Yext CEO's on Search in the Age of AI | At Barron's

Key Concepts

• Brand Visibility Platform: A service that helps brands understand and improve their presence in the digital world.
• SEO (Search Engine Optimization): The practice of optimizing websites and content to rank higher in search engine results.
• Zero-Click Searches: Searches where users get the answer directly from the search engine results page without clicking through to a website.
• Agentic Web: A future internet where AI agents act on behalf of users to find and process information.
• AI Search: Search engines that use artificial intelligence to understand and respond to complex natural language queries, often providing synthesized answers.
• Structured Data: Data organized in a specific format that AI agents can easily understand and process.
• Marketing Funnel: The traditional customer journey from awareness to purchase, typically involving stages like awareness, consideration, and intent.
• Tectonic Technological Shift: A fundamental and transformative change in technology, comparable to geological shifts.

Yex: A Brand Visibility Platform in the Age of AI

Michael Walwrath, CEO of Yex, describes Yex as a "brand visibility platform" that assists brands in understanding their presence in the digital landscape. While historically focused on SEO and website traffic, the company's focus is evolving due to rapid changes in how brands are discovered, driven by AI.

Transition to Private Ownership

Yex, a publicly traded company with a market cap of approximately $1 billion and annual revenue exceeding $420 million, is undergoing a process to go private. Walwrath, an investor in Yex since 2009 and former chairman, stepped into the CEO role in March 2022. He cites the changing public markets and the difficulty for smaller companies to gain value as reasons for this move. Walwrath has proposed taking the company private at around $9 per share, with the current trading price at $8.50. He emphasizes that he is not part of the board's decision-making process regarding the privatization and that various outcomes are possible. The timeline for this transition is not within his control.

The Evolving Landscape of Search

The traditional understanding of search, characterized by users typing keywords into engines like Google (e.g., "hamburger near me," "grass-fed beef"), is shifting. While Google still dominates with 92% of searches, younger generations are using natural language and complex questions. This evolution necessitates a change from traditional SEO to a new approach that accounts for the context and phrasing of these advanced queries.

Walwrath posits that AI will not "take over" search but rather integrate with it, eventually leading to a unified concept of "search" or "questions and answers." The key differentiation currently lies in the mechanisms and user experience of AI search versus traditional search.

The Internet for Machines: Memory and Context

A significant transformation is occurring from an "internet built for humans" to an "internet built for machines." AI search engines, unlike traditional ones that provided the most likely answer, possess richer memory and context. Walwrath illustrates this with a personal anecdote: asking ChatGPT what it knew about him revealed a startling amount of personal information, highlighting the depth of AI's understanding.

This enhanced context means that user queries will be less explicit. For instance, instead of a human assistant needing detailed preferences, an AI assistant already knows what a user likes (e.g., vegan options, no seed oils). This requires brands to provide comprehensive, structured data that AI agents can easily interpret. The "surprise me" or "tell me something new" aspect of AI interactions is crucial to avoid repetitive recommendations. AI agents learn and adapt with each interaction, becoming more personalized.

The Compressed Marketing Funnel

The traditional marketing funnel, encompassing awareness, consideration, and intent, is not dead but "compressed." In the past, brands relied on driving traffic to their websites for discovery and research. In the new AI-driven world, consumers may never visit a brand's website directly. Instead, AI agents will interact with a brand's structured data and provide recommendations.

To remain visible, companies must ensure their data is structured and accessible to AI bots. Walwrath argues against blocking AI bots from websites, as this leads to invisibility. He uses an example of asking an AI assistant for SUV recommendations after driving a Tesla for 12 years. The AI asked clarifying questions, researched for six minutes, and provided a list of SUVs with pros and cons. The future, he predicts, will involve AI agents directly scheduling test drives or deliveries, bypassing direct human interaction with brand websites. If this structured data is not visible to AI agents, brands will be excluded from the consideration set and thus from the purchasing decision.

The Future of Advertising in AI Search

The substantial advertising spend on platforms like Google's paid search business (around $200 billion annually) will be impacted. As search engines evolve into AI search engines, advertising will remain central but will transform significantly. Marketers will no longer control the advertising message directly. Instead, they will become influencers of AI-generated ad copy.

Influence will be exerted through two primary mechanisms:

1. Structured Data Proliferation: Ensuring structured data about the brand is widely available.
2. Value of Actions: Indicating the value of specific actions an AI agent can facilitate (e.g., a test drive in a particular area).

This will involve brands providing structured data about their products and bidding on the value of AI-driven actions, fundamentally shifting the paradigm of advertising.

Structuring Data for AI Consumption

For companies to be appealing in this AI world, every piece of content must be delivered as easily consumable structured data. Walwrath contrasts a beautiful, image-heavy website like Wendy's.com with the small amount of structured data it contains (25-50 kilobytes). AI agents prefer direct access to this structured data rather than navigating complex websites. This requires brands to utilize methods like the Model Context Protocol for passing information between brands and AI, ensuring their data sources of truth are constantly updated.

Excitement and Concerns in the New Era

Walwrath expresses both excitement and concern about this "post-human" internet. The excitement stems from the potential for increased leverage and vastly improved consumer experiences tailored to individual needs. The concern lies in the potential for exploitation by those who seek to game the system, leading to the emergence of spammers and those who gain an unfair advantage. Yex aims to help its customers be at the forefront of this shift.

Advice for Young Professionals and Investors

Walwrath draws parallels between the current technological shift and previous transformative periods in his career, such as the rise of user-generated content in the early 2000s and the mobile revolution in 2009. He likens the current stage to the internet in 1997-1998, emphasizing its early potential and the inevitable challenges. He advises young people to immerse themselves in this evolving landscape and "ride the wave."

For investors, Walwrath reiterates the importance of fundamentals, specifically the present value of future cash flows. He believes that while the public market has sometimes strayed from this principle, all capital endeavors ultimately revolve around future cash flow creation.

Regarding Google, Walwrath believes the company will be "fine" but its search business will struggle to maintain its current monetizable dominance. It will need to transition to a more action-oriented model, and while Google is well-positioned to capture a significant portion of this new market, it will not retain its 92% market share.

Work-Life Balance and Passion

Walwrath acknowledges the demands of his current role as CEO of Yex, which consumes virtually all his time. He finds it rewarding to be back in an operating role, solving problems at scale and navigating this significant technological shift. He contrasts this with simpler businesses like the golf club he owns, which is managed by an extraordinary team. He views his past projects as important endeavors during periods without operating roles, but his current focus is on leading Yex through this transformative era.