Author Archives: Hervé Lebret

IPO again: Carbonite is the new star

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I just discovered about Carbonite, one of the companies in The 17 Most Important IPOs To Watch For In 2011. Storage and backup are clearly hot fields in 2011 (just have a look at Fusion-io for example). In the 1st link I just mentioned above, Carbonite is described this way:

Carbonite, the online storage backup for consumers and businesses, has raised roughly $67 million in various venture rounds, while its sales have doubled each year since its launch in 2006. The company claims to have backed up some 80 billion files, with more than 150 million new files backed up daily. It also claims to have restored more than 7.2 billion files that would have been otherwise lost forever. Inc. Magazine placed it as #9 on its Inc. 500 list for 2010 of the 500 fastest growing private companies. With “the cloud” remaining a hot topic and with its annual basic plan starting at less than $55.00 a year, Carbonite should have a solid reception when it comes to market.

So I digged the IPO S-1 document and looked at the company with my usual interest. Cap. table. founders, investors, ESOP. The 2 foudners has 7-8% each pre-IPO, investors 60% and employess the remaining 25%. What might be a little scary though is the lack of profitability. Here it is.

The S-1 also gives the list of selling shareholders.

But following a few exchanges of comments on a recent post, Is There A Peak Age for Entrepreneurship?, I looked at something else, the founders and their age. Here is what the prospectus gives:

David Friend (63) has served as our chief executive officer and as a member of our board of directors since he co-founded our company with Mr. Flowers in February 2005. Mr. Friend also served as our president from February 2005 to September 2007 and again since August 2010. Prior to starting our company, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and president of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. From June 1995 through December 1999, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry. Prior to that time, Mr. Friend co-founded Pilot Software, Inc., a software company, with Mr. Flowers. Previously, Mr. Friend founded Computer Pictures Corporation, a software company whose products applied computer graphics to business data, and served as president of ARP Instruments, Inc., an audio hardware manufacturer. Mr. Friend served as a director of GEAC Computer Corporation Ltd., a publicly-traded enterprise software company, from October 2001 to October 2006, and currently serves as a director of CyraCom International, Inc., Marketplace Technologies, Inc. and DealDash Oy. Mr. Friend holds a B.S. in Engineering from Yale University. We believe that Mr. Friend is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our company and his background in internet and software companies.

Jeffry Flowers (57) has served as our chief architect since April 2011, as a member of our board of directors since he co-founded our company with Mr. Friend in February 2005, and as our chief technology officer from February 2005 to March 2011. Mr. Flowers co-founded with Mr. Friend and served as chief technical officer of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. Prior to that time, Mr. Flowers co-founded with Mr. Friend and served as chief technology officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry, and co-founded Pilot Software, Inc., a software company, with Mr. Friend. Mr. Flowers served as VP of Development at ON Technology Corporation, a publicly-traded software vendor, from June 1994 through February 1996. Mr. Flowers holds an M.S. and a B.S. in Information and Computer Science from Georgia Institute of Technology. We believe that Mr. Flowers is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our technology, and his background in internet and software companies.

Doing simple math (so maybe not very accurate, this would give the following table)

Founder Friend Flowers
Born in 1948 1954
Company Founded at age Founded at age
Sonexis in 1998 50 44
Faxnet in 1994 46 40
Computer Pict. in 1982 34

So it shows that the founders are not young, not even middle-age. They are serial entrepreneurs and probably close friends given the facts they have co-founded 3 companies together and were definitely not in their twenties when they did it. In my next post today, I will come back on the topic.

Ecommerce cap. tables: Responsys, Salesforce and Broadvision

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For different reasons, I’ve been looking at a few other ecommerce companies. No real connection except the field. It’s more a summer post for my archives but at the same time, there are interesting elements. These are

– Responsys founded in 1998 and IPO in 2011.
– Salesforce.com founded in 1999 but public in 2004.
– Broadvision was founded in 1993 and public before any of the two others even existed, in 1996!

They are all based in Silicon Valley. They are typical in their structure (founders, managers, VCs, stock options, directors. Now let’s have a look at them individually.

I studied Responsys because it was one of the early 2011 IPO. An old company (13 years!). Two founders with very little equity. It could be explained with the large amount of money raised ($60M) but this cannot be the reason. Just have a look at teh price per share of the rounds. $3, then $16, then $6 then $0.25. The terrible down rounds… of course this was extremely dilutive for many shareholders.

The two founders Ragu Raghavan and Anand Jagannathan were not active with responsys for some time.

Broadvision is the oldest of the 3. It was one of the stars of the late 90s. It’s still a public company but its market cap. is $50M only. Today Responsys has better revenues and profits… In a way, Broadvision and Responsys might be The Tortoise and the Hare of the fable.

Also of interest is the fact that id had a unique founder, Pehong Chen, who  was also (and still is) the chairman and CEO.

In between, there is Salesforce.com. The Hare and the Tortoise at the same time. Went public 5 years after foundation. Still had losses at IPO even with good revenues. A market cap. of $1B. But in 2011, it has a market cap. of $19B!!! Explained by revenues of $1.6B even if the profits are below $100M. Not typical in terms of investors though. Mostly business angels and very little ownership.

Four founders at salesforce, Marc Benioff, Parker Harris, David Moellenhoff, Frank Dominguez. The first is a star of Silicon Valley, the last one nearly unkwown to me at least. Apparently, they still all work there…

The Monk and the Riddle: a great book

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Do not ask me why this book is entitled The Monk and the Riddle as I will let you discover it if you decide to read this “old” book (a more than 10 year-old great piece of Silicon Valley description). Its subtitle is clear though: The Education of a Silicon Valley Entrepreneur.

Not all agree on the fact it is a great book as you may find at the end of this post, from the comment by the Red Herring in 2000. Still, I loved reading this book and let me explain why. Randy Komisar, today a partner at Kleiner Perkins and former enrtepreneur, has written a book about passion and inspiration. He does not tell you how to do your start-up (but he tells you how not to do it). He also explains also very well what Silicon Valley is, the locus of risk taking, where failure is tolerated, where a start-up is more a romantic act than a financial endeavour. “Business isn’t primarily a financial institution. It’s a creative institution. Like painting and sculpting.” [page 55] Here are a more few extracts I scanned from Google Books.

First Mr. Komisar explains that an entrepreneur is a flexible visionary and why the business plan does not have to be strictly followed (or should not always be) [page 37]:

Of course, venture capitalists look for such people [page 38]:

But there is a danger with VCs: the down round which is the consequence of failed momentum [page 52]:

Mr. Komisar gives much more than basic advice. Even if he admits he may not have followed these when he was younger, he understands now how important they are. His book his about the meaning of life where he defines the Deferred Life Plan (that should not be followed) [page 65]:

He therefore considers that personal risks are more important than business risks [page 154]:
Personal risks include:
– the risk of working with people you don’t respect,
– the risk of working for a company whose values are inconsistent with your own;
– the risk of compromising what’s important;
– the risk of doing something you don’t care about; and
– the risk of doing something that fails to express – or even contradicts –who you are.
And there is the most dangerous risk of all – the risk of spending your life not doing what you want on the bet you can buy yourself the freedom to do it later.
[… page 156…]
If your life were to end suddenly and unexpectedly tomorrow, would you be able to say you’ve been doing what you truly care about today?

He also explains why Hard Work is a critical and necessary value of Silicon Valley [page 125]:

But People and Culture remain the most important elements [page 128]:

Another interesting concept is the fact that start-ups need 3 CEOS [page 128]:

But nothing replaces Vision [page 144]:

When I wrote above that Silicon Valley is about tolerance to failure [page 150]:

Obviously it means even success should be mitigated [page 151]:

I really advise you to read this great book, not only for the Riddle but also for the nice, funny and sad story of Lenny and Allison. Enjoy!

Here is what the Red Herring published. The analysis is not wrong, but even 10 years later, I am not sure Silicon Valley is so well understood as the RH thought…

You can still go public as a web1.0 company: Homeaway and Kayak

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I just had lunch with a friend-entrepreneur and we were looking at the big high tech winners.

– the 60’s was the decade of the Semiconductor and gave Intel,
– the 70’s was the PC/SW, with Apple and Microsoft,
– the 80’s was the Network with Cisco,
– the 90’s was the Internet with Google,
– the 00’s will probably be the Web2.0 and remember Facebook.
Of course, there is more from Fairchild to Oracle, 3com, Yahoo, eBay and Amazon.

Now what about the 10’s? For me it is not clear, I do not beleive enough in green/clean-tech but I see the smart management of data and apps, with the Cloud. But no clue on who would be the decade winner.

Now you can still go public as a web2.0 company has I mentioned in my post The Z IPOs: Zynga, Zillow, Zipcar and … Zuckerberg. But even better you can go public as web1.0 company. here are just two examples, Homeaway and Kayak. So I give you my usual cap. tables and a few comments.

Homeaway went public on July 5 and the stock is doing great. Once again you can see the ownherships of founders, managers, investors, independant directors. What is obviously carzy again is that the company raised $400M and has no profit yet. But this helps be to understand why Index supports HouseTrip, a company in the field, out of Lausanne and now based in London.


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Next is Kayak. A travel company. Can you believe you can still have new companies in the field? Well this is the proof. Similar comments: check the equity of various players such as founders, managers, directors and investors. A lot of money invested but at least profitable. This one reminds me of another very nice Swiss start-up that deserves much more visivilty: routeRank. (I have no personal interest in routeRank neither in HouseTrip!).


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The Z IPOs: Zynga, Zillow, Zipcar and … Zuckerberg

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I do not why 2011 saw three IPOs with companies beginning with Z. I thought that beginning with an A was what mattered (Apple, Amazon, not to say @Home). Maybe this is the Zuckerberg effect!

So I looked at the cap. tables of these three companies. Zipcar went public earlier this year, Zillow today and Zynga filed earlier this month. Zuckerberg might wait until 2011 though. They do not have that much in common, except they are all Internet companies with nice revenues (but not always a profit) and a lot of venture capital too. Zynga being apparently the current star, I begin with it. Of coure the price per share is a guess, as the company is not public yet, it just recently filed at the SEC.


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As the fund raising included sales of existing shares, the following data is also of interest. But I still have to admit there are missing pieces in all this and it might still be a little confusing (in comparison to previous tables, sorry!) Zynga has only one founder, Mark Pincus (check his Wikipedia profile). As with Zillow (and Google in the past), founders have shares of a special class which usually guarantee more voting right.


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Zynga has raised $850M, had about $600M in revenues and a profit of $90M in 2010. Nice! KP and IVP are the two famous VCs and Union Square is the new emerging player (Twitter, FourSquare, Etsy). As a sidenote, Fred Wilson is a partner and has a great blog, avc.com. Reid Hoffman was the seed investor (co-founder of LinkedIn, former VP at Paypal, investor in more than 80 start-ups).

Next is Zillow. Again the 2 founders (with about an equal amount of shares) have also special voting shares. The company is a little older but has raised less cash ($80M), has smaller revenues and not a profit yet. Another element of interest is the equity that independant directors own (you also have this in the Zynga and Zipcar tables). Zillow changed its price again up from $18 uin my table to $20.


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And finally Zipcar. Again two founders, but not much info on them as they are not active anymore. A lot of money raised, good revenues but no profit. Much older (11 years old). Benchmark again is a VC (just as in Zillow).


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A word of conclusion: Zynga will be the big winner if it goes public at the mentioned valuation until Zuckerberg goes out (you can still have a look at my “tentative” Facebook equity table).

When Wavecom was surfing

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I just published a post on the French version of my blog about Wavecom, one of the European success stories. This is coming again from my reading of old Red Herring articles. You can at least check there the RH scan as well as my typical cap. tables. I do there something unusual, I also give the cap. table at the secondary which followed the IPO one year later. The secondary is an important event (even if lesser known than an IPO) where shareholders can find some liquidity. Just check here.

Robert Swanson, 1947-1999

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This is again one of my recent readings from old Red Herring. I had already published a post on Bob Swanson, the co-founder of Genentech. This RH article is not that different and I thought it would be important to mention the story again of Boyer and Swanson and the beginnings of the biotech industry. Here it is.

The cofounder of Genentech also founded an industry.

ON THE OCCASION of their deaths, the founders of technology companies can take some satisfaction that they started something From nothing. The best will be able to claim they founded companies that changed the world, and a lucky few will have built organizations that lasted. But almost no one will be able say they founded a company that created an entire industry. Robert Swanson, who died from brain cancer at his home in Hillsborough, California, on December 6, would be very justified in claiming to have started the biotechnology industry.

DREAMS 0F GENIES

Mr. Swanson was a 29-year-old venture capitalist with the firm that today is Kleiner Perkins Caufield and Byers when he collared Herbert W. Boyer, a scientist at the University of California at San Francisco who was researching recombinant gene therapy. Recombinant DNA is formed when DNA from different sources is combined to create new DNA molecules. Dr. Boyer thought that combining DNA—or gene splicing—would allow scientists to design the proteins necessary to treat particular diseases, and would liberate scientists from trial-and-error methods of protein testing. In 1976, venture capitalists, and even most academics, did not believe in the immediate commercial value of such research. Dr. Boyer himself was uncertain when gene-splicing would be a business. Nevertheless, Mr. Swanson convinced Dr. Boyer to grant him a ten-minute interview. “Here cornes this brash young entrepreneur filled with enthusiasm and ideas and ready to go,” Dr. Boyer says today. “I recognized right away that he had the drive and the understanding.” They formed Genentech, which is generally thought to be the first biotech company, later that year. Twenty-three years later—and in the very winter of Wall Street’s discontent with biotechnology—it is difficult to remember how revolutionary Genentech was. In 1977, Genentech produced the first human protein by splicing a gene with bacteria. Later Genentech created human insulin, the first drug produced by genetic engineering, which it licensed to Ely Lilly for the treatment of diabetes. It was the first biotechnology company to sell a drug it had developed on its own: human growth hormone, for children whose bodies do not produce enough of the hormone. And Genentech was the first biotechnology company to offer its shares in an initial public offering—which, until the Internet boom, was among the most spectacular Wall Street had ever seen. Genentech’s example made biotechnology possible by demonstrating to venture capitalists, entrepreneurs, and scientists that a sustainable business could be based on genetic engineering. Today, there are more than 1,000 biotechnology companies in the United States, and Genentech remains one of the most successful.

INGENEOUS

Mr. Swanson was born in Brooklyn, New York. He attended the Massachusetts Institute of Technology, receiving an undergraduate degree in chemistry and a graduate degree from MIT’s Sloan School of Management. Before becoming a partner at Kleiner Perkins, Mr. Swanson was a VC at Citicorp Venture Capital. He was Genentech’s chief executive from the company’s founding until 1990, and was its chairman from 1990 to 1996. After retiring from Genentech in 1996, Mr. Swanson formed K&E Management, a private investment – management firm. He was also chairman of Tularik, a biotechnology firm that was preparing to go public in mid-December. As an entrepreneur he was courageous, ingenious, stubborn, and slightly crazy. “If you told him that doing something violated the rules of physics, he’d tell you the law must be wrong and you’d almost believe it,” said Arthur D. Levinson, the current chairman of Genentech. Friday afternoons at Genentech were devoted to theme parties, called Ho-hos—on Hawaiian theme days, Genentech’s chairman would invariably don a grass skirt and dance the hula for his employees. Mr. Swanson wished to change the world by commercializing, and therefore making widely available, new drugs based on gene splicing. He got his wish. Last year new pharmaceuticals developed by Genentech scientists (that is to say nothing of established drugs still being sold) earned more than $4 billion in revenues, according to MIT, and saved countless lives—if not, sadly, Mr. Swanson’s own.

Write to jason@redherring.com.

Atlantic Drift – Venture capital performance in the UK and the US

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A new report on venture capital brings interesting conclusions and updates. Here is the summary that you can also fidn on the Nesta web site:

1. The returns performance of UK and US VC funds in recent years has been very similar. UK funds have historically underperformed US funds, but this gap has significantly narrowed. The gap in fund returns (net IRR) between the average US and UK fund has fallen from over 20 percentage points before the dotcom bubble (funds raised in 1990-1997) to one percentage point afterwards (funds raised in 1998-2005). However, this convergence has been driven by declining returns in the US after the burst of the dotcom bubble, rather than by increasing returns in the UK. Average returns for funds raised after the bubble in both the UK and the US have been relatively poor, but VC performance is likely to move upwards as VC funds start to cash out their investments in social networks (particularly in the US).

2. The wider environment in which UK funds and the companies they finance operate was a major contributor to the historical gap in VC returns. While there are some large differences in the observable characteristics of VC funds between both countries, they cannot account for the historical returns gap.

3. Average returns obscure the large variability in returns within countries. The dispersion in returns across funds was highest during the pre-bubble years, and has fallen significantly since then. But in both periods the gap in returns between good and bad performing funds within a country was much larger than the gap in the average returns across countries. Thirteen per cent of UK funds established since 1990, would have got into the top quartile of US funds by returns (this has increased to 22 per cent for funds established in the post bubble period), while 45 per cent of UK funds outperformed the median US fund. Selecting the right fund manager is thus more important than choosing a particular country.

4. The strongest quantifiable predictors of VC returns performance are

(a) whether the fund managers’ prior funds outperform the market benchmark;

(b) whether the fund invests in early rounds;

(c) whether the fund managers have prior experience; and

(d) whether the fund is optimally sized (neither too big nor too small).

Moreover, historical performance has been higher for funds located in one of the four largest investor hubs (Silicon Valley, New York, Massachusetts and London) and for investments in information and communication technology.

5. UK government-backed funds have historically underperformed their private counterparts, but the gap between public and private returns has narrowed in recent periods. This suggests that in later years governments have become savvier when designing new VC schemes.

Most US funds have traditionally only invested locally, with less than a third of US funds raised between 1990 and 2005 having invested in one or more companies outside the US. In contrast, the majority of European funds have invested outside of their home market.

The situation has changed somewhat in recent times. A higher proportion of European funds raised in 2006-2009 have chosen to invest locally while US-based funds are becoming more global. As a result, the proportion of European VC capital being invested in the US has halved, falling to 10 per cent, and a slightly larger share of US VC capital is coming to Europe.

Overall, this analysis suggests that Europe does not offer an attractive proposition to US VC funds. Europe has a less developed VC market than the US, so attracting US funds (their money but also, crucially, their expertise) ought to benefit European economies. Instead, the opposite is happening. A much larger share of European VC funds invest in the US than the other way around. While Europe is likely to benefit from its funds investing in the US (for the returns it provides, the network it builds and the experience it generates), the small flow in the opposite direction is a cause for concern.

In conclusion

– The global venture capital industry is concentrated in very few hubs (and does not exist in a vacuum)

– The convergence in returns is not the result of changes in the characteristics of UK funds

– Small funds underperform medium sized funds, but larger is not always better

– More experienced fund managers achieved higher returns

– Past performance predicts future performance

– Funds in investor hubs had better returns

Investing in earlier rounds leads to better performance

– But much of the variability in returns is not explained by these factors

Finally some advice on Policy:

Remember venture capital activity does not exist in a vacuum.

Resist the temptation to overengineer public support schemes

Avoid initiatives that are too small.

I also found interesting two figures:

Why companies fail

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Again, I found an interesting article in an old Red Herring, dated October 1999. It is entitled the Anatomy of Failure and more importantly, it was written by Geoffrey Moore.


There is not much to say about Moore (if you know him) but he is an absolute much read. In the innovation landscape, he can be placed between Bill Davidow’s concept of Whole Product (pdf) (Moore worked at MDV as a venture partner) and Steve Blank’s concept of Customer Developement. (I will come back soon on Blank and his book The Four Steps to the Epiphany).

In 1999, Moore used his concepts of Chasm and Tornado to explain why companies failed and here are his four main reasons:

1- The Slow Fail: Traditional management (accountability to the plan) does not work. Early markets are unpredictable and require a lot of flexibility.

2- The Chasm Trap: If early enthusiats may buy your initial product, you will need a much more complete product (The Whole Product) to satisfy the early majority. If not, you will be trapped in the chasm.

3- The Tornado Dive: if you are lucky enough to have created the “Killer App”, you may not face the chasm, but an antichasm: the inability to deliver a huge demand and manage your hypergrowth. A dream becoming a nightmare.

4- The Dead Zone: The previous grid shows an area which you may find moving from emerging market to crossing the chasm and finding the tornado. The pain and gain are decent but experience shows you will never reach mature markets, the place for the living deads.

In conclusion, Moore shows optimism and mentions the Full Circle: if you find soon that you are failing (“Fail Fast”), you can react (not follow the plan) and avoid the dead zone to either cross the chasm and/or enter the tornado. Then you may succeed. I scanned the full article, in case some of you would like it. Just email me.

PS (2021): Apparently the link with the pdf on the Whole Product is broken. Here is a video of Bill Davidow that might be the same event.

Prepare for dramatic Internet company wreckage.

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Another fo my recent reading from old Red gerring magazines. The analysis and predictions are great and provide good lessons for our days… In the same feature, October 98, I found small articles about companies we backed at Index. These three companies went public later on… so a small additional piece for nostalgia.

Prepare for dramatic Internet company wreckage.
By Anthony B. Perkins
ONE 0F THE surest reality checks in the technology business is a visit with Don Valentine of Sequoia Capital. Mr. Valentine’s seed money and sound advice have been instrumental in many of Silicon Valley’s greatest success stories, including Apple, 3Com, Cisco, and Yahoo. He, along with Netscape founder Jim Clark, was the first to proclaim in our pages, back in 1994, that Internet was indeed the information highway, and not just a “TV with a pizza box sitting on top” (see “Don Valentine’s Next Big Bet Is on C-Cube Microsystems,” May 1994 page 58). We recently prodded the curmudgeonly Mr. Valentine to tell us how he thinks the Internet market will play out. His insights are instructive.

First he notes that, like the microchip and PC markets, the Internet market grew organically rather than because it solved any obvious problem that was important to a large group of people who had a lot of money. Mr. Valentine recounts being at Fairchild Semiconductor when he and future Intel founder Bob Noyce marveled at the invention of the microchip but at the same time wondered what it was good for. The early days at Apple were much the same. “I remember wondering what people were going to do with the Apple II. There was no answer!” Mr. Valentine declares. In contrast, the networking boom was about solving big, important problems for corporations. “When Cisco came along, it was addressing an environment desperately in need of a solution,” he explains.

From a venture capital perspective, Mr. Valentine believes that it is better to invest in markets clamoring for new products than in creating new markets. “In the two previous eras—microchips and PCs—lots of companies went over a cliff,” he says. “Uniquely in the networking world, there are almost no busts.” Extending his logic, Mr. Valentine foresees what we have been predicting for a couple of years now that the Internet space will suffer dramatic company wreckage as well. Another veteran VC, Jim Breyer of Accel Partners, concurs with this analysis: “Ninety percent of the Internet companies that exist today will eventually go out of business.” And Mary Meeker of Morgan Stanley Dean Witter says that roughly 75 percent of the Internet companies that went public in the past four years are now trading below their initial public offering prices.

According to Mr. Valentine, part of the overfunding of these markets-in-creation can be attributed to the infamous herd mentality within the VC community. “We financed 6o disk drive companies because each venture firm wanted to have a disk drive investment in its portfolio,” he tells us. “The reason we have so many search engines is that Yahoo got visible. Lots of VCs didn’t have one of those. So they created an Infoseek or an Excite or whatever, and jumped on the back of the train. We are making the same mistake in the Internet era that we made in the PC era. Just think about the environment. There is no application in which the Internet solves a problem. What does the Interne do so far? It sort of reminds me of the Apple computer in 1978. It doesn’t do anything.”

Mr. Valentine feels certain about one aspect of the Internet: that it represents the most efficient marketplace for goods and services on the planet. “Never before has the consumer had all the cards dealt face up where he can make choices and decisions knowing all the facts,” he says. “In traditional marketplaces, consumers have always had to deal with confusion, arcane language, and obfuscation. Buying something is often a hassle. Insurance is a great example of this; dealing with car salesmen is another. Now consumers are being put in a position in which they have phenomenal access to whatever they want.” This may seem of obvious value to businesses—especially when you look at the revenue trajectory of an Amazon.com or contemplate the 10 million’s worth of computer equipment that Michael Dell is selling online every day— but the only thing that is really obvious is the value to the consumer. We ask the same question that the salty Mr. Valentine does: “How do you make money in this perfect marketplace?” Our problem with Arnazon.com has never been its sales potential; rather, we wonder whether it will make technology-industry-level margins.

I threw Mr. Valentine’s comments out for discussion at dinner last night with Broadview CEO Paul Deninger and Red Herring editor Jason Pontin, inciting a lively debate. From Mr. Deninger’s perspective, Amazon.com may well be the exception, not the rule. “Look, Jeff Bezos at the right place at the right time with the right product,” he said. “But for every Amazon.com, there will be 20 flameouts.” His main point was that “e-commerce is a new way of conducting commerce electronically, but not necessarily a new industry.” Jason piped in with his theory that the disaggregation effect of the Internet “creates room for re-aggregation.” (By this time we had gone through our fourth bottle of wine.) And I believe Jason is quite right. Now that portals have better organized the Web, and Amazon.com has shown everyone how to conduct Internet commerce successfully, it’s time for the rest of the world to jump into the game. Instead of relying on Yahoo and the major portals to organize your experience, you will build your home page with links into the “miniportals” representing your specific interests. Eventually, all major product and service distributors will go online and fend off startups like Arnazon.com that are eyeing their lunch.

One defender of the miniportal revolution is Jim Moloshok, senior vice president of Warner Brothers Online. At our recent Herring on Hollywood conference in Santa Monica, California, Mr. Moloshok au but declared war on Sillcon Valley’s search-engine geeks. He warned Hollywood’s studio producers and new-media types that they are in danger of losing control of their online destinies if they don’t stop giving away their valuable television-, film-, and music-related content to Internet companies starved for programming, and that they should start demanding better licensing terms. “Entertainment companies are mortgaging their online future,” said Mr. Moloshok. “They’re giving away their content in exchange for exposure. But the entertainment companies are basically underwriting these Internet companies by throwing away their intellectual currency.” All this debate left me agreeing with Mr. Valentine’s basic premise: the Internet is still a market-in-creation. Although we have our arms around the idea that it represents a vast and efficient distribution channel and will provide a stream for investment news and entertainment content, its real value has yet to come into focus. And as we grope along this trail, we will continue to see fledgling companies like Broadcast.com and GeoCities go public. But we’ll have to wait a while to sec which cars stay on the road and which ones fly off the cliff.
[For Tony Perkins’s free weekly newsletter, send an email with subscribe in the suhject line to tonynet@redherring.com.]