The Power of AI: Discovering Its True Capabilities

- Yeah, and when you own (beep),
you don't have to worry about the ChatGPTs, or the Bards,
or anything like that. - Yeah, yeah.
(Kipp laughing)
- You're only listening- - You're owning the media,
you're owning the attention. - Yeah.
(bright music)
- Neil, you work with some of the biggest brands
across the globe.
What are you telling brands that are heavily reliant
on search right now?
Because there's like a lot of, I think,
fear among companies (image chiming)
who SEO may be a moat,
and they're looking at a lot of the people
who are saying, "Wow, like this is really
"disruptive to search," like me, and others,
and saying like, "Wow." (Kipp laughing)
Like, "Do we even have a moat in this post-AI world?"
Like "Does search become much less powerful?"
Are you having those conversations,
and kind of what are you telling those people?
- Yeah, so it's a little bit different,
so we're five years old, we're small compared to you guys.
We're around 750 employees.
I don't know how, I know HubSpot has a ton of employees.
We're bootstrapped, we grew really quickly to nine figures.
It wasn't that hard, because I also had a really big brand,
and again, most of our customers are larger corporations,
and when I'm saying larger corporations,
I'm talking about like, Adobe, and Cisco,
and just like really large brands,
and we do work with, you know,
if you look at Zapier and HubSpot,
you guys are actually large companies,
multi-billion dollar companies,
but I'm talking about like really large corporations
where they're like, "We have 100,000 employees,
"and we don't even know what most employees do," right?
That's the reality, like, (hosts laughing)
if you're a manager at a really big company,
there's no way you know what 100,000 people are doing,
and not to talk crap, it's just the reality.
When you look at most big companies,
we don't have one client that says, "SEO is a moat,"
or search is a moat - Right.
- When it comes to paid ads.
All big companies, if you look at them,
if you even look at like a HubSpot or a Zapier,
your revenue, once you get to a certain size,
it's not coming from one channel,
it's coming from a mixture - Right.
- Of all channels, and a lot of it,
when we look at one similarity
across all the companies we work with,
a lot of the revenue comes from their brand.
No joke, it doesn't matter if
it's a boring B2B company, - Yeah.
- Majority is coming from the brand,
and we work with a lot of cool companies,
and most people haven't heard of them.
Like one that we work with is called Fortive, right?
They're a spinoff from Danaher,
it's publicly traded, they're really large.
No one, most people have not heard of them,
but most people have used their products in their life.
You just don't know what they are,
like if you went to a gas station,
you've used one of their products, right?
Like almost everyone has, and it's just,
they're necessities in this world,
but if you think about a lot of the revenue
that these big companies generate,
it's their brand, and outside of their brand,
- Right. - It's a massive, long tail
of "Oh, it's some search, SEO, some paid ads,
"some social media, Instagram and TikTok,
"and email marketing, and word of mouth,
"and partnership programs," like it's a combo of all.
I haven't really seen any one large company,
I'm talking about multi-billion dollar company
where they're like, "We make all our money
"from like Facebook ads, or just Google ads, or SEO,"
(Kipp laughing) so most aren't really
worried about a moat or search, it's omnichannel.
What we've seen with the big brands
is the moment you take an omnichannel approach
and you embrace everything,
we notice that the CPAs for all your channels
go down by more than 10%.
- Yeah, I think that's pretty true,
like when you get to a certain scale,
you don't have one golden channel,
you have multiple channels that actually
acquit a certain part of your revenue.
I guess because we're on tactics,
and you are, you know, renowned for coming up
with tactics across the web on different things,
if you had to sit a marketer down today
and just say like, you know,
"You're a best practice marketer,
"like you actually see the world in terms
"of like all this best practice advice,
"and let me like correct you in a couple of things.
"Here's some controversial things you probably have never
"thought about that work really well."
What are some of those, like some of the more
controversial things that if you were in a, you know,
a marketing conference, and you said it,
you would get some certain reactions from marketers?
- So one, I think software is a race to the bottom.
A great way to market is just give away tools for free.
HubSpot's been a big advocate of this for years.
If you look at Dharmesh and what he did
with, is it the Website Grader, is that what it's called?
- Website Grader. - Website Grader?
- Yep. - Website Grader, yeah.
- The Website Grader is not a freemium tool,
it's a free tool, and a portion of them,
if you get a lot of users,
I get all of them won't be HubSpot users,
but a small fraction of them can be HubSpot users.
Email signature, don't pay for email signature, it's free.
Very, very small fraction of them,
even though it's not the majority,
can end up using your product.
If you look at Zapier, for most companies,
they don't need to pay for Zapier.
You can do a lot of it for free,
especially if you're a small business.
The moment you get big enough, you don't care,
like you're already using it, you'll pay,
because you have a lot of hooks,
and you're making enough money
where it's really worth it for you,
then you don't have to hire full-time developers, right?
So that's one controversial thing.
It's funny, I've talked to a lot of VCs,
I was talking to Sequoia Capital, I don't know when,
this was like a year and a half ago,
and I was telling them, you know,
what's funny is like if you look at MailChimp as a market,
like the email segment,
we were doing back to the napkin math
on how much, how many emails MailChimp sends out,
they got bought out for, I think, $11 billion,
or somewhere around there,
and I could get the same amount of emails sent out
as them using third parties for around $5 million a year.
It was something like that.
It actually wasn't that expensive to send out the emails.
The big cost is to acquire the customer. (chuckling)
- Correct. - It's not actually
to run the emailing system to send out emails.
Yeah, you got to deal with spam and other things,
but like, the big cost is actually generating the customer,
and I'm like, huh, it would be cheaper
to sell software for free or give it away for free
and figure out a better way to make money,
and I'll give you a great example of this
I think that'll resonate with everyone.
If you look at Paychex, Paychex, I think,
is a 40-ish, 50-ish billion dollar company?
I'm guessing on the market cap, but it's somewhere there.
I can actually Google the stock right now.
So Paychex stock, and Paychex is a payroll solution,
so Paychex has a market cap of $39.43 billion
of this recording, all right?
You guys are all familiar
with UnitedHealthcare, I'm assuming?
UnitedHealthcare, - Yep, I am.
- Their stock is one of the biggest insurance companies,
this is health insurance, is $485 billion.
They're 10 times bigger.
It doesn't cost that much to send out payroll
and just send people money.
There's ways to make this super, super efficient
and really affordable.
The cost-per-click for a lot of these payroll software words
is like 60, 80, sometimes even over $100 a click.
That's not for a customer, that's for a click.
Give away the software (Kipp chuckling)
for free, make your money,
to all the people that are using your software,
eventually they get big enough and say,
"Hey, do you want health insurance?
"We offer it," plug and play, - Mm hmm.
- And make your commission there.
- And you did something like that for your agency, right?
You bought Ubersuggest, do you want to
like, give a little - We got Ubersuggest for...
- Synopsis of how that went?
- Yeah, so we bought Ubersuggest for 120,
I probably put in maybe 3 million into the software
to get it to a place where it can generate enough leads.
We did the same with a tool called Answer The Public.
We bought it for 8.6, we overpaid for it.
At the time, it was doing maybe 100 grand in EBITDA.
- We looked at that, Kieran and I
thought about buying that - Yeah, yeah.
- A couple of different times.
- Yeah, I didn't know, - Yeah, 8.6-
- You bought that, actually, yeah, I didn't know
you bought that. - Yeah, I didn't know
you bought that, 8.6 is definitely more
than I would've spent, dude.
- It was expensive, so...
- It was expensive.
- And you know, they were like,
all these other companies are, and we're like,
man, we couldn't get them down low enough into price point,
and we were trying to buy them for,
I think it was $6 million, somewhere around there,
maybe six, and they...
Because it wasn't fully burdened,
when they're like, "Yeah, we're doing
"100 grand a month of profit," I'm like,
"You have no employees, and no expenses other than servers."
This is not a true - Yeah, no. (chuckling)
- 100 grand a month EBITDA business.
(image chiming) So they're just like,
"We want 8.6," they're like,
"How about you give us 6 up front,
"and then you give us the remainder over a year and a half,"
or two years, it was something like that on payment plans,
so we're like, "All right."
We still don't want to pay it,
but we ended up changing some things with the business.
The traffic grew 30, 40% really fast,
and we changed some things with the business.
We got the EBITDA to 200 grand a month really fast,
fully burdened with employees, and all that kind of stuff,
so 2.4, we'll get it to 3 million a month,
I mean 3 million a year really quickly in EBITDA,
But we didn't care about any of that.
So when we were doing diligence on the business,
we were looking at how many enterprise companies
were using these tools,
and you had a lot of big brands, a lot of Fortune 1000.
When we were looking at Fortune 1000 companies,
it was something like close to 70% of Fortune 1000 brands
were using Answer The Public.
All right, so the way - Wow.
- We make money, forget the tool,
even if it didn't make 100 grand in EBITDA,
we wouldn't care.
We start calling up those customers,
and we're pitching them on services
that are costing them not 1 million,
but in the multi-multimillions of dollars a year
in closing deals.
So when you look at it from that aspect,
it has a big user base.
We don't care about the revenue from SEO software,
or PR software,
we're like, land and expand.
Some of the deals will only sign up with us
for like, 3, 4, 500 grand a year,
but this will be Fortune 1000 companies that have 30,
40 divisions and a few hundred thousand employees,
and we're just like, land and expand.
Oh, you're insurance company?
We got one division, then we got three divisions,
because we did good work,
and then we're at seven divisions,
and next thing you know, that customer is paying
five and a half million dollars a year
because we got them from using Answer the Public,
and we only bought that company for 8.6,
and if you look at a customer, for us, that's enterprise,
they should last at least five years, right?
Numbers are a little bit skewed because we're still young,
we're only five years old,
and a bad economy makes churn go up in marketing
for pretty much any segment,
but in theory, (Kipp interjecting)
our CEO comes from Dentsu,
which is one of the big ad agency holding companies.
He's like, "Your enterprise clients should last
"at least seven years,"
so if you got someone from one of these software solutions
paying you $5 million in the last seven years,
the EBITDA that we're making from that one deal
more than paid for the whole acquisition.
- Yeah, it's pretty cool.
- And you made Answer The Public profitable, right?
Like this is the magic trick.
You took the risks to outlay the capital, right?
- Yes. - For Answer The Public
as a lead source,
but you knew you could still basically make it break even
or profitable as just a standalone thing,
and most companies won't do either one of those.
Most companies won't say, "Hey, I'm not going to take the risk.
"I'm going to go and rent some attention
"from Google and Facebook.
"I'm not actually going to go and actually buy
"or build any real assets," and that's what you did,
and if you're watching the show,
like, that's what matters in today's world.
You got to own shit, and if you don't own shit,
there's little to like no leverage that exists there.
- Yeah, and when you own shit,
you don't have to worry about the ChatGPTs or the Bards,
or anything like that. - Yeah, yeah, yeah.
(Kipp laughing)
You're only listening- - You're owning the media,
you're owning the attention. - Yeah.
- Neil, can I just go back to,
just so I make sure I get the numbers right,
Ubersuggest, you paid 120K and put in
3 million on that tool?
- Uh huh, the data - Yeah.
- Was really expensive,
and the server costs were really expensive,
then we started monetizing a little bit
from a software standpoint.
Our goal was never to generate a ton of money from software,
but we try to keep enough of it free
where we keep getting more and more leads year after year,
and then what we do is we monetize enough
of the software for it to be profitable,
similar to Answer The Public,
but those two tools, Ubersuggest alone
accounts for more than 40% of our revenue.
So if we look at our - Wow.
- Clients at our ad agency,
more than 40% of them are Ubersuggest users.
Answer The Public, when we were looking at acquiring,
it was roughly 60% of the traffic.
We've grown it, we've also grown Ubersuggest's traffic.
Answer The Public right now gets around 80% of the traffic
that Ubersuggest gets,
and Answer The Public, when we look at it
from a revenue standpoint,
it doesn't even make up 5% of our revenue,
but it's going in the right direction,
so we think over time, it'll have a massive impact,
and when we look at if we were in all
the countries we needed to be,
we think there's a really quick roadmap
to getting into half a billion a year in revenue
just from all the leads that we're generating.
We just need to add the headcount and the region expansion.
I think it'll be a struggle, it'll take a while
for us to get to a billion without M&A and bolt-ons,
but it's a bootstrap business, right?
No investors, no board, it's a great lifestyle.
- Yeah, not a bad life when you can build a big business
without the investors and the board to yell at you.
So okay, so those two tools are essentially
like half the revenue for this agency, right?
Like half the revenue are attributable
to those two tools we just talked about.
Where's the rest come from?
- Word of mouth, and good work.
- Okay, client upgrades, and word of mouth and referrals.
- So 40 plus percent of our customers
are Ubersuggest users, right?
Forget the Ubersuggest software revenue,
that's not really the revenue,
that Answer The Public revenue, the software portion,
not really much revenue for us.
The real revenue comes from the services, right?
Because when we were looking to raise money,
that's why the calls with the Sequoia and stuff like that,
we were struggling to get, paying debt for AR,
because when you're dealing with some
of these big customers, they're just like,
"Yeah we want you to float 142 million in ad spend,"
and even when you're making
millions a month in profit, (hosts laughing)
you can't float a hundred million dollars
in ad spend really easily.
- No way. - Like that's...
- Not even for, and they want that on like,
60, 90-day net terms, too. - Hey, yeah, yeah.
- 90, yes, some want 120.
So then we started going, - What's that?
- We started calling up the Sequoias and this stuff,
because we're like a new version of Pilot accounting,
they invested in Pilot,
and then we had a call with Bezos Expedition,
Melinda from there, she's like,
"You know you can just go to, at your size,
"you don't need venture capital anymore,
"you're highly profitable.
"You can just go to the banks
"and just go get them to float your AR."
So then we switched to talking to VCs, and be like,
"Hey, let's just talk to the banks,"
and the bank's like, "As long as it's a market account,
"like a Microsoft, or one of the..."
They're just like, "We'll float your AR
"on ad spend all day long,
"because the risk of a Microsoft not paying?"
- Mm hmm. - This isn't like a cool,
cool startup that just went public,
you're talking about real - Yeah.
- EBITDA on a quarterly basis where you don't have
to worry in a recession or not if they're not
going to be able to pay their bills,
and their valuation isn't based on stock prices,
based on real EBITDA, and the banks would fund it,
so at that point we're like, "Oh, we don't need to raise
"any venture capital," (image chiming)
but going back to the statement I was trying to make
or the point I was trying to make,
it used to be 40 plus percent came from the software,
the service portion,
and I remember in our pitch decks,
we would actually use HubSpot example.
If you look at the marketing industry,
we thought it was backwards.
We're like, HubSpot has majority of the market cap.
If you look at your market cap,
at the time I was doing my presentations,
it was like 15, 16 billion,
and we're like, if you look at a market cap of Omnicom,
it was the same market cap,
but Omnicom was doing in EBITDA what HubSpot had as revenue,
and the reason that market caps were the same
is Omnicom is an inefficient business,
and what we were saying to investors was we can build,
majority of the money spent in marketing
was on services, not software.
Give away software for free, or close to free,
charge for services, and then go and use AI
and tools to automate as much as the services as possible,
you won't be able to automate everything,
and then go have these services businesses
be super efficient,
and we started producing good results,
and the good results ended up making it
where if we look at around 71%, 72%
the last few months of our business,
it's actually coming from word of mouth.
- Hmm. - It's not even coming
from SEO or software,
and we believe if you fast forward,
call it three to five years,
almost all our revenue will come from word of mouth
and none of the tools or anything like that.
- Especially because of the kind of companies you sell into,
like larger companies, - Yeah.
- It is such like word of mouth within that, you know,
you get to a certain company size,
and they all just kind of recommend each other.
I think that is a really incredible insight, which is...
I've always thought of like, buying software
to help other software grow,
like that's, typically, even when we looked at that,
it was like, okay, well, - Mm hmm.
- How does that help our core platform grow?
Whereas what you're doing is you're like,
buying incredible tools, but then wrap in services,
like the services thing is the actual thing
you're going to monetize on,
and I hadn't thought about that before,
which is like, freemium for services.
- Yeah, but let me rephrase this.
I would've done what a Zapier or HubSpot did.
I'm too late to the game.
Your business models - Yeah.
- Are amazing, I wish I could have done that.
Look at the market caps.
The public markets will value them very high
for a very long time.
I don't think Zapier's public,
but the private markets will value high
for a very long time.
I'm late to that game,
so I look at entrepreneurship as disruption.
(image chiming) - It's too hard to say,
"I'm going to go and create a freer version of HubSpot,"
it's already free enough.
I'm going to go create a - Totally.
- Freer version of Zapier.
It's free enough, it's too late,
but there's these dinosaurs like WPP and Omnicom,
and they're not doing (Kipp laughing)
like a billion, 2 billion in revenue,
they're like, "Oh, we do 15, 18 like billion in revenue,"
like these are massive markets.
- Right. - Not from a market
cap perspective,
I'm talking about from a dollar perspective,
like just pure business - Yeah.
- Economics, massive revenue,
massive EBITDA that needs disruption,
and well, we were like, huh,
majority of marketing dollars other than advertising
is not actually spent on software, it's spent on services
was what our realization was, - Mm hmm.
- And it was too hard to disrupt the software players,
and we're like, let's disrupt these old school
service providers,
and what we ended up learning as we kept growing,
the reason we grow through word of mouth
is because it's really edge cases.
Oh, we're like Mitsubishi, we're in Peru,
We need a global ad agency that we can deal with
in the US or Canada that speaks English,
that has people down there that's big enough
where we don't have to worry about the laws,
and business ethics, and practices,
and they can just handle this one thing
for us in those regions,
and we're gotten to a point where that's where
a lot of our revenue comes from,
and then they do it in one market,
and they start doing it in more, and they're like,
"Oh, Mitsubishi also owns this other brand,
"and this brand, and this division,"
and then it's land and expand.
- Love it. - Classic enterprise,
land and expand, all right, we're running out of time.
I got one last question, Kieran,
unless you have anything else.
Did you want me to go? - No, go for it.
You go for it.
- We got to give the people one.
What is the most underrated part of marketing right now?
What's the thing that like, you feel like
too many people are ignoring, - Easy.
- And they should be be going harder?
- Creatives, so I'm actually going to give you two things,
and they both kind of line.
- Okay, please. - The first one is creatives.
I know ChatGPT or OpenAI has tools
that can now spin up images,
and there's a few other ones that are working
on spinning images and all that kind of stuff,
but one of the biggest leverage points
in marketing is creative,
and I'm talking about creative from like, your ad image,
to the landing page, how creative you're getting,
like the Squatty Potty videos,
which you guys have all seen, or the Harmon Brothers,
- Yeah, - Like that kind of stuff
is really hard for AI to produce,
because it's like, what kind of crazy stuff
can you just end up coming out that will
just cause conversions to go up,
which brings me to my second point, AB testing.
Those are the two things that most people ignore
and don't really focus on,
but they provide massive leverage,
because if you look at ad costs, they're continually rising.
I understand right now, in a bad economy,
sure, it's getting cheaper,
but if you look historically, it keeps going up
quarter over quarter,
so the real winner is how can you optimize for conversions?
And whether that's copy, landing pages,
but a lot has to do with creativity,
not just in your ad creatives,
but your copy, and your scripts,
and how you're going to produce more things
like Harmon Brothers, or get creative,
like in the B2B world, like what we did in marketing.
Hey, don't charge for tools, buy tools,
give them away for free.
The HubSpots of the world and the Zapiers can't do this
because at your guys' size,
you can't go to the publicly traded market saying,
"Hey, we're going to make HubSpot fully for free,
"be a service company,
"and start a business over again," right?
- (laughing) No, no way. - So it's
how do you do things in a different way
to make your marketing economics work?
- I love creative, not just for visuals,
but even just for the way you described it,
which is how can you do something much more differentiated
in how you grow your company?
Like not, like you were disrupting an archaic model
by doing things that were much more
in a typical like, software go-to-market,
like have freemium, like wrap,
up-market a product around it, land and expand,
and brought that to like an archaic market,
and so that's just creativity
in how you build your business,
and so I think there's like the creative part
of just like the visuals and the aesthetics,
and how you stand out on the internet,
but then there's like the creativity you bring
to how you think about problem solving,
and people don't think about that,
like everyone just falls into the lazy,
this is the way it's been solved in the past,
so this is the way I'll solve it,
and that is just surefire way
to do average work. (image chiming)
- Totally. - First of all, couldn't agree
with either one of you any more.
Also, remember, in the world of AI, I love AI,
AI models give you more of what they know about,
what has already existed in the world,
and true creative that brings something brand new
into the world that's never existed before
is really how you stand out and how you're differentiated,
so I'm totally in with you on the creative side of things.
Neil, this has been awesome.
I think we covered a bunch of ground.
It was really fun having you here,
and until next time, everyone,
this has been "Marketing Against The Grain."