The New New Thing: A Silicon Valley Story

by Michael Lewis

  A few people sensed exactly how potent Clark was once he’d spun himself out of Silicon Graphics. The venture capitalist Dick Kramlich assigned a young man named Alex Slusky, whom he had just hired out of the Harvard Business School, to follow Clark wherever he went. “I told Alex to sleep under Jim’s bed if he had to,” recalls Kramlich. “Jim’s a revolutionary, you know. He’s out to revolutionize whatever needs to be revolted against.” Slusky was a bit like one of those janitors at the Institute for Advanced Study in Princeton who trailed around after the aged Albert Einstein and took down his random scribblings on the off chance they turned out to be important. His job was to stick to Clark and take notes. When Clark finally decided on his next venture, Slusky was to insist that Dick Kramlich at New Enterprise Associates be allowed to buy a piece of it. “Dick was a little unusual in this view,” says Slusky. “Some of his partners didn’t want to have anything to do with Jim Clark. They thought Jim Clark was a bit of a crazy guy.”

  But Slusky did as he was told. After four years at Harvard University, two at the Harvard Business School, he found himself dining with Clark two or three nights a week. Slusky was small and mild mannered and polite as a choirboy. He was unused to grown men flying into rages for no apparent reason. He listened to Clark rant about Ed McCracken, moan about Glenn Mueller, and think out his next move. At first Clark believed that the Orlando project might end well. He tried to buy the rights to the operating system from Time Warner, and set himself up as the Microsoft of the new technology. Time Warner declined to sell. Next Clark talked about creating new applications for the telecomputer—there was a lot that could be done with the device, once a lot of people owned one. To do that he needed young software talent, and to that end he called a twenty-two-year-old not long out of the University of Illinois and new to the Valley named Marc Andreessen. Clark had seen a piece of software that Andreessen had helped write in college, called Mosaic. Mosaic enabled its user to travel around the Internet. Why anyone would wish to do so was at the time unclear.

  About the first thing Andreessen said was that he didn’t want to make a business of Mosaic. Clark didn’t care. His ambition was more inchoate than that. He needed to find some more software cowboys to replace the ones he’d left behind. “I was desperate to find some smart engineers because I knew I wanted to start a company,” he says. “And Marc knew a bunch of them from school.” For the next month or so Alex Slusky ate his dinners with Jim Clark and Marc Andreessen. Clark would spew ideas; Andreessen would jot them up in a business plan. Almost all of these ideas assumed the telecomputer under construction in Orlando, Florida, was the future. After all, Time Warner said it would spend five billion dollars to make it happen. By that point every big media and software company in the United States was intoxicated by the idea. Even if people weren’t quite ready for the technology, the technology would be forced upon them. This wasn’t the Kitchen Computer.

  Then one day, as Andreessen and Clark sat at Clark’s kitchen table, Clark announced that he’d changed his mind. This wasn’t unusual: Clark was always changing his mind. Now he said that his telecomputer was ahead of its time. It was too expensive to build. “We could always build a Mosaic killer,” said Andreessen. “What do you mean?” said Clark. Andreessen said that the software he’d written had been appropriated by the University of Illinois but that he felt sure the university would bungle any subsequent attempt to commercialize it. He mentioned again that 25 million people were now using the Internet, and that their numbers had been doubling every year for a long time. Clark recalls, “I thought, Jesus, those are big numbers. I’ve never been in a business with those kind of big numbers. Eventually you were talking about all the people on earth.”

  The whole time he’d been stewing with Andreessen about what to do, the solution was right in front of them. The Internet. “All of a sudden it was clear to me when I looked at the Internet that I was looking at the personal computer in 1985,” Clark says. “It was this slow clunky technology, but people were using it. And it would get faster. I realized that this was the thing I’d been groping for.” He and Andreessen hired Andreessen’s college buddies who had written the code for Mosaic, which permitted a user to browse the Internet, and Clark had yet another team of young engineers to lead into battle. He called the company Mosaic Communications, then changed the name to Netscape.

  This time Jim Clark was right. He was off and running down the dark tunnel with no end. Within eighteen months the world’s biggest technology companies realized they’d been trumped. Bill Gates sent a memo to his employees saying that the Internet now posed the greatest threat to Microsoft’s control of the computer industry. The one thousand Microsoft employees dedicated to building a telecomputer were reassigned to compete with Jim Clark’s start-up. Thousands of others at Oracle and Sun and even Time Warner were similarly redirected. “Jim put the whole of ITV out of business.” says Pavan Nigam. “Everyone at once realized that the next big thing was not the television set but the personal computer hooked up to the Internet.” If you page through his talk on the telecomputer, you can see just how chance favors the prepared mind. The presentation Clark made to his board back in 1992 is a fair blueprint for the Internet boom. All of the ideas (e-commerce, e-mail) and some of the technology he dreamed up for his beloved telecomputer were grafted onto the Internet.

  You have to sit down and think for a bit to realize what that means, not just for Clark but for anyone with the slightest interest in how economies and societies are nudged from one place to the next. A company dreamed up by a technical man a lot of big shots thought was slightly unhinged, with a twenty-two-year-old who didn’t want to do it in the first place, and another twenty-two-year-old assigned to sleep under his bed, did not become merely a success. It torpedoed investments of hundreds of millions by the world’s biggest corporations and putatively smartest minds—SGI, TW, Microsoft, Sun, Oracle, AT&T. Thousands of people had more or less wasted billions of dollars and, whether they knew it or not, had been following his lead. Then, just as they all ran as a herd in one direction, he took off in another. And within six months he made them all look like fools. It was one of the great unintentional head fakes in the history of technology.

  Soon enough, Clark’s opinions reached the venture capitalists on Sand Hill Road, who started calling and asking if they might invest in his company. Alex Slusky told Dick Kramlich that Clark was about to make his move—that he had invested three million dollars of his own money, a substantial chunk of his total worth, into the venture. Kramlich called Clark, and Clark said that this time any venture capitalist who wished to back him would do so on new, unprecedentedly harsh terms. He was valuing the newly named Mosaic Communications, which consisted of three million dollars of his money and seven new graduates of the University of Illinois, at eighteen million dollars. He would permit venture capitalists to purchase a stake in the new company, at three times what he had paid. Or, as he put it to Kramlich, “My dollars are worth three times what yours are worth.”

  This was about three times what Kramlich expected to pay. Kramlich called John Doerr, who worked a few yards up Sand Hill Road, hoping that Doerr might help him talk some reason into Clark. Instead, Doerr invited Clark to his office and gave him exactly what he asked for. His firm, Kleiner Perkins, purchased a 15 percent stake in Netscape that valued the company at $18 million, and left Clark still holding 25 percent of the company. “That moment,” says Alex Slusky, “was the defining moment for this period in the Valley. No engineer had ever cut such a deal.” (Clark, who had grown fond of the young man assigned to sleep under his bed, offered Slusky a job at Netscape. Slusky turned it down. “He was just too volatile for me,” he says. “I couldn’t live like that.”)

  Dick Kramlich, who came up empty-handed, was upset. But the venture capitalist up on Sand Hill Road who called Clark most often, and who sounded the most upset, was Glenn Mueller. Throughout March 1994 Mueller called Clark repeatedly and pleaded to be let in on Netscape. He apologi
zed for the way he’d treated Clark at Silicon Graphics. He said that he agreed with Clark. The Internet, not ITV, was the future. On April 1, 1994, Clark told Mueller for the last time that he would not be permitted to invest in Netscape. Mueller was calling from his sailboat, off Cabo San Lucas. He pleaded with Clark one last time, and Clark rebuffed him. On April 4, 1994, the day Netscape was incorporated, Mueller picked up a gun and shot himself through the head. He died instantly.

  It took a while for the people who thought they knew Glenn Mueller to find an explanation that put their minds at rest. Mueller’s wife let his colleagues know what they had not known, that he suffered from intense fear that people were out to destroy his business. In other words, he suffered from an extreme version of a mental disorder that many Silicon Valley tycoons prided themselves on, paranoia. The genealogy chart of Silicon Valley companies that decorated the walls of every office—Shockley spawned Fairchild, Fairchild spawned Intel, Intel spawned…) was a cheery face on a violent truth. The new companies often put the old ones out of business; the young were forever eating the old. The whole of the Valley was a speeded-up Oedipal drama. In this drama technology played a very clear role. It was the murder weapon.

  For the next few weeks, until the tragedy passed from people’s minds, a lot of people told Clark that Mueller’s suicide wasn’t his fault: no human being killed himself simply because he was shut out of a business deal. They did this because in the back of their minds they suspected that maybe Mueller’s suicide was Clark’s fault. And so did Clark. Two thousand people turned out for Glenn Mueller’s memorial service. Jim Clark read a poem he wrote for the occasion. Then he moved on and, maybe for the first time in his life, actually had to try to forget.

  It took a few years before Ed McCracken realized that he, too, would be excluded from the future Clark was inventing. But the process by which he was excluded began immediately. Six months after he founded Netscape, Clark agitated for the company to go public. The company had few revenues, no profits, and a lot of new employees. No one else inside the company thought it should do anything but keep its head down and try to become a viable enterprise. “Jim was pressing for us to go public way before anyone else,” recalls Marc Andreessen. It turned out there was a reason for this. He’d seen a boat called Juliet. He wanted one just like it, only bigger. To get it he needed more money.

  By then the decision was not Clark’s alone to make. The company had hired a big-name CEO, Jim Barksdale, and had a proper board of directors. Barksdale didn’t want to go public. He thought the company had enough problems trying to figure out how to turn a profit without having to explain itself to irate shareholders. But this time Clark had power, through his equity stake. He called a meeting to discuss the initial public offering (IPO), and stacked it with lawyers and bankers who stood to reap big fees from a public share offering and who were, as a result, enthusiastic about his initiative. At that meeting Barksdale finally capitulated. Eighteen months after Netscape was created, and before it had made a dime, Netscape sold shares in itself to the public. On the first day of trading the price of those shares rose from $12 apiece to $48. Three months later it was at $140. It was one of the most successful share offerings in the history of the U.S. stock markets, and possibly the most famous.

  There was only one explanation for its success: the market now saw the future through Clark’s eyes. “People started drinking my Kool-Aid,” says Clark. “Netscape obviously didn’t create the Internet. But if Netscape had not forced the issue on the Internet, it would have just burbled in the background. It would have remained this counterintuitive kind of thing. The criticism of it was that it was anarchy. What the IPO did was give anarchy credibility.”

  In the frenzy that followed, a lot of the old rules of capitalism were suspended. For instance, it had long been a rule of thumb with the Silicon Valley venture capitalists that they didn’t peddle a new technology company to the investing public until it had had at least four consecutive profitable quarters. Netscape had nothing to show investors but massive losses. But its fabulous stock market success created a precedent. No longer did you need to show profits; you needed to show rapid growth. Having a past actually counted against a company, for a past was a record and a record was a sign of a company’s limitations. Never mind that you weren’t actually making money—there’d be time for that later, assuming someone eventually figured out how to make money from the Internet. For the moment you needed to plow all of your revenues back into growth. You had to show that you were the company not of the present but of the future. The most appealing companies became those in a state of pure possibility. Which is to say that the U.S. capital markets acquired the personal predilections of Jim Clark.

  Another old rule that changed was the rule that the financiers who backed the company, and perhaps the CEO who steered it to success, made the most money and accumulated the most power. Anyone who bothered to read Netscape’s prospectus discovered a curious fact. The venture capitalists on Sand Hill Road and the new CEO, Jim Barksdale, owned a few million shares each. In the end they made hundreds of millions of dollars from Netscape, and so had no reason to complain. But the young engineers whom Clark had pulled together to create the company also became rich. An engineer who joined Netscape in July 1995 was, by November, worth ten million dollars. Clark made certain that Marc Andreessen, the young inventor, did not suffer the same fate at the hands of the venture capitalists as he himself had twelve years before. After the IPO Andreessen, by then twenty-four, was worth eighty million dollars.

  Clark also made certain that by far the biggest stake in the company—nearly one-quarter of the whole—belonged to Jim Clark personally. Clark became the Valley’s newest billionaire.

  The speed with which Clark had made himself and a lot of other engineers rich created new forces of greed and fear in Silicon Valley. Microsoft was twelve years old before people started talking about Microsoft millionaires; Netscape was one and a half. Up until then the typical engineer’s decision about where to work turned on old-fashioned considerations, like salary and benefits and the inherent technical interest of the work. Suddenly, all of these were overshadowed by stock options. The engineers who went to work for Netscape were no different from you. And yet…they—not you!—were getting rich. Worse, they were the B team. The A teams of engineering had been, in general, too well treated by their companies to take a flier on what appeared, from a distance, a doubtful new venture. Netscape ushered in an age of doubtful new ventures. Whether he liked it or not, every day he went to work the engineer was making a huge financial gamble. Silicon Valley laid itself out before him like one giant high-stakes roulette table, and the engineer had to decide on which number he should place his services. Guess wrong and he’d miss the boom; guess right and he’d be rich.

  Most people don’t enjoy making huge gambles on the future. They would just as soon have someone else tell them what to do. And that is what Jim Clark did. From the moment Netscape made him a billionaire, he acquired a new form of power: the power of being Jim Clark. Half the engineers in the Valley wanted to work for whatever company he started, on the assumption that if anyone was going to predict the future it was Jim Clark. All Clark had to do was announce how he next planned to invent the future, and huge sums of money and vast reservoirs of engineering talent came pouring in, intent on proving him right. The question was: What would he do next?

  In late 1995 a lot of Silicon Graphics engineers were asking that question. The company had the smartest engineers, and the smartest among them had just wasted two years of their time and hundreds of millions of dollars. From the moment Netscape went public, Silicon Graphics was officially unwell—a company of the past rather than the future. The company’s stock peaked at $44 a share the week after the Netscape share offering and then fell steadily for the next four years, right down to $8 a share. In 1997 Ed McCracken was fired from Silicon Graphics. He left Silicon Valley and took a job running a foundation in upstate New York. Many of the
people who thought him a genius just a few years earlier now thought him a fool. “At the time I thought Jim was just brutal with Ed,” says Dick Kramlich, who negotiated McCracken’s golden handshake. “Now I think Jim was just right.”

  A lot of the engineers at Silicon Graphics promised themselves that whatever Jim Clark did next, they would do it with him. Word spread that Clark was off building a new boat. A boat! His boat is where he always went when he was stewing on the new new thing! His old friend Forest Baskett, who had followed Clark from Stanford to Silicon Graphics, received a phone call from Clark. It was late 1995, just after Netscape went public and Clark became the Valley’s newest billionaire. Yet Clark did not sound satisfied. He sounded agitated, the way he did when something came between him and what he wanted. He wanted to talk to Forest about his new boat. As it happened, Forest had introduced Clark to sailing in the San Francisco Bay. Now, just a few years later, Clark was trying to figure out whether the boat he wanted to build could fit into the San Francisco Bay.

  “Forest,” he asked, “how high is the Golden Gate Bridge?”

  6

  The Boom and the Mast

  Once a month, sometimes more often, Clark would crawl out of bed at four in the morning, drive down to the private air terminal in San Jose, California, climb aboard his new jet, and fly to Amsterdam. The plane couldn’t make it without refueling. At some point he had discovered a strip of tundra north of the Arctic Circle with a tiny village that consisted of not much more than a tarmac, a gas pump, and an emergency medical station for Eskimos. He’d dive down out of the sky, pull up next to the pump, pull out his American Express card, buy two thousand gallons of gasoline from an Eskimo, and shove off. Once he arrived in Amsterdam, he’d drive an hour and a half north to Wolter Huisman’s boatyard in Vollenhove. Vollenhove felt only slightly less remote than the Eskimo town.