The Exchanges

Q Do you not think they just build advertising engines like OpenAI is doing now to pay for that business?

A You know, that's an interesting question. It has to come from somewhere. When I started Google in 2004, we were two percent of the global advertising revenue and global advertising revenue estimated between five or six hundred billion dollars. I think online is about 70% by last count of total advertising revenue. And I don't think the overall number has changed by more than three percent a year or five percent a year. So I don't think the total advertising pie is going to increase. You've already taken away 60, 70% of the advertising pie in the online world. Unless you tell me it's going to explosion atop where more people are going to spend more money in marketing, that money that you're hoping to fund consumer AI from advertising will have to come from current advertising revenues. So I don't think that changes the equation drastically to make the consumer profitable. I do think there's an opportunity that AI ends up taking more transaction revenue. Which has not been into the purview of AI.

AI assessment note: “I don't think that changes the equation drastically to make the consumer profitable.”

Q We spoke about this downstairs. Um, you know, I have that luxury in terms of a flexible mandate to do that. You have that luxury too in terms of the benefits of scale and acquisition budget. Can you not just sit on the sidelines and wait for the right things to percolate and then buy them at a billion?

A Yes and no. Um, yes, we can wait. Uh, that doesn't mean I don't need to learn. If I'm not paying attention to eight different players in the space, which I'm sure you do too, I'm not paying attention to eight of them trying to see who succeeded, why, what did they do wrong? What are the guys who got it right do? It's very hard for me to assess what made it work. Was it a fundamental, like, it was a bad idea? The technology is bad. Like, agents are not good. Agents are not going to work. It could be that, or this company didn't implement, right? The agents are still a phenomena. Somebody else is going to execute, right? I need to understand the underlying technology for sure, for, for, to make sure that my team's thinking about it, and do we adopt it, adapt it, and secure it in the future, right? We bought a agentic AI company, Gateway, um, six months ago. It didn't cost a lot of money, but I figured out saying, listen, if everybody's going to agentify the enterprise, How are we going to know how many agents you have running around the enterprise? How are we going to keep track of them? How are we going to govern them? How are we going to secure against them? I said, the only way to do that logically is to find a way to aggregate agent traffic somewhere. If it goes through a certain gateway, a firewall, or some router, I can watch all the traffic and I can stop an agent from act…

AI assessment note: “Yes and no. Um, yes, we can wait. Uh, that doesn't mean I don't need to learn.”

Q What was the hardest part of the role? Like, when you look at it from the outside respectfully, Nikesh, it just looks like you smashed it, well done, and breezy. Um, I'm sure there were internal challenges. What was the hardest part about adopting the new role?

A The hardest part was being stupid. Like, you know, I don't understand. I did not understand anything about cybersecurity. And then if somebody walk in the first day and somebody said, well, you know, firewall measures, you know, there's not the South traffic and East to West traffic. What does that mean? So within SSL decryption, but when you decrypt the traffic, the inspected, you encrypt it. I said, what is this guy talking about? Right? And I said, well, then sometimes you need a proxy server. Zscaler uses that. We don't use that. So this is just like every sentence. Is new. Like I didn't go to school. I didn't go to cybersecurity school. I landed myself a top job in a company that does this for a living. So every morning, every person walks in has more wisdom, more knowledge, more experience than you. Over time, you start to feel stupid. And it's your job to parse through all that stuff and try and make sense of it. And you don't know when the next sentence comes out of your mouth, whether it's a really good question or it's a really stupid question. So yes, the hardest part is going to the learning process in full public display. And then Getting those people to do things which you think makes sense, or you might have just said a whole bunch of stupid things right before that. That's kind of A complicated tightrope to, to navigate.

AI assessment note: “The hardest part was being stupid. Like, you know, I don't understand.”

Q Is there a danger that you lose your innovation and become a roll-up shop?

A Oh, let's be clear. Palo Alto in the last five years, we have delivered north of a hundred products or sub products, if you will, uh, the through a combination of organic and inorganic. The organic innovation we've done in the last five years is more than in the entire history of the company. So in fact, we have been spurred in the category of innovation more and more so because of all these amazing people we've been able to acquire from the outside. Some of our best products was, you know, Our largest best-selling product right now, XIM, is built in-house. Our SASE product, which competes with Z-Skater, was built in-house. So we have a, we have a large portfolio, but a lot of the good successful products have been built in-house. Some of them have been acquired.

AI assessment note: “The organic innovation we've done in the last five years is more than in the entire history”

Q Is there a danger that you lose your innovation and become a roll-up shop?

A Oh, let's be clear. Palo Alto in the last five years, we have delivered north of a hundred products or sub products, if you will, uh, the through a combination of organic and inorganic. The organic innovation we've done in the last five years is more than in the entire history of the company. So in fact, we have been spurred in the category of innovation more and more so because of all these amazing people we've been able to acquire from the outside. Some of our best products was, you know, Our largest best-selling product right now, XIM, is built in-house. Our SASE product, which competes with Z-Skater, was built in-house. So we have a, we have a large portfolio, but a lot of the good successful products have been built in-house. Some of them have been acquired.

AI assessment note: “The organic innovation we've done in the last five years is more than in the entire history”

Q What was the hardest part of the role? Like, when you look at it from the outside respectfully, Nikesh, it just looks like you smashed it, well done, and breezy. Um, I'm sure there were internal challenges. What was the hardest part about adopting the new role?

A The hardest part was being stupid. Like, you know, I don't understand. I did not understand anything about cybersecurity. And then if somebody walk in the first day and somebody said, well, you know, firewall measures, you know, there's not the South traffic and East to West traffic. What does that mean? So within SSL decryption, but when you decrypt the traffic, the inspected, you encrypt it. I said, what is this guy talking about? Right? And I said, well, then sometimes you need a proxy server. Zscaler uses that. We don't use that. So this is just like every sentence. Is new. Like I didn't go to school. I didn't go to cybersecurity school. I landed myself a top job in a company that does this for a living. So every morning, every person walks in has more wisdom, more knowledge, more experience than you. Over time, you start to feel stupid. And it's your job to parse through all that stuff and try and make sense of it. And you don't know when the next sentence comes out of your mouth, whether it's a really good question or it's a really stupid question. So yes, the hardest part is going to the learning process in full public display. And then Getting those people to do things which you think makes sense, or you might have just said a whole bunch of stupid things right before that. That's kind of A complicated tightrope to, to navigate.

AI assessment note: “The hardest part was being stupid. Like, you know, I don't understand.”

Q Do you believe in balance and being truly great? You know, you see the videos of Elon Musk who talks about the early days of him building when he lived in the office. His girlfriend would come visit him in the office. You see Sam Altman who say just like, when you want to stop, keep going. Do you believe in the balance?

A Look, one believes in the balance. But I think it would be wrong of any one of us to say that in the process of trying to get what we're trying to get done, we don't sacrifice other things, uh, while getting there. So yes. Will I sacrifice something on the family side? Sometimes for sure. Will I sacrifice spending time with my friends in return for this? Yes. Will I end up working nonstop for a bunch of time? Yeah. So I think we all aspire for balance, but I'll think, uh, you said that earlier, like, you know, there's a, A bunch of us who are mission-driven, trying to get stuff done, we over-index and trying to get stuff done.

AI assessment note: “we all aspire for balance, but... we over-index and trying to get stuff done.”

Q freewheeling here. You mentioned TikTok there, why they win. In large part, the people don't like to admit this. They win because they had the weapon of cash in an infinite supply that they leveraged incredibly well. Forgetting TikTok, you may agree or disagree, and you can argue back. By all means, more than welcome for that one. But, like, to what extent is cash a weapon in company building?

A My old boss, Eric Schmidt, used to say, you know, cash doesn't solve all problems for mankind, but does take care of a lot of them. So yes, you know, having a lot of cash and balance sheet is not a bad thing. Uh, you know, there's pros and cons. It's just like, you know, people have too much money, they, they get spoiled. If companies have too much money, they get spoiled and they're not judicious and sometimes say, you know what, scarcity breeds the best outcomes because you're very judicious about how you spend your money. Now, in that context, you know, cash has been useful both for enterprise companies and well-run consumer companies for creating distribution and being used as a competitive advantage. As long as you understand that you are doing that to get scale and share, and your underlying economics have to work in the long term, right? Your contribution margins have to be right. You're just spending more money acquiring customers, but your contribution margins are positive. I think the danger is when you have businesses which have negative contribution margins, it's like standing at the street corner and giving it to a dollar in return for a dollar. That's a dangerous thing to do, because eventually you run out of dollars.

AI assessment note: “cash has been useful both for enterprise companies and well-run consumer companies for creating distribution”

Q Why do you think most companies are inefficient?

A You know, I've discovered in the last six years that you sit in your room and you say something, you have a point of view, but you need to make sure that point of view is understood by the person out in the front. Because very often I usually say people don't come to work to screw up. Nobody comes to work and say, oh my God, I'm going to do the shittiest job I can possibly do today. Let me go see how I screw up. So if you believe that people are well intentioned, they, you've run a rigorous hiring process, you've hired smart people. And the question is, why do you not get the greatest outcomes from everyone in the company? Because if you could get the greatest outcomes from 15,000 people, you'd be three times better than we are today. And it boils down to one thing. It is lack of effective communication. So people are sometimes told the what and not the why. And if we understood the why out on the front line, we do a much better job of innovating, much better job of adapting, much better job of sort of living by the principles of why we're doing this, as opposed to what I need to do. Many companies get into the what, and there's a lot of enablement in every company, which are saying, you will do this. When somebody calls, pick up the phone, ask them the following three questions. If they don't go to page two, do this, and this is how you solve the problem. So, and I understand …

AI assessment note: “And it boils down to one thing. It is lack of effective communication.”

Q You mentioned your wife several times. I do just have to ask, and I'm learning from you in so many respects on this. Um, What's the secret to a happy marriage? You've been married now for several years, happily.

A I think both of us being able to pursue our passions. I think both of us, uh, giving each other space to do that, respecting what each one is doing. I think, uh, there are normal stereotypes in our household. I think having a healthy, uh, balance between spending time together and being able to do other things. Um, I think having each other's back. Always knowing that the other person is going to be there for you. That's why you go back home. And I met this guy, uh, a long time ago on a flight and, uh, he was in his seventies and I was possibly in my late twenties. And I don't know, this conversation came up about happiness. And he said to me, happiness is about waking up in the morning and being excited about going to work. And happiness is finishing a good day of work and being excited about going home.

AI assessment note: “I think both of us being able to pursue our passions.”

Q What does that mean in terms of how you think about running Palo Alto today? Like, take that. And then apply it to your business.

A You know, am I going to apply AI in my business? Yes. Am I going to get more efficient? Yes. Already we've got people working on it. I'm pretty sure a lot of companies are thinking about it. How do you get leverage from whether you can write code using some of these code tools now, whether you can go to customer support efficiency based on deploying LLM and ingesting data and building a faster sort of knowledge retrieval system. So we're all going to do that. And that's going to be good for all of our businesses. And, you know, some companies will do it faster than the others and they will have better margin sooner. Some keep, some companies will take longer, but the fact that I have better operating margins because I was able to deploy AI internally is not going to make me a better competitor to somebody else unless, you know, maybe I'm using cash generated from it as a better competitor. The question is, can I use the technological chain that is out there to build a net new business? So can I build a series of AI security tools that I come out first with and I get disproportionate market share because I was fast.

AI assessment note: “build a series of AI security tools that I come out first with”

Q Do you believe in balance and being truly great? You know, you see the videos of Elon Musk who talks about the early days of him building when he lived in the office. His girlfriend would come visit him in the office. You see Sam Altman who say just like, when you want to stop, keep going. Do you believe in the balance?

A Look, one believes in the balance. But I think it would be wrong of any one of us to say that in the process of trying to get what we're trying to get done, we don't sacrifice other things, uh, while getting there. So yes. Will I sacrifice something on the family side? Sometimes for sure. Will I sacrifice spending time with my friends in return for this? Yes. Will I end up working nonstop for a bunch of time? Yeah. So I think we all aspire for balance, but I'll think, uh, you said that earlier, like, you know, there's a, A bunch of us who are mission-driven, trying to get stuff done, we over-index and trying to get stuff done.

AI assessment note: “one believes in the balance. But I think it would be wrong”

Q Do you think that's still the case today, given the infinite supply of products? I think that was true a decade ago, but when discovery becomes the paramount problem today, Is it not distribution that separates the winners?

A It's always been a yo-yo between content and distribution. Uh, whether you take newspapers, You know, remember those days when people talk about they used to go on a bicycle and go throw newspapers at people's doors? That was distribution. It didn't matter who was your editor. It mattered which kid was throwing which newspaper at your door, because if you couldn't find the kid for the new newspaper that you and I decide to publish, it doesn't matter. At that point in time, distribution was king and editors were okay. Today, if you look at the internet, we can all write on the internet. Distribution is no longer a limiting factor. Today, brand and content becomes important, right? Suddenly like the influencers who have hundreds of millions of people look at Harry with this podcast. So many people want to watch it. His brand is important. Distribution is not your problem. You don't have to worry about saying, how do I hook up bandwidth to my house? And how do I make sure that everybody in the world who wants to see this can see this?

AI assessment note: “Distribution is no longer a limiting factor. Today, brand and content becomes important”

Q You said momentum there. I constantly oscillate in my mind on whether speed is the most important determinant of success in company building. How do you think about that?

A In the, so the net of it, I think momentum is important because It's both from an innovation perspective and agility perspective, because in the early days, uh, as when you're investing, you're building companies, you will have a lot of ideas. You will test a bunch of stuff. The question is, you know, nobody walks out. I, I'm pretty sure that very rarely is it that your first incarnation of your product has perfect product market fit. That's very rare. You really, you know, if you look at the largest companies today, they were all created for a different reason and they ended up getting product market fit for a totally different reason, right? Well, it's a Google or Facebook or YouTube. They're all started with different intents or slack in this early generation of being a gaming company. So everybody starts the different intent. They keep innovating. They keep iterating. They start looking at product market fit. And then suddenly, you know, you see a spark and say, let me go double down on that spark and move as fast as I can, because I want to collect more and more people around this phenomenon that I'm created. So yes, I think speed is important, whether in the consumer space, the enterprise space, but The enterprise customers have slightly different standards and expectations because they're highly unlikely to last too long on an experimental set of products.

AI assessment note: “So yes, I think speed is important, whether in the consumer space, the enterprise space”

Q Do you think you can only do that because of the success you've had before?

A It's very funny. If you look, I was talking to somebody the other day, you're, you're always known by your last act. You know, it doesn't matter what you did before. If you screw something up, people say, oh, that guy, he just screwed this up. Maybe he was lucky earlier. This time he, he met his maker. So I don't think that, you know, your, your past successes The positive success will help you get the job, but that's okay. Now that's table stakes. You're in the job. The question is, how are you going to keep it? How are you going to do amazing at it? And that requires you to go back to basics and start from the ground floor and start to understand what needs to happen. And that, that, that, uh, requires a healthy dose of humility every morning.

AI assessment note: “you're always known by your last act. You know, it doesn't matter what you did before.”

Q What does that mean in terms of how you think about running Palo Alto today? Like, take that. And then apply it to your business.

A You know, am I going to apply AI in my business? Yes. Am I going to get more efficient? Yes. Already we've got people working on it. I'm pretty sure a lot of companies are thinking about it. How do you get leverage from whether you can write code using some of these code tools now, whether you can go to customer support efficiency based on deploying LLM and ingesting data and building a faster sort of knowledge retrieval system. So we're all going to do that. And that's going to be good for all of our businesses. And, you know, some companies will do it faster than the others and they will have better margin sooner. Some keep, some companies will take longer, but the fact that I have better operating margins because I was able to deploy AI internally is not going to make me a better competitor to somebody else unless, you know, maybe I'm using cash generated from it as a better competitor. The question is, can I use the technological chain that is out there to build a net new business? So can I build a series of AI security tools that I come out first with and I get disproportionate market share because I was fast.

AI assessment note: “am I going to apply AI in my business? Yes.”

Q And does that worry? Like flip-flopping is difficult.

A No, I think, uh, constantly reassessing is different from flip-flopping. You know, many years ago, I used to be an equity analyst and, uh, and you'd spend a lot of time and you'd show up one morning and say, I think we should buy this stock. And then the afternoon, something would happen. Like, holy shit, I didn't know that was going to happen, and the company told me they weren't going to do something like this, and they went and did it. Now you have to make a decision. You can flip-flop, which makes you look bad, or you can double down, and you have to reassess. So you learn early in your life, as an equity analyst said, it's very important to have conviction and not have noise distract you unless there's real signal in what's come up. Because noise, but noise has the ability to distract you because you just made a big bet. So now whilst I go back and forth and reassess, uh, before I act on it, I have to step back and decide if I have enough information and things have changed substantially for me to change my decision. So you asked me how many, what have I changed my mind on? You didn't ask me what have I acted on when I changed my mind. So two different things.

AI assessment note: “No, I think, uh, constantly reassessing is different from flip-flopping.”

Q freewheeling here. You mentioned TikTok there, why they win. In large part, the people don't like to admit this. They win because they had the weapon of cash in an infinite supply that they leveraged incredibly well. Forgetting TikTok, you may agree or disagree, and you can argue back. By all means, more than welcome for that one. But, like, to what extent is cash a weapon in company building?

A My old boss, Eric Schmidt, used to say, you know, cash doesn't solve all problems for mankind, but does take care of a lot of them. So yes, you know, having a lot of cash and balance sheet is not a bad thing. Uh, you know, there's pros and cons. It's just like, you know, people have too much money, they, they get spoiled. If companies have too much money, they get spoiled and they're not judicious and sometimes say, you know what, scarcity breeds the best outcomes because you're very judicious about how you spend your money. Now, in that context, you know, cash has been useful both for enterprise companies and well-run consumer companies for creating distribution and being used as a competitive advantage. As long as you understand that you are doing that to get scale and share, and your underlying economics have to work in the long term, right? Your contribution margins have to be right. You're just spending more money acquiring customers, but your contribution margins are positive. I think the danger is when you have businesses which have negative contribution margins, it's like standing at the street corner and giving it to a dollar in return for a dollar. That's a dangerous thing to do, because eventually you run out of dollars.

AI assessment note: “cash has been useful... for creating distribution and being used as a competitive advantage”

Q How do you think about your decision-making process?

A There's some people who like a lot more information to make decisions. And if you had per, if you all waited for perfect information, You know, it might be too late. So there's always a certain amount of gut, a certain amount of sort of intuition, a certain amount of guesswork involved in making decisions. As I always say, all the easy problems get taken care of before they get to me. All the easy decisions are done. So really or not, when you, you know, when you're leading an organization, you end up with the hardest decisions and they matter. And normally people come to you because they've agitated over them for weeks or months, and they've tried every different thing because most people don't like coming for help, especially to the CEO. So, you know, they're in a bind when they come to you because they haven't been able to solve it. So then they're expecting you to make a good, quick, and thoughtful decision, which are all dangerous words. You want to be good. You want to be quick. You want to be thoughtful. So, so I think part of our job as leaders is to be able to make good decisions with limited information. You are going to get some wrong. The question is, are you able to identify the wrong decision and go back and correct it? Of course, correct it midstream. Are you going to get too invested in your decision and say, and watch it try to play out longer than it should be…

AI assessment note: “part of our job as leaders is to be able to make good decisions with limited information.”

Q Has the way that you've done fatherhood changed when you compare how you were as a father with your 26 year old to how you are with your younger children?

A Yeah, I think it depends if you ask my wife. I should say probably not a whole lot. If you ask me that, you know, probably somewhat different. I think, uh, Uh, the first time around I probably was running around trying to work hard to make sure I was going to make it. Uh, I think now I have a little more time on my hands so I can, I can stop and smell the coffee or I can spend more time with my kids as they're growing up. Uh, it's never enough time because to grow up fast. So I think from that perspective, my wife would say that I'm not spending enough time and not doing enough with them, which I should be doing. So I think there's balance. Uh, but I'm pretty sure that My kids today are getting a lot more of my time than my, my older kid got when she was growing up.

AI assessment note: “My kids today are getting a lot more of my time than my, my older kid got”

Q You mentioned your wife several times. I do just have to ask, and I'm learning from you in so many respects on this. Um, What's the secret to a happy marriage? You've been married now for several years, happily.

A I think both of us being able to pursue our passions. I think both of us, uh, giving each other space to do that, respecting what each one is doing. I think, uh, there are normal stereotypes in our household. I think having a healthy, uh, balance between spending time together and being able to do other things. Um, I think having each other's back. Always knowing that the other person is going to be there for you. That's why you go back home. And I met this guy, uh, a long time ago on a flight and, uh, he was in his seventies and I was possibly in my late twenties. And I don't know, this conversation came up about happiness. And he said to me, happiness is about waking up in the morning and being excited about going to work. And happiness is finishing a good day of work and being excited about going home.

AI assessment note: “I think both of us being able to pursue our passions.”

Q How can you do that if you're an enterprise? You can, you can. We have thousands of CEOs of big enterprises that listen. That sounds great. What do I do? Do I do a brainstorming session?

A No, I think like there, there's going to be perhaps two or three different categories. Like one category is let's take the workflows of today. We have workflows around ERP. We have workflows around sales team management. We have workflows around human resource management. There are existing workflows which have been sassified. As in some software company decided we all have common processes. Let me build a container where these common processes can be marginally customized by enterprise. They can code their workflow into my SaaS application and we're off to the races. Now that workflow required a lot of human judgment and human interaction. The software is not intelligent. It's been coded, right? You define input, you define output. I do the input. I know what the output I'm going to get. The idea is imagine workflows where You know, in the hiring process, most of your workflows are containers. Imagine where AI actually is helping you make judgments. If I put every CV into AI and say, these are the 20 people you should interview. This, look at the CV, you should ask this person these following questions. Sends a note to Harry saying, interviewing this person, ask the following 10 questions because your three other colleagues only asked the following five. We needed no false positives as a human being. So AI could be hugely helpful in informing and making the process more intell…

AI assessment note: “one category is let's take the workflows of today”

Q If tokens get cheaper, why are we not seeing frontier models get cheaper? We all, we all thought that this would be cheaper. This would be cheaper.

A Well, right now they're figuring out that, you know, all your frontier model companies are value maxing, not token maxing. They're raising money at a trillion dollars. At some point in time, they realize, oh my God, where's the next hundred billion dollars of compute going to come from? Financial markets are not going to bear the cost of another hundred billion dollars at a trillion dollars or trillion and a half. Because I'm going to need it again the following year. So you say, well, I'm going to build a sustainable business model which starts showing some degree of gross margin profitability. The only lever they have is to take the fastest growing thing that they have on their portfolio from an economic perspective and charge us more for it. That's where you get the price of tokens from. I think the price of tokens is high. Now you can imagine if the price of tokens is high, Every technology is trying to figure out how do I make my compute more efficient, right, in the future? So I'm sure we'll see a whole bunch of advances in the world where memory and computers are going to start getting used more efficiently from a modeling perspective. And I still believe I don't need Fable V or Mythos V to do 90% of what people do with the AI today. Why is the last model not good enough for certain tasks?

AI assessment note: “build a sustainable business model which starts showing some degree of gross margin profitability”

Q Would you like to do the Brian Armstrong Jack Dorsey? I, I often think a good question is what would you like to do, but you're held back from doing.

A Different courses for different horses, right? I don't think in our business we can go implode the organization because I don't think the underlying application software is there. I don't think all the things that we've talked about that we need to get done are ready from an AI software perspective. I don't want to build a lot of software that is proprietary to me for things that should be available for everyone. I don't want to build an AI marketing stack. I don't want to build an AI HR stack. I don't want to build an AI ERP stack. I'm hoping that somebody goes and does that much more effectively and efficiently for the world at large. Perhaps it's the next iteration of Salesforce, the next iteration of SAP, or the next iteration of Workday that is going to help me do that because I do believe it needs to become more intelligent. We talked about it needs to be more AI enabled or AI controlled. Uh, I do want to build things that are particular to me. There I have all the information, all the intelligence, the context, and the memory from an organizational perspective. I think the right way to get there is to hold people accountable. And I run a meeting twice a week now called AIIO. It's kind of funny. It's like old McDonald had a farm. Yeah, yeah, I know, because everybody in my company wants to do AI, so if we use it as a converging function, as a conversion to, as a function …

AI assessment note: “I don't think in our business we can go implode the organization because”

Q If tokens get cheaper, why are we not seeing frontier models get cheaper? We all, we all thought that this would be cheaper. This would be cheaper.

A Well, right now they're figuring out that, you know, all your frontier model companies are value maxing, not token maxing. They're raising money at a trillion dollars. At some point in time, they realize, oh my God, where's the next hundred billion dollars of compute going to come from? Financial markets are not going to bear the cost of another hundred billion dollars at a trillion dollars or trillion and a half. Because I'm going to need it again the following year. So you say, well, I'm going to build a sustainable business model which starts showing some degree of gross margin profitability. The only lever they have is to take the fastest growing thing that they have on their portfolio from an economic perspective and charge us more for it. That's where you get the price of tokens from. I think the price of tokens is high. Now you can imagine if the price of tokens is high, Every technology is trying to figure out how do I make my compute more efficient, right, in the future? So I'm sure we'll see a whole bunch of advances in the world where memory and computers are going to start getting used more efficiently from a modeling perspective. And I still believe I don't need Fable V or Mythos V to do 90% of what people do with the AI today. Why is the last model not good enough for certain tasks?

AI assessment note: “all your frontier model companies are value maxing, not token maxing”

Q Would you like to do the Brian Armstrong Jack Dorsey? I, I often think a good question is what would you like to do, but you're held back from doing.

A Different courses for different horses, right? I don't think in our business we can go implode the organization because I don't think the underlying application software is there. I don't think all the things that we've talked about that we need to get done are ready from an AI software perspective. I don't want to build a lot of software that is proprietary to me for things that should be available for everyone. I don't want to build an AI marketing stack. I don't want to build an AI HR stack. I don't want to build an AI ERP stack. I'm hoping that somebody goes and does that much more effectively and efficiently for the world at large. Perhaps it's the next iteration of Salesforce, the next iteration of SAP, or the next iteration of Workday that is going to help me do that because I do believe it needs to become more intelligent. We talked about it needs to be more AI enabled or AI controlled. Uh, I do want to build things that are particular to me. There I have all the information, all the intelligence, the context, and the memory from an organizational perspective. I think the right way to get there is to hold people accountable. And I run a meeting twice a week now called AIIO. It's kind of funny. It's like old McDonald had a farm. Yeah, yeah, I know, because everybody in my company wants to do AI, so if we use it as a converging function, as a conversion to, as a function …

AI assessment note: “I don't think in our business we can go implode the organization because”

Q How can you do that if you're an enterprise? You can, you can. We have thousands of CEOs of big enterprises that listen. That sounds great. What do I do? Do I do a brainstorming session?

A No, I think like there, there's going to be perhaps two or three different categories. Like one category is let's take the workflows of today. We have workflows around ERP. We have workflows around sales team management. We have workflows around human resource management. There are existing workflows which have been sassified. As in some software company decided we all have common processes. Let me build a container where these common processes can be marginally customized by enterprise. They can code their workflow into my SaaS application and we're off to the races. Now that workflow required a lot of human judgment and human interaction. The software is not intelligent. It's been coded, right? You define input, you define output. I do the input. I know what the output I'm going to get. The idea is imagine workflows where You know, in the hiring process, most of your workflows are containers. Imagine where AI actually is helping you make judgments. If I put every CV into AI and say, these are the 20 people you should interview. This, look at the CV, you should ask this person these following questions. Sends a note to Harry saying, interviewing this person, ask the following 10 questions because your three other colleagues only asked the following five. We needed no false positives as a human being. So AI could be hugely helpful in informing and making the process more intell…

AI assessment note: “one category is let's take the workflows of today”

Q When you look at the best and the worst acquisitions, if you separate the two, what are the biggest lessons from the best and the worst, and how does that impact your future decision-making?

A The things where they haven't worked out, I think perhaps one of the early ones didn't work out because We really didn't have enough of a playbook about how we want to execute an acquisition. So we were a bit sloppy that caused some of the founders to leave that caused a bit of disarray. And, you know, we got better about it, learn from it, you know, pulled up our socks and made sure that the next 18 that we did were going to be a lot better than the first one. I think one of the cases we just called the market wrong. We expected to be a large market. It didn't, it didn't sort of transpire because our view on acquisitions is we buy innovation, we buy product, we buy early. Because if you buy later, you're paying multiples for revenue, which I don't believe in. Like, why would I pay 10 times revenue? I'd much rather buy a really great team and an amazing product, which has done proof of concept and gots 20, 30 customers, which is working for. So, you know, if you buy them later in life, you end up just paying a lot more money for the distribution slash customer base that they have. Some of the ones we bought early, some of the markets didn't pan out the way we expect them to, so they didn't end up being bigger businesses. Uh, so it was more of a, Perhaps wrong technological bet, but on the flip side, the ones which we did do, where the market panned out the way it was, and I thi…

AI assessment note: “our view on acquisitions is we buy innovation, we buy product, we buy early.”

Q What would you say to the people that say you're wrong? We won't see that halving of those functions, and actually marketing teams will create more copy, more content, be in more places.

A No, like, I think the places where People could be wrong is how many technical resources we need in the future. I think we need more, not less. I think there's this fallacy. People believe we're going to have less people working because AI is going to take over our jobs. I don't believe that. I think what's going to happen is you can't imagine the number of people on my team who want more technical resources, more AI savvy resources because they want to do exactly these things. It's like, well, I've got an amazing project to transform marketing. I've got an amazing project to transform HR. What do you need? Oh, I need more people who understand how to prompt frontier models, build harnesses, Bring proprietary data into play. Bring moats. I need more compute, more storage because I want to learn everything. So I think we're going to need more technical resources. I think we're going to need more sales resources because if your product's really good, you need more people to go out there and cover the universe because not enough people know about it. I'm in Europe. I met 20 customers last week. I still see half of them don't know all the stuff we have. I'm like, dude, we've been around for 20 years. Why is my team not out there pounding the pavement telling them everything we do? And the problem is, Not enough time in a day because I'm too busy dealing with some arcane piece of so…

AI assessment note: “People believe we're going to have less people working because AI is going to take over our jobs. I don't believe that.”

Q Why do you think most companies are inefficient?

A You know, I've discovered in the last six years that you sit in your room and you say something, you have a point of view, but you need to make sure that point of view is understood by the person out in the front. Because very often I usually say people don't come to work to screw up. Nobody comes to work and say, oh my God, I'm going to do the shittiest job I can possibly do today. Let me go see how I screw up. So if you believe that people are well intentioned, they, you've run a rigorous hiring process, you've hired smart people. And the question is, why do you not get the greatest outcomes from everyone in the company? Because if you could get the greatest outcomes from 15,000 people, you'd be three times better than we are today. And it boils down to one thing. It is lack of effective communication. So people are sometimes told the what and not the why. And if we understood the why out on the front line, we do a much better job of innovating, much better job of adapting, much better job of sort of living by the principles of why we're doing this, as opposed to what I need to do. Many companies get into the what, and there's a lot of enablement in every company, which are saying, you will do this. When somebody calls, pick up the phone, ask them the following three questions. If they don't go to page two, do this, and this is how you solve the problem. So, and I understand …

AI assessment note: “And it boils down to one thing. It is lack of effective communication.”