We've always heard about the notion of customer experience, the idea that we could improve customers' interactions with brands digitally. So far, the results have been mixed at best.
Sierra, the new startup from Bret Taylor and Clay Bavor, believes that AI agents could be the next technological frontier, unlike the websites or mobile applications that preceded them: essential digital assets for every company and that, ultimately, they could deliver on the promise of digital customer experience.
Whether true or not, the two founders fundamentally see AI agents as a new category of technology, providing an entirely new way for customers to interact with brands to improve their overall experience.
“Our thesis is really simple. "We believe that conversational AI will become the dominant form factor that people will use to interact with brands, not just for the kind of current trends like customer service, but for all aspects of the customer experience," he said. Taylor.
What that means is that customers can freely enter questions and requests into a search-style box, and the AI agent should be able to understand that request and take action by connecting to whatever transactional system is necessary. These can be tasks like searching for an order in an order management system or rescheduling a delivery in a scheduling system, for example.
Taylor and Bavor acknowledge that it's not always easy to connect to these systems, especially if they are older. But most of the CIOs they've spoken to have indicated that they've created APIs that connect to these older systems, making it much easier for Sierra to communicate with them.
Still, Taylor and Bavor acknowledge that there are serious challenges and risks when it comes to humans interacting with these AI agents. “When you put an AI in front of customers, the value is much greater, obviously, but the risks are also much greater, with brand misrepresentation and hallucinations – all the technical problems that, frankly, are the most difficult problems in AI,” Taylor said.
These are not minor problems, particularly the hallucination problem, where large language models sometimes make things up when they don't know how to answer a question. This could be potentially devastating to a brand's reputation, depending on the nature of the response.
While no company has solved hallucinations yet (and potentially never will), Sierra is working to mitigate the problem, as is everyone trying. The company's software is based on the idea of autonomous agents. "What that means in practice is that there is no single model that will produce a response from a Sierra agent." In fact, according to Taylor, it sometimes involves up to seven models, including one they have called “the supervisor” that monitors the quality of the answers and, if it deems the answer questionable, sends it back for reevaluation. Taylor acknowledges that hallucination management is an ongoing research problem for the industry.
As if that weren't enough to worry about, when it comes to handling customer data in an automated way, there are a host of regulatory and data privacy issues to address. But Taylor and Bavor say their agents are designed to handle that, too.
Taylor believes AI is fundamentally different from software as we have known it for the past 30 years and requires an educational component to help customers understand the power and dangers. "So part of our go-to-market move is to mitigate these risks and teach our customers how this new type of software works."
But the other side of that risk is that it represents a great opportunity for the company. “Any time there is a radical change in technology, it opens a window of opportunity for smaller companies to explore that open space and really take some risks and try some new things,” Bavor added.
This new wave of AI will spawn at least five to 10 significantly new independent enterprise software companies, Taylor said, not unlike when the cloud and mobile devices emerged. “There is an opportunity for a new technological model. There is no leader in the conversational AI market right now because it is new. It’s a year old, anyway, and everyone is figuring it out in real time,” he said.
Taylor, who is also chairman of OpenAI's board of directors, doesn't see the two companies competing or any conflict between them, although one could certainly argue that is the case. "We don't see OpenAI as a competitor and I will obviously recuse myself if a potential conflict ever arises," he said.
The founders also believe that a new platform should have a new pricing approach and have designed a completely new pricing model based on the results. Instead of tiered subscription fees or usage-based pricing that we've seen with other software companies, they want customers to pay only for results, when a problem is solved.
“We believe performance-based pricing is the future of software. I believe that with AI we finally have technology that not only makes us more productive but also gets the job done. It’s actually finishing the job,” Taylor said. And that is where they intend to charge the client. The mechanics, however, are still being worked out with the first customers.
For all that, and even taking into account the experience of the two founders, Brent Leary, founder and principal analyst at CRM Essentials, believes it will be difficult to compete with the usual incumbents like Taylor's former company, Salesforce.
"I mean Taylor is incredibly smart and capable, there's no doubt about that," Leary said. “But with Salesforce there is a lot of institutional experience, skills and other resources that a startup doesn't have, even if it's led by someone like Bret. And these huge companies are allocating all their investments in R&D and restructuring all their operations around the opportunities they are seeing with AI.”
To be clear, Sierra is well capitalized, although certainly not to the level of a company like Salesforce. Taylor and Bavor's pedigree combined with the potential market they are pursuing is attracting big investments: the company has already raised $110 million, $25 million from Benchmark and an additional $85 million from Sequoia. This is an extraordinary amount of money for an early-stage company, but these are not your typical founders.
Ravi Gupta, a partner at Sequoia Capital, who is leading his company's investment in Sierra, says that beyond the background of the two founders, the company impresses with the technology and its potential. "I think seeing it in action is the most notable, and I think it really captured our imagination of what future customer interactions can look like," he said, adding that it wasn't a difficult decision for him to write a check.
Sierra clearly sees a huge opportunity to transform the customer experience with AI, but there are many obstacles standing in the way of success. If the founders can find a way to adequately address the obstacles of free-form, AI-powered, automated customer service agents, while also avoiding established enterprise competitors, it could be a successful startup, but as Everything that involves AI, it still has to prove that it can do it, and consistently and at scale.
