[Mike]: give people a chat box that can do unlimited power and they're like tell me a dad joke. In the technology world, the underutilized capabilities are so big. It's almost trit now to say the models are far ahead of the value they're delivering.

[Alex]: The whole history of software from 1960 until 2022 was you would take a filing cabinet and you turn it into a database. The cool thing about everything that's happening in AI land is that the filing cabinet can do work.

[Mike]: The idea I would vibe code my own workday and then run it is terrifying. However, there is a great gain we are seeing internally in extensibility of software using things like V coding.

[Host]: Everyone has been talking about the SAS apocalypse. Some people call it the catastrophe. Why is there too much fear about this?

[Mike]: As I've said, not every SAS company is going to thrive through the next decade. We're not here to defend all of software.

[Mike]: The whole history of software from 1960 until 2022 was you would take a filing cabinet and you turn it into a database. So the first example of this is a company called Saber Systems which was started in 1960 by IBM and American Airlines because it took the reservation system which literally was stored in like vaults of filing cabinets manned or womaned by by lots of lots of secretaries...

[Mike]: ...but it didn't actually make the world that much more efficient. man because whereas before you would have a a human go fetch you the HR file for Eric... now it's in workday but now you have to have a CISO to make sure that your workday doesn't get hacked you need to have IT people to provision accounts... but that was kind of software from 1960 to 2022 because the the the filing cabinet couldn't think for itself.

[Mike]: Um, and now this is like the cool thing about everything that's happening uh in in AI land is that you know the filing cabinet can do work. like QuickBooks can actually accomplish a task by itself versus just relying on a human to retrieve the file...

[Host]: I want to hear from both of you how you interpret what what what's been going on and and and and more importantly you know what it means or how we should make sense of it. You know why is there too much fear about this or how should we make sense of this?

[Mike]: Look, I think um the world is trying to work out how to rate or value software businesses in a highly disruptive stage, right? ...there's no doubt in my mind that the risk level has gone up. So if you think about it from an investor mindset, you're like this used to be a very stable category. Now it's a more risky category, hence I'm going to step away and watch.

[Mike]: ...they're really trying to work out what are other investors going to do, right? and they're actually betting on what other people think that that other people think they're going to do. ...And I think it comes from a very static viewpoint, right? like that people won't adapt. The world won't change.

[Mike]: ...the reality is, as I've said, not every SAS company is going to thrive through the next decade, right? Just like a bunch didn't make it to the cloud, a bunch didn't make it, you know, from, I don't know, Windows to to the internet era...

[Alex]: Alex, how how about you? ...my kind of cursory glance is that there were three different types of SAS companies and the public markets couldn't tell the difference between the three.

[Alex]: And one is where seats are tied to outcomes. ...category one is like you have seats, the seats are being used to produce some element of work, but now uhoh, like you don't need the seats anymore to produce the element of work. So like Zendesk would be like patient one there...

[Alex]: On the complete other side of that is you might have per seat pricing because it feels fair but the seats are not tied to an outcome. So like workday has this great pricing model... those employees that work at GE are not using workday to produce an outcome. So workday I think is fine.

[Alex]: And then there are things that are in the middle like Adobe like yeah it's maybe you need more seats maybe you need fewer seats but it's not as stark...

[Alex]: ...there's this great book by Dan Arieli called Predictably Irrational. ...imagine parallel universe light, you know, locksmith comes um spends nine hours trying to let you in... You're so grateful that he spent nine and a half hours helping you get into your apartment that you give him a $200 tip... humans are kind of capable and willing to pay for incompetence. Like it's like a lot of pricing is about fairness.

[Alex]: ...if you think about how we got to SAS like per seat per month... it just feels fair it's like oh you have 500 seats you pay more money than if you have one seat...

[Alex]: ...the undercurrent of oh I'm going to v code everything which I think is just preposterous... the person that I like to cite as my counter example here is my my second favorite economist um David Ricardo um and in 1817... this is where the theory of comparative advantage comes from.

[Alex]: ...but what happens in Indiana if the person leaves and they're on maternity leave like all these edge cases where it's just you don't know about them unless you've encountered them in the wild. So uh a lot of software is just a set of deterministic rules that have been learned from like in many cases decades of experience...

[Mike]: I personally hate the system of record thing because it sounds like, oh, a system of record is just like a database sitting there. It's very static. ...to me businesses are a set of processes. They're not a system of record.

[Mike]: I have 10,000 plus people who walk into buildings every day and bring their brains and walk out and take their brains with them and that's it. ...And I am all about coordinating the sets of processes...

[Mike]: There are what I like to call input constrained and output constrained processes. The customer service example with Zendesk, that's input constraint. ...Then I have kind of output constrained work. If I think about anything creative, marketing, I would argue software development, technology, where I can theoretically do an unlimited amount of tasks, right? I'm constrained by my creativity...

[Alex]: ...does McKenzie have value outside of all of the employees that work there... they probably have some top secret handbook that they use... and like you know what is it that non-digital non-software products do? Their product is the is the accumulated knowledge from potentially centuries or decades.

[Mike]: Is intuit filling out the tax code for you or does intuit know the tax code as well as anyone else can? What they're helping is you to take your life data... it's almost more like a McKenzie. ...It's their process and their special ability is how to ask you the right questions to fill out the tax code...

[Mike]: First is customer trust is really hard in these areas, right? ...they're very scared of AI, not because of its power, because it does stuff and they're like, "Hey, how do I know that was right and what did it do?" ...to gain trust it has to come back to you and say here's what I'm about to do are you sure you want me to do this...

[Mike]: ...So much of AI is oneshotting things. Sit on X, you'll see a thousand like, hey, this is the magical prompt incarnation Harry Potter spell... And like that's like kind of ridiculous because the reality is you also have a lot of iteration on the data side...

[Mike]: ...and so we see that we just shipped you know agents in Jira in a lot of ways so you can like assign work to an agent... when we test it with people they're like what's it doing like do you want to give us a thousand steps they're like why are you telling me all this crap?

[Mike]: ...With create with rovo, you can literally say start with a prompt... Teaching users that they should start that way is really, really hard. ...they now have two panes, right? They have 75% of the screen is the document itself and 25% is a chat window. ...you can write commands like you know what make every heading blue which you can't do in Word...

[Mike]: ...It's a completely different paradigm to writing a simple document... Maybe the first time someone looked at Excel, they were like, "Wait, where do I type the paragraphs... Now it's just like, "Oh, yeah, I get Excel. I know how it works."

[Host]: That's a great place to wrap. Um, Mike, thank you so much for for coming on the podcast. It's been an excellent discussion.