Software Finally Eats Services - Aaron Levie

Should the US put a price on H-1B visas, or would that block the flow of new talent? Are AI coding agents actually making teams way more productive, or is it just hype? And in the AI platform shift, will the big winners be incumbents or new AI-native startups? Erik Torenberg is joined by Box co-founder and CEO Aaron Levie, a16z board partner Steven Sinofsky, and a16z general partner Martin Casado to debate the biggest questions in tech. They unpack pricing vs lottery for H-1Bs and what we’re actually optimizing for, why Box now ships a third of its code from AI, the shift from writing to reviewing code, and why bottom-up personal AI tools succeed where top-down “AI pilots” struggle. Timecodes: 0:00 Introduction 0:55 Latest immigration policy and who benefits 2:46 Salary bands as a solution for tech talent allocation 5:39 Optimizing immigration policy for wages, jobs, or merit 8:08 Market dynamics and policy changes in tech hiring 12:52 AI effects on labor productivity and developer output 19:25 Drivers of large AI productivity gains vs plateaus 24:40 Measuring AI’s impact on productivity and what’s missing 31:32 Human Taste and AI Tools 37:47 Young founders building companies differently with AI 41:34 Platform shifts: startups vs incumbents 49:01 AI opening new markets beyond software 55:54 Incumbents vs disruptors in the next decade of AI Resources: Find Aaron on X: https://x.com/levie Find Steven on X: https://x.com/stevesi Find Martin on X: https://x.com/martin_casado Find Erik on X: https://x.com/eriktorenberg Stay Updated: If you enjoyed this episode, be sure to like, subscribe, and share with your friends! Find a16z on X: https://x.com/a16z Find a16z on LinkedIn: https://www.linkedin.com/company/a16z Listen to the a16z Podcast on Spotify: https://open.spotify.com/show/5bC65RDvs3oxnLyqqvkUYX Listen to the a16z Podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/a16z-podcast/id842818711 Follow our host: https://x.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details, please see a16z.com/disclosures.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Aaron Levie?

  The universal adoption of this as a consumer technology and then bleeding into prosumer is, it exceeds anything I've ever experienced. And I think it is, it will just fundamentally change people's sort of daily patterns.

• 0:11Steven Sinofsky?

  This is all early adopters and early adopters are very forgiving of mistakes on purpose. When something is brand new, a culture around it develops. The early internet people didn't complain that the internet was slow.

• 0:24Aaron Levie?

  Right.

• 0:25Martin Casado?

  The more senior small teams that use AI are superhuman.

• 0:28Aaron Levie?

  Yeah, yeah.

• 0:28Martin Casado?

  It's like they woke up and they were all [bleep] Tony Stark. It is unbelievable and like their productivity is insane.

• 0:35Speaker 03

  Should the US put a price on H1B visas or would that shut out new talent? Are AI coding agents truly boosting productivity or just heightening? And in this AI platform shift, who wins? Incumbents or new AI native startups? Today, I sit down with Vox CEO Aaron Levy alongside A16Z's Stephen Zinoffsky and Martine Casado to debate H1B reform, why Vox now ships a third of its code from AI, the move from writing to reviewing code, and why bottom-up AI tools beat top-down pilots. Let's get into it.

• 1:10Erik Torenberg?

  First, I just want to comment, you posted in the group chat that the news around autism updates your P doom.

• 1:17Aaron Levie?

  It only works if you show the image though, so you'll have to do the overlay to make that make sense. But there's so many memes you can do with that Fox News headline, so.

• 1:25Erik Torenberg?

  Exactly. First, I want to get into the immigration news.

• 1:28Aaron Levie?

  Oh, you really want to kick off just like really with the fun stuff?

• 1:32Erik Torenberg?

  Exactly. Martine, you had some interesting reactions.

• 1:34Aaron Levie?

  Exactly.

• 1:35Erik Torenberg?

  Please, what were your reactions to what you think of the policy?

• 1:39Martin Casado?

  Well, it was interesting because it seems like anytime the administration touches immigration, there's a huge outcry, knee-jerk outcry, and we saw a lot of that from VCs even. But it's also very interesting that Reed Hastings, who is a classic lefty and has long been, was like, I've been in, doing policy for immigration for 30 years and this is the right approach. And this is very much my thought, which is. This system has been game for a very long time. It's very hard for startups to hire because of the lottery system. It's locked up by the large companies, the consultants, Amazon and Google. And that has to change. And I think a very reasonable way to do it is to set price because you've got a market and you need to allocate supply. Price is a great way to do it. So I'm very, very positive on it. I comment about that and a lot of people seem to disagree. So I think it's an active discussion.

• 2:25Aaron Levie?

  Well, I think there's a couple of elements to this. So one is, first of all, Reed was ultimately responding to a thing that was no longer the actual policy. So he said, well, 100K a year was a great policy. And obviously the internet had moved on. It's not to me obvious, I wouldn't conclude the same outcome that you just concluded in that I think that you'd have a situation where the Amazons and Googles would probably actually capture the vast portion of the talent in this situation. So it's not clear to me that like startups sort of come out ahead.

• 2:53Martin Casado?

  Well, well, step back.

• 2:54Aaron Levie?

  From this particular implementation.

• 2:56Martin Casado?

  Maybe, maybe Amazon and Google who are probably more easy to regulate, but there are a number of organizations that are consultancies.

• 3:05Aaron Levie?

  Yeah, 100%.

• 3:05Martin Casado?

  That actually are price sensitive.

• 3:07Aaron Levie?

  Yes.

• 3:07Martin Casado?

  That would be squeezed by this. I would, I would think that, given that they're in the top 15, they make up like four or five of them. That'd be a significant freeing up.

• 3:15Aaron Levie?

  Yeah.

• 3:15Martin Casado?

  Or a higher level.

• 3:16Aaron Levie?

  I think the, my thing would be like, if you could just get all the people in the room that have an opinion on this topic and you, but you actually have the practitioners in tech in the room as well. And the, let's say the most kind of, you know, you can't even say like right wing, because actually I don't think this is even classic Republican. So it was just like, the polls, you got everybody in a room and he says, he sort of say, what are we optimizing for? Are we optimizing for, we don't want to have wages go down? That's an interesting thing. Are we optimizing for a particular kind of job not going to, let's say, certain populations of Americans? Are we optimizing for just ensuring that we only have the highest merit people on the planet coming here? Like, those are all totally different kind of goals to optimize for. And I think that the framework you end up with and the system that you end up with should probably, hopefully

• 4:01Aaron Levie?

  have like a cohesive sort of strategy behind it. My strategy would be, we want the absolute best in the world here. There's not exactly clear that there's. A fixed number on that. Some years there might be 5,000, some years there might be 50,000, some years there might be 80,000. We probably want them to be net positive to wages. So let's agree that, you know, in any given industry or locale, wages should go up with this talent pool as opposed to down. So I think that's actually totally reasonable. And you say you should have the market kind of sort of some market dynamic to that. And you shouldn't be able to kind of game and exploit the talent pools. For saying now in Detroit, we can go wipe out IT jobs because we can go and offshore those. Like, I think you could build a system that basically meets all of those goals while still ensuring that

• 4:44Aaron Levie?

  you can get somebody that goes to their master's program and name your state school. They come out of it. They're an AI engineer. They're not yet at the sort of meta is going to pay them a hundred million dollars. But they are going to be totally valuable contributors to our economy. It's all sort of positive sum. It's not taking a job from anybody else. It makes us more competitive. And I think there's a way to do that without sort of overly, let's say, putting constraints in the system that make it maybe so startup wouldn't be able to kind of economically viably participate in this. And I think 100K per year would be at a point where the startups would be directly impacted.

• 5:18Martin Casado?

  Working with a lot of startups, I'm not sure that's the

• 5:21Aaron Levie?

  Respectfully, respectfully, the kind of startups that Andrei Horowitz sees are not all of the base of startups in the world.

• 5:27Martin Casado?

  So you could quibble about the number. Is it 20K, which Keith Rabl said, which I thought was very sensible, or is it 100K? I don't know. But like the idea that you

• 5:34Aaron Levie?

  Wait, Keith threw out 20?

• 5:36Martin Casado?

  He threw out 20.

• 5:37Aaron Levie?

  Well, let's just go with Keith's number. I think that

• 5:38Martin Casado?

  If Keith threw out 20, I think we can be good with a Keith number.

• 5:41Aaron Levie?

  But I think the number, it's easy to fixate on the number.

• 5:44Martin Casado?

  Yeah.

• 5:44Aaron Levie?

  But you have to always look at what is the number replacing. And I don't think the average person having this debate, other than the people that really work at this, have any idea the amount of productivity that is lost working this system.

• 5:57Martin Casado?

  Yes.

• 5:57Aaron Levie?

  I mean, the incredible amount of resources. And of course, the bigger companies, the ones that you mentioned, have enormous teams that spend all of their energy, like literally essentially as lobbyists

• 6:09Martin Casado?

  Yeah.

• 6:09Aaron Levie?

  working this system. And then the backend of that is, are all the justifications and all of the management, all of the handling.

• 6:15Martin Casado?

  This isn't broken.

• 6:16Aaron Levie?

  And now they've just deployed all their resources to manage like in-house.

• 6:20Steven Sinofsky?

  Call centers to deal with getting their employees back to the United States to just deal with it. I do. You hit on one point that I think is really important to this debate. That is sort of getting lost, which is that there's no doubt that within the big tech world that they, for the past 25 years or so, they really went on this sort of bifurcated curve, which is hiring for the people in the office focusing on, say, 25 or 30 university departments. And then basically, everybody else was like, well, it's so much easier if we just hire huge numbers of people from these eight international locations and schools. And I think a lot of this is missing that a big part of this is, well,

• 7:02Steven Sinofsky?

  the tech industry, like if you look at Intel and where they all went to college, and if you look at the history of Silicon Valley, it's all these people from all the schools in the middle of the country. None of which are like the target recruiting schools by the main tech companies these days. And that's been a place where I think that the big companies have been somewhat lazy. And as a person who spent decades flying to all of these schools and recruiting, there's work that the universities have have not done to be better programs, and that there's work that the big companies have not done to be clear what it is that, why they've stopped recruiting or haven't had seen the numbers. And that's change would be better for everybody to really make.

• 7:42Martin Casado?

  I so my expectation of what gets impacted is kind of an even different job set than that, which is if you go to Florida today and you try and get like an IT job for 100K, you just can't, right? And so that I think is actually the area that's the most directly impacted by the large consultants.

• 7:58Steven Sinofsky?

  Meaning there aren't jobs that pay 100K or that you just can't find a job?

• 8:02Martin Casado?

  They're taken. They're all taken. They just don't exist. Like any sort of IT administrator, like the services, like the basic consulting gigs, like all of that has been saturated. It's very, very tough to get a job between like 80 and 120K in much of the United States because of this, right? And so this isn't about a new grad being a software engineer because the reality is the expected value of a software engineer over their lifetime is high enough that I think that like the market kind of navigates that, but. It's almost these kind of lower level, more like IT admin jobs that have been squeezed out. And listen, if we want to bring them back, then I do think, and we don't want to do this kind of arbitrage that a lot of these companies are doing, that we're gonna have to change the pricing.

• 8:39Aaron Levie?

  So but don't but the wouldn't a minimum salary band effectively solve that problem for you?

• 8:45Martin Casado?

  Sure. Yeah, for sure. Yeah, I think there's a lot of mechanisms doing it. I actually agree with you. Like, we should actually talk about the problem that we're trying to solve. So I think we would all agree, you become the United States, you get a college degree, you should have a visa, right? We kind of, you know, okay, so that's for sure.

• 8:57Aaron Levie?

  Well, do we all agree on that?

• 8:59Martin Casado?

  Okay, yes, I agree.

• 8:59Aaron Levie?

  Okay, so the guys in, I don't think that the people proposing this strategy actually agree on that.

• 9:06Martin Casado?

  Well, so Trump famously said.

• 9:07Aaron Levie?

  Oh, he famously said a lot of things, for sure.

• 9:10Steven Sinofsky?

  And then he unsaid it.

• 9:13Aaron Levie?

  This wouldn't be an interesting debate. If we all agree, and we have a policy that says, if you go from IIT, and then you come to Kansas State, then you get a job.

• 9:23Steven Sinofsky?

  But that became part of the gamification of the system, because you would do the IIT thing, then you would get a company sponsorship for a master's degree at some school. So it didn't really accomplish the goal of investing in coming to the US, the same way that going to a four-year school would have done.

• 9:40Aaron Levie?

  Wait, why, why is that? What was the problem?

• 9:42Steven Sinofsky?

  Because you ended up getting sponsored by a company, and it changed the whole dynamic of, were you seeking out the US, or did a company pull you to the US? It's a little bit different.

• 9:51Aaron Levie?

  Okay.

• 9:52Martin Casado?

  But I also think so often this discussion goes the direction, this one is gonna, is we focus on like, new grad software engineers, and I actually don't think that what's is getting impacted.

• 10:00Aaron Levie?

  Right.

• 10:00Martin Casado?

  I really don't. I really think it is. Like, what do the consulting shops do? They do admin work, IT work, and it's just a different salary band.

• 10:09Aaron Levie?

  Yeah, I think it's, I think it's the.

• 10:10Martin Casado?

  These are body shops, and like, an approach like this directly targets them, I think in a way that's actually quite positive.

• 10:17Aaron Levie?

  Yeah, I just think there's, then, I mean, I would just then favor Keith's approach, because I think there is a number in which it becomes, you're then making other tradeoffs in your business, just to be able to.

• 10:27Martin Casado?

  Yeah, the 100K number is.

• 10:28Steven Sinofsky?

  Well, I do think that, that the dollars, but I do think that, just to reinforce this, that, that. The whole system can do without this immense cost and uncertainty.

• 10:38Erik Torenberg?

  Yep.

• 10:38Steven Sinofsky?

  And any solution should really be, if you address that.

• 10:41Erik Torenberg?

  Yeah.

• 10:42Steven Sinofsky?

  Then the whole, the rest of the dynamics will follow. But as long as it's a huge, complicated, expensive system.

• 10:48Erik Torenberg?

  Yeah.

• 10:48Steven Sinofsky?

  Then the big companies are going to continue to benefit from it disproportionately.

• 10:52Erik Torenberg?

  Yeah.

• 10:53Martin Casado?

  And I will tell you, right now, like, it is much harder for a startup to deal with the lottery system.

• 10:58Steven Sinofsky?

  Yes.

• 10:58Erik Torenberg?

  It's impossible.

• 10:59Martin Casado?

  Than it would be for them to pay a hundred K. Like, at least for the startups that.

• 11:02Aaron Levie?

  But I don't think it changed the lottery system. It's a hundred, right?

• 11:04Steven Sinofsky?

  Right, it didn't.

• 11:05Aaron Levie?

  It's a hundred K to participate in the lottery system.

• 11:08Steven Sinofsky?

  Right.

• 11:08Martin Casado?

  Oh, I understand. I mean, hopefully, like, a number, it'll change the calculus of a lot of people that are in the lottery system.

• 11:16Aaron Levie?

  I just think.

• 11:16Martin Casado?

  But I would prefer to remove the lottery system.

• 11:18Aaron Levie?

  Yeah, I think you can absolutely pull off a system that, that for, probably in a shared definition for us and anybody else would say, this is clearly a high merit job. It's going to increase the wages in this particular sector on average. And, and we want to make sure that we've got the best talent in the world that comes in to do that. It's not going to drive down wages. We probably want as many of those individuals here as possible. And, and so I think, you know, some elements of this are intriguing in that they push the conversation forward on the dimension of, you know, like, the hundred K is like a hammer to do that. And maybe there's a more nuanced approach that I would certainly prefer, but.

• 11:55Martin Casado?

  But again, it's important, like, the, the hundred K will scale with the skill level, right? So the higher the skill, the more like that is amortized. And so you could argue that this is just kind of a dial to get higher skills.

• 12:06Steven Sinofsky?

  Well, you, you, the, the, once you put a dollar amount on it, you have to keep in mind that people are gonna pay it.

• 12:12Martin Casado?

  That's right.

• 12:12Steven Sinofsky?

  They're gonna make up their own mind. And, and the skill isn't, might not be relevant to some people because, you know, and so that's the tricky part.

• 12:19Erik Torenberg?

  Yep, yep. I want to segue from labor markets to.

• 12:23Steven Sinofsky?

  What's the next, what's the next?

• 12:25Aaron Levie?

  Really interesting political topic that we can engage in.

• 12:28Erik Torenberg?

  Yeah, exactly. From labor markets to labor productivity with AI. Offline, Aaron, we were talking about the meter paper and it was the paper suggested that their developers were actually less productive with AI, but that doesn't square with your experience, talking to a lot of different startups, seeing a lot of different startups and how they're so much more productive. So why don't you talk about where you're seeing startups say they're more productive and why is it happening?

• 12:49Aaron Levie?

  Yeah, so I'll first just represent our own case study and then there's the really extreme version. So our own case study is we've adopted a few different kind of AI coding tools, cursor being a super, super popular one internally. And as I talk to people, let's say in the hallway who have, maybe they're trying to get me excited by AI, but like I think they know I'm bought in. So the kind of qualitative answers I get from people, and then I'll give you our internal metric. Some people say I'm getting a 20, 30% productivity gain. Other people will say 75%.

• 13:29Aaron Levie?

  Interestingly, I have not been able to pinpoint the demographic difference on the answers. Oh, but this is self-reporting. This is self-reporting. How happy are you? Yeah, so, no, but we have internal metrics as well. So about 30% of our code right now is coming from AI. So we've got the... 70%? 30%, 30%. So we have some of the kind of pure internal metrics that show this. But what's interesting is that like I have a two by two of I have senior people that are saying that they're getting 75% productivity. I have junior people that are saying they're getting 75% and then vice versa on the 25%, let's say. And it's, I haven't been able to quite figure out a pattern, maybe except for, and we've talked about this a little bit, but you kind of see this online, except for maybe the biggest

• 14:14Aaron Levie?

  criteria is just the people that actually push the AI to do more, which is sort of this other new kind of psychographic, which is like, who is willing to just be like, you know what, I'm going to YOLO this task and just see what the AI comes up with. And your sort of willingness to just do that, I think probably somewhat then shows up in the ultimate productivity game. So that's us as a relatively larger company on the startup side. Well, it's crazy, and this is the thing that just blows my mind. I will regularly talk to three, five, 10-person startup founders that self-report they might be getting somewhere on the order of like three to five to 10x productivity improvements.

• 14:54Aaron Levie?

  And the big difference is that, you know, a year ago, if we were to have this conversation, the conversation would be about, you know, AI sort of doing type ahead. And it, you know, it can add maybe like a few lines of code to your productivity per, you know, incremental, you know, sort of unit of work that you give it. And then now, obviously, the big phenomenon is background agents where I give it a very, you know, detailed prompt. I send it off. It comes back. You know, people talk about it as like a slot machine of like some percent of the time is not going to come back with the right thing. You have to decide which, what you actually, you know, kind of pull in from it. But the kind of startups that are getting like real multiples of productivity gain are just, they're fundamentally engineering in a different way. They're sending off a task.

• 15:35Aaron Levie?

  The task goes off, comes back in 20 minutes, and then they're really in the, in the business of doing code review, not code writing. And it's going to obviously change, you know, quite a bit of what computer science looks like in the future. And then the only question is like, you know, what are all the things that that's good for? Where does that break down? What, what kind of teams can actually evolve to that state? But that one has been blowing my mind the most recently, and I think that kind of fundamentally changes what, what the future of, you know, kind of engineering looks like.

• 16:03Steven Sinofsky?

  I think what you said is super interesting. Let me ask you, I think that there's an overlay that goes beyond junior, senior, and, and their, which is, is, we're all talking about characteristics that have two, a solution that has two really important characteristics right now. One is that it's engineers doing stuff for engineers. And, and they understand the domain super, super well.

• 16:26Aaron Levie?

  Yeah.

• 16:27Steven Sinofsky?

  And I think that that's a really, really important part and a really big thing that people aren't talking enough about, which is maybe what's going on is that you have AI accelerating for people that work in the domain and are very smart.

• 16:39Aaron Levie?

  Yes.

• 16:39Steven Sinofsky?

  And then the other is we, we shouldn't forget, and this is to your, your self-reporting a little bit, but also, which is that this is all early adopters, and early adopters are very forgiving of mistakes on purpose. And it's a, it's a super interesting dynamic where when something is brand new, a culture around it develops, which, which just lets anything happen. I mean, you know, like, The early internet people didn't complain that the internet was slow.

• 17:07Aaron Levie?

  Right.

• 17:07Steven Sinofsky?

  The only people who complained the internet were slow were the late adopters who were like, wow, this is so much slower and or like take online video, which was like, I'm watching this tiny postage stamp video and the early adopters like this is the coolest thing I've ever seen. Everybody else is like, why would I want to watch anything like that? And the same with downloading music and every, and so I really feel like what's going on is just this incredible.

• 17:28Aaron Levie?

  Do you remember that you guys, um, do you remember this watch that you guys made?

• 17:32Steven Sinofsky?

  The Spot Watch?

• 17:33Aaron Levie?

  Yes, Spot Watches. So in like 2004, three or something.

• 17:36Steven Sinofsky?

  Something.

• 17:37Aaron Levie?

  So, so I bought one and it used like, like AM or FM.

• 17:41Steven Sinofsky?

  Unused FM radio white noise. So you get like stock looks 45 minutes delayed if you're outdoors in a field.

• 17:48Aaron Levie?

  Yes. And so I had one and I was, I was in this camp like, this is the coolest thing in the entire world. And obviously this is going to be the most mass market product of all time. And you know, I was like 20 years too early with the Apple Watch.

• 18:01Steven Sinofsky?

  No, turn by turn GPS. Like the first, the first time you could put turn by turn GPS in your car. It was super cool, except for the fact that most cars move faster than the ability for the computer in the car to calculate when you were going to turn. And so you caught, you just drove around, you do, it was like a U-turn machine. And, but I think that it's just, it's so interesting because I think that people use these, the AI tools today and they assume like, well, I don't, I'm not a doctor. I don't know anything about being a doctor. Let me ask you to cure me.

• 18:29Aaron Levie?

  Right.

• 18:29Steven Sinofsky?

  And diagnose me. And it's like, whoa, that is the worst. And it just like all the people who see failure, like they're just, they weren't great programmers to begin with.

• 18:38Aaron Levie?

  Right.

• 18:38Steven Sinofsky?

  And they didn't know how to ask. They didn't want to review it. And whereas great programmers or just professional programmers know that code review is really important.

• 18:46Aaron Levie?

  Yes.

• 18:47Steven Sinofsky?

  And that's just how you do it.

• 18:49Martin Casado?

  I think there's an aspect, well, there's an aspect of this that makes it very difficult to measure. One of them is, and I don't think it's just an early adopter thing, like these, these models are so magic that you get dazzled.

• 19:00Steven Sinofsky?

  Oh, yeah.

• 19:01Martin Casado?

  Even if it's not what you want, you're like, it was great, you know? And I think it's very easy to complete that with being productive. Like, it's not what I wanted, but it was amazing. So therefore, therefore it must be great. So, so like maybe over time, we just abdicate having an opinion and like the model does everything. But right now, and I see this a lot, people are like, they're so enthusiastic about using AI, but it really hasn't impacted, you know, their output. They're just enthusiastic. The second one is I feel like. There's almost shadow productivity.

• 19:31Aaron Levie?

  Oh, sorry. How would you, uh, how would you, how would you verify that, uh, with the way five or 10 person company who, who kind of empirically is operating at like a 50 to 100 person company like, like you just, you can see the, the sheer scale of their code and you're like, okay, you could not have done that 10 years ago.

• 19:50Martin Casado?

  I actually agree with everything Steve is saying, which is so listen, and this is anecdotally, anecdotally, I've worked with a lot of companies. Anecdotally, the more senior small teams that use AI are superhuman.

• 19:58Aaron Levie?

  Yeah, yeah.

• 19:58Martin Casado?

  It's like they woke up and they were all fucking Tony Stark. It is unbelievable. And like their productivity is insane, but they're all, they're all super senior.

• 20:05Aaron Levie?

  You know, and look, they were, they don't, I don't want to take anything at all away, but those companies were also incredibly productive relative to a 10 person team at a big company. Cause there's no code and, and they're starting from a clean slate and.

• 20:17Martin Casado?

  No, they, they really, really wake, uh, yeah, yeah, for sure. And, and like, you know, they're very senior, but they're also almost to a person where AI skeptics to begin with and are incredibly sober about like the value. And so they, they just use it in these very pragmatic ways.

• 20:31Aaron Levie?

  There's one other category that I'm seeing, um, because I just want to be intellectually honest on the full spectrum. I'm seeing these 19 and 20 year olds that are like, first of all, I don't know what is in the water at like Stanford, MIT, et cetera, right now, but like everybody's dropping out. So, so like, just like literally like people are going there for like a week just to drop out. But there is a tendency of that core, it's the 996 people. And there is this tendency, which is, you know, they would have been maybe 10x engineers in a prior world, but now they're like 100x engineers.

• 21:01Martin Casado?

  Yeah.

• 21:02Aaron Levie?

  And so, you know, senior in terms of in their own kind of relative cohort, but like the, the, the way that they are building their startups are just like completely different than it's probably the, if I look at, at, you know, so we dropped out of college. God, that's scary. 19 years ago. Uh, if I look at how these companies run versus today, it's the biggest change in, in how you start and run a company that I've ever seen.

• 21:27Martin Casado?

  Yeah.

• 21:28Aaron Levie?

  And like, and I think if you looked at like in 1995, if you were to drop out of college, uh, versus 2005, when we dropped out of college, I don't think you like, I don't think like the company building process was all that different.

• 21:39Martin Casado?

  Well, I mean, the internet, the internet fundamentally changed.

• 21:42Aaron Levie?

  No, post-internet, post-internet.

• 21:43Martin Casado?

  Okay.

• 21:44Aaron Levie?

  So you're.

• 21:44Martin Casado?

  So you have to rewind, you have to rewind to the internet, because that was a.

• 21:46Aaron Levie?

  Yeah, 100%. We're not in 85. So at 95, you're dropping out to do an internet startup. Okay, you drop out to do an internet startup. By 2005, other than the fact that our resources were in the cloud versus, you know, you'd have to go to a data center. In our case, we actually still went to the data center. Like, not that much about the company building process was different. Today, in 2025, everything about how you're starting your company is completely different because of AI.

• 22:07Steven Sinofsky?

  That, I, I think that, that the key, the, the through line in all that is velocity.

• 22:12Aaron Levie?

  Yes, exactly.

• 22:12Steven Sinofsky?

  And, and I, I think that, that, that cutoff, the internet increased velocity.

• 22:17Aaron Levie?

  Yes.

• 22:17Steven Sinofsky?

  And AI increases velocity the, the same way. And I, I think that that's just super, super important to what's going on.

• 22:24Aaron Levie?

  So we're basically.

• 22:25Steven Sinofsky?

  If you go back, even with the, in the early internet, like when you started a company, there was still a lot of old school, like what's your business plan, what's your plan? We're going to be stealth for two years. There was all of this stuff. And it was really Mark and Ben at Netscape that changed the velocity of, of how companies work. And the cloud was an accelerant to that acceleration of velocity. And, and AI is, is a refactoring of how velocity works.

• 22:51Aaron Levie?

  Yeah, but what was interesting is even in the cloud, like, that was this great virtualizer of the physical stuff you would have to deal with.

• 22:58Steven Sinofsky?

  But that was a two-year buildup.

• 22:59Aaron Levie?

  Yeah, exactly.

• 23:00Steven Sinofsky?

  You were, you know, like, you, you had no, you could have customers.

• 23:03Aaron Levie?

  Yeah, 100%.

• 23:03Steven Sinofsky?

  As soon as you had code, you could have customers.

• 23:05Aaron Levie?

  You're right.

• 23:06Steven Sinofsky?

  Which is like.

• 23:06Martin Casado?

  I mean, yeah, I mean, PLG and a lot of these kind of high-velocity startups actually started pre-AI. Where you have some pretty, like, phenomenal, like, think about, like, GitHub, think about, like, Slack, think about, like, Figma.

• 23:16Aaron Levie?

  Yes.

• 23:16Martin Casado?

  Like, you know, you have some pretty remarkable companies that came pre-AI that are drafting on it. And a lot of that was, like, basically cloud and then the sascification and then unlocking kind of different routes to go to market. Zoom, Zoom was a great early example.

• 23:27Steven Sinofsky?

  This is, the, the thing that AI is, is it's an accelerant in building the product.

• 23:30Aaron Levie?

  Yes.

• 23:30Steven Sinofsky?

  Whereas what, what SaaS and cloud did was accelerate getting paid, which was a thing that used to take two or three years.

• 23:37Martin Casado?

  I mean, arguably, the cloud also made it much quicker to build a product because you'd have, like, these big.

• 23:42Aaron Levie?

  Well, it made it much quicker for customers to all have the same one. I don't think it made it, like, five times faster.

• 23:47Martin Casado?

  Fair enough.

• 23:47Aaron Levie?

  So like, like, I think it was like, it was like, yeah, like, you can see your website a lot quicker, but like, I could see a website in 98 pretty quickly, like.

• 23:55Martin Casado?

  Yeah, but, well, maybe this is an infrastructure thing, building a big distributed service.

• 23:59Aaron Levie?

  No, no, sure, sure, sure. I was not doing distributed.

• 24:01Martin Casado?

  Really, really hard.

• 24:01Aaron Levie?

  Infrastructure in 98, so.

• 24:02Martin Casado?

  Yeah. So, but, so there's, sorry, I just want, so, so I think. AI productivity is hard to measure for two reasons. The first one I just mentioned is it's just really dazzling. So I think like people kind of like, they're like, oh, it's amazing. The second one is I think a lot of the productivity is actually hidden and people measure the wrong thing, right?

• 24:17Steven Sinofsky?

  Shocking that people measure the wrong thing in productivity. Literally the history of productivity measurement.

• 24:22Martin Casado?

  But also what happens here is like you have the board and the board is like, we need more AI. And then so what happens? And they go to like some CTR, some innovations lab. And then the innovations lab do AI. And so like, whatever they like bring in, like build some internal tool and it'll fail. Of course that'll fail, right? But the reality is, is like this AI wave is so personal, like probably most people in the company using chat GPT. Probably there is, you know, some personal assistant, probably, you know, they're using cursor or some coding thing. And that's much, much harder to measure, just because, you know, it's not advertised. And so if you actually look at the reports on like enterprise things fail, you guys look at like what they were, they're measuring. It's like, yeah, clearly some internal project pushed down by the board where they hired like, you know, some consultant to do it is going to fail.

• 25:05Martin Casado?

  Those always fail, but that's actually not what's going on. Like the movement that's happening is a very secular.

• 25:11Steven Sinofsky?

  This is, this is the, the, the next time that bottom up adoption is really changing the productivity equation. And that's a thing that, that it defies. Big companies do not know how to deal with that. Because they, they want, they need to control it. They worry about safety and security and privacy and all of their corporate rules. And, and then also the other thing I think to overlay on that is AI is, is a very unique, if that's not a bad way to say things. Innovation in that it's, it's like non deterministic. And so all of a sudden you have this very personal and non deterministic thing, which, which the real problem in a large organization to all these pilots and AI projects.

• 25:52Steven Sinofsky?

  Is that they, you can't, you can't, you not just measure, but you don't even want to put out there a non deterministic solution. Because your whole thing is like, well, we operate at scale and we have 60 countries.

• 26:04Martin Casado?

  The white blood cells come.

• 26:06Steven Sinofsky?

  We can't put, we can't put like a customer support solution out there. If five agents in five languages all have different answers based on the way that the customer or the, the CS agent asked the question. And I really feel like that is going to be the, the hugest challenge in, in large organizations figuring out how to adopt things. Is like, they're going to just get all bunched up over, over non determinism.

• 26:30Martin Casado?

  Yes.

• 26:31Aaron Levie?

  Yeah, I think that we will have to have some new form of measurement probably in general in this because so much of the improvement in productivity will be will sort of be this like subtle change of like, like I used to go to Google for that.

• 26:48Martin Casado?

  No, my EA is writing emails using ChatGPT.

• 26:51Aaron Levie?

  Right, and so where is that showing up? And other than just like, again, when we talked about this in the last podcast, of just like, we're gonna just start to do higher levels of work. And that will just end up looking different. But you won't be able to be like, okay, how do I measure what the productivity was? When it's just like, I'm working just totally differently.

• 27:06Martin Casado?

  Yeah. But I mean, Coda, I think is such a great example. So like, what do people, in my experience, the more senior folks actually use AI for code? It's like documentation, writing, testing. I mean, it's a lot of the other stuff that may not actually like increase like the shipping schedule, but like you get a lot more robust code, a lot more maintainable code, a much better architecture, a much better future forward architecture. So we could be building tremendously better software, but still be shipping features at the same velocity, right?

• 27:37Aaron Levie?

  We might need to just measure like quality of life as another metric of like literally, I'm just happier, I don't have to do stupid shit.

• 27:45Martin Casado?

  Developers don't want to write that, exactly.

• 27:47Steven Sinofsky?

  But this is, you know, it's so, so easy to get accused of hyperbole and overstating it and things. But what I think is just so key to what's going on is this, is what you were talking about, which is like the whole notion of what you're gonna do at the job is gonna be really different. You know, this is my obligatory super old person thing, but the pre spreadsheet, post spreadsheet is a perfect example of this.

• 28:13Aaron Levie?

  Classic example.

• 28:16Steven Sinofsky?

  I didn't say classic, I said spreadsheet. But, but before spreadsheets, you would be a banker and, you know, you would be like, I'm supposed to help this company get acquired. And you would come up with a financial model and you'd have 50, you know, recent MBAs all churning away with, with their HP calculators figuring out the financial model. And then you'd go like, okay, let's do this again, but if the interest rate changes. Or if their source of funds change. And you're like, okay, well, that's like a week. And everybody has to do it all over again. So you actually, your quality of decision was was really bad.

• 28:51Aaron Levie?

  Yes.

• 28:51Steven Sinofsky?

  And, and so what happened was that just in 1985, like that job just completely changed. And by 1990, instead of asking the recent grads do it, you were doing it yourself. I actually remember this absolutely crystal clear. My, my two cousins were University of Chicago MBA grads in 1985. They did not use a computer to, when they got their MBAs. And when I was talking about going to Microsoft two years later, they were like, well, you know, we have these kids who use the computer for us. And they, they ended up using computers and stuff, but, but like their whole notion of banking was defined by this multi-week turnaround. And then all of a sudden it's just more interns

• 29:33Steven Sinofsky?

  doing their Lotus 123 thing. And this is, it gets to the, you know, what's going on with, with code and startups is, is it's just, there's just like a whole different mindset over how much you can do and how soon and iterate. Figma and Dylan, they're always talking about this. Like this is, like Figma is going to now change the trajectory of a design idea to go from like, oh, let's iterate over here to like, let's just do it.

• 29:57Aaron Levie?

  Yes. I mean, the, the, this is, and this is where it's like, again, a weird thing to like, think about the percentage of my productivity as an example. And like my, my day is like not representative, obviously, because I'm bouncing between too many different things. But like, there'll be so many times where it's 10:00 PM. In a prior world, I would have sent off a task to somebody, you know, you know, some analyst or chief of staff, you know, type, type role, go research this thing. It comes back three days later and then you find the answer. And then now it's obviously just like kick off a deep research, go to cursor to generate a prototype, do, do some kind of analysis. And then you have it back in 10 minutes or 20 minutes. And, and I've just compressed whatever the, whatever that

• 30:38Aaron Levie?

  was kind of then going to be as a, you know, serially connected to that task is now just fully compressed. And so then by the morning, you're now kicking off whatever that project was. Again, like nearly impossible for me to peg like, what is that as a number? It's just like a fundamentally different thing on just what work looks like. And because you're just compressed so many different steps of a workflow into a single action. And so it's just like a completely different way of, of thinking about work.

• 31:04Steven Sinofsky?

  Where does that fit in for you in what we're talking about, what I was asking about earlier, which is how does the expertise, your expertise, really contribute to that?

• 31:14Aaron Levie?

  Yeah.

• 31:14Steven Sinofsky?

  And in particular, I think it'd be interesting for people to understand, like, when you talk to customers, how do you help them to avoid trying to get people to make AI, make them do jobs they couldn't do in the first place?

• 31:24Aaron Levie?

  Yeah.

• 31:25Steven Sinofsky?

  And like, how does, because that's an easy point of failure.

• 31:28Aaron Levie?

  Yeah, I mean, it actually is, this is, this is this really counterintuitive thing where, and you've talked about specialization on the last one, is like, the biggest gains of AI go to people who have some degree of expertise in an area to know what is actually true, what is not going to work, what should I, what should I integrate from the output of this AI? You know, like, what are the 2% of things that maybe are hallucinations, or, you know, took the data in the wrong direction? If you don't have a deep understanding of your particular space or field or domain, you aren't able to then have the right judgment to make all of those decisions. So I think the experts just get more powerful in this world.

• 32:10Aaron Levie?

  And so I would, that is why I'm not even like convinced that you can tell a college student to learn anything different than ever, any other, you know, period in history, like, like be really good at a particular field.

• 32:21Steven Sinofsky?

  Yeah.

• 32:21Aaron Levie?

  And then AI is merely a turbocharger of your capability in that particular field. But like, if I didn't know, if I didn't just like generally know the things I know about, you know, SaaS, which is like, obviously like a really like, like weird expertise, but like, I'm like, okay at understanding SaaS, then I, then the things I give to, you know, a deep research agent that I then go and incorporate back into work, wouldn't make sense, like, to me, I wouldn't have the, I wouldn't have all the context for like, that one thing that it mentioned, how do I like form that into the overall strategy? But because I have some understanding of this particular industry, that just makes me way more productive. So, so I don't think expertise goes away at all. And I think any, any of the experts in their particular area just become more powerful.

• 33:04Martin Casado?

  So we actually have a fair bit of anecdotal market data on this. So it's very, very interesting. So if you take like a lot of these, let's just take kind of a non-text example, like image or video, and if you look at the customer base for any of the popular platforms. Very interesting. So if you if you draw a dollar at random, that's monetized, it's from a professional. And for obvious reasons, because you know, like, you know, they can produce. If you draw a user at random, it's it's casual and it's in the tail.

• 33:31Aaron Levie?

  Right.

• 33:31Martin Casado?

  And so it's fairly clear that, you know, this is a prosumer movement from monetization. And, you know, I'm associated with a number of companies that work with, like, say, professional designers or professional creatives. They spend just as much time on the AI tools as they would on traditional tools.

• 33:47Aaron Levie?

  Yeah.

• 33:47Martin Casado?

  It just turns out the output is far more rich and like, you know, it, you know, it's, it tends to be.

• 33:53Aaron Levie?

  They have a, they have taste that is.

• 33:55Martin Casado?

  Yeah, but it's still human taste. There's still like very specific requirements. And so I think, I think, you know, if there ever is an ads model that ever shows up for AI, I think that there's going to be a long tail of people that want to use AI. But they actually don't have the financial incentive to do it, or it isn't tied to like, you know, their actual job. And we're already starting to see that bifurcate out and there's going to be another subsection that do. And and my sense is the same, if I'm, say, say, I'm writing like, whatever, I'm a casual developer, I'm writing a 3D game. And I want to have like a 3D asset. I've got one of two choices. I can have AI create it for me, or I can, you know, contract a professional to do it. Like, me as a developer, I'm not going to create, even if I use AI, it's not going to be a great 3D asset, right? And so I think that, you know, you're going to have the same line that you have today.

• 34:39Martin Casado?

  It's either you can hack something up yourself, or you can go with a professional and the professional will be using AI.

• 34:43Aaron Levie?

  And and I think what's super exciting is is that the AI has created a third category, which is, which is, I am. I'm not trying to do this as a job. I'm never going to monetize this. But there's some product utility gain to me that is worth 20 bucks a month. So my ability to now generate prototypes when I'm by myself just brainstorming. Like, again, I'm not going to do anything in the ultimate delivery of that, you know, into any functional code. But like the, like, it's worth $20 for me to be able to go and like, realize the thing that I'm thinking about.

• 35:14Martin Casado?

  Yeah.

• 35:14Aaron Levie?

  And so so there's just like all new ways of of capturing TAM, because there's all this utility that gets unlocked.

• 35:21Martin Casado?

  Right. And there's one, there's, there's one more thing that's that's worth noting, which is people that are interested in an area, in an area, get that through AI right now.

• 35:26Aaron Levie?

  Yes.

• 35:27Martin Casado?

  It's like, this is the number one opportunity for somebody. You know, that wants to enter an area to do it as an AI native, right? Because A, like the tool actually can teach you.

• 35:34Steven Sinofsky?

  Yes.

• 35:34Martin Casado?

  You know, and then there's just such a paucity of of talent out there that you can fill.

• 35:39Steven Sinofsky?

  And this is also, I mean, this is the history of of productivity in general, which is you, you, the more tools that you have available, first the experts use them. And then more people are able to become experts. And and I, as long, but that's part of your managing your own career. I love that point you made about like, you still have to be really good at something. And and I think that that, you know, if you want to be good at finance or at sales, you you should become really good at it and assume you're going to use AI for that.

• 36:09Martin Casado?

  Yeah.

• 36:09Steven Sinofsky?

  And you're going to be better than the people pretending. And I, and I think that that's very much like if you just take, you know, we were going back and forth about, you know, oh, it makes a PowerPoint slide deck. Well, it turns out to make a good PowerPoint deck is still a skill.

• 36:21Martin Casado?

  Yeah.

• 36:21Steven Sinofsky?

  And people still pay McKinsey huge amounts of money for better PowerPoint decks with better pictures.

• 36:26Martin Casado?

  Yeah. So so listen, I so I I contract a lot of work for like videos and art. And I have for a very long time, you know, as part of like different companies or even here at A16Z. You know, I have seen the shift for contracting some that use traditional techniques to AI. Dollar amounts are the same.

• 36:42Steven Sinofsky?

  Yeah.

• 36:42Martin Casado?

  And so again, like, you know, this is Jevon's paradox all over again. Like you spend just as much time.

• 36:46Steven Sinofsky?

  Yes.

• 36:47Martin Casado?

  Um, you know, it's just the output tends to be more dazzling or whatever it is.

• 36:51Steven Sinofsky?

  Yes. And you should see more versions of it. You should run more simulations and other ideas.

• 36:55Martin Casado?

  You've got more iteration with them. You've got more control. Like I can, I listen, I can have a video where like, and I want a dragon to fly out of the sky. You know, so like you have like a lot more control as as the customer. But for sure, you know, this is not somehow like dropping the cost of output.

• 37:11Erik Torenberg?

  I want to, are we about to jump in? I want to circle back to a point you made earlier about that there are 20 year olds who are building in companies in new ways. Because remember a few years ago, I think Patrick Carlson and a few others were asking, hey, where are all the Gen Z super successful founders? Remember that? And and of course, there was Dylan Field and Alexander Wang, but their companies took a few years. Yeah. But but now, you know, we're seeing the cursor founders, the more core founders sort of, you know, get to massive scale in a very short period of time. And maybe it was that the foundation model companies required, you know, certain level of, uh, you know, experienced founder because of the fundraising amounts. And maybe the applications are, you know, more conducive to younger founders. But what's your sort of reflection on this?

• 37:47Aaron Levie?

  Well, I don't remember exactly the date at which he mentioned that, but I do think there was a period between in the sort of mid 2010s to late to early 2020s, where we were actually in kind of a bit of a lull as an industry. And the reason for that was like, we kind of did like check off a lot of boxes of like the core things that people needed in the world. And so we like checked off like a lot of the, like, once you have Slack, you don't need five other chat tools. Once you have Zoom, you don't need five other video conferencing tools. And so it gets kind of derivative, you know, past these kind of core platforms. And so, once you have like SaaS, you know, kind of check off all the major like things

• 38:32Aaron Levie?

  you do at work. And then in the consumer world, we like, we had ways of delivering food and listening to music and watching videos. So like, there's like not an infinite set of things that we do as consumers. Then what is the 20-year-old founder supposed to work on? Like, they're gonna, it's like, you have pretty finite opportunities as compared to in the mid 2000s, let's say, the whole world was open. You could start anything. And because every single category had to be reinvented, kind of post-mobile, post, you know, kind of cloud maturity. So we now have that era in AI. And that is why I'm like so unbelievably pumped up. And it's because you have a complete reset of the landscape where there's like, there is incumbent advantage in distribution, but that is it.

• 39:17Aaron Levie?

  There's no other real advantage.

• 39:19Steven Sinofsky?

  Well, there's a bunch of disadvantages.

• 39:21Aaron Levie?

  Yes, and then there's a bunch of disadvantages.

• 39:22Steven Sinofsky?

  But I do, yeah, go ahead.

• 39:23Aaron Levie?

  No, no, no, but like, I mean, you know where I'm going. So like, so you have this, you have the exact makings of a landscape where, where new startups can come in and do things that incumbents either can't, or there's no obvious incumbent to even do that thing. Because again, you're taking maybe like services and turning them into AI labor. And there was no software incumbent previously to even attempt to do that. And then you have incumbents that have a whole lot of complexity in terms of their ability to go and execute in some of these spaces. And they're not going to retool their entire internal engineering workflows to move at 10x the pace. And so a brand new startup can go and do that and then instantly get the scale of a larger company. So it's the first time in history where you have none of the disadvantages of a big company. And the traditional advantage you have as a big company is you have scale and you have

• 40:08Aaron Levie?

  distribution. Scale because you can look at a feature and you say, we're going to go build that next month. And obviously, it's harder because there's like, you know, there's just lots of complexity to that. But at least you have the human power to go do that. Now, as a startup, you instantly have scale because, you know, background agents, et cetera. And so then it's a distribution game. And a lot of these pieces of software can go viral now in a way that wasn't possible 10 or 15 years ago. So we've kind of neutralized a lot of the incumbent advantages. And so thus, it's a ripe opportunity for brand new startups. Often will be people just like coming right out of college saying, hey, it's my first time building a company. Like, they're crazy enough to not know how hard it is. So they'll jump right into markets that otherwise we would assume are like, the market's already

• 40:51Aaron Levie?

  solved for. There's no way that you're going to build a company. And you'll just have new startups that actually go and do it and actually produce real, you know, real companies in these spaces.

• 40:58Steven Sinofsky?

  Yeah, because I mean, this is just so critical because what's really happening is this is why you know it's an actual platform shift. So Silicon Valley has seen this movie many times before. And that's why often there's a lot of this, you know, is this crying wolf or not? Because everybody knows that when there's a platform shift, that's the moment in time that startups are at an advantage.

• 41:23Aaron Levie?

  Yes.

• 41:23Steven Sinofsky?

  And so each time there's a platform shift, like, everybody's like, oh, this is it. This can reinvent it. And then it doesn't. And people get really like, oh, it's always incumbents. But historically, like, the advantages to incumbents are wildly overestimated.

• 41:37Aaron Levie?

  Uh huh.

• 41:37Steven Sinofsky?

  And really, I mean, this is this one where, you know, like, you know, was, did the internet undo Microsoft or not undo Microsoft? Is a super interesting thing. Because of course, there's a $3 trillion company now. But not on the internet in a way that you think about the internet. Like, none of the consumers, none of the platforms, none of the assets that we had in the 90s

• 41:58Aaron Levie?

  Yeah.

• 41:59Steven Sinofsky?

  became internet assets. I mean, even if you look at Azure today, it's an amazing accomplishment. It's not running Windows anywhere.

• 42:05Aaron Levie?

  Right.

• 42:05Steven Sinofsky?

  And I think that that's why, you know, it's not crazy to go, wow, is this going to be good or bad for Google? Because there's a bunch of stuff that

• 42:14Martin Casado?

  Becomes really, really difficult if you if you don't make transition. And then it turns out historically, even if you do make the transition, you really didn't and you just have to wait for time to pass. Well, and this is like Intel with the GPU.

• 42:28Aaron Levie?

  Yes.

• 42:28Martin Casado?

  Like they they missed the GPU in 2005.

• 42:31Aaron Levie?

  Right.

• 42:32Martin Casado?

  And they missed the opportunity to buy the company, to do the work or whatever. And they kind of missed the data center too. It just took a longer time to figure out that they missed that as well.

• 42:40Aaron Levie?

  And we have a pretty narrow definition of like disruption in the sense of like, we expect that the incumbent has to lose from this new startup.

• 42:48Martin Casado?

  And that never happens.

• 42:49Aaron Levie?

  It never happens. And so it's the it's the whole radio, TV, you know, theater, you know, movie analogy. And it's like, it's like, no, like, like, it turns out that Microsoft can be a $4 trillion company. And you can have all these new categories emerge that maybe Microsoft should have owned if everything was like perfectly analogous to the desktop days. But they just don't and it all works together as as one sort of ecosystem. Because it just turns out like software did eat the world. And these markets are actually just like 100 times larger than what we realized. And so incumbents can grow and then you have new disruptors.

• 43:19Martin Casado?

  Yeah.

• 43:19Aaron Levie?

  That that sort of emerge along the way.

• 43:21Martin Casado?

  Yeah, anytime you bring in a new technology that brings the marginal costs down, then like the market's going to expand and like the incumbents can do it. I will say incumbents are very bad when new user behaviors and buying behavior show up. Like in particular, they don't know how to cater to it. AI is definitely a new user behavior and a new buying behavior. And so this is very much an advantage of startups just because, you know, to change a a large company around a new user behavior cuts to the entire company. Everything from basically marketing all the way to support in the backend. That's just too much of a lift.

• 43:50Aaron Levie?

  I mean, if you look at the if you look at the best practices of of like even how you would create an agent in the last 18 months, I think we've gone through two to three architecture pattern changes. And so like it's just like, you know, I can barely keep up as a, you know, midsize company. I can't imagine if you just had so many more people you had to like organize around that.

• 44:13Martin Casado?

  Disruptive new technologies require, you know, people to understand how to use them in consumption in different ways. That evolves over time as you get best practices. Like that sort of flexibility can only come. It's actually a very interesting question of how Microsoft actually did co-pilot to begin with. Because it was actually one of the first ones of these products was very successful. I learned recently it was created by OpenAI, so that kind of explains it.

• 44:33Steven Sinofsky?

  Well, but you had a person and conveniently he was a startup guy.

• 44:39Martin Casado?

  Yeah, yeah, yeah.

• 44:39Steven Sinofsky?

  So, and conveniently.

• 44:42Martin Casado?

  Even then, by the way, it's remarkable that it came out of Microsoft.

• 44:45Steven Sinofsky?

  What's always remarkable is when, when something new and defining comes from these big companies, you a hundred percent of the time you look into it and you're like, it was basically skunkworks. Basically, they had nothing to lose.

• 44:57Martin Casado?

  Exactly, exactly.

• 44:58Steven Sinofsky?

  And, and it didn't interfere. Like the iPod is this classic one, people or the iPhone even. People always talk about like the brave. It's like their computer business was dead, dead, dead. Like there was, it was like 3% share and going nowhere. So like it, it was like a hail Mary. The iPod was a hail Mary. And then the phone, they weren't in the phone business. It didn't matter. And the fact that they made a phone a little computer is what Nokia was like, whoa, what is that? And, and I think people really need to wrap their heads around just the fact that, to your point, that the, the big companies stay around a very, very long time. And this is something I've seen a bunch of people in the past couple of weeks. You know, it's basically Christensen Innovator's Lemon. Of course, nobody's ever read the book.

• 45:41Steven Sinofsky?

  And, and Clay is a great guy, you know, he was down the hall when I was teaching there. And the, the thing is, is that this is a book like about two and a half inch disk drives.

• 45:50Martin Casado?

  Yeah.

• 45:51Steven Sinofsky?

  And a bunch of really crazy.

• 45:52Martin Casado?

  I really don't think it applies to modern stuff.

• 45:54Steven Sinofsky?

  But the thing that he, he missed, aside from he missed the cost and low, high end and thing, but was also that the companies don't evaporate. And your, your point about that is really important. And so what it does is there's this shadow that everybody is worried about. And so you just see it constantly. Well, like the, I assume like you, you, when a company is like, we're not worried about if Google does this. That's what you want to hear.

• 46:17Martin Casado?

  Right.

• 46:17Steven Sinofsky?

  Because like it's just, I mean, and you've lived this. Because you, you were like the classics, you know, Steve Jobs said you're a feature. And here, not just that, there's like two whole companies that do this stuff now.

• 46:27Martin Casado?

  Fortunately, he only said that to Drew, so.

• 46:28Steven Sinofsky?

  Right, right.

• 46:29Martin Casado?

  I got the gay version of that one.

• 46:31Steven Sinofsky?

  Yeah, yeah, yeah. But, uh, no, but the, the one thing that is very timeless, uh, about, about Clay.

• 46:37Aaron Levie?

  Uh, would be, would be the thing that has, the thing that does transcend floppies or, you know, whatever the, whatever thing is, is the incumbent doesn't want to do something that's against their business model.

• 46:47Steven Sinofsky?

  Of course, of course.

• 46:47Aaron Levie?

  And that, that part is, is fully timeless.

• 46:49Steven Sinofsky?

  Yep.

• 46:50Aaron Levie?

  And to your point, it's actually very rare whenever we say these companies disrupted themselves. It's almost never the case that they disrupted themselves. It's the case that they, they went after a market that they had no, no actual, you know, you know, market share in and it just worked.

• 47:04Steven Sinofsky?

  Which was the development tools for Microsoft.

• 47:06Aaron Levie?

  Yeah.

• 47:06Steven Sinofsky?

  Cause like the window, there was no business in Microsoft development tools anymore. Cause nobody was writing Windows programs. So really it was like, what could we do for the cloud?

• 47:15Martin Casado?

  Honestly, it's even a little bit of a silly discussion to do this with AI. Like AI is very disruptive. So we're like, okay, well then it allows startups to like work against incumbents. But even in non disruptive technologies, startups often have a play against.

• 47:27Aaron Levie?

  Yeah.

• 47:28Martin Casado?

  So for example, every year, I'm an, I'm an infrastructure investor. Every year for the last 10 years, after AWS reinvent, I move into therapist mode. And all of my founders, all of my founders call me. And they're, they're launching my open source or competing with, it happens every single time. And I'm always like, you know what?

• 47:44Aaron Levie?

  That's really.

• 47:45Martin Casado?

  You'll be fine. I can't think of one company AWS has ever put out a business by launching a service. And you know what? They've all been fine. And so in some ways, even in like the normal, like state of business without massive disruption, startups still have.

• 47:58Aaron Levie?

  Yeah. It was, don't build a sequel server and compete with Oracle directly. And don't build a word processor. Those are two.

• 48:03Steven Sinofsky?

  Maybe there's a thing that we're pretty evergreen for a long time.

• 48:05Martin Casado?

  Do a spreadsheet, like those are a few things that.

• 48:07Aaron Levie?

  No, there are some categories where people should call us first.

• 48:09Martin Casado?

  Yeah.

• 48:11Aaron Levie?

  They won't change.

• 48:12Steven Sinofsky?

  There's a far side.

• 48:13Aaron Levie?

  We should, we should definitely show people that. It's a really, oh, can I add 10 cents? Why do you want 10 cents for your startup? So I could buy a loaf of bread and beat you over the head with it. It's such a dumb idea. It's a good one.

• 48:24Martin Casado?

  We should, we should have a call in on this thing, right?

• 48:27Aaron Levie?

  Oh yeah. Here's my startup. The, the thing though, that, that, the, the other thing that I just don't think we've had, at least I don't know of a modern kind of case study for is, is again, this, uh, this opening up of non software TAM for software.

• 48:42Steven Sinofsky?

  Yeah.

• 48:42Aaron Levie?

  So it's not even incumbents in the classic sense. The incumbents are, are, are. Really just professional services categories of work. And so, and so it's really, for the first time ever, you're packaging up intelligence for a particular domain and workflow. And so there's no software company you're competing against for the dollars.

• 49:00Martin Casado?

  But it could be the vertical company, right?

• 49:02Aaron Levie?

  Yes.

• 49:02Martin Casado?

  You know, like you have to become an ag company.

• 49:04Aaron Levie?

  But then, but the vertical company will probably also be your customer though. Yeah, they're also your customer. So it's actually this amazing thing where, where the people you're probably disrupting on paper are actually the primary users of your technology.

• 49:16Martin Casado?

  Better can actually take advantage.

• 49:17Aaron Levie?

  Yes. And so then it's like, it's like, there's really no inherent competition until, until, you know, eventually like more companies flood that space to do that idea.

• 49:24Martin Casado?

  So this plays out in practice. If you have a company, an AI company that goes after, say, like agriculture or construction, they end up like realizing the competitive set are agriculture and construction. The buyer knows how to price things like agriculture, construction. They end up becoming basically agriculture and construction companies. And then they end up doing exactly what you're saying is selling to the agriculture.

• 49:45Martin Casado?

  Cause they're not good at that.

• 49:46Aaron Levie?

  There's a whole world.

• 49:47Steven Sinofsky?

  In fact, the earliest PC software was extremely vertical. Like if you actually look at the TRS 80 catalog from the early 1980s or late 1970s, it would be like, this is crop rotation software. Literally like, okay, this is what you should do. Like, and you, and the salesperson for Tandy would show up in Nebraska and sell crop rotation software. And then there was like, I run a dentist's office and this is scheduling for a dentist's office. And what happened was, and this is what I think is going to happen is these professional services organizations are, there are going to be some that are like computer savvy.

• 50:23Aaron Levie?

  Yeah.

• 50:23Steven Sinofsky?

  And today they're really good at using existing. They're just going to go, you know what? We should just build like a company.

• 50:29Aaron Levie?

  Yes.

• 50:29Steven Sinofsky?

  Huge numbers of these verticals are just going to be existing pro serve.

• 50:33Aaron Levie?

  Yes.

• 50:33Steven Sinofsky?

  That turn into software providers.

• 50:35Aaron Levie?

  I think it's an incredible time where, where if, let's just pretend that you're just, you're just are committed to not building a software company. Like you don't want to do that, or you don't maybe have the, the team to do that. So you're going to build like a real world company. It's incredible time if you started from scratch with now AI as your, as your foundation. If you wanted to be a new systems integrator and your whole point is, is that we are a systems integrator, but we use Claude code or we use cognition or we use, you know, cursor to, to get the output. You will have such an advantage over any incumbent because the incumbent is not going to be able to rebuild that. So I've seen examples of people building new ad agencies.

• 51:09Martin Casado?

  Oh, yeah.

• 51:10Aaron Levie?

  Cause obviously like, if you can do literally a million dollar ad, you know, video, you know, campaign for, you know, $5,000. Somewhere between those two numbers, you can charge the customer. So, so there's like this incredible time where you can just be building all new kinds of companies from the ground up, leveraging the breakthroughs that we've now seen in AI.

• 51:27Steven Sinofsky?

  That actually did, that was an early internet thing that did really happen, which is particularly in the advertising space, and I think it's going to happen in everything that's text and everything, which was, there were these digital native ad agencies that just knew how to use flash.

• 51:39Aaron Levie?

  Right, right.

• 51:40Steven Sinofsky?

  And they got, like, they would get bought for a billion dollars.

• 51:42Martin Casado?

  The same thing happened with social, by the way.

• 51:44Steven Sinofsky?

  Yeah, exactly, exactly. What did you think of this survey that was, how many people use AI every week? I thought this was pretty interesting.

• 51:50Aaron Levie?

  Yes, what was the, what was your, what was your Pew response?

• 51:54Steven Sinofsky?

  Well, it turns out, like, the number of people, it's like up to 75% of adults are using it many times per week. And of course, you just see it when you use Google search. It's all self-reported, so you don't really know. But it was pretty interesting, because I pulled a 1999 Pew study on internet usage.

• 52:09Aaron Levie?

  As you would.

• 52:10Steven Sinofsky?

  As I would.

• 52:12Steven Sinofsky?

  Like, basically, in 1999, like, half the country owned computers.

• 52:16Aaron Levie?

  Yeah.

• 52:16Steven Sinofsky?

  And they were all online.

• 52:18Aaron Levie?

  Yeah.

• 52:19Steven Sinofsky?

  Even four years post Netscape, it was like still half the country. And so you look at that as being slow or being fast?

• 52:25Aaron Levie?

  It was fast back then. I mean, that felt fast, actually.

• 52:27Steven Sinofsky?

  We had to spend $3,000.

• 52:29Martin Casado?

  Activation energy was buying a computer.

• 52:31Steven Sinofsky?

  But still, you know, if you discount the search AI.

• 52:34Aaron Levie?

  Yes.

• 52:34Steven Sinofsky?

  There's still, you know, activation energy to, to figure out what this new thing is. Nobody knows how to ask questions to a blank edit control, like, make me smart about something.

• 52:43Aaron Levie?

  I think the, the, I mean, the adopt, the universal adoption of this as a consumer technology and then bleeding into prosumer is, is, it exceeds anything I've ever, ever experienced. And I think it is, it will just fundamentally change people's sort of daily patterns. Like, my sister, not in tech at all, teacher, like, she was in town and she was like, yeah, I was asking chat this question, and like, I had to like do a double take. I was like, like, chat, and I was like, oh, ChatGPT, that's what they, that's what normal people call this. And it's just like, it's just like, it's completely pervasive as just a standard technology. And so that, to me, is just like, okay, we now have the conditions laid for the next phase, which is, and we've, we've now seen this for a couple of decades, which is, consumer adoption now goes first, and, and then it gets based

• 53:26Aaron Levie?

  Pulled into the enterprise because you go to work and you're like, why can't I ask questions of my enterprise systems? The way that I can everything else in the world? And why am I not getting that same level of productivity gain? And then you're gonna have the kids coming out of college that like they only know how to do homework with with chat GPT. They come into the workforce and they're like, why would I spend two weeks writing this report? When I just came out writing essays in an hour? Like, obviously, something has to kind of give on this. So this is why this is just lays the the foundation for why we're going to see just a massive upgrade cycle in the enterprise.

• 54:00Steven Sinofsky?

  Also, to build on your point earlier, like about distribution. And the reason that distribution is not the advantage that it used to be is because it's already exists on seven billion phones. And and so at every other platform shift, there was an upside to getting new distribution.

• 54:16Aaron Levie?

  Right.

• 54:16Steven Sinofsky?

  That didn't exist before, and but you had to overcome that, like you had to get. Like the internet to people who didn't have the internet before you had to get SAS to people who didn't. Now, everybody has all of the ingredients right now.

• 54:28Aaron Levie?

  Anytime your business strategy relies on Comcast showing up in a neighborhood. For for me to get distribution like that, you're gonna have some problems. So this is a very different trend.

• 54:37Martin Casado?

  Honestly, last quick point on this is like, for the first time in a very long time, we're seeing brand effects with an early technology. And what I mean by that is, if you look at like, whatever, the major model providers. You know, how much better are they from each other like, you know, maybe, you know, a little bit, maybe not like, you know, it changes all the time. But you actually see clear leaders if they break out early, just because people are in like the house on landing. People are mid journey, people know OpenAI, etc. So these markets are so big, they're growing so fast that like, you know, if you become a leader in your segment, people will just adopt you.

• 55:07Steven Sinofsky?

  But but don't discount, you know, like the early leaders of search were like Excite and Yahoo. And so there's like, this is just to not discourage people.

• 55:15Martin Casado?

  Yeah, we're still in the early game.

• 55:16Steven Sinofsky?

  Right, like it's so early that names that you never heard of existed before Google. And that's going to be really important.

• 55:22Martin Casado?

  Yep.

• 55:22Steven Sinofsky?

  It's never the first people.

• 55:23Martin Casado?

  Yeah.

• 55:23Erik Torenberg?

  When we look at mobile, there were big companies built, you know, like Uber and WhatsApp and Instagram and TikTok. But the biggest beneficiaries were Facebook and and and Google. In AI, do we think it will be different that sort of the biggest companies in in the world in 10 to 20 years from now will be with created? You know, after chat GPT or?

• 55:43Erik Torenberg?

  Or will it be similar that?

• 55:44Aaron Levie?

  What's your timeframe?

• 55:46Erik Torenberg?

  You know, post 2019, I don't know.

• 55:48Aaron Levie?

  No, no, how many 10 to 20 years you said?

• 55:50Erik Torenberg?

  Oh, yeah, sure.

• 55:51Aaron Levie?

  Okay, so we can't know if we're wrong.

• 55:55Aaron Levie?

  I think this is so boring, but I think I think it's gonna look like what we saw in something like SaaS or cloud, which is the incumbents get bigger. But then there's all of these new categories that we would not have been able to predict. And then there's lots of 10 and 20 and 50 and 100 billion dollar companies that also emerge. And then over time, those will just continue to scale.

• 56:16Erik Torenberg?

  Similar to mobile?

• 56:16Martin Casado?

  And some don't make the transition.

• 56:18Aaron Levie?

  Yeah, yeah, some will go down on a relative basis because they're or like their market wasn't as ripe for agentic kind of workflows. But I think that you can kind of say, you know, maybe this is then for another conversation is just like, if you have a current system of record that that has a set of workflows on it, where agents make sense to make that workflow much more powerful, that's a good position to be in. But I bet you that if we look back in 10 or 20 years from now, the vast majority of things agents do don't relate to just those things that we are currently looking at because there's just so many more fields that are now open. And so all of those use cases, I would favor the disruptor and or insurgent. And then in the in the today's spaces, I would kind of favor the incumbent on the margin.

• 57:02Aaron Levie?

  But the markets are so large that all you're going to see kind of growth in all of them.

• 57:06Steven Sinofsky?

  There's a key attribute across all of those, which, you know, is sort of like thought leadership. Or like who who is really setting the agenda for what people are talking about? And I think that's the thing that really changes. The incumbents become bigger, but nobody wakes up in the morning wondering what they're up to.

• 57:24Aaron Levie?

  Right.

• 57:24Steven Sinofsky?

  Nobody starts to wonder, well, if they're gonna do it, we need to understand it. And that's the shift. And you could think of it in the enterprise space or the business space. Like, what do the CIOs, who do they wake up thinking about? And that that was a huge shift that sort of goes under the radar. And in the consumer space, it just like it becomes the, I understand, I use ChatGPT at school. I need ChatGPT.

• 57:46Aaron Levie?

  Yeah.

• 57:46Steven Sinofsky?

  And there's nothing you could do about it as a company.

• 57:48Martin Casado?

  I think the more provocative question is, is are there any laggards that will use this to get ahead? And we've seen this in the past, right? Like, will Cisco do something interesting?

• 57:57Aaron Levie?

  Yeah.

• 57:57Martin Casado?

  Oracle is making some kind of crazy moves. Like, are we gonna see those that, like, missed, like, social?

• 58:02Aaron Levie?

  No, I think we, everybody missed Oracle as an example, right?

• 58:05Martin Casado?

  Yeah, totally.

• 58:06Aaron Levie?

  From three years to today, like, you would not have been like, oh, definitely the next point in our company.

• 58:10Martin Casado?

  Microsoft had its moment of like, you know, you didn't know the future, and then it used cloud and Azure to kind of come back. And so, you know, this actually is an opportunity for laggards that are behind the curve to come back.

• 58:18Aaron Levie?

  Yeah. Uh, to the Cisco point, like, data centers are sexy. Like, it turns out that we're just gonna be building out lots of AI factories everywhere. So you're gonna get more scale from, from parts of the stack that we stopped paying, like, Broadcom, like, again, people were not.

• 58:31Martin Casado?

  Hawk, Hawk, yeah. Hawk is gonna end up right there. I've been looking at Jensen, or maybe somebody else, so.

• 58:36Speaker 03

  We'll table the rest for the next conversation.

• 58:38Martin Casado?

  Thank you so much for coming on.

• 58:41Speaker 03

  Thanks for listening to the A16Z Podcast. If you enjoyed the episode, let us know by leaving a review at ratethispodcast.com/a16z. We've got more great conversations coming your way. See you next time. As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com/disclosures.