AI Market Expansion Trajectory

Shaan shares insights from a Sequoia partner's presentation about the evolution of tech markets.

"The very first speaker, Pat Grady, a partner at Sequoia, had this slide that might be the worst slide I've ever seen in my life - not only ugly but illegible. But what he was explaining was actually insightful.

He was talking about the three most recent waves of tech: software 1.0 was buying CDs and installing them on servers; software 2.0 was cloud/SaaS where software lives in the cloud as a service. Now we have AI.

When cloud came out, the entire software market was $350 billion of revenue. Cloud is already $400 billion - just the top cloud players. So cloud didn't just take some percentage share of the software market - it became bigger than the entire software market before it.

Then he talked about AI, saying it's interesting because AI replaces both software and labor - you don't need people to do those tasks. The labor market is some ridiculous number like $10 trillion. He said we don't know how big the AI market will be, but it's probably a good bet that AI is going to be bigger than the entire cloud market today and the labor market in the future.

It's similar to how Uber grew beyond taxis by being more convenient and available everywhere, which led to lower price points and new use cases. Some people stopped buying cars because they could just Uber when needed. This unlocked parts of the rental car and car ownership markets, making it a trillion-dollar market, not just a hundred-billion-dollar market.

AI will do the same thing. I won't hire a person for little things that I'm telling AI agents to do - like building apps for piano tracking or health tracking, or feeding my lab results to ChatGPT instead of hiring a concierge doctor. Things I wouldn't have otherwise hired people for, I'm willing to pay AI a little bit for, creating a whole new market."