The 2 Lessons Silicon Valley Relearns Every Decade

Growth Newsletter: https://levelingup.beehiiv.com/subscribe Need marketing help? Visit: https://www.singlegrain.com/ and https://npdigital.com/Want to recruit great marketers? Find them here: https://marketingschool.io/hire Neil and Eric dig into the two lessons Silicon Valley keeps relearning every decade, straight from Ben Thompson's conversation with Patrick O'Shaughnessy: consumers don't want to pay for software, and they don't care about being productive. They trace the pattern from Dropbox's forced pivot to B2B through to OpenAI replaying the same story at 100x scale, why advertising was always the endgame for ChatGPT, whether the SaaSpocalypse is real, and what the future of marketing looks like when AI knows your smartest moments. A sharp episode on where the money in software actually comes from. Key takeaways◾Consumers won't pay for software — advertising is the consumer endgame◾SaaS isn't dying, it's consolidating into B2B◾The next marketing frontier is reaching people in their smart moments Chapters00:00 The 2 lessons Silicon Valley relearns00:21 Ads over subscriptions: Dropbox to OpenAI03:32 SaaS isn't dying, it's going B2B05:55 Bubble or buildout?07:32 AI's long-term explosion11:32 Marketing in smart moments

• 0:00Speaker 00

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• 0:43Speaker 01

  What are the same two lessons?

• 0:46Speaker 00

  First and foremost, if you're watching on camera right now, Neil, are you crying? We'll go over that in a moment while we're crying, but this guy, Ben Thompson from Startitichery. Startitichery? He was on the Patrick O'Shaughnessy podcast, so the same thing that Silicon Valley learns every two years, or every 10 years, rather, is, one, consumers do not want to pay for software. And, two, consumers do not care about being productive. What does that mean? Look at Dropbox. Nobody wants, remember early days of Dropbox? What ends up happening was this. Dropbox had to go more B2B, because they realized that only businesses were willing to pay for storage, right? Because they were charging individuals like 20 bucks a month, but most people don't want to pay for that.

• 1:29Speaker 00

  So ChatGPT is learning that most people don't want to pay for these subscriptions. It's better, he was saying that they're better off just starting in advertising first, right? So he's saying, had they leaned into advertising immediately, as soon as ChatGPT was hit, they would have a great ad product right now. And so charging people money is hard. Giving people things for free is easy, right? So you look at Meta, for example, Google as an example, right? Meta, Google. Amazon, Amazon's a big ad business, but they didn't start out like that. Who else is a good example of this? Amazon, oh, sorry, sorry. Meta, Google, who else?

• 2:01Speaker 01

  All the social networks. X.

• 2:04Speaker 00

  TikTok?

• 2:04Speaker 01

  Yeah, TikTok, Snap.

• 2:06Speaker 00

  Yep. So when you have the volume, you're better off just giving it away for free or charging ads, and then charging businesses too. So when Anthropic started, they started off just charging mostly businesses, they went businesses first, right? So I think it's really interesting that Ben calls this out, because he's been a tech writer for a very, very long time. Like, you and I have read his stuff for years and years. And so, again, the two lessons are, one, consumers do not want to pay for software. And, two, consumers do not care about being productive.

• 2:33Speaker 01

  So let's go back to consumers not wanting to pay for software. If you wanted to talk specifically about the social networks, whether you consider it a service or a software, I get it, it's all similar concepts. Quite a few of them have tried charging for different things, including showing of no ads. But if you look, majority of the revenue still comes from ads and not subscriptions, because the majority of the people don't want to pay for no ads. We'd rather see ads than pay money and not show ads, because one actually costs us money, the other, you know, you can ignore, skip, check out your phone at the same time. And which is very common. There's a lot of people, there's been studies on this, that have streaming services

• 3:17Speaker 01

  at the lower tiers, so they're being shown ads, but they pull out their phones at the same time as ads appear. And my sister is a great example. Did you know her Amazon Prime account shows ads? Like, no joke, her Amazon Prime account shows ads, and she has money. Although I did, this sounds bad, but I think, I'm pretty sure I logged into her TV with my username, because I was tired of seeing the ads when I was at her house.

• 3:43Speaker 00

  That doesn't sound bad, because here's the thing, my Disney Plus, I was watching last week, and I think I was part of a bundle, and they started adding ads into it. And I got so angry that I like went through my phone, and I immediately added to the next level. So I would happily pay, but what's happening is Disney's, they're kind of squeezing other people, so they're like, if you're part of this legacy bundle, we're adding ads for it. And it almost doesn't even matter if you're paying, if you're a lower tier now.

• 4:06Speaker 01

  Yeah, so I do see that. And if you look at software as a service, the biggest software as a service companies I know are all B2B. Microsoft is a great example, B2B, Salesforce is a good example, B2B, Atlassian's a good example, B2B, SAP is another great example, B2B. I don't know if you saw the announcement that happened a few days ago, I don't know exactly when this podcast comes out. Salesforce announced a partnership with

• 4:31Speaker 00

  Anthropic?

• 4:32Speaker 01

  Anthropic.

• 4:32Speaker 00

  Yep, I saw that. That was yesterday.

• 4:35Speaker 01

  What is it called?

• 4:36Speaker 00

  Something Force? Something, or Clouforce?

• 4:39Speaker 01

  Clouforce, there you go. So, and that's going up, I think Salesforce's stock popped 23-ish percent, I could be off, somewhere around there.

• 4:47Speaker 00

  Do you know the details of the partnership? I didn't look into, I saw the videos popping up on my YouTube.

• 4:51Speaker 01

  So, there's a whole interview with Dario,

• 4:56Speaker 01

  Mark Benioff, and I don't know who the other person is, they're interviewing or filming. I do know Benioff also gave an interview with Kramer. But to go specifics about software, he straight up said on the interview, there is no SaaS apocalypse. Everyone said there's going to be seat compression, they're seeing more seats being added, more people paying, and more companies paying for their software. And he said something that was actually quite entertaining. He's like, within, and I'm paraphrasing here, and I could be off on my mile radius. He's like, within a mile, or half a mile, or five miles, he's like, you can have three or four, whatever, the biggest AI companies, and he's like, they've all added more, they all use Slack, they all use Salesforce, he's like, they've added more seats.

• 5:40Speaker 01

  And they're paying more for the software than they did, you know, a year ago. And he was just breaking down how businesses keep paying for it. I do agree with that. I think there's actually another nuance here, if you're actually going to leverage this for marketing. Smaller businesses also don't like paying for software. So if you can figure out how to give the low end of the market something for free, and then use that virality, because you're giving it away for free, to capture more word of mouth, more digital PR, and that helps you get a smaller percentage of larger companies filling out their form and applying to work with you, or use your software, buy it, or whatever it may be, or service. You can then create

• 6:25Speaker 01

  a really good flywheel that's affordable, collect a lot of leads, and sell them.

• 6:29Speaker 00

  By the way, speaking of the SaaS apocalypse, right, you look at the stock market, right? So everyone's like, okay, this Nvidia, Nvidia's, you know, going up again, like, all the stocks are like, going up. But here's the thing. Without going too much into, you know, markets and finance, you look at the government, the Treasury is, they're doing buybacks, right? They're trying to bring the 30-year yield down, right? So interest rate, they're trying to bring it down. The reason for that is because they're trying to, one of our mutual friends who listens to this podcast, George Gamm, I was watching one of his videos. And so he's saying, look, the Treasury is trying to bring interest rates down, because they are trying to make sure that these hyperscalers, when they're issuing bonds, right? These, they're issuing loans on their side, that they can keep up.

• 7:11Speaker 00

  Because if the 30-year yield is too high, then, you know, they have, like, if it's 8%, they have to charge 9% or 10%, right? And then they're not going to be able to pay back those loans. And so, his argument is that the Treasury is trying to make sure that the hyperscalers can continue to spend, because that is what's propping up the market right now. And the argument is, like, I saw one of our mutual friends, you know, one of his videos, they on like, how many of you are actually productive with AI, and it's making money for your company, right? And so, like, I just want us to react to this, because you and I, you and I might have different opinions. We might have the same opinions, but, you know, do we think that this is a, this is a bubble right now? Because, you know, Salesforce is saying they're seeing seat expansion, they're seeing more usage overall. You see, you see the SaaS company, like, Atlassian is crushing it, right?

• 7:56Speaker 00

  And so, do we think we're going to see more net growth, and is this build out, this AI build out worth it? Or is it a bubble? Frictionless Growth Marketing, hosted by Sonya Thompson, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Frictionless Growth Marketing, hosted by Sonya Thompson, shows how modern brands grow by removing the friction in their marketing and customer experience that pushes customers away every single day, often without leaders even realizing it. Each episode delivers practical insights, real brand examples, and conversations with marketing leaders, showing brands how to win with the new rules of growth, identity-driven marketing, cultural relevance, and frictionless customer experiences. Listen to Frictionless Growth Marketing wherever you get your podcasts.

• 8:40Speaker 00

  All right, so I wanted to take a moment to tell you about my podcast co-host, Neil's agency called NP Digital. And they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as UberSuggest and Answer2Public. All you have to do is go to npdigital.com to learn more, and we'll see you on the other side.

• 9:00Speaker 01

  I look at it from a different lens on whether it's a bubble or not. I look at it as you have a lot of crap companies in the AI space, and you have a much smaller pool of amazing companies. I don't see, thank you, I don't see these amazing companies going bankrupt or anything like that. Forget this concept of, are people buying too many chips? Or do you actually need as much memory? Think about the world and how we're going to actually market within 10 years. My personal belief, there's going to be robots everywhere. There's going to be AI integrated into cars, fridges, homes, toilets. I'm not trying to create disgusting images, but it's already starting with toilets.

• 9:42Speaker 00

  The Chinese toilet will go to you, and you could, you know, get out of your bed, and then, you know.

• 9:46Speaker 01

  No, not even that, they're building toilets right now that analyzes your feces and tells you how healthy you are. And what you need to do to adjust. I think that is actually very valuable.

• 9:54Speaker 00

  And you get auto-delivered to you.

• 9:56Speaker 01

  Yes, it can roam around in your house, but I don't, I don't think people need to deliver to them, it's more so, you can go to your bathroom and then.

• 10:03Speaker 00

  No, no, no, I mean, you could have the supplements or whatever delivered to you.

• 10:06Speaker 01

  Oh, I thought you meant the toilet would follow you around in the house.

• 10:09Speaker 00

  There is one that follows you around in China, I'm like, dude, that's disgusting.

• 10:12Speaker 01

  Yeah, yeah, that's disgusting.

• 10:13Speaker 00

  Yeah.

• 10:15Speaker 01

  For all of that, whether they can run these models in a more efficient way from a CPU or GPU or memory perspective, I think it doesn't matter because the usage is gonna not be double, triple, quadruple. I think it's gonna be way more than even 10x what it is right now. Secondly, I think this is gonna open up a whole new opportunity for marketers. Let's use a toilet example. I don't wanna get, you know, graphic here.

• 10:42Speaker 00

  I like that example.

• 10:43Speaker 01

  But that's an easy one because you just mentioned supplements. If something's wrong for you, I would partner with that toilet company and have them try to promote my supplement company before someone else's and do a rev share deal. That's a great partnership. Or a fridge. Imagine your fridge. Imagine the ingredients in your fridge and it telling you

• 11:03Speaker 01

  what you can make that's remaining from it, or it can even tell you, hey Neil, you're using um, Blue Diamond Almond Milk, uh Silk Milk, we can give you a promo, a free carton. I saw the laughter, it's making my nose running. Uh, we can, we can make, give you a free carton of Silk Milk. Try it out, it'll be delivered in the next five minutes and you or your kids will love it, similar taste, but it's half the cost and it's organic. I'm making up this pitch here, but imagine being a food company and partnering with, I believe it'll be controlled more by like the Googles of the world because they already have the ad inventory, the advertisers, which people plug into them, just like how X has a partnership with um, Google, right? And this will allow marketers to

• 11:49Speaker 01

  push more products and services in the right moments in life when people are actually in that moment. Right? In which they're on the, using their toilet or in their car or uh, opening up their fridge. Those create very marketable moments that work out really well. And the closest example I have to this, that people kinda see right now, is end caps in grocery stores. So I don't know how often you go to a grocery store that's not Air One.

• 12:15Speaker 00

  I only go to Air One.

• 12:16Speaker 01

  Yeah, so Air One's probably a bad example of this because they don't, they don't have the tech for advertising. You can do, some grocery stores have a lot of crazy cool advertisements that when you're walking around, depending on the aisles you're in, they push you with stuff, you're like, oh, that actually looks interesting, let me try it out. It's like right then, it's right there in your face, specifically when you're going down the right, appropriate aisle. It's not like they're pushing me tomatoes when I'm in the cereal aisle, right? They would push me a unique cereal being like, hey, check out this cereal. It tastes just as good, but it has lower fat, lower sugar and uh, as protein, right? That's a great example of me trying to buy cereal and seeing an ad right then and there of a product that I can just pick up and get.

• 13:00Speaker 00

  So here's what I think the future of marketing is gonna look like from a even the, the, the future in, in, in general, right? So let's use health for example. So I sleep on my, my eight sleep, right? It has all my health data. So then you imagine you have a toilet that's connecting, collecting data from your stools every day, okay? And then you have, you have all these other connectors, maybe your, your Oura ring and then it's connected to like function health. All these, these platforms are gonna connect with each other, right? They're probably gonna share data, but by the way, you're gonna have to pay for these partnerships too, right? And then it's gonna come up with custom supplements for you or custom whatever it is exactly. Here's the other thing, you're also gonna have situational Neuralink, right? We haven't even thought about that, right? Where you could just think your thoughts, whatever you're typing into your vibe coding right now, you're having all your different agents build, what if you just think it?

• 13:45Speaker 00

  And that just happens a lot faster, right? And then all of a sudden, you're gonna have agents marketing to agents, right? And so you're, there's gonna be way more data sharing, okay? That's, that, that's an opportunity for money, which wasn't there before, right? Agents marketing agents, that's another opportunity over here. And then the more compute you have, the more agents you're gonna have. And so it's not even, I think, I think Neil's being conservative on, on, on purpose, but I think genuinely, you probably think it's a hundred x more. I'm probably a little more aggressive, maybe a thousand x more. And, and we probably can't even fathom this because we've never seen this before. If you look at marketing 20 years ago, there wasn't social media, right? Was it 20 years ago, was there social? No, no real strong social media. YouTube wasn't even that strong yet, right? Podcasts weren't even that strong yet. Twitter was, was maybe just starting off, right? 20 years ago, you were, you're not even riding an Uber, I was riding sidecar.

• 14:30Speaker 01

  It was MySpace back then, which was then, didn't do well in the long run.

• 14:34Speaker 00

  And look how much has changed in 20 years. You look at the next 20 years, the world is gonna be unrecognizable to people, we're gonna be dinosaurs by, by then. We're gonna be 60 years old, okay? We're gonna be, right? And so I think the way George is looking at it, it makes sense. But I just don't think we know what's coming. And I think when you have all these hyperscaler spending, all of their free cash flow, like you have a lot of smart people that work there, they can't all be dumb at the same time. You know what I mean? So.

• 15:00Speaker 01

  Well,

• 15:02Speaker 01

  people hate on the Googles and the Amazons for spending so much on CapEx, on data centers. Yeah, but if you look at their earnings, they tell you how they have much more demand in the billions and many cases, hundreds of billions that they have to meet. I don't see these companies just foolishly spending money for demand that doesn't exist. They already have people that are throwing money at them. They can't collect the money fast enough because they can't meet the demand.

• 15:27Speaker 00

  Yep. And let, let's just look at our companies for a second, like is demand slowing down? No, it's not slowing down. Am I looking at, am I working more? Yeah, but that's also by choice, but yeah, I am working more naturally. It's also more fun too. So I, I look at my own experience, I'm looking at my company, I'm looking at other people's companies too, I'm looking at what's happening out there. I think, sure, there's definitely like a, like a, maybe there's, there's short term, there's gonna be a correction, but I think long term, like it's just like the internet. Long term, the internet worked out, you know?

• 15:55Speaker 01

  Yeah, and if you think about the bubble that happened in the dot com boom, it was a lot of companies that were worth billions of dollars that are making little to no money. I think the big thing that's different here is you have a lot of companies that are actually making a substantial amount of money and they have high growth. The problem that you're facing is a lot of these companies have terrible unit economics or just economics in general and they're losing a lot of cash. But you're gonna have, the ones who survive are survive. The others will fail and you're gonna have a lot of dead corpses or dead AI companies. And the stronger will just get stronger, similar to the dot com era when it first happened in the early 2000s.

• 16:31Speaker 00

  Yep, and I think you'll have a lot more getting stronger.

• 16:34Speaker 01

  Yes.

• 16:35Speaker 00

  It'll balance out. And so we hope you enjoyed that one. If you want more case studies like this, let us know and we'll see you tomorrow.