A (0:01)

The worldwide SaaS market is about $300 billion per year. The labor market in the US alone is 13 trillion. What software is now going after? The prize that it's going after is the labor market. Almost every software company has basically taken a filing cabinet and turned it into a database. But what's happening now is the whole thing is effectively done end to end.

B (0:25)

Software ate the world. Now it's coming for labor. At a 16z's LP summit, General Partner Alex Rampel, who leads the Apps Fund, took to the stage to discuss why the real market opportunity isn't the $300 billion SaaS industry. It's the $13 trillion US labor spend. From filing cabinets turned databases to AI that actually does the job. Alex breaks down outcome based software, new pricing models, and what happens when agents sell support and collect on their own. Let's get into it.

A (0:58)

I'm talking about how software eats labor. First, Mark wrote an essay for the Wall Street Journal a long time ago, about 10 years ago, about how software eats the world. I guess the labor force falls within the world. So this is a natural follow up. But if there's only one takeaway that I can leave with you today, it's that the labor market, this is almost obvious, is so much bigger than the software market. So the worldwide SaaS market is about $300 billion per year. Worldwide market cap is about $2.2 trillion. The labor market in the US alone is 13 trillion. So much, much bigger. And it doesn't mean that the software market will suddenly be worth $13 trillion a year. But what software is now going after, the prize that it's going after is the labor market. And I figured there's nothing better than starting a venture capital conference with a picture of the world's most famous communist. That's Karl Marx right there. And if you've read Das Kapital, which I read back in college, if you remember, like the central tenet is that there's capital labor and capital exploits labor, they're two distinct things. But what's really exciting, this is almost like a chemical equation, is that the capital that you give us, we give to companies. What do the companies do with the capital? They buy GPUs or rent them, they hire engineers, they buy coffee, they give coffee and GPUs to the engineers and then out pops software that does the job of labor. It's like the new E MC squared. And we're seeing this happen at so many companies and these companies are scaling so quickly because they really are selling into clients or end users and saying, hey, we'll do this job for you. We're not giving you software, we're going to do a job for you. And that's the sales pitch. And obviously like this concept is not new per se. I mean automation has been around for a long time. So you know, seamstresses, the loom replaced those jobs. But you still had somebody that had to operate the loom or steamships. Sailboats and steamships obviously made that form of labor much more efficient. But you still need somebody to operate and shovel coal into the steamship and put the sails up on the mast. And then of course the printing press invented by Gutenberg, that was a big innovation. And the steam powered press allowed the LA Times to print out hundreds of thousands of copies of that newspaper versus somebody manually cranking one each time. And lastly, like the assembly line was a massive innovation in terms of replacing people that hand assembled every gizmo. And now you have an assembly line, but a lot of people worked on the assembly line. So again, this concept is not new. You could always take capital, make a machine and then have more efficient labor on the other side. But what's happening now is the whole thing is effectively done end to end. And I want to take you through a journey of what the software market has always been. Because I think understanding the past is the best window of actually understanding the future and what's possible. So my thesis is that almost every software company has basically taken a filing cabinet and turned it into a database. And this is where the $2.2 trillion of market cap has come from. This is where the $300 billion in annual software revenue has come from. And the first example that I'd like to point to is a company called Sabre Systems. This is with two, if you've seen it, it's a company in Texas. But this was a joint project of American Airlines and IBM back when IBM was the most powerful computer company in the world. Technology company in the world. Because at Least according to ChatGPT, what would it have looked like to book an airline ticket in 1959? How did American Airlines handle this? They probably had like lots of filing cabinets with like sheets like this. So Betty Owens calls up and says, I want to sit in seat 4A, talks to somebody on the phone, oh wait, and actually I want to cancel my flight. They have to erase it. No, actually I want to sit in seat, erase that again. Filing cabinets basically kept track of everything. It was pretty inefficient. You had a lot of people that worked the filing Cabinets, you couldn't share information from one office to another because everything was domiciled in one filing cabinet. And Sabre changed the game by putting it all on an IBM mainframe and then having lots of kind of thin client terminals that were used by travel agents around the world that could access that mainframe. And this is how travel was revolutionized. Galileo did this for hotels. Amadeus did this for Europe. I mean like big companies came out of this and of course the same process happen for sales. So I think somebody yesterday mentioned Glengarry Glen Ross. Great movie. But if you remember, there were lots of business cars. You wanted to get the Glengarry leads. Those were the good leads. Those were pieces of paper. And for those of you that are old like me, you might remember a company called Axe Systems in the 1980s. This was one of the big CRM companies of the day. Goldmine followed that in 1990. And then Tom Siebel started Siebel Systems in 1993. But all of these took the filing cabinets of sales, put them originally in kind of mainframes, and then Salesforce came in 1999, put that in the cloud. But you know, again, the same salesperson that accessed the physical file in a fictional movie set in the 1950s would now access a Salesforce record in 2010. Same process, just different medium. Manufacturing and inventory. This is another big one. So imagine that you're a product manufacturer. How many widgets do I own? What's my inventory, what's my sales? IBM again, at the forefront of this. But other companies, some that are around today, like SAP started in 1972. Bond, J.D. edwards, Epicor, Sage, Itwo, these are all big companies that basically digitized old fashioned records. My favorite one, just to show how pervasive this idea is, is there is actually a big business in library card catalogs. So libraries were have been around for a very, very long time. Library of Alexandria, right? Like long, long time. The Dewey decibel system comes out. And when I was growing up, I'd go to like the card catalog and figure out, okay, they're all alphabetically sorted. And then eventually somebody created, started with this company called oclc, built a reasonably sized business and sort of innovative Cersei Dynix of digitizing those card catalogs where now you enter into a terminal at the computer in the library and then you figure out where your book is. Is it in stock legal case files? Like every time I went to a law firm in the 1980s, it's like most of the square footage was filing cabinets and companies like PC Law, like a lot of LexisNexis and Reuters, revenue comes from selling to law firms, digitizing things that would otherwise occupy so much square footage in the nice fifth Avenue offices of law firms. My parents were accountants growing up and I remember going to their office and again, there was no room for a little 5 year old to run around because all fil cabinets. Intuit comes along with QuickBooks, digitized financial statements. Peachtree. This is a company from the 1970s. MYOB, like lots of companies. Again, filing cabinets. Filing cabinets. You get the drill here. My favorite name in the history of software is filing cabinets. The first electronic health records company was a company called Mumps, which arguably is the worst name in the history of software. It like somehow lost out to malaria or measles or something. But this was Mass General Hospital and they wanted to replace their filing cabinets and they came up with this programming language and database system called But Epic and Cerner. EPIC is the biggest electronic health records company in the world. It was started in 1979. So again, and what they did was just digitize these massive number of files that every hospital system and doctor would have in their office. And kind of lastly here HR and payroll. So actually, even before Sabre, Automated data processing ADP was started in 1949. How do you keep track of time and attendance? You had your time slip, your time cards. How do I figure out tax withholding? All of these companies came out and again the progression was I take the file, I put it in a mainframe and then companies like workday was effectively PeopleSoft. It was the same team that started PeopleSoft. They put it in the cloud, but the same process was there. The people that looked at your time and attendance slip in 1940 were the same people that looked at it in 2015. But now the medium was not paper, it was not mainframe, it was cloud. And the reason why I mention all of this is because nothing has actually gotten that much more efficient because the filing cabinets were read by humans. The digital records are read by humans. It's like this woman here, whatever she's doing, looking at helping a customer with customer support needs or something. Once upon a time would have looked at a piece of paper. Now is looking at a computer. And the reason why this is so important to understand is because the whole business model of software has to change. It has to change. This is what I call as homage to Starbucks here, the tall grande venti model of SaaS. If you go to any SaaS company in the world, go to their landing page. It probably Looks like this. This is a company called Zendesk. It's now a private company. It was taken private by, by Premier and Hellman Friedman a few years ago. And this is a $2 billion ARR company that sells seats. So their most popular, like the Venti package is you get the suite professional one $15 a month. But we've talked about in the last couple days how now AI does a really good job answering customer support queries. So how many seats do you need if every one of your agents is 9,000 times more productive? Imagine that you have a thousand seats. Imagine that. I've got 1,000 people working in my customer support call center. I pay each one fully loaded, $75,000 a year. So that's $75 million a year in cost for people. Well, what's my software cost? Well, it's 1,000 times 115 times 12. It's about $1.4 million a year for the software. So the people cost you so much higher than the software cost. And this could go one of two directions for a company like Zendesk. If it turns out that AI can answer all the questions, how many seats do you need? Zero. You don't need a single seat left. The AI answers everything. And then Zendesk is charging per seat. So they would go from 1.4 million to $0 in revenue. That would be very bad. On the other hand, I mean, look at the math here. If each human is answering 2,000 questions a year right now, your fully loaded cost as the company that uses Zendesk as your system of record for answering customer support, it's about $37 of human cost and $0.69 of software cost. The cost per answer is $38. I mean, this is rough company example. Maybe Zendesk could charge $5 million a year. Like, hey, don't spend $75 million a year on support anymore. Spend $5 million a year on support. Just pay it all to us. Don't pay us 1.4 million, pay us 5 million, save 75. So Zendesk is really at the precipice of. It's like their revenue could go to 0 or their revenue could 3x and like, where is it going to go? I don't know the answer. They don't know the answer. I've been talking to their CEO. They're piloting outcome based pricing in right now. So New Zealand holds the answer to all of our questions. So stay tuned. And just to give again another example of just how much bigger these labor or quasi labor Markets are like the $13 trillion of wages that we talked about. Software revenue is very small. If you just take one category, like just one particular profession, and take the example of nurses, just because we have a portfolio company in this space. Nurses in the United States of America earn about 650 billion dollars a year. They're about four and a half million registered nurses. That's bigger than the entire worldwide software market. And it doesn' that the nursing software market will be this big, but it means like, this is the pool that you're really playing against. And the reason why I wanted to start with the filing cabinets is like, this is going to start moving to outcomes. Like the software is going to go from being the filing cabinet to effectively operating on the filing cabinet. And what does that mean? Well, you know, take the first example. If I have the filing cabinet for travel, you know, maybe the software can rebook flights. Or I want to book a trip for 75 kids at my son's high school and need to talk to an agent. I don't need to talk to an agent anymore. Talk to the software company. I talk directly to United Airlines AI and they do the entire thing for me. Sales. I mean, this is kind of obvious. Salesforce charges per seat per month. Salesforce should just sell for me. I don't want to pay for a thousand seats. I want to pay for customers. Like, hey, go get me customers because you're the backend for that anyway. Or survey all of my customers. Do a 30 minute phone call with every single one of them. See how they're doing, are they happy? Are they going to renew with me? Yes or no? What about manufacturing? Well, imagine that I make widgets and there are these things called tariffs that are happening. I'd love to figure out what my tariff exposure is. Let me just ask my ERP system. Research that for me. Or I want you to do an audit or call my suppliers and see if they're going to still be able to ship me their things on time. Library card catalogs. As crazy as this one is, you know what? If my book is overdue, the librarian shouldn't be calling me. The library card software company should be calling me saying, hey buddy, return the book or order more books because this one's very popular. Ben's book is selling it out. Order more copies of that legal case files. Like a lot of software companies that are popping up in this space, it's no longer the system of record for time and attendance. Draft me a contract, do that work for me. You could start billing out again. Unclear how the pricing model of this is going to work, but start billing for that. Accounting and bookkeeping. AR aging Summary. This concept has been around for a long time. I have a lot of companies that owe me money, a lot of clients that owe me money. In 1940, I'd look at the printout and say, I'm going to call these customers and hopefully collect for them or send the guy with the crowbar or do something. In 2000, I'd look at the QuickBooks thing and do the same thing. Now the software company can go call. Like QuickBooks is going to start calling customers of their clients and say, hey, you owe me money. Please pay me back. And I can accept a payment on the phone right now. Health records. So if you saw me limp off stage. I sadly had Achilles repair surgery about three months ago. I don't recommend it. The day after my surgery, I got a call from Stanford, Stanford Hospital saying, you know, Alex, on a scale of 1 to 10, what's your pain level? And I said, 11. And they said, very funny. And I said, no, it really is 11. And an AI nurse can't do CPR, right? An AI nurse can't attend to a gunshot wound victim, but an AI nurse can totally call a mid-40s patient like me and say, how are you doing? Is there anything we can help with? Do you have a fever? Oh, you do. You should go to the hospital right now and stuff like that. And again, these are the outcomes. These are the operations that can be performed on. If you have my medical record, that's what you do with it. And charge for that. Charge $20 for that. Outbound call HRM payroll. How do I do a reference check? How do I make sure that on your resume you said you worked at these three companies. You know what workday should call those three companies and say, did Alex really work there? Explain Benefits, help with enrollment. Workday could probably triple their revenue if they start doing this, because they're already the system of record. So if you know the story of Airbnb, Airbnb famously started by somewhat scraping Craigslist. Craigslist is this horrible site from the mid-90s that has not change since the mid-90s. And they have lots of listings for apartments. And you go look at an apartment and like half the time it's a scam, half the time it's already been booked or, you know, it's been relisted every single day. And they basically put them in a better interface and called it Airbnb. And that's how they got started. And this is one of the most exciting things that we're seeing, which is here's a real ad on Craigslist. Because since I have so much copious time due to my set Achilles injury, I used to run every day a bike every day. I can't do that anymore. So I hang out on Craigslist looking for jobs. Not for myself, of course. And here's a job for Plaza Lane Optometry. They're hiring a front desk receptionist and they've had this job opening for six months. It's been hanging out there for six months. The job, like you have to now say in California, how much you're char. How much you're going to pay. It's $45,000 a year. So supply and demand. If they probably said, we're going to pay $100,000 a year, they would have filled this job. They're paying. They need to pay $45,000 a year to make this work within their cost model or something. If you look at the job responsibilities, if you can read this like, the first one is like, open and close the shop, lock the door. AI can't do that. But a lot of the other job responsibilities AI can completely do, it's, you know, argue with insurance company call patient the day before their appointment to prevent no shows. If somebody doesn't show up, that's a big opportunity cause for the optometrist. And if you were to look at the optometry market and say, is that a good software market? You would say categorically no, because Plaza Lama Optometry probably spends $500 a year on software. They probably have a Microsoft Office license. They probably have a website with squarespace or W, and that's it. So they probably spend $500 a year. So in this new world, and again, we're seeing a lot of companies doing this, they peruse Craigslist, they look for a job listing and they're like, hey, Plaza Lane Optometry, I want to apply for the job. And the optometrist is like, okay, that sounds great. Tell me about your qualifications. Where'd you work before? It's like, I know this sounds crazy, but I'm a software company and I can't close the doors and do this, but I can do these other eight things. Can I give you a demo? And at first the optometrist is like, no, I want to, oh, okay, I'll try it out. And by the way, it's $20,000 a year, which is much less than the $45,000 a year that you were going to pay for a human that you can't even hire. So this is happening right now, and it's incredible. And again, the software spend small for these people. The effective labor spend much, much higher. And this is what's massively growing the market for a lot of these obscure industries. So I just thought, rather than me talk, I want to give you an example. This is one of our portfolio companies, Happy Robot, which serves the freight and trucking space. So list. This is a negotiation on the phone conducted with a prospective client and A.I.