OpenAI. You're the chairman there. I wanted to ask you specifically about Codex. Like, over the last, you know, couple weeks, it's been unbelievable. It's like, you know, a curtain just came down. Did you expect this? Like, did you think that what has happened here was gonna happen, or like, when did you start to have an inkling that, like, code was gonna go vertical like this?

Bret Taylor 39:10 I'll say yes, I expected it just because, you know, being on the board of OpenAI, we talk a lot about it and all the labs, uh, uh, Anthropic and OpenAI in particular, talk a lot about using coding agents to help build AI. And, and certainly, like, building an AI researcher is an important part of building an AGI lab. The weird part about it for me, as someone who is a software engineer, um, I didn't feel it until I used it. So you-- like, you can talk about it all the time, and then, like, the first time you one-shot something and it turns out, like, really good, and not like slop, but, like, really good, it's an emotional experience, I think. I mean, for me, it was. It was just sort of like, "Holy shit!" Like, "This is real."

Jack Altman 39:56 Yeah.

Bret Taylor 39:57 As you said, it's really over the past three months that it has felt really materially different to me, and I've been thinking about it a lot. Um, I was thinking about the past twenty years of software engineering. Um, I remember the first time I w-- uh, worked on an engineering team that had real CICD, where you'd check in code, and it would just automatically end up into production. And I remember how-

Jack Altman 40:23 Mm.

Bret Taylor 40:24 I'll, I'll just like-- I- if you've ever worked in an engineering team that did that versus one that did manual releases, it's completely different. Because to have something that can safely go from commit to production, there's so many things that have to happen to make that work. You end up relying a lot on testing, so both unit testing, integration testing, and canary testing, because the last thing you want is someone clicking a button and taking down the service. And it's almost impossible for a team that is doing manual releases to convert into CI, like true continuous delivery, because there's so many implied processes that are incompatible with that. It's, like, easy to start that way and, and very hard to work. So I've been asking myself, clearly, in three years, we're gonna-- like, if we were talking, we could talk about what are the best practices to set up a software team that's optimized for this technology, and we'll know what those best practices are. And right now, we're just figuring them out in real time. And, like, my hypothesis is the companies that figure it out first will move the fastest.

Jack Altman 41:26 Yeah.

Bret Taylor 41:26 And, and the [chuckles] other part of that is the companies that don't will move much more slowly. It's fascinating to me. Uh, and Andrey Karpathy, he had a really interesting post about this, too. Like, I think a lot of folks who are sort of, like, in deep here have been thinking about it, and it's fun to see the industry you love sort of flipped on its head and- [chuckles]

Jack Altman 41:44 Yeah

Bret Taylor 41:45 ... in real time.

Jack Altman 41:46 Well, it's interesting because, like, I think people, like, you know, software engineers on one end, and then, like, say, somebody who's like, you know, in, you know, some part of the country where AI has not yet kind of like gotten its tentacles-

Bret Taylor 41:57 Yeah

Jack Altman 41:57 ... fully extended. Like, there's, like, a wide gap in people's current sort of comprehension of, like, what AI's gonna do. And so I think, you know, it's like, it's a little bit unknown. Like, you know, there's a lot of blog posts going on right now that are breathlessly saying, like, "It's all over." I think, you know, I'm probably more in the camp of, like, maybe software is like, I don't know, sol-- people, you know, use the word software as solved. I don't know if it's that, but I'm curious if you have a view on, like, if Codex and Club Code and sort of like the, the latest in coding, is that going to change the way companies are built? You know, like, one easy straw man question there would be like, you know, people have been claiming that there's gonna be my brother, you know, these ten, ten-person billion-dollar companies. You know, is that-- Are we at the precipice of that? Does that make sense? Are there other changes? Like, what's gonna happen now?

Bret Taylor 42:40 There probably will be a ten-person billion-dollar company, but I don't necessarily think it'll be the norm. Uh, and the reason for that is competition. If you imagine, like, the mobile phone market in the United States, there's three main competitors: Verizon, AT&T, T-Mobile, and they're all competing for a fixed pie of mobile subscribers, and it's why it's extremely competitive. There's promotions, there's ads.

Jack Altman 43:04 They can't make more of us.

Bret Taylor 43:05 They can't make more of us. They can build up their network, they can do other pricing, packaging, uh, and, and it's a really complex business to run.... all of them have access to AI, every single one. So the idea that you could deploy AI and, you know, not have to do things that you are doing currently because of AI is probably true. But if any one of them figures out a way to use a person to gain market share against the other one-

Jack Altman 43:31 Yeah.

Bret Taylor 43:31 -they're going to do it.

Jack Altman 43:32 Yeah.

Bret Taylor 43:32 And then as a response, their competitors will do it, too. And that's how, you know, we spoke about this earlier, but it's the reason why when automated teller machines were introduced to banks, the teller job went away. But there's no fewer bank branches and no fewer people in those bank branches, and it's because, I don't know if it was JPMC or someone figured out, "Hey, if we put financial advisors in there-

Jack Altman 43:53 Yeah.

Bret Taylor 43:53 -and other things-

Jack Altman 43:54 Right

Bret Taylor 43:54 -we can actually make more revenue per branch."

Jack Altman 43:56 Yeah.

Bret Taylor 43:56 My personal take is in a competitive market, and that's the key, by the way-

Jack Altman 44:00 Yeah

Bret Taylor 44:00 ... you need competition, so people can't just pass the cost savings on to shareholders or dividends. The second-order effect of the efficiencies of AI will be investment-

Jack Altman 44:09 Yes

Bret Taylor 44:09 ... to compete: lower prices or customer acquisition, or whatever it might be.

Jack Altman 44:13 So we want fewer engineers per company. We'll just- they'll be way more productive, and so you just end up with way better software.

Bret Taylor 44:18 Or you might have fewer engineers and more of something else, or you might have more engineers. You know, I don't- I'm not sure, uh, but it's, it's the idea that, like, it will be what it is today, but just more efficient, I think is like a lack of imagination, i- in my opinion. The interesting thing, though, is the other part of this, software engineering does feel special, and I think people extrapolating too much from software engineering are... It's a bit simplistic.

Jack Altman 44:41 You're like, the same thing might not happen to every other function?

Bret Taylor 44:44 I'll just be really simple about it, which is finance and software engineering, um, might be limited by intelligence. Uh, meaning they're largely digital, um, they are largely, like, manipulating sort of digital things to- and, and you could imagine AI automating that. Most of the economy isn't digital, like, exclusively. Uh, so you know, if you need to ship something, a T-shirt from Vietnam-

Jack Altman 45:10 Yeah

Bret Taylor 45:10 ... to here, yeah, you could automate some of that stuff. But at the end of the day, like that, that cargo ship still needs to be in the water. And I always bring this up, you know, like, just imagine you run a pharmaceutical company. You know, you can think about-

Jack Altman 45:23 Mm-hmm

Bret Taylor 45:23 ... you know, how to make a therapy. You probably need a wet lab. So okay, well, that's intersects the real world.

Jack Altman 45:29 Yeah.

Bret Taylor 45:29 Maybe you could do robotics, but then you need a clinical trial, and then, you know... So just a lot of the economy is, like, real.

Jack Altman 45:35 Yeah.

Bret Taylor 45:35 And so it definitely will change the way companies are built. But I think when people say everything will be ten people-

Jack Altman 45:41 Right.

Bret Taylor 45:41 Building models-

Jack Altman 45:41 It's like maybe, maybe just the stuff that lives in bits.

Bret Taylor 45:43 Yeah, that's right, which is a lot of the economy, but not the economy.

Jack Altman 45:46 Yeah, I mean, I was-

Bret Taylor 45:46 Yeah.

Jack Altman 45:47 You know, it's easy to, like, to talk about this, but you're right. Like, if you just like, move around the physical world and you get off of, you know, this podcast and, you know, this computer I'm sitting in front of and all this stuff, and you go out into the world and there's like, you know, trucks moving dirt around and people who need a building that has lights in it, and all- there's, like, a lot of physical things. And I, I kind of tend to think that the value of that stuff's all gonna go up until maybe robots happen. But in general, I think, you know, the value of bits goes down, the value of stuff goes up, potentially.

Bret Taylor 46:13 That's- I think you're probably right, and, uh, and some of you know, like robotics will have a big impact as well. But I think people are thinking about this a bit simplistically, is my, my take, and I think intelligence is clearly on the cusp of going up exponentially, but it doesn't mean adoption of... Like, that can't be absorbed-

Jack Altman 46:33 Yeah

Bret Taylor 46:33 ... by the economy perfectly exponentially. And so I just think people are being a little bit simplistic.

Jack Altman 46:38 Do you think there's any cognitive things that are immune from intelligence? Like, um, Dylan Field, when he was on this podcast, gave an example of, like, brat summer as something where he was just like: "That would've been such an insanely hard call for an AI to make, and you needed so much context and taste and opinion." You know, where my head was going is, okay, so coding is, you know, whatever's happening there is happening there. But what about, like, brand or storytelling? Like, and I'm kind of asking you this both as an operator and as, you know, somebody who's very, you know, deep with OpenAI. Like, do you think that these other parts of intelligence also, you know, go the way of AI?

Bret Taylor 47:17 I don't know if taste is necessarily related to intelligence. Uh, you know, it might be, but, um, I've got three kids, including a sixteen-year-old and a fifteen-year-old, and when they decide what they're gonna wear to school, I don't think they will, they will consider ChatGPT's opinion. They care more about what the person in class next to them is wearing. Similarly, uh, if you go to the most, like, elite, competitive college preparatory school or the worst school in the world, there's always gonna be the smart kid in class and the dumb kid in class, and the strong kid and the fast kid, and all these other things. And like, it's all relative, and it's all-

Jack Altman 48:00 Mm-hmm

Bret Taylor 48:00 ... very local, and it's all very human. And so I think the idea that because AI is smart, it takes something away from us as humans, I don't necessarily subscribe to. Uh, I don't, you know, uh, you-- I was-- you will see these things that go around online where people are sort of lamenting older technology-

Jack Altman 48:18 Mm

Bret Taylor 48:18 ... like the bicycle.

Jack Altman 48:19 Yeah.

Bret Taylor 48:19 And you know, we're, we've been weaker than machines for my entire life.

Jack Altman 48:23 Yeah.

Bret Taylor 48:24 And I don't, I don't think it, like, it doesn't make me feel, like, weak as a person. And I think we just, for the first time, we have computers that are going to be more intelligent than us. I think there will... You know, the emotions I had about Codex writing code that was high quality was an experience 'cause, you know, I, I might have some of my identity tied up in that task.

Jack Altman 48:45 Yeah.

Bret Taylor 48:45 And the next day, I woke up, and I'm using it as a tool, and-

Jack Altman 48:49 Yeah

Bret Taylor 48:49 ... now I can make better software. I'm like: "This is great!"

Jack Altman 48:51 Probably actually, like, a good, like, self-actualization anyway to go through that and be like, "Oh, I'm not my ability to code."

Bret Taylor 48:55 I think that's interesting. I think people's vocations and their identities are often very intertwined, but I think once you absorb the technology, I don't think it's actually your identity. [chuckles]

Jack Altman 49:06 Yeah.

Bret Taylor 49:07 And so I think I actually am quite optimistic that we will be human. We will all be status-seeking animals.

Jack Altman 49:12 Yeah.

Bret Taylor 49:12 We all compete for the real estate here in San Francisco. W- And even though our standard of living will go way up-

Jack Altman 49:18 Yeah

Bret Taylor 49:18 ... we will all be jealous of people still.

Jack Altman 49:21 Yeah.

Bret Taylor 49:21 We will all compete, and as a consequence, I think humanity will be just fine. Uh, that's my view on it, and I think it's just hard to imagine.

Jack Altman 49:28 Yeah.

Bret Taylor 49:28 But it doesn't mean it's, it's gonna be catastrophically bad. I just think it's actually, I think, will be largely good for humanity.

Jack Altman 49:35 I have a friend who believes that, like, as this kind of progress-- you know, we're already, everybody's already completely addicted to their phones, and it's a disaster and whatever. Now, you have all this AI happening. A friend of mine was saying that he basically thinks that it'll actually become a status signal to become increasingly offline.

Bret Taylor 49:48 Yeah.

Jack Altman 49:48 And I'm like, actually, that, that might be an interesting call. Like, I do think that, like, people will kind of hit a tipping point with a lot of this stuff where, like, um-... all of it will happen. Like, intelligence will get so good, and then people will sort of just be like, "Enough of all of this," and like, hopefully, there's a big screen time reduction. You know, and it's like, you saw, like, parents were revolting on social media, like about social media for their kids, and like, a bunch of schools and all the parents are like, "Nobody take a phone." Like, everybody agreed to it. So I think that'll be an interesting thing of like, does humanity like, does there, is there like an essential humanity that, like, gets sharpened?

Bret Taylor 50:19 I hope so. I actually-- one of the things, you know, I, I love the iPhone as one of the greatest inventions of, uh, this century. I hope we're not staring at a glowing rectangle-

Jack Altman 50:29 It can't be the right way to do it

Bret Taylor 50:29 ... in ten years. And, and, you know, now that AI can talk to you, and human computer interfaces, like, so this is my point: I actually think, uh, hopefully, humanity can become more self-actualized-

Jack Altman 50:40 Yeah

Bret Taylor 50:40 ... you know, as a consequence of this, and that is the, uh, purpose of technology. Um, so, you know, just like the Industrial Revolution had Luddites, and, uh, globalization led to job loss in the Rust Belt of the United States, but certain goods got less expensive in other parts. Like, these-- there's not gonna be no issues.

Jack Altman 50:59 Yeah.

Bret Taylor 50:59 I think it would be callous and, uh, insincere to imply otherwise, but I think it will largely just really accelerate humanity in a really positive way. And I think that for me, and I think for, like, if you're thinking about how does this impact me, is, like, have a more, um, flexible view of your own identity. Like, the what-- how you do it every day doesn't define you. I always liked the metaphor because it was so obvious before and after. Imagining being an accountant before Microsoft Excel and after Microsoft Excel.

Jack Altman 51:30 Yeah.

Bret Taylor 51:30 So much of the act of being an accountant was, like, adding up numbers and things, you know, and now it's like building a model. And it's not like what you did, like, the value you provided, didn't change, but actually the act of doing it is completely different. Like, the skill set is completely different. And so I think there's, like, a lot of us are just gonna go through that in a very compressed period of time, and it's okay. It's just a little-

Jack Altman 51:48 Yeah

Bret Taylor 51:48 ... anxiety-ridden.

Jack Altman 51:49 Yeah, makes sense. My last question about AI, there was a shot from Anthropic at OpenAI around the Super Bowl commercial about the ads, which was-- they were good ads. They were funny. Um, but then it, I think, sparked, like, a debate around sort of like, the whole topic of like, what is the role of these foundation labs, and, um, how should they sort of like, bring AI to the masses or not? What's the appropriate business model? What are the trade-offs of all of this? You've obviously, like, you know, you have experience with social networks and a lot of different pricing, you know, models. You know OpenAI well. You know, you know how to consume AI. So I'm just curious how you think about this, and like, what is the right thing when you consider, like, a lot of these dimensions?

Bret Taylor 52:31 I'm very optimistic about ads done in sort of a tasteful way. Um, you know, I started my career at Google. I think I arrived, like, the day AdWords came out, so... A- and it was just interesting because when I started there, you'll laugh at this, but like, everyone in my family, when they found out I was working there, was like: "How do they even make money?"

Jack Altman 52:49 Hmm.

Bret Taylor 52:50 I laughed just because I was-- I think I listened to the Acquired podcast. It's literally the most profitable business ever created. [chuckles]

Jack Altman 52:55 Yeah.

Bret Taylor 52:56 But as a consequence, you know, Google is widely available for free for people who want to use it and has created an economy around it for demand fulfillment advertising. I think there's reasonable criticisms of advertising, you know, if it starts to get in the way of the sanctity of what the AI is recommending to you, which was sort of the, um, you know, backhanded implication, but I just think it's not true.

Jack Altman 53:18 Totally.

Bret Taylor 53:18 And so I actually think if ads are clearly labeled and, you know, not-

Jack Altman 53:23 Yeah

Bret Taylor 53:23 ... tainted in the experience, I think it's really aligned with the, the OpenAI mission because our mission is to ensure artificial general intelligence benefits humanity. Obviously, the most important part of that mission is safety, but after you get back the Hippocratic oath, "First, do no harm-

Jack Altman 53:37 Yeah.

Bret Taylor 53:37 ... the job of a doctor is to cure you."

Jack Altman 53:38 Yeah.

Bret Taylor 53:38 So then after you say, "Okay, it's safe, how do we widely distribute it?" And I think we have an obligation, being a mission-driven-- You know, I'm, I'm the chair of the foundation and on the PBC board.

Jack Altman 53:50 Yeah.

Bret Taylor 53:50 Like, our mission matters, and being able to offer it for free widely is a huge part of that, and we need to be able to, to-

Jack Altman 53:57 Yeah

Bret Taylor 53:57 ... afford that.

Jack Altman 53:58 Yeah.

Bret Taylor 53:59 I think it's not only... I just, I find it inauthentic. Like, I'm like-

Jack Altman 54:03 Totally

Bret Taylor 54:03 ... this is an incredible opportunity to provide this at scale-

Jack Altman 54:06 Yeah

Bret Taylor 54:06 ... to society, and I think the idea that it, it will somehow taint the experience is, is wrong.

Jack Altman 54:10 It's funny. You know, like, I grew up in, like, a suburb of St. Louis, and, you know, so it's, like, a whole different world than, like, you know, what we're in now, and it's like when I think about, like, you know, people, you know, that I grew up with or, you know, from just other parts of the country, twenty bucks a month is a lot. And I think, you know, it's easy to forget in our ecosystem that, like, not everybody wants or can spend twenty dollars a month on stuff, but they really want these services. Like, you know, if the whole world had to pay for Google, like, that'd be a worse world.

Bret Taylor 54:37 Absolutely.

Jack Altman 54:37 Like, it's really good that everybody has access.

Bret Taylor 54:38 I just think it's important we do it well, and-

Jack Altman 54:40 Yeah. Yeah, no-

Bret Taylor 54:41 And we will, you know.

Jack Altman 54:41 People want good ads.

Bret Taylor 54:43 Yeah.

Jack Altman 54:43 Like, I like good ads. Like, I would actually-- if people bring me the right product, I'm like, "That's really nice."

Bret Taylor 54:47 This is the other part of it. It's like, you want businesses to be able to grow from scratch. There's such a purpose of it. It just needs to be done in the right way.

Jack Altman 54:54 Yep.

Bret Taylor 54:54 So I, I find the discussion-

Jack Altman 54:57 Yeah

Bret Taylor 54:57 ... not, not particularly authentic.

Jack Altman 54:58 I,

Jack Altman 54:59 yeah. Yeah. The last thing I wanted to ask you about was, um, how you've chosen to sort of, like, finance the company, and I guess I'm curious about three parts, which are how you got started and, you know, working with Peter Fenton, and then, like, what you've done since then to date and what's been important for you. And then I'm curious, just like, as you think about the future, like, what's important to you as you think about other partners or capitalizing and, you know-- Mm, I'm asking just 'cause this is a podcast that has a lot of VC in it, so I've gotta have a little flourish.

Bret Taylor 55:24 Yeah, totally. Um, we have, uh, three members of our board, which sort of represent kinda like our kind of, uh, three rounds of investment. So Peter Fenton from Benchmark, Ravi Gupta, who, uh, just, uh, left Sequoia.

Jack Altman 55:37 Yeah.

Bret Taylor 55:37 He's still a venture partner there.

Jack Altman 55:38 Yeah.

Bret Taylor 55:39 And Neil Mehta from Greenoaks. Um-

Jack Altman 55:41 All good.

Bret Taylor 55:41 Just a fantastic group of people and chose them all, both for the firm and the person. Um, but notably, like Peter, uh, I've worked with in both my previous companies, so, uh, you know, our first round of financing, I didn't talk to anyone else and, uh, introduced him to Clay, my co-founder, who hadn't spent time with him, and, uh, we ha- talked once. He sent me a term sheet. I signed it, no edits, and it was, like, a very much a, uh, trust relationship. And, um, it is interesting, like, one of the things I really have appreciated about... So there's some downsides to Silicon Valley and our, our, you know, how insular the community is. One of the great parts, though, is just, like, the relationships you can forge over years, and for me, it meant-... Peter and I could sort of start on third base just because we've worked together a lot before, and so you just don't end up with a lot of the- there's no, no funny business in the fundraising process, no funny business in the boardroom. It's just like, "Let's get to work," and, uh, it's fun. It was fun to, you know, sort of get the band back together there. But the fun part for me is I had never worked with Ravi or, nor Neil before-

Jack Altman 56:43 Yeah.

Bret Taylor 56:43 - and, and, like, Clay and I are just-- it's like, it's just a, it's just a great board.

Jack Altman 56:47 Yeah.

Bret Taylor 56:47 Um, like, it's just like people we seek out advice from, as opposed to people we report to, you know, every quarter. It's, so it's amazing.

Jack Altman 56:54 How do you think about-- 'cause you're both, like, known, like, you know, when, when OpenAI... We, we won't go back through the story, but, like, you know, when OpenAI had its, like, oh my god moment, like, Sam was like: "You, Bret, you gotta c-," like, you're, like, the board member, and then you've also got a board that you're-- so you're, you're in both roles at once. How do you, like, make the most out of a board? Like, you know, obviously, you've got these particular relationships, but, like, what do you expect that relationship to look like?

Bret Taylor 57:17 First, I really like written documents for boards over presentations, both as a board member and as, uh, like a, a f- founder of a company, because you end up letting people synthesize information ahead of the board meeting, so you end up with more substantive discussions in the boardroom. I've done this for the last, uh, two companies I've started, and it's just been great to send out a, you know, a board document. Sometimes people will comment ahead of the meeting, but I actually think the main thing is it, it's been read-

Jack Altman 57:47 Mm-hmm.

Bret Taylor 57:47 - and it's been read ahead of time. And then you end up with a meeting about the actual meat and potatoes of the topics. You're not, like, staring at a bunch of sales numbers for the first time.

Jack Altman 57:55 You're not running through slides.

Bret Taylor 57:56 You're not running through slides, and I find it to be incredibly im- I, I think most companies should be run, um, this way. The other thing that's really interesting is, like, don't write it with AI. Uh, it's so funny to have to say that now, but I find that-

Jack Altman 58:09 The process of the writing?

Bret Taylor 58:11 The process of the writing is a process of clarifying your thoughts.

Jack Altman 58:13 Mm.

Bret Taylor 58:13 And so for Clay and me, this is a process by which we synthesize-

Jack Altman 58:17 Yeah

Bret Taylor 58:17 ... what's been happening, and you know it, you talk about it, but to actually write it and write it eloquently and concisely is incredibly important because it's essentially a way of... You know, it's like, what's that famous line?

Jack Altman 58:28 Mm.

Bret Taylor 58:28 "If I had more time, I would've written a shorter letter." Like, spend the time, 'cause that's actually how you can show respect to your stakeholders, that you're thinking about the strategic issues going on in your business. And the last thing I'd say is, um, board members aren't sort of single-issue voters, but they- everyone has their strengths. And, you know, at, at OpenAI, we've recruited a pretty diverse set of skills. Zekea Coulter is a professor at CMU. He's a, uh, specializes in, among other things, jailbreaking, so just, like, one of the experts on some of the more subtle safety aspects. Uh, and Nicole Seligman was v- you know, a great attorney, and, you know, she's an expert in a lot of, like, legal issues. And what's really nice is when you grow out a board, you know, beyond sort of your initial investors, too, is find people that your management team will want to go to for advice. Obviously, the audit committee chair and your CFO have a really unique relationship, um, but you really want folks like, who's your head of sales gonna go talk to? Do you have someone who's, like, kinda been there or done that? Because you want them to have that kind of like... I always think of it as like, who are the advisors you want to surround your management team with? And I think a functional board really has those relationships, and then when you're in a board discussion, you have all these board members who have had lots of engagement with the company, but in a really valuable, kind of targeted way. So I like to think of the board as a collection of people.

Jack Altman 59:44 Yeah.

Bret Taylor 59:44 Don't look at the individuals. It's a, it's a- the whole should be greater than the sum of its parts.

Jack Altman 59:48 Anything this year you're particularly excited about that you can share?

Bret Taylor 59:51 I think the real exciting part is going to be adoption in regulated industries. Uh, I think we, we're moving beyond, like, the early adopters-

Jack Altman 1:00:02 Mm

Bret Taylor 1:00:02 ... to everyone.

Jack Altman 1:00:02 Mm.

Bret Taylor 1:00:02 And so I think if we have, if we talk a year from now, um-

Jack Altman 1:00:05 You're doing the hard stuff.

Bret Taylor 1:00:06 It's gonna be, like, the really hard stuff.

Jack Altman 1:00:07 That's awesome.

Bret Taylor 1:00:08 Um, and I have- if you want, like, a hot take, you know, I think my intuition is regulators will start asking for agents.

Jack Altman 1:00:15 Mm.

Bret Taylor 1:00:15 Um, the idea that you have a human set of controls over a regulated process will, uh, start to feel like a risk, rather than the risk being AI, and that's my... I don't know if it will happen this year, but I think that will happen.

Jack Altman 1:00:28 All right. Well, I'll call you in a year, and we'll do take two with this and see.

Bret Taylor 1:00:31 That sounds great.

Jack Altman 1:00:31 All right. Thanks a bunch for doing this, Bret. This was great.

Bret Taylor 1:00:33 Thanks for having me. [upbeat music]