E57: a16z's Anish Acharya on Consumer AI

0:04Welcome back to Turpentine VC, a podcast where we discuss the art and science of building successful venture firms, VC to VC. In today's episode, I sit down with Anish Acharya, general partner at Andreessen Horowitz, about developments in consumer AI. We explore A16Z's abundance agenda, discussing how AI will revolutionize personal finance, education, wellness, dating, and social media. Anish offers valuable insights into A16Z's focus areas in decision making, while also highlighting opportunities and challenges for startups. Let's dive in. Anish, welcome to Turpentine BC. Excited to have you on the show.

0:42Thanks, man. I feel like I'm in good company. It's good to hang with you. Yes, exactly. So I want to get into a lot around AI and consumer among other interests. But first, maybe you can give high level of how A16Z thinks about AI investing or kind of divides up the pie, so to speak. Yeah. I mean, AI is so cross-cutting. It feels like we've, I don't know if pivot is the right word, but really oriented in the direction of AI across the entire firm. And this is what I love about Mark and Ben most. Like I think in a world of sort of the uncertainty that we saw in 2022, there was pessimism and there was just hesitation, you know, and Mark and Ben don't hesitate.

1:22So once the sort of AI started to, you know, all the AI technologies started to get a little bit of takeoff and people saw ChatGPT3, that felt like the, you know, the moment, they started to lean really hard into it. And now I'd say the entire firm is fully oriented around it, mostly oriented around it. So yeah, I'd say it's cross-cutting. It's not a single team that does it. It's like the driving focus behind every investing team. Yeah. And then so for people who are not super familiar with how the firm is set up, can you give just a little bit of a preview of what are some of the different teams and what they're looking at as it relates to AI?

1:57Yeah, for sure. So I think the way to think about the firm and this makes a lot of sense given Mark and Ben's backgrounds is that they're sort of the customer is the founder. We design these products for founders. We have investors who sort of, you know, sit alongside that product and deploy capital. And then we have LPs who are like our VCs. So for a long time, we kind of had a, just our core venture fund was our, you know, our, that was our main product. And now we've got a whole bunch of different products. We've got bio funds. We've got an apps fund, which I'm a part of AI apps. We've got an AI infrastructure fund.

2:30So we've got all these different funds, but the conceptual way to think about them really is products. And the reason that we actually have the different funds is because different parts of the market just have different needs. So if you're building an infrastructure company, you might need GPUs and there's sort of things that are very tailored to that market versus folks that are building out apps companies and just have a totally separate. So a model providers or one of the foundation models would be part of the infrastructure fund. That's right. And we're all highly collaborative. I think there's two parts of that.

2:57One is Ben is like very big on culture. I remember when I interviewed with Ben, he said, Hey, have you seen the culture doc? I was like, no, Ben. He's like, well, great. Here it is. Go read it. If you don't agree with it, you can't work here and think about it. And if you do agree with it and you're like all about it, then we should do this. So like that culture, I think is cross cutting and a big part of that is collaboration. So even though it's a bigger firm now than most, it's not generalists. It's like a collection of specialists. Yeah, that makes sense. And so we're going to get into the various different sort of sub themes that you guys have in consumer.

3:29But first, let's start high level with you have your sort of meta thesis or your sort of collection of pieces is called the abundance agenda. So what would you give some context of what that means and why that name? Yeah, I mean, I guess if you zoom out, and you sort of look at the like long arc of history, you know, the two things that have been the greatest drivers of human flourishing have really been, you know, market economies or capitalism and technology. And every time there's one of these enormous technology shifts, like the true beneficiary is usually the consumer. And, you know, all the consumer sort of commodities today or expectations today were the luxuries of 50 or 70 or 100 years ago, unimaginable luxuries of 500 years ago.

4:10So I think the core thesis is that like all of this new technology is going to lead to great abundance for consumers. And I think there's, you know, people say, oh, there'll be less jobs. I say people will actually just have to work less. So I think you'll still actually have people working and getting the fulfillment of that, but maybe it's a three or four day work week. So I do think that like the whole firm and me specifically have a very optimistic view for how this technology is going to benefit everyday consumers. And that's kind of like the very starting point of the abundance agenda and everything that we believe about, you know, AI and consumer going forward.

4:42And it's interesting time to be investing in consumer because it feels like, it feels like there was a, you know, over the last 15, 20 years, it feels like every few years there was a big new platform, whether it was, you know, Facebook or Twitter or Snap or, or what's not TikTok, but it feels like we haven't had one in a, in a, yes, make, make sense of that. Yeah, no, no, for sure. You're exactly right. It's so funny how, you know, we get over-trained on the last platform shift. So we tend to almost look for a platform shift. That's going to look like the last one and we're always wrong. So number one, obviously venture and tech is like cyclic, but I'd say consumer is hyper-cyclic.

5:20And every time there are one of these platform shifts, these crazy big new consumer companies get built. You know, you look at the Magnificent Seven, like every company on that list outside of NVIDIA is essentially a consumer company, maybe Microsoft's kind of on the edge. So like the biggest outcomes in the world are all consumer outcomes, generally all consumer outcomes in software. But those consumer companies tend to get built around these platform shifts. I built my first company in the web to mobile platform shifts. And I remember at that time, it was a lot of like, criticism of like, oh, you know, Mobile's a toy and mobile can't do all these things and the reach isn't significant enough and people won't be able to afford iPhones.

5:57So there's all of these reasons and all of these objections to mobile being an important platform. And then when it became obvious that it was not just an important platform, but the dominant platform, everyone got very trained in looking for platform shifts. And we sort of had been on the hunt for one for some time. And there were definitely important new platform technologies. I'd say FinTech was one, but we haven't seen something with the scale of mobile until recently. And I don't know about you, Eric, but like, I didn't see the AI thing coming, not in its current form. No, I was totally shocked by it.

6:28And so maybe pretend you're talking to someone who was in a coma right after ChatGPT or right after ChatGPT launched. They were blown away by it. And then they were in a coma for a few years and they woke up and said, hey, what's really taken off in consumer AI? or what should we be excited about now that it's been a few years since the ChatGPT launch? For sure. I mean, there's so many things. So number one, I think that products are doing these unimaginable things. Drawing a line from something like ChatGPT to just what we saw in the last few weeks with Flux to Cling and their video models to all the things that are happening in a B2B context around technologies like voice and voice models.

7:11I guess now looking backwards, we can sort of extrapolate that large models got us all these places. But at least for me, I was surprised by both the combination of the breadth and the depth. So the models are doing a crazy number of things really, really well. I think that's a big change over the last two, two and a half years. I think the other actually is that the economic setup looks a lot more compelling. So I think at the beginning of ChatGPT, there was this big question of, hey, is all the value going to accrue to these proprietary models? So you either have to do that or you have to be a thin wrapper.

7:42And I just don't think that's as much of a concern because open source is so viable and open source is like nipping on the heels of the proprietary models. So it feels like plus you've got technology sort of technologies and approaches like fine tuning. So it feels like you can be an apps company that has somewhat specialized infrastructure through fine tuning and you can build a traditional mode around it. And you can do it with a traditional venture check instead of having to spend a hundred million dollars to trade an FM. Yeah, it's fascinating. every time there's a new platform shift as you mentioned they try to sort of take the last platform shift and and say okay hey we had you know snap whatsapp tinder you know uber etc you know now with ai what can we do with that as opposed to imagining like net new products or use cases that could only be enabled by by the new new platform shift what are examples of of that with AI?

8:35You mentioned voice, maybe that's one, but. Yeah, well, so, well, for sure. I think voice is an interesting capability. I mean, I just think everything around creativity. So I have this theory that, you know, every time people open an app on their phone, they sort of look at their phone. It's usually because they want to feel a feeling, at least in the, from a consumer perspective, you know? So when you open WhatsApp, you kind of want to feel connected. And when you open Instagram, maybe you want to feel aspirational or maybe you want to feel FOMO. I don't know. Everyone's got their own reasons.

9:03But all of these sort of experiences represent different feelings. The one thing that was actually really hard to capture as an app was the feeling of being creative. And instead, we sort of self-selected and self-described ourselves as people who are creative or are not creative, even though when we're children, like everybody is creative. So I think there are these new areas of the sort of human psyche and the human self that AI allows us to explore in a really light touch way. And that is the most interesting stuff that's happening in AI. I think if we look at the AI and try to apply it to the old problem set, we naturally come up with all these shortcomings.

9:36We say, well, you know, there's hallucinations and it's imprecise. And it's like, no, the hallucinations and imprecision is that's like the beauty of it. And all the new experiences that we're excited about are ones that tend to benefit from that probabilistic nature. Yeah, you talk about three of three sub themes under creativity, content generation, content editing and productivity. Why don't you flesh these out a little bit more, give a couple of examples of things that are uniquely enabled by, or types of products that should be, that should exist. I mean, the generation stuff is absolutely wild.

10:09So I love making music. You know, I've got my, let's see if I can show you. I've got my turntables and my music set up over here. So, but look, I think the thing about making music is that you have to have both a vision for what you want to hear, but you also have to have the technical skill to make it. And for the first time with products like UDO is of course, as well, product like Sudo, you can actually envision a track and describe a track and then listen to the track. So you're sort of separating the technical skill from the creative vision. And there's two parts to that. You know, one part is like, look, am I creative as a way to sort of create a lifestyle for myself?

10:43But another, I think more fundamental is, am I creative as a way to sort of, as a form of self-expression and a way to achieve self-fulfillment? So I think content generation, whether it's music, whether it's image, whether it's video, it sort of reduces, you know, maybe it like lowers the floor to participation and making art. But I think it also raises the ceiling, right? You can make this incredible music and these incredible videos and movies at a much lower cost and, you know, in a way that you simply couldn't pre-AI. So content generation, I think, is a lot about self-expression and creation.

11:18And it's amazing how many products are out there. And by the way, even when we thought these markets started to settle, as I think we did with image generation, all of a sudden Flux comes out of nowhere and is like on the scene and is really pushing the boundaries. I think for content editing, you know, there's a bunch of products that are out there like Captions or Opus that are doing a really nice job. Descript do a really nice job of taking existing content and kind of compressing it down. So Captions can do a lot of things, one of which is like overlay captions on top of spoken word content, Opus is another product that kind of creates trailers from long videos.

11:53And if you look at the editing interface, something like a Final Cut Pro, it's super complicated. So again, how do you actually take a vision for editing an artifact and deliver the final artifact without having all those technical skills? We're seeing a lot of AI impact that, which I think is cool. I actually think the most, and this may be somewhere in between the two, the most interesting aspect of AI that's under discussed really is prototyping. And this is where real time matters a lot. So if you look at a product like CREA, I think CREA is really interesting because they wrap this technology called LCM where you can essentially, you know, generate, give it an image, give it a prompt.

12:33And you can sort of generate output in seconds and sometimes, you know, milliseconds. seconds and it allows you to get a neal real-time view of a lot of you know these sort of inputs as AI generated outputs in a way that's very creatively satisfying and you can try a hundred different ideas in 15 minutes instead of waiting two or three or five minutes for the inference to occur and actually you know having a much slower feedback loop so I think the thing that we're going to have to really watch will be you know what is the limit of real-time AI and how does that impact our creative processes. In the case of music, something like UDO, it's like amazing that I can actually use UDO to generate new music, but it takes a minute or two.

13:15What if I could like be in a band with UDO or be in a band with an AI? And I think that's what real time enables at the limit. So there are concepts like that. There aren't quite generation or editing that I think are really interesting. How about productivity? I mean, there's so much that's happening with productivity, right? The ability to both synthesize and, you know, and sort of also like extend and expand. And I think one of the coolest aspects of productivity is just voice. You know, voice essentially has never worked as an interface to technology, even though, you know, here's you and I speaking.

13:42And of course, it's kind of the, you know, it's the OG form of human communication. It just hasn't worked as an interface to technology ever. So we're starting to see a whole bunch of things take off in voice. You know, funny enough, actually, consumer voice hasn't taken off quite as much as I predicted this year. that we're starting to see cool products. And of course, iOS is going to have a ton of new voice first features in their release coming out in September. So we're seeing the consumer voice stuff happen. It's been a little slower. On B2B voice, we're seeing kind of two categories where things are working.

14:14One is voice agents. So everything from, you know, really any business that requires the phone and the AI can sort of pick up the phone and can make small talk and can negotiate and, you know, can understand accents, can have an accent. like it's just extraordinary what you can do with these technologies. The other is voice scribes. So for veterinarians or doctors or really any field worker that's using their hands, you now actually have this technology that can kind of transcribe everything they're saying and doing in a really, really specific and accurate way. So voice is like a huge enabling technology for productivity and it's going to be really cool next year.

14:52Say more on why we haven't gotten voice to work just yet? Well, like prior to large models? Yeah. I don't know that just, you know, the sort of voice to text technology just wasn't that accurate, you know? And, you know, I don't know all the technical sort of limitations, but if you've used any of these, if you use Dragon Naturally Speaking back in the day or any of it, you even use Siri, which apparently is a boomer behavior. My team is always teasing me for doing things with Siri. It's just, it doesn't work that well. It's a highly frustrating experience. and as is, you know, Alexa, Google Home, all these other devices.

15:28So I think the potential for these things are really cool. You know, one thing I've talked a bunch about is just the potential for ambient therapy in the home via a product like Alexa. So instead of the Alexa being this kind of alarm clock that just sits in your kitchen, imagine it's got, you know, a voice model, a multimodal model that can sort of sit in the background and observe the interactions you're having with your family and then kind of come back to you and let you know what are the things that it's noticing. Like that's an ambitious vision for voice. Not like, hey, can you set a three minute timer?

15:59Maybe something like an AI referee who's always watching your arguments with your wife or, you know. Your words, Eric, your words. Yeah, weighing in on who's accurate. I'm just kidding. But yeah, it is fascinating, this idea that, you know, I go to a therapist, you know, an hour a week, and that's the only context they have on me. and there should be ways to get more context to better weigh in on, hey, or coach or whoever, how am I performing relatively? A hundred percent. Yeah. We're just getting a chance to explore these sides of ourselves that, you know, we imagine in our sort of dystopian vision of the future, perhaps we'd said, oh, we'll be less creative and we'll be sort of automatized and blah, blah, blah.

16:41Like the opposite is happening. We're getting like weirdly more creative and weirdly more in touch with ourselves. And like, you know, maybe in 20 years, thanks to this technology, we'll be incredibly self-aware and we'll have made spiritual progress that matches our kind of technology progress. Yeah, people are really quick to imagine the sort of the the sort of, you know, the incel who won't talk to anybody else anymore and just talk to their AI friend, which, you know, may be better than what they have today for some people. So I'm not super against that world, but people are less ready to imagine the sort of the AI personal trainer or coach that is motivating you to have a more fulfilling life and have more friends or whatever, better friends or have better relationships, et cetera.

17:25It's also just, it's social practice. I think for a lot of people, it's a chance to experience some of these situations in a way that is low stakes. So I think there is a real vision for how this can help humans hugely flourish, not just like economically, but emotionally. Yeah. So let's, let's actually go to the companionship. The things that I've seen so far as someone who's not as deep in it as you are, is like, you know, Replica took off. You know, this product hasn't launched yet, but we were just talking about AI Friends. Friend sort of had this viral marketing campaign the other week, and people are worried about this, but, you know, of course.

18:03But why don't you give us sort of the lay of the land of what's happening here? What are you excited about? I mean, I think it's hugely compelling. It's super early days. So like multimodal is going to be a big thing. You know, so far we've had text models and some voice models, but they should be real-time models that are fully multimodal. And I think that's going to increase the kind of illusion is the wrong word. You know, I think that when you're interacting with someone in a social context, even if that somebody is synthetic, you still sort of feel the feelings, the satisfaction, the fulfillment, the kind of emotional journey that you would when you're interacting with a real person.

18:40So, you know, I always said like human connection is incredibly important. We all know that maybe the human part is overstated. I think as the technology gets better, as the models get better, both in terms of, you know, aspects like memory, like what should these characters remember and what should they forget, as well as in the sort of multimodality of the interaction. So there's voice and there's video and all of that. It's just going to increase the sort of depth of the feelings and the relationship. So I think this is a hugely important category that's in the super early days. And everything that we've seen so far is just a kind of, you know, it's a little window into what's to come.

19:14Fascinating. What kinds of social networks could you imagine? Is there an avatar social network? I mean, a cool product is this sort of bot product that will join your group chats in Discord. And the bot can have a personality and thus the shape and can interact with individuals in the group. So it's a way to extend a sort of human social group and really sort of, you know, what I'm looking for, like catalyze and kind of move the kindling around when the fire burns low. It's a very, very cool idea. So I think the idea that like these things are going to compete with our social networks instead of sort of augment them isn't, at least that's not obvious to me.

19:53So things like that, I think, are on the come. Yeah. Are you excited about sort of the humane or friend world in terms of we'll be wearing something that is, yeah. Yeah, I'm super excited about it. I love that idea of sort of passive collection and, you know, interaction and reflection. And I mean, we're going to have this conversation. Thankfully, this one's going to be recorded, but, you know, we might go for a walk or a beer next week. And like, there's always going to be things that are said or picked up that I wish I could retain. And instead, it feels very, you know, retro to be, I don't know, writing them down or trying to remember them for later, putting them in my notes app, like passive continuous note taking in a way that's like respectful of social boundaries is obviously going to happen.

20:35And so do you think the norm, it'll just flip where people are just going to be expect to be recorded? Or how do you think that sort of social norm is going to evolve? I don't know. You know, it's so funny, because we end up with every platform shift, there are these sort of things that like no one will do that. Absolutely no one will share their location with another person. And then in a very short period of time, it just becomes the default. A car with a stranger. Yeah. So like the, you know, people having their friends on Find Friends all the time, even their sort of casual friends is that it's a new behavior that you, you know, 10 years ago, you would have been very dismissive of that.

21:08So I think there's probably a version of that has to be a well-designed product where, yeah, people will actually expect to be recorded a lot more often. I'm surprised. I know people have tried this and there's probably... I don't know if the problems are tech Apple related or, or what, but it, I'm surprised there really isn't just like a social network where I see like all of my friends and where they are exactly. You know, I find my, for 10 people, 20 people or something, but I would share it just super widely. Totally, man. There's been so many attempts at it. You know, there's, of course, there's snap maps, which is really popular.

21:40There's fine friends. There is a Danny Trin built a really cool one called free like 10 years ago. There was highlight. There's one more that I'm totally forgetting. So it's a cool idea. Maybe the time is now. It just, for some reason, all the executions that are out there haven't worked. Maybe Snap Maps is actually the best one, but I agree. There's something there. Yeah. It's almost like anonymous apps. Every few years is like a secret or yik yak that gets a lot of excitement, but then... Well, dude, just weird apps, right? You look at weird, like we need more weird apps. Janitor is a great example.

22:11What was Janitor? It's sort of this NSFW, you know, companionship app that has gotten really popular. And it's just, it's a strange product. And I think 10 years ago, if you looked at some of the apps that were being built in the early mobile days, there were some strange things, many of which didn't survive. I'll tell you an early FinTech one, I remember where essentially for every transaction that you swiped your card, you'd get notification on your phone, and you would swipe it left to right to say if it had made you feel good or not to spend the money. and then it would try to encourage you to spend money on things that made you feel good.

22:42It was just a strange social experiment. The product didn't live for long, but we need more products like that and we're finally getting them. You know, I think related to that, there's sort of like, there's eras for different types of builders, you know, like the technical builder, the product manager, sort of product oriented builder. I think those people are really advantaged right now, which is why we're seeing a lot more creativity. Five years ago, at least in consumer, I think most of the leverage and the sort of best skill set was possessed by people that are more traditional business people.

23:11So the products were probably better businesses, but just less interesting. Hey, we'll continue our interview in a moment after a word from our sponsors. How deep do you go to seek out an answer to a question? Maybe you've spent hours clicking the source links on an obscure Wikipedia page, or maybe you're even the type of person who checked out the entire shelf on the topic at your library. If you're nodding along, then check out GiveWell, an organization that researches questions about global health and philanthropy, even if a satisfying answer might require years of reviewing studies, talking to experts, and over 300 footnotes.