Slack Founder Stewart Butterfield on AI, Software, and the End of the Tech Boom

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1:27Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alaoui. Tracy, you know, we've had a number of episodes about tech and some of the excesses of the VC boom, et cetera, maybe the softening labor market. But it's one of these topics that, we can't talk about enough because it's so critical, I think, to the markets, to the economy, and so, I think, ambiguous about where the industry is going next. Absolutely. So there's two big things that seem to be going on right now are two big questions. And the first one has to be, we've seen a lot of layoffs in the tech sector.

2:03And I guess the question is, is that reflective of the broader economy or is that something tech-specific as a more interest rate sensitive part of the economy. And then I guess the second thing is, you know, tech was one of the big winners of the pandemic era. And how much of that is getting rolled back now? How much of you mentioned excesses? How much of the excesses are being taken out of the system? Well, and then I would say the third thing, which is that and it's really leaped to the public consciousness in the last several months is people being very aware of AI and these questions about like, okay, we had this sort of like era of what we thought of as like a software company over the last decade.

2:44The software is a service company, VC funded, et cetera. So in addition to the macro questions about hiring and a different, in addition to the question about financing, there's this question like, well, what's going to happen with like tech business models and how like upended will be and what that's going to mean for existing talent and where the money is going to flow from all that. And I think like, you know, everyone has posted threads on that, but I've never like found something that's like, oh, that's that compelling. No, you're right. There's a lot to talk about. So I'm very excited because today we're going to be speaking with a guest that I would say has really been, I was going to say like at the forefront of two sort of like major epochal tech trends, but I kind of actually think it's two and a half because so there was the web 2.0, like sort of like social kind of like user generated internet.

3:30And then there was the sort of like the SaaS boom, software as a service, et cetera. And then in the last few years with work from home, like tech that enabled work from home, which is almost like its own distinct kind of story in my view. Yeah. Someone who brings those megatrends together and maybe maybe might be on the verge of another megatrend. We should ask the perfect person to see if there's another megatrend. So we have the perfect guest. We are going to be speaking with one and only Stuart Butterfield, the co-founder of Flickr, the photo sharing site, the co-founder of Slack, the workplace messaging app that everyone used that eventually sold to Salesforce, recently stepped down as the CEO of Slack.

4:08So Stuart, thank you so much for coming on. So I got to say, I meant to say, what's also interesting here is both Flickr and Slack, as far as I understood it, originally started because you wanted to create an online game company. And both of them had to pivot into these mega world changing hits. So I guess my first question is, are you working on a new online game? I am not. I get asked that a lot and maybe. It's a cliche question. It's like a good warm up. Okay. But you're not right now. No, I'm not. Okay. So, I mean, maybe we should start with the pandemic boom because, I mean, Slack really became the sort of poster child for the success of SaaS in 2020 and 2021.

4:50And you also had a kind of famous Twitter thread where you explained what it was like being on the front lines at that moment in time. But talk to us about how would you characterize that experience? Because looking back on it now, there is a lot of talk about maybe there was overhiring, maybe there was excess in various ways, but how did you experience it? Yeah, that was a big moment, like the March of 2020. But I feel like it really started 2015 or something like that. I was looking back through some old interviews. And I think it was 2015. I might have the years a little bit off. Slack raised money in a$2.8 billion valuation.

5:29And people were like, well, that's crazy. And even back then it was apparent and we would say in interviews, this is just zero interest rate. This is what happens. And so I think that kind of boost that, I don't know, I was just a rocket fuel, but rocket makes it sound like, I think this kind of like rocket fuel propelled us all the way through. And even before going back, I guess, 2015, 2016, we started, we launched in 2014. We had a million dollars of ARR the following week. I think it took us about 18 months to get to$100 million of ARR. And that growth was crazy through that whole period and then accelerated in March of 2020.

6:08I think the excesses are maybe not a different story, but I guess there's two parallel tracks. And one is like the Google Facebook track, which is they make a lot of money. And so there's no real constraint on hiring. And then there's the VC backed company, which is they raised a lot of money. And so there's no real constraint on hiring. But absent those constraints, you hire someone. And the first thing that person wants to do is hire other people, right? Because it's a very obvious signal and it's very true that the more people who report to you, the higher your prestige, the more your power in the organization.

6:41Empire building. Yeah, exactly. And even if it's like a two-person empire, it's something. If you become a manager, you want to become a senior manager. If you're a senior manager, you want to become a director. And it's a very powerful incentive. So if you hire 1 ,000 people, you have 996 people or roughly 100 % who are like, I need to hire. So every budgeting process is, I really want to hire. And that to me is the root of all the excess because if you don't have the constraint of, we just don't have the money. If you're manufacturing lysine or something like that, like a 70-year-old industry where there's a lot of competitors and all the margins been taken out of it, you can't do that.

7:23And if you have infinite money, either from being a monopoly on search engines or having VCs give you lots of money, you can get rid of that constraint altogether. You mentioned this flood of VC money and maybe the zero interest rates or cheap money was like a sort of jet fuel or rocket fuel for it. But on the other hand, like there was something real going on because the entire way the world consumed software massively changed probably between the great financial crisis between then and the pandemic. So like, how would you weight those two different factors? Like sure, there's the cheap money and the VCs, but also like there was this like real shift in corporate spend on technology.

8:04Oh, absolutely. Yeah, sorry, I didn't mean to... No, no, no, no. And I'm always like, but I do think like, Like, I do think like, you know, for listeners, like it's easy to characterize the last decade, like sort of dismissively, right? As like, well, a cheap money VC. But like something real, like really did change about how we use the, how the companies use the technology. Slack launched in the beginning of 2014. So not quite 10 years ago still, you know, it's like nine and a half years in. And it's at a$2 billion revenue run rate, you know, and we went public five and a quarter years after we launched.

8:37And, you know, we're acquired by Salesforce a couple of years after that. So that's very real. Like it's not many companies in the world ever get to a billion dollars in revenue. And that's a real change in people's behavior. That's tens of millions of people who spend hours and hours a day in a fundamentally different way than they did before. So Slack launched in 2014, as you just mentioned. And since then, I think there's been a lot of competition from the big incumbents. Microsoft would be the obvious one. But I feel like there's always sort of mixed feelings in Silicon Valley about startups versus incumbents.

9:12Because on the one hand, you think of a startup, maybe they're more innovative, maybe they're more flexible in what they can do. You know, they can zig when others are zagging. But then you do have these giants that just have lots of money, lots of capital, lots of talented engineers that they can throw at these problems and either acquire you or maybe do a similar thing with their own resources. Yeah, it's funny. I used to go back to Wikipedia's kind of registry of what the components of the DAO were. And you can look like 100 years ago today, it was American Leather Corporation and, I don't know, U.S.

9:49Steel. Maybe it wasn't quite, but like the first tech companies were Westinghouse and General Electric and a couple of - Amalgamated jute. Yeah. And everything has a life cycle, roughly. You know, there's a couple of companies that survived for 100 plus years. Yeah. All of the, and I was now, we should all say the word H-E-G-E-M-O-N-Y at the same time so we can see what the real pronunciation is. Okay. One, two, three. Hegemony. Okay, good. Hegemony. We actually did a whole episode about the US dollar recently where we said this quite a lot. Yeah. That eventually disappears. And I don't know how real the AI threat to Google is, for example, but Google has seemed absolutely invincible for a decade plus.

10:38It's inconceivable to me that anyone would compete with them on their ground. To build that technology and to build the infrastructure and to build the data centers and stuff like that seemed impossible, but maybe there's a way around. Obviously, if you're a venture capitalist, your job isn't to get a 15 % return by investing in a basket of public tech companies. You're very much incented to see the the startups succeed. But they're also, you look back over the last 20 years or even just make it from the great financial crisis, the last 15 years, it's been a lot of value created. I mean, not just in funny money, but like a lot of revenue, a lot of shift in how business is done and a lot of huge successes.

11:22Well, I'm sure we're going to talk more about AI and how that's going to change the whole world. But it is interesting to me that the one big publicly traded company that people are giving a lot of credit to for AI is Microsoft, which was the dominant tech company 30 years ago, 35 years ago, probably. Does that surprise you that the biggest powerful juggernaut, and then, of course, obviously, with the Teams versus Slack competition, just that there's this, in this industry that's supposedly so disruptive and so competitive that there's this company and a couple of companies that are just so, seem rock solid.

11:59Yeah, I think that one, it's interesting. very effectively done. But the AI tech is all open AI. Sure. It's a partnership. They were ahead of it and they did make that investment and people were excited like, oh, they're going to integrate it with Word and all that stuff. So it's like tech aside, people are giving the company a lot of credit for how they're positioned in this. Yeah. It's using their enormous resources and a huge profitability as leverage to leapfrog into the next thing. I think it is very impressive. This was sort of why I asked that question about Microsoft versus startups. But what are the pros and cons of a smaller tech company versus a bigger tech company?

12:42And you can shade it towards AI or talk about tech in general. I think it's just classic innovator's dilemma. People become, when you have nothing to lose, then you can take any risks you want. And if you have a lot to lose, then become much, much more conservative. I mean, I think Google and AI is a great example because obviously if you asked anyone two years ago, who's the greatest company when it comes to AI, everyone would have said Google. Right, right. Zero percent of people would have picked Microsoft at that time. And why aren't they in Microsoft's position today? I think a lot of it has to do with that conservatism because they see we can release this thing and then it says dumb racist stuff and then we get in trouble or we release this thing and someone relies on it.

13:26and then someone gets injured or killed in an accident. You can come up with a million reasons. I was talking to the CEO of another company once, and we were just talking about, we're just complaining. We're like, oh, our life is so hard. But he was saying, they're at a board meeting, and the board said, you really need to hire someone doing risk and compliance. And he's like, okay, so it hires that person. And then the first thing that person does, like I started earlier, was they need to hire two more people because there's a lot of work to do. You haven't had anyone at risk. We've got to catch up.

13:55We've got to make sure we have the right policies and stuff like that. Fast forward 18 months and they're doing the agenda for this board meeting and someone tells him that they're going to have eight people from the risk team show up. And he's like, eight people? How many people work in that group? 23. So this is like over the course of 18 months. And every single one of – it's just like the classic incentives. They get zero upside if they say yes to something and they have this powerful incentive to say no to everything. downside basically if they mess something up. Well, beyond just risk, however, like thinking about Google and AI, like it is like, you know, uh, uh, AI inference, I guess is called is like costly, right.

14:36In a way that a search is not like people seem to like, you kind of have to pay for it. ChatGPT is a service that people pay for. Like Google has been free. This, you know, has always been free. Seems like some of the AI tools may not be as conducive to an ad sales model since the answer is right there rather than taking you somewhere else. And so I'm curious, like this tension that exists in Google, where that maybe like AI is like kind of like a, I hate to use the word paradigm because I don't know what it means, but a different business, like the business model of AI is different than say the business model of search.

15:12All these companies, like will many companies, whether large or small sort of find that in a more AI driven world, like there's a real business model shift, even setting aside some of the risks associated with it right now. A hundred percent. And I don't know that either I'm smart enough or I've thought about it long enough to be able to predict all the way out, obviously. But something like image licensing for stock photos, that seems like a business that I wouldn't invest in today when you can just go to mid-journey or whatever. Then they'll get better and better. I think some big stock photo site just had a buyout offer for a few billion.

15:48I don't know what's going on anyway oh yeah yeah there's a funny story of a guy that said if someone gives me four billion dollars then i will buy getting images i will do that too if someone gives me four billion dollars okay um but yeah so there's there's like a pretty trivial example but i think the longer term it's a little bit harder to know how like the the knock-on effects because you think about previous ways of technological innovation and i don't mean software computers i mean like just going back to steam power and stuff like that. It would have been tough in 1840 to kind of predict the impact of railroads on the world.

16:25And then the automobile, all those technologies. But they really become part of us. Because when you think about, I used to use this example of Slack all the time. If your job is to dig ditches, you can only dig so many ditches a day. And if you are given tobacco, you can dig, I don't know, 100 times more, 500 times more, whatever the multiple is. But those technologies come with, I think there's a better word than risks, but they come with additional risks. You can accidentally knock down a building with a backhoe and you can't accidentally knock down a building with a shovel. We get to the point now where there's this incredible augmentation to our memory, to our ability to think.

17:02I remember going to the library when I was a kid and having to talk to someone. Then they can maybe find the book, maybe they can't find the book. And now it's like anything I want to know. With the little card catalogs. Yeah, exactly. I can just type in a couple of words. I don't even have to spell the words right. I just have to gesture at the words that I want and Google will return everything I could want. What does that do to us long run? And I think we're living with the effects now, and this is pretty well recognized, of what social media does and the doom scrolling and the changes to our physical posture because we're looking down at our phone all the time.

17:31And I would really compare this to you have a couple hundred thousand years of evolutionary pressure to seek calories. And then today we live in a world of effectively infinite free calories for everyone. And so a lot of people get diabetes. And we have a couple hundred thousand years of evolutionary pressure towards acknowledgement and recognition and all these social signals that suddenly you can get a thousand X, what you used to be able to get, and you end up with a kind of cognitive diabetes. So when I say the long-term effects are hard to recognize, both in AI and just in what technology does to us as human beings in general, it can take a while for us to catch up.

18:07Like the Thames and the Charles River used to catch on fire routinely in the end of the 19th century. And we kind of figured out how to have benefits of the Industrial Revolution without those negative consequences. I think we'll do that with all kinds of tech, but it might take a generation or two.

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19:57It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process so you can focus on what really matters, running your business. Thousands of businesses have made the switch, so why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Just on the business model idea, can you talk to us about how tech companies actually make money off of AI? And here is where I very embarrassingly confess that I still don't really understand what Salesforce does and how they make money. This is the big question.

20:38Let's segment this for TikTok because a bunch of people have this question and no one has ever had the chance to get it answered. So we're going to have to do a little online segment of Stuart's answer to this. Okay. So I guess my question is, one, what does Salesforce actually do? How do they make money? And then secondly, if a company like Salesforce were to build something like OpenAI, how would they actually derive money from that product? Yeah, that's a good question. I think that Salesforce is actually really well positioned to take advantage because here's what it does. I mean, obviously, it makes money by selling software to people.

21:10And it was the first to say, rather than just pay us$100 and you can have the software and run it on your computer like we used to do with floppy disks and stuff, we're going to sell it to you for much cheaper. But you've got to pay us every month or every year. But what the software does, I think, is interesting because the original Salesforce product was CRM or Customer Relationship Management. And it's a database, right? It has like, here's all my customers. Here's, depending on what's important to me, their phone number. Or if I'm a dentist, the last time they had a checkup. Or if I'm a retailer, the total of all their purchases.

21:45You can kind of extrapolate from there to more and more sophisticated products. So being able to do marketing segmentation and send the right promotional email to just the right people. And that's incredibly valuable to people. It's hard to build. It's expensive. And so Salesforce has a lot of customers that kind of rely on it for this core set of services that branch out to a lot of things, but are roughly around customer relationship management and marketing. So what do people do with that software? where they sit in conference rooms and they show each other slide decks saying, this would be a great promotional idea.

22:19This is very relatable for me, by the way. That's a human point. I'm not sure who said this, but someone's description of, here's what a lot of people's job are. And this is actually a great opportunity for Slack. Their job is to get some data, put it into Excel, make a chart, take a screenshot of the chart, paste it into a PowerPoint, and then email the PowerPoint to people. And then it really is like, that's what 70 % of people with desk jobs do-ish. But sorry, people are trying to decide how can we use this database of customer activity or marketing to make more money, to be more effective on our business.

22:54And that's almost certainly something that AI will do better, or at least having an AI co-pilot alongside you. So AI could, for instance, look at your proprietary database. I mean, the software itself is not proprietary, but the data within it is unique to your company and maybe spot opportunities within it that you as a human wouldn't have thought of. Yeah, absolutely. I mean, so both people who are professional investors, I love the stories of they drive outside some parking lot in the mall and see which retailer has the most cars parked in. This is my favorite genre of sell-side research. It's when they send the analyst to the shopping mall to look at foot traffic and stuff like that.

23:37But people do that inside their company too. They're looking for opportunities. Should we sell more of X? Should we sell more of Y? Should we sell more online? Should we open more smaller retail outlets so that customers can come in and see the product? Or should we concentrate on whatever? I think most of that stuff you're going to do a better job with with some companion, let's say, that finds those patterns more easily. because they can just, they, the AI. I have this image of Clippy coming back and being like, have you considered? Well, they can think about things much faster than you. Well, I mean, the other area, and just as you said, customer relationship management, it seems like AI would be really great at like remembering birthdays.

24:19And for a salesperson specifically, it's like, hey, how did, you know, oh, your daughter turned 16. And, you know, she need driver's insurance or something like that. And then it's like, well, does the salesperson even need to like pay attention or can they just put in a rule that says every time I have a client that, you know, has someone in their family that has a major life event and just send them a message and something that seems like it's coming from me. And so like, A, like, will it be good enough so that like salespeople can like talk to 100 clients in a day versus 10 and not maybe like two out of those 100 times say something so embarrassing that it destroys their entire reputation?

25:01I don't know if it's good news or whatever. The fact is that people have done that for a while. You don't even need AI to kind of like automatically get a prompt. You're sitting at your desk and it pops up and says, you should email. Or I get a happy birthday from the dentist and it's like, yeah, I'm not under the illusion that the dentist is paying attention to my email. But also I get a lot of – like the dumb version of this is SDR, sales development representatives, or like kind of people who are trying to drum up some business for a company send a lot of email. I think I probably get a disproportionate amount of this because I've made a bunch of databases as a CEO of a company who will buy software from you.