John Doerr: "Pervasive Net, Evernet, Always On"
How did this venture capitalist decide the Net would be huge? Where does he see it going? Find
out here
Veteran venture capitalist L. John Doerr made his name more than a decade ago backing such
technology superstars as Sun Microsystems and Compaq Computer. These days, Doerr is squarely
focused on the Internet, believing that it simply cannot be overhyped. Already he has struck gold
with investments in Net hotshots Netscape Communications, Amazon.com, and At Home
Networks. Doerr, a partner at venture powerhouse Kleiner Perkins Caufield & Byers, recently
discussed his investment philosophy and the ways in which he believes electronic commerce will
change business forever with Silicon Valley Bureau Chief Linda Himelstein. Here are excerpts of
their conversation.
Q: When we talked the other day, you had mentioned that a couple of years ago
you guys actually did a matrix of the U.S. economy to look at what would be the
primary opportunities for E-commerce. Could you talk about how broad that was,
what you pinpointed then, vs. what you've done. And going forward, where do
you see the vulnerabilities and opportunities?
A: Well let me see. We made a map of, not just of the U.S., we made a map of the
economy, focused on the U.S. but not limited to the U.S., to try to figure out where
consumer household spending was going to be -- around a whole variety of products and
services.
And we looked at categories by their amenability to E-commerce based on whether there
were dominant players in the distribution channel currently, and whether or not a new
compelling online experience could be built based on things as fundamental as the
weight-to-value ratio of the products, depending on the demographics of the typical buyer,
whether or not they're online as an early adopter.
And it was really born out of our -- it did not predate -- first investment in E-commerce. It
was a really huge winner, Amazon.com. And we said, "Wow! This is phenomenal, it's
growing 6% a week." This is in the days when people thought that Amazon going public at
the outrageous price of now $7 a share was a rip-off for the public. Do you remember?
Q: Oh, yeah.
A: And so we said, "Hmm. Guys, let's get systemic about this." And so we built a grid, and
it had many, many other factors, and then we set out both to back entrepreneurs who had
ideas that were improvements on this world view on their own, and to back entrepreneurs
with ideas better than ours that kind fit this...
Q: How many?
A: How many were on the list? I don't remember. I'm sure there were at least a dozen, and
I'll show you some of the investments, because many of them are now large public
companies, and others are well on their way to getting there from real estate, to financial
services, to travel, to obviously, books, music and videos and more, to E-drugstores -- and
all that good work has been done in a couple of years.
Q: It all sounds like consumer-oriented deals.
A: Yes, this was the business-to-consumer part of the strategy. There's a parallel
business-to-business effort.
Q: But was that at the same time or --
A: No. Later.
Q: When was that?
A: About a year ago.
Q: So you did the exact same thing? You looked at the business-to-business
economy. You did a matrix and what appeared on that, and --
A: Lots of opportunity. [LAUGHTER]
The Kleiner team is helping to back entrepreneurs in 20 to 30 projects a year, and I'd say
right now, more than a third, maybe as many as half of them, are related to electronic
commerce on the Internet in one form or another.
Q: Why did you choose consumer first?
A: At that instant in time, it was larger and had lower latency. People were ready to
move faster. Most businesses were and still are using the Internet to improve internal
processes or to reach to consumers as opposed to reach to other businesses.
Assembling a business-to-business E-commerce venture like the Healtheon Project
involves thoughtful, strategic decisions by lots of large powerful players, and it takes a little
bit longer than deciding to buy your prescription drugs online.
Q: Did you learn that as a result of the Healtheon experience?
A: No, I think we sort of felt it intuitively from thinking about the markets. It wasn't a piece of
acquired scar tissue, it seemed obvious.
Q: O.K. So you have your list there.
A: Well, I was looking at the KPCB Net Ventures, some of whom are enablers for
E-commerce, but others that are just plain old, big old, E-commerce players. But I was
looking at it, and this is what -- year four since the Netscape IPO? And so, some of these
are enablers like America Online, which has become an Internet company in that period of
time. I think people would say Netscape was the first pure Internet IPO. Excite is a powerful
portal in the At Home broadband project. So that kind of quadrant all has to do with the
enablers.
But then we said that for consumers, sports is going to be important, travel is going to be
important, financial services --
Q: These were things on your list?
A: Yeah. We were already investors in Intuit, and I think we helped them into being a
financial services player. It's a very important accomplishment for them -- 12 million online
users. Amazon.com. Books, videos and more. Drugstore.com. Healtheon, which is
principally a business-to-business service.
But I want to make a point in and around Healtheon. Healtheon affords business partners
what's called a consumer portal that a health plan can offer to consumers to get
information about their appointments, their health-care status and so forth. Now, is that
business-to-business, or is that business-to-consumer? I claim it's both. But if you have to
broadly characterize Healtheon, I'd say it's a business-to-business E-commerce type.
Drugstore.com, which is private, launched well ahead of plan. The front door got jammed
the first day. Couldn't get enough people in. Couldn't open it wide enough, I guess. And
now it's doing very, very well.
A project called Realtor.com, it's in and around real estate. Nearly a trillion-dollar sector of
the economy is when people move, change their houses, and so forth. Something called
Nextcard, which is a credit-card financial services, ended up on our list. And then an
incubation that we're very excited about that's not yet online, a private company called
Della & James for wedding gifts and registries.
Q: Did you feel that there were real-world companies that were vulnerable then? I
mean, did you look at this and say, these are vulnerable areas and they're going
to be in trouble if they don't adapt to the Web?
A: Yes.
Q: Are there any companies that you would say have been hurt?
A: Barnes & Noble has been hurt by Amazon.com. I think some of the physical brokerages
have been hurt by E-Schwab without a doubt. I think people are spending less time
watching television now, and more time on the Internet, so television networks have been
hurt by E-commerce and by the Web. All the TV spots that I saw on the Super Bowl had a
www on them now. That's a big change in the last four years.
Q: Who's next? Realtor Coldwell Banker?
A: No. Because I don't think the Web necessarily -- this is an important point, I don't think
the Web necessarily disintermediates channels. I think it can reinforce them. And what
really matters is not technology, and not the Web itself, but what matters is, and this is
basic, is "It's the consumer, stupid," right? It's what and how consumer behavior is. Very
few people buy homes or rent apartments without visiting them. So the notion that the
realtor would be displaced is sort of a crazy notion.
I think just as many of these projects have to do with making existing channels more
effective, like Healtheon or Realtor.com, as complimenting or competing with, not
displacing them. I don't think physical bookstores are ever going to go away. The big chain
drugstores, I think, are threatened. I think some of the big chain bookstores may have a
problem. But I still go to my local corner bookstore. It's a different experience than buying
online. People are buying more books now, than they did before. Maybe people will buy
more drugs than they did before.
Q: So can we talk about the what's-next piece?
A: What's next in the next year, or what's next in three years?
Q: Take your pick.
A: I think I'd rather talk about three years. I think three years out, the Net will be very, very
different than the Net we know today. It will be what I like to call an Evernet. It'll be always
on, it'll be on all kinds of devices, not just on PCs. It'll be on set-top computers, and it'll be
on tables in kitchens, and God hope, in all the classrooms.
And it'll be wireless everywhere. Lots and lots of Net everywhere, pervasive Net, Evernet,
always on. And it will be a very high-bandwidth Net. It won't be static little pictures and text.
Or if it is a picture when you click on it, you'll get a movie behind it. It'll be highly personal
also. It will know that you are there in the room, and it will know a lot by virtue of your portal
or your provider. It'll present the stuff you're interested in. It won't show you ads you're not
interested in.
Q: So in the Net world, who is powerful and who is vulnerable?
A: People who care about customers are powerful, and the folks who care more about
their legacy, their bold ways of distributing, are less powerful.
There's some evidence, encouraging evidence that people with big brands and
bricks-and-mortar distribution systems can change and adapt to the Web with Schwab
being frequently cited as one of the most successful. But there are lots of others that are
making big, bold efforts to do that. Citicorp, for example. AT&T, I think is becoming a Web,
Internet company.
And I think anybody that has lots of bandwidth and cares about customers and is willing to
move fast, is going to do well in that world. And those who are in denial, say a stodgy, old
investment bank who thinks that the way to sell securities is to have big sales forces call on
institutions is getting ready to get hurt.
Q: Anyone in particular?
A: No. But there's plenty that fit that example.
Q: Other than Schwab, Citicorp, and AT&T, who do you think has done the best
job reengineering their business and why?
A: Gap's done a great job because they care about the customers. Gap because they
promote -- they don't care whether you buy it online or buy it in the store. You can return
it anywhere you want. And I don't think the Barnes & Noble story is quite so amazing.
Because I do think that managing large, distributed work forces and dealing with atoms
instead of bits in physical stores with labor relations is a lot different than creating a
powerful online brand and presence.
There's much more in common with Barnes & Nobel and Home Depot, for example, than
there is in common between Barnes & Noble and Amazon.com. The stuff you worry about
is different, day in and day out. One group is managing bits in phosphorous and the other
group is trying to deal in atoms and sales clerks and location and inventory to a much
greater degree.
Q: So they couldn't have done it, or Home Depot couldn't do it?
A: I didn't say anything about Home Depot, but I'm not surprised that Barnes & Noble
couldn't move as fast as Amazon, where all of its people are focused on creating the
world's best, biggest, online book store.
Q: So who is better-positioned to take advantage of the opportunities on the Net?
Is it young upstarts or big established well-branded companies?
A: I think the entrepreneur has the advantage over the established brand. Even though
I think it takes $200 million to create a new brand. In today's market, entrepreneurs can
get the $200 million. The financial markets will allow them to lose the $200 million they put
into building the brand. Most capital markets won't allow an existing business to declare,
"I'm going to lose $200 million to build an online brand." The entrepreneur has nothing to
lose in the physical world. And so the best of them are going to go for it and get very big,
very fast, in the online world.
Q: Do you find that the existing brands and companies don't understand the
power of the Web and E-commerce, therefore, that's part of the problem?
A: There are plenty of examples of very high quality existing merchants who've put
their catalogue online for ordering. That's sort of Phase II. The first phase is that you
should put a brochure out to say, "We sell these kinds of products, but you can't buy them
on the Web." The second phase is to put a catalogue online. Neither of those two phases
creates a compelling online experience.
And you have to remember for consumers at least, still, using the Web is a crummy
experience. It's America on hold, not America Online, because the Web is still too hard to
use. It's too slow, it's too complicated, and it's too involved in a personal computer to be a
really compelling experience or a seamless, effortless kind of experience. And I think that
will change over the next three years, as we get to the broadband Evernet.
Q: So it's not a knowhow thing, a tech-ignorance thing that the bricks-and-mortar
world faces?
A: I think that the big chain retail operations don't have the Web-savvy teams, their survival
doesn't depend on it. This is still a very small part of the American economy. It's just very
rapidly growing. And so, this is the great process of creation and destruction that makes
American capital markets efficient. With entrepreneurs and incumbents, sometimes the
entrepreneurs will lose, and sometimes the incumbents get knocked out of the box.
Q: I'd like to ask you a little about infomediaries. What is their role? At the end of
the day, who owns the customers? Like CNET, which tries to give you
information and then direct you to places to make purchases. Or the car sites.
A: I don't know if the car sites are great services.
Q: No. But that's what they're trying to be to give you information and direct you
somewhere to make your purchase.
A: Right. So what I'd say about CNET, is CNET in my view is a content provider, and they
have lots of compelling and original content. And I visit the site, I think, every day. It's great.
I've not used any of the car sites to buy a car, even though I'm a Web junkie. And I know a
lot of people that do use them. But basically, I don't think they contribute a whole lot to
improving the experience of buying an automobile on the Web.
They can refer you to a dealer, they'll provide some information, but they're still pretty much
in the brochure vending phase, I'll call it Phase I of Web E-commerce. Nothing wrong with
them, there's a lot of them out there. But I think we'll see deeper change in the auto-buying
experience in favor of the consumer. It'll be a good thing. All these trends, Linda, if I can
sum them up, I think, are favoring consumers. The Web is empowering the consumers.
The customers are winning, and the vendors are scrambling to keep the customers--have
the customers be happy.
Q: Who owns the customer now?
A: No one owns the customer. Name a retailer that owns a customer.
Q: Well what does Amazon.com say?
A: They own a customer? No. Not when their competition is one mouse click away. No.
Q: What about when you take the time to personalize Yahoo!? Does Yahoo! own
you then? Because it's too much of a hassle to stick all that information in again
and get into Excite.
A: I don't think so. The last I saw, it was only a dozen questions you answered.
Q: Most people, I don't think, want to do that -- go through that process again. I
mean, why do you have one-click shopping, right? Because people don't want to
put their information in anymore.
A: Ownership of the customer is a sort of holdover. I don't get it. The successful
E-commerce competitors obsess on the customer. But not on owning them, on serving
them. Really. I can't name anybody that owns a customer.
Q: O.K. Talk to me about the buying power consumers have. How is this going to
actually change the way people make purchases and spend money?
A: I think consumers have more choice. That's one overwhelming reality. I think there
are scale economies in this business which say that the largest vendors -- the largest
merchants, if you will, are going to be able to get purchasing economies and lower prices,
even further for a consumer.
And I think we're in a phase where both the financial markets and the consumers are
willing to experiment, they're willing to invest a lot in the form of losses to build brands, to
build storefronts. And I think that can easily cost a couple hundred million dollars. It's not for
the faint of heart. And I'm sure there'll be some consolidation. But I think that the
consolidation will be the minor effect. The effect is we're just a few years into a revolution
that'll be 20 years or longer, and it's just after the Big Bang and the whole universe is
expanding really, really rapidly. |
