Facebook is slowly moving its employees into a new campus in Menlo Park, California that formerly housed Sun Microsystems. And already, the kids can’t seem to keep from writing whatever they want on the walls. Some of the partitions in the new office space have been punched out to create roomier spaces, but others have been covered with blackboard paint on which employees can doodle idly. READ MORE
It occurred to me the other day that, with all the Googling I do, I’ve never Googled “Google.” Hardly anyone else has either, apparently; I Googled “Googled Google,” which seemed like one way to check, and came back with 404 hits–barely a blip in the Googlesphere. The word Google itself returns 217 million hits on Google, well over four times as many as for dog, and more than twice as many as for bush, which presumably includes references to both the presidential and the leafy variety. It’s hardly news that Googling has become a near-ubiquitous phenomenon. But I think Google and the world of search engines is coming to have an even more profound impact on the business world than most managers realize, and in two ways. First, the ability to hunt down information on the Web isn’t merely a great convenience anymore–it’s becoming a critical success factor. What’s more, companies can now be so freely examined by the world at large that they’re going to need to adapt themselves to the scrutiny. Let’s consider that scrutiny. When it comes to thinking about how a company fares in a Google search, most of our attention goes to the “search-engine optimization” game–the unending race to get a website to show up high in the search results. But that attention is misplaced. In our ever more Google-savvy world, what really matters isn’t how your website fares in a keyword search, but the sum total of all the information that turns up whenever someone Googles you–much of it information over which you have no control. Whether you like it or not, in Google World, almost all companies are becoming transparent. Hand-held-device maker Palm, for example, is highly secretive about upcoming versions of its popular Treo smart phones, deploying near-KGB-quality subterfuges to protect the new designs. But last year, Treo users trolling the Web pieced together enough information to figure out that Palm had registered domain names for as of yet unannounced products called the Treo 670 and Treo 700. How’d they do it? The company had apparently used a Boston University professor as a front for the registrations, but the Web trawlers discovered the prof was a Palm consultant. Search “Treo 670,” and you’ll find other leaked tidbits, such as the fact that the 670 will be the first Palm product to be powered by Windows software. Apple Computer, for its part, can’t seem to keep anything a secret from Web rumormongers, despite CEO Steve Jobs’s well-known mania for nondisclosure. An explosion of blogs and third-party product and service review sites makes things even harder. Such sites already are making pricing information a matter of public record. Research Organics, a Cleveland biochemicals manufacturer, for example, would prefer to impress would-be customers with its array of products before discussing price. But that strategy often is not possible, says CEO Rob Sternfeld. That’s because a number of chemical-industry-oriented websites now post Research Organics’ product prices and specs, along with those of competitors. “You see side-by-side comparisons of chemicals at a lot of sites now,” says Sternfeld. “Some sites are like chemical eBays.” How do you adapt to the new transparency in Google World? For starters, see what’s out there. You’ve no doubt Googled your own company and products. But have you really taken the time to pore over all of the results? Even if you have, you better do it again, and keep doing it at least once a week for the rest of time, to see what’s slipped in. The hit that dings you may seem obscure, but thanks to Google there are customers, partners, investors, and regulators who will find it. “You have to be aware that a lot of people are looking at what’s out there on you,” says Kermit Patton, of SRI Consulting Business Intelligence in Menlo Park, Calif. Patton notes that some companies set up automated searches that will alert them to any new Web mentions of companies they do business with. “That’s one reason some organizations set up damage-control operations to deal with negative hits,” Patton says. The new transparency is even more motivation–as if there weren’t plenty already–to play fair and square, be friendly, and sell something you’re proud of. To my eye, the biggest single source of negative comments about companies on the Web is nonresponsiveness to customer questions and complaints. The occasional beef is unavoidable, of course, but settling disputes fast, whatever their merits, is the best way to avoid bad feedback–as any successful eBay seller can tell you. If you wait until the venom hits the Web, there’s almost nothing you can do, given the speed and unpredictability with which information travels in cyberspace. Of course, you can always come at your detractors head-on. You can jump into third-party review sites to strike back at your critics. Delta Air Lines, Microsoft, and the popular social networking site Friendster have all fired employees who ran blogs the companies found objectionable. And Apple Computer has sued Web posters who traffic in information about unreleased products. My reviews: bad idea, bad idea, and bad idea. Few people value free speech more than Web users, who disdain attempts to intimidate information sharers and are not afraid to fight back. A better approach is to try to drown out the negativity by making sure there’s at least as much good, or at least neutral, stuff out there. The people and companies you do business with are becoming transparent too–and you can take advantage of it. The other side of the coin, of course, is that the people and companies you do business with are becoming transparent too–and you can take advantage of it. The information needed to understand customers, build partnerships, develop better products, and keep an eye on competitors is mostly sitting there on the Web. That means businesses need to give real thought to making sure they’ve got the right people spending enough time looking for the right kind of information and that there’s a mechanism for getting this intelligence into decision-making loops. Googling has become so strategic, in fact, that many companies farm it out to experts. SRI Consulting’s Patton runs a service called Scan that provides clients with business insights its experts distill largely from data freely available on the Web. Patton declined to discuss how much this sort of thing costs. But a quick Google search turned up a website on which a company claims Scan quoted it a price of $50,000 for the service. (Patton says the figure is at the high end of Scan’s price range.) Research Organics’ Sternfeld knows a thing or two about the value of Googling. Managers there all spend time digging through the Web for mentions of experimental drugs that might contain the kinds of biochemicals the company makes. Then they search for research papers linked to the drugs–at which point they offer to supply the researchers who wrote the papers with the chemicals at a great price. “If they start using us when they’re in development, they’ll bring us along when they go to production,” says Sternfeld. “We go from grams to thousands of kilos.” The firm has also searched out companies selling compounds in violation of its patents, and in one case has already negotiated a substantial royalty agreement. If transparency seems to be the order of the day now, just wait: According to some estimates, Google and other search engines can access only about one-quarter of all the webpages out there, because the rest are password-protected or otherwise not easily accessible. But that’s unlikely to be the case for the next generation of search engines. Who knows? Maybe it’ll give all those dogs and bushes a chance to even the score with Google. David H. Freedman, a Boston-based writer and Inc. contributing editor, is the author of several books about business and technology. Email him at whatsnext@inc.com.
I don’t envy science-fiction writers. After all, it’s getting pretty hard to stay ahead of the curve these days. Take The Golden Age, the acclaimed novel by John C. Wright. Published in 2002, the novel describes a future 10,000 years away in which people are shadowed at all times by a computer assistant ever ready to deliver dazzling tableaux of information and entertainment, as well as crystal-clear, three-dimensional visual connections to others. As it turns out, we may not have to wait 10 millennia to see Wright’s vision come to life. Three years should do it. When it comes to telecommunications, it’s hard not to feel as if we’re catching up with our own imaginations. Broadband Internet access hurls multimegabyte files at us in seconds, hand-held devices give us our e-mail on the run, Wi-Fi hot spots put us into the office network while enjoying lattes at Starbucks — mobile phones can even determine our exact location and relay it to the police in an emergency. But the networked present is about to look as out of date as a 200-pound Pong console would to a PlayStation Portable-packing teenager. A host of new technologies is on the verge of creating a new, even faster-moving “always on” business culture, in which anyone anywhere can reach out and touch almost anyone or anything else — and not just in text, snapshots, or murky video. At first ding, this might sound like your worst nightmare, especially if you already grumble about our BlackBerry culture. In reality, though, the next wave of electronic connectivity may feel less invasive, and a lot more human, than the current one — especially to the employees, suppliers, and customers of companies that master it. What will that brave new world of telecommunications look like? My guess is it will look a lot like this: 10 a.m. You’re at the airport waiting to board when you get a video call on your mobile phone from a major customer in Europe. You can tell from a twitch of his lips and his finger-tapping that he’s losing patience with the project delays. Your relaxed smile reassures him some, but not as much as the video clips you zap him of the completed mockup that came in from the subcontractors in Bangalore two hours ago. Such a scene is closer than you think. “The quality of PC videoconferencing is becoming amazing,” says Malachy Moynihan, a vice president at Linksys, in Irvine, Calif. New technology already developed by Apple and others relays about 250 times more data than you get with conventional video connections. And such transmissions will look great on the next generation of high-resolution mobile smart phones, thanks to new mobile networks already coming online that send data up to 500 times faster than conventional mobile connections, making even cable modems seem logy. 11:30 a.m. During the flight, you connect your notebook, via the aircraft’s local area network, to the screens of engineers in Minneapolis and Copenhagen, and the three of you collaboratively tweak three-dimensional blueprints of a complex new design. As you move your mouse to suggest a change, a supercomputer 2,500 miles away adjusts the design on everyone’s screen. Later, you review some freshly updated reports and video clips sent by employees and subcontractors scattered around the planet, all of which were blasted wirelessly onto your laptop just before you stepped on the plane. In fact, high-end computing vendor Silicon Graphics in Mountain View, Calif., already sells software that allows a PC user to manipulate ultracomplex images via remote supercomputer. Meanwhile, “infostations” at airports, gas stations, and other hot spots will soon use super-high-speed short-range signals to blast huge files onto passing notebook PCs and mobile devices. As for broadband networks on planes, Lufthansa has offered them for more than a year, and other airlines, including Japan Air and Scandinavian Airlines, are following suit. 2:15 p.m. You land and head over to a branch office, where you take a meeting with other top managers. Because your mobile phone now runs on a supersmart network, the device recognizes your location and knows from prior experience that you rarely take calls when you’re in this particular conference room. It knows not to interrupt you now, instead taking video messages or routing calls to others in the company. But suddenly your phone does chime — it’s a major customer in South America, someone worth interrupting a meeting for. The smart, always-on infrastructure will provide people with unprecedented control over who will be able to reach them and in what circumstances, according to Alain Briancon, chief technology officer at InterDigital, a wireless technology and applications developer in King of Prussia, Pa. Within the next five years, telecommunications networks will be able to recognize patterns in your phone use, understanding which calls you always accept and which are screened — taking into account time of day, location, and even, by noting the location of their phones, who you’re with. 5:20 p.m. In a taxi on the way back to the airport, you replenish your phone’s fuel cell with a razor-blade-size cartridge and reach your son on the school bus to ask him how the game went. Not so well, he says, beaming you a video clip taken by a teammate’s mom that clearly shows the referee wrongly calling him out of bounds on a key play. After commiserating, you call your daughter. She points her mobile phone at the math homework she’s stuck on, and you help her spot the mistake in her work. You reach your wife driving back from work; she suggests you tap into the local news back home, which is just now showing a news clip of the damage from a fire across town. Video-quality mobile phone access will become so inexpensive that you’ll probably want to give it to all your family and employees. Not only that, you won’t need separate wire phone or broadband services — you’ll do it all through a mobile network, for maybe $80 a month combined. “You’ll be able to stop thinking about what it costs to make a call or send a message,” says Michael Gold, senior research engineer at SRI Consulting Business Intelligence in Menlo Park, Calif. As for fuel-cell-powered phones, disposable fuel cells are about to hit the market as a replacement for phone batteries; refillables are a year or so off, and thumbnail-size micro-jet-engine power generators now under development at MIT and elsewhere are about five years off. 7:00 p.m. Back at the airport, your flight delayed, too tired to work, you download a movie that isn’t in theaters yet — it’s been released on the network first. The picture quality, however, is better than that in your local movie theater, which, unlike your phone, has not yet been upgraded to high definition and surround sound. Your network holds all but urgent or family calls and messages while you enjoy the show. Entertainment already dominates data usage on phones, and phone fun is only going to get bigger with rich broadband access as users fill their downtime with multimedia sports clips, 3-D games, and, of course, music. Some new music already is going straight to mobile phones. Robbie Williams’s greatest hits collection, for example, was released on memory card in December in the United Kingdom. Music videos are starting to do the same. The new, more intense, more discriminating level of interaction coming to a pocket near you may well prove so compelling that some businesses will want to restructure themselves around it. There will be a lot of ways to do it: Create closer collaborations between more geographically scattered employees and partners; develop deeper and more frequent connections with customers via always-on video selling, training, and service; even sell services delivered by mobile broadband networks. “The number of applications is going to explode,” says Sanjay Mehta, marketing director for Portal Software in Cupertino, Calif. Sci-fi author Wright needn’t fret about all this stunning progress robbing The Golden Age of its futuristic punch — he was smart enough to work in some interstellar travel. Now, there’s a technology that will safely lag our imaginations for decades, if not millennia. But here’s a bet: By the time we do make it to the stars, our phones will work there. David H. Freedman, a Boston-based writer and Inc. contributing editor, is the author of several books about business and technology.
Tomorrow’s Entrepreneur The dot-coms crashed, the Nasdaq is dipping — but new trends and companies are rising from the ashes anyway. After all, the Internet is still with us, and the Web is one of the more revolutionary technologies in recent memory. But what will the near-term future look like? Here are some perspectives from an investor, an analyst, and a start-up entrepreneur. The venture capitalist Institutional and individual investors alike have experienced the flu-like symptoms (nausea, cold sweats) brought on by watching their favorite tech stocks take a dive. But E. Floyd Kvamme, a partner at venture-capital firm Kleiner Perkins Caufield & Byers, in Menlo Park, Calif., and cochairman of President Bush’s advisory committee on science and technology, says to relax: the Internet is just getting started. “One of the next hot areas will be the Internet infrastructure area,” he says. “Usage of the Net is still continuing to increase in terms of people coming online….Plus, lots of areas of the world don’t have Internet infrastructure yet, so you can bring it to the rest of the world.” The pundit “Anytime anybody says there’s going to be a next big thing, it’s usually going to be one of several” big things, says John Jordan, a principal at the Cap Gemini Ernst & Young Center for Business Innovation, in Cambridge, Mass., and an expert on trends in business and information technology. Here’s Jordan’s list of the next big things in the Internet space: Dot-com tango. Dot-coms want to be acquired, but big companies have something else in mind. “A lot of dot-coms right now are hoping to be bought, and big companies are saying, ‘We don’t have to buy you. We can partner with you and give you a revenue stream, but we don’t want to deal with the fact that your stock price is a dollar,” says Jordan. “People who would have sneered at the idea of being bought by a big company a year and a half ago are now begging to be bought.” Bundling up. Companies will try to bundle their services with those of others. Jordan says, “There will be new kinds of partnerships as people realize (a) we don’t have the money to buy each other and (b) this may not be an eternal opportunity. They can [come together to] realize an opportunity and then part ways. This is a huge opportunity for small companies to find niches in which they can work with larger companies.” Customers in charge. Customers will continue to increase their market power. “People have power through their recommendations and word of mouth. It’s very easy for them to avoid companies that they want to avoid,” says Jordan. No more IPOs. Entrepreneurs will shun Wall Street. “Companies are exploring ways to get capital without going to the public markets, because they realize now that if you have one bad quarter, your stock tanks,” explains Jordan. “With the insane valuations we’ve seen in 1999 and 2000, the only place you can go is down.” Going back to the future. Long-term planning will be back in style. Jordan says, “We’ll see a return to ‘I’m building the company for the next five years’ instead of ‘I’m building the company for the next five months.’ The Amazonian customer-acquisition curve is an aberration, and for people to expect that is just lunacy.” The entrepreneur As Furniture.com discovered, people hesitate to buy big-ticket items like furniture online. But what about small-ticket items — really small-ticket items — that cost less than $10? Neil Evans is betting that they are one path toward the Web of the future. Now the president of WebCredit Inc., a Boston-based company that processes microtrans- actions, Evans used to be in the entertainment industry. He came up with the idea for WebCredit when thinking about old nickelodeon movie theaters. He figured if people were willing to pay small amounts of money for entertainment, they would probably dole out $1 or $2 on the Internet for a recipe, an article about hotels in the Caribbean, or perhaps a song or a film clip. Right now few businesses provide merchant accounts for such tiny transactions. That’s where companies like WebCredit and Seattle-based Qpass Inc. come in. Both provide payment services for small and large companies alike; for example, Qpass facilitates the purchase of articles from the New York Times Web site. All those little purchases add up; in a report last December, Jupiter Research estimated the 2001 market for paid online content (such as articles, games, and music downloads) at $1.1 billion. The company predicts the market will reach $5.7 billion in 2005. The 2001 State of Small Business issue Please e-mail your comments to editors@inc.com.
Convergence New technologies stand to make Internet video as useful and ubiquitous as the telephone. How will it work for your company? You’ve heard it all before, and not that long ago. Teleconferencing was supposed to drive airlines into the ground. Telecommuting was going to make office complexes obsolete, and we were all going to work in our bathrobes. Television was going to converge with the Internet and the computer to form one big box. It’s easy to mistake the progress of the present day for the revolution of the near future. In 1993, Time magazine wrote, “Suddenly the brave new world of video phones and smart TVs that futurists have been predicting for decades is not years away, but months.” And that was not the first time such a promise had been made. Gad Liwerant, president and CEO of VideoShare, a provider of Internet video services in Watertown, Mass., says, “More than 35 years ago the big telecom carriers were always saying the phone was going to come with a screen, but it never really took off.” Well, this time it’s different. Really. This time there’s not just one silver-bullet technology that will supposedly revolutionize the ways in which we do business but rather a convergence of technologies that are all advancing at once. And they will all help deliver cheap, convenient high-quality video over the Internet. “Video’s going to be integrated into everything from your PC and your TV to your cell phone or PDA,” says Neal Manowitz, vice-president of marketing and business development for Vingage, a Reston, Va., company that creates server software for online video delivery. “If you launched a Web page today, you’d be shocked if there wasn’t a picture on that page. Five years from now, you’ll be surprised if you don’t see video. It would be like turning on the TV today and seeing a still image.” Sounds like the grandiose pronouncements of the past, no? But here’s what’s different now: advances in the software used to compress and deliver video, combined with increased computing power and the spread of high-bandwidth delivery services, are fostering the creation of new Internet video technologies. Providers are already creating wild new consumer services. Sony’s ImageStation.com, for instance, allows users to archive and share home movies online. And on the way are new tools that will offer even small businesses the capability of using live and recorded video for everything from Web brochures to training to customer service. Of course, we heard the same kind of promises about the picture phone. And a video clip, or even a two-way live videoconference, will never replace a face-to-face schmooze with your best customer or lead investor. “People have been dreaming about video as a travel substitute since the oil crisis,” says Paul Saffo of the Institute for the Future, in Menlo Park, Calif. “It’s a myth. The more we communicate electronically, the more we go to face-to-face meetings.” So the new promise of video is not the replacement of air travel or television or telephones as we know them. It’s about technologies that are satisfying, cheap, and easy to use, and that don’t require special equipment. You can see the difference already with devices like Web cameras. “Even a few years ago, you had to open your machine, install software, and then set up the camera,” says VideoShare’s Liwerant. “Now all you have to do is plug the camera into a USB port.” In the same way, Internet video is finally getting good. “Video technologies are going to provide a revenue-generating opportunity that never existed before. It’s an entirely new channel,” says James Canton, president of the Institute for Global Futures, a high-tech think tank based in San Francisco. Canton’s research predicts that E-commerce sites with live video will generate more sales than competitors without such features will be able to do. Right now, says Canton, 75% to 80% of people who are looking to make a purchase online fail to do so, largely because they get confused. “There’s no one there to help them,” Canton says, adding that video — either a product demo or a live, two-way help center — could conceivably provide that assistance. “Small businesses should be adopting this stuff faster. It will give them a chance to establish brand awareness, whereas big companies aren’t going to change so fast.” Taking that step shouldn’t be too scary, says Dominic Milano, editor-in-chief of DV (digital video) magazine, in San Francisco. “There’s no real barrier to entry anymore. The tools are more powerful, and they’re really cheap. It really all came to a head at some point in the middle of last year. It’s like somebody threw all the pieces in a big stew pot, and it started to congeal.” The new promise of video is not the replacement of air travel or television or telephones as we know them. It’s about technologies that are satisfying, cheap, and easy to use. One of the advancing technologies bringing better video to the Net is compression software. Here’s how it works: A piece of software reviews a video file, effectively “deciding” which parts of the picture don’t have to be duplicated for every frame. Think of the passionate beach scene in From Here to Eternity, in which Deborah Kerr and Burt Lancaster are all over each other on the sand as the surf encroaches. A compression algorithm would review that scene and see that the sand and the sky are pretty much static. Only the wriggling actors and wild waves would need to be updated in every frame. That cuts down the size of the file. Once the file is compressed, it’s translated into file formats (such as those developed by RealNetworks, Microsoft, and Apple) and delivered to viewers through streaming-video service providers (such as Yahoo Broadcast, I-Beam Broadcasting, Activate, or Digital Island). Competition among such developers and providers has kept up pressure to make delivery more efficient. RealNetworks now uses an Intel compression system called SureStream, which functions like the advance team for a presidential candidate. When a user clicks on a video file, SureStream shoots out ahead to detect the speed at which he or she is connecting to the Internet. Then it matches the downloading speed to the user’s connection. That way, even users with slow-modem Internet connections will be able to watch the clip, although not with the same quality enjoyed by someone with a broadband connection. Improvements in compression and delivery of video files have boosted traffic on the Internet to the point where it often threatens to overwhelm the Net’s capacity. So there is a third technology in play that will help expand access to high-quality Web video: improvements in the capacity of the Internet itself. “The Internet became its own worst enemy,” says Sanjay Srivastava, vice-president of enterprise services for Akamai Technologies, a kind of Internet traffic cop headquartered in Cambridge, Mass. Akamai helps manage traffic on the Internet through hundreds of networks it has installed in countries all over the world, which it operates from a room that looks like the NORAD command center, with giant screens displaying maps of the continents. You can store multiple, or redundant, copies of Web pages — including video — on Akamai’s servers. So if your company is in Indiana and you want to stream your financial presentation to investors in New York City, you can hook it up to a server in Manhattan, rather than one in Muncie, to send it more efficiently. “We’re a visual species. You can go back and find cave drawings from thousands of years ago” to prove it, says James Canton, president of high-tech think tank Institute for Global Futures. A fourth frontier that technology has now crossed enables users to receive fat video files, thanks to the increased power of personal computing and the spread of broadband delivery. According to senior analyst Jeremy Schwartz of Forrester Research in Cambridge, Mass., about 5 million homes will have broadband Internet access at the end of this year, with a critical mass of 19 million households wired up by 2002. So where are the great new business tools? They’re coming, and very soon. Already, developers are providing new products that make video more flexible. For example, there’s Krishna Pendyala, who six years ago was assistant director of a National Science Foundation project at Carnegie Mellon University that focused on making video a more meaningful communication tool. “Text can communicate only 7% of a message,” Pendyala says. “The rest is body language, the audio, the visual content.” Or as futurist James Canton says, “We’re a visual species. You can go back and find cave drawings from thousands of years ago” to prove it. Pendyala and his fellow researchers tried using technology to map out important messages on video, including software that could “recognize” speech and language patterns as well as images. Essentially, they were indexing video electronically, a task traditionally carried out manually by a lot of employees fortified with cases of Pepsi. By 1997, Pendyala and his team had founded MediaSite in Pittsburgh, and last year they launched an Internet-video search engine. That Carnegie Mellon project has spawned a technology that will surely be a boon for companies with archived video, and it’s ready now. Businesses that are already using it include a health-information Web site and a conference producer. Companies are also already using Internet video to communicate with customers and investors. CUseeMe Networks, headquartered in Nashua, N.H., has launched two-way videoconferencing on the Web at www.cuseemeworld.com. The service is free, except for the $99 Web cam you need to beam your gorgeous mug out over the Internet. “Teleconferencing was a niche market with a few hundred thousand units worldwide running on ISDN lines,” recalls CEO Killko Caballero. “The proprietary equipment cost $100,000. Early-stage PCs couldn’t handle video.” Today, Caballero says, the company makes money by hosting the back end of other companies’ face-to-face Web call centers. Novell and Ericsson recently launched a video instant-messaging service with CUseeMe’s technology. Liwerant’s VideoShare offers video E-mail as well. Most of the business tools being forecasted for the new age of Web video, however, have yet to be invented. Not until Internet video is truly ubiquitous will all the possibilities become apparent. “Streaming is one of the first truly converged voice, video, and data applications on the Web,” says Alex Benik, an analyst at the Yankee Group in Boston. “It’s the forerunner of truly futuristic next-generation applications that will run on IP-based networks.” Applications now in development include “hotspotting,” a kind of video version of Amazon’s “1-Click.” Hotspotting would allow you to, say, watch a clip of an Olympic snowboarder and click on his board. That would process an E-commerce transaction. Two days later a snowboard would appear at your door and a charge would show up on your Visa bill. Some new tools may be built from current technologies. For example, there’s Princeton Video Image’s virtual advertising technology, which is used at sporting events to superimpose digital images on stadium walls. The company says the same effect could be created using Internet video. And MediaSite introduced a video-skimming product at the end of last year. Video skimming uses speech- and language-comprehension software to find key themes of a video presentation and take out all the “Thank you very much for coming” stuff. The resulting thumbnail videos are as much as 90% shorter than the originals, so they save time and bandwidth. Progress on another tech frontier — wireless — will help make video easier to use. Japan is leading the way on this one, but industry watchers predict it will be only a year to 18 months before the United States sees streaming video on a handheld personal digital assistant or a Web-enabled phone with an improved display screen, no cables necessary. “Right now you can access the Internet and get some content delivered to your cell phone,” says Vingage’s Manowitz. “Imagine how much more powerful it will be when that content is video.” In video, content is the killer app. And the first companies to explore the new uses of Web video are, so far, content producers and providers like E Screening Room. Founder Ward Bouwman spent a year in E-mail conversation with RealNetworks engineers before deciding that the time was right to launch his documentary-film E-commerce site. Bouwman, a former Discovery Channel documentary associate producer, says technology has caught up to his business concept: using the Internet to eliminate the middlemen who take big cuts from a film’s profits. “It’s hard for documentaries to find the right target audience because the audience is not geographically oriented. They’re communities of interest. That’s why the Internet is an ideal medium,” Bouwman says. “So I’ve been watching the technology, building the Web site, and testing it. For us, the video is of good-enough quality right now.” But for most business users, the issue isn’t so much quality as it is utility. “The next step is, How do you take all this streaming capability and tie it in to your back end — your employee-learning management and your customer- relationship-management database?” says Akamai’s Srivastava. “When you do a live video presentation online and Joe Blow customer asks a question, you want to know that Joe buys $40,000 worth of stuff a month or that he hasn’t bought anything in three months. You can respond to his question a lot more intelligently.” Video can be tied in to just about any business function. Training is an obvious application. But there are industry-specific applications as well. In manufacturing, for example, you’ll be able to diagnose and repair machinery from a remote location. “We should stop looking at video as something discrete or separate from the rest of the world. It’s like telephony,” says Christine Perey, a video-technology consultant based in Placerville, Calif. “It’s part of HR, part of supply-chain management, part of financial planning with your retirement consultant. It’s embedded. It doesn’t have to be considered the primary application. The primary application is, What do you want to do today?” “Right now you can access the Internet and get some content delivered to your cell phone,” says Neal Manowitz, vice president of marketing for Vingage, which creates server software for online video delivery. “Imagine how much more powerful it will be when that content is video.” Skeptics will — and should — wonder whether any of this will happen, and if it does, what it all will mean. According to Perey, even if you removed all the technological barriers, there would still be the human factor. “Do you remember how uncomfortable we used to feel leaving voice mail and how awkward it was to receive it? Today getting a live person is the exception to the rule,” she says. “It’s the same with video. We need to get to a level of user familiarity, user comfort. Then not only will people not be afraid of it, but it will be one more step in lowering the perceived difference between small and large businesses, just as the Internet has lowered the access barrier of small businesses to global audiences.” Another detail that will have to be worked out before video reaches the no-brainer status of the telephone: billing. How will all the new streaming-media providers charge customers for their services? “Pricing is an extremely deep black hole,” says Perey. “Think about how a cell phone works,” says MediaSite’s Pendyala. “When you’re on a call, the signal jumps from one tower to another, each one owned by somebody else. Imagine if you got 150 bills a month from all those tower owners. I guarantee I would not use a cell phone. There needs to be a whole industry cooperating for video. It has to be easy to buy, easy to install, and easy to use.” Perey predicts, “The most successful model in the future is going to be a blend of a subscription model and a premium fee for services as you go.” It’s likely that the greatest benefits of video are things we haven’t even thought of yet. “The next-generation Internet will become more secure and faster, but ultimately it will become more intelligent as well. Video enablement is just a part of that,” says futurist James Canton. Jill Hecht Maxwell is a reporter at Inc. Technology. Please e-mail your comments to editors@inc.com.
Inc.ubator Entrepreneurs are rediscovering the digital book. This time their start-ups might fly Ahem. A reading from Stephen King’s The Girl Who Loved Tom Gordon: “The water was not quite up to her knees. The stuff her feet were sinking into felt like cold, lumpy jelly. …” Contemplate the absurdity of reading a chunky Stephen King novel — or anything longer than a stock quote, really — on a tiny handheld-computer screen. Reading a book is a visceral experience impossible to duplicate in liquid crystal display. In the early 1990s, companies like Voyager and Vertigo Development Group sold books on disk, but their products failed to catch on. Many readers’ computers didn’t have the CD-ROM drives necessary to “play” books on their screens. Besides, “you don’t curl up with your computer,” says Patrick Breen, former senior architect at Vertigo. And publishers were still typesetting manuscripts, making it a huge hassle to digitize a book. But now it looks as if E-books, despite the absurdity factor, might take off. The Internet’s distribution power, together with higher-resolution screens and powerful processors, have made the world a much friendlier place for electronic books than it was just five years ago. And publishers now create books on computers, so the files are already in digital form — “a complete revolution, and it happened between 1993 and 1996,” says Paul Hilts, technology editor for Publishers Weekly. Last fall, several E-book companies joined forces with Microsoft and, with the blessings of publishers like Simon & Schuster and Bertelsmann, defined a technical standard for publishers’ electronic files so that books can be read from desktop computers, dedicated reading devices (portable gizmos used solely for reading books), and handheld computers. That flexibility should help develop consumer confidence and thus a market, says Kevin Hause, a consumer-products analyst for IDC, in Mountain View, Calif. Hause projects that by 2004, electronic books and periodicals will be a $2.5-billion market — hardly pennies, but still just a fraction of today’s $25-billion market for good old-fashioned books. Pricing for reading devices has been a hurdle, but the costs are starting to drop. Last November the price of the Rocket eBook, a reading device from NuvoMedia, also in Mountain View, dropped to $199 from $499 a year earlier. Another company, SoftBook Press, in Menlo Park, Calif., has also brought reading devices to market. (In January, Gemstar International Group Ltd., in Pasadena, Calif., acquired NuvoMedia and SoftBook. Gemstar markets the VCR-programming system VCR Plus+. The E-book companies will remain separate entities.) Another E-book contender, Librius.com, in Bellevue, Wash., abandoned plans for its reading device last summer to focus on software after president Don Ledford realized that handhelds were going to swamp his Millennium Reader. “Everyone who’s in this business is in it for the content,” Ledford says. “Why struggle upstream to try and sell 20,000 units at cost so you can try and sell some books, when 10 to 20 million new handhelds are flowing in?” That’s where Peanutpress.com comes in. The Maynard, Mass., start-up offers free software, called Peanut Reader, for reading books on Palm OS or Windows CE handheld devices. Peanut Readers let readers flip through, dog-ear, and write all over books. To soothe publishers worried about readers “sharing” books without paying for them, E-book producers are developing encryptions and passwords that safeguard content. Such measures have convinced major publishers — like Random House and Simon & Schuster, which signed deals with Peanut — to join the smaller publishers that jumped in earlier. Peanut president Jeff Strobel, who cofounded the company in April 1998, says that by the end of last year, some 10,000 people had bought the company’s books, which cost the same as or less than a paperback. Strobel says revenues, currently in the six figures, increased sevenfold during 1999. Lending further legitimacy to the E-book market, Microsoft plans to release new reading software this year. Still, it remains to be seen whether readers will become as fond of E-books as they are of, say, that battered, beloved paperback copy of The Catcher in the Rye. After all, it’s probably not wise to read your E-book in the bathtub. Search: “Red + Bumps” Got a weird rash? MotherNature.com has created what it believes is a compelling reason to eschew the mall pharmacy for E-commerce: online you don’t have to query a stranger behind a counter about rash remedies. Instead, Web surfers can find answers for themselves in online books from $500-million health-and-fitness publisher Rodale Inc. — all without leaving MotherNature.com. Jeffrey Steinberg, the online vitamin vendor’s chief marketing officer, believes that good content, such as that offered by health books from the Emmaus, Pa., publisher of Prevention magazine, will increase the site’s “conversion” rate — in other words, more visitors will become spenders. So last summer the Concord, Mass., start-up gave Rodale 8% equity in exchange for the rights to 150 Rodale books for the next 10 years, as well as direct-marketing access to the publisher’s database of 25 million magazine and book buyers. MotherNature.com programmers converted the books to digital form and cross-referenced them with the site’s products. When customers search for rash treatments in one of the books, for example, products containing calendula appear for sale in a frame to the left of the book text. Although he has no conversion data, Steinberg says the content gives MotherNature.com an edge over its competitors, which include VitaminShoppe.com and drugstore.com. Rodale also provides content to Women.com and Petsmart.com. This Way to My Library Imagine your own private library, only instead of having to build bookshelves and buy overstuffed leather chairs, you only need to log on to the Internet. That’s precisely the service Versaware Inc. hopes to provide. At the company’s eBookCity.com Web site, visitors build personal collections that include a free dictionary, thesaurus, and encyclopedia plus many other free titles and competitively priced newer books. The books reside on Versaware servers, so the library doesn’t clutter a user’s hard drive, though downloading is an option at no extra cost. So far, the company — which employs some 400 people in India, Israel, and the United States — has added the E to more than 2,000 books. But these aren’t just any old texts. “There’s a misperception that merely digitizing content is adequate,” says Harry Fox, who cofounded the New York City -based company in 1997. “People are not going to prefer reading on a screen.” So Versaware jazzes up the content with sound, video, and a collection of 350,000 photos. Customers organize their books by category on separate shelves and can perform targeted searches on them. Someone interested in, say, the spawning habits of salmon can search for the fish on the science shelf and leave out the cookbooks. Once a book has been digitized, Fox says, Versaware can make money from it more than once by posting it on other sites. Case in point: Lycos hosts Versaware reference materials, like Funk & Wagnall’s multimedia encyclopedia, on the Lycos Research Center Web page. Lycos and Versaware share advertising revenues from the page. Lycos director of business development Tom Murphy says that surfers using the reference materials stick to the Lycos research pages 50% longer than they did before Lycos posted the Versaware content. Versaware, which in its third round of funding garnered $30 million, faces a significant competitor in NetLibrary Inc. The Boulder, Colo., start-up caters primarily to the higher-education and research market and has received $100 million in venture capital from investors that include Houghton Mifflin and McGraw-Hill. To date, Versaware has multimillion-dollar revenues but no profits. It makes most of its money converting textbooks into CDs for publishing companies, including McGraw-Hill. Jill Hecht Maxwell is a reporter at Inc. Technology. E-BOOK WHO’S WHO AND WHAT THEY DO These companies make dedicated reading devices or sell E-books on the Web Everybook: Plans to market a dedicated reader for professionals; $1,600; www.everybook.net Glassbook: Sells software; has a secure-distribution server for selling books online; free to $39; www.glassbook.com Librius.com: Offers free software; sells E-books at a price comparable to paperbacks; www.books2read.com netLibrary: Provides access to an online library; $30 a year; www.netlibrary.com NuvoMedia: Sells a dedicated reader; $199; www.nuvomedia.com peanutpress.com: Offers free software; sells E-books for handhelds; www.peanutpress.com SoftBook Press: Sells a dedicated reader and E-books; $599; www.softbookpress.com Versaware: Sells E-books; offers online library; free to $50; www.eBookCity.com
Resources Finally, a new breed of tech consultants provide affordable, timely help to growing businesses No computer comes worry free. Despite all the advances in computers, software, and networks, our wired universe, sadly, often becomes tangled. And since the pace of business has revved up to Internet speed, random crashes and network traffic jams are becoming more taxing than ever. Of course, if your budget has room for a full-time tech-support team, kinks like these are mere headaches. Pop an Advil and call the help desk. But what about the smaller and solo businesses that can’t afford to devote precious resources to computer support? What about people like Andy Schilling? Schilling, who is president of Tangent Fund Management LLC, also wears the hat of “technology decision maker” at the private-equity-fund -management firm in San Francisco. Since Schilling joined the 15-employee company 11 years ago, Tangent’s computer arsenal has grown in much the same way that most other small companies’ do — one PC at a time, when a new employee is hired or a creaky computer dies. As Schilling bought new computers, he’d pass the old ones down the food chain. Tangent chose its tech support, too, as most small companies do — -by proximity. When the company decided to network its PCs, Tangent hired a local computer-consulting outfit, which installed, configured, and maintained the new network. When the business decided to add more PCs to the mix, though, it went to a local branch of a computer chain that provided basic maintenance for its machines. That worked fine — until the branch went bankrupt. So Schilling figured he’d devote more of his own time to the company’s tech decisions. But since his expertise is in finance — not in computers — he found himself at a disadvantage. Back in 1990, Schilling had purchased what he thought would be adequate hardware and software to network the office. But as time went by and Tangent added more users, the network constantly crashed. So he brought in new consultants, who advised installing an Ethernet local area network along with more-powerful computers. “We had to rip the whole thing up to put in the Ethernet,” says Schilling. Then he hired another local computer consultant just to wire the LAN, which added to the bill. “It would have been cheaper to install the Ethernet LAN from the beginning,” he says. For computer emergencies, Schilling depended on the same consulting company that had advised him to install the Ethernet network. Although he found its service useful, Schilling says he had to wait for the consultants to respond to his pages and then to travel to his site. Meanwhile, Tangent waited in limbo. “When they got here later in the day, the clock was ticking,” he said. “I kept thinking, ‘How many hundreds of dollars would it take to get our printers to print?’ It gets expensive.” Sometimes very expensive, says Mark Margevicius, a senior research analyst at the GartnerGroup. The average large company spends between $8,000 and $10,000 a year just to install, maintain, and support one corporate PC. Those costs are even higher, he says, for small companies, which often can’t afford an in-house tech staff. As a result, they suffer from significant downtime when faced with a computer glitch. Schilling was hardly alone in his frustration; most small businesses have never had much in-house IT help. According to Eric Klein, a senior analyst at the Yankee Group, 53% of networked very small businesses — those with between 2 and 19 employees — don’t have any full-time tech staff at all. Of networked companies with 20 to 99 employees, only 32% have a full-time IT staff. “The bottom line is that businesses are continuing to adapt to PCs and the Internet. The fact that they don’t have a tech staff points to an obvious hole in their support system,” Klein says. Moreover, because of the high hourly rates of most computer consultants (between $40 and $70 for those who offer both time and materials) and the time spent waiting on the phone for help from software and hardware vendors, many small companies don’t seek outside IT help unless they have a major crisis on their hands. Fortunately for companies like Tangent, a growing band of support warriors have spotted this hole and are rushing to fill it with affordable, timely help. By providing standard sets of PCs, software, and networking products — and, in some cases, by requiring lengthy subscriptions — these new businesses can keep their costs so low that even soloists and two- and three-employee companies can have full-service tech support at their beck and call. Some of these technology soldiers configure, install, and regularly monitor individual companies’ systems in an effort to spot problems before they turn into crises. Just call it Fortune 500 service for mom-and-pop shops. CenterBeam When CenterBeam Inc., a start-up based in Santa Clara, Calif., approached Schilling, last July, the Tangent president was grappling with yet another set of tough technology decisions. He was ready to set up an officewide E-mail system and scrap the multiple E-mail accounts that Tangent’s employees had been using to communicate. And he was thinking about registering a domain name and putting up a company Web site. CenterBeam not only offered him E-mail and Internet access but also promised new PCs with 128MB of memory and 17-inch monitors. The company would also provide printers, a wireless LAN, a local server, a software suite that included Microsoft Office 2000, a professionally managed firewall, nightly data backup, and 24-hour tech support. All this would cost Schilling only about $165 a month per user. Because CenterBeam bills its customers on a subscription basis, those costs would be fixed for three years — the life of the contract — no matter how much tech support Tangent might need each month. Some of these new businesses can keep theirs costs so low that even soloists and two- and three-employee companies can have full-service tech support at their beck and call. Just call it Fortune 500 service for mom-and-pop shops. Schilling scribbled out a back-of-the-envelope cost comparison between CenterBeam’s tech services and the system he had pieced together himself. CenterBeam was only slightly less expensive. However, Schilling found the notion of going with a service like CenterBeam attractive because of its consistency. “Now I know what the budget is,” he explains. “Before, it would go in cycles. I’d have some big problem and would have to get new software or buy new PCs. This is a lot more predictable.” CenterBeam cofounder Sheldon Laube hopes his service’s predictability and reliability will speak to small-business owners. “The whole idea is to not ever worry again about this stuff,” he says. As chief technology officer at Novell Inc. and cofounder and CTO of USWeb Corp. (now USWeb/CKS), a San Francisco-based E-commerce consulting business, Laube spent much of his career worrying about technology. And he’s still a worrywart: he and the CenterBeam staff regularly fuss over the health of their customers’ PCs. Laube’s employees use the Internet to peek into the inner workings of their customers’ computers across the country. They hunt remotely for potential problems — and, using the Internet, they upgrade customers’ software without leaving their desks. But even the folks at CenterBeam can’t solve every problem, like the mystery glitch that murdered a PC in Tangent’s accounting department. “One PC just died,” Schilling remembers. No bother. Schilling opened the storage closet and grabbed his “emergency PC,” an extra machine that had come with the CenterBeam package. Schilling called CenterBeam’s office and had all the old computer’s files transferred to the new machine. Because CenterBeam had backed up Tangent’s data nightly, transferring the information was a breeze. “The new computer was up and running in 45 minutes,” Schilling says. “Things like this were a real headache before.” Now headache free, Schilling liked the service so much that at press time he gave CenterBeam a ringing endorsement: his company invested an undisclosed sum in the computer start-up’s second round of financing. Everdream CenterBeam isn’t the only full-service, subscription-based tech provider vying for the small-business market. Everdream Corp., based in Mountain View, Calif., is aiming at soloists and small and midsize companies that would normally purchase inexpensive, so-called white-box computers from local resellers. Everdream manufactures and brands its own PCs before shipping them off to customers, who end up paying about $150 a month per computer. Everdream, like CenterBeam, provides software, hardware, and networking components, as well as Internet access, Web hosting, nightly backup, and round-the-clock online and telephone IT support. In addition, Everdream builds into its machines a simple, commonsense security feature: it divides the hard drives into two parts in an attempt to safeguard business applications from viruses brought in over the Web. One part of the hard drive houses business applications, and the other plays home to programs and games that users download. It would seem that tech-savvy companies — especially new dot-coms — would hardly need outside tech support. Not so, says the Everdream team, which is betting that many high-tech start-ups would rather develop their own technology than worry about day-to-day glitches. Such is the case of Tom Jones. As CEO of Stratasource Inc., a start-up based in Menlo Park, Calif., that provides automated systems management, Jones wanted his software engineers to spend all their time creating Stratasource products. Sure, the engineers could troubleshoot their own PCs. But the rest of the staff would still need occasional help. Last October, Jones signed up as a beta tester for one of Everdream’s PCs before committing his support staff to the system. This January he became a paying customer. While testing the gear, he hadn’t needed much support, but when he did need support, he got it right away. “I was working in Microsoft Word and just got hung up,” Jones recalls. When he called Everdream, a technician “entered” his computer remotely — so that both Jones and the technician were looking at Jones’s screen — and quickly showed the CEO how to solve the problem. That said, there are a few drawbacks to CenterBeam and Everdream’s services. Both companies are subscription based and require long-term contracts. Everdream’s customers are obligated for 30 months — a subscription only slightly shorter than CenterBeam’s aforementioned three-year deal. And then there’s the issue of privacy. Both companies tout nightly data-backup services and the ability to enter any subscribed PC through the Internet with permission. Schilling says that although allowing an outsider full access to his files is troubling, the trade-offs are worth it. “We have more up-to-date methods of communication,” he says. “And it’s clear to me that CenterBeam can provide us with much better firewalls than what we were going to be able to afford on our own.” Finally, these kinds of standard services may not fill the needs of small-business owners who require custom configurations or who are devoted to particular brands of computers not offered by the service provider. And they certainly don’t erase the need for customers to ask for written “service-level agreements,” which describe the time frames in which consultants answer service calls, deliver hardware and software, upgrade equipment, and solve problems. More to Come CenterBeam and Everdream both call California home and at press time had only just begun to expand nationally. By the time these pioneers provide services nationwide, they could be facing fierce competition from large computer companies like Micron Technology Inc., which already offers a subscription service for small businesses. Meanwhile, a potential rival, Dell Computer, recently invested in CenterBeam’s second round of financing, and CenterBeam has an agreement with Dell to supply its customers with the computer manufacturer’s PCs. Competition, of course, usually brings lower prices and better-quality service, which is good news for small companies that until now were unable to afford the kinds of services that their larger counterparts benefited from. For people like Andy Schilling, Tangent’s formerly frustrated president, these new services couldn’t have arrived on the scene soon enough. Anne Marie Borrego is a reporter at Inc. The Nitty-Gritty Company: CenterBeam Inc. Location: Santa Clara, Calif. Founders: Sheldon Laube, CEO, former CTO of USWeb/CKS; Glenn Ricart, CTO, former CTO of Novell; Marc Epstein, executive vice-president of product management and development, former CTO of Quarterdeck; Thomas Twietmeyer, CFO, former Autodesk executive Employees: 70 Funding: $55 million in equity financing from Crosspoint Venture Partners, Accel Partners, Microsoft Corp., USWeb/CKS, New Enterprise Associates, Intel Corp., Dell Computer Corp., Impact Venture Partners, and Tangent Fund Management LLC Buzz: $165 a month per user gets you Dell PCs, printers, high-speed Internet access, E-mail, a wireless LAN, Microsoft Office 2000, regular software upgrades, firewall protection, and 24-hour tech support. Dell recently announced an investment in the company, complementing a deal to supply CenterBeam customers with its own PCs. Fine print: You have to make a three-year commitment to the service. If you’re a hot dot-com, three years probably feels like a lifetime. Also, the CenterBeam monthly cost per user of $165 only applies to companies that need 10 or more machines. Prices are higher for companies with fewer users. Finally, you have to feel comfortable letting other eyes peer into your hard drives. Company: Everdream Corp. Location: Mountain View, Calif. Founders: Russell Rive, CTO, and Lyndon Rive, vice-president of partnership development. The brothers Rive hail from the Republic of South Africa, where Lyndon established a successful catalog business when he was 17. Before founding Everdream with Lyndon, Russell picked up computer and sales experience at Zip2 Corp., an online city guide that Compaq Computer Corp. snapped up last year for about $341 million. Employees: 70 Funding: $18 million from Canaan Partners, Draper Fisher Jurvetson, Ricoh Silicon Valley, and others. Investors include Jack Kuehler, former president and vice-chairman of IBM; and Stanford University. Buzz: Like CenterBeam, Everdream operates on a subscription basis. Customers pay about $150 a month for their Everdream-branded computer, 24-hour IT support, a choice of dial-up or DSL Internet and E-mail service, business applications like Microsoft Office, nightly backup, online training courses, and virus protection. Everdream splits the hard drive into two parts — one “locked down” part that handles the business-critical applications and another that’s open to Internet downloads. Fine print: As with CenterBeam, Everdream’s technicians will have access, albeit limited, to your hard drives. You have to sign up for a 30-month contract — that is, if you can get one. The company hasn’t rolled out nationally just yet but plans to offer service outside California by the second quarter of 2000.
REALITY CHECK: Smart money doesn’t come unless you’re already smart Click here for the word from the experts Then Cliff Young was getting ready to launch his own Internet service provider, he says, “I was looking for capital, like everybody else.” He was also looking for the right investors. Smart investors. Young, a former real estate developer, thought the right venture-capital firm would provide just the expertise he needed. It was 1995, and venture firms pouring money into Internet start-ups were priming their fledgling investments with insider advice and powerful contacts. “It was well known that VCs invested in high-tech start-ups and added a ton of value,” he says. Young drafted a detailed business plan. By the beginning of 1996, it was making the rounds. “I contacted a bunch of places,” he recalls. “But venture capitalists receive thousands of business plans a week. It’s very difficult to get their attention if you’re not already on your way. With just my business plan in hand, it was hard to get even a return phone call.” Elite firms like Benchmark Capital and Accel Partners never responded to Young’s persistent queries. Even middleweight firms ignored him. “The only person who ever returned my call was a research associate at Hambrecht & Quist,” Young says. “He said it wasn’t in their area of interest.” From that point on, Young decided to forgo the extra value VCs could bring, and build his company — InternetConnect Inc. — using any cash he could get. If he could grow the Marina del Rey, Calif., business somehow, it would become more palatable to smart VCs and he could approach them again. Young hooked up with a well-connected vice-president of finance who helped to raise $1.5 million from 65 “completely passive” angel investors. The early, undercapitalized months of the company were difficult for Young, who felt hamstrung by his lack of resources. But low cash had a benefit: it forced him to concentrate on the most underserved segment of the ISP market (selling broadband service to small companies), which turned out to be very profitable. “One of the benefits of going a bit slower in the beginning is that you don’t blow all your powder before you know your business,” he says. “A lot of companies in my industry got funding and grew quickly and then realized that their margins were too low. They ended up going out of business.” InternetConnect did well, posting revenues of $500,000 in 1998. In April 1999 the smart money finally came a-callin’. Young was contacted by Bob Hoff of Crosspoint Venture Partners, in Irvine, Calif., and Matt Mochary of Spectrum Equity Investors, in Menlo Park, Calif. Young met first with Mochary, and at the end of the meeting he had a term sheet from Spectrum. Crosspoint also invested. The two firms gave Young $20 million, and Hoff helped him recruit an experienced CEO. “This gives us the opportunity to really turn on the gas,” Young exults. “Venture firms in Silicon Valley don’t fund ideas; they fund people,” says Mochary. “If you aren’t a person the firm knows as someone who has already created a whole lot of value for them or somebody they know, then you’re unlikely to get funded. If you do have a good idea, then build, it and companies like mine will come to you.” THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Back to Intro, ” I Was Seduced by the Web Economy”
Myth 2: Traffic will make you rich REALITY CHECK: Selling well makes you rich. Traffic only provides eyeballs Cramer: Revenues are what will define things in the end, but people live and die by the Media Metrix site-traffic reports. Wall Street is obsessed with them. I swear to God, if you want to make big money in the stock market, go to Springfield High outside Philadelphia. Get a bunch of kids and say, “Surf this site all day long, and I’ll give you 20 Gs.” You’ll generate a huge amount of page views, which is what wins in the market today. Johnson: Sites like Blue Mountain Arts’ E-greeting-card site succeed because they provide something that attracts people, and in the Internet world that’s a useful model. It may make business-school people scratch their heads, but traffic to a portal gets a person to hit some other channel buttons and use other content. Morgan: A lot of companies, like Blue Mountain Arts, are specifically aggregating an audience, and they’ll figure out what to do with it later. The question is whether an audience used to doing things for free will ever pay for them. Randall: There is a common belief that you should basically spend an infinite amount of money to promote your site. What you’re starting to see is that at the end of the day, you have to have a real business model. Rich: Bottom line: you’ve got to have users and customers. Driving visitors to a site is not a guarantee for a viable business. THE TRUTHMONGERS To help us deconstruct the myths of the Web, we turned to expert observers of the Internet phenomenon. Their comments can be found after each of the case studies we presented. Here are their credentials: Martin Anderson , management professor at Babson College, in Wellesley, Mass., advises executives who are transforming their traditional companies into “click and mortar” businesses. James J. Cramer is the brash cofounder of and columnist at TheStreet.com. He has built successful careers as both a journalist/pundit and a hedge-fund manager. Kathleen Eisenhardt is a professor specializing in competitive strategy at Stanford’s School of Engineering. She recently coauthored Competing on the Edge: Strategy as Structured Chaos. Chip Hazard is a general partner and E-commerce specialist at the venture powerhouse Greylock, in Boston. He helped launch the e-Steel exchange. Tod Johnson , chairman and CEO of Media Metrix Inc., based in New York City, is a widely recognized expert on brand loyalty. Ted Leonsis is president of AOL Interactive Properties Group. In his first three years at America Online (starting in 1994), it grew from about $100 million in revenues to $1.5 billion. Kelly Mooney is director of intelligence at Resource Marketing Inc., a technology-marketing firm in Columbus, Ohio. She has helped companies such as Victoria’s Secret develop their on-line strategies. Allen Morgan is a general partner at Mayfield Fund, in Menlo Park, Calif. He has been involved in more than 350 venture-capital investments and public offerings. Bo Peabody is a cofounder of Tripod Inc. and vice-president of network strategy at Lycos Inc. When he was still in college, Peabody founded Tripod, which helps people build their own home pages. In 1998 he sold the company to Lycos. Scott Randall is founder and CEO of Internet-auction hosting service FairMarket Inc. Randall has been involved in E-commerce since 1995, when he launched an on-line store. He has been president of the Internet Shopping Network and Yahoo Marketplace. David Rich is vice-president of marketing and brand guru at Bigstep.com, which provides on-line services to small businesses. He previously orchestrated brand campaigns for Walt Disney, Pepsi, and Jamba Juice. THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Back to Intro, ” I Was Seduced by the Web Economy”
Myth 4: Razzle-Dazzle Makes Web Sites Great REALITY CHECK: Bells and whistles are fun but not always functional Cramer: The look and feel of a site is meaningless. What matters is speed. People want to get in and get out. Until they get technology so that pictures and graphics don’t delay load time, all pictures should be banned. Eisenhardt: Fancy graphics and animation don’t buy you anything. There’s a minimum level of slickness you want to see when you go to a site, and people will probably add those features as broadband becomes more common, but I expect you’ll see a lot of diminishing returns as well. Hazard: Fancy front-end technology slows down the user experience. Ultimately, that will turn people off. I was shopping on toy sites from home the other night. One loaded in one second, and one loaded in 15. Guess which one I bought from? Leonsis: There are sites out there that are just functional. Look at Yahoo. It’s not fancy; it’s just gray and blue. Look at us at AOL. We’re pretty much a flat site. You want to make buying really fast and easy. No videos, no bells and whistles. Just get to the point. Mooney: This has been a big myth for the last couple of years. There’s a tremendous focus on the cool things you can do. Technology has gotten ahead of the concept in many cases. The more important thing is to know what people want. Peabody: As broadband becomes more common, you’ll have to have this stuff. But today it’s not to your advantage to have a lot of bells and whistles. Sites like that are sort of annoying. Rich: Stay true to what your customers value: more efficiency or a faster download. THE TRUTHMONGERS To help us deconstruct the myths of the Web, we turned to expert observers of the Internet phenomenon. Their comments can be found after each of the case studies we presented. Here are their credentials: Martin Anderson , management professor at Babson College, in Wellesley, Mass., advises executives who are transforming their traditional companies into “click and mortar” businesses. James J. Cramer is the brash cofounder of and columnist at TheStreet.com. He has built successful careers as both a journalist/pundit and a hedge-fund manager. Kathleen Eisenhardt is a professor specializing in competitive strategy at Stanford’s School of Engineering. She recently coauthored Competing on the Edge: Strategy as Structured Chaos. Chip Hazard is a general partner and E-commerce specialist at the venture powerhouse Greylock, in Boston. He helped launch the e-Steel exchange. Tod Johnson , chairman and CEO of Media Metrix Inc., based in New York City, is a widely recognized expert on brand loyalty. Ted Leonsis is president of AOL Interactive Properties Group. In his first three years at America Online (starting in 1994), it grew from about $100 million in revenues to $1.5 billion. Kelly Mooney is director of intelligence at Resource Marketing Inc., a technology-marketing firm in Columbus, Ohio. She has helped companies such as Victoria’s Secret develop their on-line strategies. Allen Morgan is a general partner at Mayfield Fund, in Menlo Park, Calif. He has been involved in more than 350 venture-capital investments and public offerings. Bo Peabody is a cofounder of Tripod Inc. and vice-president of network strategy at Lycos Inc. When he was still in college, Peabody founded Tripod, which helps people build their own home pages. In 1998 he sold the company to Lycos. Scott Randall is founder and CEO of Internet-auction hosting service FairMarket Inc. Randall has been involved in E-commerce since 1995, when he launched an on-line store. He has been president of the Internet Shopping Network and Yahoo Marketplace. David Rich is vice-president of marketing and brand guru at Bigstep.com, which provides on-line services to small businesses. He previously orchestrated brand campaigns for Walt Disney, Pepsi, and Jamba Juice. THE 7 MYTHS OF THE WEB ECONOMY Myth 1: Building a Web site is easy The word from the experts Myth 2: Traffic will make you rich The word from the experts Myth 3: Smart money makes you smart The word from the experts Myth 4: Razzle-dazzle makes Web sites great The word from the experts Myth 5: Brand is everything The word from the experts Myth 6: Wild ads make Web stars The word from the experts Myth 7: Community, community, community The word from the experts Plus: Tales my guru told me Dispatches from the Web economy Back to Intro, ” I Was Seduced by the Web Economy”
