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The eXCHANGE Panel Discussion with Andrew S. Grove Panel: Moderator: JOHN HEILEMANN: Good afternoon. I gather from Dr. Grove that you've all been through a, depending upon your point of view, a very entertaining and thought provoking couple of days or a very long and arduous couple of days, but we're going to try to have a final panel here that's going to liven things up. And be sort of a free form, quite free-ranging discussion about things that are going on right now in the Internet economy and sort of ?? try to stay in the immediate and near-term, not doing a lot of blue sky star gazing many, many years out as some of these panels are won't to do. So I want to introduce our panelists, four esteemed panelists. First is Jerry Yang. Jerry, as everybody knows ?? here he is. (Applause.) JOHN HEILEMANN: Is co founder of Yahoo! and Chief Yahoo! now. The second of our panelists is Ray Ozzie who is the creator of Lotus Notes, one of the more powerful and successful pieces of technology in the last couple of decades (Applause.) JOHN HEILEMANN: Ray is now the founder and CEO of a company called Groove Networks, which is in stealth mode but we're going to try to rip that back a little bit on this panel. The third panel member is Jay Walker. Jay is well-known, the founder of Priceline. (Applause.) JOHN HEILEMANN: Now he's vice-chairman, also the founder of Walker Digital and the chairman of that company. And finally, our fourth contestant today on the Dating Game is Dr. Andrew S. Grove, chairman and chief curmudgeon of the Intel Corporation. (Applause.) JOHN HEILEMANN: So, gentlemen, I think we're going to start by giving you all a chance to speak in an uninterrupted and fullsome fashion for all of two minutes. I'm going to start at the far end with Jay Walker. Jay, top line, give us a little overview of what you see. JAY WALKER: I think where I would start, just for a minute, is I think there's a natural tendency to look at what's going on in the financial markets and in sort of the commercial world and say that the end of the world is here or the end of the world is coming, as there was a while back sort of a reaction to say a new world is here and a new world is coming. And I think neither are true. I think we're in an exciting phase of a new transformation. I think there are a lot of ideas, a lot of new systems and new value creations still to come, and I think we're very much on the cusp on focusing on the kind of businesses and the kind of solutions that create real customer volume and real customer value; you know, the kind of scales of the Yahoos! and others that demonstrate there's a lot of need in the world for solutions and yet we're at the very beginning of creating those solutions. So I think that would be sort of my opening thought here; that it's still very early in the thinking process to create value on the consumer side and create scale in the marketplace. JOHN HEILEMANN: Great. There's some things we'll want to come back and unpack in that statement. Jerry. JERRY YANG: We see ?? of course I've sort of seen this over the last six years, especially if you look at the Internet, it's evolved in a way that I think most people six years ago could not have predicted to the scale it has today. So the kind of attention it's gotten, while the industry was growing and as it continues to grow today, clearly reflects how important it is and how ubiquitous it has become in all our lives. And I think one of the things that we look forward to in the near and medium term is how do you make the Internet a lot more essential and critical, both for consumers, businesses, governments, and society in general. And it always reminds me a little bit of how far we've come and how much farther we have to go when we're tackling issues as important as privacy, as important as global trade, and as important as social issues that come out of being the Internet being such a big part of people's lives. And I think for those of us who are involved in industry, there's some serious responsibilities, and a lot of potential, as Jay has said, where in many ways, the market is either ahead or behind where the real value is. And I think that we've always said that the stock market is not an accurate reflection, when it's up, about what the Internet has brought. And I think certainly going forward, the growth, if you look out five, ten years from now, the way the Internet is going to get used in businesses and in consumers' lives are going to be in ways we haven't even thought about. And even in ways we have thought about, it's going to be quite in depth and quite integrated into people's thinking. So we have a lot of work ahead of us, and we feel fairly optimistic about really adding value to everybody who uses the Internet. JOHN HEILEMANN: Dr. Grove. ANDY GROVE: As I sit here listening to the previous two of you, you're a private company (to Ozzie) so you're probably not going to say the same things, I'm reminded about a statement that Gordon Moore used to make. Whenever we introduced 1K memory or 4K memory or whatever memory and the price went from $10 to below 5, he always would say, "Guys, the worst is over." (Laughter.) ANDY GROVE: Insofar as the stock market goes, the worst is over. (Laughter.) ANDY GROVE: Relevant to stocks. But the other thing I'm thinking is I probably started in this business before Jerry and John were born. JOHN HEILEMANN: Is that a point of pride or something? (Laughter.) ANDY GROVE: Point of defeatism. (Laughter.) ANDY GROVE: And in that period of time, just like you in your lifetime have gone through a bunch of ups and downs, those of us who have been around 30-odd years in this business have seen innumerable ups and downs, stock marketwise and businesswise, and having seen many ups and downs, I much prefer to have ups and downs in the stock market than in our real business. And in our real business, we have enormous value to offer to the economy. We have been helping the economy in the last few years for real. We have the opportunity to help the economy in the next several years for real, and the stock market is going to take care of itself. JOHN HEILEMANN: I thought you were about to say having lived through the ups and downs you prefer the ups. Another piercing piece of insight. (Laughter.). JOHN HEILEMANN: Ray Ozzie. ANDY GROVE: I need somebody to count. (Laughter.) ANDY GROVE: Just in case it's not going to end with a KO. RAY OZZIE: So I'm here as a technologist. And having been in this business for quite a while, I tend to ?? what I enjoy doing is looking much further forward into the future. And what amazed me over the past few years is how the Internet has gone from this thing with incredible promise, that can do anything, and people had such imagination as they were writing about it back in '95 to what today ?? you know, thinking has kind of stratified around what the Web is today, and people are looking back and starting to get a little bit cynical about certain aspects and whatever. As a technologist, though, I tend to look at it and say there are an amazing number of things that have not even been tried yet. And it's not appropriate to really kind of be casting it as what we see today. We're at ?? if you think about it, we're at the beginning of ?? what? Hundreds? Thousands of years where we'll all be connected by this big pipe. And I enjoy toying with and building enabling technologies, things that might impact business or the way we do things. And so I tend to be optimistic about where we're going in the next few years. JOHN HEILEMANN: The elephant in the room; right? As everybody ?? the stock market has come up in everyone but Ray's ?? ANDY GROVE: I want equal time for the donkey. JOHN HEILEMANN: The donkey? Okay. (Laughter.) JOHN HEILEMANN: Oooph. So I want to know whether ?? I mean, the ?? the sense in the last couple weeks has been really gloom and doom. The markets have been brutal to many of the companies up here. Jay, you've been hammered. (Laughter.) JOHN HEILEMANN: Mercilessly. Jerry, you've been hammered, mercilessly. Dr. Grove, you've not fared much better. I'd like to say it's the Internet that's suffered, the dot-com, profit warnings from many companies in the industry. There's a perception abroad, out in the broader public, that maybe all this hype about the Internet economy and this kind of profound change maybe was just that, a lot of hype. And I'm curious whether people think that this is kind of a constructive process of creative destruction or whatever, or whether this is like a day of reckoning. Do you think something fundamental has changed or has investor sentiment shifted and the thing goes back and forth like a pendulum as it does in the press and on Wall Street. But has something actually changed that has changed the tenor of things in this industry so much from six or nine months ago? Jerry? JERRY YANG: You know, I think if you ?? the answer obviously lies in how much do you believe the Internet should be part of the future going forward. And it won't surprise you to hear that I believe the Internet ought to be a lot more integrated and tied in with all of our lives, to the extent that basic users and basic people who use the Internet have the choice. It's not something that's been forced upon them, and I think that's one of the key things of why the Internet has been so popular so fast. It's been our sort of mantra, being one of the early guys in the Internet space ?? sorry, Andy. Not nearly been around as long as you have, but in the five short years we've been in business we see some of the things Andy talks about, which is you don't want to have volatility from the standpoint of what ?? you don't want to have people expect way too much from what you can deliver, and you also don't want to have people who all of a sudden think you're going away. I think neither is true. I think that the Internet, over the last year, can be said that it has been overly heated in the sense that a lot of companies and a lot of dot-coms and, you know, every idea that has a dot-com behind it could get some venture funding. And clearly there's been a lot written about that. But to say that it's all over and that the Internet economy and the value that the Internet economy has brought is now no longer there is also not true. If you look at what information technology started 25, 30 years ago when Andy got in the business till now, the Internet is really tying together the information technology industry. It's adding tremendous value in economies, it's adding tremendous value in educational sectors, in the business enterprise, for global competitiveness. A lot of economies have now adopted this as a way of leapfrogging their economies. So real value is being added. I think there's always going to be a gap between market perception and reality. And those of us who do it every day are grounded in reality and executing that potential. And like Andy, we'd rather deal with the market's ups and downs rather than the basic premise of what we do going through ups and downs. And to me we still see a long way up in terms of Internet and Internet infrastructure and what it can bring to the people. JOHN HEILEMANN: Jay, do you think ?? you talk about Walker Digital being a company that makes business processes in a way, and Priceline in a way is about a business process. Do you feel that your business model is under attack or is your stock price under attack? JAY WALKER: Yeah, I would look at it, John, I would say that I would always focus first on the customer; you know, how many customers, are they growing, are they getting value, and are you extracting some margin of profit from that ultimately. And so I don't think from a customer standpoint we're under attack at all. I guess you could argue that what's under attack is the uncertainty in the marketplace for companies that are not yet profitable. There is an enormous degree of uncertainty for companies that have not yet demonstrated profitability. And unlike Intel or Yahoo! which are older, Priceline, for example, is really six quarters as a public company and has been moving towards profitability but isn't yet profitable. And so I think the market is very uncertain about companies that are young, that are still growing very fast, and are not yet profitable. And I think what you've said earlier is there is a fundamental change. And I think the change is the market's willingness to wait for profitability. I think the market has said we're no longer going to grant the benefit of the doubt to companies that can't show either immediate or very quick profitability. And that's a big change. But that's a change in psychology, not a change on Main Street. It's a change on Wall Street. I think Main Street is going about its business of learning how to use the Internet to make their lives better. JOHN HEILEMANN: I think Jerry is having whiplash over here because one side is hearing he's an old company and the other side is hearing he's a child. ANDY GROVE: Old Internet company. JOHN HEILEMANN: Dr. Grove, you said to me on the phone the other night that you felt everyone up here, their business model was under assault. ANDY GROVE: Not Ray's. I don't know what it is so I can't ?? (Laughter.) JOHN HEILEMANN: Ray's business model will certainly be under assault shortly, but the other three panelists up here. Do you believe that? ANDY GROVE: Well, I wouldn't have said it if I didn't believe it. JOHN HEILEMANN: Okay. (Laughter.) JOHN HEILEMANN: Being a scrupulously honest man. ANDY GROVE: And I never embellish anything and I never launch any personal attacks. Go with the flow. (Laughter.) ANDY GROVE: I think there's perception change and there is a reality change that is related to the perception change. The problem that I'm referring to is it is true that predominantly what we are seeing is a shift in market sentiment. But if market sentiment changes investment flows, and that investment flow that is reduced as a result of market sentiment is money that would have gone into advertising on Yahoo!, money that would have gone into buying servers based on Intel chips. So there is a change in growth patterns caused by the market sentiments. Not change from growth to no growth, but a negative secondary of the growth curve. And I think that part, which may be small but it's real, we have to deal with. JOHN HEILEMANN: So do you think apart from the market, do you think Jay's business model is fundamentally under assault? ANDY GROVE: Jay's business model, given that I'm an expert on Priceline… JOHN HEILEMANN: You're pretty much an expert on everything, as we all know. (Laughter.) ANDY GROVE: That's what I meant. (Laughter.) (Applause.) JOHN HEILEMANN: I just thought I'd clarify for the audience. ANDY GROVE: The scalability of Jay's business model is to be proven. I think his numbers prove that there is a substantial portion of the population that wants to operate purchasing ?? consumer purchases -- the way he wants them to operate. How big that pattern is and how much discounting that is required for that pattern to grow is unknown. There are parameters whose size will determine how lucrative his business is going to be, how scalable his business is going to be and how lucrative it's going to be. And those are unknown. I don't think he would disagree with me. JOHN HEILEMANN: Is that fair? JAY WALKER: Yeah, I think that's fair. When you look at our goal of reaching 10 million customers by the end of this year, we're on track for that. And Andy is saying is it 20 million? Is it 30 million? How big is this going to be? ANDY GROVE: I'm also saying what do you have to do to reach any given number. JAY WALKER: Right. ANDY GROVE: There is an elasticity in demand in consumers' eyeballs as well as in microprocessors, and if you are driving toward a growth that doesn't want to come naturally, you have to discount; that is going to interfere with the profitability picture. JOHN HEILEMANN: So you think Jay is still going to be in business two years from now? ANDY GROVE: Oh, I think he's going to be in business two years from now. JOHN HEILEMANN: And Jerry. ANDY GROVE: Yeah. JOHN HEILEMANN: Is his business model under assault? ANDY GROVE: Not fundamentally, from but from the standpoint of a portion of his revenues come from investors' money ?? The Internet business model, you pour money into the funnel, it trickles down to the dot-coms, the dot-coms spend it with either Jerry or Intel or one of Intel's customers. The less money you pour in up there, the less money trickles down. JOHN HEILEMANN: I think Jerry would like to shift that trickle pattern just slightly. ANDY GROVE: One doesn't go without the other. JOHN HEILEMANN: Right; yeah. When you talk about ubiquity, Jerry, you talk about, you know ?? you used that phrase a couple times in your opening statement, and I think there are a lot of people in the Internet industry and in the media that covers the Internet industry that look at these media metric numbers where you see this usage pattern that was once so explosive now flat-lining over some months; right? Is that a cause for ?? obviously it's a cause for some degree of concern. Is that cause for terror? JERRY YANG: No. You know, one of the things we keep talking about the Internet is that it's measurable, but one of the things I think we've all been through the last three to six months is that the way in which we measure things needs to be constantly reexamined. And people, I think, now tend to focus on the too narrow part of the Internet usage which isn't accurately being measured. It's like feeling parts of an elephant and try to figure out what kind of an animal it is and you're only feeling the toes. We see the Internet going up in corporate applications, wireless applications, and even some off-line usage where people don't get measured by media metrics or any other things. But we internally see a lot of the traffic flow. We internally buy more bandwidth. We internally, obviously through partners, see all this activity continues to happen. That's one thing. The other thing is that clearly the activities that people do tend to be more meaningful; meaning that people forget five, six years ago surfing the Web was a novelty. Today people are not surfing the Web for fun. They're using it for real business transactions, doing real commerce, real communications, real commerce-driven research. So the activity has gone up, and you can't really compare ?? it's not like a 30-second spot five years ago to a 30-second spot today. People are using the medium for more meaningful things. That I don't think is being captured in the measurement scheme. I don't want to blame it on measurement, but I think clearly if you look at the world, the growth outside the U.S. is going to be bigger than the growth within the U.S. The U.S., the opportunity is not expanding in sheer numbers, which I think people tend to focus on. It's really being able to add value vertically and in a meaningful way from a relationship standpoint and meaningful transaction standpoint. JOHN HEILEMANN: Ray, you talked about in your opening about how there's just a huge amount of things that hadn't been tried yet; right? RAY OZZIE: Yeah. JOHN HEILEMANN: I'd like you to talk, if you can ?? I'm not even yet going to start hassling you about your company. I just want ?? give us a sense of what kinds of things you're talking about when you say that, and how you think the Web slash the Internet, to the extent there's a distinction there, could be really fundamentally different in the medium term, in the three to five year out term not 20 or 40 year term. RAY OZZIE: I think as Jay was saying, there are some fundamental shifts going on because the technology is becoming more and more and more broadly available. So, you know, there are going to be certain things that happen in the usage patterns because broadband will be available to a lot more people than it has been in the past. There will still be ?? the Net will still, as far as I can see, going on as far out into the future as you want to go, there will still be differences between the lowest connection speed and the highest connection speed, probably three orders of magnitude, but it is going to change the way people consume content, their expectations about how to deal with the Net, et cetera. Coming from the world that I lived in, from Lotus Notes, I absolutely believe that people tend to work not only online but also off-line. They like to take work with them where they go. And that usage pattern is going to kind of find its way into ?? I believe into the Net a little more deeply. The Web technologies are not immediately suited for that type of usage, and I think that there will be a lot of different types of uses of the Internet. And when I distinguish the Internet from the Web, it's Web browsers and HTTP versus other types of things that you can send on the Internet using TCP/IP or IP in general. But I absolutely think that the Net is going to be used a lot more as a person-to-person communication device, doing ?? where people are doing things that are relevant to them. If they are working, they're using it with other people that they're working with. If they're playing, they're using it with other people that they're playing with. And to the extent that servers are extremely useful and sites are extremely useful in that process, that's great. To the extent they can do things directly with one another, those technologies will also emerge. And I think that's a big growth area and where it will go in the future. JOHN HEILEMANN: Ray you're dancing and prancing around the edge of your company. The peer-to-peer computing ?? I rely on you, Dr. Grove, to be a withering skeptic when the gales of hype swirl through Silicon Valley. I can always count on you to not drink the Kool-Aid. And yet Napster comes out and you're at your house downloading those Metallica cuts, and you're telling peer-to-peer computing is going to change the world. I was shocked. ANDY GROVE: There's had a little difference. I don't own Napster. JOHN HEILEMANN: Fair enough. Why do you believe? ANDY GROVE: I don't have this at my fingertips but I think if you compared Yahoo!'s growth of customers and unique visitor's with Napster's registered users, there's probably approaching an order of magnitude difference in terms of steepness of customer acquisition on Napster's end. Both ?? and the comparison is fair -- Both of them represent new use of the Web, in 1996, picking that as ?? When did you become a portal? JERRY YANG: We started in '95, so ?? ANDY GROVE: Okay. '95 to the year 2000. What that shows, that that application has an attraction. Both of them are free, by the way. Both of them are new. There's no ready-made customer for each of them. There's no financial issue involved in each of them, I mean between them and the consumer. The growth rate of Napster blew away any previous Web-use growth rate by margins of several ?? I wish I had the data. But approaching an order of magnitude. JOHN HEILEMANN: Spectacular, yeah. ANDY GROVE: It's very difficult to overhype a phenomena that is an order of magnitude faster than the fastest growing phenomena in Web history. Will that change the world? It depends on what world. Will that change the Internet? Hey, if it is an example of the utility of peer-to-peer networking that can be applied to other segments, other applications, other industry segments, like Ray's presumably, rumors say, is trying to do, and many others. Recent count, there are 76 different startups working in the peer-to-peer arena. Some of them are going to succeed with it, but if some portion replicate Napster's success, peer-to-peer networking is going to be tied, it's going to raise a lot of information technology votes. Will it affect the music industry? I think it's going to affect the music industry no matter what happens legally. So that's two major industries. Will it affect the motion picture industry? Will it affect digital distribution? I think the answer to this, one way or another, has to be yes. Pretty powerful phenomenon. So it's difficult for me to be a skeptic about the magnitude of the phenomenon. Not necessarily the power of that particular company, but the company which, as a prism, reflects the forces and the readiness of the industry, readiness in terms of high performance client deployment, broadband availability, that led to this ignition that we are witnessing in terms of Napster. JOHN HEILEMANN: Are you auditioning to get a board spot on Ray's company? (To Ozzie) Or do you need a press secretary? Talk about peer-to-peer computing a little bit. When did it first become clear to you that this was the next big thing? Presumably before Napster. RAY OZZIE: Well, we didn't call it peer-to-peer. We just needed some technology in our product that happened to have the characteristics that computers could talk directly to one another just because of the nature of what we're building. This was back in October of '97. We've been operating for three years building what we built, and it turned out the more we used it, the more we built on top of it, the more what we were building matured, I came to believe ?? early on it -- was just a way to do things. As time went on, I came to believe this kind of has the potential to be a fundamental enabling technology, much as there have been several distributed computing inflection points in the past over the past years. In the file-sharing era when PC networking first started there was this thing called D base and Fox base and they were the enabling software technologies that made the filing-sharing phenomenon take off. Later on there was PowerBuilder which was the enabling technology that made client server take off. And when I say take off, I mean at each of those inflection points, new companies were created and business problems were solved in new and different ways. When Web computing came around, there was another inflection point. Lots of new companies were created because of that new distributed computing technology. peer-to-peer feels to me, based on our use of it, as though there are going to be an immense number of uses that are going to cause and catalyze the creation of a lot of new companies in many different domains, and customers ?? you know, many corporate customers, IT customers, line of business managers -- are going to see it impacting what they're doing in a way they aren't viewing right now. JOHN HEILEMANN: So just hypothetically, if you were going to start a company in this area, what might that company do? (Laughter.) JOHN HEILEMANN: Let's just pretend you're not you. Just pretend you're a guy on the street and you have these ideas and you were thinking about starting a company. What kind of thing might you want to take on? RAY OZZIE: If it was a year ago I would have done something in the music space to get it out to everybody. (Laughter.) RAY OZZIE: It's basically, from my perspective, the biggest value is essentially any given customers' domain-specific application that's meaningful to them. The reason I feel that Napster took off, it's not about peer-to-peer; it's the music. It's because people want music and like music. And peer-to-peer was the enabling technology, but nobody cares about peer-to-peer. They care about "I can get music." That is an example of the importance, I believe, of what it is. If it can enable other things that are ?? other killer apps that are meaningful to a specific customer, and they could get that kind of an app in a way they couldn't build otherwise, I think that's the real key. JOHN HEILEMANN: Does peer-to-peer look like a big deal to you guys? Look like as big a deal to you as it does to these two? Jerry? JAY WALKER: Looks like a big deal to me. Looks like a human brain where all the neurons are connected with other neurons at the same time. I think peer-to-peer as a network description is a very powerful network description. It's flexible, it's fast, it shows parallels in nature that are clearly successful in the biological world. And I think Andy's comment that the speed of the viral growth in those kind of peer-to-peer networks, the uncontrolled networks, are really unprecedented in terms of commercial growth, as much as the network itself was unprecedented when it came along. So I think it's ?? I think it's a big deal, yeah. JOHN HEILEMANN: Jerry? JERRY YANG: I think it's great for Andy because he'll sell a lot more processors. (Laughter.). JERRY YANG: But all joking aside, I do think it's the application and the use more than the architecture itself. And it doesn't surprise anybody to take the network analogy and take it to the extreme, and the current extreme would be something that's analogous to peer-to-peer. But I would imagine the viralness of the Internet is something we've come not to be surprised at. We've seen several outbursts of tremendous amount of growth. I think instant messaging and other kinds of viral communication that can take place over a broad platform which has hundreds of millions of users, you ought to be able to see exponential growth when you hit that killer app. It's an interesting debate. Did Napster or something like that grow faster because of its architecture or because it's something that people want and they can get it for free and they can't get for free anywhere else. And if you piled up a bunch of Intel chips for free on the corner here, I'll bet you you have a pretty high exponential growth phenomenon here, too. So I think you have to ask that question. But clearly I think the efficiency of the network, nobody is debating. I think the efficiency of the peer-to-peer network for power and ability for individual nodes to be part of a greater network and to have an application or a solution that people want to use is extremely powerful. JOHN HEILEMANN: So as this phenomenon kind of rose up in this last year or so, presumably at Yahoo! you guys have sat down and said "threat or opportunity?" JERRY YANG: Well, I think we more focus on applications. And maybe that's the way we view it. We view our business as ?? when we view user demand and we say, you know, people will want to communicate and share their preferences, and if the preferences include files, include work documents, include whatever it may be, is something like peer-to-peer the best way to go about doing it. Is it centralized, decentralized. I think all the architectural decisions I think are made at the second step. We clearly want to use the best architecture to drive our applications. And when and if we find the right applications, we'll use whatever architecture is necessary. ANDY GROVE: I guess if I can interject something on behalf of the right wing here (seated to moderator's right), is it is not that peer-to-peer networks are going to replace the Internet as we know it. I think it is going to augment it and it is going to give other options for application developments that would be either cumbersome or unaffordable in terms of use in the more central Internet model today. So it is ?? The existing Web is going to be surrounded by peer-to-peer networks, and as application developers realize that the costs of delivering those applications on a peer-to-peer network is much lower than it would have been in the central broadband limited form of the Internet, new applications will develop. And I think that's consistent with what you say. As it's going to happen, Jerry is going to respond to that. JOHN HEILEMANN: Jay, what's the hardest thing, what's the biggest challenge, biggest threat to your business in the next 18 months? JAY WALKER: The biggest threat to our business. Hmm. I would probably say anything which took our eye off the customer would be the biggest threat. You know, ultimately it's about customers and it's about getting them to come back, getting them to be happy, it's about getting them to tell their friends, and it's about satisfying the desires they think they have and the desires that they don't think they have. So I would argue that the biggest threat is, in a desire to grow, in a desire to become more horizontal and add more and more functionality, you can lose sight of the things the customers really want and really like while you're trying to innovate. It's sort of like adding features to an airplane while it's in flight. I think it's a very difficult proposition. You sort of want to land it on the ground and do some feature changes. And you can't; the plane's in the air. So you're constantly making decisions about what features and functionality to add while at the same time trying to serve the customers that joined the flight earlier and expect certain things from the flight and expect a certain destination and level of comfort. And those fight against each other as you try to grow and serve companies and those can be very real and painful for a young company. JOHN HEILEMANN: Sometimes rather than add new functions, sometimes you have to cast them off as you did just recently. JAY WALKER: Sometimes you have to say this isn't going to be successful financially for us so therefore we have to make this change, even though we don't want to make the change because we believe in the long term in this but in the short term we can't. So you're making these changes in the echo chamber of everybody screaming and yelling of what they think they should do. It's sort of like the pitcher on the mound and everybody screaming about the pitch. The pitcher has to focus on his game. I think that's the challenge for a lot of young businesses that are scaling rapidly. I think Jerry's business has always face that challenge, what to do, not to do, what to focus on, what not. And they've succeeded in constantly growing the base domestically and internationally while at the same time keeping customer clarity high, all the things that make Yahoo! the preeminent ?? JERRY YANG: Want to be our spokesperson? JAY WALKER: I often am. JOHN HEILEMANN: So there's no reason to think that you're abandoning businesses that at one point seemed important and reinforced your basic ideas of what's wrong with the pricing system, the way in which the Internet could help to make a more efficient ?? that doesn't ?? this is not a sort of sign that, in fact, the model that you're pursuing has limited applicability? JAY WALKER: I personally don't think so. It's like anything else. There are capital issues and there are consumer issues. And they often don't go together. A lot of times things you want to be able to do for consumers that will take years of investments ?? launching USA Today took years before it reached a point where it was profitable. The marketplace doesn't have patience for that now. That's acceptable but I don't think that says anything about what people want to do or don't want to do. JOHN HEILEMANN: We print journalists, we like things to take 20 years. ANDY GROVE: John, can I butt in? JOHN HEILEMANN: Yeah. I think you own this place; right? You own this. "This is my microphone." ANDY GROVE: It just struck me that we each have something to sell, and you are a long-term professional observer of the Valley scene, so to say, bicoastal. What do you think is going on? (Laughter.) (Applause.) JOHN HEILEMANN: If I had known that was going to be your interjection I would have cut you off at the knees earlier. No one in your audience would care to hear that. I'm just going to pass. (Laughter.) JOHN HEILEMANN: Jerry ?? AUDIENCE: Boo! JOHN HEILEMANN: Boo all you want. Luckily I'm not traded on the NASDAQ. Investor confidence? Who cares? Jerry, when you think about the hardest things for your business in the next 18 months, two years, is it a lot like what Jay was talking about? JERRY YANG: I would love for you to answer Andy's question. (Applause.) ANDY GROVE: I've never seen you blush? JOHN HEILEMANN: What's the question? What is the question more specifically? Let me see if I can answer it. ANDY GROVE: What is the most cogent, three sentences you can say about the current state of affairs in Silicon Valley, the phenomenon, not the place. JOHN HEILEMANN: Three sentences? ANDY GROVE: Yeah. I have very low requirements. JOHN HEILEMANN: Everything is kind of proceeding as expected, in a certain sense. I mean, I sort ?? we were talking before about ?? I think my friends in the media and certainly people on the Street have this kind of tendency toward bipolar disorder. Everything is either the absolute ?? the new economy changes everything, none of the old rules apply anymore, these companies are all worth these stratospheric valuations, everything is great, we all cheer lead for it. And when things take a turn in the other direction we swing back and we say it's all bull____, all a disaster, none is true, the Internet economy is over, Internet business is over and it's doomed. I sat here in 1996 and '97 and it seemed clear there was a lot of easy money spent on companies that were going to go out of business and now they are. That seemed ?? Every prior historical movement of capitalism has moved in that way. Flowers bloom and then the industries consolidate. That's sort of what you would have expected if you weren't either selling something or had a vested interest in hyping something or if you weren't ?? had a vested interest like the media does in having things swing back and forth violently because that makes stories. JERRY YANG: Andy ?? I think I would disagree with you because I think John is in the business of selling. They're selling magazines, papers. ANDY GROVE: And a book. He's in the stealth mode. JERRY YANG: Just because he doesn't sell something ?? (Laughter.) JERRY YANG: Just because he doesn't sell something with dot-com in it, clearly I think the media obviously finds these kind of things sell well. JOHN HEILEMANN: Right. That is what I said. JERRY YANG: I agree. JOHN HEILEMANN: I didn't mean to exempt myself and say I was too holy for that. But it's a systemic problem and it happens in politics as much as it does in business. ANDY GROVE: You did good. JOHN HEILEMANN: Was that all right? (Laughter.) JOHN HEILEMANN: Phew. It's like being in middle school again. (Laughter.) JOHN HEILEMANN: Do I get a smiley face badge or a rap on the knuckles? Every time, I feel like I survived another day. So Dr. Yang, back to my question. JERRY YANG: I would say, you know, the challenges for us is largely executional because when people talk about Internet time and talk about building things and innovating in Internet time, I don't think any of that has changed. I think the lines between what is traditionally a new media or new economy company versus an old media or old economy company, that is becoming a blur. And the brightest people in both economies are now competing with each other or cooperating with each other. We're increasingly being in the same environment. Our customers and our users, especially three or four years from now, won't think of the Internet as a novelty. We have to stand on our own, have to be held to a higher set of standards like every other medium and infrastructure in technology. You can't have chips that break. Three years from now you can't have Yahoo! that breaks. We don't want to break today but clearly in three years that expectation will be even higher. How do we continue to be adaptive, fast changing, growth changing, innovative and doing it while public sentiments swing one way or the other. I think that's the biggest challenge. But the flip side of that is that I think you'll find a lot of people in our industry, and certainly I'll speak for my company, being extremely passionate about where this goes. And it's really weird to say "let the public and let the sentiments and perception do what it will but we really believe the following, we really believe the Internet is going to be huge, it's got a long way to go, it's a growth potential, and we're going to execute on that." We're going to try to stay focused and be really focused on the opportunities. JOHN HEILEMANN: For a lot of companies the question of scale, scaling up. You guys have scaled up in a way probably more successfully than conceivably any company ever. In the course of five years, to go from zero, right, to 150 million unique visitors a month. JERRY YANG: Right. JOHN HEILEMANN: That's pretty amazing. I guess I'm sort of curious how you did that. Did you sense that scale was always going to be ?? scaling up was going to be one of the hardest things from the beginning and plan for it or did you do it on flight? And what about now going forward, is that still a huge issue? JERRY YANG: I think you ?? I think the key for us, and it continues to be, and it goes to a huge part of what Jay says, is you don't presume anything about the Internet and you don't presume anything about the marketplace. What's great about and what makes peer-to-peer and all these things works is this medium is empowering individuals, it's empowering consumers. When you give them the tool set, give an average person a tool set they never had before, they can do amazing things. And I think peer-to-peer, not to go back on that, but clearly it's a much more powerful tool set in many ways to do certain things. We are in the business of enabling and giving people things so they can empower themselves to do more. When we plan for scale we plan for one thing and make sure it works for 10 million, 100 million people. It's boring, reliable, consistent, it's going to work every time. What that does is you let the creative elements happen at the consumer level, at the workplace level. And that's what drives the scale. As soon as you presume to know that what the Internet wants and needs and you're stuffing things people don't want to use, that's when you start to fail. JOHN HEILEMANN: We don't have that much time. I want to hit a couple topics really quickly. Ray, you talked about broadband earlier and that being important. I want to quickly ask you, you obviously believe it's important. How soon? It's sort of like how soon is now. We've been waiting and waiting and waiting. Or Dr. Grove's dear friend Mr. Gilder has just written a book I believe that predicts infinite bandwidth at no cost relatively the day after tomorrow. I think you're probably skeptical about that, Andy. I'll ask you this last. How soon do we get ubiquitous broadband? RAY OZZIE: Ubiquitous will be a long time if it means truly ubiquitous. It's very patchy. The towns all around our town have Road Runner and our town happens not to. It's a remnant of the cable system or how motivated your local RBOC is to put it in. I think it's one of these things of slow and steady progress more than anything else. And I just ?? from my own perspective, I just assume that the Net will be ?? there will be variable bandwidth and latency and things like that for a long time to come. But it's going to be large enough to justify investment in building services specifically to serve that pretty soon, within ?? you know, if not now, within a few years. JOHN HEILEMANN: Does that sound right to you, Jerry? Is broadband on your near-term horizon? JERRY YANG: I agree with what was said earlier which was that I think, bandwidth is concerned, average bandwidth that people have access to is going to increase. The cost is not going to be necessarily something that everybody can afford. We're still going to be dealing with a bandwidth variant from, you know, narrowband to broadband and everything in between environment. And we're going to have to build applications and functionality that matches those. JOHN HEILEMANN: So I'm told that we're done. So before we ?? ANDY GROVE: Don't I get ?? JOHN HEILEMANN: Before we turn the stage over to the wise and ?? ANDY GROVE: I want to answer the broadband question. JOHN HEILEMANN: Okay. They told me time was up, but as I said before, you run the show ?? ANDY GROVE: I can answer in 30 seconds. In the last month, given I live in Los Altos which is kind of a third-world area, I first lost my DSL connection, then I lost my ISDN connection, then I lost my voice line, then I lost my fax line. So for a period of almost a week, the only means of communication between the Grove household and the rest of the world was a Blackberry and a cell phone. Welcome to the telecosm. JOHN HEILEMANN: You seem to think that's a systemic problem and not the fact that all the telecoms hate you. (Laughter.) JOHN HEILEMANN: You rag on these people all the time and they're going to take their revenge. ANDY GROVE: John, they don't have a good enough computer system. Their repair technician number 14 would know that repair technician 13 was there the day before and pulled the wire on something he was supposed to fix. I don't think they have enough database to know that this is a guy that behaved. JOHN HEILEMANN: You don't think they know where you are. ANDY GROVE: No. JOHN HEILEMANN: Andy is going to talk in a second and before we let him talk I want to thank everybody else on the panel for being here and give them a big hand, Jay and Jerry and Ray. (Applause.) ANDY GROVE: Don't despair. This will be short. (Laughter.) ANDY GROVE: Today, the stock market, the NASDAQ, which is kind of the emblem for our industry, has dipped below 3,000 before its close at 3,074. Dow Jones at one point dropped 300 points. As these numbers suggest and as a lot of the early questions on this panel indicate, it's a period of time when we have reason to begin to doubt some of our own beliefs that we've operated on and invested on. I think it is particularly important to remember exactly like Jerry said, that the Internet is for real. The benefit of connected computing and communications and computing devices is for real. Benefit not for our industry but benefit for industries surrounding us. As a lot of the discussion in the panel indicated, one thing has changed. Investors who fairly indiscriminately gave all of us and all of the business models and all of the startups or most of the startups the benefit of the doubt, have doubts. The means of trickle-down investment money fueling our undertakings, fueling our infrastructure building, is probably over, if not forever, for a period of time. We have to use ?? That doesn't mean investments are over. It means that instead of investors' money, we have to use self-generated funds, self-generated cash to pay for our advertising, to pay for our infrastructure. It means that the concept of return on investment that has kind of been put on the shelf for the last several years is back very much in evidence. We have to worry about the return, and we have to worry about the investment. In light of this environment, it is particularly fitting for us to walk the exhibits and look at the industry that brought the incredible economics of the PC industry to the world, through the use of standard building blocks, modular building blocks, both hardware and software, integrate them together into a terrifically cost effective and high performance platform, do its thing on servers, data centers, and enterprise computing. I cannot help but single out two particular exhibits that I saw here today that give illustrations of this point. One of it is CERN, the European nuclear establishment that is doing simulations of billion dollar accelerators on standard industry-wide hardware, industrywide-used software building blocks. Another one is the National Center for Supercomputing Applications that is modeling the theory of relativity in a simulation form on 16 Itanium processors; again, using standard industry-based building blocks, both hardware and software. This is big-time computation which was barely the domain of the largest mainframes a very short time ago. And to indicate what is possible, let me single out just one commercial outfit, Stratus Computer, that has been around in the business delivering fault tolerant computing on proprietary platforms for a couple of decades, and by moving its fault tolerant technology on industry-based, industry-standard building blocks, is introducing an order of magnitude better price/performance characteristics, is remodeling the distribution scheme to bring that fault tolerant technology to the industry, to companies en masse. This is the potential of the industry. This is the potential of what Paul Otellini called the modular Internet. And every task ?? every benefit has a cost associated with it, and the cost here is integrating these disparate modules, disparate building blocks into coherent solutions. And what this meeting has represented is the work of hundreds of players on the e-Business network who have worked together to do exactly that kind of integration, allowing the standard-based horizontal industry to do its economic benefits. Never at a better time, exactly at a time when the cost of infrastructure is going to be absolutely as vital as it has always been until the fairy tale years of the last few years have arrived. So thank you very much for attending, thank you very much for your efforts, and thank you very much for the ongoing efforts that you all or many of you have committed to do to our economy at large, making sure that the Internet economy does not ever become hype, but delivering it exactly as we intended to. Thank you very much for being here. (Applause.) * Other names and brands may be claimed as the property of others. |
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