Searching for New Directions

Will we manage to get back in the fast lane of growth?

Talk about a detour on the highway to the future. Even before the September 11 attack on America, 2001 was shaping up to be a brutal year for the digital economy. There were layoffs, dotcom bankruptcies, and a steady migration of people back to the more solid (if more stolid) world of the old economy.

But all bad things come to an end. This year-end edition of Net Company looks at the road ahead for innovation, for business-to-business e-commerce, for the Internet itself. Will we manage to get back in the fast lane of growth? We asked for directions from eight people with experience in and insights on the Internet economy. We asked them to discuss what they thought was true two years ago that is now no longer true. We asked them to offer practical lessons that they learned from the meltdown. And we asked them to identify the seeds of renewal.

One note: We received most of these commentaries before September 11. We chose not to go back and ask for reflections on the impact of terror. The business lessons our experts identified are as relevant as ever, and we are reckoning with the aftermath of September 11 extensively in the magazine and on our Web site. In this case, we thought that keeping our eyes on the economic and strategic fundamentals was the way to drive into the future.

Maria Bartiromo

Anchor > CNBC > Fort Lee, New Jersey

Two years ago, I believed, as did a lot of other people, that massive investment in information technology was based on long-term strategic needs. Some of it was, of course. But the vast majority of IT spending was artificial and unsustainable, driven more by the moment we were living through than anything else.

I recently had dinner with the CEO of a financial-services company. He said, "Maria, my company purchased 25,000 PCs in 1999. Is there any reason to purchase anything near that number anytime soon?" The answer, of course, was no. His company bought all those computers because of Y2K. Once they were installed, that onetime problem was solved.

So dotcom hype wasn't the only factor behind the surge in technology spending. And getting beyond Internet mania, which we have, won't, by itself, get IT spending back on track.

That said, there is no shortage of things to be excited about. We are living in a period of unprecedented technological advancement. Consider medicine: You've got the genomics revolution, dozens of companies are working feverishly to find cures for cancer, and many of us are living beyond 100 years old.

Let's also not forget that we have become a nation of investors. More than half of all Americans own stocks. Whether the market goes up or down, the democratization of finance won't go away. So financial services will continue to be an exciting area for years to come.

Maria Bartiromo reports from the floor of the New York Stock Exchange. She also anchors segments of CNBC's Street Signs and Market Wrap and co-produces Market Week With Maria Bartiromo. She recently published her first book, Use the News: How to Separate the Noise From the Investment Nuggets and Make Money in Any Economy (HarperBusiness, June 2001).

Marina Hatsopoulos

CEO > Z Corp. > Burlington, Massachusetts

The economy has slowed dramatically, but our company is still growing fast — up 30% this year. That's because we solve a tangible, high-impact problem: How do companies shorten their product-development cycles by quickly generating physical models of new designs? We're just one example of a reality that's easy to ignore in this downturn: If you're building a product or delivering a service that solves a real problem, you can do well and grow fast — even in a difficult business environment.

It's a simple point that's easy to forget. Internet-enabled business is like any other business: To be successful, you must have something that no one else has. You need superior technology, but you also need a demonstrable advantage over any competing method of doing business. Differentiation matters, especially to customers with real problems.

That's what we've done. My company has commercialized a printer that builds three-dimensional models automatically from a computer. It's the fastest and cheapest way to get physical prototypes to designers and engineers. That's our promise. In today's economy, every new technology product needs to be justified before it can be purchased. We try to help our customers see that even though our printers are new and visionary, they're practical and applicable to existing processes. With so much pressure to reduce time to market and to produce increasingly complex devices quickly, we are selling into a real need: the opportunity to cut costs and generate revenue more quickly. That kind of logic works in any business environment.

Marina Hatsopoulos (marina@zcorp.com) has degrees in mathematics and music from Brown University and a master's degree from MIT in mechanical engineering. She spent her early career on Wall Street. In 1994, she visited the MIT Technology Licensing Office with the goal of finding a technology to commercialize. There, she discovered 3-D printing. She licensed the technology, and Z Corp. was born.

Dean Kamen

President > Deka Research and Development Corp. > Manchester, New Hampshire

Remember the elevator pitch? People used to tell me that if you can't explain your idea in the span of an elevator ride, then it's not a good idea. My answer? If I have an idea that I could explain completely in an elevator, it ain't much of an idea.

Two years ago, I expected too much, too fast. I thought that the Internet would be applied quickly and dramatically to the dissemination of knowledge and truth worldwide. On second thought ...

In reality, many serious and intelligent people knew that the Internet was an incredibly powerful tool — they just didn't know how to use it. They treated the Net the way a 5-year-old boy would treat a bulldozer. They were digging holes because they could.

The Internet has been a toy — until now. This year marks the year that people finally get back to the business of differentiating between get-rich-quick gimmicks and real achievements. A year after the dotcom fallout, many people have started to figure out what should be done with the Internet — not simply what can be done with the Internet.

One idea that I'm tinkering with is distributed electricity in the developing world. I'm working on a box that could burn any local fuel — anywhere in the world — so that electricity and clean water would be readily available to everyone, without placing a larger burden on the environment. And for the record, it's an idea that can't be fully explained in one elevator ride.

Dean Kamen (contact@dekaresearch.com) holds more than 150 patents. He is the creator of "Ginger," the still-secret invention that has attracted worldwide speculation. Kamen also oversees FIRST (For Inspiration and Recognition of Science and Technology) , an Olympics of smarts for kids. Last year, he received the National Medal of Technology.

Andrew Ross

Professor and Director > Graduate Program in American Studies, New York University > New York, New York

It's rare in history for workers to romanticize the workplace. But that's what many people did during the dotcom glory days. There was a new mentality largely defined by what I call the "industrialization of bohemia." The office was reimagined as a giant, multipurpose playroom for an ever-shifting team of workers. There was an ethos that preached the leveling of workplace hierarchies and liberation for workers from bureaucratic constraints. The office came to represent the place where our identity was to be most deeply felt.

Now there's a certain normalization of the workplace — a chance for people to slow down. As an advocate of the labor movement, I hope that we will see a more humane workplace in the future. By that I mean a company culture that not only embraces some of the ideals pioneered in the past few years, but encourages balance as well. People shouldn't regard their jobs with dread or dullness. But they also shouldn't fall in love with their jobs; that level of personal investment isn't healthy.

There's also an opportunity for a new kind of modesty. People have to realize that attributes that we consider virtuous in our business culture often come across as arrogant elsewhere. In the future, I hope our behavior is more sensitive to how cultural ideas translate around the world. Ultimately, any crisis or setback should be regarded as an opportunity to build in completely innovative ways, rather than simply to shore up and bolster the old — even if the old was meant to represent entirely new ways of working.

Andrew Ross (andrew.ross@nyu.edu) is on sabbatical from New York University. He is conducting an ethnography of Silicon Alley workplace culture. Ross is the author of several books, including The Celebration Chronicles: Life, Liberty, and the Pursuit of Property Value in Disney's New Town (Ballantine, 1999).

George Conrades

Chairman and CEO > Akamai Technologies Inc. > Cambridge, Massachusetts

It turns out that Internet mania served a purpose: It scared the hell out of a lot of traditional companies and forced them to pay attention to the impacts of digital technology. The dotcom craze was a bunch of hype that encouraged real change.

Today, big traditional companies don't worry about startups who claim that they're going to change the world. But they do worry about other big traditional competitors with great e-commerce capabilities. I'm excited that good old-fashioned enterprises are adopting the Internet to run their operations cheaper, faster, and better — to make dramatic change.

The impact of that change has nothing to do with technology, though. It's about relationships. Big companies are turning in part to the Internet because of its emerging standards for data and its ubiquitous connectivity. They are working to create platforms for truly rich information exchange — anytime, anywhere. When you have that, you can drive deeper relationships with customers, business partners, and suppliers. In a ferociously competitive environment, success comes down to relationships.

George Conrades (conrades@akamai.com) became chairman and CEO of Akamai Technologies Inc. in April 1999. He also serves as a venture partner at Polaris Venture Partners. Prior to joining Polaris, he was a GTE executive vice president and president of GTE Internetworking, following the company's acquisition of BBN Corp., where he served as CEO.

Alice Miles

Senior Vice President, Global Customer Collaboration > Covisint > Southfield, Michigan

At Covisint, we deal with some of the biggest companies in the world. Two years ago, at the height of the Internet boom, the amount of time that it took to get those companies on board for an Internet-enabled venture seemed daunting. Now it seems brilliant. By taking our time and developing a clear set of goals, we were able to ensure that the big players in the auto industry were committed to this venture. Sometimes slow and steady does win the race.

At first, the concept of an online exchange for the automotive industry wasn't well understood. Many people saw it only as a virtual auction house for parts, because auction tools were the first tools available. But from the beginning, we intended to offer something richer and more robust — a range of collaborative online tools for the industry. We're striving to set standards for how the auto industry will use the Internet in the years to come.

When we formed Covisint, our biggest fear was that the giants of the auto business would be unable to work together. But even traditional rivals have come to see the value in setting standards for supplier relationships that will help everyone. Why should suppliers pay for inefficiencies in such basic processes as filling a purchase order? If companies can agree on a single standard, the process becomes more streamlined. Everybody wins.

What hasn't changed in the past few years? It is my belief that doing business on the Internet will not be something separate, something apart from the mainstream. It will simply be the way business is done. Think about your personal life. If someone came to your house tonight and tried to take the Internet away, you'd stand in the doorway. It's become a part of who we are. That's true for business as well.

Covisint LLC (www.covisint.com) was founded on December 8, 2000 by DaimlerChrysler, Ford Motor Co., and General Motors Corp. The company intends to improve the effectiveness and efficiency of product development, procurement, and supply-chain management for the automotive industry. Since its founding, Covisint has been joined by PSA Peugeot Citroën, among others. It operates headquarters from Southfield, Michigan; Tokyo; and Amsterdam.

Yair Landau

President > Sony Pictures Digital Entertainment > Los Angeles, California

The Internet is the dominant form of interpersonal communication for this century and beyond. Yes, there has been a tech fallout, but the Internet is not any less a part of our lives than it was two years ago. It's a bigger part of it. It drives the way we communicate.

Right now, email and instant messaging are the two killer apps for the Net. So the next big challenge is to figure out what will drive the Internet's utility in our day-to-day lives to an even higher level. I believe that digital-entertainment distribution is part of that. But it may not arrive tomorrow. A critical component in making digital distribution the dominant vehicle for entertainment will be how many folks can connect via broadband and how soon we will have broadband connections to devices other than PCs. I think it will be 5 to 10 years before we see these things.

But we know that people are hungry for digital entertainment delivered over the Net. Napster has taught us a couple of things. First, people will consume a digitally distributed product even if it's in an imperfect form. MP3-level music is inferior to CD-level, but people consumed it because it was free. Now MP3 has become a de facto standard. Second, people want to consume content on the Internet. Napster validated the idea that the Internet can be an entertainment delivery vehicle.

Today, the two huge challenges are structural (broadband penetration) and strategic (the growth of pay and subscription models) . We're very much in the infancy of this technology and this industry, but it's coming. There is a whole generation of audiences that view the PC as their primary communications and entertainment device, not their secondary device.

Yair Landau became the president of Sony Pictures Digital Entertainment in March 2000, when the unit was created. Its mission is to supervise digital production and distribution, as well as computer-generated imaging of content for online motion-picture, television, and PlayStation audiences; to develop new forms of online content; and to produce digital content and services for broadband networks.

José E. Feliciano

Former CFO > govWorks Inc. > New York, New York > Associate > Special Value Investment Management LLC > Los Angeles, California

What a year! I feel as if I should walk around in a T-shirt that says, "I Survived 2001." In January, I watched the closure of govWorks. It was a concept, an idea, a company, and a passion to which I had dedicated nearly two years of my life. Watching it melt away was a huge disappointment. I was CFO of a startup that raised nearly $60 million and still did not make it.

How do I make sense of it? I still believe in the disruptive impact of technology on how business works, how companies organize, even how governments deliver services. What I no longer believe is that technology alone is powerful enough to displace long-standing incumbents. In that sense, govWorks was too ambitious. We clearly underestimated the time needed for governments — or any other entity, for that matter — to adopt a new technology and integrate it into their existing operations. I also learned that you can't take for granted your employees, customers, competition, and, as many of us found out, your sources of capital.

It's been a humbling year, but I haven't given up on the promise of long-term change. Now is the time for smart, forward-looking investors to reevaluate companies and get back in the game. I'm especially interested in companies that are currently out of favor, distressed, and even bankrupt, because there's a lot of value to be unlocked in many of them. And in a couple of years, we will see the benefits of the massive infrastructure buildout of the past five years.

Like many of my peers, I'd say that this has been the most difficult professional environment that I've ever faced. But I'm too young to be embittered. I'm only 28. By going through an experience that in many ways can be classified as a failure, I grew up — fast.

José E. Feliciano (jose@tennenco.com) joined Special Value Investment Management LLC, a Tennebaum & Co. affiliate, last April. Now defunct, govWorks's rise and fall was immortalized in the documentary film Startup.com.

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