How AI is Reinventing Software Business Models ft. Bret Taylor of Sierra
Sierra co-founder Bret Taylor discusses why AI is driving a fundamental shift from subscription-based pricing to outcomes-based models.
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At AI Ascent 2025, Bret Taylor, co-founder of Sierra and Chair of OpenAI, sat down with Ravi Gupta of Sequoia Capital for a wide-ranging conversation that offered rare insights into the future of AI, business models, and entrepreneurship. As someone who has traversed the path from CTO of Facebook to co-CEO of Salesforce to founding an AI startup, Bret brings a uniquely versatile perspective that transcends the typical engineer-or-executive binary.
Evolving Beyond Your Original Strengths
One of the most compelling themes in Bret's talk was the importance of not letting your initial strengths define your limitations. He recounted a pivotal moment at Facebook when Sheryl Sandberg delivered what he called a "come to Jesus conversation," telling him to stop trying to do everything himself and to hold his team to higher standards.
"I was going into work every day and trying to say, how do I conform this job to me and my strengths? And instead of thinking like, what's the most important thing to do in this job today, even if it's not something I find delightful or interesting," Bret explained.
This willingness to adapt beyond his comfort zone became a defining characteristic of his career. "I've been a little bit of a chameleon," he noted. "If I meet people from Facebook, they think of me as an engineer. If I meet people from Salesforce, they think of me like a suit."
For entrepreneurs, Bret emphasized that what your company needs from you will change as you scale. The self-awareness to recognize this and adjust accordingly is crucial to continued leadership effectiveness.
The AI Agent Revolution
At Sierra, Bret and his co-founder Clay Bavor are building on the hypothesis that "every company's main digital interface will be an AI agent." Just as websites became the primary digital presence in the 90s, followed by mobile apps, Bret believes that within five years, the majority of digital interactions will happen via agents.
Sierra helps companies build customer-facing AI agents that handle everything from home security alerts to subscription management. But Bret stressed that these aren't just technological tools—they're expressions of a company's brand and business, much like websites today.
The Three-Tiered AI Market
Bret offered a particularly insightful framework for understanding the AI ecosystem, dividing it into three distinct markets:
Foundation Models: Capital-intensive businesses that will likely consolidate to a handful of players, similar to cloud infrastructure. These will operate at low margins but high scale, "collecting taxes from everyone in the AI ecosystem."
Tools (the "Pickaxes"): Companies creating the infrastructure for AI development. While potentially high-scale, these face threats from foundation model companies expanding into their territory.
Applied AI/Agents: Domain-specific applications solving real business problems. Bret sees this as "the new software as a service," where companies purchase agents that perform specific jobs.
Of these three, Bret is most bullish on the applied AI market. "I think it's the way software should be consumed," he said, contrasting it with the current situation where many enterprises have licensed models but aren't seeing much value from them.
Reimagining Business Models for AI
Perhaps the most revolutionary aspect of Bret's vision is how AI will transform business models. At Sierra, they've implemented "outcomes-based pricing," where customers pay when the AI agent successfully resolves an issue and pay nothing when it has to escalate to a human.
"If you're selling software that completes a job, what is the secular business model for that? And it felt like, let's pay for a job well done," Bret explained.
This represents a fundamental shift from the subscription models that have dominated SaaS. Bret sees this as part of a natural evolution: from boxed software with perpetual licenses, to SaaS subscriptions, to paying for outcomes.
For startups, this presents a significant advantage over incumbents. "Closing a technology gap in your product is hard, but not impossible. Changing your business model is really hard," Bret noted, pointing to the "graveyard of CEOs" who've been fired for failing to make such transitions.
Related: Sierra Co-Founder Clay Bavor on Sequoia’s Training Data podcast
With executives being pitched by "20 AI vendors every single day," Bret emphasized the importance of standing out by focusing on customer problems rather than technology.
"If you ever see a really good sales person, the first thing you'll see them do is ask a lot of questions. But then the next thing you need to do is actually listen and understand what they're saying, and then reflect the value that your technology provides through the problems that they just described."
Bret drew parallels to the dot-com era, where multiple companies were pursuing similar ideas—search engines, e-commerce platforms, payment systems—but "the actual, like, detailed execution of those ideas was paramount."
His advice for entrepreneurs selling to established companies: "Show up as a partner to them and help them solve their acute business problems." This means doing deep research (he means literally using AI Deep Research tools) on potential customers before meetings and focusing on understanding their needs rather than thinking about your next feature launch.
The Power of Vertical Focus
When asked about building AI agents for specific verticals versus horizontal platforms, Bret came down firmly on the side of vertical specialization.
"I really believe in verticals in AI," he stated, noting that the needs of a telecommunications company, a commercial bank, and a health insurance company are all quite different. "The companies that can actually provide value quickly around these core workflows of these businesses... have a leg up."
While not dismissing horizontal platforms entirely, Bret expressed skepticism about their chances in enterprise, where "having a slightly better mousetrap" rarely passes the "vitamin painkiller threshold."
Looking Ahead
For established companies like ADT (originally "American District Telegraph") or SiriusXM, AI represents an opportunity to dramatically change their cost structures and reinvest in growth. Bret compared this moment to the birth of the internet: "Walmart did very well since the birth of the browser, even in the face of Amazon. There were a lot of retailers like Blockbuster who did not."
The companies that embrace AI to transform their operations and customer experiences will gain significant competitive advantages. And for entrepreneurs building in this space, understanding the specific needs and buying processes of your customers is crucial.
As Bret put it, "If you focus on making your customers successful, that's where the truth is and where your product should go."