The return of Steve Jobs and the rise of Apple

When I first started at Microsoft back in 1991 Apple was more or less a relic of what it used to be.  Keep in mind it was still a cash cow for Microsoft as we owned the core application set for Apple, Microsoft Office for the Mac.  However it was a company seriously lost in what it wanted to be and where it was going.  the one thing Apple did have going for it was a fiercely loyal user base.  Even though Microsoft was 90% of the market, Apple had 10% and it was going nowhere. 

At the time the original founders of Apple, Steve Jobs and Steve Wozniak were not to be found.  Jobs had been forced out by then CEO John Scully and was off trying to do the next big thing at NeXT computer.  In addition he bought a small company from Lucas that became Pixar (it did pretty well). On the other hand Wozniak nearly was killed in a plane crash and not too long after would walk away from Apple (though he still is on the Apple payroll).  In a lot of ways you can parallel Woz with Microsoft Co-founder, Paul Allen.  John Scully grew Apple significantly after the release of the Mac, however, he was never able to generate the buzz and excitement around Apple that it deserved.  Scully came from a successful career at Pepsi and was no doubt a talented marketer.  However after 18 years in technology one thing I firmly believe in is if you are going to be a cutting edge technology company you need someone from the industry to guide you and set the vision for the future, to generate buzz, to generate excitement.  I have always said the tech sector is more Hollywood than Wall Street.  Technology leaders who cater too much to Wall Street, will ultimately doom the company.

For the next 5 years at Microsoft I watched as Apple went through various CEO’s and considered licensing the Mac OS similar to what Microsoft was doing with its OEM channel.  I watched as they launched a Windows Virtual Machine so they could run Windows Applications.  It always seemed like Apple was throwing darts at the board trying to find someway that something would stick.  At one point Microsoft even made an investment in Apple, just to show we were good guys.   Things would start to change in 1996 when Apple purchased NeXT Computer, bringing back Steve Jobs to the company he helped found.  It ushered in one of the great comeback stories in the history of high-tech.

It used to be said in the industry that you can have a PC any color you want as long as it is beige.  It was sadly very true.  In addition to the giant CRT screens we had in the day it made for a very ugly desktop.  One of the first things that was noticable when Steve came back to Apple was the launch of Mac’s in color.  The orange and lime green seemed to be favorites.  Some of the best ideas in the tech industry are the simplest.    In 1999 I remember Bill Gates showing off some new Dell PC’s that had some color to them and he mockingly said “We can do color to”.  It is and will always be a challenge for Bill to understand the “hollywood” side of technology.  Color was important because the beige was so ugly. 

For those who remember around this time in  the late 90’s a company called Napster became very popular.  Napster did some things that Microsoft liked a whole lot.  Mainly it allowed end-users to share music files over the internet.  Thus promoting the power of the PC and leveraging the value of the internet.  Now at this point I can only guess, but my feeling is that someone at Apple could see the real value here – which was that these PC’s had large hard drives that enabled you to store a lot of music, would it not be cool if it was mobile?  You could put a hard drive in a little plastic case with ear phones and carry it with you.  In October 2001 Apple launched something called the iPod and later a music service called iTunes.  As we all know these have gone on to be gigantic success.  Microsoft has partners doing their own MP3 players and I remember going into the Best Buy looking at some of them, then I picked up a iPod.  At first I was not impressed with its DOS like interface than I started touching and trying to click the wheel, at first it did not seem that responsive.  Then I took my thumb and made a semi-circular!  After that those other MP3  players were dust. The iPod was huge for Apple in the sense they were no longer the niche player the Mac, they were now the darlings of the every day end-user. As momentum continues Microsoft finally scrapped the partner model and came out with the Zune (I have had several).   These devices work well, are cool and have the “wheel” like feel (apparently Apple forgot about the patent process).  The challenge for any company is once a competitor has established a huge market lead, can you ever catch up?  Not to mention on the advertising front I see Apple iPod ads everywhere, on TV, on Billboards.  I cannot recall seeing one Zune ad.  Another area that always has concerned me is what our response at Microsoft, while I was there, was to Apple.  the typical, it is very proprietary.  They really don’t work that well. As Steve B would say, “blah, blah, blah..” I would say, “who cares?”  If end users like the experience and are happy with the $.99 price tag, they will continue to download songs from iTunes.  As of this writing more than 10 billion songs have been downloaded from iTunes.

As the story goes Randall Stephenson, CEO of ATT Wireless (then Cingular Wireless I was in a meeting with Steve Jobs.  Steve had just shown him a new mobile phone Apple had been developing.  Randall just kept playing with the phone, fixated on its beautiful and responsive touch screen user interface.  Steve Jobs is known as one of the toughest negotiators in the business.  Randall was a long time telco guy who had net and negotiated withe th best.  He also knew that what he was holding represented something bit, something that could turn the tables against some of ATT’s biggest competitors Verizon, Sprint and T-Mobile.  Unlike most phones carried in a store which are in many cases subsidized by the manufacturer, Steve wanted it sold and all the revenue.  ATT could get the  voice and date plan revenue, but Steve wanted everything else.  In the end the device was too good to pass up.  Steve Jobs had just got an unprecedented deal in the wireless industry.  This launched the march towards the delivery of one of the most “revolutionary” hand-held devices in the mobile phone industry, the Apple iPhone.  I had a friend contracting at ATT at the time working on getting the online payment for mobility set up and all he would say was everything being done in Atlanta was geared towards the launch of the iPhone.  This was a device with a serious amount of weight being thrown behind it.

The  iPhone launched on June 29, 2007.   As Bill Gates would say later on, “Microsoft did not set the bar high enough”.  The  iPhone was a huge success and that is an under statement.  It did a number of things better than had ever done before.  First was the touch screen.  It was responsive.  Very responsive.  You could be up and doing something within seconds.  Second the mobile browser experience was easy and the content you got back was readable.   Every device I have ever had the mobile browse experience has been different with each device and very painful.  Third it created a market for mobile applications.  Prior to the  iPhone making money on mobile applications was a dream more than a reality.  Competitors will argue, again, Apple is a closed environment (for you non-technical folks – it’s Apple’s way or the highway).  I will say again and again, that is the argument of technical people, if end users like the experience they support with their wallets and do not care about open environments versus closed.  The iPhone will go down in history as a major technology milestone and another big hit for Apple and Steve Jobs.

Today Apple is getting ready to launch another new device, the iPad.  The orders are building and maybe Apple can do it again.  Now the iPad is yet another attempt at the Tablet.  Does anyone remember the Apple Newton?  Microsoft Pen for Windows? The Microsoft TabletPC?  Will this time the idea of a usable tablet finally become reality?  My view initially is that Apple is riding its wave of success to create yet another big sea change in the industry.  Early views of the iPad are it is just an enlarged version of the iPhone.  In the latest issue of Wired Magazine they do raise the question of interaction with computers.  If you think about how we as people interact with our technology it has not changed on over 20 years.  We have a monitor, keyboard and mouse.  I will say having been at Microsoft 18 years there were many efforts from the top down to drive the success of tablets.  To change the interaction of user and technology.  If Apple succeeds with the iPad it will be a huge psychological blow to Microsoft.   Apples first attempt in over 15 years after the many attempts by Microsoft and it is a huge success?   In my view this goes back to what I wrote earlier, software, computing technology has become pervasive.  A generation of youth do not know of life without a PC or the internet.  It has become an extension of the individual.  It is now part of our fashion culture.  If it makes us more productive, great but let’s have fun doing it.

Bill Gates has left Microsoft.  Today Steve Jobs is the poster child of the technology industry.  He is the rock star pumping out hit after hit.  The movie star who cannot make a bad film.  He is in the zone.  From when I started to when I was let go at Microsoft the journey of Apple has been an interesting and amazing story to watch unfold.   All tech stars rise and fall. The list is long WordPerfect, Lotus, Borland, Netscape, AOL, etc Apple certainly did this, but then to rise again bigger then what they were before has been a spectacle to behold.  What they are doing now is not so much about  how they are influencing technical innovation, but how they are impacting the global culture.

Offshoring – the India phenomena and its impact

Anyone who knows me knows I am always interested in things from a global perspective. One one of my favorite tech topics is the whole trend towards offshoring, and specifically offshoring to India.  A little background on myself may serve well to lay the groundwork of how I got to the views I have today.

In 1987 I spent my school year in Copenhagen, Denmark.  It was something my mother had wanted me to do, since both my parents were from Denmark and I had a rather large family to get to know while I was there.  During my school year we traveled a lot as part of the program.  We went to Budapest and Prague during the first semester (this was before the wall fell) and visited with companies local to the respective areas, met with politicians and went to Karl Marx University.  In the second semester we went to Stockholm and then to the European Union Headquarters in Belgium.   The second semester in particular had a huge focus on the European Union and what was emerging at the time – a Europe without borders.  I think all students were exposed  to a new way of thinking as we had all grown up in our own countries borders (US, Canada or Australia).  It greatly influenced my thinking on how the world works and how it is evolving.  I think rather than be concerned about the issue of offshoring I have moe or less embraced the concept.  The initial leader without question has been India and despite a series of new entrants it remains the head of the class to this date.

One of India’s unique advantages stems from its history as a colony ruled by the British Empire.   By all accounts the British ruled India with anywhere from 20,000-200,00 people.  When you consider that India wa a country of hundreds of millions of people it raises the question of why didn’t Indians band together and stampede over the British?  Not an easy question to answer, but I think it is important to note the idea of India as a country is a British concept.  India is a collective of different religions, castes, languages  and people,  that it operates more or less like thousands of counties (not states or provinces).  A great book to read and help understand India is Edmond Luce’s “In Spite of the Gods”.   But the legacy of British involvement in India has provided India with a lot of benefits.  For starters, since there are 22 recognized languages in India and 122 languages spoken by 10,000 people or more India has adopted as its official language Hindi, but more importantly as its second language it adopted English, the predominant language of international business.  In the early going of offshoring it made India a great place to offshore both IT and Business Process Outsourcing (BPO). 

Though offshoring had been around since the mid 80’s it did not come to public or industry attention until the latter part of the 90’s and the leader of this movement, surprisingly to many, was India.  A lot of people would ask how does a country with over 700 million poor people become a leader in a highly educated discipline?  Having been in the tech industry for 18 years I have had the opportunity to meet a number of people in the tech industry who either hail from India or have strong ties to India.  At  Microsoft there were many Indian’s who rose up to become executives (Sanjay Parsathayarthay, Jawad Khaki,  etc..).  In the bay area there were a ton of startups led by Indians, Venture Capital firms led by Indians etc.    The list is long. How does this happen?  I think two things have led to this innovation:

  • US University System
  • H-1b Visas

On the first point we have the finest university system in the world in the United States.  Every state in America can claim to have at least one university which is a leader in research, academia or something in the world.  If you go to any university you will also see a lot of foreign students who are taking advantage of that system.  A lot of those students getting Engineering and Computer Science degrees come from India.  Many of those students will stay in the United States and compete for jobs an thus help the never-ending cycle of the US economy and growth (a little challenged as of this writing).

The second area is US immigration law and H1-B visas.  These are for companies who hire people from outside the US and get them a work visa in the United States (nice legal piece located here).  In technology the game of recruiting is pretty simple: the tech sector needs really smart people.  Technology does not care if you are white, black, Chinese, Nigerian, Russian etc..Tech does not care if you are atheist, Catholic, Islamic, Jewish etc…It only cares about the intelligence you bring to the table.  Where you live is just an annoyance, but it will be dealt  with if a H1-b can be completed.  The aftermath of 9/11 unfortunately has created a problem as H1-b quotas are limited to 65000 per year and linked with immigration reform in the US Congress.  The H1-b visas are all gone within 3 months.  The jobs available for H1-b visa hires are good paying  jobs , most which cannot be filled by the local employee base in the US.  Instead these jobs sit vacant.  With collaboration software making great strides and with the promise of 100gb networks the use of teleconferencing will be second nature in business in the near future.  The reality will be that these jobs that are not filled today will be filled, just not in the Unites States.  At a time when the US economy is struggling the current quota set for H1-B visas makes no sense to me.

In my line of work towards the end of the 90’s you started to hear a lot more about these companies – namely WiPro, Infosys, Satyam and Tata Consulting Services.  Some Telecoms would have nothing to do with it – BellSouth was very much a case of do it in America.   Others like ATT Wireless started down the path as they looked to cut costs and get positioned to sell the company.  How companies handled these transitions is what led a lot of Americans to dislike offshoring.  It became a presidential campaign issue in 2004.  Employees were told their job was being moved to India and their last act would be to go to India to train their replacement. I witnessed this myself covering ATT Wireless as an account.  To be honest it is a brutal reality and may seem unfair, but one thing about public companies that has always been true and will always be true, if they can save money on the bottom line, they will, do not expect loyalty for your services.

Another area we hear a lot about is the large number of engineers graduating from Indian universities.   Some if the Universities are good, such as the India Institute of Technology (IIT), which was modeled after the famous MIT,  However as Nandan Nilekane points out in his fantastic book “Imagining India” many universities have along way to go.  He recently got involved in his alma mater, and to his point while the US has a large base of alumni to help support the university system, this concept of alumni as a financial donor is still relatively new in India.

One of the largest events to happen in my lifetime was the fall of the Berlin Wall.  As we looked at the world we no longer had to look at as east and west.  The US had won.  We saw a great many countries start to open up their economies.  Having pursued a Socialist economic policy, following British rule, India found itself faced with bankruptcy in 1991 and had to make a bold decision.  Under the guise of, then finance minister, Monmohan Singh, started to open its markets and pursue a free market policy. 

The second event that accelerated India’s growth as an offshore leader was the dotcom boom.  As I wrote in my earlier blog “The dotcom boom and its legacy”, the dotcom boom was a success for many in the 3rd world.  As was well written in Thomas Friedman’s classic book, “The World is Flat”, billions of dollars were poured into the dotcom infrastructure that enabled many to get on the internet super-highway and ride for free.  With the internet available it simplified communications and distribution of the software project taken on by offshore vendors.  I know a lot of people will argue that the software quality was poor, that projects were delayed and did not meet the original specifications and in the end it was not cheaper and would have been better left alone.  I don’t see it that way.  I agree that a lot of poor code was written and the savings did not measure up, but it is still early on in the offshore model.  As time passes things are worked through and resolved.  These are just business process and technical hurdles that will be overcome.

One thing I have noticed in the Indian community is many have a strong desire to return home to India.  I think this gets back to the point of the American dream.  Many view the american dream as the sole ownership of people within the borders of the United States.  And that is the big change.  There is opportunity in the world to make your dreams come true it just does not have to happen solely in the US.  If you look at the Forbes richest people in the world a lot are outside the US, some place you expect like Japan, but a lot are in India, China and Brazil.

In my view the idea of offshoring as a business model is still early in the game and maturing.  It is not a temporary phenomena, but something that will continue to grow as part of the normal economic evolution that has been going on for centuries.  It will challenge the United States and other countries as jobs start to move around the globe more dynamically then they have on the past.  It will challenge global economies in news ways.  When 100 million Indians own cars do you think that will cause global oil prices to increase?  In order to succeed in the world of globalization it will be important not only to expand outward, but to reflect inward.

I was talking with my friend Methun from India one night and as we did when I worked at Microsoft we talked about his homeland.  A country I have never been to but have been fascinated by for years and I have read a great many books on India..  We argued, we laughed and as always I enjoyed my conversation with my friend.  One comment that Methun made that greatly interested me was that after having lived in the US for 10 years he believed the American dream is fading.  I am not sure I totally agree, but I will say it is changing.  With everything I have noted I believe that the American dream is no longer solely American.  Many people dream of returning home to where they were born and making a difference,  To achieve those dreams they had when they were young.  When you look at the Forbes richest people you see more and more are coming from outside the US.  Things are changing very fast around the world and for the most part many of those changes are positive.  The great thing about the fall of the Berlin Wall is we  no longer have to think of east versus west.  Countries can now pursue economic policies that fit their social and economic needs.  It has spurred great innovation on a global scale and allowed more to participate in the American dream.  In short the American dream still exists….. it has just gone offshore.

Good Night and Good Luck.

Hans Henrik Hoffmann

March 22, 2010

Investing Microsoft’s billions in the Dotcom Era

Keeping on the theme of the dotcom era there were some interesting things that happened on the journey and some valuable learning that came out of it.  During this time everyone thought they were going to make a fortune on the stock market and stocks seemed to regularly shoot up by $5-$10 in a day.  I had a few myself – Data Return and Interliant.  Data Return I remember went over $90..if only I had sold.  On top of those great stock prices I was managing both Data Return and Interliant as the account manager.   It probably was a conflict of interest, but that was how things were run in those days.

At Microsoft HQ the CFO at the time, Gregg Maffei had an epiphany.  Why not take the Microsoft billions and invest in these companies.  We could take  an equity stake in these established companies and startups and then sell the stock for huge profits?  And thus the rush for gold began.

At the time I was a Business Development Manager working under the talented, but totalitarian Frenchman Pascal Martin (I think he would be pleased with both comments).  During the dotcom era Microsoft was a lost soul as everyone was racing for the internet and Microsoft was viewed as the Windows and Office company.  At the time we did not have a whole lot to offer.  We did, however, have one thing that every start-up on the planet needs…cash.  As much as the venture capitalists had, we had much more just sitting in the bank.  At the time Microsoft had in the bank between $15-$20 billion.

Needless to say when the investments started making the press my accounts came and started asking.  Some of the deals Microsoft did were huge, in the hundreds of millions.  The big one being AT&T – at the time AT&T owned what would later become Comcast.  There were  other big investments in what were deemed then to be major dotcom players like US Internetworking and Winstar.  From my neck of the woods came Interliant.  Their VP of Business Development, Jesse Bornfruend would be the major driver from their side and from Microsoft’s it would be myself.

The interesting thing about doing an investment deal was all the moving parts you had to bring together.  First there was my boss, Pascal Martin, to support the effort and provide his blessing.  Then we needed the product group.  From our side that meant the Microsoft Exchange team and the program Manager who led the effort was Keith McCall.  He and Jesse had a relationship dating back to their days at IBM.  We needed an attorney, who I cannot remember her name, but she was a single Mom who worked hard for us.  Then we needed the finance guy, Michael Leitner.  We only needed Michael to determine the amount of the investment.  When we needed a heavy hitter in negotiations we brought in our GM Mark Chestnut.  Mark had developed his negotiating skills during his days in the OEM business and working with IBM.

So why were even considering this deal?  To make money off of Interliant stock?  That was part of the deal but that was more about hedging our bets.  Interliant had something that Exchange team needed.  The two CTO’s at Interliant, Eric Sachs and Robert Dana had architected for Lotus Notes the ability on a single instance of Notes to house multiple companies.  This basically meant that Company A had an exclusive space for their applications.  Company B had their own space etc..  Microsoft Exchange could not do this.  If you tried to put multiple companies on an exchange server Company A would see what Company B has etc..In order to make Exchange useful for the Internet, it needed this “multi-tenant” capability.

The deal would take a few months to complete.  The main issue being to create a suitable contract for each party.  It was a fantastic learning experience.  I learned the great thing about lawyers around creating a contract, which was the correct wording of the contract, having the right definitions in the contract.  I also learned that you have to reign them in from time to time since they seem to think they own the negotiations when in reality they are there to advise.  I am sure our lawyer beyond the words had no clue what we were negotiating to acquire.

As things got close to the end it was time for us to bring Mark into the fold as from the Interliant side they had brought in Brad Feld, who was a member of the board and a major VC player in the valley. Interliant was looking for $20 million from Microsoft and we were looking to make sure we got the IP we wanted.  Things at times got heated with Mark and Brad, but in the end we reached an agreement.  However finance (Michael) had made it clear the number would not be $20 million. In the end we agreed on a $10 million investment for the right to acquire the IP from Interliant.  We received the signed contract and  Pascal and I took the contract to our VP, Thomas Koll, to sign the agreement.  Then we went out to celebrate at El Goucho, a great steak house in Seattle.

Pascal and I flew down to Houston after the deal was done where we had lunch with Jesse and a few others from Interliant at the Hilton Hotel.  We were in the kitchen  at the chef’s table.  We had a great lunch with great wine.  On the wall was the signature of President Bill Clinton.  Life was a wonderful adventure

Within 2 months of the agreement both Robert Dana and Eric Sachs resigned from Interliant.  We had the code, we had a team of devs at Interliant, but the IP had walked out the door.  It was a good lesson to learn.  It was a stressful period with a lot of late night conference calls, lots of emails, lots of travel, lot so dinners. 

Since that time Microsoft Exchange does now have “multi-tenant” capabilities and Microsoft under the guidance of Pascal have a hosted Exchange option.  It was a lot of fun at the beginning.

A second, but smaller deal I worked was with a small ASP called Allegrix.  I will say initially Allegrix wanted the investment deal like the rest of the Dotcoms.  We started down that path, but the reality was it was late in the game and the interest in doing these type of deals was beginning to fade.  One day I flew down to San Jose for a dinner with my friends at Allegrix.  It was at Gopi’s house, where his wife, Patricia, served really awesome Indian food .  Of course the downer was I had to deliver the news that Microsoft would not be investing in Allegrix.  At that moment I think I defined the term “bad dinner guest”.  Luckily there was still a deal to de done.

It helped that the people at Allegrix from President Chris Clabaugh, to Gopi Kallayil were not just first-rate professionals but a pleasure to work with and get to know.   I still stay in touch with many of them to this day.

Allegrix had a creative marketing guy, named Mike Foster who had created this little marketing packet called “ASP in a Box”.  It turned out the partner marketing group was interested in acquiring the content, so off I went in assembling another team – lawyer, finance, partner team, etc..Since it was a smaller deal the team was smaller and the financing came from the partner marketing team as they had budget for it.  Sometimes the smaller deals are the most fun.  Because the dollars were not as large it was less stressful.   Because of the experience I had gained from the larger deal I was really able to own and drive the deal forward  and be on point for everything. The end price was $200k and by the next time I saw Mike he was already working in his next idea, something or other to do with ASP on a coffee table. 

Reflecting back on this period it does show that even though a company with as large a “recent” history as Microsoft, who was not cool or even considered the future at the time, if you have a big horde of cash you will be relevant.  In one of the earnings statements it came out that Microsoft has made $1 billion on its investments.  Wall Street was not thrilled about this as they did not see how this fit into Microsoft’s business strategy and it was also at this time that an apparent riff surfaced between Steve Ballmer and our CFO Greg Maffei.  Gregg as time would show always had ideas of a bigger role for himself.  At Microsoft it was a two-horse show: Steve and Bill.  There was no room for a third.  Gregg left not too long after the investment rush.  Microsoft got back to basics and focussed on Windows and Office (not a bad decision).  The billion we made we gave back when the dotcom went dotbomb.

Good Night and Good Luck.

Hans H Hoffmann

March 10th, 2010

The Dotcom Bust and its legacy

All good things come to an end and the Dotcom era was no different.  I  was reading the latest issue of Wired and they did a small little commentary on the dotcom era, a look 10 years back.  I figured it would be a good time for me to reflect upon the end of an era as well. At the time I had a job in the Microsoft Network Service Providers group, soon to be renamed the Communications Sector of North America.  I was working with the  Telecom providers and the Network Equipment Providers.  As the article points out the NASDAQ hit 5049 on March 10, 2000.  A pinnacle it has not gotten close to since.    A popular book was DOW 36000.  Looking back at it now the idea that the DOW would reach 3600 seems very dim-witted.  A generation of youth was about to be lost, not because they had been killed in a war, but they were all going to be so filthy rich by 25 they would not need to work.

When the bust hit it hurt my job pretty severely as all the customers I was covering at the time were either in or tied to the Telecom industry.  Budgets dried up as most of the companies had overspent on infrastructure and were not recouping their costs.  As a whole the communication Sector at Microsoft was left struggling with what to do next.  Where was revenue going to come from?  Every customer had the save me money pitch ready, sounds very familiar in today’s world.  We did not have a silver bullet.  Then like today Microsoft was a platform company.  When we did savings calculations it was with fuzzy math and fuzzy logic.  Always with the mantra, buy now and save later.

From a technology perspective however there were good things happening on the platform during the dotcom collapse.  The Windows Active Directory was becoming the standard directory service  in major enterprises.  Microsoft Exchange was winning over Lotus Notes , to become the corporate email standard.  Microsoft SQL Server continued to improve and in most accounts you would find two DataBases (Microsoft SQL Server and Oracle).  We were releasing Microsoft Sharepoint Server which in time would become a $1 billion business.

When I look back at this era a coupe of things standout to me.  The Venture Capital floating around was like nothing we will ever see again.  I made frequent trips down to the valley so I witnessed a lot of what money could buy.  I remember towards the end of the dotcom era I was having a beer with my friend Gopi and the bar was empty, except for a group of 10-15 people who seemed to be celebrating.  they were young (we all were).  Gopi said to me upon seeing them, “It used to be that this meant they just received funding, now it means they are going out of business”.  Not long after the company Gopi worked for, Allegrix, would watch as their VC would pull the money out from under them.  As quickly as the money came it went.

A second thing was when these companies got money they spent money.  If you give a bunch of young single people a bunch of money, there is no telling how they will spend it.  Based on the furniture some of these offices had they spent it well.  Being young companies they liked to party.  I was at a Microsoft Partner Summit in Atlanta.  A company called Coppernet rented out the top floor of the Westin Hotel (70th Floor).   To this day I do not know what Coppernet did.  Never heard of them before,  never heard of them since.  It was there I met a few executives from this company called Enron. 

A third area we seemed to neglect during this period was basic business fundamentals. There was so much hype about a new world of business and the breaking down of old models that we seemed to forget what was good about business.  The basic principles set forth by Luca Pacioli still did apply.  You need debits and credits and things like Income statements, Balance Sheets and Cash Flow statements do matter.

You can look back on this and think of all the money people lost and say what a failure.  But I think that would miss the point.  Around this time Bill Gates was at the yearly Davos Conference in Switzerland.  He was being grilled by reporters about this whole Dotcom explosion and asked repeatedly, ” how will these companies make money?”.  Finally an exasperated Gates said, “You’re missing the point!  It’s the build out of the infrastructure that is important”.  I think that is the true legacy of the dotcom era.  A lot of companies had the right vision, but the infrastructure was not there.  During this time telecom Providers were building out DSL service.  Cable Companies were working on Cable Modem offerings.  At the time they were crude and a bit hard to set up.  The Wi-Fi services we have come to expect wherever we go were still being built out.  Around all this was what the capabilities of these services were, still were not fully understood.  I remember a Telecom provider of Wi-Fi services wanted to provide hotspots in airports where people could pull up with laptops and download a movie over wi-fi they could watch on the plane.  Sounds nice, but at 10 mbs it will take a long time to download a movie.  Not to mention you need to build an inventory of movies and a billing system.  I am not saying it will not happen but in the year 2000 the technology was visible, but not ready for prime time yet.

If you fast forward to todays world many of the new market offerings we see today were laid down 10 years ago.  The idea of Software as a Service (not AND, for the Microsoft folks reading).  We can look to SalesForce.Com as one the survivors from that era and true success stories.  If you look at Cloud Computing this is a “big boy” version of the Application Service Provider model.  Rather than small start-ups with data center space at Exodus or Level3, you have companies like Google, Amazon and Microsoft providing the infrastructure or platform ( I believe Microsoft is making a big mistake with Azure the platform, but that is another blog)..

Unlike the current financial crisis I shall look back at the dotcom era very fondly and we should all be thankful for the legacy it has left us.  The internet was born in this era and so many of the promises it did not fulfill at the time are now becoming reality.  It was a wild ride at the time but it was also a lot of fun.    I have often said when business is in a state of chaos it is one of the times you will feel the most alive.  Thanks dotcom era, may you rest in peace.

Good Night and Good Luck

Hans Hoffmann

March 2, 2010