Lenny Rachitsky: evaluation

Transcript context

…, and the model companies aren't going to build that, and the models themselves are basically commodities, at least as you can see them as users, then why would the model companies have pricing power? And wouldn't all the value be further up the stack? Aren't you basically, have you got like three to six companies selling a commodity at marginal cost? Now, obviously the semi-analyst guys are like, "No, no, no, no, no. There's going to be infinite pricing power forever." I'm sorry, I'm exaggerating. But I think you have to really important to draw a distinction between where are we now, where you have radical price disequilibrium, and you've got these, what's the guy, the OpenClaw guy spent one and a half million dollars on token this last month. But that's somebody getting like a 50 grand mobile data built in 2010. That's temporary. What is the steady state equilibrium point where all of these lines on the chart kind of get lined up, and we don't have this kind of weird, crazy stuff going on? And then will you have pricing power, or have you got like three or four or five companies kind of all selling the same thing? And so then you should have a pricing price. You should have lower pricing and lower margins, and the value you've got stack. I am so excited to tell you about this season's supporting sponsor Vanta. Vanta helps over 15,000 companies like Cursor, Ramp, Duolingo, Snowflake, and Atlassian. Earn and prove trust with their customers. Teams are building and shipping products faster than ever thanks to AI. But as a result, the amount of risk being introduced into your product and your business is higher than it's ever been. Every security leader that I talk to is feeling the increasing weight of protecting their organization, their business, and not to mention their customer data. Because things are moving so fast, they are constantly reacting, having to guess at priorities, and having to make do with outdated solutions. Vanta automates compliance and risk management, with over 35 security and privacy frameworks, including SOC 2, ISO 27,001 and HIPAA. This helps companies get compliant fast and stay compliant. More than ever before, trust has the power to make or break your business. Learn more at vanta.com/lenny. And as a listener of this podcast, you get $1,000 off Vanta. That's vanta.com/lenny. A really interesting takeaway here is that your sense is over time the foundational model companies, Anthropic, OpenAI, others, their margins will get squeezed, they will not be as successful as they are today, and the bigger opportunities in the application layer, the people building on the model, the wrappers. Yeah. I mean, this is a very sort of deterministic thesis, which is, the models companies, crucially what I said is the models don't seem to have no after effects. So there doesn't seem to be a winner takes all effect where one of these will run away ahead of the other. So you should have competition indefinitely. If you have competition indefinitely, you don't have primary really radical differentiation of what the product is. Then why would you have pricing power? And meanwhile, if you need to have thousands of applications that are all different built by different people, those can't all be built by the model people. So, it should end up looking more like cloud than it looks like Windows. Now that may be completely wrong, and one of the points I make in the presentation is like, imagine having this conversation about the internet in 1997, what would you have got right? Or indeed having it about mobile in 2000. You would've missed almost all of it. You certainly would've said that a has-been PC company from [inaudible 00:39:28] would win the whole thing. And no one would've said that. And a search company with a weird logo like, "Search, what's that got to do with mobile?" "No, forget it, you're an idiot." So we should presume we don't know, but they're all this sort of basic building blocks of like, well, but why would they have pricing power? I don't know, when I was a baby analyst in '99, went to see a dotcom company in the UK that was trying to do online selling computer cars, components online. And they had this whole model and this whole story in the brand and buy the whole thing and we went up to see them, and we're on the train back from Birmingham, and this just senior banker called David Tate. We're all sitting talking about it, and Tate says, "It's a low margin reseller, one time sells." "You can say dotcom all you like, it's a low margin reseller." And I think that's the crux of this, is they're undifferentiated commodity infrastructure providers. There's a lot of science to it, but there's a lot of science in mobile. I mean, what do you pay for flat panel screen? There's Nobel Prizes in flat panel screens. There's still a low margin commodity. I look forward to be proving wrong, proven wrong, but like, hey, that's what it looks like now.…

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