*OT* I see your Akamai article and raise one :-)
The Dream Is Alive
By Randy Barrett and Karen J. Bannan
April 26, 1999 8:01 AM ET
Don't doubt it for a minute. The dream of building the
Next Great Internet Company is still very much alive.
The naysayers will fret about behemoths such as
America Online, Ascend Communications, Microsoft
and Yahoo!, and they will moan that it isn't possible
anymore to take an idea from napkin to
industry-leading powerhouse without selling out.
They've just lost their edge, or gotten lazy - or both.
But the Internet is still drooling and babbling
incoherently in the crib. "The Internet is still in its
absolute infancy," said George Conrades, venture
capitalist and new chief executive officer of start-up
Akamai Technologies. "I think it is wide open."
Conrades isn't alone.
Venture capitalists
and angel investors
are pumping money
into young Internet
companies at an
unprecedented rate. Last year, they invested $3.5
billion, up $1.3 billion from 1997. Many start-ups
report that they can no longer find VCs willing to
supply $200,000 to $300,000 in seed money; instead,
they ask for $2 million to $3 million - and readily get
it.
"Investor consciousness is clearly in this space. It's a
Wild West of ideas," said angel investor Mario
Morino, chairman of the Morino Institute, a high-tech
think tank in Vienna, Va.
And the Internet economy is just getting started.
International Data Corp. predicts technology
deployment, marketing and sales, professional
services, and education and training will be worth $1.5
trillion by 2003. And think about this: Even if Forrester
Research is correct in its rosier estimates that
worldwide electronic commerce will hit $3.2 trillion the
same year, that will only amount to 5 percent of the
global economy. There will be plenty of autos, books,
industrial equipment, medicine, movies and other
unimaginable goods and services left to move, bit by
bit, in the long run.
The Brass Ring
A unique and brilliant idea isn't obvious until it's born -
then, admirers grab their foreheads and repeat the
age-old mantra: "Why didn't I think of that?" They
didn't think of it because they weren't smart enough,
or prescient enough, to see the opportunity first amid
a jumble of unrelated parts. Netscape
Communications may have given us the commercial
browser, but a tiny start-up in Montreal,
Zero-Knowledge Systems, has an equally compelling
proposition: cyberanonymity.
The young company has come up with a scheme to
completely cloak user identities on the Net. Using a
combination of advanced encryption and distributed
servers, Zero-Knowledge offers a service called
Freedom, which allows users to create online
identities that can't be tracked. This means keyless
encryption and no browser cookies to cull information
on your personal surfing proclivities. "It gives a
strength of privacy lacking until now," said Austin Hill,
Zero-Knowledge's 25-year-old president.
The software is scheduled for beta release on May 15;
30,000 Netizens already have signed up. Hill plans to
offer Freedom commercially in June for $49.95, which
covers a year's license to create five pseudonyms.
Additional "nyms" cost $9.95 each per year. If all
30,000 who have signed up actually buy Freedom, the
company will start with $1.5 million in sales before a
marketing campaign has begun.
Hill strongly believes that Freedom is a
groundbreaking product in a proto market. "In the
industry we're after, there is absolutely nothing - no
roads, no foundations. It's an empty plot of land."
No numbers exist yet for the "anonymity market," but
Freedom is clearly part of the booming Internet
security industry currently worth $4.2 billion per year,
according to IDC, which estimates the market will
grow to $7.4 billion by 2002.
Despite his tender years, Hill is already an Internet
millionaire, having built and sold the Canadian Internet
service provider TollNet three years ago. He's ready
for his next challenge; getting richer through a quick
sellout isn't part of his game plan.
"I've already bought toys. At a certain point, money is
not a determining factor. We're building an
infrastructure that will change the way identity is
reciprocated on the Internet. It will help build basic
human rights," Hill said.
Akamai's Conrades, though older, also believes a
quick acquisition isn't always the right path. Akamai
has started marketing a content distribution service
that Conrades believes is far ahead of rivals such as
Exodus Communications, Frontier GlobalCenter and
Sandpiper Networks.
"I don't think that, in our case, we need to be
purchased to survive in the long term," he said.
It's true. Microsoft has bitten the heads of countless
creative start-ups, swallowed their technologies whole
and belched an unending stream of profits. But the
scenario isn't a foregone conclusion. Young
companies with truly unique talents can work with
larger players without selling their souls.
Risks Worth Taking
WebMethods, based in Fairfax, Va., develops the
leading eXtensible Markup Language-based software
platform for electronic commerce transactions. Last
year, the company teamed up with Microsoft to
develop a language for querying XML documents. The
outcome, eXtensible Query Language, is included in
Internet Explorer 5.0. In early March, webMethods
announced its XML developer module will ship with
future editions of Microsoft's BizTalk and Commerce
Interchange Pipeline software.
"For us, the risk has been worth taking," webMethods
CEO Phillip Merrick said.
The Microsoft relationship, Merrick said, is helpful to
his company's long-term success, since it represents
a key opportunity to embed business-related XML
technology in Microsoft's leading electronic
commerce products.
WebMethods recently struck up a partnership with
Ariba Technologies, a fast-growing company that
develops procurement software for large corporations.
WebMethods will supply XML know-how for Ariba's
upcoming Ariba.com Network, an Internet service for
users of its buying software. And last, but not least,
webMethods is close to inking a deal to supply SAP -
the corporate software giant - with XML capabilities.
Analysts had considered SAP one of the few future
competitors Merrick had to worry about.
Analyst J.P. Morgenthal of NC.Focus estimated the
overall XML industry is worth about $31 million today
and will grow to $93 million by 2001. That isn't big
potatoes, but webMethods also targets the
business-to-business e-commerce market, which
Forrester Research predicts will reach at least $843
billion by 2002. And this is the arena where "the next
Cisco Systems" very likely could emerge. No single
outfit has yet captured the imagination of American
business as the prime platform for buying and selling
goods of all types.
So, don't be surprised if public investors later this year
get excited by CommerceOne, an outfit whipped into
shape in the past couple of years by former Sybase
CEO Mark Hoffman.
Hoffman has been building CommerceOne into a
business marketplace of substance, even before it
goes public - none of the half-baked products and
pray-for-business approach of some Internet start-ups.
Take, for instance, Salon.com, with less than $3
million in annual sales, which soon will go public.
CommerceOne probably will generate more than $50
million in revenue this year; along the way, it is
setting its servers up to host a digital marketplace for
the kinds of "indirect" goods and services that all
businesses in all industries must acquire. Things
such as financial services, office supplies, tax
services and travel - which can account for as much
as 50 percent of a company's overall expenses.
The company has lined up 5,000 suppliers and is
teaming up with big names, such as The Sabre
Group. It even intends to open its marketplace, called
MarketSite, to rivals who are in the same business of
getting companies to buy indirect goods and services
over the Web. The idea behind that: The more
suppliers that are in one site, and the more catalogs
in one site, the easier it will be for anyone to market
goods and services to corporate customers.
If Amazon.com can be worth $25 billion and Yahoo!
$33 billion just by focusing on consumers, imagine
what could happen on the business side of the
Internet economy, which is many times larger.
Indeed, the $78 billion of e-commerce transactions
that consumers conducted last year is barely half of
Wal-Mart Stores' $130 billion in annual sales.
Hoffman's goal: to be the top business-to-business
portal on the Web.
And there are other big opportunities in selling to
businesses, not the least of which is selling the ability
to transform businesses into industry-leading
Web-based businesses. IXL, Razorfish, Scient - they
all could become the IBMs and EDSes of the Internet,
with valuations to match.
And there's plenty of money still waiting to back The
Next Big Internet Thing. Since January, more than
one dozen Internet companies have launched initial
public offerings and raised $2.5 billion, according to
Securities Data. The total amount for Internet IPOs in
all of 1998 was $1.9 billion.
The Special Knack
Both Internet entrepreneurs and VCs agree that
creating the next Cisco or Netscape has gotten more
challenging - but is still possible.
"Four years ago, the chance for becoming an
Amazon[.com] was easier because there were no
Amazons," Hill said. "It forces the really bright
entrepreneur to think harder."
John May, a partner at New Vantage Partners in
Vienna, Va., said many VCs now work from the
assumption that consolidation will take place along
niche market lines and that one out of nine new
companies will be the aggregator. Finding that
company is still as hard as it ever was. "When you're
in the midst of it, you don't know what a home run is,"
May said.
Accordingly, VCs continue to place their investments
across numerous companies and industry segments
in hopes of landing the Big One. Some said the next
Internet market leaders will likely come in the services
and applications sectors rather than hardware, where
established leaders already are rapidly consolidating.
Other venture capitalists are looking beyond today's
network of networks.
"There is a real chance that the Internet is a dress
rehearsal for digital TV," said Institutional Venture
Partners' Geoffrey Yang. The Federal
Communications Commission has mandated that all
television signals must be sent in digital format within
seven years. And there is a chance that digital TV
could dwarf the Net in usage. In the U.S. alone, 274
million people own TV sets. Only 100 million people
are now online in the world.
Several companies - including Microtune, Replay
Networks, TiVo and Wink - have the distinction of
being at the forefront of the movement, and they hope
to capitalize on the digital edict. Take Microtune, a
small, privately held start-up in Plano, Texas. "There
are two kinds of companies that succeed. You've
either got a revolutionary new product in a new
industry, like Netscape was, or a company that has
revolutionary technology in an existing marketplace,"
said Jim Fontaine, the company's president. "That's
where we are."
Microtune earlier this year announced a TV tuner on a
single chip. What makes this revolutionary, analysts
said, is that a slew of devices - including cellular
phones, handheld computers, personal digital
assistants and set-top boxes - can use the
single-chip tuner to send and receive broadcasts and
interactive programming.
And there will be millions of such devices. The set-top
box market alone is expected to grow to 14.9 million
units by 2002, according to Dataquest. This
represents a retail market worth $2.5 billion.
Today, Microtune is looking to form strategic
partnerships with companies that can help it produce
the chip to keep up with what Fontaine calls "an
enormous demand." He won't rule out a buyout.
"You've always got to say you'd look at an offer, but
we think we're pretty well-situated to become a large
company on our own," he said.
Fontaine, Hill, Merrick and others won't settle for
short-term gain. They figure it may take some
patience to become an overnight success. "Build the
business, not the [final] transaction," May said.
Kimberly Weisul and Tom Steinert-Threlkeld
contributed to this report
Copyright (c) 1999 ZD, Inc. All Rights Reserved.
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