A few days after the Healtheon IPO, Mike Long was invited onto CNBC to talk about his hot new company, which, at $44 a share, was now worth $3 billion. There wasn’t any question about accepting. CNBC was the cable channel of choice for the speculators who bid up Healtheon’s stock price. There was a room wired on the Stanford campus—it was used by all the TV shows back East. The room was where Silicon Valley executives went when they wanted to talk to their investors. Long drove over to it at four in the morning. He clipped the microphone to his tie and the earphone to his ear. He looked high up on the wall at the black eye of a single camera. Look straight into the black eye when you speak, he’d been told. A woman’s voice—he’d never actually laid eyes on her—was piped through his earpiece. The lady welcomed Mike Long to CNBC, told him he was on the air, and then asked him a list of questions. A few questions into the list Long was able to mention “our new relationship with IBM.”
“Let’s pick up on that,” said the woman at CNBC. “You picking up this company and going forward. How has this acquisition helped you?”
Long had to think about that one. IBM was worth about $240 billion. It had 290,000 employees, $82 billion a year in revenues, and a long, glorious history dating back to 1911. IBM wasn’t a company; it was a country. Healtheon…well, until a few days before, no one had even heard of Healtheon. Now the company was being accused on the official cable channel of the speculating classes of having acquired IBM.
Back when Mike Long had been a Serious American Executive he had no truck with the wider public. Maybe once or twice his name turned up in the local newspapers when he and his wife attended a United Way dinner. Now he was expected to play a role that was one part commercial celebrity and one part carnival barker. His new role required him to stifle a great deal of bewilderment. He had to find a way to be adaptable enough to keep a straight face when some journalist asked him why he’d bought IBM, but not so adaptable that he lost his self-respect. His central nervous system was busy making the necessary adjustments.
One of the many things Mike Long had learned in the transition from Serious American Executive to keeper of the new new thing was to keep the story moving along. Or, as he put it, “You have to stay ahead of the public road map.” The minute investors understood what you were doing, they held you in lower estimation. Solid performance was no longer interesting; familiarity bred contempt. The dollars invested in Healtheon were always threatening to move on to the latest IPO. To woo investors enamored of the new—and thus keep your stock price rising—you had to remain in a state of pure possibility.
In this question about his acquisition of IBM, Long sensed an opportunity. Healtheon buys IBM—that’s new! On the television screen Long’s face contorted slightly, in the way it might if a lunatic on the street approached him to say that he had a little green man perched on his shoulder. But before it reached that point, it froze. He smiled. He said that while Healtheon had not purchased IBM, it had agreed to provide IBM with technology, thus leaving CNBC viewers with the vague impression that the question was not implausible. Healtheon might well have bought IBM but found it more useful to partner with them.
In the month after the IPO Healtheon’s stock price behaved like a manic-depressive off his medication. First it fell, from $44 to $29 a share. Then, on March 8, the investment bankers Morgan Stanley and Goldman Sachs issued buy recommendations. The next day the stock shot up 19 points, to $48 a share. The enthusiasm, however, was temporary. In early April it drifted down and then back up some more, to $59 a share. From there it tailed off badly. From the beginning of April to early May it fell 20 points, to $39 a share. Something was holding it back.
What that something was soon became clear. Around this time Clark heard from a friend—he won’t say which one—that Microsoft was taking a new interest in the health care industry. The rumor was that Microsoft intended to invest $700 million in a new Atlanta company called Web MD. Web MD wasn’t much more than a shell for a brilliant marketing campaign. Its twenty-nine-year-old CEO, Jeff Arnold, had persuaded a lot of health care organizations that he could make the Internet work for them, and persuaded them to sign contracts, but he didn’t actually have a product. For that reason Clark hadn’t paid Web MD all that much attention. Microsoft’s backing changed his attitude. With Microsoft behind it there was every chance that Web MD would go public at a higher valuation than Healtheon and then establish itself as the leading brand in Internet medicine. “I couldn’t let that happen,” said Clark.
In mid-May, Clark and Long flew to Atlanta to meet with Jeff Arnold. When they left the meeting, they had agreed to purchase Web MD—exchanging 1.85 Healtheon shares for each Web MD share. Microsoft would own a 17 percent stake in the combination. It was Clark’s original coming to terms with Microsoft. Netscape had taught him the hard way that it was not worth the trouble to resist what he regarded as the evil empire. The Microsoft antitrust trial looked as if it might drag on for several more years; there wasn’t even a faint hope that the company would be constrained by the government, at least in time to make a difference to Clark. On balance, Clark decided, it was better to pay protection money. Microsoft’s response to Healtheon hadn’t been as crude as its response to Netscape: give us a piece of your company, or we’ll put you out of business. All the same, its investment in Web MD amounted to a shakedown: give us a piece of the action, or we’ll sponsor some other company to compete with you. “It’s grotesquely unfair,” Clark said. “And I hate it. But there’s nothing I can do about it.”
On May 20 the companies announced their merger. The market interpreted the deal as a sign that a new monopoly was being created, and perhaps the market was right. Certainly, the effect of combining ClarkWorld with Microsoft would be to frighten a lot of potential competitors out of the market. Anyone insufficiently frightened could be acquired. Healtheon’s stock ran up nearly 70 points in two days, to 105. The company was now valued at $16 billion. Out of thin air, it seemed, $16 billion had been plucked. Clark’s stake in the enterprise had been whittled down to 6 percent, worth about $1.3 billion. “It’s enough to keep my interest level,” he said, a disenchantment I was now familiar with creeping into his voice, “but it isn’t what I’d like to have.” He also said, “When I formed Netscape, I thought about sleeping with the enemy. Now I know I should have done it. I’ve gone over to the dark side.”
The truth was it was time for him to move again. On the eve of the new new thing, the Netdex, as the brokerage analyst Keith Benjamin described his index of all Internet companies, was worth $405 billion. That was up 654 percent in the past year. To put that number in perspective, the top twenty media companies—Time Warner, Disney CBS, etc.—had a combined value of $527 billion. Just how much of the Netdex belonged to people associated with Clark’s various ventures was hard to say; but in the spring of 1999 I made some quick back-of-the-envelope calculations. They amounted to a rich list of the people in ClarkWorld I’d come to know a bit. The back of the envelope read like this:
The CEOs:
Mike Long (Healtheon): $400,000,000
Jim Barksdale (Netscape): $1,000,000,000
Tom Jermoluk (@Home): $550,000,000
The VCs:
Kleiner Perkins (John Doerr): $1,800,000,000
New Enterprise Associates (Dick Kramlich): $700,000,000
Mayfield Fund (Glenn Mueller): $400,000,000
The cofounding engineers:
Pavan Nigam (Healtheon): $85,000,000
Kittu Kolluri (Healtheon): $30,000,000
Stuart Liroff (Healtheon): $8,500,000
Marc Andreessen (Netscape): $80,000,000
Tom Davis (Silicon Graphics): $10,000,000
Rocky Rhodes (Silicon Graphics): $5,000,000
Kurt Akeley: (Silicon Graphics): $5,000,000
The captain and programmers of Hyperion:
Allan Prior: $1,062,500
Steve Hague: $1,000,000
Lance Welsh: $1,000,000
Tim Powell: $1,000,000
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Jim Clark’s piece of the Netdex came to $3,200,000,000. He was a real after-tax billionaire. He had, as they say, achieved his financial goals.
18
The New New Thing
Different people have used different phrases to describe the path Clark’s mind took as he wandered along the top of the cliff overlooking the U.S. economy, deciding which rock, if kicked, would wipe out the largest section of the slope below. The venture capitalist John Doerr calls it “amazing over-the-horizon radar.” The Healtheon engineer Kittu Kolluri calls it “an animal’s sense of smell.” Hugh Reinhoff, one of the young men the venture capitalists had assigned to follow Clark wherever he went, calls it “fuzzy logic.” His enemies called it “bizarre” or “dysfunctional” or, most often, “lucky.” Each time one of Clark’s ventures got rolling, some people, even a few people in Silicon Valley, said he was just lucky. Lucky to have popularized the third dimension in computer space at just the right moment, lucky to have met Marc Andreessen and seen his Internet browser, lucky to have triggered the Internet boom, lucky to have sought control of health care, the world’s biggest market, just when it was ready to yield itself up.
“Luck” is one of those unfortunate words that are required to do more than their fair share of the work. What happened to Clark in Silicon Valley was far more interesting than luck. It was the interplay of a character who had a deep feel for technology, and a taste for anarchy, with an environment that rewarded both traits. Silicon Valley in the late 1990s was the closest that business has ever come to resembling a child’s chemistry experiment. Some tiny invisible hand poured one chemical after another into a test tube in the irresponsible hope of making it go Boom! Clark—and people like him—turned out to be the active ingredient.
At any rate, in the spring of 1999, after Healtheon had established itself as the most successful IPO in a year of fabulously successful IPOs, Clark was a more active ingredient than ever before. There were many reasons for this, but the main one was the Internet. There was no longer much question about what Clark had been saying all along: the Internet was bigger than anyone understood. Pretty much every Serious American Executive now agreed he had no choice but to adapt, or wind up bottled in formaldehyde and displayed on a shelf in the new special exhibit of extinct economic species. In March 1999 Jack Welch, the chairman of General Electric, one of those people who created conventional business wisdom every time he opened his mouth, said that the Internet was “the single most important event in the U.S. economy since the Industrial Revolution.” Even the normally understated chairman of the U.S. Federal Reserve, Alan Greenspan, said that “the revolution in information technology has altered the structure of the way the American economy works.”
Growth was change, and change was disturbing—and if you doubted it you needed only to ask any Serious American Executive. The business magazines even had a phrase for the pangs of incipient doom that afflicted them: “Internet anxiety.” Internet anxiety was simply the sense, now widely shared, that you were about to be put out of business by someone who operated in the spirit of Jim Clark. The Internet created many opportunities for people like Clark—outsiders, troublemakers—to think thoughts that would turn entire industries on their heads. Jeff Bezos, the founder of Amazon.com, had upended the book business; the founders of eBay had upended the auction business; the founders of E*Trade and Ameritrade had upended the Wall Street stock brokerage firms. In 1998 the manager of Merrill Lynch’s fifteen thousand stock brokers, John Steffans, had called the Internet trading firms “a serious threat to America’s financial lives,” and assured his employees that Merrill Lynch would never do such a thing. The next year Merrill Lynch created an Internet trading department.
Paul Romer, the young economist whose work on New Growth Theory had stressed the importance of technology in economic growth and, by implication, conferred a magnificent importance on the new new thing, hinted at another, deeper reason technological change was so unsettling. In a digression from his otherwise rigorous analysis, in a 1994 issue of the Journal of Development Economics, Romer wrote, “Once we admit that there is room for newness—that there are vastly more conceivable possibilities than realized outcomes—we must confront the fact that there is no special logic behind the world we inhabit, no particular justification for why things are the way they are. Any number of arbitrarily small perturbations along the way could have made the world as we know it turn out very differently…. We are forced to admit that the world as we know it is the result of a long string of chance outcomes.”
Clark, the inventor of chance outcomes, was himself a kind of chance outcome. Not long after I’d first met him, back when Netscape’s stock was speeding to zero, and Healtheon’s stock was considered worthless, he announced his plan to retire once he became a real after-tax billionaire. He intended to float around the world on his new boat, as soon as it was finished. Even then you could see he couldn’t possibly believe what he was saying. His life was an adventure story: without suspense it lost its purpose. Besides, he was still curious to find out what happened next. How would he know unless he set out to make it happen? The near certainty that something important was about to bubble up out of him, the sense that he had some peculiar gift for letting the right thing bubble up, had him and a lot of other people in Silicon Valley on the edge of their seats. By April of 1999, people outside of the Valley wanted to talk to Clark about Healtheon, which now seemed poised to turn the U.S. health care industry on its head. Clark’s interest in Healtheon was draining out of him. He wasn’t even sure he wanted to keep his investment in Healtheon. Healtheon was the past. The time had come for the new new thing.
In the spring of 1999 Clark started thinking seriously about his money. Actually, he was always thinking seriously about his money, and so I should have seen what was coming next, but I’d been distracted by all the talk about turning Hyperion’s software into the Home of the Future. He’d even gone and paid twelve million dollars for a 35-bedroom, 32,000-square-foot mansion in Palm Beach, mainly, it seemed, so that he’d have a place to test his software. Il Palmetto, the mansion was called. It had been built by Joseph Widener back in the 1930s, when rich people were meant to be idle. If he could reduce a 32,000-square-foot home to the sum of its digital data and administer that data over the Internet, Clark figured, he could do the same thing with any home. Clark had bought Il Palmetto after Steve Hague, the boat’s programmer, had explained to him, in an e-mail, “how the software that controls the boat can become a dot com company.” The new company was to be called Landscape. Landscape, and Il Palmetto, turned out to be just another false lead.
At some point, probably as we crossed the ocean, Clark had lost interest in the Home of the Future. The Home of the Future would have to wait. He decided, first, to change as much as he could of what he disliked about being really rich.
He’d accumulated a long list of grievances from his brief experience with real wealth. He disliked paying California’s capital gains tax—so much that he had moved his official residence to Palm Beach, Florida. He disliked the hassle of paying bills—so much that he’d hired a fellow named Harvey to take care of it. He disliked stock brokers—so much that he ignored their advice to diversify and kept all his wealth in Netscape and Healtheon. He disliked venture capitalists and investment bankers and, in general, the phalanx of financial intermediaries who sat between the creators of wealth and their just desserts.
At first he decided that what he really wanted was what rich people have always had: a family office. The rich man’s family office is normally a staff of people who do nothing but take care of the rich man’s money. Money butlers. Pretty quickly, however, he realized he wanted more than a money butler. He wanted to be able to watch what his money butlers did. He wanted to be able to take in every aspect of his money at a glace, no matter where on earth he happened to be, and at what time. The Internet was perfectly suited to what he had in mind.
The more Clark thought about it, the more he
thought that the best money butler would use the Internet. The Internet would spare him endless headaches: no more phone calls to banks or accountants, no more looking around for a pocket calculator to figure out how much he was worth, no more digging for receipts to find out how much he’d paid for the Picasso. Before he knew it, he had an idea for a business. He called his new company myCFO.
His thinking ran something like this. There were a lot of people just like him who’d made millions of dollars and were now coping with the hassle of handling it. Clark had read somewhere that there were now 180,000 American decamillionaires—people with at least ten million dollars in assets. Together they controlled something like fifteen trillion dollars in assets. “The wealthy masses,” Clark called them. He figured that the wealthy masses were just waiting to be organized into a fighting unit. (They had nothing to lose but their gold chains.) Certainly, they shared some basic financial objectives: they wanted to minimize taxes and hassles; they wanted to maximize wealth. myCFO would help rich people achieve their objectives. It would be, in the first place, a home for money. “The idea is that everything to do with their finances goes through this one place,” Clark said. Once he’d persuaded the wealthy masses to collect their wealth in this one place, he could negotiate on behalf of that wealth, almost as if it belonged to one person. “Say you had two trillion dollars under one roof,” Clark explained, “or even a trillion. The power of that money is huge. You could go and cut deals with banks or brokerage firms or insurance companies or anyone else who wanted to do business with the money.” The rich people who held in myCFO would wind up with a long list of special deals.
What he was groping toward wasn’t just a new company. It was a new kind of financial institution, and, as murky as it was in its conception, it posed a fantastic threat to old, established financial institutions. The Internet had made it possible for people to organize themselves in new ways. It made it possible for rich people to organize themselves. No one said that the new organization of rich people had to behave like other financial organizations. The people who joined forces in myCFO would have great bargaining power with traditional financial institutions. They wouldn’t be constrained in the way that say, the people who had deposited $1.5 trillion in Merrill Lynch accounts were constrained. When a Merrill Lynch customer wanted to buy stocks, he had to call a Merrill Lynch broker. Jim Clark’s pile of money—which he figured could easily be the world’s biggest pile of money—would operate independently. Anarchically. Its customers, as a group, could play Silicon Valley venture capitalists and Wall Street investment bankers and Main Street stock brokers and Swiss private bankers off each other, much the way Clark already did in his own private business life. If myCFO did not seize control of the levers of capitalism, it could at least remove the lever from the capitalists’ hands. And the bigger the pile of money inside myCFO, the more market clout this cartel of the very rich would have. Once the number of dollars became sufficiently huge, they could sit on top of the financial world like an operating system sat on top of a personal computer.
The New New Thing: A Silicon Valley Story Page 28
