There are extremely positive things going on, but the way we live and interact with each other is definitely changing in ways that we don’t understand.

– Ben Horowitz, in a video interview with Quentin Hardy of the New York Times

This week in Las Vegas, the new management team running Yahoo — including CEO Marissa Mayer — is at International CES to schmooze with big advertisers and convince them that Yahoo is the place to put large chunks of their marketing budgets.

One of the longtime selling points of the company is the sheer size of its audience, especially for the key money-making parts of the site — the homepage, Yahoo Mail and search.

But private stats from comScore show that those three areas have continued their longtime decline over the last year, in some cases dropping significantly. In November and December, for example, compared to the same two months a year ago, U.S. search was down 28 percent and 24 percent respectively, while mail was down 16 percent and 12 percent.

This matters a great deal, since the troika of homepage, mail and search have been the critical driver of the Yahoo value ecosystem for advertisers.

The impact of those drops is felt all over Yahoo, whose music, movie, games and travel site have also seen massive drop-offs in traffic year over year in those same months.

Stopping the decline is critical for Yahoo, since Mayer herself has underscored the need for size in her pushing for new businesses at Yahoo that are 100 million users in size and/or have revenue prospects of at least $100 million.

While this is a lofty vision, the reality of traffic falloffs on key properties is a vexing issue, especially since they remain its main source of revenue and also an important element in launching future products Mayer is promising will turbocharge the company.

It’s not that Yahoo is not huge, especially compared to most sites on the Web.

As one of the top Internet brands, according to a recent Nielsen report, the average number of total monthly unique visitors for the longtime Silicon Valley Internet company in 2012 was 141.6 million, No. 3 behind Google and Facebook in the U.S. market. Similar rankings were reported by comScore, which placed Yahoo at the No. 2 spot after Google, with 171.4 million monthly visitors in November.

But, for many years, traffic to those important consumer destinations of Yahoo has been on a clear and unstopping decline, statistics (usually from comScore) that the company nonetheless always dutifully puts in its earnings slides — see below — for investors to get some idea of the major and vexing issues facing the company.

That was suddenly ended in the last quarter with the engagement slide removed from Yahoo’s public deck entirely. Not all companies include such stats, so when I inquired as to why the company had made the change, Yahoo PR never returned my phone call.

But it’s not hard to guess the reason for the shift — the numbers were not good and they called more attention to Yahoo’s glaring challenge, which is getting users reengaged with its products by creating what Mayer has dubbed several times “delightful” experiences.

According to numerous sources, that has also been the case within the company too, with the new regime restricting an internal transparency initiative pushed by former Chief Product Officer Blake Irving that shared product performance numbers with the top 100 leaders at Yahoo.

And while it’s an interesting strategic choice, several sources inside the company this week urged me to get ahold of increasingly worrisome numbers from comScore — available to its private clients — comparing November 2011 to November 2012 and also December 2011 to December 2012 at home and work in the U.S.

So I did, getting the same stats from numerous sources — numbers that a spokesman for comScore confirmed were correct.

And, as promised, they are worrisome indeed.

In November 2012, compared to November 2011, the monthly unique visitors to the homepage declined 17 percent to 91.8 million from 110.9 million; Yahoo Mail dropped 16 percent (from 92 million to 77.7 million); and Yahoo search dropped 28 percent (from 93.3 million to 66.9 million).

Also off significantly for all three areas, often by one-third, were a plethora of other stats: Percentage of reach, total minutes, total page views, total visits and more.

One of the only bright spots for Yahoo was the relatively small Flickr sites, which were up 37 percent — 26.7 million versus 19.4 million — in unique monthly visitors year over year. The photo-sharing site — which has been getting a much-needed refresh — was also up in all other stats.

But Flickr — which Mayer (pictured here) has laudably touted and supported after years of inexplicable neglect — is not a money-maker for Yahoo, even if its return does burnish the company’s tech and innovation cred.

In December 2011 to December 2012, the homepage was more stable, gaining four percent in monthly uniques from 109.4 million to 114.2 million, but with other key stats both rising and falling. Total visits were up 14 percent, for example, while average minutes per visit was down 13.6 percent.

But the trouble for mail or search continued, off 12 percent (89.9 million to 78.7 million) and 24 percent (88.7 million to 67.4 million) respectively in monthly uniques, with similarly major declines in all other stats.

Mail recently got a refresh too under Mayer, despite some recent security glitches, so new stats will show if that will help stem the declines. Search is another story all together, with Yahoo in what can only be described as a dysfunctional partnership with Microsoft that numerous sources tell me Mayer is seeking to end.

The homepage, too, is undergoing a redo, with a design that has a decidedly more mobile and social feel, and pushing an ethos of Yahoo becoming a hub for content discovery. It is hoped the new look will boost traffic relatively quickly from its current downward trajectory.

To be fair, there can be lots and lots of reasons for these declines, although most of Yahoo’s competitors are, at worse, seeing a flattening of growth and not outright declines.

And sometimes Internet sites complain that services like comScore undercount, although Yahoo had previously used the firm in its public documents. More to the point, as multiple sources within the company note, the stats are directionally correct in that they closely track with internal Yahoo numbers.

Which is to say, traffic is going down rather than growing. That is clearly why Mayer has loudly stressed mobile since arriving at Yahoo, an area not included in these numbers that many sources said has strong growth to about 70 million monthly unique visitors via its apps and mobile-enabled Web offerings.

But unlike the homepage, mail and search — which push and pull traffic all over Yahoo and are responsible for most of its current monetization — mobile also makes very little money now. And Yahoo — unlike Facebook, which recently did — does not break out mobile results.

So, it will be interesting to see if the company does so when it reports fourth-quarter earnings on January 28 and also if it says anything about continued traffic declines of its traditional Web business in the period and the impact on revenue.

Still, there are lots of ways to counter declining or flat revenues, even with declining traffic — via cost cuts, efficiencies, charging more and selling assets (as Yahoo did in the last quarter). And Yahoo has ably managed to keep its operating margins growing over the years, despite both the declines in traffic and moribund growth in its revenue.

But the real and only fix is the drastic fix to existing tentpoles Yahoo has and the creation or acquisition of products that excite consumers and, therefore, advertisers.

It’s not an easy thing, of course, as well-known venture capitalist Ben Horowitz recently wrote in his blog about the need to focus on products over building and improving culture — one of Mayer’s other big initiatives at Yahoo.

Wrote Horowitz in what I consider one of the clearest articulations of what it takes to win for startups, as well as big companies like Yahoo:

“The primary thing that any technology startup must do is build a product that’s at least 10 times better at doing something than the current prevailing way of doing that thing. Two or three times better will not be good enough to get people to switch to the new thing fast enough or in large enough volume to matter. The second thing that any technology startup must do is to take the market. If it’s possible to do something 10X better, it’s also possible that you won’t be the only company to figure that out. Therefore, you must take the market before somebody else does.”

If you want to take a gander, here are some more of those old Yahoo quarterly engagement slides, which were recently eliminated from its presentations:

(Note: I reached out to Yahoo’s outside PR firm — since they do respond to queries — and also some company execs to get a comment on this story, but so far there has been none.)

Time to step up: Hiring the VP of Sales
For the technology founder-led companies we love to back at Andreessen Horowitz, recognizing the need to “hire different” is particularly important when the company is transitioning from initial product development mode into sales mode. If you’re an a16z founder, you’re very likely an engineer or computer scientist. Virtually all of your early hires will have been engineers or developers. While you’ve hopefully hired people who are smarter than you, they may not be that different from you. Now you’ve got a product, it’s time to hire a VP of Sales. Prepare to hire different — very different!

A typical sales culture is different from a typical engineering culture in almost every aspect — from personality types to values to dress code to working hours. Introducing sales DNA is highly likely to clash with your engineering culture. That prospect will feel quite uncomfortable, but is absolutely critical if you’re serious about building a real company.

While on an intellectual level you may recognize the need to hire an executive who’s different, it can be really hard to act on it in practice. Most of us are naturally more comfortable with people who are like us. If as a first-time tech founder CEO you feel entirely comfortable with that VP of Sales candidate, she’s probably not the right one. The right candidate will feel risky to you from the cultural fit point of view. So, you’ll want to know what the team thinks. However, the interview feedback from the team is likely to make you even more uncomfortable. Here are some real examples of technical team feedback from interviews of highly qualified sales candidates:

“I’m worried that he’s rough around the edges and would clash with our people.”

“His tone was very A-type salesman.”

“I fear for the culture if she were to come aboard.”

“He had very limited understanding of our product.”

“I don’t think he has much idea of what we do and how we do it.”

“I think he could generate massive revenue, but he’d destroy the culture by building a Salesforce-type sales organization.”

So, hiring the right sales leader will involve not just overruling your own emotions, but rejecting the strongly held opinions of several members of your team. Remember, you’re not recruiting her for her knowledge of the company, but for her knowledge of the outside world. As my partner Ben puts it: “Generally, you want product leaders with superior internal knowledge (knowledge of the code base, knowledge of the culture, knowledge of the people). With sales people, it’s the opposite — they need to have external knowledge (knowledge of customers, purchasing processes, customer org structures, customer cultures…).”

Two-way street
While you and the team are trying to evaluate this unfamiliar animal and assess whether you can handle it in your habitat, don’t forget she’s evaluating you, too. Just as you’re asking yourselves things like, “Will this person destroy our culture?”, she’s asking herself, “Are these guys serious about building a business, and will I get the support I need to build a winning sales organization? Will this CEO have my back with the company and the board?” She won’t need everyone’s buy-in on day one — a good VP of sales will earn that over time — but she will need full and sustained support from you and the board to put in place the processes, people and sales culture that can transform a great product organization into a great business. This is your time to lead. The way you handle the recruiting process will speak volumes about whether or not you’re the leader she wants to bet her career on.

Hiring different at Opsware
At Loudcloud/Opsware, we went though three VPs of sales in the first four years of the company. Each one of them was well liked and an excellent fit with the culture, but not one of them was able to consistently hit our quarterly sales targets. By 2003, looking for our fourth sales leader in as many years, we met a guy named Mark Cranney. He seemed very well qualified, and he gave us several pages of references to call if we wanted proof. However, virtually everyone who interviewed him had similar feedback: “He might be a great sales guy, but there’s no way he’d fit here. Way too risky.”

Ben Horowitz and I called every one of his references. They confirmed that Mark was an exceptional sales leader who had consistently achieved great results. But could we take the risk of introducing such a culturally different executive into Opsware’s strong culture? Only Ben and I seemed to think so. We hired him.

Hiring Mark, and the many sales professionals he added to our ranks, was indeed a shock to the system. It created significant tension in the company at times, as sales culture met engineering culture. It was a tension that we badly needed — a healthy tension between the demanding outside world of customer needs and competitive pressures and our sheltered inside world of PRDs and predictable development schedules. Mark was unreasonable — he told it like it was, not how we wanted it to be. It stretched every part of the company, from engineering to marketing to legal to finance. Gradually, we became a more customer-driven organization and we started making our numbers. Over time, cultural discomfort shifted to mutual respect and even to affection. In the years that followed, we won hundreds of the world’s most demanding enterprise IT accounts, met their needs with market-leading products, outpaced a brutally tough competitor, and grew bookings and revenues at a rapid pace. For Opsware, hiring different was the key to unlocking the company’s true potential.

The courage to challenge
Strong leaders don’t just hire people who are smarter than them, or different from them. They also look for people who have the courage to challenge them, and they create a culture that encourages people to do so. Ironically, being surrounded by lots of smart people makes it harder to speak up, particularly for more junior team members. “If all of these smart people think X makes sense, who am I to challenge them?” The more senior you are, the less likely you are to be challenged, and the more you will have to work to encourage it. “She’s the CEO — she must know what she’s doing. I’m not going to question it.” I don’t know about you, but if I were the emperor, I’d want someone to tell me before I walked down the street naked. Like the emperor, you won’t hear diverse opinions if you don’t actively solicit them — and resist the temptation to slaughter them with your ferocious intellect the minute they’re expressed!

At Andreessen Horowitz, we’re fortunate to have a lot of very smart people, both more senior and more junior, around the table when we talk about companies we’ve just met. It takes real courage to speak up when everyone else seems to love (or hate) some opportunity we’ve just seen, but we particularly want to hear that different view. We work hard to encourage people to speak up. The best investments are often controversial, and vigorous debate leads to better investment decisions.

The same applies to business decisions. As CEO, it’s your job to make the call. Having people around the table with the background and the courage to be controversial makes it more likely you’ll make the right one. As your company grows, recognize that you’ll need to hire different, and strive to build a culture that encourages and rewards constructive challenge and diversity of opinion.

John O’Farrell is a partner at Andreessen Horowitz. He sits on the boards of Factual, GoodData, ShoeDazzle, Solum and Tiny Speck, and he works with portfolio companies on partnering, strategic transactions and global expansion. John’s blog can be read at http://john.a16z.com/.

Horowitz compared Facebook’s recent woes to his own experience with taking a company public, when as CEO he led hosting services company LoudCloud to market 11 years ago.

“We were similar to Facebook,” Horowitz said at the TechCrunch: Disrupt technology conference Monday morning, “in that it wasn’t the most opportune time for the company to take it public.” Because of this (and other factors, no doubt), LoudCloud initially lost 95 percent of its value.

Contrast that to Facebook’s current plight. The company’s shares have been in free fall, its stock price more than halved in the four months since first being listed on the Nasdaq at $38 per share, valuing the company at a massive $104 billion. As it sits this morning, shares of Facebook are hovering around $18.

Also familiar is the blame game, Horowitz said: “Lots of people were calling for me to be fired.” Similarly, there have been some calling for the heads of Facebook CEO Mark Zuckerberg or the oft-blamed David Ebersman, Facebook’s chief financial officer who painstakingly led the company through the long IPO process.

Perhaps the biggest strain, however, isn’t on the management — it’s on the rank-and-file members of the social giant. “It creates a lot of pressure on the employees,” Horowitz said. “A lot of the employees go home at the end of the day, facing others who are saying to them, ‘So I read in the paper that you guys are a bunch of idiots.’” That’s a gnarly morale hit that would wear on any company over time — especially after one of the most-watched public market debuts in tech history.

That’s most likely why Zuckerberg will take the stage at Disrupt on Tuesday, to address the public for the first time since his company went public. No doubt Wall Street, the Valley and Facebook’s employees will all be paying rapt attention (I know I will).

But in the end, Horowitz essentially argued that everything ends up working out — as long as the company leadership stays focused. LoudCloud pulled a pivot (to some degree) and turned into OpsWare, which went on to be acquired by HP for $1.6 billion in 2006.

Horowitz’s message wasn’t, “Don’t worry Mark, one day you’ll be able to sell!” It was to weather the storm, because when you go public, negative attention like this is to be expected.

“In Silicon Valley, when you’re a private company, the entrepreneur can do no wrong,” Horowitz said. But when that IPO comes, “the public reverses, and investors are all incensed that the entrepreneur screwed them” if they aren’t getting expected returns in the market.

In other words — hang in there, Mark.

Vanity Fair magazine published its annual “The New Establishment” list, out now in its October issue, and Silicon Valley disruptors dominate again over media mavens.

In fact, the top 10 selections of the 50 overall are all from tech, with Apple CEO Tim Cook and head product design guru Jonathan Ive in the No. 1 slot, up from No. 4 last year.

In 2011, that first slot was held by Facebook CEO and co-founder Mark Zuckerberg, who this year was moved to No. 4, which is certainly not as bad a drop as the stock of his social networking site of late.

In the other slots: No. 2 is Google’s twin search engine founders, Sergey Brin and CEO Larry Page; No. 3 is Amazon founder and CEO Jeff Bezos; No. 5 is Twitter and Square impresario Jack Dorsey; No. 6 is venture capital’s Batman and Robin, Marc Andreessen and Ben Horowitz; No. 7, on the list for the first time, is former Googler and new Yahoo CEO Marissa Mayer; No. 8 is Pinterest co-founder and CEO Ben Silbermann, also new; No. 9 is SpaceX and Tesla Motors kingpin Elon Musk; and No. 10 are LinkedIn’s dynamic duo, Chairman Reid Hoffman and CEO Jeff Weiner.

Singer extraordinaire Adele clocks in at No. 11, the first media appearance on the list.

The rest of the list is chock full of the usual tech suspects, including my All Things Digital partner Walt Mossberg and me at No. 34. (There is also a very nice portrait photo of me with a group of much more accomplished tech women, photographed at Buck’s in Woodside — in which I appear to be oddly staring at something besides the camera lens, while all the rest behave.)

You can peruse the whole list here.

(Full disclosure: Readers who look closely at the list will notice that ATD senior editor Peter Kafka is listed as a contributor, as he was last year. This is true! Also true: Peter wrote biographical entries for several people on the list, and had some input on its composition, although not about us. In addition, I have been asked to write some freelance articles for Vanity Fair going forward, but have not started as yet.)

It’s funny because it’s been on my mind lately
Having a dope beat, dope idea.
Sixteen bars ain’t enough!
How the f*ck can I squeeze my whole life into a 16 bar verse?
—Rick Ross, Sixteen

After I wrote A Good Place to Work, people flooded me with feedback about one-on-ones. About half the responders chastised me, saying that one-on-ones were useless and that I shouldn’t put so much emphasis on them. The other half wanted to know how to run more effective one-on-ones. It seems to me that both groups are likely talking about two sides of the same coin.

Perhaps the CEO’s most important operational responsibility is designing and implementing the communication architecture for her company. The architecture might include the organizational design, meetings, processes, email, yammer and even one-on-one meetings with managers and employees. Absent a well-designed communication architecture, information and ideas will stagnate and your company will degenerate into a bad place to work. While it is quite possible to design a great communication architecture without one-on-one meetings, in most cases one-on-ones provide an excellent mechanism for information and ideas to flow up the organization and should be part of your design.

Generally, people who think one-on-one meetings are a bad idea have been victims of poorly designed one-on-one meetings. The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting. This is the free-form meeting for all the pressing issues, brilliant ideas and chronic frustrations that do not fit neatly into status reports, email and other less personal and intimate mechanisms.

If you are an employee, how do you get feedback from your manager on an exciting — but only 20 percent formed — idea that you’re not sure is relevant without sounding like a fool? How do you point out that a colleague who you do not know how to work with is blocking your progress without throwing her under the bus? How do you get help when you love your job, but your personal life is melting down? Through a status report? On email? Yammer? Asana? Really? For these and other important areas of discussions, one-on-ones can be essential.

If you like structured agendas, then the employee should set the agenda. A good practice is to have the employee send you the agenda in advance. This will give her a chance to cancel the meeting if nothing is pressing. It also makes clear that it is her meeting and will take as much or as little time as she needs. During the meeting, since it’s the employee’s meeting, the manager should do 10 percent of the talking and 90 percent of the listening. Note that this is the opposite of most one-on-ones.

While it’s not the manager’s job to set the agenda or do the talking, the manager should try to draw the key issues out of the employee. The more introverted the employee, the more important this becomes. If you manage engineers, drawing out issues will be an important skill to master.

Some questions that I’ve found to be very effective in one-on-ones:

• If we could improve in any way, how would we do it?
• What’s the No. 1 problem with our organization? Why?
• What’s not fun about working here?
• Who is really kicking ass in the company? Who do you admire?
• If you were me, what changes would you make?
• What don’t you like about the product?
• What’s the biggest opportunity that we’re missing out on?
• What are we not doing that we should be doing?
• Are you happy working here?

In the end, the most important thing is that the best ideas, the biggest problems and the most intense employee life issues make their way to the people who can deal with them. One-on-ones are a time-tested way to do that, but if you have a better way, go ahead with your bad self.

Ben Horowitz is founder and general partner of Andreessen Horowitz. He was a co-founder and CEO of Opsware (formerly Loudcloud), which was acquired by HP, and ran several product divisions at Netscape. He serves on the board of companies such as Foursquare, Jawbone, Lytro, Magnet, Nicira and Tidemark, and blogs at www.bhorowitz.com.

What was your favorite TV show as a kid?
“Good Times.”

What qualities do you like in a person?
Courage, humor, original thinking, loyalty.

What qualities do you dislike?
Insecurity, narrow thinking, prejudices, bitch-assness.

Name one thing you will regret never having done (if you never do it).
Ending the oppression of women worldwide.

What’s the single most important issue in the world today?
Global women’s rights.

Do you still buy CDs or rent DVDs?
Yes.

What would you be doing if you were not in your current job?
CEO of a technology company.

What is your greatest achievement to date?
Professional: Helping turn LoudCloud into Opsware and making Opsware successful.
Personal: Marrying up.

iPhone, Android or BlackBerry?
iPhone.

If you could meet any historical or fictional person, who would it be?
Thomas Clarkson.

What site/app do you check first when you wake up?
Twitter.

What was the last thing you fixed?
My mom’s MacBook.

What was your first computer?
TRS-80.

What was your biggest mistake?
Signing a $30,000,000 letter of credit on a building lease for company expansion in early 2000.

Do you have a dog or cat or other pet?
Nope.

What’s your favorite mode of transportation?
Adidas.

What was the last book you read?
“The Tanning of America” by Steve Stoute.

If you could have any superpower, what would you choose?
Speed like The Flash.

Name your favorite guilty pleasure.
Drinking Hine Cognac, listing to old Lil Weezy mixtapes.

What was your biggest most recent purchase?
Professional insulated neoprene BBQ gloves from Ole Hickory Pits.

Whom do you idolize?
Andy Grove, Michael Ovitz, Kanye West.

What do you drive/ride?
BMW b7 Alpina.

If you could change one thing about yourself, what would it be?
My singing voice.

Who was your biggest influence growing up?
My mom.

Describe an ideal day.
Wake up early, but not too early.
Breakfast at Lois the Pie Queen.
Meet with an entrepreneur who has a great new idea.
Help a CEO figure out an impossible problem.
Write a good blog post.
Dinner with my family.
Read something good.
Watch Manny Pacquiao fight Floyd Mayweather Jr. while drinking yak with my fight buddies Sebastian, Jagoda, Joey, Cartheu and Michel, then listen to Prince, Kanyeezy and Weezy on my Krells.
No throwing up.

Activists have spurred change numerous times, as seen by the recent exit of Yahoo Inc.’s chief executive and the pending breakups of McGraw-Hill Cos. and other big businesses. But some of those investors “have taken a good thing too far,” says Mr. Horowitz, a general partner of Andreessen Horowitz, one of Silicon Valley’s fastest-growing venture-capital firms.

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This is something top VCs John Doerr and Mike Moritz have done personally, but AH is making a point of pledging as a firm.

As Ben Horowitz put it during a phone interview this morning, “When we started the firm three years ago, neither Marc nor I had a lot of fancy hobbies to do like playing polo, so we weren’t sure what we were going to do with the money if we were really successful anyways.”

Now, he said, “I think we’re getting a little more confident that we’ll return something and make some money.” AH said yesterday that it has returned $288 million of the first $300 million it raised from limited partners for its first fund.

Marc Andreessen added that he hoped other VC firms would join, as sort of a rehabilitation of venture capital’s public image. “Investing has become polarizing, which is kind of crazy given we think we’re in a field that actually adds to the positive,” he said.

To kick off the pledge, the six partners and their own partners have given a combined $1 million to six Silicon Valley non-profits, including the Ecumenical Hunger Program (Jeff and Karen Jordan) and the Shelter Network (Scott and Pamela Weiss).

See also: Laura Arrillaga-Andreessen Talks About Giving 2.0.

It was cool when you had hella weed to smoke
And you bought a new home where you could keep your folks
I don’t see how this side of you could be provoked
It was all good just a week ago
– Jay-Z, “A Week Ago”

When I started Loudcloud, I hired the best people I knew — people whom I respected, trusted and liked. Like me, many of them did not have deep experience in the jobs that I gave them, but they worked night and day to make it work and they made great contributions to the company. Yet for many of them, there came a day when it was clear that I needed to hire someone with more experience to run the function I had previously entrusted to a loyal friend. Damn. How do you do that?

Should you do it at all? The first question that always comes to mind is: “Do I really need to do this?” Who could I possibly hire who will work this hard and bleed the company colors like this?” Sadly, if you’re asking the question, you very likely already know the answer. If you need to build a worldwide sales organization, your buddy who did the first few deals is almost certainly not the best choice. As hard as it may be, you need to take a Confucian approach. You must consider first all of the other employees, and second your friend. The good of the individual must be sacrificed for the good of the whole.

How do you break the news? Once you make the decision, breaking the news will not be easy. It’s important to consider two deep emotions that the employee will feel:

• Embarrassment — Do not underestimate what a large factor this will be in his thinking. All of his friends, relatives and colleagues know his current position. They know how hard he’s worked and how much he’s sacrificed for the company. How will he possibly explain to them that he will no longer be part of the executive team?
• Betrayal — I’ve been there from the beginning, I’ve worked side by side with you. How could you do this? It’s not like you’re perfect in your job either. How can you be so comfortable selling me out?

Those are some powerful emotions, so get ready for an intense discussion. Ironically, the key to an emotional discussion is to take the emotion out of it. To do that, you must be very clear in your mind what you’ve decided and what you want to do.

The most important thing to decide is that you really want to do this. If you walk into a demotion discussion with an open decision, you will walk out with a mess: A mess of a situation and a mess of a relationship. As part of that decision, you need to be okay with the employee quitting the company. Given the intense emotions he will feel, there is no guarantee that he will want to stay. If you cannot afford to lose him, you cannot make this change.

Finally, you must decide the best role for him in your company. The obvious thing is to have him continue under his new boss, but this may not be the best thing for him, his boss or his career. Your loyal employee will continue to have lots of knowledge about your company, competition, customers and market that his new boss lacks. On the one hand, this can be a good thing — he can help get the new boss up to speed. On the other hand, when mixed with the intense emotions of embarrassment and betrayal, you might end up with a sabotage cocktail.

Another problem with this approach is that there is no way to paint him reporting to his old boss as anything but a demotion from a career path perspective. An alternative, if appropriate, would be to move him to another area of the company where his skills, talent and knowledge will help. This kind of move will give him a chance to develop a new set of skills and help the company while he’s doing it. For young employees, getting experience in different areas can be super valuable.

Sadly, this is not a silver bullet, since he might not want to work in another job; he might be hell bent on keeping his current job, so prepare for that as well.

Once you’ve decided to hire someone above your friend and decided on the alternatives that you’d like to offer him, you can have the conversation. Keep in mind that you cannot let him keep his job, but you can be fair and you can be honest. Some keys to doing that:

• Use appropriate language — Make clear with your language that you’ve decided. In fact, use phrases like “I have decided” rather than “I think” or “I’d like.” By doing this, you will avoid putting the employee in the awkward position of wondering whether or not he should lobby for his old job. You can’t tell him what he wants to hear, but you can be honest.
• Admit reality — If you are a founder/CEO like I was, it probably won’t be lost on the employee that you are just as under-skilled for your job as he is for his. Don’t dodge this fact. In fact, it’s fine to admit that if you were a more experienced CEO, you might be able to develop him into the role, but two people who don’t know what they are doing is a recipe for failure.
• Acknowledge the contributions — If you want him to stay in the company, you should say that and make it crystal clear that you want to help him develop in his career and contribute to the company. Let him know that you appreciate what he’s done and that your decision is a result of what’s next more than what’s previous. The best way to do this, if appropriate, is to couple the demotion with an increase in compensation. Doing so will let him know that he’s both appreciated and valued going forward.

Through all of this, keep in mind that it is what is and nothing you can say will change that or stop it from being deeply upsetting. Your goal should not be to take the sting out of it, but to be honest, clear and effective. Your friend may not appreciate that in the moment, but he will appreciate it over time.

Ben Horowitz is founder and general partner of Andreessen Horowitz. He was a co-founder and CEO of Opsware (formerly Loudcloud), which was acquired by HP, and ran several product divisions at Netscape. He serves on the board of companies such as Foursquare, Jawbone, Lytro, Magnet, Nicira and Tidemark, and blogs at www.bhorowitz.com.

Apple and I’m not sure why.

– Ben Horowitz, co-founder and GP of Andreessen Horowitz, at Business Insider’s Ignition West conference Wednesday, when asked what he would do if he could take all of his firm’s money and invest it in either Google or Apple

While politics is NationBuilder’s initial focus, it’s already being used by filmmakers as well. The company helps customers run their Web sites, with tools for both content production and user engagement and retention. For instance, one feature offers a “political currency” system that assigns point values to all sorts of actions on each site.

NationBuilder costs $19 per month for communities with fewer than 10,000 users, and more for larger communities, like that of Newark mayor Cory Booker and Newt Gingrich’s New Hampshire primary campaign. It currently has 500 “nations” with 2 million supporters.

NationBuilder was founded in 2009 by Jim Gilliam, a remarkable guy who started online movements around his own double lung transplant and documentaries for Brave New Films.

Gilliam said his main competition is consulting firms that build sites for politicians, often with a focus on Democrat or Republican candidates. These products tend to be expensive and get obsolete fast, and campaigns that want to experiment with new things like texting their supporters have had to invest in separate tools. Plus, tools aimed at getting someone elected are often different from those aimed at helping someone govern. Not so with NationBuilder.

In addition to Andreessen Horowitz, whose Ben Horowitz is taking a seat on NationBuilder’s board of directors, other prominent folks getting involved in NationBuilder include Causes founder Joe Green, who is joining as president, and investor Sean Parker, who is also now on the board. Facebook co-founder Chris Hughes was a NationBuilder seed investor, while Parker is heavily involved in another online politics start-up called Votizen. Green, Parker and Hughes were all involved in the early days of Facebook.

Horowitz said he believes NationBuilder does fit the “software eats the world” thesis, even if politics might seem a bit far afield from his firm’s expertise. What he’s particularly interested in is NationBuilder’s focus on activism and participation. “NationBuilder solves the hard part,” Horowitz said. “People are excited, but then what do they do?”

Memo to the world from Silicon Valley legend and power-VC Marc Andreessen: “I think that this is more of the theme that software is going to be eating all other industries.”

More like chomping through them with renewed gusto, with the announcement today that his venture firm, Andreessen Horowitz, has raised a huge new $1.5 billion fund to continue to fund “extending our capabilities to more disruptors,” according to Andreessen’s longtime partner Ben Horowitz.

And by capabilities, the pair means handing from $10,000 to $100 million to Internet entrepreneurs in all kinds of arenas — such as its previous investments in Airbnb, Pinterest and a plethora of others — from its new third fund.

This large amount brings Andreessen Horowitz’s total in just three years to $2.7 billion, which Andreessen said took about the same amount of time to raise as the previous one. The new fund is made up of largely the same limited partners.

“It is almost double, but it sets us up well,” said Andreessen, who said the LPs urged them to raise more. “Our first fund was, as it turns out, undersized in terms of the growth opportunity we found.”

The interest from the firms’ LPs aligned, said Horowitz, noting that he thinks their interest was because investors are becoming more selective about firms.

“I think a lot of LPs have begun to think that there are too many VCs not worth investing in,” he said. “Many of them want to then invest in what they consider the best, and if they can’t get in, to not invest at all.”

To be able to give them the kind of returns those investors are expecting, Andreessen said that the investments — which will still be pretty much limited to the Internet arena and in California — will be stepped up to keep the rate of innovation going.

“The opportunities continue to be very, very good, and we find that that continues to be true,” he said. “And there is a big supply of money, and that’s very good from a company standpoint.”

What Andreessen and Horowitz said they will do to continue to differentiate themselves will be to keep on focusing on backing founder/CEOs over all.

“We have a lot of respect for our peers, but we have a different philosophy,” said Horowitz. “The majority of the companies we fund will be run by their founders.”

Andreessen said that philosophy is a bit of a throwback.

“It’s kind of like venture capitalists were in the ’60s and ’70s, in a way,” he said. “We are operators who back operators.”

Man, have you ever really wondered
Like why are we here? What the meanin’ to all of this?
– OutKast, “Church”

Since Marc and I founded Andreessen Horowitz three years ago, we have raised $2.7 billion. That statement begs a few questions. The two most obvious are:

• Why did such a new venture capital firm raise so much money?
• How did such a new venture capital firm raise so much money?

To get to the answers, it’s useful to go back to the original motivation for starting Andreessen Horowitz.

After raising our first round of funding for Loudcloud in 1999, we went to visit our new venture capital firm and meet their full team. As founding CEO, I remember being quite excited to meet our financial backers and talk about how we could partner to build a great company. That excitement took a sharp downhill turn when one of the top partners said to me, in front of my co-founders, “When are you going to get a real CEO?”

I was completely stunned — the comment knocked the wind out of me. Our largest investor had basically called me a fake CEO in front of my team. I said, “What do you mean?” — hoping he would revise his statement and enable me to save face. Instead he pressed on: “Someone who has designed a large organization, someone who knows great senior executives and brings prebuilt customer relationships, someone who knows what they are doing.”

I could hardly breathe. It was bad enough that he undermined my standing as CEO, but to make matters worse, I knew that at some level he was right. I didn’t have those skills. I had never done those things. And I did not know those people. I was the founding CEO, not a professional CEO. I could almost hear the clock ticking in the background as my time running the company quickly ran out.

Could I learn the job and build my network fast enough, or would I lose the company? That question tortured me for months.

In the years that followed, I remained CEO, for better or worse. I worked incredibly hard to close the gap between what the partner had described and where I was at the start. Thanks to a lot of effort and help from friends and mentors, especially Bill Campbell, the company survived and ultimately became quite successful and valuable.

However, not a day went by when I didn’t think about that interaction. I always wondered how long I had to grow up, and how I could find help to build my skills and make the necessary connections along the way.

Marc and I discussed this often. We wondered aloud why, as founders, we had to prove to our investors beyond a shadow of a doubt that we could run the company, rather than our investors assuming that we would run the company we’d created. This conversation ultimately became the inspiration for Andreessen Horowitz.

Marc and I share a simple belief that became the basis for our new venture capital firm: In general, founding CEOs perform better than professional CEOs over the long term, and a venture capital firm that enables founding CEOs to succeed would help build the best companies and yield superior investment returns.

As we set out to design a venture capital firm that would enable founders to run their own companies, we began by asking: In what ways are professional CEOs superior to founder CEOs?

Professional CEOs bring two core advantages to the table:

• Superior skill set — Being CEO requires vast know-how that is very difficult to gain without extensive experience actually being CEO. Founders with no CEO experience naturally make many critical mistakes during their “on the job training” period. Excellent professional CEOs already have those skills.
• Superior network — Great professional CEOs know lots of outstanding executives and employees. They also know key reporters and analysts, important potential customers and top industry players. Founders tend not to have enough industry experience to know all these people, and need to build their networks almost from scratch.

Next, we asked: How might a venture capital firm help close those gaps?

Addressing the skill-set issue proved to be difficult because, sadly, the only way to learn how to be a CEO is to be a CEO. Sure, we might try to teach some skills, but I know from experience that learning to be a CEO through classroom training would be like learning to be an NFL quarterback through classroom training. Even if Peyton Manning and Tom Brady were your instructors, with no experience, you’d get killed the moment you took the field.

We decided that while we would not be able to give a founder CEO all the skills she needed, we would be able to provide the kind of mentorship that would accelerate the learning process. As a result, our first requirement for General Partners is to be an effective mentor for a founder striving to be a CEO. This is why so many of our General Partners are former founders or CEOs or both, and they are all highly focused on helping founders become outstanding CEOs.

Of course, not all founders want to be CEO — there are companies for which the right thing is to bring in a professional CEO. For those companies, we focus on helping the founders identify the right CEO, and then helping the CEO successfully integrate into the company and partner with the founders to retain their unique strengths.

Next, we went after the network.

Existing venture capitalists with whom we had worked had important industry relationships, but we found them to be lacking in the following ways:

• Siloed — As an entrepreneur, you can often count on the General Partner on your board to introduce you to customers or executives, but you can’t count on the venture capital firm itself. Each General Partner has his own distinct network, and it’s not really feasible or practical to access the other partners’ networks because those partners prioritize their own companies, and in practice you will never see them — they are not available to help you. So, there is no firm-wide network you can plug into.
• Hard to access — As CEO, it’s always a bit weird to say to your VC, “Please introduce me to some potential customers.” First, it seems like an inconvenience — VCs are clearly busy people, with many other things to do. Second, there isn’t any easy process to execute that introduction. Where will this introduction take place? Will the VC set up the meeting? Will you have to fly out to see the prospect? Will the VC come with you? Will the prospect be qualified well enough to do that? If not, then should you even ask? To make matters worse, the need to meet customers is not a one-time event. How do you ask your VC the second, third and tenth times? And at what point does your VC start to judge you as incapable of reaching customers (or partners, distributors, suppliers, investors or acquirers) on your own?
• Incomplete — Finally, VC networks tend to be incomplete. A certain General Partner might know a certain type of customer, like telecom carriers; but not others, like pharmaceutical companies or government agencies. They may know customers, but not have deep relationships with key reporters. They may know key reporters, but not know executives you would want to hire. They might know executives, but not engineers. As founding CEO, one tends to be busy. If you spend time trying to tap a network and come up empty, you probably won’t bother trying again.

To address these issues, we designed Andreessen Horowitz’s network to be firm-wide, dead simple to access, and comprehensive — supported by operating partners who work full-time to develop and manage each branch of the network.

This approach has already lead to some stunning results:

• In 2011, we hosted over 600 portfolio presentations to corporate customers and partners at our office in Menlo Park. These presentations resulted in more than 3,000 introductions between portfolio companies and prospective Fortune 500/Global 2000 senior executives.
• We’ve built relationships with over 4,000 engineers, designers and product managers, and we’ve made more than 1,300 introductions to our portfolio companies, resulting in 130 hires within the portfolio.
• We added over 550 executives to our network in 2011, and made more than 300 executive introductions to our portfolio companies.
• We’ve had nearly 400 interactions with media on behalf of our portfolio companies.

Through these practices, we’ve been able to help founders develop critical CEO skills and wield networks as broad and powerful as the best professional CEOs. And that is why we have become a popular firm among founders.

Our reputation with founders has then enabled us to invest in great entrepreneurs building the great new technology companies. Interestingly, the demand from entrepreneurs has come in all stages and sizes. From seed-stage entrepreneurs like JR Rivers at Cumulus Networks, to entrepreneurs with fast-growing enterprises like Brian Chesky at Airbnb, great founders everywhere want to be the best CEO that they can be, and work with us to help them do that.

And that’s both how and why we raised $2.7 billion. We are uniquely positioned to help the greatest technology entrepreneurs in the world build the best technology companies in the world, and that’s just what we’re going to do.

How green is Silicon Valley? Very, it seems.

As expected, and as has been widely reported (including here), Andreessen Horowitz finally announced its latest venture fund, raising $1.5 billion for venture investments. The huge amount is the Silicon Valley firm’s third.

Its investments in its previous two funds have included such high-profile start-ups as Airbnb and Pinterest.

Here’s the official press release:

Andreessen Horowitz Announces $1.5 Billion Fund III
Continues Focus on Helping Great Entrepreneurs Build Great Companies

MENLO PARK, Calif., Jan 31, 2012 (BUSINESS WIRE) – Andreessen Horowitz ( www.a16z.com ) today announced that it has raised $1.5 billion for its Fund III, continuing its mission of helping great entrepreneurs build great companies.

“a16z’s Fund III is all about extending our capabilities to more disruptors and pioneers,” said Co-founder and General Partner Ben Horowitz. “We’re remaking the modern venture capital firm, and entrepreneurs are responding to our unique approach.”

a16z has raised $2.7 billion since its founding in June 2009 and currently has a portfolio of 90 consumer and enterprise technology companies across all stages, including Airbnb, Box, Fab, Facebook, Foursquare, GoodData, Lookout, Lytro, Magnet Systems, Nicira, Pinterest, Silver Tail Systems, Tidemark and Zynga.

“Software is the catalyst that will remake entire industries during the next decade. We are single-mindedly focused on partnering with the best innovators pursuing the biggest markets,” said Co-founder and General Partner Marc Andreessen.

a16z provides entrepreneurs with direct access to six general partners — Jeff Jordan, Peter Levine, John O’Farrell, Scott Weiss, plus Horowitz and Andreessen — all of whom are experienced operators and company builders. a16z also enables entrepreneurs to utilize expertise from operating partners who specialize in business development, technical talent, executive talent, market intelligence, and marketing and brand building, plus the economics expertise of Special Advisor Larry Summers.

Fund III is available to be deployed immediately. Further detail about the firm’s new fund is available on Ben Horowitz’s blog: www.bhorowitz.com.

When you base your life on credit
and your loving days are done
checks you signed with love and kisses
later come back signed insufficient funds.
– Funkadelic

Thanks to Ward Cunningham, the metaphor “technical debt” is now a well-understood concept. While you may be able to borrow time by writing quick and dirty code, you will eventually have to pay it back — with interest. Often this trade-off makes sense, but you will run into serious trouble if you fail to keep the trade-off in the front of your mind.

There also exists a less well-understood parallel concept, which I will call management debt.

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Also like technical debt, the trade-off sometimes makes sense, but often does not. More importantly, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.

Like technical debt, management debt comes in too many different forms to elaborate entirely, but a few salient examples will help explain the concept. For this post, I chose three of the more popular types among start-ups:

• Putting two in the box
• Overcompensating a key employee because she gets another job offer
• No performance management or employee feedback process

Putting two in the box
What do you do when you have two outstanding employees who logically both fit in the exact same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, but she does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So, you get the bright idea to put “two in the box” and take on a little management debt. The short-term benefits are clear: a) you keep both employees, b) you don’t have to develop either because they will theoretically help each other develop and c) you instantly close the skill set gap. Unfortunately, you will pay for those benefits at a very high rate of interest.

For starters, by doing this you will make every engineer’s job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it’s a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?

In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term, you might mitigate these effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy the mitigation will fade and the organization will degenerate. Eventually, you’ll either make a lump sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.

Overcompensating a key employee because she gets another job offer
An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were undercompensating her, but the offer from the other company pays more than any engineer in your company, and the employee in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.

Here’s how the payment will come due. You probably think that your counteroffer was confidential because you’d sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret, but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So, he told the story, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company then threaten to quit. It’s going to take awhile to pay off that debt.

No performance management or employee feedback process
Your company is now 25 people and you know that you should formalize the performance management process, but you don’t want to pay the price. You worry that doing so will make it feel like a “big company.” Plus, you do not want your employees to be offended by the feedback, because you can’t afford to lose anyone right now. And people are happy, so why rock the boat? Why not take on a little management debt?

The first noticeable payments will be due when somebody performs below expectations:

CEO: “He was good when we hired him, what happened?”
Manager: “He’s not doing the things that we need him to do.”
CEO: “Did we clearly tell him that?”
Manager: “Maybe not clearly …”

However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weaknesses that they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.

In the end
Every really good, really experienced CEO I know shares one important characteristic: they tend to opt for the hard answer to organizational issues. Faced with giving everyone the same bonus to make things easy or sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. Given the choice of cutting a popular project today because it’s not in the long-term plans or keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt and they would rather not do it again.

Special thanks to my friend Joanne Bradford who came up with the idea for this post and coined the term “management debt.”

As bidders ready their offers for all or parts of Yahoo this week, a lot of the eyes for one of the more aggressive ones will likely be on well-known Silicon Valley entrepreneur and powerful VC Marc Andreessen.

That’s because he’s deciding whether or not to play a significant role — as a key board member and even possibly as chairman — in an effort by private equity firm Silver Lake to buy part of the troubled Internet giant and attempt a dramatic reversal of its waning fortunes.

Andreessen, who now runs the Andreessen Horowitz venture firm with Ben Horowitz, has visited Yahoo execs, as I reported last week, part of a weighing of whether to deeply enmesh himself in turning around the iconic Web property.

He has been, as was also reported several months ago, allied with Silver Lake on a Yahoo effort since September and worked with the firm on its purchase and then sale of Internet communications service Skype.

For Andreessen — who serves on the board of Hewlett-Packard and has a lot on his plate running a major venture firm with investments at key companies throughout the tech sector — the decision to join with Silver Lake is a tough one, given that the possibility of failure is not unheard of.

“The question is whether Yahoo can be a growth company again,” said one person close to the situation. “And that is still unclear.”

In meetings with Yahoo execs, several sources noted that Andreessen was unusually blunt about the problems Yahoo faces and its mistakes in the past. They noted as well his reticence over the amount of work required to make a difference.

“He seemed very negative on the idea of whether anyone had what it took to turn it around,” said one exec.

Another factor: Possible friction with Yahoo co-founder and Andreessen friend Jerry Yang. The pair have discussed the issue on friendly terms. “Marc would not do this without Jerry being okay with it,” said one source.

That’s because observers expect the entrance of the Netscape co-founder — who has enormous clout with engineering talent across Silicon Valley, which Yahoo dearly needs — to overshadow and even minimize Yang’s involvement.

One thing is clear: Major shareholders, who are wary of any deal that would keep the current regime in place at Yahoo, told me in multiple interviews last week that the only way they would accept a partial investment by a private equity firm — called a PIPE — would be if there was new leadership in any deal.

And the first name mentioned by almost every Yahoo investor as a key get? Marc Andreessen.

Andreessen declined to comment on any of the 53 emails I sent him asking to.

Best-run company in technology. … (Mark Zuckerberg) is probably the best new CEO that I’ve seen. He is incredibly thoughtful about how he has constructed that company.

– Venture capitalist Ben Horowitz at the Web 2.0 Summit

“Better check yo self before you wreck yo self”
– Ice Cube

Everyone in the technology industry seems to agree that people are paramount, yet nobody seems to be on the same page about what the people organization — Human Resources — should look like.

The problem is that when it comes to HR, most CEOs don’t really know what they want. In theory, they want a well-managed company with a great culture. They know instinctively that an HR organization probably can’t deliver that. As a result, CEOs usually punt on the issue and implement something that’s suboptimal, if not worthless.

Interestingly, one of the first things that you learn when you run an engineering organization is that a good Quality Assurance department cannot build a high-quality product, but it can tell you when the development team builds a low-quality product. Similarly, a high-quality Human Resources organization cannot make you a well-managed company with a great culture, but it can tell you when you and your managers are not getting the job done.

The employee life cycle
The best way to approach management quality assurance is through the lens of the employee life cycle. From hire to retire, how good is your company? Is your management team world-class in all phases? How do you know?

A great HR organization will support, measure and help improve your management team. Some of the questions that they will help you answer:

Recruiting and hiring

• Do you understand the skills and talents required to succeed in every open position?
• Are your interviewers well-prepared?
• Do your managers and employees do an effective job of selling your company to prospective employees?
• Do interviewers arrive on time?
• Do managers and recruiters follow up with candidates in a timely fashion?
• Do you compete effectively for talent against the best companies?

Compensation

• Do your benefits make sense for your company demographics?
• How do your salary and stock option packages compare to the companies that you compete with for talent?
• How well do your performance rankings correspond to your compensation practices?

Training and integration

• When you hire an employee, how long does it take them to become productive from the perspective of the employee, her peers and her manager?
• Shortly after joining, how well does an employee understand what’s expected of her?

Performance management

• Do your managers give consistent, clear feedback to their employees?
• What is the quality of your company’s written performance reviews?
• Did all of your employees receive their reviews on time?
• Do you effectively manage out poor performers?

Motivation

• Are your employees excited to come to work?
• Do your employees believe in the mission of the company?
• Do they enjoy coming to work every day?
• Do you have any employees who are actively disengaged?
• Do your employees clearly understand what’s expected of them?
• Do employees stay a long time or do they quit faster than normal?
• Why do employees quit?

Requirements to be great at running HR
What kind of person should you look for to comprehensively and continuously understand the quality of your management team? Here are some key requirements:

• World-class process design skills: Much like the head of quality assurance, the head of HR must be a masterful process designer. One key to accurately measuring critical management processes is excellent process design and control.
• A true diplomat: Nobody likes a tattletale, and there’s no way for an HR organization to be effective if the management team doesn’t implicitly trust it. Managers must believe that HR is there to help them improve rather than police them. Great HR leaders genuinely want to help the managers and could not care less about getting credit for identifying problems. They will work directly with the managers to get quality up, and only escalate to the CEO when necessary. If an HR leader hoards knowledge, makes power plays or plays politics, he will be useless.
• Industry knowledge: Compensation, benefits, best recruiting practices, etc., are all fast-moving targets. The head of HR must be deeply networked in the industry and stay abreast of all the latest developments.
• Intellectual heft to be the CEO’s trusted advisor: None of the other skills matter if the CEO does not fully back the head of HR in holding the managers to a high standard of quality. In order for this to happen, the CEO must trust the HR leader’s thinking and judgment.
• Understanding of things unspoken: When management quality starts to break down in a company, nobody says anything about it, but super-perceptive people can tell that the company is slipping. You need one of those.

Acknowledgement
I would like to give a very special thanks to my head of Human Resources, Shannon Callahan, who taught me everything that I know about this subject.

A range of major players interested in acquiring all or a large piece of Yahoo have been prepping possible bids and have been in touch with the Internet giant’s board over the last several days.

While Yahoo has publicly said it was not for sale, according to numerous sources both inside and outside the company, it has been receptive to the interest and its Chairman Roy Bostock and Co-founder Jerry Yang have spoken to several.

Among the possible players: Silicon Valley venture firm Andreessen Horowitz, which is working with private equity firm Silver Lake, in a deal that also might include Russia’s DST Global and Yahoo’s Japanese partner Masa Son; former News Corp. exec Peter Chernin, who is partnered with Providence Equity Partners; and the possibility that Yahoo’s Chinese partner, Alibaba Group, might consider entering the fray in what could be a reverse merger of sorts.

Also being rung up by some of the parties: Microsoft — Yahoo’s advertising and search partner — which is being seen as a possibly moneybags in any deal.

The movement among these investors is against a backdrop of increasing pressure for Yahoo’s board, after it fired CEO Carol Bartz last week. In the wake of the dramatic move, shareholders have upped criticism of Bostock and the board and have been looking hard for alternatives.

Today, that included hedge fund investor Daniel Loeb of Third Point, which has a 5.1 percent stake in Yahoo. In a filing this morning, he said he might increase that amount, and described a testy hour-long phone call he had earlier this week with Bostock that ended abruptly with a hang-up from Yahoo.

Sources said Loeb called Bostock a “fool,” among other not-so-nice names, on the call and asked for Yang’s help in dumping him.

This comes as exactly no surprise, given his previously strong letter in which Loeb called for Bostock’s ouster.

Loeb has been calling out Bostock — who is also on the boards of Morgan Stanley and Delta Airlines — for a series of gaffes at Yahoo since he became chairman in 2008 (he’s been on the board since 2003).

Those have included: Yahoo’s bungled effort to stave off a takeover by Microsoft several years ago; the too-long enthusiasm for Bartz, who was hired in early 2009 and fired last week; sitting unusually still as competitors such as Facebook, Google and more have out-innovated and outgrown Yahoo; and, of course, the falling knife of a stock, which has dropped precipitously since Bostock has been in charge of the board.

As Loeb wrote in a letter he sent to the company last week:

“It is time that certain members of this Board were held accountable for its past failures and their individual roles. Accordingly, we insist that Mr. Bostock, who championed Ms. Bartz’s hiring and led the charge against the Microsoft deal, promptly resign from the Board.”

Loeb is likely to add to that later today at a high-profile investor conference in New York, where the colorful but tough-talking investor is sure to add more logs to the fire.

But it not only him. Other major shareholders of Yahoo are also in touch with possible outside buyers, seeking a change at the long-troubled company, after its shares have remained in the doldrums, its attrition rate of employees has spiked and its product pipeline has slowed to drip.

This has all been taking place — of course — during one of tech biggest and most innovative booms, in which Yahoo competitors have grown strongly.

Enter Marc Andreessen, the well-known entrepreneur who has transformed himself into one of Silicon Valley’s most powerful venture capitalists.

He and his partner Ben Horowitz recently pulled off another similar deal — with Silver Lake — to take control of a then-troubled Skype. They later flipped it to Microsoft for a large return.

Sources familiar with the situation said the pair have become increasingly intrigued by the situation at Yahoo and believe that its assets and brand are still strong, despite its management turmoil in recent years.

One problem is the huge cost of almost any kind of takeover and also the complexity, given much of Yahoo’s $18.5 billion valuation is due to its Asian assets.

The sale of those shares, as well as the selling off of some of Yahoo’s less core properties, makes for a very complicated situation for anyone.

Said one person looking at the company: “It is one of the more massive hairballs around.”

That is a common sentiment among many of those looking at Yahoo, which has hired Allen & Co. to manage the process.

Also of worry is a bid that would include too many players. Yahoo has long been plagued by indecisiveness on the part of its execs and, mostly, its board.

But one thing all the possible buyers of Yahoo, as well as an increasing number of its shareholders, agree on: The Yahoo board needs a major shake-up.

As Loeb wrote last week, which many I interviewed also echoed:

“This letter details our principled demands for sweeping changes in both the Board of Directors (the “Board”) and Company leadership, and outlines the hidden value of Yahoo, which has been severely damaged — but not irreparably — by poor management and governance.”

Vanity Fair magazine put out its high-profile “New Establishment” list of the top 50 people, who are “an innovative new breed of buccaneering visionaries, engineering prodigies, and entrepreneurs, who quite often sport hoodies, floppy hair, and backpacks.”

The hoodie part would be referring to Facebook CEO and co-founder Mark Zuckerberg, who topped the list — which is in the just-released October issue — for the second year in a row.

The Vanity Fair list was packed with Silicon Valley luminaries.

The No. 2 spot went to the hopelessly conjoined twins at Google, CEO Larry Page and his co-founder Sergey Brin. Amazon’s Jeff Bezos was No. 3, followed by newly born CEO Tim Cook and top product guy Jonathan Ive of Apple at No. 4, with Twitter creator and Square founder Jack Dorsey at No. 5.

Interestingly, super-VCs Mark Andreessen and Ben Horowitz clocked in this year at No. 6.

The digitally fast-forward Lady Gaga was the top woman on the list at No. 9, in front of “Harry Potter” author J. K. Rowling at No. 16.

And, clocking in at No. 40? Why, me and my partner-in-crime at AllThingsD, Walt Mossberg. He is apparently a “kingmaker” of tech and I do “juicy exclusives.”

That actually is pretty accurate. More importantly, we were ranked higher than Justin Timberlake and Ashton Kutcher. In other words: Mission accomplished!

We also beat the Angry Birds dudes at No. 49, whom my two kids would nonetheless have voted tops over their mom any day of the week and twice on Sunday.

In addition, Vanity Fair broke off a list of 25 “Powers That Be,” which is made up of a lot of longtime “New Establishment” folks, as well as another list called the “Hall of Fame.”

“These are the people who have shaped the world we live in today — and continue to wield enormous influence,” said Vanity Fair, which translates into dustier moguls.

Topping the powers-that-be, of course, is Apple’s co-founder and Chairman Steve Jobs. And outgone Google CEO and now Executive Chairman Eric Schmidt is now enshrined in the hall of fame.

As Walt and I head to a good table at the Minetta Tavern to meet the cool peeps for a celebratory drink, here is the official press releases from Vanity Fair:

FACEBOOK FOUNDER MARK ZUCKERBERG TOPS VANITY FAIR’S NEW ESTABLISHMENT LIST FOR THE SECOND YEAR IN A ROW

Sergey Brin and Larry Page Take No. 2 Spot, Lady Gaga Jumps to the Top 10 of Tech-Dominant List

NEW YORK, N.Y. — “The Age of Information gives way to a burgeoning Age of Technology,” announces Graydon Carter, remarking on the “seismic shift in interest and influence” that has occurred in the 17 years that Vanity Fair has been ranking America’s power players. The magazine’s 2011 New Establishment list identifies the top 50 of an innovative new breed of buccaneering visionaries, engineering prodigies, and entrepreneurs, who quite often sport hoodies, floppy hair, and backpacks.

Mark Zuckerberg, founder of the inescapable social-networking site Facebook, maintains his perch at the top of Vanity Fair’s 17th annual New Establishment List ranking for the second year in a row. With a possible I.P.O. on the horizon by 2012, which could value the company anywhere between $50 and $100 billion, Facebook has enough clout to worry even the unshakable Google. Zuckerberg is still the youngest person ever to top the list.

Sergey Brin and Larry Page, co-founders of Google, are in the No. 2 spot this year, closing in on Zuckerberg as they jump up one spot, from No. 3 in 2010. Eric Schmidt, who appeared on the list last year with the duo, has since been pushed out of the C.E.O’s office, replaced by Page. Despite reports of an anti-trust investigation, Google has been setting its sites on Facebook by concentrating on strategic initiatives, such as engineering social-networking features.

Rounding out the top five are Jeff Bezos, of Amazon, at No. 3, Tim Cook and Jonathan Ive, of Apple, at No. 4, and Twitter and Square founder Jack Dorsey, at No. 5.

Lady Gaga makes an appearance for the second year in a row. Coming in at No. 9, she is the highest-ranking woman on the list, in front of J. K. Rowling at No. 16, Sheryl Sandberg, of Facebook, at No. 26, Angela Ahrendts with Christopher Bailey, of Burberry, at No. 30, Natalie Massenet at No. 32, and Kara Swisher with Walt Mossberg at No. 40. At 25 years old, Gaga is also the youngest person on the list — not a surprise for someone whose fans managed to crash Amazon’s servers in their desperation to download her third album.

Youthful energy is spread throughout this year’s list with 15 members under the age of 40, including Zuckerberg, Brin and Page, Dorsey, Lady Gaga, Andrew Mason, Sean Parker, Ryan Kavanaugh, Jeremy Stoppelman, Ashton Kutcher, Dennis Crowley, Daniel Ek, Mikael Hed and Niklas Hed, and Justin Timberlake.

There are 14 billionaires on the list: Zuckerberg, Brin and Page, Bezos, Mark Pincus, Michael Moritz, J. K. Rowling, Jim Breyer, Reid Hoffman, Herbert Allen III, Yuri Milner, Robin Li, Parker, and Peter Thiel.

Five member of the New Establishment are actively involved in space exploration, including Brin, Elon Musk, Bezos, Thiel, and Dennis Crowley. Eight of the New Establishment nominees can count themselves members of the ever growing Stanford Mafia; they include Brin, Page, Reed Hastings, Jim Breyer, Hoffman, Musk, Thiel, and John Hennessy.

The New Establishment, Vanity Fair’s annual ranking of the top leaders of our time, is made up of owners, creators, buyers, thinkers, and innovators — the movers and shakers in the worlds of technology, media, business, politics, entertainment, and fashion. These men and women are the taste-makers and trendsetters, opinion formers and agenda creators, not to mention empire builders. Entry into the ranks of Vanity Fair’s list is based on a number of factors: wealth, influence, and philanthropy, as well as such intangibles as vision and the x factor.

The October issue of Vanity Fair will be on newsstands in New York and L.A. on September 1, and nationally and on the iPad September 6.

THE VANITY FAIR NEW ESTABLISHMENT

1. Mark Zuckerberg, Facebook
2. Sergey Brin and Larry Page, Google
3. Jeff Bezos, Amazon
4. Tim Cook and Jonathan Ive, Apple
5. Jack Dorsey, Square, Twitter
6. Marc Andreessen and Ben Horowitz, Andreessen Horowitz
7. Reed Hastings, Netflix
8. John Lasseter, Pixar, Walt Disney Animation Studios
9. Lady Gaga, singer
10. Dan Doctoroff, Bloomberg L.P.
11. Dick Costolo, Twitter
12. Mark Pincus, Zynga
13. Jim Breyer, Accel Partners
14. Tim Burton, Johnny Depp, and Graham King, Movies
15. Michael Moritz, Sequoia Capital
16. J. K. Rowling, Harry Potter
17. Trey Parker and Matt Stone, South Park
18. Reid Hoffman, Greylock Partners, LinkedIn
19. Herb Allen III, Allen & Co.
20. Judd Apatow, Apatow Productions
21. Jay-Z, Roc Nation
22. Todd Phillips, Green Hat Films
23. Yuri Milner, DST Global
24. J. J. Abrams, writer, director, producer
25. Robin Li, Baidu
26. Sheryl Sandberg, Facebook
27. Andrew Mason, Groupon
28. Jon Stewart and Stephen Colbert, television
29. Mark Wahlberg and Stephen Levinson, Leverage
30. Angela Ahrendts and Christopher Bailey, Burberry
31. Elon Musk, Tesla Motors, Space X
32. Natalie Massenet, Net-a-Porter Group
33. Paul Graham, Y Combinator
34. Sean Parker, entrepreneur
35. Fred Wilson, Union Square Ventures, Flatiron Partners
36. Peter Thiel, Founders Fund, Clarium Capital Management
37. Peter Jackson, Wingnut Films
38. Ryan Kavanaugh, Relativity Media
39. Mike Allen, Politico
40. Walt Mossberg and Kara Swisher, All Things D
41. John Hennessy, Stanford University
42. Jeremy Stoppelman, Yelp
43. Ashton Kutcher, actor, investor
44. Tyler Perry, director, producer, writer, actor
45. Dennis Crowley, Foursquare
46. Kevin Ryan, Gilt Groupe
47. Daniel Ek, Spotify
48. Henry Blodget, Business Insider
49. Mikael Hed, Niklas Hed, and Peter Vesterbacka, Rovio
50. Justin Timberlake, singer, actor

STEVE JOBS HOLDS THE TOP SPOT ON VANITY FAIR’S LIST OF THE POWERS THAT BE

Embattled News Corp. Chairman Rupert Murdoch in the Top 5

NEW YORK, N.Y. — This year Vanity Fair inaugurates a list of the Powers That Be. These are the people who have shaped the world we live in today — and continue to wield enormous influence. Many are longtime New Establishment members, and their destinies are intertwined with the members of this year’s New Establishment.

Steve Jobs, of Apple, holds the top spot on the list of the Powers That Be. Since Jobs took control of the company 14 years ago, the stock’s share price has risen more than 6,500 percent. At the height of the debt crisis in late July, Apple had more cash on hand than the U.S. government.

Bernard Arnault, of luxury-goods company LVMH, ranks in the No. 2 spot. As an overseer of countless enduring luxury brands, Arnault has left his mark on the industry. Last year he spent $2 billion to accumulate a 20 percent stake in family-controlled but publicly traded Hermès.

Mayor Michael Bloomberg is No.3 on this year’s list while News Corporation chairman Rupert Murdoch comes in at No. 4. The tumultuous News of the World scandals this year have shaken the media baron, but also shown his staying power in the face of just about anything. Brian Roberts and Steve Burke, of Comcast, NBCUniversal, who recently acquired the U.S. media rights to the Olympic Games through 2020, are No. 5.

Jill Abramson is the highest-ranking woman out of six on the list, at No. 9. She is followed by Angelina Jolie with Brad Pitt at No. 11, Sue Naegle with Richard Plepler and Michael Lombardo at No. 15, Anne Sweeney with George Bodenheimer at No. 22, Bonnie Hammer at No. 24, and Arianna Huffington with Tim Armstrong at No. 25.

Because some power is permanent, Vanity Fair nominates a number of regulars to the Hall of Fame this year. Warren Buffett, of Berkshire Hathaway, joins Barry Diller and Diane von Furstenberg, Tom Ford, actor Tom Hanks, and designer Karl Lagerfeld. Network impresario Oprah Winfrey, Jeffrey Katzenberg, of DreamWorks Animation, and talk-show host Charlie Rose all make the ranks as well.

The October issue of Vanity Fair will be on newsstands in New York and L.A. on September 1, and nationally and on the iPad September 6.

THE POWERS THAT BE

1. Steve Jobs, Apple
2. Bernard Arnault, LVMH
3. Michael Bloomberg, mayor, New York City
4. Rupert Murdoch, News Corporation
5. Brian Roberts and Steve Burke, Comcast, NBCUniversal
6. François-Henri Pinault, PPR
7. Bob Iger, Walt Disney Company
8. Jeffrey Bewkes, Time Warner
9. Jill Abramson, The New York Times
10. Steve Ballmer, Microsoft
11. Brad Pitt and Angelina Jolie, movies, philanthropy
12. Diego Della Valle, Tod’s
13. Roman Abramovich, investments
14. Mickey Drexler, J. Crew
15. Richard Plepler, Sue Naegle, and Michael Lombardo, HBO
16. Larry Gagosian, Gagosian Gallery
17. Harvey and Bob Weinstein, the Weinstein Company
18. Marc Jacobs, designer
19. Lorne Michaels, Saturday Night Live
20. David Zaslav, Discovery Communications
21. Jean Pigozzi, investments, art
22. George Bodenheimer and Anne Sweeney, Disney Media Networks
23. Vivi Nevo, NV Investments
24. Bonnie Hammer, NBCU Cable Entertainment and Cable Studios
25. Tim Armstrong and Arianna Huffington, AOL Huffington Post Media Group

HALL OF FAME

Edgar Bronfman Jr., Warner Music Group
Warren Buffett, Berkshire Hathaway
Ron Conway, angel investor
Philippe Dauman, Viacom
Barry Diller and Diane von Furstenberg, IAC, DVF
John Doerr, Kleiner Perkins Caufield & Byers
Larry Ellison, Oracle Corporation
Tom Ford, designer/filmmaker
Ted Forstmann, IMG Worldwide
Tom Freston, Firefly3
Brian Grazer and Ron Howard, Imagine Entertainment
Tom Hanks, actor
Jeffrey Katzenberg, DreamWorks Animation
Vinod Khosla, Khosla Ventures
Karl Lagerfeld, Chanel
Ralph Lauren, Polo Ralph Lauren
John Malone, Liberty Media
Ron Meyer, Universal Studios
Leslie Moonves, CBS
Ronald Perelman, MacAndrews and Forbes
Miuccia Prada, Prada
Charlie Rose, talk-show host
Eric Schmidt, Google
Terry Semel, investor
Oprah Winfrey, OWN

(Full disclosure: Readers who look closely at the list will notice that all things ATD senior editor Peter Kafka is listed as a contributor. This is true! Also true: Peter wrote biographical entries for several people on the list, but has zero input on its composition. He tells us he had no idea that we were being considered for inclusion, and we believe him. He also says that had he been asked for his opinion, he would have voted for us, his bosses, to be included. We also believe that.)

The company, which for several years has been quietly building a new type of camera, revealed its technology this week. The Mountain View company is using an approach known as light-field imagery, which offers a number of advantages over traditional photography, most notably the ability to focus and refocus an image after it has been taken.

Guests at Lytro’s San Francisco art gallery launch event on Wednesday night had a chance to appear in their own light-field portraits, striking a pose alongside circus performers. The crowd featured many of those responsible for Lytro’s technology, including the Stanford professors that guided CEO Ren Ng’s early research, the company’s early funders and advisers, and the team that helped it pull off its splashy launch, which had Lytro featured all day Wednesday as the top tech story on Google News.

At the event, I had a chance to catch up with Ng, as well as some of the company’s early investors, including Andreessen Horowitz partner Ben Horowitz, Intuit founder Scott Cook and former Greylock partner Charles Chi, who is now the company’s full-time executive chairman.

Speaking to the crowd, Chi recalled his seemingly crazy decision, several years ago, to invest in a company with an academic at the helm and a bizarre business model. The positive response the company got to its launch, Chi said, showed that maybe it wasn’t that crazy after all.

“I wasn’t totally delirious all those years ago making that first investment,” Chi said.

Related posts

• Meet the Stealthy Start-Up That Aims to Sharpen Focus of Entire Camera Industry
• BlackBerry’s Fuzzy Forecast and Pictures That Never Are (Video)
• Its Goal in Focus, Camera Start-Up Lytro Takes a Moment to Celebrate (Video)
• All Lytro coverage

]]> http://allthingsd.com/20110623/its-goal-in-focus-camera-start-up-lytro-takes-a-moment-to-celebrate-video/feed/ 0 http://allthingsd.com/20110510/microsoft-buys-skype/ http://allthingsd.com/20110510/microsoft-buys-skype/#comments Tue, 10 May 2011 12:34:29 +0000 Ben Horowitz http://voices.allthingsd.com/?p=40842

“All these bitches and niggas still hatin’
I used to be ballin’, but now I’m Bill Gate-in’”
–Lil’ Wayne

Shortly after we started Andreessen Horowitz, we, along with our partners at Silver Lake Partners and Canada Pension Plan Investment Board, bought Skype from eBay for slightly more than $2B. The investment generated a tremendous amount of controversy for us. Marc and I were known as angel investors, so investing $50M of our $300M fund in one deal surprised people. While consistent with our stage-agnostic strategy, it was a very big deal very early on in the fund. To make matters more exciting, other investors and writers broadly criticized the deal. Joe Nocera of the New York Times wrote:

“Many people on Wall Street–and a number of telecommunications experts I spoke to this week–were stunned by the price Skype sold for, and not just because we’re in the middle of a recession.”

That controversy ended this morning when Microsoft announced that it was buying Skype for $8.5B less than two years after we bought it from eBay.

Let’s look back at the original decision and see why it turned out well. At the time, people criticized us for two primary reasons:

1. Ebay might not have owned Skype’s underlying intellectual property. Skype’s founders, Niklas Zennstrom and Janus Friis, held an IP claim against Skype. Many speculated that the founders would use their claim to shut down Skype and leave investors with nothing. This made the company theoretically impossible to buy.

As Nocera wrote:

“And so, the mystery of the Skype deal: why were the winning bidders willing to pay so high a price for a company whose very existence could be threatened by this lawsuit? One possibility is that they have nerves of steel. The other is that they know something nobody else does.”

2. The shifting technology landscape would tilt the playing field away from Skype. While Skype won the original Internet telephony wars, they did so with a fat desktop client. From a technology standpoint, at the time, it was technically impossible to field a high-quality web client or mobile product, but that time wouldn’t last. Many observers believed–as the world inevitably transitioned to mobile and web–Skype would be left in the dust.

With a company as complex as Skype, investors draw different conclusions about the same facts. In this case we had the same data as everybody else, but we had a radically higher opinion of Skype’s founders and employees than the investors who passed on the deal. We believed that we could work with rather than against the founders. More importantly, we believed that Skype’s engineering team, led by the original Eastern European wizards who created the service, could compete and win against anybody.

We thought that Niklas Zennstrom and Janus Friis wanted Skype to be a huge success and would do everything in their power to make that happen. As a result, we did not think the doomsday scenario that greatly concerned other investors–that the founders would attempt to shut down the company through the courts–was an actual possibility. Based on the founder’s motivations, we felt that we’d quickly settle the IP litigation. Both sides wanted to get on with the business of making Skype more competitive and could not afford to waste time bickering about IP ownership.

We couldn’t have been more right about that. After quickly settling the litigation, both founders immediately made major contributions to the business through their energy, insight, and intellectual prowess. And boy did we need them to do that, because we soon faced full frontal assaults from both Google and Apple.

When giants attack

In a direct attack, Google offered a free competitor to Skype’s U.S. paid product and a heavily discounted competitor to Skype’s international product. Google then aggressively promoted these cheap products to their enormous Gmail user base by forcing every Gmail user to view Google’s Internet telephony advertisement before allowing them to access their email. What was the result of this effort? Skype new users and usage growth has accelerated since Google’s launch culminating in:

· 500,000 new registered users per day
· 170 million connected users
· 30 million users communicating on the Skype platform concurrently
· 209 billion voice and video minutes in 2010

On the mobile front, Apple built video calling right into the iPhone, making their product the default offering for iPhone users. How did that impact Skype’s usage on the iPhone? 50 million users have downloaded Skype’s iPhone product since the release of Apple’s Facetime.

In retrospect, it was easy for people to underestimate the quality of the Skype engineering team and the power of Skype’s network effect. When we bought the company from eBay, many thought that Skype, like so many acquired technology companies, had lost its technical talent. Through our research we found that Skype had a core group of engineers who were completely dedicated to the mission. They stayed through the eBay acquisition and were determined to make Skype the communications company of the future. Over the past decade, this team consistently introduced groundbreaking technologies ranging from highly resilient and scalable peer-to-peer networking to radically higher sound quality through dramatically superior codecs. In doing so, Skype out-innovated the competition in the most important areas. When combined with its powerful network effect–how valuable is a video calling service if there is nobody to call?–Skype became a formidable competitor.

Smart move, Microsoft

Today, I tip my hat to an old rival, Microsoft. By acquiring Skype, Microsoft becomes a much stronger player in mobile and the clear market leader in Internet voice and video communications. More importantly, Microsoft gets a team, led by the exceptional Tony Bates, that can compete with anyone.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

]]> http://allthingsd.com/20110510/microsoft-buys-skype/feed/ 0 http://allthingsd.com/20110503/exclusive-opentable-ceo-jordan-likely-to-head-to-silicon-valley-vc-firm-andreessen-horowitz/ http://allthingsd.com/20110503/exclusive-opentable-ceo-jordan-likely-to-head-to-silicon-valley-vc-firm-andreessen-horowitz/#comments Wed, 04 May 2011 05:28:00 +0000 Kara Swisher http://kara.allthingsd.com/?p=43519

Jeff Jordan, the president and CEO of OpenTable who unexpectedly stepped down from his job today at the online restaurant reservation leader, is set to take a job at a major venture firm in Silicon Valley.

Sources said Jordan has spoken to several major VCs about moving to their firms recently.

While Benchmark Capital was a big funder of OpenTable before it went public in 2009, sources said the likeliest home for the well-known Internet player–Jordan has also been a major exec at eBay–is Andreessen Horowitz.

The move would be a coup for the firm, which has been busy adding partners since its founding only a few years ago by Web icon Marc Andreessen and his longtime business partner Ben Horowitz.

Jordan’s announcement that he was leaving OpenTable today during its first-quarter earnings call caused the stock to decline precipitously today, even though he said he would remain active as executive chairman.

CFO Matthew Roberts was named as his replacement.

Explaining the move, Jordan said:

“I’ve been managing Internet businesses since 1999. That’s 12 years of being in the tornado, and it’s pretty exhausting. I’ll be looking at the next challenge, but in terms of operating an Internet business, I’ve scratched that itch very well.”

It’s an itch that he will be scratching as a VC apparently and likely at one of tech’s hottest firms, which has investments in everything from gaming phenom Zynga to social buying service Groupon to microblogging start-up Twitter.

A spokeswoman for Andreessen Horowitz declined to comment and Jordan has not responded to an email query.

]]> http://allthingsd.com/20110503/exclusive-opentable-ceo-jordan-likely-to-head-to-silicon-valley-vc-firm-andreessen-horowitz/feed/ 3 http://allthingsd.com/20110427/magnet-systems-lands-12-6-million-round-from-andreessen-horowitz/ http://allthingsd.com/20110427/magnet-systems-lands-12-6-million-round-from-andreessen-horowitz/#comments Wed, 27 Apr 2011 20:30:40 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=5507 Alfred Chuang was the A in BEA Systems, the software company that was acquired by Oracle in 2008. His new venture is an outfit called Magnet Systems, which is making a play in social enterprise, but it’s a little different from all the others out there going after that same space.

Enterprise applications themselves, Chuang says, have to change. And that requires a platform to build new applications that are social from the start. The company has built what it calls the Workplace Interaction Network, or WIN. It’s a development platform that lets companies build and deploy their own cloud-based enterprise applications that take into account the connections that employees have within the company and with customers and partners on the outside.

The company is announcing today that it has landed a $12.6 million Series A funding round led by Andreessen Horowitz, the VC fund led by Opsware founders Marc Andreessen and Ben Horowitz. Also involved in the round are Chuang himself (pictured) and another angel investor, Bill Janeway, former vice chairman of Warburg Pincus. (Andreessen Horowitz is having a busy week.)

Millions of Facebook and Twitter and LinkedIn users implies there’s a huge amount of value in bringing the social factors into existing and still-to-be-created kinds of enterprise applications. It’s a crazy area of interest in the marketplace right now. That Salesforce.com chose to launch Chatter with an ad during the Super Bowl and that companies like Jive Software are attracting funding and seriously eyeing an IPO suggest that a fundamental shift in enterprise applications is underway, but it’s still early days. Most businesses, Chuang writes on his blog, still don’t get it.

“It’s almost impossible to believe, but after hundreds of millions of people worldwide have embraced social applications in nearly every aspect of their personal lives, businesses are still resisting social applications,” he writes. “In fact, many enterprises have not made any significant investment in social applications despite obvious use cases for customer service, HR, marketing, product development, recruiting, sales, training and much more.”

Like it or not, he says, employees are using these new lines of communication to get work done, and companies can either turn this trend to their advantage or get left behind. “When you stop to think about it, an employee’s network (and their ability to communicate and collaborate) is what really fuels business,” Chuang writes.

AH partner Ben Horowitz writes on his blog announcing the funding deal, and describes Chuang as the CEO he “admired most during the last decade.” Why? For getting behind and pushing through–over the objections of a skeptical board of directors–BEA’s 1998 acquisition of a little company called WebLogic. It was an early leader in the application server market and went on to grow into a significant portion of BEA’s business. His board convinced, Chuang was promoted to BEA’s CEO in 2001. Ultimately–and as Horowitz puts it, thanks to shortsighted shareholders–BEA became part of Oracle in 2008.

“The transition from today’s Web back-end architectures to tomorrow’s cloud computing will result in profound benefits,” Horowitz writes. “Over time, every existing application will be rewritten to take advantage of the cloud and these benefits. In addition, an incredible new class of never-before-possible applications will be developed.” Change is coming. Get ready.

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