Marc Andreessen was a 23-year-old programmer when he helped found Netscape Communications Corp., the company whose free Web browser and spectacular initial public offering set off the Internet boom.
But as dot-coms spread from Silicon Valley to South Africa, Andreessen stayed on the sidelines, leaving Netscape after it was purchased by America Online. It wasn’t until the boom was over that Andreessen’s latest company, a Sunnyvale, Calif.-based provider of e-business infrastructure services called Loudcloud Inc., filed to go public last fall.
Andreessen spoke with the San Jose Mercury News about the boom, the bust, and why there’s still hope for Internet businesses. Here are excerpts:
Q–What was the boom like for you?
A–The early days of Netscape were both exciting and terrifying because, in the early days at Netscape, nobody took the Internet seriously. This was early ’94. We ran around to all the big media companies in New York and said, “You all should start up Internet efforts,” and they all said, “Ha-ha, that’s such a joke. The Internet’s only used by academics and researchers. Interactive TV is the way of the future and you guys are smoking crack.” And we said, “OK. We’ll go back to Silicon Valley and smoke some more crack!”
We sold the company to AOL in ’98, which ironically was right about the same time that the whole dot-com boom really took off. The people at Netscape in many ways missed the most extreme part of the frenzy. From sort of late ’98 to early 2000 is when things became the most insane.
Q–What were you thinking as the boom reached its peak?
A–At first I was thinking, “I can’t believe it. This can’t possibly be real.” And then everything is succeeding and you’ve got companies out there like iVillage and others that are worth billions of dollars, and after a while you just say, “Well, all right. I guess it all must make sense. Everybody on Wall Street seems convinced.”
It’s a classic bubble thing. The bubble only bursts when there’s no more people left to convert into being true believers, which is what happened in March.
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Q–Were you participating in the bubble?
A–We were kind of watching from the outside. We started Loudcloud in September 1999, right in the middle of the dot-com boom. We had a list of 15 different companies, all of which were dot-coms except for Loudcloud. We had a bunch of ideas that if we had started them, we would be sitting in the middle of a giant crater right now.
The reason we didn’t do that was because for every new dot-com idea we could come up with, there were 10 other people who already had venture funding who were doing it. So we reverted to what we knew best, which was hard-core technology, which turned out to be a really good idea.
Q–What were some ideas that would have been disasters?
A–Boy, all kinds. For example, online comparison shopping has still not been done right. Online privacy was another one. A whole other idea was the next logical step beyond a browser. And all these ideas are still, I think, good ideas in the sense of you could do them and they would still be interesting, but you couldn’t make businesses out of them.
You know, what people learned in retrospect is you can’t have a company without a business, and you can’t have a business without some inkling of how you’re going to make money and some inkling of who your customer is and what they’re going to pay you and why they’re going to pay you, and how you’re going to be different from 10 other people.
One of the great ironies of our time is it turns out Silicon Valley is really mostly good at doing hard-core technology companies and is really not that good at doing everything else.
Q–At the time, did you think dot-coms were viable businesses?
A–Well, you would look at them and you would say, “They’re burning cash.”
When we started Netscape in ’94, the basic idea of starting a company was, make a product, sell it to somebody and get enough revenue where you’re able to cover your expenses, so you don’t have to raise cash. Netscape, for example, went cash-flow positive in early 1995.
Q–Netscape’s IPO unleashed the boom.
A–Yeah, but not in that respect. Netscape was designed to make money. I think what then happened was, you had AOL on the one hand and Amazon on the other hand who successfully executed this sort of “get big fast” strategy, where the goal was actually very different. It was to burn through huge amounts of cash in order to generate a huge level of critical mass and then take over an entire market. They both did it really well, and then everybody else said, “Oh, that’s how you do it!” And, you know, that was a very seductive thing.
The idea of being able to start a company without having to ever have it generate cash–boy, that sounds like fun! You don’t need any discipline. You’re not going to get measured on traditional metrics. You can spend all your time doing marketing and expand at a breakneck pace. Who wouldn’t want to do that? It’s like a kid going to an amusement park where they serve chocolate for every meal.
Q–Did you feel any paternity for any of the dot-coms?
A–For the technology, definitely, but not for the companies. Most of the companies that were founded–especially in ’98 and ’99–weren’t being founded by technology people and they weren’t technology companies.
Q–Did the downturn take you by surprise?
A–I think the speed of the downturn took everybody by surprise. Declines of that magnitude have rarely ever happened before. In the Great Depression, it actually took three or four years for stock prices to bottom. In ’29 they fell a fair amount, but then they fell more throughout the following three or four years. It wasn’t till ’33 or ’34 where things got really, really bad.
Q–How is the downturn going to affect Loudcloud?
A–It shines a bright light on us and says, OK, do we have a good business or not? It makes it harder to go and just pick up business as if you were plucking apples off of a tree. In retrospect, it was very fortunate that we started this as relatively late as we did. I think if we had started a company a year earlier, we would have had a customer base consisting entirely of dot-coms, and that would have been a real problem.
Q–What’s it like to be starting an Internet-focused business now?
A–It’s a paradox in some respects, because in many ways the opportunities have never been greater, but on the other hand, the risks have never been greater. There’s more people on the Internet now than ever before. There’s more commerce happening on the Internet than ever before. There’s more advertising happening on the Internet than ever before. It’s become a much more mainstream medium than it was two years ago.
On the other hand, there’s a much stronger need to show near-term results.
Q–Have you found a silver lining in the bust?
A–Yeah. For example, it lets us go in and argue that you can cut costs, and all of a sudden, people care about cutting costs. So that’s good. Two, it helps us screen out customers we shouldn’t want anyway.
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It’s also helped us in that it’s much harder for somebody to get funded to compete with us. And it’s definitely easier to hire and retain people.