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an evening with the
barons of the beltway


part 3: the town hall meeting

On Education And Intellectual Capital

MR. WALKER: I'm Bob Walker with Advanced Systems. We have talked about the physical capital. We have talked about the financial capital. But there is one area that has received increasing attention, and that's the intellectual capital. It seems that we are in a position of making ourselves almost into a Silicon Valley, where we cannibalize ourselves in that we are competing for the same intellectual resources—the individuals.

The programs we have to replenish the supply are downstream. What are we going to do in the meantime? How are we going to continue this growth when the problem is not financial capital, it's not physical capital, it is the people necessary to provide the energy and the wherewithal to grow?

MR. KIMSEY: Well, a lot of speculation has built up around the fact that the Washington area doesn't have the potential to become a Silicon Valley because it doesn't have a Stanford, it doesn't have the reservoir of intellectual capital that you just referred to.

In fact, C++ programmers are like basketball stars, to the extent that in our region, they get bid for, like free agents. I think a number of things have to happen, and I think they are beginning to happen.

The educational institutions in this area are aware that they have a spigot that's akin to producing the kind of folks that are needed to continue to fuel the phenomenon that's occurred. I think corporate participation with the universities is going to be necessary. This is a long process.

There hasn't been a huge migration of companies out of this area to the West Coast. There have been one or two, but I think the last one that did it finally went under. I think sooner or later, they will come. I think that there is a huge corporate responsibility to understand that we need to help ourselves fuel the intellectual growth in this region, and, therefore, we have to take a greater participation in the educational institutions and have a much more intense dialogue with the people that run these institutions—encourage a greater collaborative effort among those institutions, even though they are in different geographical jurisdictions.

Trying to get educational institutions to work together is a bit like herding cats. I mean, they are not prone to do that. But it's a challenge that we face. And I think one that we can meet. It just takes focus and we now recognize the problem, and I think people are starting to focus on it. They are going to start to devote resources to it. Once you do that, you'll end up solvent.

MR. MELTON: If we look at what we are doing now as a knowledge manufacturer, a knowledge business—it doesn't make any difference which business you are in, you are in the knowledge business—the primary cost of goods, the primary input that goes into that manufacturing process is mind stuff, trained mind stuff, mind stuff in the form of bachelor's degrees, master's degrees, and Ph.D. degrees. If we look at it as a banker might look at it and say what's your input, what does it cost today to produce a Ph.D.? Pick a number. $2 million? Whatever the number is, it's a fairly large number.

If you are looking at efficiencies through the system, you have to look at how we are going to produce that same level of knowledge dramatically cheaper. If we produce it dramatically cheaper, then more of us, more of our population can have access to it, and the total efficiency of the system improves.

Whatever the cost of creating that Ph.D. here today in Washington, DC, I'll guarantee you the cost of creating that same Ph.D. in Bombay or Hong Kong or anywhere around the world is one-tenth of what it costs us.

Let me remind you what happens with the Internet. The Internet evaporates geography. That entrepreneur, that engineer, that Ph.D. sitting in Bangalore or sitting in Shanghai can compete with a student that comes out of George Mason University, George Washington University, or any university in this area. We need to learn how to educate faster, better, deeper, wider, cheaper, without compromising quality, but improving it.

I know some folks in the audience are working on some of the new initiatives in educational systems. Brian Jones is here in the audience and I know some of the others of you are making strong efforts. I would say if there is one challenge facing this region, it is the total transformation of our educational systems.


A Magnet For Talent

MR. STAPLETON-GRAY: Ross Stapleton-Gray, I came to Washington in 1983 originally and in '88 went to work for the Federal Government at the CIA. I came out of the hinterlands in Michigan.

I think part of the answer is immigration. People have to think about Washington as a place they come to because this is the Netplex. And if you are down on the farm wherever—it might be Bangor, Maine or Bangalore—you want to come to Washington because of what it is. I don't know that people are saying that Washington is the vibrant hub of the information age. But they used to say Washington, that's where the CIA lives and I want to go work for them.

I would like to see us make this area the same sort of Mecca for high-tech jobs. Physical proximity is one thing. Often Berkeley people say this, "I need to sit down with people and have coffee with them and get their ideas and work with human bandwidths." There is something to be said for proximity, even as we erase the physical geography.

MR. MORINO: I agree wholeheartedly. What we are finding in our work is that there are people here who are very much into this whole change, and they range from people in business, people at Georgetown, people in Maryland. Very advanced work going on in this region.

I think it's one of the best-kept secrets in the world now. When people realize what's happening here, there will be a greater influx. People are moving here. The Washington Post article that Esther mentioned makes the point that people want to be here now. I want to be in this region because this is where the action is. Not a lot of people understand that yet.

That's part of our challenge, collectively. That's why we are here tonight—over 700 people. Something brought you here, right? We have interest. We have to broaden that base, and you are the ones that can help because success generates other success and other interest.


On Electronic Transactions

MR. BATTAGLIA: My name is Dave and I'm with KPMG Peat Marwick. Internet-based transactions are still a relatively small part of the economy. I was wondering what you have been experiencing in the magnitude of Internet-based transactions and how quickly you think consumer acceptance will come from Internet-based transactions.

MR. MELTON: Well, obviously, as Mario says, we are at the very early days. We are at the dawn of a new age, and all geometric curves, as they sweep upwards and to the right, have to start someplace and start very small. But keep in mind that AOL today represents half of the people that are online and on the Internet in the United States. That's a big number.

I can assure you, and Steve Case or Jim Kimsey can correct me, two or three years ago, AOL was not making any money from selling goods or transactions on the Internet. This year they are making a lot of money from that.

CyberCash didn't exist two years ago. Today we are handling over 10,000 transactions a day, and in the transaction business, 10,000 transactions is nothing. But they all start here and the ramp of the curve is like other transaction businesses I have seen. They start doubling at 50% per quarter and you put those compounding rates on them and you get to be a serious business in not too many years.

MR. KIMSEY: Bill's exactly right. Our strategy at AOL, and Steve is out there, has been implemented very well. You get a big footprint. Once you introduce the transactions, they will start up that curve, as Bill has indicated. It's becoming a very significant part of our revenue stream. It will continue with Bill and other folks' help as they build better and better tools to make it secure. It will become an increasingly larger part of our revenue stream.


Business, Schools and the Net

MS. BRACEY: My name is Bonnie Bracey. I got a pretty good education from 36 CEOs on the National Information Infrastructure Advisory Council (NIIAC). Business and education don't even know how to talk to each other. Gary Beach of ComputerWorld issued an invitation to CEOs to take a day, and look at their schools like they look at their businesses. What is the infrastructure? Is it going to work? How do we marry schools and businesses in such a way that each benefits the other?

MR. KIMSEY: This was a significant topic of discussion at America Online's last board meeting. It has been our intent for a long time to marry the interests of the Internet and education, particularly AOL's interest in education.

It's a daunting proposition, because of the way the education institutions are organized. It's less easy than we had originally thought. But the unanimous consent of the board was that we were going to redouble our efforts, devote more marketing. There will come a time—we have reached critical mass in terms of subscribers and consumer interest in the Internet.

We think that there is a national marriage of education and this technology. We think AOL's perfectly positioned to help teachers communicate with their students and communicate with parents. There is a whole raft of tools that will make the education process richer, fuller. We mean to figure that out, and we hope to engage the educational community in helping us figure that out.

But there are not three people to whom you can go. Educational organizations are spread throughout the country that have well-publicized views and differences and political issues, and trying to cut through all that—because, after all, we do have an obligation to our stockholders to find the right formula to marry those two communities together—is a challenge we are going to take on and hopefully sell.

MR. MORINO: Bonnie and I go back on this subject. I think what Jim is saying is instrumental. Let me tell you our experience. Go back to the '60s and '70s. Corporate America threw computers at themselves and watched themselves waste money. It wasn't until the late '80s that you started to see major questioning about where the value was.

I will say something that will tick a lot of you off: The worst thing we can do is to simply stick wires and computers in the schools. We are going to wire a lot of schools and everybody is going to laugh because there will be wires hanging from the ceiling and not being used. I can take you to schools in the city where that's the exact phenomenon. People are laughing. No one is taking time to teach the teachers, to affect the culture.

The teachers’ schedules do not afford them the time to learn. There is no extra time for what needs to be done—at least not easily. Teachers in certain counties are given a total of three to four hours of technology training—it's simply inadequate. Just like in the corporate world, decades back, we face a cultural transition that is far larger and more important than simply installing the technology.

We work with an inner-city group in New Haven, CT, called Leadership, Education and Athletics in Partnership (LEAP)—it’s one of the best programs in the country. When we first got involved three years ago, I said we wanted to talk to them about e-mail. Henry Fernandez who runs LEAP said, "Are you crazy, you want me to learn e-mail? I'm trying to teach kids to read, keep them out of jail and you want me to play with e-mail?" A year later, Henry was on a panel with Reed Hundt, Chairman of the Federal Communications Commission, to discuss the importance of telecommuncations reform and access for people in low-income neighborhoods in front of 2,000 people.

Today, LEAP goes into schools working to understand if the culture of the school can even assimilate technology. Then they begin to work with the teachers before anything is even put into place. Gradually the technology is brought in. Now you have a receptive audience. You work at this as a holistic problem including the principal, teachers, administration, students and parents. Many in business understand that the challenge is the system and process, not the technology. We need these people of the business world to help the schools with this kind of cultural assimilation and not be so anxious to force technology down their throats.


The Mom and Pop Shop

MS. SHORE: My name is KC Shore with NetLimo. The mom-and-pop shops have been the backbone of our American business culture and our growth. How do you see the future for the mom-and-pop ISPs and web designers in view of AOL and DoubleClick and giants like that?

MR. MELTON: I'll take a go at it. There is that old New Yorker cartoon with two dogs sitting in front of CRTs typing away madly. The one dog says to the other one through his e-mail “The thing I really like about the Internet is that nobody knows you’re a dog.”

On the Internet, you can be Citicorp or you can be a little bank that has one server, and really, nobody knows the difference. In many ways, the Internet levels the playing field. It does give the opportunity to a ma-and-pa shop with a bright idea and really delivers service to gain scale.

Obviously, it's not that easy all the time. Microsoft, by just being Microsoft, has a huge advantage, no question. But the Internet does create opportunities. Nobody ever promised anybody a free lunch, but the Internet does provide more of a level playing field than most of the traditional, physical-based systems.

MR. KIMSEY: A part of AOL's strategy is to embrace many of these businesses, these mom-and-pop shops, and give them some platform to work from. And an audience to reach.

MR. MORINO: Two specifics on the ISP side. There is no doubt you will see national competition and consolidation. It doesn't mean the elimination of small ISPs, but it will change demographics, as we know them today, dramatically. That's one challenge. A lot of people in Web site design today are going to be in trouble. What they know is the Web. The trouble is, that's not the product. In the business world, the customer wants the solution, not a Web site. Please understand: successful Web companies that are really making money and connecting with businesses understand the culture of the Web, but more importantly, they understand business and how the new technology can change the business process. They have the affinity to understand. Knowing Web design itself is simply not enough. It may give you a good job, but it's not going to be the basis of a long-term sustaining business. You have to apply that knowledge to understand and provide the solution. It took the information technology industry a long time to learn that.


What’s the Capital of Capital?

MR. GROSS: My name is David Gross. I want to commend FBR for creating a no-monkey-suits policy. My question is, well, more of a scenario. If you want to be an entrepreneur, you have to be at the right place at the right time. Say I have developed some ideas and worked with some partners and I'm ready to go out and get some early-stage capital. Given that the supply of capital may not be as great as it is in some areas we talked about, particularly Silicon Valley, is there a risk that I may not get the valuation or the amount of capital here in the DC area because we don't have the supply of capital that Silicon Valley does?

MR. RAMSEY: You know, that is a perception that I think will take time to change, but I think all you have to do is look at the tremendous amount of activity that's being generated across the board in bringing entrepreneurs from just a notepad with a few good ideas to an actual early-stage product, or a software program in beta test.

All you have to do is go to the Netpreneur Exchange site to source all of these different providers of capital. They don't all have checks that they can write that will get you going with one person, but it's collaboration, just like we see in this room tonight. Breakfast clubs, luncheons, across the board for early-stage seed capital.

Groups are popping up that are willing to back, both as angels and as groups, business ideas across the board. It's like anything in life. The perception takes time to change, but I think the reality and the underpinning is that you have more sources now than this region has ever had, and I think it's going to explode in terms of size and scope.

MR. MORINO: Valuation is not geographic. I have no doubt about that. Let me tell you, for an international investment, it doesn't matter where that company is. The valuation is going to be calculated to the value of that firm, regardless of where they sit.


Expanding the Internet Market

MR. LaFEVER: My name is Gary LaFever. I'm with Women's Connection Online. I would like to thank the Netpreneur Program for all that they have done, because they have done a great job in creating the kind of environment we are looking for.

I'm curious to hear a response from the panelists on the likelihood of success in the smaller companies. It's where the public is going to be. AOL has approximately 50 percent of the people who are online. It seems like a lot of business models—whether content-driven, product-driven, whatever—are geared around chasing the same people that are online today. Obviously the real opportunity is people who are not online today, and there is a reason for that. Either there is not compelling content, or the technology is not easy enough to use, or the costs are too high or their needs are not being served.

Perhaps it will be the smaller entrepreneurs that are thinking a little ahead of the curve, thinking about the needs of the general populace, and who aren't developing products in the office but rather living in the real world. The ones who come up with applications or products that solve real world needs. I would be curious, considering the firepower we have in front of the room, to get your observations.

MR. KIMSEY: Well, as I mentioned earlier, one of the big challenges for AOL is to maintain that entrepreneurial zeal, embrace new ideas and keep that same drive.

One of the policies of AOL is to go after and help all of those people who are not yet online to understand the wisdom of why they should be, and, hopefully, to sign up with us. That's our goal. That has been our goal from day one.

We want to be the Net for everyone. We want to bring the technology, make it affordable and make it easy for everyone to use. In doing that, lots of folks are going to have great ideas. We hope to build a fire and entice all of these folks, like little woodland creatures, out of the woods. Draw them to us and hopefully make their lives better by helping them become part of our community.

I think, as all of the members of this panel have pointed out, this is a brave new world. There's lots of room for everyone. Even though we are the biggest brand name in cyberspace, we recognize that we don't have a corner on technology or new ideas or any of that. And, hopefully, we can help all those who do have good ideas establish their mark in this world.

MR. RAMSEY: Let me try and take a very interesting angle on that. I think what's maybe more interesting that you probably can't track is how many people have been online and probably will never come back, based on their experience. I think it's important to understand that. From my point of view, if I thought the Internet was going to stay like it is today, I would have no interest. People said the same thing about the first Apple PC that you tried to screw around with. You have to think of the Internet as fast, ubiquitous and a dialtone. You don't pick up the phone to hook up to another analog device. It's a dialtone. Browsers are going to be built into everything. I don't hear a lot of this talk, about how many people want to boot up Windows 95, try it again, dial in, busy, dial in, busy, just to pay a couple of bills.

MR. KIMSEY: Give us a break here, Russ. We are over that problem.

MR. RAMSEY: You have to understand how fast that is changing. A billion dollars used to be a lot of money, but today it's just a dinner conversation with Bill Gates. Think about what the world is going to be like when you actually don't even think of whether I'm on the Internet or not, I'm just communicating. And that's when AOL will have a $100 billion market cap.

MS. SMITH: Mr. Kimsey, do you want to respond?

MR. KIMSEY: I highly endorse Russ' prediction.

MR. MELTON: Whether it's on the Internet or in the physical world, studies show that primary innovation comes from small companies, non-mainstream companies, the new companies. We know that. You have to counterbalance that with the fact that in the physical world we have the statement that the real estate people have taught us: location, location, location is everything. I would suggest that in the Internet, we have a problem, or an issue, or a statement, that distribution, distribution, distribution is everything.

That is a counterbalance to the other fact. But the point is that if you really have good ideas, good creativity, and you can find some sort of a niche market to hone it, to develop it, then you are going to have all kinds of people who will be more than glad to help you.

You have people who will capitalize it. There is an avenue. There is a rising tide, and a rising tide will lift large boats as well as small boats.

MR. MORINO: We often talk about an Internet issue, and we don't make a distinction between the consumer and business marketplaces—they are materially different. Today, it's going to be much more difficult to get consumers online who aren't online, than to provide solutions that will penetrate the business markets. If you have a solution for the business world, they will buy it. The checks are there—it's a value versus cost issue.

The other thing to realize is how fast the availability of high bandwidth is changing things. I was on a radio interview last night where the host and I discussed our Net access. I have an ISDN line to my home, and he uses a cable modem that runs about ten times faster than what I'm seeing with ISDN. As we increase the bandwidth, we will experience one of the time-proven rules on online systems—as response time goes down, demand will increase. What you will find is an absolutely insatiable demand to do more for a long time to come. The faster response time not only serves the demand better, it actually creates additional demand as we learn to do different things with the information that we can now receive faster. And, our bandwidth will continue to improve dramatically because the demand is there and the technology is coming fast—wireless delivery, cable modems, better compression over copper. We will witness growth along the geometric curve that Bill mentioned. We're at the bottom of that curve and, when it pops, it will go straight up.


Helping the District

MS. CONNELLY: My name is Sherrie Connelly of The Strategy Foundation. The reasonable success of the high-tech Netplex depends on the District of Columbia. A large financial institution recently announced a $4 million gift to the District. What can high technology business in and around DC do for DC regarding partnerships, funding, perhaps MacArthur Fellowship kinds of things, entrepreneurial incubators, expanded science and technology news service, or other ideas that you have had, and what about the role of Congress and politics in carrying this forward?

MR. MORINO: Let me start with the beginning of your question. I think a lot can be done without trying to delve into the politics you are talking about. First of all, let me mention the effort around Potomac KnowledgeWay that April Young is leading. For example, a number of firms are coming in from the suburbs to work at Ballou High School to teach kids to become engineers. You are seeing the beginning of the types of solutions that make sense. From my perspective, right or wrong, I have seen a very different attitude from executives of the high technology firms in the suburban areas of the region. I have had the pleasure of being around these firms and leaders that are beginning to see how they can effect change in neighborhoods throughout the region. There is a change in the consciousness. That may be the most significant thing that's happening. We shouldn't delude ourselves to say we are going to create jobs for everyone through the Net and interactive media. The workforce issue can be approached by at least several paths. There are, in fact, very creative ways that we can work within city areas and rural areas to create new opportunities for work for individuals; we can find people and youth with the talent and, yes, they can become "knowledge workers" in the truest sense of the word. We can help a lot of folks find work in areas servicing the knowledge worker industries from laying cable to doing computer maintenance, and we can find ways to better match supply and demand for service and labor to job opportunities. I think you are seeing steps being taken by a number of proactive groups. On Congress, I'll defer.

MR. KIMSEY: I would second that. I'm involved in every charter school project in the District except one. And I was born and raised in this area, and I'm very upset about what's happened to it. So I've become much more motivated and inspired to do something about it. I'm not alone. As Mario said— once you get enough people with enough resources whose consciousness is raised on this issue, we could talk about it for hours, how it came to be and what ought to be done about it.

But once you get a lot of folks with resources focused on it, there will be a solution. It might take some time, but there will be a solution.


Connection and Participation

AUDIENCE MEMBER: I came this evening because I was intrigued by what a netpreneur was, as I was surfing the Net. There was an earlier question about intellectual capital. I'd like to see how we can take this discussion format, and actually make it into a participatory group. We have 750 people here who seem to be very fervent and motivated.

We do this at work. We do it even if people didn't ask us to. So the question then is how do we create businesses or foster businesses by actually having all of these people work together more than just making it a question-answer session?

At the end of the night, I will have met a few people and listened to a few ideas, but that doesn't really help me. What really helps me is if I actually participated in an activity. If we can come up with some real work that each one of us can take or foster, and then create businesses or spawn many new ideas out of it—this is what I throw out to you guys.

MR. MORINO: I'll take it gladly. I'd like to debate your first point. I think you'll find a number of people here that are interested in simply making connections and introductions with others in the region—from funders to other netpreneurs. One has to realize how disconnected the region has been in this regard. We can already point to a number of people, some here tonight, that have made connections, including netpreneurs with venture capital people. That is a function of this kind of meeting and a much needed ingredient for the netpreneur community and this region's success.

Additionally, I think it's important for this to be done in many venues—through discussion rooms, Web forums, email. All of that is being started at the Netpreneur Exchange (http://netpreneur.org) and we’d love to have your participation. In terms of physical projects, I couldn't agree more. We are working with a very prestigious organization to develop a product education series to help netpreneurs go from product conception to marketability.

There are also advisory and mentor programs we can connect you with, like the Dingman Center at the University of Maryland, Georgetown University, George Mason University and others in the region. They need and want partnerships with people like you. At the Netpreneur Program we want to be the glue to help get you together. I ask that you raise specific opportunities to us so we can help your efforts.

AUDIENCE MEMBER: I'll do that.


The Software Sector

MR. MANDEL: I have both a comment and a question. My name is Tom Mandel. We create models, metaphors and software to live in focused communities online. I just want to say I really appreciated the last comment and what Bonnie said about the importance of education. One way or another, entrepreneurship has to be about changing the world.

My question is—I moved here about five years ago from northern California, and so I have had a chance to see this incredible flowering that's happening here. It's really just extraordinary what's happened in the last few years. Still, my question is, is there enough support for new models and ideas for software?

One of the places that I think we could do a better job in this region is being more receptive to innovative ideas and models in the area of software. I'm wondering if anybody has any ideas. That seems to be a Silicon Valley specialty. I'd like to see more of that here, partly because I'm in the business, of course.

MR. MORINO: I could not agree more. My roots are software. We have a lot of software people who work in applications development and in service capacities, yet that is a different set of skills than those of a product software developer. There is a major difference between the two and we need to take steps to help develop the number and quality of product software developers in the region. For many years, we had few product people, but that is changing for the positive. There needs to be a better awareness and cultivation of product mentality. I think you are beginning to see the seed of that.

We were at a meeting called Mindshare, a program of the Northern Virginia Technology Council (NVTC). There were 30 firms in the room, all of which are money-making companies. I was very surprised how advanced this was, honestly. If you were to get all the software firms together 15 years ago, in the Tysons Corner area, my old firm would have been there and, along with a few others, we would have filled the six stools in the north corner of Clyde's bar. That's why I was so amazed to see 30 of them in one room together.

Recently, several folks have come to us to help start a Software Forum where software developers can come together and get better engaged. This would be an important step.

I have been impressed with the region's tremendous competencies in communications, in systems integration, and in content and information product creation—all of which are probably superior to that of the Valley. In software, however, there still is a big difference. It’s an area where we need growth and development. Fortunately, it's happening. We are beginning to grow our own. If you look at a firm like SpaceWorks or PLS, they have software people and as they expand they may take in folks with software backgrounds that are in service or application fields. Over time, these folks gain pure product software development skills—and the critical mass starts to develop. We will see a spawning of more and more talent in the software industry.

MR. MANDEL: I'd like to see at least some more focus in the venture community in this area—an awareness, a reaching out, and looking for new models and so forth. Thanks.


Breaking Down Barriers

MR. POWELL: My name is Tom Powell. I'm with TPG, Inc. I live just outside the Beltway in Orlando, Florida. You can't get there by Metro, I know that. I appreciate the comments that you have made, the very positive ideas that you expressed. I wanted to ask you a rather open-ended question. What do you see as the barriers to the expansion of electronic commerce? Stated another way, if you were not one of the Barons, but you were starting up your company, what would concern you most—perhaps the regulatory environment or something else that was going to impede your business? What would wake you up at night and say, I've got to knock that barrier down before I can really move ahead with this idea and increase in the area of electronic commerce?

MR. MELTON: I think there are probably only two things that I would be concerned about. One is content, and any small company can be part of the solution. Unless there is really interesting stuff to go look at, to go consume, to go read, to go buy, who wants to do it? It’s just the very problem of shopping on the Internet today. There have been multiple articles written on what a painful experience that is, and how in many cases, there is not much to buy. That's obviously changing and will continue to change rapidly. Content—rich, deep, wide, broad content—that has to happen. That is happening, and you will be part of the solution.

The other thing is what Mario is talking about, and that's bandwidth. We are all trained to receive and look at those 30 screens per second on our TV, and when you get the one screen per 15 minutes on your 1200-baud modems, that's not very pleasurable. Obviously, that's an infrastructure issue that is being solved, and certainly within a matter of three to six years, I think it will be totally solved, but it is certainly a barrier.


Where Do You Get Your Information?

MR. FUNGE: Hi, I'm John Funge from Clara Vista Corporation. One of the real challenges I find in being a netpreneur is that you really need to stay on top. Knowledge is your edge. It's where your ideas come from. It's how you know how to change your business. The market is so dynamic, the half-life of these ideas is very fast.

I was wondering if each of the panel members could tell me his two favorite sources for information relative to his respective business and what amount of that comes from online sources as opposed to conventional sources?

MR. KIMSEY: Two favorite sources? I think we have assembled a group of folks at AOL whose job it is to do that. Obviously staying online is all part of that. It's a daunting prospect, and there is a proliferation of things going on in far-flung corners of the world. And to understand what every garage as far away as Bangalore, India, has got inside it is a increasingly complex and difficult problem. It's kaleidoscopic—it's different every time you look at it. Obviously, you rely on the infrastructure we created at AOL. One of Steve Case's primary functions is to make sure that he has the resources to stay ahead of all of that.

Obviously, we have tried to build tools to do that, because you don't want to be sort of fat, dumb, and happy and think you have it all, because the world is becoming exponentially more dynamic than it already is. It's an increasing challenge. You can't say these are my two favorite ways, because those two ways may not cover it. You have to be looking for all the information from as wide a range of sources as you can possibly get.

MR. MELTON: Very simple. Just give up sleep. More seriously, the online source is probably one of my major sources of information, and there are tremendous feeds of information all the way from filters and news services and certainly one, the Washington Post, which I read online more often than I read the physical. The Wall Street Journal I read online primarily. Perhaps on the weekends I read the physical.

The other is that nonstop e-mail. I probably get 100 or more e-mails a day and that's coming from all corners, people saying: Did you see this? Did you see this? But in addition to that, whether it's a virtual community or a physical community, you have got to get out there and be in it. It's not just in this area. You have to be out in this community. You have to be in the West Coast community. You have to be in the European community. You have to be in the Far East community. All of these places, things are popping all the time. It's face-to-face time physically and face-to-face time on the Net.

MR. MORINO: I couldn't agree with Bill more. It's an old culture brought forward on the Net. I always learn from people. In my other life in the software industry, I probably had 20 to 50 people that I could call for given subjects. That was it. What I found on the Net is that it's so fast and different, that you can't get to the end source of expertise so easily. Instead you need contacts that can direct you to who is most current. What I end up with is a list of folks—routers—people who know the space and know who is doing what in it. That, in turn, allows me to reach folks that are directly engaged in my area of interest.

If I'm interested in search technology today, I don't necessarily know the person who is doing the Harvest Project in Colorado, for example, but I know somebody who can tell me what's going on across the board in search technology. Then I can pick the five to ten people to reach out to and ask for help. I pop e-mails out to these folks when I have a question, and I am ready to help in return when they ask something of me.

Additionally, we also enjoy a direct feed from the investment community, which also becomes a very powerful source of intelligence as to what is going on.

MR. RAMSEY: Well, in my world in the financial markets, which obviously live on moment by moment and particularly between 9:30 and 4:00, every 16th, every 8th is driven by knowledge. Knowledge is power. I have lived in a world where there was always a desire to get an edge, and the evolution has been remarkable.

Just a few years ago, there were actually services that went by names like First Call. People felt they could get an edge based on being the first call.

Well, information has changed all of that. The two traditional sources always were the Wall Street Journal and the New York Times. That was the daily fix that you had for recapping the previous day's financial markets and getting prepared for the today. Online has changed that. Today it's a constant flow of e-mails.

I think the best publication that is distributed is probably street.com. It's there before any of the newspapers arrive. It gives an edge.

That points out an interesting contrast. Warren Buffett, one of the world’s greatest investors, has written about what he calls “franchise” companies. Franchise companies are ones that have such compelling economic characteristics—market share, enduring nature of the product, barriers to entry, pricing power,etc.—that even if he had a billion dollars to start a competitor (this was written a while ago) he would not do so because of the power of the franchise. Buffet’s perfect example of the franchise company was Dow Jones. Today, Dow Jones is precisely the kind company that is under huge pressure and has seen the value of its franchise erode tremendously because of this new communication medium.


Online Financing

MR. PALMER: I'm Mike Palmer from Altimedia, Inc. The panel has told us how much the Internet is changing our lives and I don't think anyone would disagree with that. One of the biggest ways that the changes are taking place is through disintermediation. It is the realignment of the producer-consumer relationship, for example, through online brokerage. I would like to direct a question to the panel. Perhaps Russ can kick it off. Tell us what you think will be the impact of the new SEC filing and other regulations that allow individual corporations to do self-sale and self-offerings on the Internet of their capital instruments.

MR. RAMSEY: Well, this will sound incredibly self-serving because I'm an intermediary and underwriter. In the world of finance and actual taking and writing checks for enterprises, I think that, while there will be great strides made in increasing the efficiency of information, videoconferencing over the Net, etc., I still think it's a phenomenon that requires not just initial funding, but all of the follow-through, information, creating liquidity, securities and trading that needs a real physical presence. Any lawyers here could cite you chapter and verse about the scams and the fraud that have already proliferated over the Web, and unfortunately, I think there will probably be a lot of people who will lose money in those vehicles. I think there's a long way to go.

AUDIENCE MEMBER: I really just have two comments, one on education. As president of my company, I have taken in interns from the various colleges in the area, and those students have gone back with their knowledge and told their friends. I really think maybe that's the way that we can get the colleges and students studying communications that we need to help us out for free with their knowledge, and they also help us learn. My other comment is that I, too, would like to see the venture capital people turn their heads toward the software people, those that are trying to put an idea together. Thank you.


Virtual and Real Estate

AUDIENCE MEMBER: I'm in the commercial real estate business. I'm with Madison Capital. I'm here because I'm excited about what you are doing. My question is this. How do the four of you panelists see changes in the use of space in office buildings, industrial buildings and retail facilities over the next ten years?

MR. KIMSEY: Well, I will say that we have enticed the founder of MTV to come be an integral part of our company, and his prior job before doing that was running Century 21. Bob Pittman, I think, pioneered some marriage of the Internet with the real estate business. To the extent that people working at home create a different dynamic in terms of office space and building leasing and so forth, I think it will certainly have an impact.

I'm not sure we know exactly what that impact will be, to the extent that you can say there is a proliferation of appetite certainly in the Washington area, certainly in Tysons, for office space. How much that's impeded by the drag on those people who work out of their homes, I'm not sure. But I know that office space has skyrocketed in terms of price and vacancies. I think there is always going to be an appetite for office space. I think with so many people working at home, maybe it won't be as much as it used to be. Maybe they won't need as much office space, but I think there will be a marriage of the real estate business and the Net technologies. And there already has been.

MR. MORINO: There will be an impact on real estate, but it may come in ways far different than we might be assuming. I do not believe that offices will be eliminated. Changed, no doubt, but eliminated, no. One place we may look to as a precursor is the more modular building that typifies the technology firms in Silicon Valley. You see buildings in a more modular, flexible structure there. The need for flexibility in moving people becomes paramount in our industries, because the people change so fast, hence the ability to reconfigure, to do hoteling, to do teleporting will all play a role. Even with many more folks working out of their homes, they will still have to come together from time-to-time. The nature of each business will dictate that frequency and, therefore, their real estate needs.


Services on a Shoestring

MR. McCOMB: My name is Jeff McComb. I have a small start-up company called Ideal Destinations. This is my first elbow-rubbing session with this many people in this industry. I'm extremely excited about it, but I think demographically I fit into one of those categories that's been discussed before, and I think that an awful lot of us in this room probably do. What I mean by that is we have what I call the techies, the marketers, and the business people.

I'm a marketer. I have marketing ideas. That's my field. But I have very little expertise in the other two areas. I have scratched around and clawed and hunted under rocks for all the help I could find to try to get my ideas into software and online. What I'm getting at has been touched on before—about an organized effort to start up the small entrepreneurs who have an idea and want to develop it to get the kind of help on a shoestring that they really need. That is the problem—the shoestring. I guess, just as far as the real practical nuts and bolts, for instance, is it possible that the Netpreneur Program could foster a network of people in general expertise areas? For instance, the small software developer, database developer, the accounting student at the University of Maryland getting his Doctorate who can run your books for you. That kind of expertise on a shoestring. I wonder if that's in the plan.

MR. MORINO: Yes, to a degree. There are already services here doing some of that. The Dingman Center for Entrepreneurship at the University of Maryland, groups at George Mason University and others in the region offer such services. I wouldn't say that such places are abundant, but there are 10 or 15 places in the region that you could be pointed to. There is a bigger issue in terms of connecting people who need different skill sets and we hope to help in some of this. We have already been doing some of that brokering. At least we can make introductions, if not, even cultivate relationships to a degree.

There are also different ways to address this need. One firm, with a product for corporations to better manage their travel process and costs, was put together by six people who today are all partners in the firm. Each brought a different skill to the table from finance, to marketing, to technology. All six are still working their jobs with other firms as they get their new business launched. They each took a part of the action. They now have a new company and they each own a part of it. They found another way to get the help and resources they needed.

The Need for Balance

AUDIENCE MEMBER: We have heard a lot of reasons and characteristics that are needed to be successful as entrepreneurs. I notice in this pamphlet about the Barons, you each have three children. I wonder if that's an important ingredient as well. Given all the demands of being an entrepreneur, what are the challenges in other aspects of one's life? Is it incompatible to be an entrepreneur and have other facets of life and a family? I'd like to have all four of you answer that question. There are other things that make life go around.

MR. KIMSEY: When you are lying on your death bed, you are not going to think about the company you built and how much money you made. All you are going to think about is your relationships. If you don't have a good relationship with your kids and friends, then your life will have been a failure, period. So yes, you have to have all of that.

You can be driven, but if you don't have those other things in your life that make it all worthwhile, sooner or later you are going to be sorry. So yes, I think you have to keep a balance. You have to understand that even though you have the drive, the zeal, the superhuman hours—the additional challenge is to keep it balanced and realize that you are going to have people in your life, or you could die a lonely old person who built a company. If you understand that starting out, I think you will lead your life somewhat differently to the extent that you interrelate your life.

In addition to all the people around you, once you start to have any degree of success, as has been pointed out in this room today, understanding the environment and the community work, the absolute obligation is to give back to that community. And I think that private industry is in good shape resource-wise and skill-set-wise, to understand the needs of the community and deal with them better than, say, the government is. Private industry ought to take that initiative, raise its hand, and make that effort. I think to the extent that any of the people in this room start to become successful, they should understand that.

MR. MORINO: I'd like to add to that point. First, I absolutely agree with what Jim presented and the importance of making these value decisions for your own life. Jim talked about those long hours—and don't kid yourselves, they are just that. It takes a pretty unique individual, in all honesty, to manage it. You’re making a life choice when starting your own business. That's literally what you are doing. You are making a life choice. It will mean sacrifice to a certain degree for you and your family.

You have to decide: do you want to create a mom-and-pop firm (that's level one); do you want a quality-of-life business that will give you a good revenue stream and some net worth (that's level two); or do you want to go all the way, to the "show" (that's level three)? The latter means one thing. Get ready to stay in the kitchen a long time, and it will be hot, difficult and, at times, ruthless for that's the nature of the beast. No one will cut you any slack. No one will give a damn because you have three kids and a spouse at home. You have a choice to make and you have to find a way to balance that for you and your family.


Defense Perimeters

MR. WONG: My name is Lucas Wong. I'm a netpreneur and I have come up with a great idea. I have gone to seek funding. The people I go to to seek funding say it's a great idea, it's worth a lot of money, but the second you come out to market, somebody will steal the idea. They say, you have no way to protect it. I say, I'm sort of stuck with a dilemma.

How important is it to create something that's proprietary and do a patent and all nine yards to protect the idea and the concept, and then go to market and have somebody like Microsoft, with that huge amount of resources, come in and just steamroll you over regardless how much time and effort you put in to protect it? I'm not quite sure how to deal with the financial person to say, hey, I don't know what to tell you.

MR. MELTON: When I started VeriFone in 1981, the three big companies that were in the business at that time bidding those kind of devices were AT&T, GT&E and a Japanese company. All the bankers told me the same thing. I'm deeply grateful that they all turned me down because I hung on to a lot more equity than I would have if they had given me money.

There is no protection. When you jump in, you've got to jump in. Yes, the big guys will try to steal your ideas, try to buy you, try to work with you. Part of building a business is building perimeters of defense.

First of all, you have to figure out how to make money, how to defend it, how to sustain it, and then, finally, you have to make sure that you know how to grow it—several different operations. This is too complex. You cannot sit down at the beginning and say what is going to be your perimeter of defense.

When you get into it, whether it's getting hooked up with Apple or Commodore or whatever it is, you figure out what you do, because at that point you know your business better than anybody else and you won't know your business until you get into it. When you are in the ditches and you can't sleep on the tenth month of the tenth year, now you will have known more than the next guy how to be better in some niche or area.

MR. KIMSEY: I'll just add to that one thing. We used to say this all the time: Always remember and never forget a big company will always screw you. It's part of their nature. They can't help it. It's just what they do. If you understand that going in, you will figure out what you need to get from them. People you deal with will change. The guy that promised you he was going to do something, got promoted. If you know that, and you understand it, then you will position yourself to take advantage of whatever relationship you are going to have with them.

MR. RAMSEY: I would just say everybody talks about proprietary ideas or technology, but I think there are very few companies that'll ever have the opportunity to set the standard. At the end of the day, I think the only thing you can ever really hope for is mind share that leads to market share. You've just got to run. If it's a great idea, customers will buy it. It will feed on itself. You'll have a six-month, maybe a year-end window if you are lucky. You have to build market share if you can build those perimeters. Every day it's going to be different. By the time it's done, the strategic thinking that you might want to put into it, is too late. You've just got to do it.


Telecom and the Darwinian Imperative

AUDIENCE MEMBER: I'm an out-of-work CEO. My question is about something else. One quick question for the audience, by a show of hands, how many people are still surfing at home on 28.8, 33.3? Pretty much everybody. I'd like to know what the panel's thoughts are on telecom regulation. It's one area that's been talked about a lot. Last year we hadn't seen a lot of choices. I'd also like to see Jim's response on the baby Bells going into the ISP business. I guess what I'm concerned about is that one of the reasons that the Internet has done so well in this area, as opposed to Europe and Japan, is that it's a lot harder for people in those countries to get flat-rate Internet access than it is here. I'd like to know what they think about another region coming up with a high-speed Internet. What will that do to our chances?

MR. KIMSEY: As I mentioned earlier, people asked, “How are you going to compete with Sears and IBM?” The same can be said here. How are we going to compete with the Bells once they get in this business? They have never been in this business before. They haven't shown themselves to be particularly adept in any other business than the one they are in.

I think we can safely say that we have been doing this for 12 years and “interactivity is us.” We do know how to do that and we look at all the competition with a very serious and wary eye, but I think we have established a mass market. We have broken into a mass market. We have proved that that mass market model will work, that unlimited pricing will work. We made a profit last quarter.

We continue, we think, to forecast those profits, and so the model works; and as I mentioned earlier, the entrepreneurial spirit, once we lose it, then we are vulnerable. Obviously we'd like to have the turf all to ourselves, but that just isn't going to happen. It's a Darwinian imperative. If we aren't the best, we won't survive. We understand the challenges and will continue to gird ourselves for battle and, hopefully, continue to improve our position.

MR. MORINO: Deregulation did not go far enough. We need to stimulate even greater competition in the local exchange and long-distance markets. The reform may not have focused on some of the intangible barriers to entry that lend telecommunications an oligopoly or monopoly industry structure, and issues such as universal service and access for all members of our communities are left in question at the end of the day.

MR. RAMSEY: Again on the subject of speed, I just think to some degree we shouldn't focus on what's happened. We have just scratched the surface. It's not even the top of the first inning. Like Steve Case would say, it's not 5 % of the households online, it's the 90% who aren't. We are spoiled, as Americans, wanting everything instantly. I happened to be at a conference in Greece and I ran into the young entrepreneur who has the only ISP in Poland. He hosts a weekly talk show because people want to talk about being online. I doubt they can operate at the slow speed that it's now on. That's changing quickly, and you have to look beyond how difficult it is to get online and get where you want to go.


Evaluating Companies and the Importance of Learning

AUDIENCE MEMBER: I'm with NewBridge Networks and have a quick question for Russ Ramsey and Bill Melton. Russ, what are the main characteristics you look for when you are evaluating a company for possible investment purposes? And, Bill Melton, there was talk earlier tonight about the importance of education to entrepreneurship. I notice in tonight's program that you have a master's degree in Asian studies and Chinese philosophy. I was wondering how that led to a career in high-tech?

MR. RAMSEY: Evaluating companies is very much an art, not a science, particularly around the Internet space. I think there are a couple of themes which are always the ones that I have come to look for: first, what is the core competence of the people putting things together?; and second, what is the sort of product or service that is being proposed as a way to build a business around the Web?

Obviously in the commercial space, businesses that rely on physical movement of goods are probably okay. Everybody else is vulnerable. So whatever industry is being attacked, you want to look at the size, scope, growth rate and potential for business-to-business application. The consumer market is going to take longer. Every sort of situation revolves around trying to understand how the Internet—which in my opinion isn't about technology, the Internet is about fundamental economics and the change in economics—what does the Internet do to the existing business paradigm? How is that consistent?

MR. MELTON: You caught me. You are right. I do not have any training in computers or electronics. And on the one hand, that can certainly be a disadvantage. On the other hand, anybody that took electronics as long ago as when I went to school is totally useless today. Really, entrepreneuring seriously is much more about learning how to learn; nonstop learning. It helps to be a little bit of a social misfit. It helps to be forever nonstop curious; then just learning how to learn and how to learn with other people. When I started out in the computer business, knowing absolutely nothing about it, I was 100% dependent on the other people in the company who, by definition, knew more than I knew. That generated a culture of respect. On bended knee, you beg them, please help me here. And that creates a culture where you can continue learning, and admit that you make mistakes.

In all business, I think every entrepreneur that has been in the business says he is wrong at least 50 percent of the time, not 60 percent of the time. You try to make mistakes that are not fatal, but that you can learn from and learn with your group. Sometimes it helps to be ill-informed.


The Net As TV

AUDIENCE MEMBER: This is for Jim. I have a personal pet theory that the Internet is much like TV—that when TV first came on the scene, it was a very expensive thing to build, infrastructure-wise, and eventually advertisers took over. Is AOL going to disappear because advertisers are going to pay for your service?

MR. KIMSEY: They are paying us. They are paying us right now. And yes, that's obviously a phenomenon that we rely on as part of our economic model. We hope that we can have this advertising be less intrusive and more enjoyable to the consumer than a lot of people think that telephone advertising is. But yes, it's advertising. As you can see in the deals we have done recently, it is a major part of our strategy. So although Prodigy sort of recognized that phenomenon when they started, their implementation obviously wasn't accepted very well, as the marketplace showed. But hopefully, we will be able to figure that out, and I think we are well on our way to doing it. I think, yes, advertising is going to be a major underwriter of a lot of new services and technologies that are brought to the marketplace.


Forming Alliances

AUDIENCE MEMBER: I'll make it quick. I'm the president of GovCon, a Web site that targets government employees. We found that through forming alliances with other companies which have content that complements ours, we were able to grow quite fast. We have 65,000 registered users. What kinds of things can we do or would you recommend as a large company—AOL, for example—that would help us form alliances with companies your size? Because I think we have already developed and carved out a niche that might be helpful for forming alliances with you.

MR. KIMSEY: As I mentioned earlier, trying to find other people to carry water for you and to leverage other people's assets to your own benefit is a great tactic. You have to find somebody and, Tom Sawyer-like, you have to explain to them why it's in their best interest to want to team up with you. You have to figure out why some company would want to get involved with what you have to offer that provides these services to government contractors. I think it's just a matter of looking at who that might be and why that might be in their best interest. It's just a generic bromide that applies to everybody that can go get other funding and other resources from somebody in whose interest it is to line up with you.


The Next Killer App

AUDIENCE MEMBER: I have a really short question. The question is simply, I'm asking for a prediction from each of you as to what's the next big thing, in your opinion? Specifically in Internet space, i.e., whether it was browsers to push technology?

MR. RAMSEY: The Killer App that all the technologists fear is telephony over the Internet. That's truly a killer that's probably sooner rather than later: Broad-based telephony.

MR. MORINO: I think community interest models are going to emerge as a really meaningful way for business to engage their markets and stakeholders in the next 18 to 24 months.

MR. MELTON: I'm going to pass. I'm so bloody focused on making what we currently have work that I haven't thought about the next big thing.

MR. KIMSEY: I think I'm in Bill's camp. I have no idea. We have lots of things happening. Clearly the technologies are expanding and developing so rapidly that, as Russ pointed out, you are going to be able to talk to it, touch it and the technology is going to come to you. You are not going to have to understand anything.

It's like the early days of cars. A lot of people didn't like to drive because they had to turn the crank, but once you just turned the key, you didn't care what happened. I think all these technologies are going to come to the consumer in a way where they can mindlessly interact with it so that it's extraordinarily convenient. It will be, as I said before, underwritten by advertisers, so it's very cheap, very affordable.

Content building. To the degree that we can't even anticipate some of the wonderful stuff as the bandwidth expands and as the technologies improve, some of the stuff we are going to be able to do interactively is going to be phenomenal.

Part 4: Conclusion—Where Does Your Future Lie?

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  

 

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