Network Effects

Would he ever! Jurvetson and his partners understood that Third Voice was unlike anything they had ever seen. If Hotmail was like Internet flu, and ICQ, with its omnipresence on a browser, was like chicken pox, then Third Voice resembled an Ebola virus -- a species-threatening event that could change the entire nature of the Web experience. And Third Voice had the potential to spread faster than anything they had ever imagined. How? When a user wants to direct a friend to a comment on a Web page, Third Voice's software generates an email that includes a link to the page. If the recipient doesn't have the software, a click on another link (à la Hotmail) takes that person to the Third Voice site, where the 300-kb program is downloaded in less than two minutes. Now that's viral marketing.

Then, after the software installs itself, it asks permission to import the user's address book from Microsoft's Outlook Express, Eudora, Netscape Navigator, or a number of other email clients, and like ICQ's buddy lists, the software immediately creates a new network of potential users. And the more people who use the service, the more valuable it becomes, because more user-generated postings are available to read and more communities are created around different Web sites. Which, in turn, means that more people tell their friends about Third Voice, and it gets bigger and bigger. Now that's network effects.

And that's why it took DFJ only a week to agree to come in as an investor, along with Mayfield Fund, which Eng-Siong had already brought on board. That's also why the very idea of Third Voice strikes fear into the virtual hearts of so many Web companies.

But the controversy is of no concern to Eng-Siong this morning. Two weeks after the company was launched, all he can think about is the rate at which his service is spreading. The numbers from the United States are looking good. Internationally, Singapore was already lit up, thanks to the personal networks of most of Eng-Siong's staff. Australia seems to be coming along nicely. But the country where Third Voice is growing the fastest is Germany -- which its founders find strange, because the entire site is in English, and, needless to say, English is not the first language of most Germans. But they do speak the language of network effects, and in the new economy, that's the language that matters most.

"It's been unbelievable," says Jurvetson. "Of the consumer-oriented Internet business plans that we see, perhaps 70% of them explicitly talk about their viral-marketing strategy. You could argue that they're using that term because they're just trying to suck up to us. But I'm pretty convinced, based on how deeply embedded this idea is, that they're sending these plans to every venture firm -- which means that they're really thinking about it. It's bizarre. The idea itself is spreading like a virus."

Net Future Value

Eight o'clock, Monday morning, on Wall Street: Scott Reamer has just returned to his cluttered office over-looking the East River, after SG Cowen's morning call. During that phone meeting, Reamer announced that he's initiating coverage of TheStreet.com Inc., the financial Web site founded by the flamboyant hedge-fund manager James Cramer and by New Republic owner Martin Peretz.

It's now June 7, 1999: 27 days after the Street's bottle-rocket IPO -- a period that has seen the stock go public on May 11 at $19 per share, soar to as high as 71 in its first day of trading, and tank to 29 at the market's close on May 28. On page C-1 of this morning's Wall Street Journal, the company has the dubious honor of being featured in a story titled: "IPOs Fizzle, but That Could Actually Be Good." Reamer's not spooked by the volatility. He's opened his coverage with a "buy" rating and put a $45 target price on the stock.

Reamer has been in his office for only a few minutes when the phone calls start pouring in from SG Cowen's sales force -- the people who sell stocks to institutional investors, such as Alliance, Fidelity, and Janus. The reps want to know what's going to move the stock over the next few weeks. Reamer runs through a list of positives: media partnerships with the New York Times and Fox, a demographic where 40% of the subscribers have incomes of more than $200,000, and a hybrid business model that combines subscriptions with advertising and sponsorship revenues, commerce fees, syndication fees, and corporate intranet deals.

"Yeah, sure, when they started out, I thought it was all about Cramer's ego, too," he tells one caller. "But this is a real business, and they're being very smart about it. They are in for the long haul."