Hello, Acquired listeners. We have a very special treat for you today. We have an episode here with Bret Taylor and Clay Bavor. David, this is an awesome conversation.
Oh, we've gotten to know Bret and Clay a bit over the years, and especially in doing research for our Google episode. They were both incredibly helpful because they both started their storied careers as APMs, associate product managers at Google, back in the early days. Helped with part one, they're helping with part two, they're now co-founders of Sierra together, but really, I mean, they both have had like among the most incredible careers in tech in the last 20 years.
Yes, Bret's done various things. Clay has done one thing or many things inside Google, but Clay was at Google for over 18 years, started in the APM program, worked on everything from ads at the beginning, led product for Gmail, Drive, Docs, all the apps, everything that became Workspace, eventually ran Google Labs, did a bunch in their hardware, VR, AR, future-looking screens. Bret, his name pops up in like every episode research. He was at one point the CTO of Facebook. This is after his Google days where he, of course, co-founded Google Maps. He was the co-founder of FriendFeed, which I loved. FriendFeed was a big user before that was bought by Facebook. Started Quip, got acquired by Salesforce, and then became the co-CEO of Salesforce, still actively writes code, by the way, referenced on this episode.
We have a fun little bit at the end where we're like, okay, which of you created more market cap in your career? You know, Bret, through your incredible journey, or Clay just by cranking on Google.
And Bret is the current chairman of the board at OpenAI, and I think we didn't talk about it on this episode, but is also crazy, was the chairman of the board at Twitter in its final moments as a public company. So two legendary figures to sit down and talk with. This episode, we talk about everything AI. There's the great conversation of is AI a giant step forward change in the world or is it just better software, and what are all the second-order effects of all the change that's going on with AI. We talk about Sierra, the company that they are currently building together, and a lot of little tech history tidbits, especially as it relates to our Google episode two. So, please enjoy our conversation with Bret Taylor and Clay Bavor. Great to have you guys here.
This feels like a special moment for us here at Acquired. You both have helped so much with past episodes. You have sent us nice little notes with corrections and tidbits and here's how we think about it. So, thank you both for that.
Oh, it's so fun to be a part of it. And I thought part one just nailed it, in particular in the later parts of it, just how Google really got distribution right. Toolbar and Google Pack and Google Earth and so on. So I loved listening to it.
Oh man, the Google Earth story of the spyware of toolbar included in the install package.
Careful, David, with that spyware word.
It's a bundle. It's a bundle, David.
Yeah. Yeah. Yeah. That's a word that has disappeared from the lexicon. I've been thinking about that actually in the age of AI because if you look at the early internet, you had archaic terms like information superhighway and remember webmasters. Oh yeah, those were like the people who maintained websites.
That was my first job title.
And I wonder now with AI, we have all these terms: AI engineer, AI architect, all these things. You wonder what's going to stick and what's going to feel like information superhighway. So anyway, I think a lot about that.
Do you have any beliefs? It seems like we've already seen prompt engineer kind of enter and exit the lexicon.
One of my favorite things to do is go to the Internet Archive's Wayback Machine and look at a company's website and when they transition from ML to AI and then AI to Gen AI and then from Gen AI to agents and agentic. And so there is a lot of jargon in the space right now and we try to keep it simple. I don't know what the information superhighway equivalent is yet, but I'm sure it's there.
My hypothesis is actually the word agent will stick. I think I like the nouns of these technologies. So, web has sites, mobile has apps, AI has agents, and I think it's going to stick for that reason. But a little bit like app, the word app in like the VC community in like, you know, 2013 was a hot word. Now it's just a noun that describes like a packaging for a piece of technology. So I think agent will go that way. It'll feel extremely novel and shiny and complex now and then it will start to be, oh, this is just the digital autonomous thing like we have a billion of in our lives. So I think the word agent will stick, but we can talk in 10 years and we'll see if I'm right.
Have you evolved the lexicon of how you describe Sierra? I mean, you haven't had that long of a life as a company, but it seems like there's already been a tremendous amount of change in AI since you started.
In a nutshell, what we help companies do is build their own customer-facing AI agents for all parts of their customer experience. And we think in the future, your AI agent will be more important than your website, more important than your app. It'll be the main way you interact with your customers. And in terms of how we've talked about it outwardly, actually when we launched the company just over 15 or 16 months ago in 2024, we were worried when we said in the launch blog post, every company needs an agent, that people wouldn't know what we're talking about. And so fast forward, you know, just 12, 15 months, my goodness, agents are everywhere. I think people understand it.
No, it's like, ah, the word agent again, you know, but it was really cool 15 months ago. So,
I was speaking with the CIO of one very large retailer and he stopped me about 15 minutes in and said, 'Clay, can I just thank you for not saying the word agentic in the first 15 minutes here?' So, just trying to keep it straightforward.
I can't believe that Sierra is only what, like less than 18 months old.
We started the company a little before that, but we like told the world what we were doing less than 18 months ago. And it's insane. The way I think about these technology trends is they layer on top of each other and sort of compound. So, you know, to put a PC on every desktop, which was, I believe, Microsoft's mission in the early days,
on every desktop running Microsoft software,
that was stripped out once the DOJ started sniffing around.
Yeah. You had to actually make a supply chain of PCs. You had to lower the cost of the chips. You had to, and you know, we got to basically two billion PCs is my understanding. We didn't actually get it to everyone in the world. Then you developed the internet and you know it got to ride on the coattails of the PC revolution. So you know, at least in most workplaces there were PCs and you were able to connect it in universities and workplaces and then eventually people's homes. And then when the smartphone came out, you had the internet already. So you know, if you remember Steve Jobs' pitch, it was a browser with an iPod with, I can't remember the whole thing. It was a great, a great keynote pitch, but he could ride on the coattails of all of that infrastructure buildout, the networking, the existing websites. And now with AI, where we only had two billion PCs, we have more smartphones than people in the world already connected by the internet. So when you make something like ChatGPT, you can go from zero to 100 million users faster than any technology in history because of the other technologies, though. Like you couldn't have gotten there if not for the buildout of the internet, if not for the smartphone. And so for a company like Sierra, we're growing so quickly because the plumbing is already there. People already have a phone number that's getting, you know, 100 million phone calls a year and it costs a lot of money and people don't like it very much and the technology is available. So I don't mean you can just turn it on. Obviously, there's a little bit more work to it than that, but we're just riding on the coattails of all these amazing technology investments. So these new technologies can be adopted faster than any of the previous ones in history. And I love those graphs of like electricity, internet, smartphones, and they just all get so steep. The lines just look vertical, you know, by the end of the graph. And we're just living in that world, which is fun and insane.
What do you think the natural limit of that is? Will we see something that gets a billion users in a day five years from now?
Yeah, we're already like so compressed. It's like,
Well, one stat I look at all the time is the first website came online in and around 1991. It wasn't until 2002 that you had about 10% of the world using the web in a given week.
It was illegal in 1991 to use it for commercial activity.
That's, that's why it's a thing, like commercial. God, I can't believe I didn't know that. Now everyone knows that I didn't know it, too. I'm on a podcast.
It's okay. It's okay, Bret.
And in comparison, ChatGPT took, you know, 25 months or something to go from not existing to something like 10% of the world using it in a given week. And so, a billion users in a day, Ben, I'm not sure about that. But I do think the compounding kind of S-curves layering one on top of another just drives distribution. Also, awareness, right? The ability for someone to become aware of a new thing has shortened from, you know, potentially years to months to minutes with just ubiquitous social media and all of the distribution channels there are.
So, okay, what's the current record? If we're going to say no, it could never possibly be a billion users in a day. I think I saw Lovable eight months in. I'm sorry, this was a revenue milestone. It was 100 million in revenue. But what's the fastest company you've ever seen to 100 million users? It's got to be ChatGPT, right? I mean, I don't know this, but it has to be. And when we go back to, you know, talking about Google, which started in 1998, and, you know, sort of one of the darlings of the dot-com era, one of the things I think a lot about is if I mention the word dot-com phrase to you, most people mentally associate with Pets.com and, you know, all the companies that failed.
Webvan. Webvan, too, in there.
Webvan. Yeah, exactly. And almost to a T, if you say .com, people come back with the failures. If you look at the S&P 500 now and you look at the amount of value from companies created in that, one could argue that actually almost all of the exuberance and hype was totally warranted and it in fact did change commerce in fundamental ways. It did change the financial system in fundamental ways. It changed everything. My guess is we're sort of in a similar era. You have a lot of snake oil, the jokes we were just saying about people, god, say the word agentic again. Oh my god. You know, but it's coupled with ChatGPT growing faster than any consumer product in history. You look at the revenue growth of companies like Sierra, you mentioned Lovable, all these other B2B software companies. I think there's very real value being created here. And fundamentally software is not just adding productivity, you know, to workplaces and to individuals, but actually completing work. And that's where the word agent comes from, agency and reasoning. And I think we're going to see this really significant uptick in productivity. And that's going to be coupled with B2B software companies who are selling this, you know, sharing some of the upside of that productivity enhancement. And for consumers, I self-identify as a computer programmer, like the thing I love to do the most. And I'm like, man, that's sort of like saying I'm, do you remember like the calculators, the people who like calculated things before we had calculators? I'm like, am I that?
And they were computers, too. They were also called computers, people who computed.
Yeah. So, yeah, my, the thing I self-identify with is like being obsoleted by this technology. So, it's like the reason why I think these tools are being embraced so quickly is they truly are like an Iron Man suit for all of us as individuals. So I think we're going to look back at this era and we're going to joke around about whatever turns into information superhighway, like the terms that get antiquated, but I think we'll also look back and say this was an inflection point in society and technology and I think it will be as significant as the advent of the internet.
Yeah, it's wild. I mean, thinking about the acceleration of adoption of these successive waves, which by the way, I looked it up, ChatGPT was five days to a million users and two months to 100 million users.
That sounds right. I don't think we're quite there yet. I mean, you guys would know better than us if we are or aren't and what it's going to look like. But once we figure out distribution of like the equivalent of an application layer on top of AI, you know, ChatGPT, etc., all the friction to adoption and distribution is just gone. Even in the .com website, you could argue there's no friction to type in a website or, you know, go to a service. But the human has to like become aware, have interest, you know, the whole like, you know, sales pro, interest, awareness, decision, action, that's just gone.
Why, David? No, no, no. You still have to learn that a thing exists.
No, no, no. I mean, say ChatGPT, if that becomes the front door adoption for new services and businesses built integrated into it, well, GPT is just going to figure it out and serve it to you. We saw this with Studio Ghibli, right?
Well, actually, I think it's going to really upend the internet in pretty meaningful ways. So you talked about the awareness, adoption, etc. Like if you look at the market on the internet now, you have demand generation and discovery, which is right now dominated by social media and the ad networks affiliated with social media. Then you have demand fulfillment, which, you know, used to be search and AdWords and all of this, and that used to be, still is obviously, and then you have the actual transactions themselves, like the commerce systems and other things like that. And, you know, right now you could say AI is impacting all of those products in very meaningful ways, but as you alluded to, David, let's just say that personal agents become a thing. How does that impact that entire funnel? Because when you're generating demand, that probably will still be relevant for individuals, but are you going to be generating demand for people? Are you going to be generating demand for their agents? What does that even mean? And if it's other agents making the decision of whether to interact or not, you know, that whole demand gen cycle, like that takes time with humans.
Oh, without question. And you all have discussed pricing strategy in a bunch of your different shows, which is really interesting. And, you know, there's a classic like have a really expensive product and one slightly less expensive below that and how people react to it psychologically and all these other things. And if it's an agent, you know, what happens there? Will these things sort of trend towards the mathematically optimal? Because you think about these platforms, you know, brands don't want to be disintermediated and they don't want to be commoditized. And then the platform providers, they don't explicitly say it, but they're like sort of want to disintermediate and commoditize everything, you know, and it's not like a formal strategy, but that's sort of the natural tension of these platforms with personal agents and agents like Sierra builds for companies that represent their customer experience. I think the second and third order effects are very hard to predict here. And, you know, what does it do for the demand generation, demand fulfillment ad market? What does it do for these platforms? Which companies will have their own agents and have enough brand equity to have their own agents and which companies will be dependent on it? It's a little bit like saying which retailers depend on, say, Instagram ads versus first-party discovery. So I think we're at the cusp of something that will, in five years, we will have a very different market on the internet. And I think even for people in the middle of it like Clay and me, it's very hard to predict. I don't think many of us predicted many of the second or third order effects of the mobile app store or social networks correctly, and I think this one's even harder to predict, but I think it's going to really upend, I think, the economy of the internet in significant ways.
Bret and I like betting, and one of the bets we have is the year in which greater than 50% of conversations with agents built on Sierra are with people's personal agents. So agents talking to agents.
Okay. Yeah. So what's the bet? What's the overall?
Oh, we can't reveal. No, we can't reveal the number. Can't reveal the date. Secret.
Because you think you'd impact the outcome or?
Clay has so far won all three bets that we've had.
Really? What are some of the other ones?
The theme is Clay is more optimistic than I am.
Optimism always wins.
One of the first was we had a bet as to what percent of kind of all incoming customer issues one of our agents could resolve. And Bret was maybe the pessimist and realist, favorably, charitably. And I bet we'd exceed 80% by the end of the year, and we did. And it just exceeded every expectation where,
I was at 50 just for reference, and Clay like not only won the bet, but like won handily,
And this is across all your customers whenever a new issue is originated with one of their customer service requests. How often the Sierra agent could handle it.
That's right. And looking at a particular customer and these agents, it's so neat. They're not only answering questions, but doing things like if you are moving from car A to car B and have a SiriusXM subscription, Harmony, which is SiriusXM's agent, can actually send a satellite signal from space to refresh the encryption keys on your car. ADT's agent that we built with and for them, if your alarm panel starts beeping, you don't know why, it can troubleshoot, could figure out which of the 52 different panels you have, and then mail you a battery itself if that's the issue.
By the way, just think about that for a second. You're talking to an AI that's talking to a satellite that's sending something to your car, like no people involved. Yeah, you're probably like, 'Yeah, of course it does that.' But like this is like science fiction three years ago. Now you're like, 'Yeah, of course the AI is talking to a satellite. No big deal.' You know,
I remember one of our earlier customers, Olukai. They sell great flip-flops, by the way, if you're in the market. And on the day that we successfully, one of our agents successfully processed a warranty, looking at photos, inspecting the photos to make sure it was the product in question, and then shipped out a new pair of replacement shoes all on its own, there was cheering in the office. And it's just neat, these agents interacting with the physical world.
By the way, this is a true story. So, I'm in an interview with a candidate and the whole office is like, 'Yeah.' And I come in and they're like, 'We exchanged some flip-flops. Woo.' And so, it was a moment. You had to be there. But it was a very exciting moment for us. So,
Which must be an amazing way to demonstrate culture to a candidate, by the way, that they come out of an interview, they're like, 'What the hell? What's going on?'
Yeah. Yeah. No, it's fun. I mean, it was just a hilarious moment because it was so like explaining it felt so trivial. Let me explain why flip-flops are a big deal to us, but trust me, this is a big deal. So,
That's like the, uh, were you there? It might have been a little before your time, but when Facebook was negotiating with Microsoft for the ad deal, and they were having the hackathon to launch international that same night, and it was all orchestrated all together, and there's like house music playing and all the, you know, middle-aged Microsoft execs like, 'What the hell is happening here?' The hackathons at Facebook were epic. And yeah, there's always someone, there's usually Mark Zuckerberg DJing, and yeah, it was great. It was fun.
Some days I wake up and I'm on one side of this debate and some days I wake up on the other side of this debate. The first way is AI is such a transformational technology. It is different than anything that's ever come before it. Let's just look at labor productivity. It makes people so much more productive that you need way fewer people to make things. It's going to put all these people out of work. Every societal model that we've had in the past is now broken because this is such a giant step change for everything. The other days I wake up and I'm like, it's just software. Mobile apps were great software. SaaS was great software. Cloud was an amazing way to run your software. Software gets better with Moore's law and more powerful, more sophisticated. And this is just more powerful software. How do you guys think about that?
The first principles way I think about it is what are you making plentiful now that was scarce before and how does that impact society? So I think about taking energy and making it scarce to plentiful to the point now where you walk into a room and you flip on a light switch and you don't think anything about it. But for hundreds of years that was a scarce resource,
And it is now again with data centers.
Yeah, that's right. Yeah, we're doing our best.
Where are the tokamak fusion reactors?
I think in the Western world similarly, you know, food access is, food is largely plentiful. Food insecurity while present isn't a dominant part of society as it once was. And now we're going to a world where intelligence has gone from something scarce to something plentiful. I think it's very hard to imagine. Prior to modern farming and food distribution, most people spent a lot of their time thinking about food. You know, that was like a big part of just living and now it's something that is for a lot of people not a central part of their day-to-day like plan is like, you know, acquiring food. First, I think we have gone through transitions as significant as this in the past as society, but I think it's very significant. I don't think it's just software. That's my personal opinion. Although I do waver like you, Ben, some days I'm on one side of this, on the other. I think it's pretty significant because I know I personally and probably everyone on this podcast like identifies to some degree their identity with their intelligence, right? You know, it's a big part of why people listen to your podcast. It's how you got into university and got a job and got all these other things. You say, gosh, if this is now plentiful, who am I? What do I contribute?
I brought up the kind of like personal thing. It's really interesting. There's this meta thing in Silicon Valley right now, which is if you tell what jobs are most likely to be automated with the current generation of technology, you would probably put software engineering right at the top. The people building this technology or building the technology that is disrupting their own profession. And that's, I'm not sure unprecedented, but certainly unusual with technology disruption. So I think this idea of like identity and intelligence and the technology impacting our own perception of self-worth is happening in a very personal way for a lot of the people working on it. I am very confident that on the other side of this, just like we've gone through with the industrial revolution and the agricultural revolution, all these other things, we'll come out the other side and just end up like a higher-leverage species. Like we'll spend our time on different things than we did before. But I believe that this will make us just like happier, more productive, have more plentiful. Like we will just have access to more things.
I just think about like really simple things like access to mental health care, access to education, access to medical advice, access to legal advice. We're essentially taking expertise and making it a commodity. And I think that is generally democratizing. I think many of the things I mentioned, if you have wealth, you have a lot of access to, and if you don't, you don't. What a cool thing that we've made this like universally accessible. But just like you had the Luddites and the industrial revolution, you're going to have this very, this period of transition where it's saying like how I've come to identify my own worth either as a person or as an employee has been disrupted. That's very uncomfortable. And that transition isn't always easy. If you look at globalization, it lowered the cost of a television set, but it was hard if the factory in your town was shut down, right? And so if you look at things like GDP numbers or productivity numbers, it obscures the individual impact that is not always fun or easy or good. And then similarly, it could be great in 10 years but really hard over the next two years, you know, and I think probably all of those things are true.
It's, Silicon Valley is like right in the middle of it.
Yeah, it's, you're just in the middle of it. My view is it is as transformational as the former of what you said, Ben. Like I think it is truly transformational. I also think the transition will be awkward and probably slower than people think. In the last comment because it was a too long of an answer, but I don't think all parts of the economy can absorb intelligence equally. So let's just say we develop fairly generalized superintelligence. I always use the analogy like you can invent a lot of drugs, but if clinical trials still take a long time, you're not necessarily going to get new therapies rapidly. You have regulation, you have cultural resistance, you have all these other things. The technology is transformational. I think probably it will impact society on a more measured pace than I think a lot of the folks in the AGI community think just because of the natural rate limiters of society around. It's not like intelligence is the only input to productivity growth. But I really do think it's transformational and I think it's both in a great way and a kind of uncomfortable way. I think it's transformational.
Specifically for you guys, I'm so curious. What is the state of human capital at Sierra? You're, you know, one of the leading AI companies. You could probably recruit anybody you want. I mean, given who you guys are, but at the same time, you were just saying, Bret, AI can probably do a lot of what people at Silicon Valley companies used to do. Like, what are you guys doing? You're living it day-to-day.
Well, first of all, everything we do as a company is going to be the, you know, direct or at least indirect result of talented, smart, amazing people who are motivated to accomplish an important mission doing great work. And so since starting the company in March of '23, we've grown immensely. We're the leaders in the space and the demand for what we've built has been overwhelming and we are just growing the company in terms of people and geographies and industries as quickly as we possibly can. And on top of that though, it's like we look for every point of leverage we can find with AI. And so we aggressively use Cursor in our engineering teams. And I don't know what the percentage today of lines of code written by Cursor is, but it's pretty darn high and getting higher by the day. To Bret's previous point, it is today this immense force multiplier for talented people. One of our most senior engineers, actually the first person who joined the company after Bret and me, basically sent a coding agent over the weekend to just come up with a dozen PRs for things that he wanted to fix. And it came back and half of them were great, a quarter of them were total garbage and a quarter needed some work. But like it was, you know, in a way him working the entire weekend with, you know, guidance from him.
Let me double-click on the Cursor thing though for a second though, because Clay and I talk a lot about this. So we always like to say the way we think about an AI-first company is we're building a machine to produce happy customers. So that's the way we think about it. And I think that's important because it's like if something comes off the assembly line of a machine that's like malformed, you don't just fix that thing. You say what part of the machine broke to produce the malformed item. And so just as it relates to, for example, software engineering, we have this philosophy like when Cursor, which is the most popular copilot for software engineers to like write code and now having some sort of more agentic flavors of it, if it produces incorrect code, our philosophy is don't fix the code, fix the context that Cursor had that produced the bad code. And I think that's a big difference when you're trying to make like a company driven by AI and just use AI because you... So essentially, if you just fix the code, you're not adding leverage. If you go back and say, what context did this coding AI not have that had it had it, it would have produced the correct code. So I don't want to pretend we're perfect here, but that's the way we think about it. I really like thinking of our business as a machine. This is a Clayism. He said this once like right when we were starting the company. He said, 'We're building a machine to produce happy customers.' And like nerd-sniped me. And I'm like, 'Oh, we are 100% building a machine.' Employees roll their eyes, but it's like fix the machine, fix the machine. Don't just fix like the output of the machine. And I think with AI, it actually creates a very actionable framework for how to bring AI into the company. But somewhat ironically, like as Clay said, we are hiring a lot of people. Notably to me, all the AGI labs are hiring a lot of people. So there's some, I don't know, the elephant in the room is it's not quite...
You guys are in the center of this. I mean, Bret, you're the board chair at OpenAI. Like, what do you guys do as Sierra? You're incredibly well-funded, you know, etc., etc. But like, you can't compete with a $300 million comp package for some... like, what is going on with hiring?
I assume you don't need those people.
Yeah. So we're an applied AI company. Let me just give you my view of the market. This is something you all could debate. So I think there's basically kind of three big categories of AI software companies. First are the foundation and frontier model companies. These are the folks that are somewhat infamously or famously competing for these scarce resource of these great researchers. Many of them like OpenAI are mission-driven and trying to create artificial general intelligence. Some of them are more commercially minded and essentially building these models which they then license or lease out to companies like ours. Then there's a category of people who make tools on top of it. So the proverbial pickaxes in the gold rush, you need data labeling services and you need a data warehouse on which you can, you know, or you need a retrieval augmented generation like a vector database to support retrieval augmented generation and all these things like just, I'll say all these tools that one uses when you're building an AI platform. And then there's companies like Sierra where we make AI agents for customer service, customer experience, Harvey who makes AI agents for the legal profession, I think of companies like Writer do it for marketing, you know, so there's just all these sort of, I'll say, vertical AI applications. And we're downstream of a lot of that. If we're doing our job, you know, we're taking the best of these models and composing them to make these amazing experiences. Just like if you were VCs and someone, a software as a service company came up to you and said, step one is we're going to build our own data centers, you'd look at them very skeptically. You'd be like, really? Like, why not just rent a server from Amazon Web Services or Azure? I think the same is true of applied AI companies. It may not have been true a year and a half ago, two years ago where I think everyone wanted to like pretend they were cool. Like,
Oh shoot, I mean, we had Clem from Hugging Face on and he was like, I deeply believe that every applied AI company needs their own foundational model, needs to build it themselves.
I could not disagree more strongly with a single sentence.
