Host: Agentic coding went from being kind of useful to really changing everything. It was going to be magic. And in 20 years time, we'll just say, "Well, of course that's how it is. Computer's always done that."

Host: Every year, Silicon Valley awaits Benedict Evans presentation. Former A16Z partner, author of one of the industry's most read newsletter, The Mind Behind AI eats the world.

Benedict Evans: We are in this extreme scarcity. Like, we can't spend $10 trillion a year on AI infrastructure cuz there isn't $10 trillion a year there to spend on it.

Host: The big part of your thesis is this idea that models are going to end up as commodities.

Benedict Evans: I don't think foundation models are a product. I don't think a chatbot is a product. I think the value will be further up.

Host: Explain the reasoning that they're a bit in what they look like.

Benedict Evans: There's like three or four building blocks you can put on the table. One of them is

Host: Benedict. Welcome back to the Acing Z podcast.

Benedict Evans: Thank you.

Host: Last time you were here, we were discussing the first iteration of your presentation AI use the world. Uh you know, you since wrote it almost a, you know, year and a half ago. At at this point we're get you always begin your presentation with your you know what are the big questions but I'm curious this time first before getting into the what are questions going forward I want you to reflect on what have we learned since you originally uh made the presentation what's played out um and let's reflect back on

Benedict Evans: what's changed in the last year so I think we have much more of a sense of diverging product strategy we have much more a s of a sense of kind of competitive tension that goes beyond just make a bigger model faster with more about more more compute. Um we've had several iterations of open AI strategy in particular from sort of everything all at once yesterday to oops no maybe we should double down on coding. Um clearly agentic coding started working and so all the focus in tech has kind of narrowed in massively 's it's rather like giving everybody the internet in the late '9s and saying okay go off be more productive and if you look at like there's a survey from deote there's also a survey from the fed that's in my presentation where if you go and ask CFOs where have you seen seen the benefits and most of the benefits so far have been stuff that's pretty hard to measure so like better analytics better customer support um more productivity you can make more slides more quickly you can do the analysis more quickly it's kind of tough to put a financial value on that it has a financial value but It's not the same as saying, well, we made this new thing with AI and it had this revenue or it saved us this much money. Those things just obviously those things take longer. It's harder to build a new revenue line than to give this to everybody and have them use it to make spreadsheets more quickly. So, there's a little bit of like, well, well, how long does this take? I think the other answer to problem here, of course, is consumer surplus, which is to say that um which is kind of what happened with Excel in that, you know, guess what? you know, if if a DCF takes you a week, then you probably only do one or two DCFs. And if a DCF takes you 10 seconds, then you do 50 DCFs, but you probably can't charge any more money for that. Um, so some of what happens is that, um, these things become competitive necessities and everybody has to buy it, use it. Um, but the cost saving or the productivity gain that you get from it just kind of gets competed away. So you don't get to charge more for it, you I mean, if you're, you know, if you're at McKenzie and, you know, doing that or or Bane or BCG and doing that piece of analysis used to take a week and now it takes a day, um, you probably do five times more analysis and charge your customer the same and like your cost base hasn't changed either. So, like, you know, which is exactly the way to think about, you know, what happened with with with with investment banks and financial analysis. You just went did way more analysis with probably fewer people and charged customers the same amount of money.

Host: part of your your big part of your thesis is this idea that models are going to end up as commodities and yet the you know the layer that's raising the most money uh you know in the in the fastest time in history is these foundation model companies. Um so given that what advice might you have for them either either collectively or we can pick on someone individually um in order to in order to adapt?

Benedict Evans: It's not that I know that they're going to become commodities. my position is more more now well like hey here is a here is a chain of argument that says that deterministically it looks like these things will be commodities and explain to me why they won't be um and that's as far as I would commit to that um I think the you know the the raising all this money I kind of go back to my point about mobile which again has no predictive value but it's worthwhile observation is that the mobile industry is very big and spends a lot of money on infrastructure and isn't very profitable and all the cool stuff is done by somebody else and then you do you know well what's the return on capital and the answer is well it depends which mark whether you're in America or Europe or or India or China um but meanwhile like that was a worthwhile thing to do and it produced a return for somebody but then it didn't ended up not controlling the whole thing and other people ended up getting more value from that um than they did um you know I don't have the number in my head what is Google's net income last year was what $50 billion or something what was net income for you know the total telecoms industry I should really subscribe to Bloomberg then I could just answer these questions instantly. Um but like you're a pretty safe bet that Google, Meta, Amazon, um Microsoft, Apple produce more profits than the entire telecoms industry. Um so this is a um is a puzzle is you're build you're driving the frontier forward. You're kind of caught in this trap that you have to keep competing because otherwise they'll do it and you'll fall behind. You've also got this thing that we haven't talked about at all which is you know hey aren't we just building AGI like we're going to build God in a box which you know some people they do believe although it's kind of hard to it's hard to analyze but maybe um so you know carry you're going to carry on building this stuff but the practical question is well how do you get things that people want to use that aren't software that aren't that aren't software development I mean that's a good business um is that the only business there's you know pick a number of that many hundreds of billions millions of dollars it is to make the software industry more productive great then what I mean that's you know that's worth a trillion dollars maybe but but then what like how do you expand this into the rest of the economy into everybody else which is why you get these conversations about you know partnering private equity partnering with consultancies where you know exactly as weve been discussing guess what it's actually quite hard to work out what to do with this stuff if you're actually running a real company um so you go to Bane BCG Mackenzie or Infosys and cognizant and IBM app Accenture or private equity shelters. So there is this sort of sense of like on the one hand you so I'm sort of trying to work out the answer as I speak but like on the one hand you're building this big these bigger and bigger models and you've kind of feel like you've got to keep doing it but on the other hand yes but what are people doing with it?

Host: Why do most people look at chat GPT and not really think of anything to do with it today?

Host: Last question. Is there anything from the presentation that you want to make sure uh listeners leave with?

Benedict Evans: The thing that I I used last year and I I used again is an IBM ad I found from the early 50s which has got a picture of a sea of of engineers all holding up slide rules and it's an IBM ad and it says you know an IBM electronic calculator gives you 150 extra engineers and that's like how many pictures have you seen at A6Z where that was the pitch. Um, and we kind of remember like we go through these waves of these these fundamental technology changes every 10 or 15 or 20 years and they're all amazing and change everything and are completely unlike anything that's happened before. And so AI is amazing and transformative and completely unlike anything that's happened before. Mobile was quite a big deal too and so was the internet and so were PCs and so was computing. Those were all also very big deals where it was hard to tell what was going to happen. And so we should sort of presume as a base case, okay, well, we're going to go through that again. And you know, that will produce a bunch of things that ruin people's lives and it will put a bunch of people out of work. Um, and you know, there'll be a bunch of stuff that we're not very happy about. Um, and there'll be a bunch of stuff that we all think is great. And then in 20 years time, we'll kind of forget that there was a world when computers couldn't do that. Um, I mean, here we are. We've been on this call for an hour and our computers didn't crash and we're streaming HD video to each other and it's like, well, of course that worked. In fact, I'm also doing it with my iPhone. So, my iPhone is streaming to my Mac over Wi-Fi streaming video here and like it just works like it's magic and we don't notice it anymore. And I think that's really my kind of oneline description of how all of this is going to end up. It's going to be magic and in 20 years time we'll just say, well, of course that's how it is. Computers have always done that.

Host: Yeah, that's a great place to great place to wrap. The presentation is called AI Essets the World. It's on Benedict Evans website. It is excellent. Uh there's a lot more that we didn't get to, so definitely go check it out. Benedict, this has been a great conversation. Thanks so much for coming to the podcast.

Benedict Evans: Thanks. Great to chat.