There Must Be a Pony in Here Somewhere

by Kara Swisher

  Those who know Jerry Levin describe him as a man who, when he believes in something, doesn’t hold back. To underscore his digital commitment, he began telling division heads at the phone-centric company that the best way to communicate with him was via email. And he talked incessantly about the Internet at every meeting, reveling in tiny details about the latest new Web trend and pointing out things Time Warner should be doing.

  “I think much of his self-esteem was built on how technology would periodically transform the media business,” said influential media investor Gordon Crawford. “So everything built to that point.”

  Later, after he left the company, Levin acknowledged his growing worry, saying to me in early 2003 that he didn’t feel there was any talent or innovative spirit within the company that was capable of competing in the interactive space. The FSN and Pathfinder failures, coming as they did when so many others seemed to be succeeding, had seemed to prove this definitively.

  “Internet DNA was absolutely essential to me,” he said. And if Time Warner couldn’t find it internally, it raised some troubling questions. Would other companies, some of which weren’t even in existence before 1990, become the true leaders of the next age, as Time Warner withered under the onslaught? Was there anything Time Warner could do to change that unhappy fate? What was the right path, given the many deadends the company had run into? And what should Jerry Levin, who had dedicated his life to finding solutions through technology, do now?

  These were the big-picture ideas that began to consume Levin. But any answers to those questions would have to wait until after the events of June 2, 1997, when Levin’s personal life took a tragic turn. On that date, the body of his son, Jonathan Levin, was found in his New York apartment, the victim of a brutal murder. His death would further put Gerald Levin into a fervid state of mind that would eventually push him right into the arms of AOL.

  Yeah, they say two thousand zero zero party over, oops out of time. So tonight I’m gonna party like it’s 1999.

  PRINCE, “1999 ”

  Chapter Four

  THE $10 MILLION NAPKIN

  To Mogul or Not to Mogul?

  Not many people have a $10 million napkin, but I do.

  It’s a hotel’s typical cocktail napkin, white, four inches square, made of medium-quality paper with little to set it apart from similar ones you might find strewn on any bar. Except, that is, for the wobbly scrawl on one side, written by a well-known Silicon Valley venture capitalist, who had offered $10 million for a 20 percent stake in a new company. To be technical, it gave my little piece of paper an instant valuation of $50 million.

  You have to love the New Economy. Or, since we’re talking now in much less heady times, you had to.

  And why not? That there was actually no company made no difference. That there was no staff made no difference. That there was no product made no difference. Perhaps most of all, that I and some other tech reporters had cooked only the barest whiff of an idea—mostly on a lark—for a new kind of tech news Web site made absolutely no difference. I had told the venture capitalist about the concept more as a joke. But it was the summer of 1999 and this is the way it was then on a dulcet night at a frenetic Internet conference at a luxury hotel in a swanky resort town. Hence, my $10 million napkin.

  There were, of course, margaritas, and the venture capitalist was a little tipsy, too. He was clearly teasing me, but there was also an unmistakable air of possibility. Swinging a giant, expensive cigar to and fro with one hand and his drink with the other, he painted a picture of untold riches that could come to me if I only junked my risk-averse reporter’s nature and joined the all-night dot-com party that had been going on for two years now and showed no signs of abating.

  I was intrigued enough, I admit. The last time someone had made me an offer like this, I was flying high above the Atlantic coast on the way to Florida in a small private plane rented by America Online’s Ted Leonsis. It was March of 1997, and I was working on a book about the then-struggling company. AOL’s prospects seemed, at the time, limited. With a churning user base, a sorry balance sheet, chaotic management, and the disdain of most of Wall Street and the larger business community, its volatile journey looked to be just about over.

  But Leonsis dismissed all of that, pressing against me knee-to-knee in the tiny cabin and offering what he clearly thought was my big opportunity. “You should work for me,” he said—completely ignoring the fact that I was trying to write an independent journalistic account of his company’s history. “I like to have you reporter types around.” He liked us so much, in fact, that he was offering me a large dollop of stock and a job with few parameters or any real description. “I’m thinking of doing an area on AOL called Sacred Cows,” he opined. “You’d basically pick people to skewer every week and write about that.”

  This was a time, you must understand, when online executives, such as Leonsis, were just beginning to style themselves as “media” moguls rather than accept the duller reality of their existence as purveyors of email, sex and celebrity chat, and endless pop-up ads for doodads. Leonsis had even taken to declaring that AOL’s true competitors were the mandarins of Hollywood rather than the geeks of Silicon Valley. That he had little idea of the true challenges of the media business and even less experience figuring out ways to create alluring content that sells made little difference to him.

  I had taken time off from the Washington Post, where I had worked as a journalist for a decade, to write aol.com. This was a risk in and of itself, since it was questionable whether AOL would survive and, thus, whether the book would sell. But to write a book no one reads is one thing; to work for a company that files for bankruptcy was something else altogether.

  So, I uttered the words to him that still make me cringe to repeat: “Why would I ever want to leave a media giant like the Washington Post to work for you at AOL?” And with that flip remark, I turned down my alternate future at the company that would, within five years, purchase Time Warner and vault to the top of the media world at the dawn of the new century. My “stock,” needless to say, would have been worth millions of dollars.

  Fast-forward to June of 1999: Now a reporter for the Wall Street Journal, I stared back at the venture capitalist and wondered what I should say. Was he joking? Was he serious? All I knew for sure was that he was definitely drunk. Even still, fending off giant offers from people like him was actually becoming an almost daily occurrence. The rulers of the new economy had begun to flex their newfound power and wealth by going after people who continued to toil in old-economy jobs, seducing them into cool deals that promised the world. Like most tech reporters then, I had a clutch of job offers from every dot-com-of-the-moment, and the stakes were getting financially juicier by the day.

  At another press dinner, yet another venture capitalist, Charlie Lax, had told me without a trace of irony that when he met with entrepreneurs, the most important question he asked them was: “Do you want to be a billionaire?” Presumably, he could tell who the idiots were by those who answered no. Since I had already said no once before and appeared to have lost big bucks, was I going to fail again at this obvious second chance at mogulhood? Was I going to turn my back on a life of huge choices and no restrictions at a time of unprecedented wealth creation, the likes of which the world had never seen?

  I stared down at my napkin, which was full of figures and percentages and endless possibilities, and wondered what I should do.

  I Came, I Saw, I Got in Bed With a Venture Capitalist

  As it turned out, I did nothing—my reporter’s natural antirisk nature won out once again.

  Even deciding to move west in the fall of 1997 to work for the Wall Street Journal had been a struggle for me. I came to San Francisco hating the entire idea of California, if not California itself. Here, it seemed to me, was where the seeds of insanity are often planted and where disasters are a daily event.

  But writing about AOL—which had survived and even thrived, despite all predictions
otherwise—and meeting exciting new companies in the Internet space had gotten me hooked. In researching the book, I had gotten to observe the one-floor operation in a bad Seattle neighborhood from which Amazon founder Jeff Bezos hoped to change the face of modern retailing. I had visited Yahoo’s tiny Santa Clara headquarters, where its team of Web “surfers” ruled the Internet roost by selecting good Intenet sites for its growing directory. And the energy that permeated the Netscape campus in Mountain View was practically explosive, as its Navigator browser seemed to threaten even the great software powerhouse Microsoft.

  In fact, the Internet boom itself had been sparked by Netscape’s legendary IPO only a few years before. Founded in the spring of 1994, Netscape shipped its browser by the end of that year and dominated the market within months. More important, it introduced the “concept” IPO—a big idea, with little revenue, no profit, a compelling management team, and a young and charismatic cofounder named Marc Andreessen. The poster boy for young and bold entrepreneurial heroes, Andreessen would appear on the cover of Time magazine barefoot and sitting on a throne, as the king of the Next Big Thing.

  Netscape’s IPO was a monster, which made all its employees and investors fabulously wealthy almost instantly. The IPO pricing range was doubled before the offering and the stock soared when it debuted in August of 1995, giving the company an astonishing $2.2 billion valuation on its first day as a public company.

  Soon enough, even the big players were terrified. Goldman Sachs analyst Rick Sherlund downgraded shares of Microsoft because of Internet threats, and Microsoft quickly shifted its strategy. By December of 1995, Microsoft head Bill Gates announced plans on what was dubbed “Pearl Harbor Day” to become “hard-core about the Internet.”

  From then on, the idea of disruptive technology—that is, technology as a deeply revolutionary force that could upend anything in its path—was the order of the day in the tech world, popularized by Clayton Christensen’s landmark 1997 book, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. The very idea that so much business tradition could be immediately overthrown was a powerful one, although it was deeply juvenile at its heart. Nonetheless, a rash of other concept IPOs soon followed, all aiming to radically change the way retail, ordering, information retrieval, and pretty much everything else was done. Blown up, too, were the basic rules of startups. The long time frame that included early seed capital and years of investing and likely failure before any hopes of a “liquidation event” was suddenly compressed to a few months.

  This new paradigm seemed to be working, helped mightily after venture firms turned the fire hose of capital on the region. In 1996 and 1997, venture capital funding levels would hit close to $10 billion annually, but then leap to $50 billion in 1999. The number of IPOs would soar, too, from a few dozen annually in 1996 through 1998 to more than 200 in 1999. The financial bonanza was further fueled by a surge in online-addled individual investors, huge press, and analyst hype. It also saw the birth of more than a few new tricks by clever investment bankers, such as the practice of “spinning,” which is basically bribery, where corporate executives got hot IPO stock in exchange for investment banking business. (It was a questionable practice that would later draw intense regulatory scrutiny.) But armed with huge instant fortunes, the CEOs and founders of exciting new Web companies became leaders of the economy, as their valuations topped those of old-line firms and their clout grew. Something big was surely happening after a massive number of regular consumers discovered the Internet (and vice versa). And with money and talent pouring in, it was clear it would be centered in Silicon Valley.

  So, despite my reservations, when this brewing revolution began to really take off in late 1997, it made sense for me to leave the safety of the East Coast to cover what might become a very big story. As I would soon learn, there was nothing about the burgeoning digital world that readers weren’t fascinated with. In fact, that was my new job—to produce more “colorful” stories about tech, which had long centered on mostly dull accounts of chip production and complex software programming. Wired magazine had pioneered a trendier style of coverage earlier in the 1990s for and about the digerati—focusing on compelling high concepts and big personalities much as a movie magazine would. Now, everyone wanted to know about Web culture. Soon enough, every single facet of the digital culture was about to get its 15 minutes of fame. And I mean every facet, most especially the rash of money being made and its impact on the lives of once-boring techies.

  These techies were actually starting to seem sexy, so much so that the Wall Street Journal was even contemplating boudoir stories. “You’ll have to get in his bed for a good story,” joked Greg Hill in one of my first story meetings. As San Francisco bureau chief for the Wall Street Journal, it was Hill’s job to find tech stories that would pique the interest of editors in New York. “I don’t see how you can do it without getting horizontal,” he laughed.

  Not exactly, but close. It seemed a well-known venture capitalist had a giant sliding skylight ceiling over his bed that opened and closed depending on barometric pressure. I was charged with finding it, trying it out, and writing about it. The self-effacing financier thankfully refused to let me see it. While he was always up for flacking his investments, he turned out to be one of the very few who didn’t encourage the chronicling of every aspect of their wild and exciting private lives.

  But the invitations from most of the cream of the Internet royalty come pouring in, in an unending stream. I had much less difficulty getting access to them than reporters who chased after executives from more traditional businesses. This young, brash, arrogant generation wanted everyone to know everything about it, mostly because they believed they were changing the world.

  The come-ons were enticing and often frivolous. Come ride with me in my new Ferrari Testarossa! Come admire all the many Lava lamps with which I decorate my new company! Come see how we name our conference rooms after snack foods and our computer servers after gross diseases! Come let us show you how someone who just became a billionaire still lives in a crappy rental and wears ratty old Birkenstocks!

  To better understand the Web culture, I reluctantly rode down the giant red slide at the headquarters of Yahoo-wannabe portal Excite (“C’mon, it’s fuuuuuuuun!” urged the public relations person who went down first, ignoring my look of scorn). I chronicled the cheap eating habits of wealthy techies ($4 burritos were very popular). I wrote of their incessant need to make up weird titles for their jobs (chief cheerleader was my least favorite). I dissected and defined new terms like clicks and mortar and Internet incubator (they turned out to be more clever than meaningful). I reported on their $800 Aeron chairs and the complex hierarchy of billboard ads on Silicon Valley’s Highway 101 (what can I say?—this was considered extraordinarily relevant at the time). It was a bit of an unusual situation—serious reporters from all the major business publications were covering an industry as if we were writing about the latest fashion trend or hot Hollywood actor.

  And there were the parties and high-level conferences, of course, where exotic drinks, fancy food, and massive crowds were the norm. One, for a startup dedicated to startups called Garage.com, was held at a luxury car dealership. Another, for the Inktomi search technology company, featured a giant climbing wall temporarily installed in a San Jose hotel. Yet another dot-com hired an army of fake 1940s-style paparazzi reporters and photographers, who incessantly chased everyone entering the party. At another event, tough-girl rocker Courtney Love appeared to be seriously flirting with newly minted billionaire, Broadcast.com’s Mark Cuban—the kind of moment that made you rub your eyes in disbelief. At one conference, I watched a massive fireworks show better than those presented by most major cities. At another private party, the B-52s played into the night. Public relations people were everywhere, of course, so much so that I had taken to calling them “oxygen.”

  I certainly needed to clear my head after one party thrown by an online conferencing outfit called
WebEx, where I ran smack into the statuesque drag performer RuPaul. She had been hired—presumably for an ungodly amount of cash—as spokesperson for the company. It seemed an inexplicable choice, another celebrity with zero tech knowledge paid to help bring glamour and help build the brand name for these unknown outfits. In a churlish mood, I asked RuPaul what kind of computer she used, doubting she even knew how to turn one on. “One with as much power as possible,” she shot back. Alrighty then, girlfriend.

  The truth is that the giddiness got a bit wearying after a while, as the gushes of money flushed predictably in and out and the level of arrogance grew. I started telling people there weren’t enough rat holes in Silicon Valley to shove the cash down. I contemplated murder as one teenaged billionaire after the next would lecture me on the fate of old media and say they were going to put the Wall Street Journal out of business. Though these Internet ventures were often their first jobs out of college, I secretly feared they might be able to do so.

  Rather quickly, the mercenaries were replacing the missionaries I had loved so much at the start, such as Jerry Yang of Yahoo and Jeff Bezos of Amazon, as well as legions of much smaller players who created the Web for the love of it rather than the cash. IPO valuations kept rising and the quality of the companies kept declining in what I can only explain years later, with some perspective, as an absolute suspension of disbelief in what was a very permissive era. There were several aspects to this disturbing trend: The warping nature of wealth, the explosion of ego, and the abandonment of traditional business rules. It was an old story, I suppose—an industry started in relative innocence was very soon waylaid by greed.

  But, not everyone agreed. The wife of one entrepreneur told me I wrote too much about the money and lectured me at a party she hosted on New Year’s Day of 1999 that money was not what the Internet was all about. “It’s about changing the world, it’s about making a difference,” she insisted. “It’s not at all about making money.” I only nodded at her, as we stood in the lovely multimillion-dollar mansion bought with the barrels of cash her spouse had made in Internet IPOs. On a nearby table, she was serving fancy caviar in giant bowls, which doubtless cost more than my first year of college.