Shares had surged as high as $122.70 during the day, bringing out the Macbeth witch chant from every market watcher not snatching up the stock. Double, double toil and trouble…Fire burn, and cauldron bubble. Heck, even Jim Cramer was doing it.

LinkedIn now has a valuation of $8.9 billion, which is 578 times larger than its 2010 net income of $15.4 million. Revenues were $243 million in 2010 and $94 million in the first quarter of 2011, but revenue growth is slowing, something Ryan Chittum at the Columbia Journalism Review urged bubble-calling journalists to mention.

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Photo by Flickr user yourFAVORITEmartian.

To some investors, the mood is reminiscent of 1995, when the initial public offering of Netscape set off the dot-com craze, leading to a technology bubble. That bubble popped in 2000, littering the tech field with failed companies and red ink.

— “In Silicon Valley, Investors Are Jockeying Like It’s 1999,” The Wall Street Journal, April 19, 2011

Depending on your outlook, the latest venture capital numbers are either further evidence of a recovery or froth growing around an expanding bubble.

Investment in U.S. venture-backed companies rose 35 percent in the first quarter, according to some new metrics from Dow Jones VentureSource. VCs doled out some $6.4 billion spread across 661 deals. That’s a 35 percent increase in investment year over year and a 5 percent increase in the number of deals done. Which is encouraging, particularly since the median sum of VC funding raised in the first quarter was $5 million, up from $4.4 million a year earlier and roughly on par with the 2009 median.

One caveat: this first quarter spike in funding size was driven largely by a few big money deals. Digital music outfit Beyond Oblivion, for example, pulled in $77 million in early-stage funds.

“Investment in consumer-focused Web companies is taking off but only for a select few,” says Dow Jones VentureWire’s Scott Austin. “A handful of large rounds are boosting the total amount of capital invested, but the median amount raised by consumer companies is a reasonable $4 million. That’s not far off from the first quarter of last year and is less than half of the median round sizes we saw in 2000 leading up to the implosion of the dot-com bubble.”

“I’m going back to Cali, Cali, Cali
?I’m going back to Cali . . . hmm, I don’t think so”?
—LL Cool J

Lately, everybody seems to be talking about a new technology bubble. Many very smart CEOs, VCs, reporters, and analysts can’t seem to stop worrying about the second coming of the dot com bust. Are the prognosticators correct? Will we head mercilessly into another crash? I don’t think so.

A Comparison Between Today’s “Bubble” and the Last Tech Bubble

Since so many distinguished people report a broad variety of qualitative bubble signs, let’s attempt to pattern match the quantitative data. As we do so, keep in mind that the relevant bubble statistic is not valuation. It’s the valuation:value ratio. High valuations are fine if the underlying value is there. Let’s look at public market comparables and venture capital flows to see if we can find a match.

1. Public market comparables
In the great bubble of 1998-2000, the boom in public valuations mirrored the boom in private valuations. Similarly, in recent high profile private financing rounds for private technology companies with valuations over $1B, the valuation multiples were at or below corresponding multiples for publicly traded companies such as Google. This has generally been the case for the bulk of deals that we’ve seen at Andreessen Horowitz. If publicly traded technology companies are not at bubble-like prices, then private technology valuations aren’t either because they are roughly equivalent.

To find out whether or not today’s public technology companies have hit bubble valuations, let’s compare some companies that survived the great bubble with their bubble era valuations:

The Enterprise Value-to-Revenue multiple (EV/Rev) and Price-to-Earnings multiple (PE) are commonly used metrics to tell the valuation:value story. Companies that produce little value today might still receive high valuations due to high growth expectations. The PEG Ratio normalizes the valuation:value ratio for growth expectations by tracking the valuation:value ratio per unit of expected earnings growth.

Bubble era valuation multiples were more than 10 times higher than current comparable multiples. As you can see, not all of these multiples are comparable as some of the bubble era multiples were NM—not meaningful—due to negative earnings. This means that the valuations ascribed to these companies were not quantitatively based on the earnings they were generating or projected to generate.

The valuation:value ratio of today’s private and public technology companies look nothing like the bubble ratios.

2. Venture capital flows
A basic driver for a private technology market bubble is the over-supply of venture capital into the sector. If too much venture capital hits the streets, valuations will bubble up. The inflation-adjusted data from the last bubble tells the story:

In the three-year period from 1998-2000, venture capital firms raised more than $200 billion, which represented about 0.55 percent of the national GDP. To put that in perspective, that’s more money than the entire venture industry raised collectively over the prior 18 years.

Flush with lots of capital, venture capital firms naturally invested at historically high rates–from 1998-2000 alone, venture capital investments also topped $200 billion. Again, more dollars were invested in this single 3-year period than in total over the prior 18 years.

Now let’s take a look at the current version of the same inflation-adjusted data:

Total venture capital raised from 2008-2010 was just shy of $55 billion, about 0.12 percent of the national GDP, with the trajectory of capital raising declining in each year. In fact, 2010 venture capital fundraising is at the same level as it was in 1995 and 1996.

Approximately $90 billion has been invested by the venture capital industry from 2008-2010—less than half of the 1998-2000 level. More significantly, total capital invested should continue to remain constrained in light of the significant reduction in new venture capital dollars raised over the last 3 years. Keep in mind that because the life of a venture capital fund is generally 10 years, it takes a while to see the impact of lesser fundraising on total dollars invested.

The inflows don’t actually look that bubblicious.

The Long Awaited Arrival of the Internet Boom

Looking at the numbers in the previous section, you may be wondering: “how in the world did people get so totally out of control in the last bubble?” The short answer is that the expectations of the great Internet boom vastly outstripped the actual activity. Specifically, the market wasn’t nearly as big as anticipated and the products were not nearly as good as imagined–at the time.

When Netscape peaked in the late 90s, we had 90 percent market share and 50 million users. The total Consumer Internet market was 55 million people. That’s about 36X smaller than today’s 2B. Worse yet, over 1/2 of those 55 million were dialup users. In addition, to horrible bandwidth and latency, the technology products were very crude in other ways. Programming languages were radically less functional, hardware was literally a hundred times more expensive, and there was no virtualization or cloud computing or AJAX. Constrained by such an early and weak technology platform, companies built poor applications. As a result, the expectations of what the Internet would be radically outstripped the reality of what it was. And hence the great crash of 2000 and 2001.

Since then and over the last 10 years, everything has gotten better. Much better. Servers moved from proprietary systems made by Sun, IBM, and HP to commodity hardware at a fraction of the price while radically improving in performance. The open source movement dramatically reduced the cost and improved the quality of systems software. Average consumer bandwidth increased 100 fold due to cable modems, DSL, and high-speed wireless networks. Cloud computing, which was not available then, now enables companies to build massively scalable products with very little initial capital outlay. The combination of the Internet and open source transformed the functionality in modern programming tools, increasing developer productivity 10 fold. The resulting applications have been so easy to use that even older generations of consumers now rapidly adopt new technology like Facebook. And there are 2 billion people on the Internet. All of these factors have led to an exciting new set of leading companies, including a special few which grew to over a billion dollars in annual revenue in less than 5 years. Welcome to the great Internet Boom of 2011.

At this point, you may still be worried about the startling rise in valuations of privately held technology companies. As I mentioned before, privately held technology companies trade at reasonable valuations vs. publicly traded comparable companies. These public companies trade at reasonable valuations vs. historical precedents.

In addition, these companies are significantly more mature–in terms of revenue and profit generation–than their counterparts in the last bubble. For example, the 1998 IPO class had average revenue of $120 million (and net losses of $65 million to boot). If you just look at the tech IPOs that have been completed year to date from 2010, the average revenue of this group is north of $300 million.

What about companies with reportedly very little revenue and very high valuations such as Twitter? A good investing rule of thumb is that any company that simultaneously saves Charlie Sheen’s career and starts a revolution in Egypt may be on to something. While Twitter doesn’t make that much money yet, historically media companies that capture hundreds of millions of highly engaged users tend to make money.

Where do we go from here?

You still may be thinking that Twitter and Zynga are great, but now it’s really over–there is no new opportunity. If you think that, you’d be wrong again.

In addition to the unprecedented number of people now reachable via the Internet, we are at the very beginning of a gargantuan new technology cycle: the move from Web/PC computing to cloud and mobile.

Back when I was a youngster in the early 80s, the technology landscape shifted from Mainframe to Client/Server computing. Interestingly the biggest opportunity wasn’t investing in the lighter weight computers that replaced the mainframes, but rather in new products created due to other results of the change. When you don’t have to pay for computing cycles on a MIP/minute basis, developers can change the way they program. The first major change was the move to relational database technology. Relational databases notoriously wasted CPU cycles vs. the old hierarchical databases such as IMS. However, if you didn’t care about CPU cycles, then you could easily cut your database development time by a factor of 10 or more and radically reduce the level of expertise required. By moving to the relational model, developers were released from the tedium of navigating hierarchical databases and used their new found freedom to rewrite every existing application from financial systems to HR applications and wrote a whole set of new systems like Customer Relationship Management. The relational database and application boom created hugely valuable new companies such as Oracle, Siebel Systems, and PeopleSoft. It didn’t stop there. As a result of the shift in application architecture, the old computing infrastructure became inappropriate and created new companies in Networking, Storage, and Management Software like Cisco and EMC.

The shift to cloud computing will have a more profound impact on the computing ecosystem than the shift to client/server. As with client/server, one of the first technologies to break has been the database. Application developers, no longer constrained by the massive administrative costs to set up servers, can solve previously impossible problems by seamlessly adding more hardware–except at the database layer. As a result, dozens of new exciting companies have emerged to replace the old “scale up” relational technology with new scale out solutions. Moving up the stack, everything about today’s application architectures suffers from the performance, scale, and programming model constraints of relational databases. Much like in the days of hierarchical databases, there is a large and important set of functionality that developers dare not tackle due to these limitations. New application companies like WorkDay and Proferi that take advantage of the cloud to deliver never-before-possible solutions, will devastate their old school RDBMS-based competitors.

While server virtualization enabled cloud computing on the server tier, it broke the current networking and storage architectures leading the way for the next generation of decabillion dollar companies in those categories. In the cloud, where applications have been completely decoupled from the underlying infrastructure, the old network and systems management software no longer works, leading to an opportunity for a new company to grab that $30B market.

The greatest beneficiary of the mainframe->client/server shift was a software company called Microsoft which took full advantage of the switch from dumb ASCII terminals to personal computers. Microsoft broke the mold by delivering solutions to both consumers and enterprises and leading the original consumerization of the enterprise. As today’s clients move from PCs to mobile devices, a huge set of opportunities will emerge for new companies to solve important problems.

The very largest opportunities will likely come from companies for which there are no analogy or precedent. Profound new platforms open the market to ideas never before imaginable.

Conclusion

While we can see many signs of a bubble these days, it’s important to keep in mind that signs of a bubble look almost exactly the same as signs of a boom. In fact, it’s usually not a bubble until everyone agrees that it’s a boom. As Warren Buffet said about the housing bubble:

“The basic cause was, you know, embedded in, partly in psychology, partly in reality in a growing and finally pervasive belief that house prices couldn’t go down. And everybody succumbed, virtually everybody succumbed to that. But that’s, the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise–and it’s quite interesting how that develops–originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action. So the media, investors, mortgage bankers, the American public, me, you know, my neighbor, rating agencies, Congress, you name it. People overwhelmingly came to believe that house prices could not fall significantly. And since it was the biggest asset class in the country and it was the easiest class to borrow against it created, you know, probably the biggest bubble in our history. It’ll be a bubble that will be remembered along with South Sea bubble.”

Will all the excitement around the opportunities created by the Internet and the shift to cloud/mobile computing eventually lead to a bubble? Absolutely. Are we in a bubble today? I don’t think so.

Diller expressed a love for SXSW’s Web technology entrepreneurs, earning applause for his comments on net neutrality, chuckles for his stories of Segway tour hijinks, and belly laughs for a story about his wife, Diane von Furstenberg, playing Angry Birds while talking on the phone with him.

“What I like so much about this place is that so many people here are essentially following their curiosity,” Diller said.

As for another technology bubble, “we’re puffing it up pretty nicely,” he said. But, “the fact that money chases it isn’t really that interesting. What is interesting is how much sheer invention is going on.”

Diller said he’s not worried about a technology bubble, but the prices are too high for him personally. As he put it, “All the money that’s going to be lost is going to be lost by people who can lose money. So who cares?”

The IAC chairman restated a deeply held belief in net neutrality. “We need an unambiguous rule–law–that nobody will step between the publisher and the customer. Full stop,” Diller said. Charging a company like Netflix for bandwidth, he added, “would be like asking the toaster to pay for the electricity.”

Diller also made fun of News Corp’s The Daily–don’t release a product “unless you can actually use it”–said he thinks the age of Internet TV is just three years away, and urged content creators to think about longer-form Internet video and micropayments.

Image from a fake Twitter account for Barry Diller, who doesn’t seem to have his own.

For starters, it’s getting everyone–or at least everyone I pay attention to on Twitter*–to talk about LivingSocial. (Groupon who?) And given that Amazon has already handed over a big chunk of money to the daily deals start-up, this sort of seems like the two sides are just swapping dollars, anyway.

Still, this gives us an excellent opportunity to rerun the classic “Saturday Night Live” Bubble 1.0 ad, which didn’t even run during the first bubble. It dates way, way back to 1988. And technically, it’s not about a money-losing operation, but one that doesn’t make any money (at least on a per-transaction basis).

Still, the “the answer is simple: volume” catchphrase became one of the signature lines of the Kozmo.com, Pets.com, etc. era a decade later. And it seems like we may have to revive it again.

Bonus clip! Here’s the first one of the ads. Catchphrase-free, but still awesome.

*An admittedly small subset of the world. But still.

All I know is that you definitely don’t see this sort of thing when times are tough: Investors with open checkbooks, piled into a room to show off for start-ups and hoping to land the next Twitter, or Foursquare, or Tumblr. Or at least the next GroupMe.

That’s the agenda for next week’s “VC Demo Day,” hosted by AOL and a bevy of VCs and angels in New York. I dropped by the first one of these, in July, and I can’t tell if any checks got written as a result of the pitch sessions.

But it’s definitely a good place to bump into a lot of deal-hungry investors. If you’re into that kind of thing.

On Wednesday’s agenda: Presentations from Polaris Ventures, Softbank Capital, Greycroft Partners, Village Ventures, Redpoint Ventures, Rho Ventures, FirstMark Capital, Bessemer Venture Partners, Flybridge Capital and GRP Partners.

Also, free beer. As I recall, the last one had a keg of something pretty good.

BoomTown is showing my age quite a bit today, after I unearthed notes this morning from 11 years ago.

It was for a story I never ended up doing in December of 1999 for The Wall Street Journal–where I was pretty much the only Internet beat reporter for the newspaper in Silicon Valley then–about the possibility that Mary Meeker was considering leaving Morgan Stanley in New York for two hot West coast jobs.

The high-profile Wall Street Internet analyst never made the move back then.

But, at long last, Meeker finally decided today to take one of those offers, joining Kleiner Perkins today as a venture partner in the digital arena.

It’s a much-needed hire by the legendary firm and its most prominent partner, John Doerr, given Meeker’s deep well of experience and the critical need for the still-lagging-behind-hotter-VCs Kleiner to wade more definitively into more current digital trends that she knows well.

For sure, Kleiner dominated Web 1.0 by backing what are now its golden oldies, such as Netscape Communications, Amazon and Google.

But it’s more recent Web 2.0 investments and influence has not been as impressive, especially with regards to its brighter lights and sharper entrepreneurs.

As in: No Facebook. No Foursquare. No Groupon. No Twitter (yet).

To be fair, Kleiner has made some interesting moves–mostly due to its iconoclastic partner Bing Gordon (pictured here)–such as one fund to focus on Apple iPhone and iPad apps and another on social.

And it’s has one big and shiny Web 2.0 bet–which it never fails to point to an awful lot–in gaming phenom Zynga, also courtesy of Gordon.

Bringing on Meeker to add to that now will surely help Kleiner at a critical time, giving it new investment chances, as the digital space shift sharply again.

In an interview with the Journal today, Doerr correctly called the time–a mash-up of social networking, e-commerce and mobile–”a third wave of innovation.”

In a quick interview this morning, Meeker underscored this, noting, “the level of engagement from large companies and the innovation coming from all over Silicon Valley makes this a unique time to invest in and build important companies.”

She said she was attracted to the team at Kleiner to help her move to a new level of expertise and will be spending more significant time in Northern California at her home here.

“This is an opportunity to stretch myself in a great spot at a great time,” said Meeker, noting she was especially interested in the mobile space. “It’s a pretty massive shift going on right now and I wanted to be part of it.”

But a move way back when by Meeker would have been an even bigger deal, since the Web 1.0 was at what turned out to be its peak moment in December of 1999–the ill-fated AOL-Time Warner merger would not be announced for a month, in fact.

And Meeker–who was involved in that deal and most of the other bigs ones, especially the IPOs–was the undisputed “Queen of the Net” from her powerful perch as the top kingmaker on the booming scene.

After working at other firms, she had come to Morgan Stanley as an analyst in 1991, covering PCs, hardware, software and the still nascent Internet scene.

I had met her several years later in a late-night interview in her office in Manhattan, Chinese food included, while I was working on a book on the rising power of AOL.

AOL was one of the many companies she had introduced Wall Street to, and she had become one the key nexuses for all the newly hatched Web players.

For her to leave her job then would have caused reverberations everywhere, since investors far and wide were taking her recommendations on the new companies of the moment, such as Amazon and eBay.

So–while she would later endure negative scrutiny for some of her too bullish cues, after the bursting of the Internet bubble came soon after–nabbing her at the time would be been a very big story.

And who was trying to entice her?

Well, Bill Gross of Idealab for one, offering her the possibility of big IPO stock options (which would turn out to be less than valuable soon after).

Said Gross in an email to me this morning:

Back when we were opening an Idealab office in NY, we wanted to get the best talent in the universe, and that led us right to Mary. She was brilliant and ahead of her time then, as now.

At the time, we talked about working with her to have her insights about industries and companies help us inform the direction our existing companies should take, as well as brainstorm together what new companies to create.

I think Mary was just too happy doing what she was doing, and she went on to have another great 10-year run doing just that!

And the other suitor? That was Doerr of Kleiner Perkins.

A longtime friend and a star venture capitalist whose investments benefited greatly from Meeker’s attention, he had long tried to recruit her.

Fast forward to today, as Doerr seems to have finally sealed the deal.

Meeker’s title at the investment bank has most recently been as its head of global technology research.

At Kleiner Perkins, no surprise, she’ll focus on the firm’s investments in social, mobile and e-commerce, trying to turbocharge its efforts.

Presumably including, as NetworkEffect’s Liz Gannes reported earlier today, Kleiner making a big push to invest in a new badillion-dollar funding round for Twitter.

Meeker’s presence could help there for sure, especially since she has been a big proponent of the microblogging service, as you can see on page 18 of her most recent annual Internet trends report–titled “Ten Questions Internet Execs Should Ask & Answer.”

It’s clear, as you will read below, those are just the kinds of queries Kleiner needs to be making.

Check out her presentation deck for some clues as to where Meeker could focus first as a newly minted VC:

Internet Trends Presentation

But in the meantime, here’s a disturbing indicator: Now network TV sitcoms are parodying the notion of investing in revenue-free Internet start-ups. That’s a market top, no?

NBC really went to town on this one, by the way: There’s an entire mini-site dedicated to WUPHF.com, and it’s really well-done (it also makes more explicit reference to Facebook and “The Social Network” than the allusion in the clip above). Make sure to check out the investor section, which includes this awesome chart (PDF).

The fine print is pretty great, too. I’ve pulled it out here so you can read it:

But Wilson doesn’t use the word “bubble” anywhere in the post he wrote this morning. Instead he refers to “storm clouds” in two markets: One for tech start-up financing, and one for tech workers themselves (courtesy Google, Facebook, et al).

These are ominous clouds! A few excerpts from his post:

• “The competition for “hot” deals is making people crazy and I am seeing many more unnatural acts from investors happening.”
• “We are also seeing large deals ($5mm to $15mm) getting done in a few days with little or no due diligence. Investors are showing up at the first meeting with term sheets. I have never seen phases like this end nicely.”
• “I think both of these situations are unsustainable. And anything that is unsustainable will eventually stop happening.”

On Twitter, I summarized Wilson’s post this way: “@fredwilson says yes, it’s bubbletime.” And then I heard immediately from Betaworks’ Andrew Weissman and O’Reilly AlphaTech Ventures’ Bryce Roberts, both of whom have invested with Wilson in the past: They don’t think Wilson means there’s a bubble.

And neither does Wilson himself:

Why does it matter if we describe something as a “bubble” instead of “troubling”? I’m not sure that it does for the layperson. But I think it’s very meaningful for professional investors like Wilson. For one thing, if they think it’s a bubble, then their own investors might wonder why they’re continuing to make bets.

It’s also worth noting that even if we are in a bubble, it’s nothing like the housing bubble, or the 2000-era Web bubble (when Wilson was making VC investments via Flatiron Partners): The scale isn’t remotely similar, and the general public has very little stake in the outcome.

But it’s Wilson’s post, so he gets the last word here. Here’s his response to an email I sent asking him for additional input (I’ve added a punctuation mark or two):

I don’t think it’s helpful to use the bubble framework. There is a supply demand imbalance in hot deals and sw engineers, particularly in Silicon Valley. That is driving up prices but also leading to some odd behavior. I just think it’s healthy to talk about it calmly and rationally.

[Image credit: Joi Ito]

But besides valuations, perhaps a more severe symptom of a brewing bubble is the recklessness by which venture capitalists are making their investment decisions.

Speaking Wednesday at the Digital Hollywood conference in New York, Venrock’s David Pakman tossed out an observation that makes the investment game sound like the Wild West.

“We are seeing what I would call bad behavior with investors looking at these hot spaces,” Pakman said, speaking specifically about ventures in social media and mobile. “Deals are getting done with little to no due diligence.”

Read the rest of this post on the original site

This sounds alarming, but you can think of it as an amicable divorce: Spark gets back all of its bubble-era investment and Eqal gets to keep going, with fresh money from new and existing investors.

Spark led a $5 million series A round in the company in April 2008. Eqal co-founder Miles Beckett wouldn’t tell me how much of the round Spark accounted for, but did say that the VCs were made whole in a transaction that closed at the beginning of this year.

So what happened? As far as I can tell, it’s a straightforward story: Eqal changed directions and Spark didn’t want to stay on board.

Eqal began life as a video-production house spawned by the surprise success of “lonelygirl,” the supercheap, superpopular Web series that crested on YouTube in 2006, just as that site was acquired by Google (GOOG). But by 2009, as the market for Web video ads was slow to develop, Eqal was shifting from developing its own Web video to helping other people make and distribute stuff.

If you want to paint that in a positive light, you can say that Eqal had become a Web video-platform company. A less attractive way to describe Eqal is as a Web video-services company. The difference is meaningful if you’re an investor because “platform” is a scalable business while a service company requires more money and effort and offers less lucrative returns.

Any way you slice it, Spark wanted out. “They wanted to zig and we wanted to zag,” Beckett says. He notes that current management and some original investors, including Ron Conway, helped finance the buyout; Eqal also rounded up new money from investors like Scott and Cyan Banister.

The deal is a much better outcome for Spark than Veoh, another Web video bet, was. That one collapsed in a bankruptcy-protection filing earlier this year. The firm still has money in two other Web video investments: Next New Networks and 5Min.

Meanwhile, I’m still looking for examples of companies that can say they’re doing a booming business by concentrating solely on making original Web video. Anyone?

Here’s a clip of “lonelygirl,” the series that put Eqal on the map. Below it is an example of the company’s new work, a promotional campaign for Kraft’s (KFT) Philadelphia Cream Cheese, starring food celebrity  Paula Deen.

While in Washington, D.C., last week, one of BoomTown’s last stops was at the office of Colorado Democratic Congressman Jared Polis on Capitol Hill.

Although I usually try to avoid politicians at all costs, it was terrific to check in with Polis, who was one of the more interesting players in the Web 1.0 scene.

His family–the Schutzs–created a pioneering and unusually fast-growing online greeting cards site in 1996, Blue Mountain Arts, inspired by their independent analog company.

In 1999, they sold it to Excite@Home for $780 million, a little less than half in cash, in what turned out to be one of the final bubble deals of that era.

Proof of that: American Greetings (AM) snapped up Blue Mountain Arts for just $35 million in cash in 2001.

By that time, Polis–who decided to use his mother’s maiden name–had involved himself in educational issues in his home state and finally won a seat in Congress in 2008.

Polis, 34, whose entrepreneurial ventures in tech preceded and followed Blue Mountain, talked with me about his first full year in office, which includes a lot less tech focus than you might imagine.

Here’s the video, which includes a tour of Polis’s Congressional office in the Cannon House Office Building:

]]> http://allthingsd.com/20100322/web-1-0s-blue-mountain-arts-jared-polis-is-a-congressman-in-web-2-0/feed/ 0 http://allthingsd.com/20100310/the-next-big-thing-in-tech-boomtown-sporting-giant-headphones-on-digits/ http://allthingsd.com/20100310/the-next-big-thing-in-tech-boomtown-sporting-giant-headphones-on-digits/#comments Wed, 10 Mar 2010 22:33:58 +0000 Kara Swisher http://kara.allthingsd.com/?p=25407

Today, I appeared on WSJ.com’s daily online show, “Digits,” talking about the “next big thing” in tech, on the 10th anniversary of the tech stock bubble high.

Those were the days, my friend, I thought they’d always end.

In the video, I am wearing a pair of honking big headphones that work well on Skype, to give it that year 2000, nonmobile feel.

So what do I talk about? The importance of mobile, of course!

Here’s the video:

]]> http://allthingsd.com/20100310/the-next-big-thing-in-tech-boomtown-sporting-giant-headphones-on-digits/feed/ 0 http://allthingsd.com/20100115/realnetworks-rob-glaser-talks-about-giving-the-internet-a-voice-and-yes-woolly-mammoths/ http://allthingsd.com/20100115/realnetworks-rob-glaser-talks-about-giving-the-internet-a-voice-and-yes-woolly-mammoths/#comments Fri, 15 Jan 2010 13:20:16 +0000 Kara Swisher http://kara.allthingsd.com/?p=22975

Rob Glaser (pictured here) called BoomTown when he landed in Washington, D.C., only a few hours after he announced Wednesday he was stepping down as longtime CEO of RealNetworks (RNWK).

Digital Daily reported there was some contention between Glaser and the Real board around his departure from the Seattle-based company he founded 16 years ago, a move that has actually been in the works for some time.

While Glaser did say that he had been through the “most intense two weeks of my life,” leading up to that, he declined to comment more about the specifics of his leaving.

That was fine with me, because–although execs come and go in various and sundry ways–you simply have to give Glaser credit for his pioneering work in bringing both audio and video to the Web.

So Glaser and I talked about this and more, from what he thinks are the key highlights of his Internet career until now to what he plans to do next.

First and foremost, Glaser did “give the Internet a voice,” as I wrote in a 1998 profile of him for The Wall Street Journal about his company’s introduction of its first RealAudio product:

“RealAudio was greeted with more than a little disdain from the Internet elite because it was a tinny and unsatisfying experience for most users. But it gave the Internet a voice, and Mr. Glaser kept plugging away, improving fidelity and striking deals with more content providers to use it on their Web sites.”

Glaser said that was the simple idea behind Real, to “turn the Web from text and static links to a dynamic media space for the mainstream to enjoy.”

That effort began in earnest in the mid-1990s, he noted, by selling “tech enablement,” which simply meant hawking servers and software to companies interested in adding audio and, later, video, to their Web sites.

So successful was Real then that many big companies tried to buy it for huge sums. But ever the aggressive entrepreneur, Glaser never sold–unlike Mark Cuban at Broadcast.com–although many wished he had.

But that was simply not his style, he said; plus, business was booming and it was “like selling pickaxes during the Gold Rush.”

It is an apt metaphor since the next major moment for the company came when the Web 1.0 bubble burst in 2000.

“A lot of great–and also not so great–companies just died,” he said.

To avoid that fate, “We pivoted in a hard way to consumer services and avoided the tailspin,” Glaser added. “It was kind of like when the woolly mammoth evolved into an elephant, while the pterodactyl did not turn into anything.”

That meant creating a variety of consumer-focused media offerings that used Real technology, such as its casual games business and its Rhapsody music service.

Real also shifted its tech licensing business to a carrier services model, Glaser said.

He regularly tangled with Microsoft (MSFT), where he started his career as a very brash 21-year-old. The software giant targeted Real’s business, but also cooperated with the company at times.

And, while the games unit and Rhapsody hit some major bumps, Real did score a whopping $761 million antitrust settlement in 2005 from Microsoft.

But that win was some time ago, and Real idled too much, as did its stock, in the following years, even as Glaser plugged away at creating a variety of new businesses and strategies.

Some were off limits, he said when I asked him why he did not come up with a service like YouTube, given Real’s advantages in video early on, noting that his public company could never had created a service that so antagonized Hollywood partners.

But Glaser did just that more recently with one such innovative idea for a “legal” DVD ripper, called RealDVD.

Though very interesting, RealDVD hit the skids quickly when a federal judge last week dismissed Real’s claims against Hollywood studios seeking to shut down the service before it could be widely distributed.

While that specific defeat was not the reason for his leaving RealNetworks, the idea that it was time to bring new blood to the company finally gained traction with investors, the board, employees and, yes, Glaser too.

What the notoriously hard-charging executive–“My intensity sometimes manifested itself in less positive ways,” Glaser conceded in my 1998 interview with him–will do next is anyone’s guess.

Including his own.

Glaser noted that he would remain chairman of Real, although his day-to-day engagement there is now over.

“It is a big transition for me, because I am closing a chapter I have been in for a very long time,” he said, adding that he would probably do more philanthropic and political work.

(That’s no surprise. After all, Real was once called Progressive Networks, after his liberal politics, and Glaser once had a newspaper column called “What’s Left” while at Yale University.)

Glaser said that on the flight to Washington he thought about the advice Lotus founder Mitch Kapor, one of Real’s earliest investors, gave him when he left Microsoft and was thinking about his next step:

You should take time to figure out what you want to do next and know why you want to do it. Because if it’s successful, once you get going you won’t have time to think through those issues as clearly as you can now.

That’s pretty much been Glaser’s modus operandi over his many years at Real and in the larger Internet space: He pushed his vision of a live Internet forth, he never cut and ran, he never sold, he kept pushing forward.

And you have to admire that kind of gumption, no matter the outcome.

In any case, it is likely Glaser will keep doing so in the years to come.

In fact, pointing out that the movement of entertainment and content online has “come a long way, but still has an even longer way to go,” Glaser started rattling off ideas about where the online media sector needs to go in exactly the same fashion I described a dozen years before.

I described Glaser then as: “speaking in staccato bursts and radiating so much intensity that his face resembles a clenched fist.”

In other words, for all the the lively entrepreneur has been part of as a key pioneer in the development of the Internet, some things will never ever change.

If you want to see Glaser in action, check out these three videos of him, two from the fifth D: All Things Digital conference and one of him talking to me about RealDVD when he introduced it at Demo:

Session interview at D5

Demoing RealPlayer 11 at D5

Talking about RealDVD

]]> http://allthingsd.com/20100115/realnetworks-rob-glaser-talks-about-giving-the-internet-a-voice-and-yes-woolly-mammoths/feed/ 2 http://allthingsd.com/20091127/almost-famous-savings-coms-loren-bendele/ http://allthingsd.com/20091127/almost-famous-savings-coms-loren-bendele/#comments Fri, 27 Nov 2009 10:43:01 +0000 Drake Martinet http://voices.allthingsd.com/?p=18409 A new feature wherein All Things Digital looks at up-and-coming and innovative start-ups you should know about.

This week: A lunch date with, some questions for and a few pertinent stats about Loren Bendele and his deal-finding social network, Savings.com, just in time for the holiday shopping wars!

Who: Loren Bendele

What: CEO of Savings.com.

Why: Savings.com combines a Web 1.0-style coupon site with social networking and crowd sourcing to create live lists of discounts offered by over 4,000 major online retailers.

And, gasp, the site is profitable.

Where: Savings.com/about (corporate bio); Santa Monica, Calif. (analog place); No Twitter profile (egads!).

Who else: couponcabin.com, retailmenot.com.

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Five Stats You Won’t Find in His Facebook Profile

Worst Job: Bag boy at a Tom Thumb supermarket outside Dallas, Texas. “I was good though. I always got awards for being the fastest.”

Has a Business Crush on: Yelp.

Gadget of the Moment: iPhone from Apple (AAPL). “I love the Flight Tracker app. It’s a game–all about control.”

Wishes There Was an App for: “I know exactly what I want: A simple app where I can assign levels of importance to contacts. The app would remind me when I haven’t called them in a while. Like, some people I want to call once a week, or a month or a quarter. Just something that helps me keep up relationships.”

Fails at: Details. “I hire others who are much better at that.”

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Bio in 140 Characters

Born outside of Dallas, TX. Chem Eng @Texas A&M. Dow Chemical, then to Teleflora, via consulting firms. Became CEO of Savings.com in 2007.

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The Five Questions

Isn’t your model a little too “Pets.com, Web 1.0 bubble” to work?

It is sort of Web 1.0. But really, it’s a social network connecting deal fanatics. So, connecting people who are passionate and knowledgeable about getting great deals.

Some people engage at a very deep level with their own blogs and interaction. We call them our “deal pros.” You can also just come to the site and see what deals are being [rated as the best] by those deal pros. It’s based on votes of the people in the community.

What is this I hear about you being profitable? Don’t you know the start-up rules?

Well, our revenue model was important from the start. We make money because we partner with the retailers whose deals show up on our site. When someone sees a deal on our site, they click the link and go to [for instance] the Gap (GPS) Web site and buy something, we get paid.

We have relationships with 4,000 plus merchants–all of the top online merchants, and when a deal gets uploaded to our site [by a deal pro] we attach a tracking ID to that deal and report it to the merchant. I’m driving over $4 million per month to our top merchants. I’m the top sales driver for a lot of them.

We’ve been profitable since September 2007.

What is the single biggest immediate growth area for Savings.com?

International. We opened a site in England that has been growing like crazy. We had been doing it all from the U.S., with no team over there. You can do a lot remotely, but you can’t make those partner relationships, being face to face, getting the exclusive deals.

You can’t take them out to lunch and make the connections. We’ve just hired a team there full time. We actually hired the guy who was in charge of partner marketing for Amazon (AMZN) in Europe. He was so big on the opportunity that we have, that he left them for us.

What businesses would the world be better off without?

Ugh, I can’t stand predatory online businesses; cashforgold.com or those payday loan places. There are lots of those check-out services where they offer you free magazine subscriptions and it turns out that they start charging you and you don’t find out until a year later.

They tell you they are going to do it, but they do it in tiny print and it’s just dishonest. We get offers to include those sorts of things on our site all the time. It’s just not what we want to do. It’s important to keep the community pure.

When did you get the business bug?

My parents had a popcorn and yogurt shop, so they could buy things wholesale. When I was in fifth grade, I guess, I started selling Blow Pops out of my backpack. Remember those things? I could buy them for like seven cents apiece and sell them for 50 cents.

I made a lot of money doing that until the teachers shut me down.

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The In Living Color Interview

]]> http://allthingsd.com/20091127/almost-famous-savings-coms-loren-bendele/feed/ 0 http://allthingsd.com/20091023/spare-change-for-amzn/ http://allthingsd.com/20091023/spare-change-for-amzn/#comments Fri, 23 Oct 2009 21:59:38 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=27406 $118.49. That’s the price at which Amazon shares closed Friday, a day after the company reported a 69 percent jump in third-quarter profit and a 28 percent gain in revenue. It was a new 52-week high and the stock’s best since December 1999, when it hit $106.68.

Which is saying something. Because as you might recall, in 1999, Nasdaq was soaring on the back of the dot-com bubble to levels never before seen.

And here we are amid the worst recession since the 1930s. Haven’t even entered that “all important holiday shopping season” yet, either.

Things are looking pretty good for Amazon (AMZN) right now. Sure, there’s renewed competition from retailers like Wal-Mart (WMT). There are potential sales tax issues and income tax liabilities and a raft of Kindle-killers headed to market. But Amazon’s stock is up 131 percent this year, brokerage firms are upgrading their ratings on the company, and analysts are saying it’s only going to go higher.

Said Citigroup analyst Mark Mahaney: “Near-term outlook very positive as AMZN heads into holiday season fully armed against shrinking/de-stocking offline retailers, with one of the must-have gadgets of the season (Kindle), a significantly strengthening International presence, and soon-to-be closed Zappos acquisition.”

Yeah. Things are looking pretty good right now. But we said that back in ’99 too–when Amazon had a similar P/E.

]]> http://allthingsd.com/20091023/spare-change-for-amzn/feed/ 0 http://allthingsd.com/20090522/the-end-of-newspapers-in-chart-form/ http://allthingsd.com/20090522/the-end-of-newspapers-in-chart-form/#comments Fri, 22 May 2009 16:53:13 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=7666 I’m still not exactly sure why Google (GOOG) has become the chief suspect in the “Who Killed Newspapers” investigation playing out before our very eyes. Because it’s quite clear to me that the real baddie here is bespectacled, mild-mannered Craig Newmark, whose eponymous free service blew up the industry’s most profitable line of business: classified advertising.

Yes, there other players in the online classifieds business, and they cut into the monopoly that newspapers relied upon for decades, too. And some of them, like Monster (MNST) and Yahoo (YHOO), have even tried to ally themselves with newspapers. But all of them charged money for their services. And you can’t compete with free. Just ask the music industry.

Craigslist launched in San Francisco in 1996, but didn’t really start picking up steam until the end of the first Web bubble, which is exactly when the newspaper industry’s classified revenue peaked. See for yourself, via this chart from the Pew Internet & American Life Project (click to enlarge):

]]> http://allthingsd.com/20090522/the-end-of-newspapers-in-chart-form/feed/ 0 http://allthingsd.com/20090424/when-geocities-grabbed-the-webs-golden-ticket-a-trip-down-silicon-valley-has-no-memory-lane/ http://allthingsd.com/20090424/when-geocities-grabbed-the-webs-golden-ticket-a-trip-down-silicon-valley-has-no-memory-lane/#comments Fri, 24 Apr 2009 07:13:39 +0000 Kara Swisher http://kara.allthingsd.com/?p=12816

In Web years, BoomTown is now officially 143 years old.

Why? Well, I was the one who got to write the big Page One piece in The Wall Street Journal after GeoCities was sold to Yahoo in January of 1999 for $5 billion in stock.

GeoCities was, in its way, the Facebook of its time.

But instead of “friends,” its users were “homesteaders,” since the Web then was a place to be pioneered and settled.

As Cher so eloquently sings: Those were the days my friend, we thought they’d never end.

Except they did. Yahoo (YHOO) announced yesterday that it was closing the GeoCities unit down, part of new CEO Carol Bartz’s war against useless assets at the troubled company.

But a full decade ago, the Yahoo-GeoCities transaction was a big, big deal, struck at the peak of the Web 1.0 bubble.

The move shook up the then-Internet landscape, in which Yahoo was the undisputed king.

The sector then had begun to rapidly consolidate, as stronger players snapped up weaker ones in a race for market share.

The Yahoo-GeoCities deal closely followed another deal in which At Home, a high-speed Internet access service, bought search and directory service Excite for stock valued at $6.7 billion. In another key deal at the time, then-independent America Online agreed to buy Netscape Communications for stock then worth $4.2 billion.

Of those then-dominant Web companies, only Yahoo and AOL–now a troubled unit of Time Warner (TWX)–survive relatively intact.

And, what exactly did Yahoo get for its giant payment back then? A money-losing, low-revenue company with a whole lot of users.

At the time of the purchase, the publicly-traded Marina Del Rey, Calif., company had reported that fourth-quarter sales increased to $7.5 million from $1.7 million a year earlier. But the company’s loss had also swelled, to $8.4 million from $3 million, in the year-earlier period.

Sound familiar to some current Web 2.0 stories? I thought so.

Another weird irony: One of GeoCities major investors was a venture firm called Flatiron Partners, whose principal, Jerry Colonna, was on the board.

And who was Colonna’s parter? Well, Fred Wilson, who has a different firm now called Union Square Ventures and is–wait for it–one the the major investors in the 2009 hotsy-totsy start-up, Twitter.

(You can read Wilson’s terrific take from the VC perspective of the GeoCities experience here.)

In other words, the more things change… Well, actually, they don’t change.

So, if you want to take an instructive trip down memory lane, here is my piece below, which appeared in The Wall Street Journal on Jan. 29, 1999:

Those Who Tied Fortune to GeoCities Yell Yahoo! All the Way to the Bank

By KARA SWISHER | Staff Reporter of THE WALL STREET JOURNAL

Last spring, Thomas R. Evans was nervous about leaving his longtime job at the top of a powerful Manhattan media company for an Internet start-up near the beaches of Southern California. So he talked to his boss, real-estate and publishing tycoon Mort Zuckerman.

“I was wondering if this whole Internet thing was real and sustainable,” says Mr. Evans, then publisher of the Atlantic Monthly and U.S. News & World Report. “I wanted his blessing in a way.”

Virtual Payoff

Mr. Evans got Mr. Zuckerman’s nod–and a lot more. You know the drill by now (though it may not be getting any easier to hear). He became chief executive officer of GeoCities , an electronic casbah of about 3.5 million Web sites, and helped lead its initial public offering last summer. Then Thursday, Yahoo! Inc. agreed to buy the young company for about $5 billion in stock. It means the value of Mr. Evans’s stock options soared by 65% Thursday to a dizzying $200 million.

Yahoo! Agrees to Buy GeoCities in $5 Billion Stock Transaction

That’s some kind of money for nine months’ work. After you’re done banging your head on a wall, consider that members of the new financial elite in Silicon Valley are being created in less time than it takes for a kid to finish his first-grade year. That puts oil, real estate and finance magnates to shame. Mr. Zuckerman, for example, spent a lifetime building his $1 billion financial empire.

Asked how he was doing Thursday, Mr. Zuckerman says: “Not as good as Tom Evans.”

Mr. Evans, who commutes between GeoCities’ Marina Del Rey, Calif., headquarters and his home in New Canaan, Conn., is quick to point out the ephemeral nature of his wealth. He must wait six years for his options to be fully vested. And his net worth could evaporate if Yahoo’s highflying stock sinks.

“It does not seem real, because it is not real, because this is based on the long term and is dependent on where this whole industry is going,” says Mr. Evans, 44 years old. “Anyone coming into this industry assumes a certain amount of risk because no one really knows how it is all going to turn out.”

Litany of Lucre

It has turned out well so far for the new moguls at GeoCities. According to public filings the company made last summer, the biggest individual winner is co-founder and Chairman David Bohnett, 42, who owns about three million shares outright, now worth $367 million, based on Yahoo’s closing price Thursday. Mr. Bohnett insists he is overlooking that bit of extra money. “I do not see this as a financial event,” he says. “And we did not start this company with money in mind.”

Chief Technical Officer John Rezner, 35, who worked nine years for aerospace company McDonnell Douglas Corp. before co-founding GeoCities, holds 827,000 shares worth $103 million.

The management team that came in with Mr. Evans last year–taking over from Mr. Bohnett to help with the IPO–is also well-situated. Chief Financial Officer Stephen Hansen, 42, who formerly held the same position at Universal Studios Hollywood, has options for about 600,000 shares of stock, which would be worth $74.7 million at current prices. Michael Barrett, 36, advertising vice president and former online executive with Walt Disney Co., has options for 280,000 shares, worth about $34.9 million.

There are, of course, all kinds of gnashing of teeth over whether the Internet entrepreneurs deserve such riches. But obtaining great wealth through luck or artful maneuvering is nothing new in American business history. Take the stock manipulators of the 1890s and the leveraged-buyout artists of the 1980s. It may be some consolation that GeoCities’ founders can claim that they developed something that is used by many people. In its December Web-traffic report, research firm Media Metrix says the “GeoCities.com” Web site ranked third, behind America Online Inc. and Yahoo, with nearly 19 million different visitors.

Mr. Bohnett says the company was born from a “passion for giving people a chance to speak up.” Founded in 1994, GeoCities was one of the first Web-based communities, where users post individualized sites to express themselves.

Dubbed “homesteaders,” these customers create the bulk of the content on GeoCities. Their Web pages are organized into “neighborhoods” of personal interests and hobbies, such as personal finance or motorcycles, and monitored by a network of volunteers.

“My goal was to stake out a broader territory and create a community of interests, just in the same way Yahoo was helping people find their way around the Web,” says Mr. Bohnett, who led the company in a variety of top jobs, including chief financial officer, CEO and president. “Then we were going to monetize that base of users as the business model emerged.”

That model for profitability hasn’t yet arrived, in part because the company spends heavily to increase its market share. Thursday, it announced a net loss for last year of $18.2 million on revenue of $18.4 million.

Mr. Evans, a dark-haired man with a preppy demeanor and razor wit, has plenty of experience building businesses. He worked his way up in Mr. Zuckerman’s organization from sales and advertising jobs, and eventually served as president and publisher of several magazines.

After being approached several times about new-media positions, Mr. Evans says he decided to jump to GeoCities when the importance of the Internet became clear to him. “I think that by the time I really took a look at it, the whole sector had matured and gotten really interesting for those of us in the traditional media companies,” he says.

While Mr. Evans is loath to discuss the valuations of Internet companies, his former boss Mr. Zuckerman doesn’t dodge the opportunity to be philosophical about Web mania.

“It’s like they said in high school: ‘Boys will be boys and girls will be girls,’” Mr. Zuckerman says. “I don’t want to change anything, I just want to get in on it.”

]]> http://allthingsd.com/20090424/when-geocities-grabbed-the-webs-golden-ticket-a-trip-down-silicon-valley-has-no-memory-lane/feed/ 3 http://allthingsd.com/20090218/kara-visits-with-pbs-mediashift-blogger-mark-glaser/ http://allthingsd.com/20090218/kara-visits-with-pbs-mediashift-blogger-mark-glaser/#comments Wed, 18 Feb 2009 17:01:52 +0000 Kara Swisher http://kara.allthingsd.com/?p=9921

Recently, BoomTown had a lovely lunch with PBS new media blogger Mark Glaser (pictured here).

Glaser is a longtime free-lance journalist whom I first noticed when he wrote a weekly column for the USC Annenberg School of Communication’s Online Journalism Review, post-Web 1.0 bubble, as well as for the most excellent “Media Grok” daily email newsletter for the now-defunct Industry Standard back in the midst of the froth.

Glaser was always able to cut through that with a clear-headed tone–while maintaining a respect for what was good about traditional journalism, as well as an excitement about the possibilities of new media.

His MediaShift site for PBS has recently gotten much beefed up, with interesting pieces about a range of digital media topics, from a cool map-timeline combo from the Washington Post to a new business venture called the Printed Blog to, of course, the impact of social media on journalism.

(There is also an interesting closely linked site called “Idea Lab,” which is a group blog about reinventing community news in the digital age.)

Glaser writes on the MediaShift blog about once a week and has about a dozen contributors.

A recent post–and thank goodness for some counter-programming in the blogosphere–was titled: “Warning: Dependence on Facebook, Twitter Could Be Hazardous to Your Business.”

Here’s my video interview with him, on a range of issues facing the media in the interactive world (apparently, journalists don’t know everything!):

[ See post to watch video ]

]]> http://allthingsd.com/20090218/kara-visits-with-pbs-mediashift-blogger-mark-glaser/feed/ 1 http://allthingsd.com/20090206/microsofts-steve-ballmer-talks-innovation-at-democratic-policy-confab-the-full-speech/ http://allthingsd.com/20090206/microsofts-steve-ballmer-talks-innovation-at-democratic-policy-confab-the-full-speech/#comments Fri, 06 Feb 2009 23:14:28 +0000 Kara Swisher http://kara.allthingsd.com/?p=9469

Microsoft CEO Steve Ballmer made an appearance at the three-day U.S. House of Representatives Democratic Caucus Retreat today to talk about innovation and, let’s be real, the very bad economy and the impact on businesses like the tech giant.

Held at the Kingsmill Resort in Williamsburg, Va., the confab has already seen an appearance by President Barack Obama yesterday and one by Vice President Joe Biden this morning. Ballmer got the lunch spot.

The annual gathering is more crucial this year, given the pressure to pass the massive economic stimulus package to try to revive the moribund economy.

Ballmer was not reassuring. “The bubble has burst,” said Ballmer. “We can no longer rely on consumption by refinancing our homes or inexpensive money to fuel economic growth, and that’s certainly had a huge impact.”

And also: “In my view, what we now have will be a fundamental economic reset.”

Microsoft (MSFT) should know all about that. The powerful company recently announced weak earnings, a foggy outlook and layoffs of 5,000 employees.

Here’s Ballmer’s speech to the group:

Well, I want to thank Jay, I want to thank the speaker and all of you for the opportunity to be here today and chat with you. It’s a real honor to have a chance to share some thoughts on the economy and on innovation, and hopefully spur some thoughts on how we all participate in restarting long term economic growth.

As Jay was telling my story, so to speak, I thought I’d put in one parenthetic that might be of interest. When I got to Microsoft and we were this tiny little company, we didn’t have the budget to put people up in hotels, so I lived with Bill. And every time I sat down, in every corner, nook and cranny of couches, tables, I’d find these little yellow pieces of paper with Bill’s writing that had a bunch of people’s names and companies’ names and numbers.

So, finally–I think of myself as pretty good pattern matching. Actually I was sitting next to Congressman Frank, and we were both trying to see which of the six states that are going to be still bigger than North Carolina by 2015. So, we’re going through the pattern matching game, and I just couldn’t figure out what these numbers were.

So, finally I said to Bill, what is this? He says, Steve, I’m really always worried about whether we’re going to have enough cash to pay people. So, every night I write down everybody who works for us and how much we pay them, and every contract we have and how much it’s worth. I’ve got to count the pennies tightly and that’s why you’re here now.

In this economic climate, whether you’re talking about businesses or consumers, everybody I think is having the little yellow sheets of paper out, and counting pennies pretty tightly.

I’m going to make one thing clear up-front: I’m not going to claim to be an economist. On the other hand, I think it’s sort of the responsibility of every businessperson to really form a model of what’s going on in the economy, if you’re going to provide proper stewardship to your business; big company, small company, it’s important to have a model of what’s going on, and certainly have been thinking a lot about the economy in the context of how we think about and plan for the future of Microsoft.

For the past 25 years, the world has certainly enjoyed incredible, incredible global growth. Average incomes around the world grew at unprecedented rates, millions of people moved from out of poverty into the middle class for the very first time.

I think that expansion was built on three things: innovation, globalization, and debt, increasing debt.

American technology was certainly at the heart of the innovation that played the central role in the process. The PC, the Internet, fiber optics: Those things were things that continue to keep America at the forefront of technology, and really at the lead of a growing global economy.

But over time, over the last period of time, the balance has really shifted. Instead of innovation and productivity driving growth, it’s really been unsustainable levels, particularly of private debt, that have been a key driver of economic growth.

The hard truth is this, in my opinion: The private sector of our economy has borrowed too much money, businesses and consumers alike, fueled by the a lot of different things, some notion that housing prices would go up forever, that you could borrow money cheaply.

I gave a speech at Stanford Business School a few years back, and I was talking, we’re a company that has been conservative, per the yellow pieces of paper. We like to keep cash. And a very smart Ph.D. in the audience puts his hand up and said, “Why don’t you borrow money?” I said, “I don’t like to borrow money.” He said, “But it’s so cheap; you’re depriving your shareholders.” I think it reminds us that essentially consumers and businesses alike have really borrowed too much money.

The bubble has burst. We can no longer rely on consumption by refinancing our homes or inexpensive money to fuel economic growth, and that’s certainly had a huge impact.

At our own place, what we think about PC sales, they are discretionary in most home budgets, the second, the third PC. Consumer electronics has that characteristic. Fifty percent of capital spending in this country is on information technology. Less capital, less spend on information technology. No sector will be immune.

There’s a natural tendency to want to blame somebody for the economic crisis. In reality, I think you have to say we’ve all contributed to a culture of spending and private debt. And I distinguish private debt and government debt, because I think you have to be much more–the private sector has less ability to be thoughtful, and the government sector needs to be quite thoughtful. But there certainly has been too much use of debt.

At Microsoft, we’ve studied these developments. We believe this is a once-in-a-lifetime economic event, but it’s not unique frankly in U.S. history. The current situation looks a lot like several–not one but several previous cycles of long-term private sector debt.

In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent. Last year, private sector debt as a percentage of the GDP: 300 percent; far more leverage. And you can see it’s been a steady increase basically since almost the end of World War II.

In my view, what we now have will be a fundamental economic reset. The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate.

This may not be the thing that people really want to hear, but it’s certainly what we’re planning on, and it’s the truth on which we’re basing sort of our model, if you will, at Microsoft.

In our opinion, in order to reach the reset point, three things need to happen. First, the economy must be deleveraged. Private debt as a percentage of GDP has to be reduced. Restoring health to the nation’s financial system is a fundamental part of this.

Just for historical note, not only during the Depression, but actually in 1837 and in 1873 we had similar style resets in the economy. We actually have at least three historic periods that we can study in which similar phenomenon occurred. I think it was 1873 where even the state of Florida filed for Bankruptcy. So, we need to be thoughtful about being students I think of the history.

Second, confidence must be restored. The stimulus package, in my opinion, is vital. It will provide a cushion as we reach the reset point and it will help restart our economic engine. I certainly want to applaud the steps that the House has taken under the speaker’s leadership to quickly pass a strong stimulus package and to help shore up our financial institutions.

Third, America really has to return to growth that’s built on innovation and productivity, rather than leverage and private debt. That must happen.

The good news is that the U.S. economy is still the world leader in innovation. Our universities are the envy of the rest of the world. The American workforce is the best on the planet, and U.S. companies continue to drive technological progress in almost every industry.

But the time has come when we need to renew our innovation capacity.

We went back and studied what innovation companies did during the time of the Great Depression. One company that stands out, if you study the Depression, is RCA.

Now, the fact that RCA is not around today, this has nothing to do with their behavior during the Depression. There’s probably good learnings for a lot of technology companies in that.

But during the time of the Depression, RCA was probably the most broad-based R&D-centric company in America. And while it cut costs certainly to survive the Depression, it never retreated from its commitment to core research and development. And as a result, after the Depression had ended, it really led and the U.S. led TV technology developments for the next 25 years.

That was good for RCA; it was good for America.

In my view, American companies aren’t going to be able to weather this economic downturn just by cutting costs either. You may have heard that Microsoft, our company has decided that we need to reduce 5,000 positions. What you may not know is that at the same time we’ve decided we’ll also create two to three thousand new jobs–mostly in the U.S.–as we continue to push into new areas that require investment.

In addition, despite the tough economy–I might even say because of the tough economy–our company will continue to invest more than $9 billion a year in R&D, because we think it’s that R&D spending that will cause us to remain strong.

People ask me, are you upbeat or not, and I say, about technology I’m super upbeat. The industry that we’re in, information technology, stands at the threshold of again a new revolution.

I joined Microsoft essentially for the PC revolution. The Internet revolution, we have the revolution of what I might call pervasive computing. Computers that are as thin and light as this on which you can have access to the world’s information will be kind of expected over the next five and 10 years.

So, being optimistic and positive about what technology can accomplish is very, very important.

If you take a look at it today, there is increasing ubiquity and power in the computing platforms. A laptop today has more computer power than a mainframe did when I came to Microsoft. Mobile phones today are more powerful than the PCs that existed 10 or 12 years ago, at the start of the Internet era.

But over the next few years, we’ll continue to go into uncharted territory as many-core chipsets and devices become common, and we develop new ways to write programs to help us model the world’s climate, the world’s population, the world’s energy needs; all of that will be super possible.

This is going to lead to breakthrough applications, more intelligent, more aware of their environment, and where we can really help anticipate the information you need and the capabilities that you really want to have.

The next few years are going to see dramatic changes in the way you interact with technology: touch, gestures, handwriting, speech recognition. Instead of telling my secretary to get me ready for my trip to the House Democratic Caucus, I’ll just type it in or speak it to my computer. It can look up, it turns out, who you all are, and where you’re all from, and it’s got all–it’s all out there. We just need to automate it in ways that real people can get access to information.

Some of this I’m sure sounds a bit like science fiction, but we’re rapidly nearing a time when interacting with technology really will be like interacting with people, which will make technology more accessible and really unlock the potential of computers to individuals and communities to help solve tough problems.

A third trend, as I talked about, is screens and displays. Literally every wall, every tabletop, you’ll be able to roll up your computer, if you will, and put it in your purse or put it in your pocket. That’s what we have to look forward to.

All of these trends are going to help create a computing platform that extends from PCs and phones and TVs out into the massive storage and connectivity out in the Internet.

All of this will enable us to transcend the barriers that exist between technology today, and seamlessly connect people to the information and applications that you’re interested in, no matter where you are, no matter what kind of screen you have in front of us.

It’s very important. As the computing environment becomes richer and more pervasive, and more universally useful, it will enable citizens to be more active participants in our national economic recovery. If we do our jobs right, the computer revolution will help amplify our ability as individuals and as a nation to tackle the pressing problems of society: education, health care, energy independence; and at the same time, continue to enhance our productivity and economic competitiveness.

They say GDP is consumption plus investment, plus government spending, plus productivity growth and innovation, and I’m very bullish on what will happen in our industry.

Imagine, for example, an intelligent energy system in your home that’s linked to a smart energy grid. With that infrastructure, your dishwasher and washing machine would know to run when electricity is cheapest. That kind of intelligence and control could really have a major impact on residential power consumption, which is a very large piece of energy consumption in this country.

There are similar scenarios in healthcare, where genomic research will open the door to personalized treatment; and in education for sure, where technology will enable all teachers to use the very best teaching methods and connect with students in new ways.

The truth though, we can barely guess what is possible. With the kinds of technologies we envision, other people, many people in many fields, fields of science and social science and many, many others, will come forth with an incredible outpouring of new ideas and innovation that will continue to expand the universe of what’s possible. So, the enablement not only of information technology and the productivity it brings directly, but other new forms of innovation I think will really be important for long term growth and prosperity across many, many fields of endeavor.

To harness this potential of this transformation, I think it’s going to take a lot more than investment by the private sector. We need investment and we need leadership by government as well. I don’t understand all of the issues and interests that you have to deal with. As I was sitting listening this morning, I understand more that there are hundreds of unwritten things that citizens just don’t really know about what it takes to catalyze these things to happen. But I would at least like to offer a couple suggestions on some things I think are important.

First, we really need the federal government to invest in human capital, in the citizens of our country.

I sit here and talk, talk, talk about innovation, but it’s people who turn ideas into positive and productive innovation. And in today’s knowledge-driven world, innovation will depend on people who are actually technologically sophisticated, have strong critical thinking skills, have expertise in math and science and engineering.

This is true not only for people who live in places like Seattle and work at places like Microsoft, but live in places like Detroit, where I grew up, and work for companies like Ford Motor Company, where my father worked when I was a child. I think this is going to be true for anyone, anywhere in this country, who hopes to earn a wage that can really properly support their family.

This means investment in education is critical, and I’m really encouraged by the very heavy emphasis on education that’s in the stimulus package.

We really need to transform math and science education in America. We need to improve teacher training, teacher quality.

I was talking earlier in the day with some folks about just how many of our math and science teachers don’t have the correct training and accreditation, and that stands in the way of us really breaking through.

For those who are already in the workforce, we need programs that provide ongoing education and training, so they can be successful in this knowledge-based economy. For those who are unemployed, we need new technical skills training to give those people a start back up the economic ladder. And we are going to need lifelong learning programs to keep people fresh, as innovation and technology continues to power the economy.

The second thing we need–and I’ll tell the Speaker this was written even before our meeting this morning–we need greater government investment in our nation’s science and technology infrastructure.

I came in, flew in red eye, was a little groggy this morning when I got here. I sat down with the speaker at 8:00 AM, and she woke me right up. She said there are four things I want you to make sure you understand are a priority: science, science, science, and science. I was awake by the end of the fourth science for sure, and I couldn’t agree more wholeheartedly.

Science and technology is the backbone for productivity and innovation; has been, not always information technology, but science and technology has been a driver of economic success. Government investment in science and engineering as a percentage of GDP is half, in this country, what it was in 1970, and it would be growing rapidly, particularly in countries in Asia, off a small base albeit, but in places like India and China and Korea the trend is the other direction.

We need to pursue breakthroughs over the coming years in green technology, alternative energy, bioengineering, parallel computing, quantum computing. Without greater government investment in the basic research, there is a danger that important advances will happen in other countries. This is truly I think not only an issue of competitiveness, but also in a sense of national security. Companies like ours and others can do our fair share in terms of funding of basic research, but government needs to take the lead.

This is also a moment when government should invest, I think, in information technology to help transform healthcare. We deliver information technology that we think can help create a connected health system that delivers predictive, preventive, and personalized care, a system that I think can improve the health of Americans and reduce the cost of health care in this country.

Government support for innovative development, rapid adoption of information technology in health care is important. I was talking to Congressman McDermott this morning. Government has a big role to play, including the fact that Medicare and Medicaid pay over 50 percent of all health. If Medicare and Medicaid want to take on some issues and use its authority to push health information standards, I’m sure this industry and this area of technology innovation can move even more quickly.

There’s always broadband. My number one encouragement to you is start with government itself. Every school, every hospital, every government building, is it wired, have we funded that infrastructure; very important.

This is a once-in-a-lifetime economic crisis. There is a lot of history around that, and frankly if you stop and think about it, 1837, ’73, ’29, 2008, it’s almost exactly a whole lifetime between each of the major economic difficulties that we face. But I think it’s also a once-in-a-lifetime opportunity to think about our priorities again and make the investments that put us on the right foot.

In his inaugural address, President Obama said we need to assume more responsibility and make the hard decisions that have been postponed for too long.

The president’s remarks actually reminded me of something I heard a lot from my dad when I was growing up. My dad was an immigrant to this country. He came from Switzerland after World War II. He went and was an interpreter with the US military at the war trials in Nuremberg; came to Detroit with some of the soldiers he had met there, who sponsored him in this country; went to work at Ford Motor Company, was there for 30 years. Never finished high school never went to college, but he had a simple model: “If you’re going to do a job, do a job. If you’re not going to do a job, don’t do a job.”

You could say, okay, that’s probably a good thing to tell a 10-year-old, but what it really came to mean to me was that if you want to accomplish anything at all, you’ve got to be committed, you’ve got to be motivated, you’ve got to be tenacious, you’ve got to be smart. And, of course, that’s not really just my dad’s message to me and my sister as we were growing up; it’s really the essence of the American work ethic, and I think it’s been passed down to millions of American children every generation.

This country has what it takes to succeed. We have talent, we have technology, we’ve got the track record. We’ve got to be really honest about where we are. We’ve got to take the kind of bold steps that the vice president so well characterized in his remarks this morning, and we certainly have to roll up our sleeves and put ourselves back on the path of the kind of innovation that will drive the kind of economic success that I know we all want.

I thank you again for the opportunity. It’s been my pleasure.

]]> http://allthingsd.com/20090206/microsofts-steve-ballmer-talks-innovation-at-democratic-policy-confab-the-full-speech/feed/ 10 http://allthingsd.com/20081125/to-sell-or-not-to-sell-that-was-the-question-for-twitter-but-was-its-answer-right/ http://allthingsd.com/20081125/to-sell-or-not-to-sell-that-was-the-question-for-twitter-but-was-its-answer-right/#comments Tue, 25 Nov 2008 11:51:16 +0000 Kara Swisher http://kara.allthingsd.com/?p=7008

There are two schools of thought about Twitter’s decision not to sell itself to Facebook, as it did not in the fail-whale of a deal that BoomTown reported on yesterday.

Here’s my favorite quote from an Internet exec who thought the microblogging service’s decision to turn down $500 million in stock (and some cash) in the hot social-networking site was–how can I put this delicately?–stupid:

“If Twitter turned down 500m in stock, they should go see a shrink.”

But, others disagreed, with another big Web player noting: “Why should Twitter hitch itself to Facebook’s horse, when they don’t have to?”

Debate raged, depending on your point of view, with change-averse Twitter users mostly seeming relieved.

I am more toward the middle of the road, not knowing–who really does?–what was the best move. Thus, I would agree with a sentiment in an email sent to me yesterday from yet another digital guru:

“I think strategic buyers are going to be considered as options for all venture backed companies going forward. Additional rounds of financing are not the given they have been in the past few years. Liquidity is at a premium I’ve never seen before.”

Yes, indeed, as in all things, it always comes down to money and means and time.

In other words, Twitter has made the big bet that it has plenty of all of it, to transform itself into a real business and killer app before others catch up to it.

Right now, its business is deadly simple: A registered user logs in via the Internet or a mobile phone and answers the “What are you doing?” question the service asks in only 140 characters or fewer.

But that single feature has allowed the San Francisco-based Twitter to grow to about six million registrations, as reported in October, up 600 percent over the last year.

And that’s why Facebook–for all its powerful online social connections–has watched carefully as Twitter has raced past it in innovating in the “status update” arena.

And that is also why Facebook wanted to acquire it, to be able to check that important feature off its list, so it could move onto other issues (like finding an advertising model that pays off big).

According to many I spoke to about the now-ended discussions between Twitter and Facebook, both sides got along well, felt the fit was a manageable one and the union of the two made sense on many levels–and still does.

But, for Twitter, the chance to make a run for the prize was paramount, with a feeling among its investors and execs that the start-up should still take a shot at building its revenues–there are none right now–as well as it had done at building its growth.

As for Facebook, it apparently plans to keep the pedal to the metal too, in terms of growth and acquisitions–powering through these bad times economically, in order to emerge victorious when the tides turn.

In a prescient piece last week, in fact, BusinessWeek’s Spencer Ante outlined the Facebook do-or-die strategy.

Wrote Ante:

“As gloom descends on Silicon Valley, most startups and giants are growing cautious and cutting back. But not Facebook. The social-networking Web site sees a bleak economy as all the more reason to press ahead with aggressive plans for growth. ‘This is not the time for tech companies to be cutting back; this is the time to be hitting the accelerator,’ says Peter Thiel, a Facebook board member and investor.”

Of course, this was the very same Peter Thiel, who told me in a video interview a year ago that “there was absolutely no bubble in technology.”

Well, with tech valuations now in the basement (as well as Thiel’s own hedge fund returns) from peaks last year, he’s right–that bubble has surely been popped.

As I said before, you just never know, a kind of equivocation that Hamlet spoke about so eloquently in his famous soliloquy in Act Three, Scene One, of William Shakespeare’s classic play.

It’s in text and video below–the Laurence Oliver version, of course!–because we all could use a little more insight than 140 characters or a post on a digital wall gives to any of us these days:

To be, or not to be: that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die: to sleep;
No more; and by a sleep to say we end
The heart-ache and the thousand natural shocks
That flesh is heir to, ’tis a consummation
Devoutly to be wish’d. To die, to sleep;
To sleep: perchance to dream: ay, there’s the rub;
For in that sleep of death what dreams may come
When we have shuffled off this mortal coil,
Must give us pause: there’s the respect
That makes calamity of so long life;
For who would bear the whips and scorns of time,
The oppressor’s wrong, the proud man’s contumely,
The pangs of despised love, the law’s delay,
The insolence of office and the spurns
That patient merit of the unworthy takes,
When he himself might his quietus make
With a bare bodkin? who would fardels bear,
To grunt and sweat under a weary life,
But that the dread of something after death,
The undiscover’d country from whose bourn
No traveller returns, puzzles the will
And makes us rather bear those ills we have
Than fly to others that we know not of?
Thus conscience does make cowards of us all;
And thus the native hue of resolution
Is sicklied o’er with the pale cast of thought,
And enterprises of great pith and moment
With this regard their currents turn awry,
And lose the name of action.

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