Are services the new software? This venture capitalist thinks the future is in selling AI-delivered outcomes, not AI-powered products

Hello and welcome to Eye on AI. In this edition…Are services the new software?…Anthropic’s Mythos has financial regulators and bankers freaking out…more executive turnover at OpenAI…these measures may mean China may soon surpass the U.S. in developing the best AI models…are AI inference costs getting too steep?

Julien Bek never expected to go viral. Bek, who is an early stage investor in the London office of the venerable Silicon Valley venture capital firm Sequoia, says he merely wanted to highlight one of the firm’s recent investing theses and use the piece to highlight some of the startups Sequoia had recently backed. So he penned a blog with the title “Services: The New Software” and posted it to his social feeds. Within days, it had surpassed 1 million views on X. It is now closing in on 3 million. It has done more than 450k impressions on LinkedIn.

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“I certainly didn’t expect to have this kind of reach,” Bek told me on a call earlier this week.

The provocative headline no doubt helped. But Bek’s thesis also struck a nerve. In short, he thinks that the world’s next $1 trillion company won’t sell hardware or software as a product. Instead, it will sell an outcome, and use AI-powered software to help deliver it, alongside human expertise. Instead of selling customer service software, for instance, it will simply deliver customer service for a client, the way business outsource processing companies do today. But these new entrants will be AI-native from the start. Instead of selling legal tech, these firms will sell legal services, etc.

Good examples of companies already pursuing this model that I’ve written about before include both Robin AI and Legora in the legal space and Dwelly in the real estate market. There’s also Dystyl AI in the consulting space, Rogo in financial services, and WithCoverage in the insurance brokerage market. Bek thinks there are many, many more to come. And he is sure the market potential is huge, noting that for every dollar enterprises spend on software, they spend six on services.

Intelligence vs. judgment

Bek has developed a taxonomy for thinking about these possibilities. First, he distinguishes between intelligence and judgment. Intelligence is basically anything with a pretty clear definition between the set of correct and incorrect answers—think tasks in coding, mathematics, physics, and even some tasks in accounting, law, or medicine. AI models are getting pretty good at delivering intelligence. Judgment on the other hand is more about taste, professional intuition, and subtle but often critical qualitative distinctions that often require both talent and experience. Lots of companies are trying to figure out how to imbue AI models with judgment, but for the most part, they aren’t there yet.

He then performs a matrix analysis that plots how a given service ranks on an intelligence-judgment scale on one axis, and whether companies already tend to outsource a particular service, or perform it in-house, on the other axis. (This is a complex decision governed by economic ideas that Ronald Coase developed in the mid-20th Century and that I recently wrote about in the context of the so-called SaaSpocalypse for Fortune here.)

First Bek looks at those tasks that companies already outsource to service providers, things like legal services, auditing, insurance brokerage, etc. Then he looks at the subset of those that are mostly about intelligence, with mainly just a dash of human professional judgment needed. This the sweet spot Bek thinks is ripe for AI-native service firms. “If [a customer] paid $100 for a service, but you offer them the same service for $80, but you can still do it at a high gross margin because you’re using a lot of AI to deliver that service, then we think that’s really interesting,” he says. Among the functions he sees being in this category are things like insurance brokerages, insurance claims adjustment, IT managed services, tax advisory services, accounting and audit services, simple legal services, payroll services, and certain compliance services.

Bek calls startups in this category—heavy on intelligence, with a dash of judgment, in categories that customers already outsource—”autopilots.” He says his use of that term in his viral essay has been the source of a lot of misunderstanding and misplaced criticism. He didn’t use the term to mean that services could be performed entirely by AI agents to the exact same standard as human experts. What he meant was that the processes that deliver these services could be largely automated in the same way that autopilots function in aviation—a human is still there monitoring the systems and handling the hardest tasks (like take off and landing) and ready to step in if something goes wrong, but a lot of the process is automated. He contrasts this to AI “copilots,” where he says there is a lot more back and forth between the human expert and the AI system.

I asked Bek about the theory tha