Boom or bubble?

Net honchos don't know whether it's the best or the worst of times -- but they're hiring and "monetizing" too fast to worry.

Published July 23, 1999 4:00PM (EDT)

Ask the average intelligent person about the Internet economy and you will hear the following points of conventional wisdom: This is a business that moves insanely fast. It's still immature -- it's "early in the game." But boy are those stock prices crazy!

Gather hundreds of Internet executives in a room and ask them about the Internet economy -- as the Industry Standard did earlier this week at the Ritz-Carlton in Laguna Niguel, Calif. -- and what do you hear? Almost exactly the same messages.

It's always a little risky to look to an industry conference, with its predictable eruptions of spin-doctoring PR and self-promotional hot air, for any kind of accurate assessment of a business. But these gatherings -- which are lucrative enterprises in their own right -- can provide a fascinating temperature gauge for the mood and mind-set of an industry's leadership.

As executives and financiers like Yahoo's Tim Koogle, America Online's Bob Pittman, Softbank's Masayoshi Son, Amazon's Jeff Bezos and John Doerr of Kleiner Perkins stepped forward to detail strategies and rate competitors, the room became suffused with a strange mixture of giddiness and paranoia, self-confidence and insecurity -- the heady psychic brew that fuels most Internet companies today. We're unstoppable -- but we never stop looking over our shoulders! This is as big as the industrial revolution -- but if we're not careful we'll wind up as yesterday's fad! Stock prices are unreal -- but we're buying as fast as we can!

The contradictions in these leaders' messages were echoed in the sentiments of the larger crowd, which registered opinions via a wireless real-time polling system, punching "yes" and "no" buttons like focus-group participants (68 percent, for example, said they felt Yahoo's stock price is too high).

Softbank's Son, whose early investment in Yahoo has become the cornerstone of a loose-knit online empire, teased out the biggest paradox with two questions: First, do Net stock prices represent a "bubble"? Forty-nine percent said "yes" -- not quite a majority, but an extraordinarily high number, considering how Net-besotted a crowd this was. (Son said that other audiences tend to vote 70 percent "yes" on the same question.) Second: In 10 years, will the market capitalization of Internet stocks exceed that of personal-computer stocks? Ninety-nine percent said "yes." Yet, Son declared, today's Net stocks are valued at only 10 percent of PC stocks. His conclusion: "I say Internet stocks are too cheap."

That, of course, assumes that Net stocks will surpass PC stocks by growing 10 times -- and not because of some collapse of PC company valuations. Even the executives with the most dour outlooks -- oddly, the gloomiest panel was a lineup of venture capitalists, all shaking their heads at the stratospheric market's "over-hyped deals" -- share a deep long-term optimism. When they talk about the "need for a correction," they're imagining a six-month pause in the Internet's victory march -- not the kind of general, sustained retreat that would follow if this really were a "bubble" and it went pop.

Mostly, it seems, the poobahs of the Net are not worrying about the stock market a whole lot. And it's not as if the stock market is giving them reason to do so. In what more than one speaker referred to as "an era of permissive capital," investors seem to have thrown the market's traditional yardsticks, like price-to-earnings ratios, out the window -- at least for now. The future's so bright, who wants to bother wearing green eye-shades?

"Revenues? We don't need no stinkin' revenues!" read one entry on a top 10 list of "Reasons to Go Public" that one of the conference hosts, Bill Gurley of Benchmark Capital, read to the amusement of the crowd. Bezos offered a similar quip: When book publishers miffed at for allowing customers to post negative reviews would tell him, "You don't understand our business -- we sell books to make money," he'd reply, "No, you don't understand our business -- we don't make money."

Ha, ha. In the context of such humor, a reminder from Charles Schwab president David Pottruck that this is an "unusual time" -- and ultimately "you need to have a clear sense of how you're going to make money" -- came off as the nag of a party-pooping fogey.

If these executives aren't worrying about making money, what do they worry about? Two things, it seems: talent and users. By talent they mean executive talent: With all this money flooding the industry and its fast-sprouting start-up companies, often led by entrepreneurs in their 20s, there's a shortage of experienced adults to manage Internet companies as they balloon. There are more than 400 CEO searches under way today in Silicon Valley, a recruiting expert told the conference.

At a poolside auction led by eBay's Meg Whitman that raised $351,000 for a nonprofit called Schools Online, the bidding was sprightly for such "unique items of unclear value" (eBay argot for "tchotchke") as John Doerr's tie ($12,000) or the dress CEO Katrina Garnett wore in her ads for Crossworlds Software ($10,000) -- both of which wound up in the hands of CyberCash founder Dan Lynch. But the item that sparked the fiercest bidding -- and that eventually sold for a cool $89,000 -- was an executive search by conference sponsor Korn/Ferry International.

When not struggling to recruit executive talent, the Net's moguls are struggling to attract users. One speaker after another bragged about how obsessed they were with customers -- from Bezos' claim that Amazon is "earth's most customer-centric company" to EarthLink founder Sky Dayton's plea for Internet companies to make their customers more "Net-savvy" instead of "dumbing down" their services. But figures presented by Media Metrix president Mary Ann Packo suggest that sites are doing a better job of capitalizing on their existing users than attracting new ones: According to Packo, in the past year, Web page views have increased by 48 percent and hours of usage by 44 percent, yet the overall number of Web users has increased by only 15 percent.

Some Internet leaders have decided to worry about amassing users and figure that the money will then take care of itself; others have chosen to worry about fattening a war chest that they can then use to attract users. Either way, the ultimate goal is, in industry parlance, to "monetize" these users -- somehow or other.

When making money is at war with making users happy, though, Net companies may run into big problems. For instance, a panel of venture capitalists expressed doubts about a recent deal in which the search engine Google received $25 million in funding from traditional rivals Sequoia Capital and Kleiner Perkins -- with the deal rumored to value the company "pre-money" (i.e., before adding in the additional funding to the company's total worth) at $70 million.

Afterward, Kleiner's Doerr explained that Google is already getting 4 million page views a day: "We'll figure out how to monetize that." He also pointed out something that the other VCs didn't seem to grasp -- that Google searches actually work a lot better than those on most other search sites. Of course, one of the things users love about Google is that its home page isn't cluttered with ads and promotions; once the "monetizing" begins, who knows how long that will last.

One company that used to top Net entrepreneurs' list of worries stayed strangely off the radar at the Industry Standard conference. While participants pondered whether AOL or Yahoo would triumph in the portal wars, or whether AOL or Excite@Home would prevail in the effort to control home Internet access, nobody seemed terribly concerned about Microsoft, the industry's former No. 1 nemesis. Microsoft's Brad Chase, who recently assumed the head of the company's consumer and commerce group, provided a warm and fuzzy, low-key view of Microsoft's Net presence: "There are a lot of urban legends and myths about working with Microsoft -- we're very interested in setting up win-win partnerships." Then he handed out his e-mail address.

Other speakers barely mentioned the Redmond giant. Asked to assess the likelihood of Microsoft leading the portal market a year from now, the crowd voted 71 percent for "0-25 percent chance." Chase showed up on crutches (after a basketball injury), and while the symbolism was coincidental, the company's concurrent announcement of its retreat from the Net content business with the sale of its Sidewalk city guides added to the image of a hobbled giant.

Of course, at the same time, Microsoft announced the latest in a long string of profit-laden quarters. The company is rumored to be thinking about issuing a new "tracking stock" to represent all of its Net businesses, and perhaps its unloading of Sidewalk was an effort to improve its bottom line in those areas before such a move. But it might also be that Microsoft is no longer obsessed with dominating the Internet media, and is happy to leave that war for eyeballs to others while it continues to rake in high-margin software profits. Either way, it no longer seems to loom quite so large in the dreams and nightmares of the Net's business leaders.

In the end, all the executives, analysts, bankers and investors didn't seem to have any better clue than the rest of the world about the biggest question facing the Net economy: Is the '90s boom an aberration or a fundamental change? A speculative mania or a "paradigm shift"? EarthLink's Dayton said that his company's customer service reps spend a lot of time helping new users who call to say, "I'm on the Internet now -- what do I do?" A surprising number of businesspeople seem to be asking the very same question.

By Scott Rosenberg

Salon co-founder Scott Rosenberg is director of He is the author of "Say Everything" and Dreaming in Code and blogs at

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