The birth of the Internet boom can be dated precisely. It began on August 9th 1995, when Netscape, pioneer of the web browser, went public. Its share price more than doubled on the first day of trading; mania ensued. Marc Andreessen, the boyish, round-faced, 24-year-old programmer who had co-founded the firm in 1994, embodied the Internet dream. Within a matter of months, he had transformed a programming project at the University of Illinois into a multi-million-dollar company that challenged the world’s software giants. Suddenly, anything seemed possible. A rush of other Internet firms launched their own share offerings. And the rest is history.
That is certainly how it feels today, at any rate. Netscape’s dominance in web browsers prompted a vicious and ultimately victorious counter-attack from Microsoft. Netscape was forced to retreat, in November 1998, into the arms of AOL, the world’s biggest Internet-access provider. Mr Andreessen stayed on at AOL for a few months. But in September 1999 he left, along with three other Netscape veterans. “We sat around for three weeks and said what do we want to do?” he says. Eventually the four founded a new company, Loudcloud, which is as different from their old firm as it is possible to imagine.
For a start, says Mr Andreessen, he did not want the new firm to be in the business of selling software to large companies. The trouble with selling software, he says, is that software vendors end up in an adversarial relationship with their customers. The customers know that the vendor needs to meet its quarterly sales target, and is often dependent on a few large sales to do so. The result is a frenzy of last-minute negotiation and price-cutting at the end of each quarter. An industry joke tells of the chief financial officer of a software firm who calls down to the loading bay on the last day of the quarter to ask how many units have shipped. “Too early to say,” comes the reply. “It’s lunchtime, so we’re only halfway through the quarter.”
The situation at AOL is different. Because AOL is a service business, its revenues are predictable. Once a month, it collects $20 or so from the tens of millions of customers to whom it provides Internet access. Mr Andreessen decided that his new firm should also run on a service model.
Another decision, made early on, was that the new firm should not compete with Microsoft. “Everybody should be in a business once in their lives that competes with Microsoft, just for the experience,” says Mr Andreessen. But once, he decided, was enough.
He and his colleagues also noted that the infrastructure required to run a typical website had become extremely complicated since the early days. They decided that Loudcloud should concentrate on a particular niche: simplifying the management of Internet infrastructure. To this end, they developed some clever software, called Opsware, that centralises and automates the configuration of the various boxes that power websites: servers, routers, storage systems and so on.
Using this software, Loudcloud now operates websites for clients including Adidas, Ford, Nike, USA Today, News Corp and the British government. The outsourcing of website management (known as “managed hosting”) saves these clients money, says Mr Andreessen, since they no longer have to deal with multiple suppliers or technologies. News Corp, he claims, has reduced the cost of running its sites by 60%. Another advantage of the Loudcloud model is that it allows new servers to be set up quickly, so that a website can handle more traffic. USA Today, for example, increased the capacity of its site threefold on September 11th as visitor numbers surged in the wake of the terrorist attacks.
Loudcloud went public exactly a year ago and raised $150m in a gloomy market. Mr Andreessen argues that a slump is a good time to build a business. There are no “me-too” imitators or “kamikaze competitors” burning money and resorting to silly tactics to gain market share, as there were during the dotcom boom. It is easier to retain employees when they are not always looking for a new job at a firm on the verge of going public. And, in contrast with Netscape’s early days, there is no need to deal with the problems of “hypergrowth”. Instead, there is enough time to choose the right employees and to build a company culture. That eliminates the problem of rivalry between workers who have been taken on at different times and therefore have stock options with widely varying values. Loudcloud has steadily growing revenues and is on target to become profitable in 2003.
Sign of the Times
In other words, Mr Andreessen does not regret the passing of the boom years. These days he wears a smart suit, rather than a denim shirt and jeans. He is a manager, not a keyboard jockey. He last wrote a line of code, he says, in 1994. The super-fast Mercedes and an impractical military vehicle that previously belonged to Arnold Schwarzenegger, a Hollywood star, are gone; he now drives a low-key sport-utility vehicle instead.
The Internet has changed, too, as Mr Andreessen’s own journey from Netscape to Loudcloud illustrates. What was once the province of geeks is now ruled by suits. The web has become the basis of a vast and complex industry dominated by large companies. Even though it started as a consumer-led phenomenon, the Internet’s greatest impact has been on business. There turned out to be very little money in selling “front-end” software such as browsers to consumers; but there were fortunes to be made at the “back-end” selling services, software, storage and hardware to companies. Loudcloud may be successful in its own way, but it will not be the Netscape of the decade, the dawn of a new world. The Internet, like its poster-boy, has grown up.