You, AI, and the Brands You Love

Rob LoCascio is the founder and CEO of LivePerson, a company that develops conversational commerce and AI software. Motley Fool producer Ricky Mulvey caught up with LoCascio to discuss:

• How artificial intelligence will change how you interact with brands.
• Starboard Value's campaign to change LivePerson's board and CEO.
• The advantages that quantum computing could provide tech companies.
• What natural language processing programs are revealing about interspecies communication.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on May 21, 2023.

Robert LoCascio: I call it like it'd be your pet, like your pet dog, like something you love and cares for you. Then I think the brands have to have their own AIs. I think these AIs connect. That's where we look at as we call it a digital twin, is that ultimately, the brands have a digital twin of you as a representation of how you engage with their brand. When your digital twin shows up, they can connect it with theirs, and they will get things done for you.

Mary Long: I'm Mary Long, and that's Rob LoCascio, founder and CEO of LivePerson, a tech company that uses artificial intelligence to help brands talk to their customers. If you've been on a web chat with the customer service bot, you've probably used its technology.

Ricky Mulvey caught up with LoCascio to talk about why your interactions with companies could soon change drastically. How LoCascio was navigating a stock price drop of more than 90% while also facing an activist campaign threatening his job, and the ways natural language processing could transform how we communicate with -- wait for it -- animals. It's gonna get pretty weird, but it is a very fun ride.

Ricky Mulvey: Right now, going into 2023, what are some of the use cases for LivePerson's products? Where could I specifically have encountered it?

Robert LoCascio: Sure. We provide all the messaging AI platforms for some of the largest brands in the world. If you're on Delta Airlines or Verizon or United Healthcare or Home Depot and you're messaging or chatting, that's our platforms.

Ricky Mulvey: I was going to ask where you fit in the competitive landscape with call centers and other AI chat products, maybe even companies like Twilio.

Robert LoCascio: Yes. We were the first out seven years ago, we pioneered the messaging platform, and my goal back then, still holds today is that, I want to get rid of the traditional 800 number. I want to kill the 800 number.

I just think this idea of talking by voice, pressing 1, 2, 3, and what we call an IVR should be gone. That's what I've been after for the last seven years. Messaging went a long way. We added a lot of AI into it. But now with generative AI, there's a path now to kill it once and for all.

Ricky Mulvey: Well, and part of that path for you involves this new product where voice is back into calling in humans speaking with essentially AI chatbots and getting real-time reaction.

Robert LoCascio: Obviously all the generative AI stuff makes it. The machines understand natural language better than ever before. The other part of that is the dataset that's going to power that. The next part is the actions. Like, I wanted to make it, "I want to buy something," and there's got to be actions off for that, which generative AI itself doesn't quite do that, and that's where we also provide actions. So you combine and get service and support.

Ricky Mulvey: And with your new products, it seems that almost the 800 number might be back a little bit, where humans are able to interact in real time over voice with AI chatbots for customer service applications.

Robert LoCascio: Yeah, we just launched our new voice AI and platform. That's really what I believe will be the final attack on the thing I've wanted to get rid of, which is traditional voice where you're sitting on hold, and you're talking to a human. We are now offering voice AI to use large language models and generative AI to power those conversations.

It's really fascinating. Like, what we're finding is that we looked at our top airlines. People asked the craziest questions like people are asking, "Can I bring an iguana on a plane?" In the past, you can never make a traditional bot that would handle "iguana." You would never even think about making that. But with the large language models, it just picks it up because of the dataset. That's why there's going to be a massive shift. I promise everyone out there, you won't have to talk to a human agent on a voice call soon. We'll get rid of it. 

Ricky Mulvey: Can you bring in a iguana on an airplane?

Robert LoCascio: Well, it turns out from one airline, if it's 45 pounds and below, yes. For another airline, you cannot bring an iguana on. So they have different policies about iguanas. Funny enough.

Ricky Mulvey: Do you see that even for harder use cases? I mean, I'm thinking back to a chat I had with United. I forgot my password and I forgot some of the answers to those security questions. You're saying that you could build a product that involves no interaction between me and a person for even that difficult situation.

Robert LoCascio: Yeah. They are one of our customers, so we do a bunch of different use cases there on messaging and automation. But yeah, those are done. They may even be doing those, I don't know, but I know they do booking reservations, changing seats. I think password resets are in there, but yeah, all of that can be done. We don't need to talk to humans anymore to get that done.

Ricky Mulvey: Well, I hope we talk to humans sometimes.

One thing on your generative AI products that was mentioned in your products launches that it can do real-time fact-checking, which is something that ChatGPT has a lot of problems with. How is this possible and, more importantly, provable for your product?

Robert LoCascio: Yeah. Because we're in the enterprise, called the enterprise EAI. This is a very specific type of AI. This AI has to be at the highest form of trust. The datasets and our platform and the models all have to work together to give a great outcome.

We have things in our platform that'll check, for instance, you may have conflicting answers. Well, that needs to get flagged. We can have put a human in the loop than to say that's the right answer.

The beauty of our platform, though, is that it's humans that generated the conversations originally. Usually, those humans, the agents at the contact center, they're trained, and they respond appropriately. With the quality of our dataset, we have over a billion conversations we generate a year.

That quality dataset is what ultimately helps us drive AI into the enterprise, get them back into the model, and fact-check. The model say, that's not true. It say, is this true? The model say no, so you use prompts to then do the fact-checking on it. We have to do a lot of tooling in order to make this stuff work for the enterprise. It's not a straight API call.

Ricky Mulvey: Part of this is a part of LivePerson's what you would describe as a turn and inflection point. You mentioned this in your previous call, and its shareholders may note that the stock is down more than 90% from 2021 highs. Can you provide some color on what it means for you and your company to be at an inflection point?

Robert LoCascio: Yeah. I mean, I've been through this a lot, and the company has had a different legs in his journey. We had that when we launched chat and made it through the dot-com. We launched messaging first time then added AI into it.

It's the same thing here. I did a big restructuring of the company to get us aligned to the biggest opportunity that we've been waiting for 28 years. The ability for machines to power these conversations at scale. So we did a lot of cleanup. We actually got rid of a bunch of revenue and businesses that we don't think are pertinent to what we need to do.

When this appeared, it was like, we got to be ready to go for it. I think we're in one of the best positions right now to win the enterprise AI space, because we've got over 3,000 customers, 500 are enterprises. We've got this amazing dataset. We've got the technology, we've got models, we already have trust to deliver this to our customers. I feel really strong about our position. There's like 10 of us in the world that are doing this, that are really bringing this technology to life and making money off of it. That's what's unique.

Ricky Mulvey: When you describe getting rid of some of those spin-off brands. I believe one of them is Casamba, which was AI, allowed people to connect with fortunetellers across the globe. You've said that now you're focusing on recurring revenues. Is there more to that than just getting rid of some of those consumer-facing spin-offs?

Robert LoCascio: Yeah. We call it a gain-share labor business, where we provide the contact center labor. We had business related to COVID and COVID testing and AI. There is some businesses during the COVID period that came in, that lasted and came off, and so those are the ones we moved out.

We sold the consumer business called Casamba. It's about experts doing chat. There's psychics, but there's also like tech support and all that. But it was very much a chat business, not an AI business. We looked at the portfolio and we said, "What can power AI?" That's what we doubled down on.

We want to basically also run our company profitably and generate cash off the core. That's also something that we're achieving now in Q2. The core business is now generating positive EBITDA. That's a very important thing for us.

Ricky Mulvey: A positive EBITDA, but your company has still had some issues finding profitability on an operating basis. The profit from your core business for investors really looking at that operating profit, without dates, we don't like not projections. But what's the story where LivePerson becomes profitable on an operating basis?

Robert LoCascio: Like I said, the core business is it's trying to generate cash. We have an AI healthcare business that's a 100% grower. It's a big grower. We're investing in that is taking down some of our ability to generate cash. But by year-end, all of that will be generating cash.

We feel good. Once again, we look at the core businesses is generating cash. We have an investment in a high-growth business which is called Wild Health, and then those combined by year-end will be generating cash.

Ricky Mulvey: I want to move on to some trends. I do have to address one elephant in the room, and I understand if you can't respond to it. An open letter recently came out from Peter Feld and Starboard Value. Looking at the 13-Fs, I believe this hedge fund has about a 9% stake in your company.

Robert LoCascio: They actually don't anymore. They sold it off.

Ricky Mulvey: They don't, they sold it.

Robert LoCascio: They have about a 3% now. They've been selling over the last few months, so they do not have a 9%.

Ricky Mulvey: I appreciate that color, because sometimes, things change between December 31 and May 10th.

But the value firm does have some issues with the company. It wants to introduce a new board, it wants you, frankly, out of the company you founded. It said,

While we expressed a strong belief that LivePerson needed a change of CEO, the board insisted that it was committed to Mr. LoCascio as if it felt that LivePerson was finally well-positioned for success after years of challenges. Moreover, the company's stockholder-unfriendly staggered board structure, prohibited us from pursuing a level of change that would have resulted in a change in a majority of the board.

It points out poor financial performance, troubling Glassdoor reviews, a loss of business focus. I'm going to stop there and just clear the floor if you have a response. I also understand that you may not be able to.

Robert LoCascio: First of all, we actually settled with them last year, strangely enough. Half the board is a new board members. We actually made changes. We restructured the company and got it to a place that I think most shareholders are pretty happy with. Stock's up today. We talked about the final restructuring, getting to profitability positive EBITDA.

This is what we did for 20 years. We ran a company generating cash, and we need to get there. I think we've done a lot of work that our shareholders want, and we've made a fair amount of change, and now we're just focused on growth. I think that's what it's all about being focused on growth.

Ricky Mulvey: Growth in where? In terms of gaining profitability, revenue, operating profit?

Robert LoCascio: We have a 75% gross margin. We have a good, strong business, and we have a positive EBITDA business, we'll generate cash as an overall business shortly. But it's about profitable growth.

If I could go back and change something during COVID, COVID grew our business tremendously like every contact center shut down, they needed automation. We're there with the product and the platform. We envisioned that. But we basically invested like it would continue going, because we were in the middle of it. It looked like that and it didn't, it came down as we all know. We needed to recalibrate, and we recalibrated quite quickly.

But for 20 years, we generated cash flow in the company and positive margins, and that's how we've been here for 20-something years. That's really the focus of the business. I don't want to break that rule again. I won't. It just doesn't make for a strong company. We got here and we'll continue forward with generating positive cash flow and EBITDA.

Ricky Mulvey: I want to move on to some fun and weird stuff if that's OK with you, Rob. One thing I've been looking into lately, I started reading this book by Michio Kaku, it's called Quantum Supremacy, and it's the idea that computers now are based on just ones and zeros, and there's a direct limit for what we can do in terms of artificial intelligence and conversations. Fact-checking, there's massive implications in terms of biology, energy, you name it.

I'm going to give LivePerson a working quantum computer.

Robert LoCascio: Oh, yeah.

Ricky Mulvey: What would you do with it?

Robert LoCascio: It's interesting, because if you think about GPUs, there's a limitation right now on what we can process with these models. I'm kind of in the same place you are. The energy and the bottleneck is a GPU and how it works. I do think that there's probably a different way to do it. It may be quantum computing. I know there's a lot of focus on it right now because it is a bottleneck for getting us to scale these systems on a really good cost basis.

Yeah, I guess if I have one, I would rework the model to be able to use a quantum computer to generate the outcome and the conversation. I don't know if anyone's trying to crack the code on that right now, they're just programming for GPUs.

Ricky Mulvey: No. IBM, [Alphabet's] Google. I think it's, while you have the software race with artificial intelligence, natural language processing, there's, I would say a quieter hardware race.

Robert LoCascio: Yeah.

Ricky Mulvey: To get to that quantum supremacy.

Robert LoCascio: Yeah. I'm in a venture capital fund, and they picked some kids out of Harvard, it was like two guys who were thinking of something different than a GPU to power this stuff. I agree. Human beings have a pretty good result in breaking out of the limitation, and I think this is the biggest limitation we have right now.

The other part is that, many years ago, when I started the company, there's three forms of input-output for a human, there's typing, which is the Internet represents that, text and typing. There's talking and speech, which we're seeing right now. And then there's thought, and thought is the fastest process to gaining access to information and processing.

When you think and you have to speak, that's pretty quick. When you have to type and think, that's slow. That's why we naturally like to talk to machines. It's easier for us. But the next place is obviously the idea that I could have a thought, and that thought can basically come back with a response.

When you think about thought, most thought is in a conversation, like we think in conversations. This, what we're doing now will be something for our future. I don't know if I'll ever see it in my life, although I know Elon Musk is working on it. I don't know if I'll ever see it in practice.

Ricky Mulvey: The Neuralink, almost a co-pilot for thinking.

Robert LoCascio: We have to have that. All this will be helping us be better at what we do. But I think that's where it's ultimately going to go.

Ricky Mulvey: Your company focuses on chatting within customer service in professional ways. There's another company that's private, but it does, I would say, some similar technology in terms of voice AI and chat AI for personal relationships. It's called Replica.

Basically, it started as a mental health application for people who were lonely during COVID, and they would introduce a partner for you to talk to. And then slowly, a lot of the relationships would become more flirtatious, and then the user would be able to essentially buy an artificial intelligence partner. It became more explicit in terms of romantically. And then people were feeling huge bonds, this was their girlfriend, their boyfriend.

Then there was a huge tech switch where Replica basically turned off the romantic functions. People were deeply depressed by this. People were lashing out, understandably. They changed the personality of something that they loved.

You're in this space. I wanted to get your take on the Replica story and maybe just the human relationships with AI and if there needs to be boundaries set.

Robert LoCascio: I've been thinking... The reason I feel like I'm here on Earth is to, and my purpose in life, at least on the product side, is to bring something like this to life. I think the machine has to be empathetic and loving and caring, and we have to trust it. I do think this is important.

One of the goals of the company is to develop a Her. You remember the movie Her?

Ricky Mulvey: Yeah. Joaquin Phoenix is in a movie, and there's a chatbot voiced by Scarlett Johansson, and Joaquin ends up falling deeply in love with the chatbot.

Robert LoCascio: That's correct. Well, in the end, it's like she's also everyone else's lover.

Ricky Mulvey: Yeah.

Robert LoCascio: She is, so not so good. But I think in the end, the consumers have to own their own AIs. We have to own an AI that's ours, that's not given to us from a company. It may be like it is given to us, but it's ours, the data's ours, we train it, we have control over it, we name it. I think ultimately, that's where we need to go in the world. That's my vision.

Ricky Mulvey: This AI that you would own on a build-out division for that, that's someone that could be maybe you would say a romantic partner, professional assistant, a friend. What is the purpose of having that, I'll say for lack of a better term, spirit animal?

Robert LoCascio: Exactly. That's really what is important, is that spirit animal. I call it your pet, like your pet dog, something you love and cares you. Then I think the brands have to have their own AIs. I think these AIs connect. We look at as, we call it the digital twin, is that ultimately, the brands have a digital twin of you as a representation of how you engage with their brand. When your digital twin shows up, it can connect with theirs, and they will get things done for you.

That's where I think this all goes. Brand has their connective twin, you have yours, and they are an arbiter, they communicate with each other and they get things done for you.

Ricky Mulvey: Literally having trouble envisioning this. What is a task or something that a branded might digital twin, which I'm still—?

Robert LoCascio: With my healthcare company. I just had a filling replaced, and they said it was an unnecessary thing and my filling fell out, and it's 500 bucks, and they don't want to pay it, and I haven't had the time to even bother with it. I know what's the pain of calling this company.

My digital twin, I suppose say like, here's the stuff that I'll give you to prove the point that this was necessary, and go take care of it for me. And that would take place. Because a lot of the big companies like healthcare, banking, telco, we all have this in our life, and these, they have the large contact centers and a lot of complexity to how to manage with them.

The ability to do that easily and have my digital twin communicate with the digital twin at their company and get that done for me, that's really the key. That's really the creative I see in life.

Ricky Mulvey: I think that sounds great. I think the difficult thing, though, is to make you.

Robert LoCascio: We're trying to bring that to life in our company.

Ricky Mulvey: Trying to bring it to life. I think the thing that is difficult is almost making sure the digital twin stays as a pet and not almost the person becomes subservient to the digital twin. I don't know how you would build that boundary in place, but that seems, in addition to creating an immortal digital version of yourself, that would seem to be two difficult obstacles.

Robert LoCascio: Well, I just synthesized my voice. It took about 300 training phrases to do it. Then I'm loading in all my knowledge, like all the written word, and there's a lot out there, that I've done in my life, like these interviews. I'm loading it in. Loaded my Wikipedia page, and it's on our platform, because you can load in all your data on our platform, even Wikipedia stuff, and now you can talk to it, and you can ask questions.

In reality, when I'm not here anymore and my kids want to talk to me or maybe my kids' kids' kids, they can talk to their great-great-grandfather. Something's interesting about that. That's what I'm trying to achieve. I think this creates not immortality, but some form of, you've left yourself behind in a...

Ricky Mulvey: A digital form.

Robert LoCascio: In a digital form that's real. Like, my mom's still alive, she's 83, and I want to do this with her. She will not be here one day, but it'd be great if my kids can say, "Grandma, can you read me a bedtime story?" and that's possible. It's exciting.

Ricky Mulvey: We're not far away from it.

Robert LoCascio: No.

Ricky Mulvey: I don't know if I'm delighted or terrified, Rob.

Robert LoCascio: Well, the terrified part is if somebody tries to replicate you and use it in nefarious ways. If I take the video off, and it's not me talking. This can be pretty bad security-wise. I think there's this whole other part that has to get solved. But we're close now to doing things like this.

Ricky Mulvey: What it means if a brand really knows my digital twin and maybe some marketing tactics and privacy restrictions. I think that's huge.

Robert LoCascio: That's correct. Yeah.

Ricky Mulvey: I want to dive into... I was presented with three industries where generative AI is going to be a game changer maybe in the more near future. We already talked healthcare. Retail and travel -- those are two where I'm a little less clear on the implications of generative AI. You pick one, and then we'll dive into it.

Robert LoCascio: Retail is an interesting one. We showed a demo when we just kicked off our new generative AI approximate. You call in, and you're talking to this AI, and you're asking for question like, our example said, "I want to get my mom a gift and she's 80 years old" or whatever, and it says, "Oh, I recommend these gifts" like, "Oh yeah, she loves jewelry."

Then we went down and down into that tree and then said, "I think she likes pearls." Then we said, "Send us a picture," and it sends you a picture right to your phone. You're looking at on your phone, the picture of it. You're like, "Oh, that looks cool. Can you give me something that's between this price range?"

That was all done really easily, and it's all real. This is not fake stuff. This is what our platform can do. And then you can say, "Buy it. I'd like to buy it."

On the retail side, it's going to allow for, I think, a different level of discovery. Because right now, it's like web, and webs are searching in categories and stuff, but you make up the categories, like you just say, "My mom 80 years old lives in New York. Help me," and it can go well based on that.

The other thing we did is, I'll tell you, we did not things that we downloaded my WhatsApp messages with my wife, and we tested, "I want to get my wife a gift. I'm traveling." And said, "Oh, your wife loves horses. I've got some ideas." Great. Then I was in London, I was like, "Where can I buy those?"

It's really interesting if you can let the AI get in the middle of those conversations, it can think of things that you may not even think of. I think that's pretty interesting.

Ricky Mulvey: In retail, it fits in as a personal shopper?

Robert LoCascio: As a personal shopper and discovery. I think the discovery elements are so much more detailed. If you look at Google today and you put in, go in there and put in "I want to buy a gift for my 82-year-old mother." It's going to give me all these BS websites like gifts for mom. You then, you're going to get dropped on some other retail site.

But what's great about is it went from flowers, yoga mats, and jewelry, it picked these very disparate things. But for that age group, it was right on. Then I was like, OK, cool. Then I said jewelry and it's like, what does she like? She likes pearls. And we went down that road. And then we've got pricing. It's really hard to do that with the AI's previous to generative, and it's hard to do that on search and stuff like that.

Ricky Mulvey: Well, is the reason is tough to search because you're filtering through ads?

Robert LoCascio: Yeah.

Ricky Mulvey: But to me, there's no reason that you couldn't introduce ads into the AI platform. If you're a brand and if you have Rob's digital twin, "Hey, I'm out here selling shoes. Let me present this to Rob at the right place and the right time."

Robert LoCascio: We know Google announced today that they want to put generative AI into their search. Microsoft is doing it with Bing. I think ultimately, discovery is going to be very different. Then once it understands the digital twin, and once again, I put in information now in my conversations with my wife, I'm putting in these very personal conversations so you can figure it out. It figured it out. I wouldn't give that to Google. I definitely wouldn't hand that to Google, that information. How do I get this localized with my digital twin?

Ricky Mulvey: I want to talk about one of the weird angles with AI that has my attention. I know that we talked about this a little bit in the pre-interview, and I think you have an opinion on it.

But one with natural language processing that I don't think is getting enough attention is interspecies communication. I think this is going to be the equivalent of the atomic bomb or the Internet if/when it happens. A lot of what's being discovered was already known by indigenous peoples. This is a lot of renewed discovery.

But now, because of these language processing programs, we know how animals talk in much greater detail. We know that bat speaking mother-ese to the young. They change their pitch when they're talking to a little bat, and the bats distinguish between genders. This was known a while ago, but the bees can wiggle and show other bees exactly where to pollinate. Then you can have robotic bees come into a hive and then show them pollination sites.

But it can get much darker. You can imagine a fishing boat saying, "Hey, school of tuna, get over here." It's used for precision hunting.

Your thoughts on this unlock? Am I overstating it?

Robert LoCascio: It really isn't something I've been thinking about. I know you brought it up at the beginning, but I do think it's quite clever. The translation between beings and how we translate, obviously, will have a key part because there's a lot of good and bad that can happen with that.

I thought when you brought it up, it's quite fascinating. If we could truly understand, and I guess in some cases we do the language of another species. I don't know what will happen.

It will always start with pets. The pet market is so frothy. It's going to start with, can we communicate with our pets better and let them understand us better? It's pretty cool if you could get your dog to understand what you're feeling and what you need it to do. I think it's probably a pet market thing, because that has billions of dollars in it. That's how usually commercial things drive things.

Ricky Mulvey: I was talking to longtime Fool Mac Greer about this, and the thing is, I don't think you want to know what your pets think.

Robert LoCascio: No.

Ricky Mulvey: It is probably not as cheery as you'd like it to believe.

Robert LoCascio: No. You know the old joke, aliens is looking on Earth and they see humans walking dogs and picking up their poop and they're like, "Wow, look at these species. They have these people who pick up the poop. They must be really advanced." It's like maybe the dogs run the show.

Mary Long: As always, people on the program may have an interests in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy stocks based solely on what you hear.

I'm Mary Long. Thanks for listening. We'll see you tomorrow.