Back in 2011, a16z cofounder Marc Andreessen first made the bold claim that software would eat the world. In this episode (originally recorded as part of an event at a16z), Andreesseen and a16z general partner on the bio fund Jorge Conde (@JorgeCondeBio) take a look back at that thesis, and think about where we are now, nearly a decade later—how software has delivered on that promise… and most of all, where it is yet to come.
In the wide-ranging conversation, the two partners discuss everything from the translatable learnings of software’s transformation of the music and automotive industries, to how software will now eat healthcare (including what exactly changed in the fields of bio and computer science to make Marc eat his own words!).
The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
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and to the a sixteen, the podcast I'm Hannah in this episode. A sixteen d co founder MARC, Andreessen and general partner on the Bio Fund, Jorge Conde DE take a look back at Mark's. Software will eat the world's thesis and think about where we are now nearly a decade later house of
or has delivered on that promise and where it is yet to come in the wider
in conversation. The two partners discuss everything from the learnings of software's transformation of the music and automotive industries to how software will now eat healthcare, including
what exactly changed in the fields of bio and computer science to make mark eat his own words,
Conversation was originally recorded as an event at sixteen, so you'll,
So here me sharing the questions that were asked at the end, so that you listeners can hear marks answers so thrilled here to have are
founder or co, founder and general partner, MARC andreessen.
For those of you that are travelling home after this via an airport you will
We see the smiling face on the cover of a magazine
magazine magazines. I am told that this is new technological device, its content, because pre printed on a paper apparently actually battery life, but with about me, doesn't uptake very fast. You can't swipe you can
but he could control weapons. So what we thought we'd do here is spend some time talking about how
as you can transform industries, and I think there is no better person
really anywhere to talk a bit about how technical
it does transform the world we live in. So I thought we'd start from the very very beginning
Part of the reason why you're on the cover of of a paper, computer right now,
is because the firm is about ten years old, and you know around the launch of the firm. You articulated your vision of what was happening.
in the world the software is. Even the world. I've seen you on stage aid
clay Christensen. Who is a Harvard
school professor who
disruptive innovation, one of the things he spends a lot of his time on is describing
what the strap disruptive innovation is and what it is. Not. So I thought maybe one day
started to have you describe what in your mouth
it's operating the world means what it doesn't mean, so
it's a yeah. So the term is from an essay that I wrote that the
but most regional, random and nothing twenty eleven so
but we have respected the firm and so that the
Is your conservation? Was that the the tech industry that sort of modern tech industry kind of as we understand it in the Silicon Valley, that you're sitting in the middle of right now there's about a seventy seven year? Old industry started right after World WAR two and when they were like a total of like five computer,
on another planet, and then over the course
are. Seventy years right basically figured out a way to pack. You know
the state of the art supercomputer technology that used to cost twenty five, fifty million dollars into a five hundred dollar product that we now now have there's like four bills,
and the smartphones on the planet now on the way to seven billion, and so there's like a seven seven year journey to basically get everybody on a computer and everybody on the internet that worked and it was it was. It was a long journey and lots of drama lots of fits and starts.
But it did fundamentally work and then so like okay, like is the industry finished like we done like congratulations, everybody has a computer mission accomplished what
Activities on the internet mission accomplished was next, you know it,
that follows, and especially back then you know this is after the financial crisis. There was like up of prevailing kind of mood if they pessimism you know about that.
Will economy and the american economy and the technology industry, and there were lots and lots of press coverage of the time was like text just in another stupid bubble and there's nothing interesting happening, there's nothing.
If the new innovations dad this stuff is all
There are now two soldiers stupid little little silly games and things it don't matter, and so I am I right
it's sort of the exact opposite right which
that'll, they were not done, we're just beginning right, which has ok. Now we have a computer in everybody's pocket was incredibly powerful computer with like a lot of buildings which will talk about
related to health and then and then everybody's on the internet, everybody's connected to everybody else and to you know, kind of an entire universe of services and information and communications, and everything else
it's like to me: it's just like! Okay, that's that's the began. It took seventy years to build the platform, get into position. It's like okay! Now, what can we do on top of that
What I tried to do with the concept of software is the world was kind of say: okay, how does this unfold from here kind of across industries and the way I described it was.
in three layers- and I was sort of three claims which I would say in
this is you go audacity or arrogance, depending on your point of view, or are just flat out hubris, which is another possibility
So the base level claim is the first claim is any product,
as in any field, but can become a software product will become a software product right, and so, if you're used to doing something on the phone that'll go to software used to separate paper. That'll go to software. If you're used to
in something in person that you know and then that can go to software. It'll go to software
you: ve got a physical product. You don't think about things like enough member telephone, answering machines right
two players boom boxes, like all these, all over things, radio Shack used to sound like they're, all just their elapse on the phone right
cameras Emma there, there is to be a physical protocol, a camera. You know that
a paper eyes dropped by the way the physical newspapers have physical magazines. If you can become better
it was bets and right. Why does it become bad? So it's like well, if it's bets it's it's better in like a lot of ways. It's like it's like you know so bits like r, zero marginal cost. So it's it's!
Is there easy to replicate at scale, become much more cost effective, a lot, a lot of lot of business draft, a free
by the way, the much more environmentally friendly innovations in increasing thing for a lot of people? You know that
You can change bits much more quickly. You can innovate much much more quickly, add new features and capabilities. So there's just lots and lots of reasons why it's good to get things from from physical form into software. If you can, and so anything
I can get into the software will get into the software. The next kind of next
claim claimed from there, then is every company the world that is in any of these markets, in which this process is happening therefore has to become a software company
so companies that historically either did not have a technology component to what they did, or maybe
the classic conception of technology in business, which is called the sort of like a t rise out of here?
these new about these, these these nomes, the back office right and they ve got their web coats and I got there mainframes and they gonna do their thing, and they are not this report
and for some reason, reports are still in all caps like there's that, but then
like ok, like modern, which might also to modern offer development right now, and especially like customer experiences like what what's what's the echelon affair of the customer and if any
I believe that any company deals with customers, especially consumers, is going to have to think really radically up his game in terms of stability.
what kinds of you I M M in an experience, as the people expect these days so
company becomes a software company and then and then the most audacious claim, as is a consequence of of one or two. In the long run in every market, the best software company will win, and
doesn't mean necessarily that it would be a new company that starts in software company that enters and existing market. That wins, but it also does not necessarily mean that an incumbent that adapts to being a software company will win,
and an increasingly unfair- and yes, you see that's right in many industries, including health care, including assurance right, you'll, see you see many cases now we'll have you no kind of you,
pure play software companies entering these income of markets- and you know you
from the position of white youth and naivete, and maybe maybe they're wrong, or maybe the idea stupid, or maybe it's over or left right entering the taxi market, and maybe they just have a fundamentally better software driven approach and then you've
incumbents right scrambling to try to basically figure out how to become software companies, which is tricky because
True suffer the way we think about it. Like it's different, it's it's not the same. It's different! It's a different kind of product to develop than a lot of people are used to the culture of a software company is different than the culture of most exists.
companies and then the kinds of people you need to hire to build software.
Especially modern software, especially things like mobile software. Ai software cloud software like these are. These are special people and I say special, multiple
efficiency special. These are. These are so highly creative individuals.
it just a random example. The defense contractors and intelligence agencies are having to revamp all
we use. Policies like right now, like the whole, the whole pee in a cup thing before you get hired like, doesn't work if you're trying to hire modern software development capabilities
Just like one random example, but like there are lots of instances where these cultures are different.
and then you can kind of say. Okay, though, that's if that's the framework, then you can kind of go industry by industry and say okay for each industry, like which industries are more prone for that to happen in and obviously in some industries. It's like super clear. The media industry is an example where it's just like obvious. How fast that's happening
There are other industries like, I would say, cars as an example am might talk about quite a bit of transportation. I would say it's kind of right in the middle, which is
The incumbents in the auto industry have a really good claim on the idea of a building. Cars is incredibly hard and credibly dangerous, very regulated, and the idea
a bunch of software founders out the valley start. Car companies is kind of absurd, but
or you know, five hundred self driving car startups within fifty miles of where we sit and what those factors would tell you is all the value. Ninety percent of the value of the car in five or ten years is going to be in software because the sulfur the car is going to
an autonomous electric vehicle license
economists will be self driving, which means it's going to have all the software that the car the legacy car companies don't know how to make, and that is.
electric. So it's not gonna have all the all the internal combustion components. These car companies has spent a hundred years out myself and then, by the
the car might go from being a consumer product that people buy to just being a service. The people
It's on demand rights or ride, sharing networks in the self driving world might
But you don't own a car, you just press a button and a self driving car shows up and takes you where you need to go and so
you know so, there's I would say: there's like a there's, a pitch battle, kind of shaping up in the auto industry and then there's there's a bunch of other industries in which I would say the incumbents are much more comfortable that they don't face this
I challenge them. Maybe they're right,
their activities. Now there are software driven entrepreneurs that what about style, interpreters, sort of trade
figure out like WWW dreaded by including a really big like education,
Education is becoming a very hot market right. Education is not a market that you would characterize as having had a lot of innovation.
As two thousand years and
you know, there's a new generation of a founder out here that has the deceptive pretty compelling new offers education, I would say
even real estate there's a lot is surprising. That of innovation have any real estate.
Law as a field and show you and it's not like traditionally super innovative, there's lots of new software interests and in the legal field as other there's that those people are going to be trying in basically every industry.
It I want. I want to make sure we get to the healthcare shaped elephant at some point in the room, but to look back on on on on this.
offer each the world? This is the three audacious claims, as you call them any support
it that you seen in the intervening years that you said, okay, I I you know if I were to rewrite
that today I would have taken a different view. Yeah, I think that
The big one I mentioned already, but I think that what's happening, the car industry like we started the firm ten years ago. I never imagined that we'd be investing in, like literally new car companies like that. Just think about how crazy that
auto industry was an auto insurance like an entrepreneurial industry in like eighteen. Ninety right and like you know, and then nineteen in the nineteen twenties like Henry Ford, it's kind of the bill gates of his era, kind of figured the whole thing out, and then there were literally no new american car companies. There was one major new american car companies since the nineteen twenties
we're, like hundreds of new car companies in towns and they shrunk to basically three and then
stabilise, and then there was a huge new car. There was an attempts as an entrepreneur named Preston Tucker in the nineteen fifties that created a car company called Tucker Automotive
This means the bonuses and there it was such a catastrophe they made a movie about,
like a test for fear, was called Tucker and so like it. If you were an entrepreneur attempt to start a car company, just watch the movie Tucker Dislike. Ok, I'm not doing that
and so the idea that that industry, that established would be opening up. The way that it is has been very striking.
Most likely one by the way I use the term contests offer very broadly just in that in the sense of light code that runs on ships and networks, you I'm sure been
about seeing the rise of this sort of concept eager under the terms, machine learning, deep learning, artificial intelligence like in
we're in the valley. That's in the valley. There are like two profound and illogical revolutions happening right now:
and that they have the best engineers the most excited, and then that's one of them by the way they do want is for
currency blockchain, which is the whole nother conversation, but the sort of machine learning, deep learning ai is incredibly
for area of creativity right now and is advancing at an incredibly high to speed. Logically.
So the the other question that I think is increasingly coming up when we think about the kinds of companies and founders we back is kind of how a native or ml can sort of machine learning native of the founders.
And the companies only even in the valley, there's a big there's, a big spread. I think, between the
buffer founders that have really figured out this new technology and how to use it and the founders are still haven't kind of tuned up on it. So it's like very much
enough if that stuff works, the way that it looks like it might work.
We'll be transformative even beyond just the idea of sulphur starting this right. So if we don't get a couple of the industries that have been respond,
they've been receptive and in the auto industry you're right if it gets a big surprise that they would have adapted to the fact that cars are becoming more sort of soft,
her centric? What about industries that have been almost entirely transformed to take, for example, the music industry? I think if you live outside of Silicon Valley, the sort of law
that the first wave of of the internet is one of the first
industries that was fundamentally transfer
was the music industry. Do you think you know that other industries have will likely suffer that fate, that music,
as yes, it's a funny thing, some music was like. I think it's something like a triple whammy, so its official
one of the worst things. What music was it turns out? People really love music,
and I say that, because, like generally when we fund startups, like the question always is like well, the dogs eat the dog food, like are people actually going to want this thing, and the thing with music is like what was the huge issue of music? It was like piracy, like all of a sudden. You know the the music listeners went crazy and all started breaking the law and I'll start to listen to music online and the record labels are free,
doubt and they were like, will what? What do you know who basically like our customers, have turn evil? And it's like wealth
you maybe but like first of all like why isn't it great that they love music so much and
for some reason: the music executives. I knew never thought that was a very good point, but I thought I thought it was inner. I've always looks like they want. They want the thing like they're, showing it
normally in business. When the customer is line about the door and they're like I want to consume music digitally, you would normally want to say okay, I want to find a way to service them. You know the musical,
that's what I know you should be able to get busy digitally and so that that that was the first generation thing it was. It was the reverse of the normal supplying demand problem. You happened. It was literally overwhelming consumer demand for my muse, extremely music, digital music, and it was over roaming way. Suppliers refusing to accommodate it. So that was weird
when it was like. Ok wizout happening what any it into the pricing right and, as you can guess, I'll know like the pricing had become. You know, there's too
of elbow, there's, twelve songs on the album, the album costs, seventeen bucks and I want one of the songs right and so congratulations. I could pay seventeen dollars for a song.
What you know and then another eleven songs I don't want, and so then it's like okay, well, that's weird and like you know, is that really, but the whole structure of the of the record industry has gotten built up around that.
and then there was the thing that it actually got down to which took a while to kind of surface, but it ultimately did finally come out, which was it was. It was a cartel.
like a fallen anticompetitive, monopolistic cartel with price fixing, and we now know that, because there are anti trust cases from this era that finally appeal the whole thing. So this does not become since public record, but they were, they were all colluding, and so there were, you know four five labels and their own getting color and in setting prices.
That's why they were that. That's in retrospect why they were so dug in
it will end. It was a magical business while a right it I mean it's like it is. If you could come, let's imagine
who collude and then, let's imagine, as a consequence of that, you could overcharged by like a factor of ten like wouldn't that be great, and so that, in that
This respect was the thing that I think a lot of us out here messed gives their behaviour, which is so illogical, otherwise
The problem is that lasted until it didn't last right, and then you know that the way they didn't last as first the consumers at the consumers. I think, like that,
we're breaking the law, but, however they had they had actually
we're ready now they were doing the right thing, but for the right reasons they had concluded that the industry, that with services that was actually immoral, which was actually
correct it actually wasn't moral. It is immoral to price hikes, include any illegal.
right, you hadn't legal customers. Italy will cause forbear, amicability supplier behaviour like super healthy market
And so you know
it's the moral of the story. What's the moral of the story, while it's like okay, that which can become software, will become software. There was just overwhelming demand, you know, look we all live as today like. How do I want to listen to music? I pull up Spotify my phone and listen to music like that
you're, being forced back to you, fitting figuring out which box in the garage has the cds. You know it just sounds like medieval torture is so the thing
can become, software will become software and then you know, prices are going to rationalize. We could talk more about that, but there's like there's a big. I think rationalization of prices happening cross economy. This pretty interesting as a consequence of think
transparency? And then you know the suppliers like the cartel cartels. The cartels attach the technology arrogance revive like that. That kind of transformation is going to be a really big deal.
And it took time like it. You know it took fifteen years, maybe as everything like it, you know is fifteen years of the regulators trying to hold out by the way it was
Fifty years attack start ups to try to solve this problem, and so there, you probably member, if you're in a music- it's like- I don't know there was a sure getting there
after Scott put me to put on business early on. That could have been the thing, but then there was Kazaa and there was line wire and there was
Torn and then there were all the streaming services and
it's interesting, as they were all terrible venture investments there or catastrophes
there were too early like that, because they couldn't get the rights to the music as the labels wouldn't do the training
the deal, and so they could never get rest
music, and so they can ever actually offer a service that consumers actually wanted. That was also legal, and so they are actually all about investments. But then, finally, after fifteen years, the pressure bill to the point where it actually was time for a fundamental change in that's one Spotify kind of catalyst. Actually,
Why do bees like I said she did not invest in Spotify at that time, because there was his fifteen year history that all the other
I have to do with Spotify was doing had failed, but the time had actually come
right and not announce obvious what happens, which is like music as active bucks a month and needs all you want you you listen to it.
Spotify has, I don't know how many but Spotify is going to end up with like a half billion or billion subs now, like ten bucks.
it's an unknown part they're out all the money to to the artists and everything that in music could become something
as because becomes offer than the one thing that still you have to do in person is the experts.
and part of going to see
a musician perform. That's where he
instead they make a lot of their their money right in terms of going in and having the in person peace. And I think, if you look at the healthcare
screaming. I think that there's probably some element to that there still there are always going to be a human element,
an in component of a and managing disease
impatience.
Am I sure, there's a related point there, which has actually theirs is where the Christian Click Russia's initially points. Centres is weird thing where,
in office you mentioned this restructures when one they are commodities us the next year can become incredibly valuable and so
It's a incest, deceptive thing, because people are focused on the layer that is commoditizing and kind of the shrinkage kind of revenue. Then the market cap is happening and they tend to think,
It's a whole industry is going down, but like a book, the music industry contract it right. The amount of money people spent on recorded music shrunk dramatically is finally started
grow again was dreaming, but, like it shrunk dramatically over the course of fifteen twenty years, what actually
super interesting as the compliment expanded from
play so over that same time. I think the? U S market,
concerts wife last fifteen years grew for ex. While
dollars. Mega inflation adjusted demand
it is an economic sense which is like. Ok, congratulations. You know mister consumer. Congratulations! You now have unlimited access. All the recorded music you want is now free.
Nobody has it. You know
status like there's? No there's? No, you don't have the like record labels, Unita Universe. You know the obvious lined up in your shelf and if here you know courting a young man or woman and I come over and you shall have your music you'll get it do. You know, like eight with my spot, if I right it's not the same as it is.
you know so, there's no social effect to it is not really find him out. It's got states like its consumer Nevada, except it's like they bring down all the fun and
what's fun like going to the concert right.
And by the way, I'm not spending as much money recorded music and therefore I have more money available to actually buy concert tickets, so the concert
it's the sort of experienced side of it has exploded in revenue, and you might, you could easily hypothesize. The exact same thing happened in healthcare. Read it, for example,
If more of the actual products and services in health care it could get commodities and overtime you to break the consequences,
She shrank it. It may or may, because Europe medicine we just explode, ran maybe what
Well, actually, maybe maybe a lot more people actually want the kind of concierge experience today they can't afford it. But if you, if you, if you're correct the price covered a lot of the other stuff, maybe you could open it up and so
since May, simply let the moral or that it should pay attention. The compliments is not is not just a thing is never a single factor. There are other implications for other barriers to spend it.
yeah and so actually on. On that note, you know given in the healthcare industry, we are, of course, one way, shape or form form we're all customers of the healthcare industry over our lifetime. We will be you, sir.
On the board of the Stamford Hospital of four hundred and fifty six years
a little bit about what you learned about the delivery of healthcare. From that, sir,
serving on the board of a hospital in really coming as it does a lay person to the Indian
I would say the best thing about it was. The mission of the place was obviously just amazing.
The mission both in terms of the actual healthcare, but also the mission of the translation of of of medical research, know the the the integration with the the medical school.
Research happening was an profit with highly motivated people, people which was exciting to see you then,
yeah there was innovation happening all over the place and in fact it was actually exciting cause. We got. We had the chance to actually design and build a new hospital which I'm delighted to
I say, is opening. Finally, this fall,
So we agree that we agreed with the project. I believe in two thousand five were open and twenty nineteen. These are
in your slaves are fifty fifty fifty nine fifteen years icons and then you know that,
that, guy that we spend a lot of time on the design of the hospital which was super interesting. You know the two things that were probably the biggest surprise
the things that just kind of really jumped out like twenty five board.
Members rights? Are our boards, like our well functioning boards, our companies like seven people beyond seven people? You can have a good discussion.
and so you know twenty five people like a UN summit.
And so I will not describe the as highly dynamic and we didn't really get into one of the issues and then
we're kind of just really think that blew me away at which I'm still kind of tracking I'm fascinated by was the issue quality. So I
I couldn't join the board right after we hired our first chief quality officer, which was a guy who were come out of management. Consulting six sigma kind of you know manufacturing.
Equality thing. I fear for those you guys not even coming
These things, the? U S,
industry, like was a huge ascent and industry, the fifties and sixties, but have this massive quality problem, which was like literally people, were dying like there were? No,
belts in the cars like the steering columns were like impaling people like there. There are all kinds of horrific problems and then, when
That means, and the Germans came in a safer cars like catalyzing huge crisis in the US auto industry in the rough nator made his name originally bike by by creating the book is called unsafe at any speed, which was a reference,
was to the car enter the industry, then, starting in the seventies eighties nineties, the auto industry implemented this thing: total tick, tick, tick! You I'm total quality management, six sigma, which is a process to kind of get get all the bugs out of the idea of defect free manufacturing.
here's my general, if you buy a car today like it's, it's a it's a far higher quality experience and a car fifty years ago, and usually it's actually a much better spirits, even in a cart and are twenty years ago that there are quite good now
He read these histories of, like I dunno, and they figured out collar and the water stuff like this. If we could only one in Germs Ireland infection is this, like you know,
eighteen, whatever one thousand eight hundred and eighty or something they figured out. It's a good idea to wash your hands before you perform surgery.
two thousand and four, and there are still doctors walking into rooms, are getting people sick. The compliance.
for the further scrubbing another rooms, as I am thirty four,
there's something I want to go. Fuck like it's like how
can you
anyway. So that was at the front end of that. You know it's been fascinating to track. That goes on. The one hand is very clear that they have made a lot of progress,
On the other hand, there is innovation, yet to be done, I mean so, and you you guys I've
you think you guys must now. I m sure you guys know others, but like me, no medication, compliance like the data medication. Compliance is absent,
we are horrifying right. It's like I dunno something like two thirds of all prescribed medications are not like. It's like. A third of all prescribed medications are unfilled
in another third: are not people don't take them on on schedule right and then, and then you get to the details audited like a lot of people, especially older people, you give them like eight or ten or twelve different medications, they're supposed to track it they'll, just
for their medications and, like the cannibal, like myself,
whenever data take a handful of pills right, like initially that's pretty good right
that's better than just it's all on a shelf somewhere. They can't get the bottles open
medication compliance is a train wreck. It's actually the I read this thing there, the day: medication, compliance on medication, compliance plants and animals
after organ transplants is actually terrible, he's only lifelike.
transplants, only like sixty percent compliance, incredible
right and like it's in the other, forty percent. What you're going to die right- and I still can't get
why it's right, and so in their those eight different reasons. For that and so
there's that issue. Another is just like yet literally tracking the doctors like an answer
just an idea that idea that we should fund like we're, seeing all these new. Actually we're saying all these new technologies now to do things like would, for example, to watch an assembly line of Ireland to have like cameras that, like watch
everybody's physically time in motion like in the factory,
you can use these machine learning technologies to kind of decode like people do in there, I think. Are they taking the screws? Tightening the balls. Are the machines running properly?
We know that maybe we should have like a camera outside you know every patient door and like is the er, the doctors and nurses actually like scrubbing their hands, like you know, if you're around,
if you're all again, you're old tracking so like fairly basic stuff, is still
mean, I think the reality is, I think, there's a lot of basic stuff, that's still not being done, and so there's yeah, there's yeah and the problem with this kind of thing is it's like. Okay, like you know, what is what's the medical errors are the what most common,
in the hospital tat in the third year in an agreement on this whole issue of infection. No hospital borne infections like it's it's I think, an open question. How much of that is right,
supporting errors, not compliance stuff and not getting better yeah right exactly and so, and why are
the board of a hospital in a lot of what folks think about software in healthcare,
will just automatically assume you know? Em are sort of the example that lotta lot of people gravitate towards. Did you? Did you go through
sperience of incorporation and implemented in the Import Stamford, while you on the board tussle abroad
I brought oh yeah yeah yeah. There we put that to bed. I think we got back. One viable bid, anything further complexity, a Stanford Hospital. It was epic, it was a
Four hundred million dollar project, probably
I don't frequently fast food, probably one hundred to epoch or something like that, and then a three hundred. We went out for integration bids, and this is where
It almost started crying. It was Perot systems Rasper Ross.
there are systems which is per persistence. Was there was the following areas: respirators company, which is now one by Dell?
and so yes as a foreign military project for assistance. I remember this was two thousand and five. I think we started the epic implementation and they were very excited. There are various
in the demo. I was very excited because I was like wow. This is like a new husband with res, probably the remote mobile. This is when smartphones are certain to golf and has given mobile sensors and, like all this stuff is going to be great and it was like they were super excited because they had just moved to the windows. Ninety five? U I
two thousand and five that the big upgrade from windows. Three point one- and I was like, oh my god,
It's about you not, as you know like this. Twenty two to twenty nineteen, and it still right is obviously still is still the same thing right.
We have a credible entertaining about epic as that they are so you know out here. It's like
the outer there's a big focus on software entrapper ability, and so it's like an one piece of software work with another. This whole council
are called heroes. Entire companies now they're are called Apia companies that build. Basically, software building blocks you plug together. There is open source and so out here
this constant cost process of everybody building and everybody else's creativity and kind of this. The whole thing rises, except for
which is as an absolute prohibition on third party integration? That does not tolerate it will sue you if you're attempting to integrate with it to so. When you launched the
you famously said in the early days of the firm. He famously said that you won't see
a sixteen z, investing in Bio and health care and that, obviously change. Can you talk a little bit about the evolution of that thought process. Moderate!
Apples like roughly fifty years, all the kind of story started in the making seventies encounter them
a form of their basically two fields within venture that actually worked there, sort of what you might call a digital technologies, computer based technologies, Idee broadly defined, and then this by
by TAT kind of broke down traditionally into a new form of new for new new therapies and that new new treatments and any medical devices
actually a lot of the best venture capital firms actually had to practices Ryan's other men. Examples is clear, Perkins being a very prominent one for a long time. Did you
just as they have the digital? They got the digital team them. It happened by their healthcare team, and you know what
upon a time big, they kind of collaborative work together and then what have
I just did that that the economics of those two sectors- just like fundamentally diverged and like the and the fundamental reason for this is right in the in the sort of didn't sorta did
technologies and digital venture you're you're. Fundamentally, writing this Kirk out more law right, which a sort of that
so yeah the price. The underlying components for software and hardware basically falls in half every eighteen months. So you got this
I is amazing, kind of downward cost curve and that's why you keep coming up with new applications for computers, because everything keeps getting cheaper and and really quickly.
and then a new pharma and in new medical devices you had the reverse of Moore's law, literally, which is called E room's law
room which is more backwards,
and yeah and Arabs law is the the cost to bring a new drug or a new medical device to market doubles every n right, so so the Costco
it gives the wrong direction right up to the end when he hears it our fifteen years ago. What happened was the vizier that were in both basically decided that they didn't work anymore, that the site, the economic cycles for two different,
you could fund. You know Facebook, we know with whatever twenty million dollars or you could find a new farmer effort with a billion dollars right and
we have to raise another three billion by the time, you're done right or worried, end up, selling out and selling out to big pharma at some point, and so that
just became kind of two fundamentally different domains, and then, by the way, there were two fundamentally different scientists right, cause: they're sort of computer science. In the one side, biological science and the other side- and they they didn't really intersect, he didn't really use computers that much doing new drug discovery of new medical devices and so
was that was the situation we saw in two thousand and nine was kind of a they were actually separating out and actually the the leading kind of biotech vcs now are not names that anybody in Silicon Valley would even necessarily know because it's just such different worlds, what we
started to see starting about six years ago, starting around two thousand and twelve, probably two thousand and thirteen
We start to see a new kind of founder show up and we started seeing founder, showing up a phd biology. We don't have often Andy's.
and then also either degrees in computer science or the equivalent of degrees in computer science, sometimes actually like dual Phds, but also sometimes it was just you know, I'm I may be issued Bio, but I've actually been programming computer. Since I was ten like I've got, you know, twenty,
five years ago they got twenty years or whatever that sort sort of the equipment of like you know, education experienced computer science, and, and so
and then and then these foreigners are showing up with these kinds of hybrid right technologies that were kind,
Bio Health have computer science,
and then honestly, they were right, and then I had this why I was called the dogs watching tv. You know phenomenon, you know,
be up there and they'd be talking about the genome and this and the exome and gribble nucleic this, and that other thing in the world is kind of. Like you know,
sort of varied. I've heard these words before it. Quite not I mean
and then they would say, you know over them and we'd all the wolf right like we get that
Well, we didn't know quite what to make of these right and so then we'd ask the photos, just be like well what happen when you go pitch, the the the the Biophysics Healthcare Vcs like? What are they doing this? Like you know it's so weird: it's like dogs watching tv. You know
if we go on and on and on about machine learning, and they they just look at us puzzled, and then we say you know ribbon the clinic and I get all excited and so
What happened was we basically said: there's this missing middle right, which is basically the convergence of these
she's in our seas. The conversion of the scientific domains right and
as a consequence, the conversion of of the technological domains, and then that means a convergence of the of the industries. And so we just started to see this repeating pattern of these
it's the founders and we said well, look. We said it's. It's unlikely that the these, these bio vc, these Bio vcs, have gotten so detached from computer science.
So they're unlikely to figure this out a bunch of they compute.
Science feces just got done, shutting down their health care practices, they're not probably going to leap back into it. Maybe there's this news:
in the middle and there we got vj or partner dj. Who is
professor at Stanford, where he was literally right in the middle of this convergence in his time at Stanford and he came over and he kind of spun us up
told him and then and then and then Jorge trying us subsequently, and I think we've just
I discovered like there's a real is a real vein here and it's interesting
like where we are seeing more of this see focused VC starting to edge now,
if also seeing more of the life Sciences, vs eastern origin, but still there's this. There's this thing in the middle and then
as you are indicating like with the with the upper question. Like it
there is for sure. It's like I mean there's, there's like the pure, like convergence, which is like the concept of digital therapeutics right. So you don't things like for you,
Will they be these and so forth? And then there's all these potentially new kinds of diagnostic new kinds of sensors? You know, use the centres in the phone to do diagnostics, things like that and then there's a lot of work happening in light bioinformatics, and you know that the research side, sort of club caught club biology is a big thing that we have and then there is actually applying information technology to the operations of the actual healthcare industry which gets into things like medical records and examined
it's services and stuff like that and so we've we basically decided we're taking a very broad we're taking a very broad brush,
thus basic what will were working in all those areas and I think we're finding it to be
a very dynamic and very fertile area, absolutely what advice, someone who's
investing in and has been an entrepreneur or has been invested and entrepreneurs now for above a decade? What advice would you give industry leaders?
in terms of how to engage with innovators,
entrepreneurs and, conversely, what advice should we be given?
in order to engage with with folks that are leaving the industry? Yes, that the big thing to think about that the big differ.
Between kind of how the valley, where some kind of that the brush the business world works, is, is as follows. We just like in most
business world like you've, got some existing position in something and they're trying to figure out like what to do with it and you're trying to figure out how to defend it, defend them.
Are you trying to figure out how to advance innovate within the market, but like you're you're gonna dealing with a big existing big existing companies biggest distant businesses? You know out here: we dont generally have that,
you know we were generally starting from scratch and I think the way to think about it is so heavily stirrups there, their experiments first and foremost in there.
There's pyramids, often in technology, which we try to take action, much scientific experimental rests with their technological experiments. Can we build a product?
business experiments which is like
I don't want this thing. Am I going to make a business on them ever and be able to turn a profit on it, their experiments and like the
you might say. Well, that's dumb like. Why would you like to risk all this money and effort and washing experiment for product? You dont know whether you can build, or you know anybody would want, and most the world doesn't run those experiments, and so maybe there's really one place. The does right in this is that,
place, and so that the ethos of the valley is is: is these experiments and that's
What leads to this interesting phenomenon? The valley which is you'll, have founders that have a company- that's like just like almost in some cases like a famous train wreck like it just didn't work at all. Like you,
Five years later, they'll go start. The next company and they'll easily raise money for it right and again, like a lot of the rest of the world. I'd be like well, why are you getting behind somebody who already failed in the valley?
well, if they learned along the way right in there now better at better running the experiments. The second time, what's phenomena run the second experiment and if I can get a lot of
as companies in the valley are founded by people who have one or two significant failures:
for they are before they they found it the winner and so
So if you D, like it's an incredibly fertile landscape of experiments in and there's you know, there's thousands of experiments being run, and you know these are pretty big. You know. Can we build this operating cars like a pretty biggest ex experiment? So then,
It's been kind of people, especially from establish industries. Come here is kind of telling the temptation is devaluing much like each experiment, one by one.
I'm! So it's like you know you look at you, look at a given start up and it's like. Well, I don't know like you know, this thing might work, the technology might work, and this is my work. You know this whatever this might be the right founder
Don't quite know, there's all this idiosyncratic risk with this experiment, and I feel like
The decision, whether or not to talk to the start up of work at the start of based on the characteristics of of this you know of this particular piglet instance. That's one way to do it.
you know what to do. It is more like what we deal, which is also what I think the big companies that are good at doing. This also do, which is you can say, will look at the lever. Make sense stood just run one experiment, but it might make sense to run ten experiments, and so it might be that the partnership model that makes sense, is, let's put together a portfolio,
like, let's figure out ten areas that we think are potentially interesting? Let's find the
ten most interesting startups in those areas, and then let's run, let's, let's try ten partnerships,
unless think about it very explicitly as a portfolio of portfolio investments, superfluity portfolio partnerships are performing supply, relationships
It is, then, then, let's evaluate the result of those ten experiments as a basket right
and just the nature, probabilities being what it is. Some of them are going to work. Some of them are not right, but the ones are going to work. Might work really really
right and what I just described you as literally what we do. It's like. It's it's the venture capital mentality, but it's also, I think the best construct for thinking through
I don't engage with startups as a as a big company by the way
the other side of it is the temptation for thinking about, like you know, a new joint venture or new investment or something new you
as you know, will it succeed or not, and so it's like in the traditional way you report this to the board is like in a green,
I a light red light like his famous management, consulting shirt with like the bulbs right, and you went all the way,
to be green. Defending lights are, yellow people are very strongly in the face and a fatal eyes, a red like as a disaster, and somebody gets fired, and so it is past failure it. I should think that the way they want to think
about this? Is you know it's not a question of like? Does it work? It's a question of like if it works like how big can it get like if it were
how big of an impact could it have so a new technology. You might be looking at in your business that might be a new route to market, a new way to cut costs, a new way to cut costs like if it works it. If it cut costs good, does it cut a million dollars with the cost of billions worth the cost that that might be the actual relevant question
so as opposed to just success. Failure and just the nature of these things is like they often these experiments, often
work, but when they do work, that can actually work will really really well. They can get really really big. Have a really really big impact
and so yeah, so that that's the general model is a profoundly reproach and then and an understanding, an appreciation of the east symmetric nature of the winds relative to the
there will be some sort of losses. Greater
I'm Silicon Valley has been pretty visible in movies and television.
etc.
who had a hand in some of that yourself in terms of advising someday, shows no come on. What is a good one?
What do you wish that people that didn't?
here in Silicon Valley, knew about Silicon Valley.
If I have been listening to the Elon Musk Audiobook
before the model, s shipped like everybody thought he was just completely full of it right and that he was going to make this car and just there's just like no way it's impossible can be done, and then this freaking car comes out right,
model. S comes out. It literally wins like heartier awards everywhere it has like the best safety rating of any car ever made, and there are all the
people who were like oh yeah, he's a fraud, they're literally mouth hanging open like cannot believe it right and so that that actually is kind of the the the the more common story, and so the the the sub, the scientific and technical substance of what happens out here does tend to be quite real
but then the other side of it is what I said it is. These are experiments like if, if this stuff is Islam, dont like if it if it was because if it's
yes, how to apply a scientific results into a technological product and then build a business around it like big companies are going to do all that, like their lots, lots and lots of big companies in the world in health.
You're outside of health care in the tech industry that are good at doing
we have stuff, and so by the nature of the valley, we're doing the non obvious stuff we were doing the stuff. That's not yet proven we're doing the stuff. This controversial we're doing the stuff that really might fail, and so
well, there is a risk with each and every thing that we do, whether whether or not it'll work, but God willing, when it does work that could get really big. Wonderful. Thank you.
Let me see if there any questions in the audience that we could field
we're here today in a place, that's known as a center of innovation, but many of us have to go be agents for innovation and change in industries that aren't necessarily as open to it. What's your advice for that
How do you think about doing something? Innovative that you believe in that you think will work when others might say: oh we're more traditional. This is the way things are done so, as I should
term of art in the anime industry, in the valley for for for what is called the evangelists sale, is actually really interesting. It's like our our companies come to market with a new product, a new widget that does something they'll go higher. Sales reps out of companies that sell normal products and those sales reps will come in and they'll take the prime they'll just completely whiff, because they'll get back. This react
for every customer being like I'm used to buying whatever oral databases from you. But I don't know what to do with this new thing and then
as those sales reps actually don't know how to sell that thing and those marketing people don't know how to market that thing. So it's a different
and so that there's a specific kind of seller sales, rep and marketing person out here is
the evangelistic seller are the evangelist marketer.
You know it honestly it better with a magic and it has to do it has to do with painting a bishop right. It has to do a painting. A vision of the future is the marketing it
It's sort of the Cgr sort of that old, Steve Jobs used to say it's like the you.
Well, the consumer research has nobody, nobody knew they wanted the Macintosh right like until the Macintosh or until nobody knew they wanted an Iphone like until the things showed up. People can't visualize new products on their own, and so you have to paint a picture
vivid
this is where some of these guys, like you like it, criticised for kind of over selling but like they have to paint a vivid picture.
As an example. So Elon comes out with a model s. He is a great example. He only comes out with the model S. Congratulations! It's the car that you plug into specialized charging ports
well how many specialised charging ports out there that I can plug this current two zero, ok, now
by a model. It's like buying the first fax machine I can run
now the first fax machine who can I fax
I have a very sensitive doorstep: lightning, good, good, good job, and so, like somebody, you, I don't want my last as he painted a picture or paint
you pay, for which we want to give my presentation. I look. We're gonna put these supercharged stations right in all these.
but what cases one all these freeways need, methyl thing out. As I hear you're gonna be able to derive cross country
and you're gonna, get you in charge for free the entire way and by the way down to those starting stations existed at that point, but he did delay that vision out many said: look! Here's the thing you'll put in your garage, you know in ITALY,
carbon here. So much will cost and then you know, within a year he had the people were putting these things in their grandchildren
but in the charging stations and super charters were up and like it worked
and then he sold enough of the cars into that vision that he was actually a will to affordable those charging stations, and so
the picture in a way that people can believe in Spain in the picture by the way also consistently reality like the. I believe. You know that I have to be a sensitive claim that the whole thing and work
and then I think, actually I think everything as is it has to attach, maybe obviously
attached to human psychology, and this is everything the evangelistic sellers are really good at which is in sight,
I'll speak. The evangelist sellers are really go to qualify wish,
as there are certain customers, where they're just not going to do new things like where they're just focused on downside risk. They want. You know
It's like they go to work every day they go home with their family, like I don't want to do anything that might cause me to look bad and get fired and that's a completely legitimate way to operate. A lot of people are like that, and so the
This list accelerated things it is. They just call for those people out a magna space, I'm with its people.
I find are the minority of people who are like okay, like I, I don't want to spend my career just protecting the downside. I would like to become known as it within my own company as somebody who's innovative.
In the future, and I would like to basically stake a career about myself right on a new too,
algae and the nature of their career. But if it doesn't work, I'm gonna look bad, but if it does work, wow a metal look like a hero and I'm gonna get promoted and I'm going to be the next year, the company, and so it was kind of
if the evangelist seller meets the early adopter. Buyer who's got the right psychological mindset,
super interesting. Actually, as those people actually become very close, you know that
they'll person then becomes fully caller concentrated seller. They become actually vote.
It tightly integrated into the wives of the sponsoring is accurate and on the other side of the table and
their bessie fundamentally trying to make each other heroes in their respective organizations and they all they often enough, extremely personally close, because there on a shared mission to do something new
there's only way this is gonna, be the cannibal. We invite our companies to do a bit like that. That's the problem
and then and then there and then there is the process of like ok, then ass they got track which is like. Ok, are those early dockers actually out there?
do, they actually exist right. Do that? Do that you're right, but do they have the authority to actually make those kinds of decisions right or at some point, by the way, if it,
exists. That itself is an interesting market signal like a thoroughly
first. Don't exist. It may just be time to start a new company in that market
The other thing that happens is the funders like. Oh, is
it's like imagine, being Travis, Kalanick and trying to start uber in your first ideas, I'm going to build taxi dispatch software and I try to sell it to taxicab companies and then
you spend two years trying to get Texaco companies to buy this taxi dispatch software and they all say you might
it, isn't literally what happened, but you could very easily imagine that happening, and so that that is the other thing that emerges out of business people to decide to start the company.
Do you believe are some of the biggest challenges to getting new technologies and solutions adopted, particularly in the healthcare space. The general
happens- which is really relevant to all these healthcare markets is the product works and I can't get paid
it was like one for me, the problem is, I just can't get paid like literally like the customer is not going to pay for this product, because it's going to it's going to be reimbursed. Is the third party model it
It doesn't matter how many patients want acts if they trust companies pay for it. So that's that's a particularly stark example of can't get paid. There's another is,
I just can't get paid enough. We have a lot of companies that have a problem that I called two hundred.
Which is basically like. Imagine a starving person ten feet away from a flaming of, but like I'm,
having. I know him energy to pull myself to the plate. The vote there so it about
urgent, that as I have a great product, my customers really want it, but I'm I'm charging very little money for it. Usually these are naive product or should don't quite understand business.
so they think if they charge less they'll, sell more, but
if they charge less, they end up selling less and the reason is because they don't charge enough for the product they're not getting enough revenue back into the company if they're not getting like literally enough, like calories back into the company dollars into the company, and then they can't
for the higher the kinds of sales of marketing people to do the kind of sale that we're talking about, and then they just gets stuck.
stock. It's like the product works in theory. The customers wanted in theory, but they don't have. The company doesn't have the internal funding they're, not making enough money on each sale to be able to justify the cost of sale, and that's,
is actually very funny. Conversation have the founder, because it's literally like
the conversation so weird! It's like okay! That's what Tulsa tell me about your protocol. It's the best product ever in machine learning and this and that it revolutionizes going to is going to save our companies, ten million dollars each and in safe expenses, and it's okay. What are you charging for it, fifty thousand dollars
It's like we're going to save them, ten million dollars. Why you're only charging fifty thousand walls? This can be good, it's good because it can be easy to sell like it's just going to we're going to sell it to the next customer. It's like! Well, what do you have to do to convert
it's the customer to buy the thing: that's going to save them. Ten million dollars- it's like! Oh, we got to send in you, know eight people for six months. What does that cost will cost a million and a half bucks,
Ok, so congratulations right! You're now down! You know one point: four: five million dollars and negative Casper every sail you make that's for sure.
Right and then you're make it up volume right. That's that
That's just like in literally when I'm describing as like, literally what we see happening and by the way
the time it's actually. The founder themselves is actually on site with the customer and it's like, what's their time worth
cause there are times getting sat down as like entire future. The company right is, it is being basically blot out, so I got
a big rule, we have a big thing we always have here like the principle is like you, you have to get paid like that. The customer has to pay for this.
If it's an indirect thing, you have to install the thing with right, although healthcare stripes like have to be able to decode the system right,
which is why so great that you all here and then and then it happened,
like you really do in a lot of cases like the right answer, actually is raise. Prices which is,
weird, because it's like well technology supposed to drive down prices. What are you doing? Raising prices is like well, you have to you have to make enough money per sale. The internal economics of your business have to be such you're, making up money per sale that you can afford to actually build the company right and then
build the company. You can build the sales and marketing engine. You can gift the thing node and get the thing adopted. You can get references and then once you're at scale, then you can start to drive the price down
yeah, and I would I would just add in the health care realm- and this is an over general ASEAN. But will we often see, as you know, the business
Auto failures are often a lack of recognition that the the
the person who solution will benefit from your solution is often not the buyer. So you have
mismatch that often happens in the healthcare system that you're targeting your costs.
but your customers, indifferent buyer, so that that's a very difficult thing that can usually
he addressed with with business model, but ass,
we recognize the cycle
This point solution versus complete solution, it's very hard for a for a start up too big
bang and in an eighty solution, but often time that often
I'm just what a buyer needs. They don't need another point solution, so it's figuring out what the
Insertion point is going to be for any particular innovation
and the third one that we always see with a lot of our startups that they have to be very thoughtful ass to how they approach it is written.
as in how you can introduce a new technology without and without disrupting existing workflows, because the job that happens in healthcare deliveries incredibly coming
So even if you have a better mousetrap, is that better mouse trap requires,
change the way you work it's very hard to implement. So those are, they think the three big challenge
that all of our an entrepreneur see from business model standpoint.
You can overcome those. Are they give a much better chance of having it?
innovation get adopted. Thank you for having us
They should be.
Transcript generated on 2022-04-02.