Hello, and welcome to a free preview of sharp tech Hello, and welcome back to another episode of sharp tech. I'm Andrew sharp and on the other line Ben Thompson, Ben how you doing? Irritated Andrew. Oh boy. Why? Well, you know, I was struggling a little last week with the start throat Got pretty sick over the weekend had to take a sick day, which I never do. Mm-hmm. Uh, no, there's so much happening this week I know I feel I feel like there's so much stuff. I did cover it actually. It's really irritates me I'm like I could have really used an extra day of Publishing this week and then but I was feeling better yesterday doing well and then today I was coughing again Just really. Here's the thing. You don't sound as bad as you did at the end of last week last week You really did sound like tone, loke on all your podcasts, and now you just sound a little bit under the weather So I feel like we're making progress despite the setback here This is like when you get like a warm stretch in like February and then you get like blow zero It's it's the return even if you don't realize it. Yes, demoralizing. That's the word. I demoralized. That's the word Okay, well, that's what it could be worse. Okay I'm not as demoralized as Sash shareholder. So indeed That's where we're gonna be for most of the show today We're going all male on this episode a lot of different beats to hit and we're starting with two questions on a company that lost 350 billion dollars in market value last week. You wrote about them on Monday and Rav says Andrew's been took a sick day. Excuse me. Tuesday. You wrote about them on Tuesday Rav says Andrew and Ben Microsoft got destroyed because the company sucks at AI Azure is an AI winner, but the rest of the business is a loser They have had access to all of open AI's IP for three years and yet their own products are Atrocious chat GPT beats co-pilot in enterprise settings GitHub co-pilot was usurped by cursor wind surf and now clawed code GitHub co-pilot is stuck in 2024 drag in co-pilot already lost to game of thrones now Look at this guy. Yeah, here we go now and Thropic is coming for the office suite by hijacking it This encapsulates the issue facing the entire software complex today the leading labs control the neurons allowing them to dictate the entire AI future products suite through mid-training and post-training RL more over their AI products will always be superior to the ones produced by software companies leveraging their APIs Thus every software company faces the threat of anthropic or open AI hijacking its distribution as they convert the promise of AI into material value Furthermore, the labs have a structural pricing advantage because LLM API calls are the most expensive part of any AI Application you cannot beat a competitor with a 70% lower marginal cost Microsoft's failure to deliver a single good AI product is the red herring for all software companies Even if you were handed the underlying LLM you still wouldn't create a competitive product if Microsoft can't execute No one else will now Ben. I read that. I have two notes I think the final line Microsoft is the red herring for all software companies I think the phrase he wanted there is canary in the coal mine not red herring so different animal idiom But we're good on the idioms. That's a good other pronunciation Don't test us on idioms beyond that one No, I found myself nodding my head at basically every other point that was made there So what do you think? What do you think of where Microsoft sits amidst all this? Well, I mean where to start do we start with Microsoft? We start with the broader sort of ecosystem? I think the There's one interesting line in here He talked about about how the AI companies are always going to be superior and Superior on what vector this is maybe sort of the single biggest question, which sort of gets at what? Why do all these SaaS companies exist? What job do they do in in sort of the jobs to be done since and if the job to be done is to deliver a compelling AI experience That's right. They are not going to be as good sort of definitionally than the labs themselves but if anyone has used enterprise software the sort of user experience and quality is not necessarily the selling point Like like and this has been this has been an eternal sort of Issue in the enterprise broadly where everyone is confused at why do all these applications suck like how do these companies persist like what what's the bit here? And the answer is often they are solving problems that you don't see that no one sees that That it's that lack of visibility into the problem that should give you a hint as to why they exist So maybe there's a particular issue and there's 47 layers of regulation and compliance or whatever might be let's take the most extreme example health care In health care you have all these all you have things like like the hippo laws You have all these sort of like regulations or or just let's get into like you're prescribing drugs Which have all these interactions with other drugs and all these sorts of things XYZ and not only hanging over that are massive liability concerns Where you need to know for sure who is at fault if something goes wrong and you have to have all these sort of backstops and The it is a extremely messy difficult business that you can't afford Number one, it's very hard to solve so solving that problem actually takes a lot of work and it you end up with Because you're having to handle all these variables and all these edge cases It's like definitionally impossible to have a good user interface to manage this you end up with like an epic installation and Doctors having legitimate complaints about filling in 50 gazillion boxes in forms But every one of those boxes in forms is downstream of someone not being liable or they're being some sort of rule or some sort of regulation or Some sort of legitimate concern about some interaction affected all these rules about what could go together and what can't That sort of has to has to be managed. Yeah, and this is a problem in society broadly people are frustrated at how Difficult so many things are and why do we have all these like layers of stuff when it's like why can't the doctor just Say what's wrong with me and prescribe something and be done with it. It's like well. Yes, ideally That's what would happen in 98% of cases the problem is those 2% where stuff can go wrong and something's dot-cott Number one someone could die and number two the liability is going to be off the charts for everyone in that stack that screwed it up Yeah, what's your pain for is someone to accept that responsibility to actually go through and get all this stuff in order For the edge case is sure right and and the the the frustrating thing is this probably ends up net worse Right having every doctor spend most of their day going through a horrible UI and Drowning and paperwork and notes and all these pieces instead of what they got into the business to do Which is to help patients don't even be starting the whole insurance sort of issue right actually the whole insurance area Like epic is a great example. They're downstream from Obamacare like they're the ones that like solved all these New Issues that were brought on by government regulation and now there's like in trench in the marketplace and everyone hates them Because they're hard to work with and they but they have a disdominant sort of position, but the like that is That is the actual thing that they are superior on right and it's frustrating to think about and talk about because They are superior on a vector that everyone hates But it's the vector that actually drives the bottom line solving the the top line problem They're solving problems beneath the surface that people aren't even really concerned about but there are the Many of which many of these problems are driven by an avoidance of risk Yeah, and all these and all these sorts of issues. So now again, that's sort of an extreme example But there's all sorts of things that are like this where there's all this sort of muck that is just solved by a company Understanding the space deeply going through it dealing with it. They talk to a CTO or a CIO or a CEO and they're like look You can have your employees sort of doing this using other software or Excel or whatever it might be or You could have this of all these layers of controls and you can feel confident that the muck will not go to sink the company Right or whatever it might be right or and so and again This isn't a great outcome. The outcome is you have all these crappy sort of experiences and interfaces and You have the problem that we've talked a lot about on this podcast of what is all the good stuff that doesn't happen when you're dealing with all this crap Yeah, but the problem is when you're managing a company your Most concerned the crap is visible or the the the downsides are all visible the upsides are not and so While in dealing with the downsides dealing with the muck. I misspoke earlier epic and companies like epic They are solving the top line problem. They're just not doing it particularly efficiently and everybody who uses them are frustrated But they're also addressing the muck, but not doing it efficiently in what way right it all depends on what I watch like so everyone In tech in I get I took a straight example with healthcare. There's but there's so many processes I was talking about this with with better experience. I thought he had a very good framing of this in why do companies have like 400s house apps or whatever might be it's it's pretty nuts and the reality is is if you have some sort of functionality where it's being done regularly The here's a good example. I was just having a discussion with dumbin about Interview scheduling and in the interview scheduling. I interview people in different time zones and so How do you put that in the calendar? How do you put that in the calendar exactly and I we were taking he was taking an approach that I didn't agree with and the reason I didn't agree with is because Number one, it's his job to think about that. That's why I'm outsourcing it But number two, I might change the calendar event sometimes and by definition That's it's like I have a lot of stuff on my plate a lot of stuff I'm thinking about and I want to make sure we have a system that minimizes the possibility that I mischedule something because it's in the wrong time zone Yeah, so in this case, sorry dumbin. I got thrown into the bus here. He was setting the time zone based on the guest location and I'm like This is stupid. They are not podcast. No, no, the point is is that like there's it makes a certain sense to it, right? Because then because whenever I communicate with people, I'm always communicating in their time zone Like when I'm texting with them, figuring out a time. I've worked a long time ago, especially when I was in Taiwan I'm the weirdo here. Okay. I'm used to managing time zones. I can deal with it It was always sort of I always appreciate it while you were in Taipei You know, it was always a very hairy few situations whenever the time zone changed because Taiwan did not have daily saving time It's not a day of saving times and they do here and The likelihood of a mistake happening in those few weeks just very fraught like I'd get anxious about it But the point is it's your calendar. So put the time zone that you're using is that right? That was what I said just because and the reason is is I know this is an issue So I definitely should and I usually do pay close attention to the time zone that the event is in But the highest likelihood of a mistake being made Is me is like I like I'm out I bet my son's basketball game someone says can we change the thing? I looked out I changed the calendar. I don't notice the time zone now we're bescheduled and it's a big disaster right? That would happen like so we need to Have a process that assumes I am going to screw up and minimizes that issue. Okay There is eight gazillion processes like this in every enterprise where it's actually pretty clear It's not that hard to do but what you're concerned about is the one fat finger or the one not paying attention and it's done And and this was sort of the point Benedict was making is a lot of these buttons or forms in your crappy enterprise application What they are is capturing That's like institutionalized process of this is something that's done repeatedly. So we're going to encode it In code To make sure that the chances of it getting screwed up are very low Yeah, and that is offloaded the complex the dealing with that crappy whatever it is is offloaded to the employees who complain about or whatever might be Or you can look at it from the outside say this like why are you paying $50 a seat for this application? You could just do that it takes three minutes to do it right and it's like Yes, but one screw up once well once screw up Costs you a bunch of money. Yeah, and so just broadly speaking This is why I wanted to zoom in on this point in this email, which I think was a good email But this superior on every vector is Superior on every vector 98% of the time because the lm just does it better and it look at you have a natural language interface I could say oh change my interview to xyz and then it's changed the problem is If you gain a small amount or save a small amount of money over time that can be completely undone by one screw by the two percent which these companies are already paying to address with the sass that they're already paying for yet That all makes sense to me sure So so this is like so this is sort of the I wasn't actually sure where we go this conversation But I guess we're starting with a defense of software to a certain extent particularly in the face of lm's which are amazing And by their very nature there's a thing I wanted to put in this rundown. I don't know if you added it later I did add a circle back this I'm a little skeptical of it. We'll get there in an hour or so We'll get there in an hour. Yes. This is a special podcast. We'll give you a tease for later on in the episode Uh Make mistakes. Yeah, hallucinate. They are probabilistic entities that The whole point is they're right the vast majority of the time And because they are sort of loose with it in this probabilistic way They create this quote-unquote superior experience But embedded in that superior experience is the possibility of error Yeah, and a huge amount of software is about eliminating the possibility of error Mm-hmm fair enough Well before we go further down that road with some of the other sass companies who are Implicated by everything we've seen this week. I do want to focus on Microsoft specifically because one thing I appreciate about your article earlier in the week was the callback to where we were two and a half years ago With Microsoft looking like a clear winner from the AI era You had the integrity to cite your own optimism rather than cite one of like a thousand other people who are saying the same thing two and a half years ago Look, I don't get to quote myself. I know as Lee when I'm right if I don't get to quote myself when they're looking so good You have to take the else sometimes as well and to me it was just a testament of how quickly all this has moved Because all those conversations about Microsoft and the boundless optimism feel like they happened five years ago at this point But in general, I mean, this is the biggest software company on the planet What should Microsoft be trying to do like where should they want to be in 10 years? Are they going to be a platform? Something else. What's the roadmap for that company? Well, so get to Microsoft specifically I think the other thing I disagree in this email with it in this email is I would have framed it as Why do we think Microsoft was going to be good at this when they've sucked at products forever for a long time like yep, right It's like it's like he's expressing that Microsoft in product for 30 years. Let's be very clear about that That's exactly right which is Paradoxically the reason to still be optimistic about Microsoft and sort of assume They're just the next big tech company to go through this cycle. We went through it with Google went through it with Apple went through with meta Amazon sort of been a low level bit of concern although I think there's some aspects of this discussion that are actually good for Amazon Which we can sort of get get to in a little bit. Okay, and now it's sort of Microsoft's turn to be facing facing skepticism and the the thing is is What is the implication of software becoming dramatically cheaper to produce? I think for all the defense that I just laid out which a lot of people have laid out You don't get to stop there. You don't get to say like nothing's going to change because software is really important when a fundamental input Completely changes Things are going to change so this is where I went back to content In sort of the the internet, you know the 90s internet You start out and the internet seems like it's great for everyone It's great for the New York Times. It's great for the Washington Post another entity in the news this week The Washington Post doesn't just Published now for people in the what do you guys call it the DMV? I DMV. That's right. Yeah. Hilarious Hilarious that the Washington DC area calls itself the acronym of what people associate with a horrific experience the worst example of bureaucratic excess and largesse Absolutely, it cracks me up endlessly like the what what is a DC Maryland Virginia? It's not even a good acronym That's the thing I'm it's a sensitive time for residents of the DMV because our team just traded for trea young and Anthony Davis and is Apparently aiming squarely for the middle over the next three or four years after allegedly tanking to build a championship team So I can't even mount a spirited defense of the DMV label here, but the Georgetown DMV the actual DMV is better than it has been in my entire life So I'm at least grateful for that as a decent. No, I heard it's great I heard things like snow removal are excellent Great city services. So we're down bad right now. It is what it is So yeah, it sounds like your snow removal is being run by the DMV. That's sort of what I understand is going on. Yep so um Anyhow the the the yeah the DMV. I don't even have to forgot what I was doing with this uh Oh, watch you post. Yeah, watch you post So your initial take on the internet is like wow the Washington Post doesn't just get to serve the DMV They can serve the entire country. It's amazing our total addressable market Just went from a few million. However many people are in the DMV. I just say the DMV as many times I can in the segment But they can actually it's the their addressable market is astronomical. It's the world. This is great. Everyone in the world will subscribe the problem is uh That expansion in market applies to every single publication That applies and most pertinently it applies to the New York Times And if you want the story of what happened to the Washington Post It's that everyone subscribes the New York Times like so you're this you're the second like Well, you expand you got to set a state. Yeah power laws Predominate and so people aren't going to subscribe to multiple papers that are not particularly differentiated from one another And pay $20 a month for each one. You're going to choose one subscription and most of the people who are in that Space have chosen the New York Times which frankly has a more distinct point of view Which probably helps them retain customers. Well, yeah, they've been the big winner of this space show We're gonna come back to New York Times. I think it's actually a very interesting analogy here Okay, so the but the point being is what was the input that changed the the input that changed was the cost of distribution Newspapers actually were light manufacturing companies with the trucking business They printed newspapers and they delivered them and put them on your doorstep and in a newspaper box in a stall and all these sorts of things That was actually their business That whole thing that they felt constrained them. I can't serve the whole country was actually what protected them They had local geog local monopolies in their geography What's that went away that that was the what's that input went to zero the cost of distribution your online that was actually in the long run Completely destructive value destructive because now you're competing with everyone and over time You're not just competing with all other publications The cost of entry went way down. So suddenly you're competing with me like you the Washington Post is literally competing with me Because people can only read one thing at one time and by the way if they're subscribing exactly Yeah, I mean that's right with you on subscription prices as well Right way, but from the eyeball perspective you're also competing with Facebook and with TikTok and all these sorts of things And I actually think this point this is the one point I put in there that sort of like refuted my thesis Which is I at the beginning was like look a eyes not replacing software okay for all these reasons we sort of talked about But you go to the content one. It's like actually The content people mostly consume today is all user-generated content It's not professionally produced content and it but the thing is it took 30 years so Maybe my whole store defensive software Will be moot in X number of years because yeah, I actually will get good enough to do all that sort of stuff right that's very plausible I think it's gonna take longer than people think but then again You can say that about lots of stuff that moves very quickly Anyhow that aside well wait the point we move on can I actually read an email that's further down in the rundown here But is related to this particular point on content Marshall says one of the best parts of Ben's analysis is its roots in the history of technology It provides valuable context and helps to ground the discussion in long term durable dynamics as opposed to what ends up being ephemeral for example when some bulls were claiming we were all gonna buy three peloton bikes during the peak of covid Given this I'd love for probably a little too after Mr. Muppell time so we're just pushing on my source spots here But there you go, you know owning the elves along the way given this I'd love for Ben to provide some context on what I perceive as a sea change in the way he seems to be talking about two areas of technology semi-conductors and software has AI fundamentally changed characteristics of these industries in a permanent and sustainable way relative to the past few decades My working hypothesis is that cyclicality will eventually return Oh great job. I saw that word coming up like man. I'm not sure if I say this Cyclicality there you go Why does he's in there it will eventually return to the semi-conductor business cyclicality And the software business. Look at you just showing off. Yes, there you go Though diminished from its Halcyon days. Oh look at that another one Amazing. Will regain its luster at least somewhat in your recent piece on Microsoft you compare the impact of gen AI on software to the impact of the internet on newspapers And though the analogy is apt to a degree I think it may underappreciate the stacked and multifaceted nature of many software modes While code writing becomes much easier due to gen AI and I imagine some switching costs get reduced There are a variety of other modes enjoyed by leading software businesses that the newspapers did not have once their distribution monopolies went away Is that fair do you think yeah no totally I was a little hesitant to like I was thinking about the content analogy like all weekend When I was thinking about thinking about this piece and I was a little hesitant to go there for this exact reason because The defensibility of newspapers actually ended up being quite shallow. It really was just geography yeah and to his point There's a lot more that goes into software and so I think that's a valid point The issue I wanted to push on though. What number one I just threw in the user-german content bit No, I don't think anyone in 1993 fully Thought that actually 99% of most people's media consumption Oh, I may be setting aside TV to a certain extent was going to be user-german content like most people don't read newspapers at all They don't read books. They don't read magazines. They are watching Instagram if they're literary they're reading Twitter and Well, they're watching YouTube the YouTube views that were reported this week It was like 200 billion or something. Yeah, it's absolutely insane. No, we I keep talking about YouTube's the biggest threat to Netflix and I think I asked Greg Greg Peters about this Netflix is being modest. They're only talking about YouTube on TV's if you talk about YouTube on phones It's a gazillion times higher. I'm like I was actually like questioning. I'm like your situation is much worse Maybe it's time to like be talking about this like the reality of this So yes, so anyhow, but so in the implication of this is you might be underestimating AI It's ability to why Quinn AI Actually discern all those rules and all those issues on the fly All right, and that is the end of the free preview if you'd like to hear more from Ben and I There are links to subscribe in the show notes where you can also go to sharktech.fm Either option will get you access to a personalized feed that has all the shows we do every week Plus lots more great content from Stratekery and the Stratekery plus bundle check it out And if you've got feedback, please email us at
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