The New New Thing: A Silicon Valley Story

by Michael Lewis

  Since all of the important problems on the boat, with the exception of who had sex with whom and how well we ate, were routed through the computer, this thought was not terribly reassuring. At length Clark decided he could not get what he wanted out of the computers on the bridge. “Let’s go downstairs,” he said. We did.

  Once they were seated in front of the Silicon Graphics work station built into the wall of his cabin, Clark’s conversation with Steve vanished into a black hole of arcana.

  “This negative number is very strange,” said Clark.

  “The MSB is in units of 10,” said Steve. God knows what it meant, but that’s what he said.

  “But you see here—it keeps flipping back to a large negative number,” said Clark, punching a button. “Which causes me to be suspicious that it’s not in our code.”

  None of this made any sense to anyone who had not programmed the computer. But the general drift was now at least clear to me: the problem might be not in the engine but in the software that controlled the engine. Clark thought that the crude computers attached to the engine—known as PLCs, for programmable logic controllers—could be transmitting bad data to the fancy Silicon Graphics machines in the computer room. He thought that the computers had wrongly perceived something wrong with the engine, and so switched the engine off. A problem in the software implicated Steve, but only in a general way. The PLCs had been programmed by some Dutch guys back in the boatyard. The programming of PLCs was meant to be trivial, which was why the job had been left to the Dutch guys in the first place.

  Steve and Jim were well on their way to a long, baffling conversation about the boat’s software, but before they could get there the engine started up. The boat stopped pitching madly. It cut with renewed purpose through the sea. The engine, it seemed, had a mind of its own. Then Robert appeared with a sneaky smile on his face. All by himself, without telling anyone, he’d woken up, clambered down to the engine room, blown out the sea chest, and started up the engine. Now, however, he conceded that he could not swear he had fixed the deeper problem, since he was not sure what the deeper problem was. But at least the boat was running again. Clark and Steve returned to the bridge; this time Robert followed.

  Up top, in front of the four big computer screens, Clark complained about the state of his art. “Steve, something is really fucking these computers up,” he said. Steve muttered something about there being a lot more work to do. Clark then hit the button that pulled up the map of the world, with Hyperion on it. Its accuracy had actually slipped since the trials in the North Sea. The boat appeared on the map as a blue scaphoid. At that moment, according to the computer, we were cruising just north of Yemen. Clark just stared at the screen as his yacht crept across the Saudi Arabian desert. “Fuck it” was all he said.

  Even he was too tired to think about what it might mean. In any case, he was soon distracted by other problems. On each side of the bridge were the radar screens that let us know if we were about to be plowed under by Filipino monkeys. The radar screen on the left began to blink, like a faulty light bulb. All the other pieces of equipment, along with the data they generated, had been stuffed away in cabinets, where they played the bit part of sending data directly to the computers. Clark’s software acted as a kind of operating system through which every other instrument must connect; he had played the same sort of trick on the manufacturers of sailboat equipment as Microsoft played on the entire software industry. The radar was the lone exception. The radar was the only instrument Clark had neglected to subsume; he just never quite got around to doing it. When he saw the blinking radar, Clark’s shoulders sagged. The radar had been his responsibility. “I guess I created that problem,” he said.

  It was now well past three in the morning. No one wanted to bother with yet another computer problem. The engine was running fine. Robert was obviously exhausted. Still, he could not hide how pleased he was by his response to a potential crisis. “Had we been in the Straits of Gibraltar with an oil tanker coming towards us,” he said, “we’d have been all right. I had that engine running in five minutes.” He headed off to rescue sleep from the two hours before our watch. Steve wandered out on the aft deck and gazed up at the world’s tallest mast. He noticed how much it resembled an endless chain of crucifixes that reached up, and finally vanished, into the starry night sky. “You could hang huge statues of Jesus from each spreader, and it would look like a Mexican pickup truck,” he said. With that he stumbled over to one of the computer screens on deck—the one Allan sat in front of but ignored—and stuck a yellow Post-it sticker on its surface. It read, “Allan: I fucked up the longitude program. We are not in the Arabian desert. Steve.”

  Then he, too, went back to bed. Clark soon followed. It was nearly four in the morning. After three hours of struggle Hyperion was once again pointed south. The two men who fully understood the computer, and the one man who fully understood the engine, had exhausted themselves. At no point did it occur to any of these technical people to wake Allan Prior. Through it all he had slept soundly. In a technological crisis, the captain was plainly of no use. And all crises on board Hyperion were now technological.

  16

  Chasing Ghosts

  The morning after the engine failed, the seas were unusually calm. For the first time since we’d left the Canaries, the sun shone bright and hot. Normally, there weren’t more than two people on the bridge. Everyone who wasn’t on watch either ate or slept, or tried to. That afternoon was an exception. Simon and Jaime and Celcelia swabbed the decks. Steve hunted for the bug that might have disturbed the engine. Robert nosed around in the kitchen cupboards, and then disappeared down into the bowels of the ship. It was as if each person on board had offered himself a fresh start. Someone spotted a school of porpoises gamboling in the bow wake. Even Clark, in a brief but failed stab at genuine enthusiasm, came up top to see.

  “Hyp 4 is talking to Hyp 19,” said Steve, hunched over a computer and trying to find the bug that generated the numbers that made no sense. Each of the twenty-five computers on board had been assigned a number. According to Steve they had already acquired their own personalities—a trait that did not bode well for the Home of the Future. Now two of the more troublesome were speaking to each other.

  “What?” said Allan, disinterestedly two seats away. He wasn’t listening. He was reading intently from another computer screen.

  “There is something funky going on here,” said Steve.

  Allan continued staring into his own screen. Finally, after Steve had ascertained he was being ignored, and gone back to the mystery at hand, Allan looked up. He said, with the satisfaction of a man at the end of a long day’s work, “@Home just bought Excite.” Long pause. “That’s all right.”

  “Really?” said Simon, the computer deckhand, who was passing through. “What did the stock do?” He was interested.

  “That’s all right!” exclaimed Allan, again, more to himself than to Simon or Steve. He hit a few buttons on the keyboard he had hooked up to the computer. He was recalculating the value of his portfolio of highly volatile technology stocks.

  This turned out to be why Allan occasionally could be found, rapt, in front of a computer screen. Twice a day, once at noon and again at seven in the evening, he logged onto the Internet through the satellite phone. The satellite phone on board Hyperion had the mysterious authority of the conch in Lord of the Flies. It cost either twelve or twenty dollars a minute, depending on which crew member quoted you the price. Its time was precious, except, of course, when Clark used it. Even in mid-Atlantic, Clark spent hours on end on the phone, talking to journalists about Healtheon, to friends who wanted him to invest in their new Internet start-up, to anyone he thought might divert his mind from the tedium of the ocean crossing. For everyone else but Allan the satellite phone was off-limits. The captain’s control over it gave him his one real source of power, the power to determine what news came on board, and when it came. When Allan logged on, he pulled down three clumps of digit
al data precious to the crew: e-mail, the weather forecasts for the middle of the Atlantic Ocean, and the news from Wall Street.

  All in all, this took him about four minutes. In those four minutes Allan sat rapt before one of the five flat-panel display screens on the bridge. It was the only time you ever saw him volunteer his attention to a computer screen, and the event clearly meant something to him. His shoulders tensed; then he swiveled in his high captain’s chair and punched several buttons. One button sent the e-mails to their various recipients, another sent the closing prices of stocks in his portfolio to a separate screen, a third sent financial analyses and the weather forecasts to the printer. He then turned fully around in his chair, opened the mahogany drawer with the printer inside of it, and grabbed the financial analyses. The weather forecasts presumably could wait.

  That day @Home, the company that sought to deliver the Internet into American homes through the pipes owned by cable television companies, had announced it would be acquiring Excite, the Internet portal company. Excite’s stock price had jumped forty-two points; @Home’s had leaped six points. Clark had helped create @Home and talked Tom Jermoluk, his old friend from Silicon Graphics, into running the company. By shrewdly following Clark’s interest, Allan had purchased shares in @Home; by shrewdly following Allan’s movements, Simon had done the same. Clark had sold his shares, and made forty million dollars. Not Allan and Simon. They had held on. That was their strategy.

  Broadly, there are two types of stock market investors. The first might be called “value” investors. Probably the most famous set of rules for value investing were those laid down in the 1950s by Benjamin Graham and David Dodd. Graham and Dodd investors subject companies to careful analysis. They derive their sense of the fair value of a company’s stock price from its profits. A company with no profits holds no appeal for a Graham and Dodd investor. As a result, no committed Graham and Dodd investor ever bought an Internet stock. Graham and Dodd investors are people who place a very high value on having the last laugh. In exchange for the privilege they have missed out on a lot of laughs in between.

  Hyperion was no place for any Graham and Dodd investor. Graham and Dodd’s classic text sat unread on the galley shelf, a tribute to some aborted attempt at serious financial analysis. The investors on board during our crossing fell into the second broad category, kamikaze investors. Kamikaze investors treat the market as more of a guessing game. They follow hunches, charts, rumors, and tips in an endless pursuit of the hot stock. Their view of the stock market is essentially mystical or, at any rate, impervious to analysis. To the kamikaze investor no price is too high to pay for a stock, because it can always go higher. They rely heavily on the giddiness of others.

  Allan was a species of kamikaze investor. Until he met Clark two years earlier, and Clark gave him options in Netscape, Allan had never invested in the stock market. But Netscape got him interested, more than interested. Soon he had bought shares in Cisco, @Home, Intel, Lucent—the list was as long as his arm, and most of what was on it had soared on a wing and a prayer. But Allan proved to have a wonderful touch: everything he bought went up, all the time. The exception had been the few months in the late summer and early fall of 1998, when the stock market collapsed. But from about the time the Microsoft trial opened, the market had soared. Deals were once again being done; IPOs were once again roaring. The combination of @Home with Excite, which valued the loss-making Excite at nearly $7 billion, was just another case in point. What Allan saw when he gazed into the computer screen were the rewards that came to a man who waited for his moment. They were the fruits that fell into the hands of the fellow who refused to budge from beneath the tree.

  For Captain Allan Prior, the effect of the brief market collapse, which had doomed Healtheon’s IPO, was probably not very different from its effect on the millions of other Internet investors. It convinced him of the wisdom of his ways. Like most small Internet investors, Allan had clung to his portfolio of Netscapes and @Homes and Excites and Ciscos right through the crash. That portfolio, accumulated over the past eighteen months in a Dutch boatyard, was now worth three times what it had been just a couple of months ago. This proved to Allan that he should never sell the stocks he’d bought. No matter what the market did next, Allan maintained, he intended to hold on to his portfolio. Allan confined himself to one investment decision: whether to buy shares in a new company when it went public. Oddly enough, he never intended to act on information he dug up about his investments. This did nothing to allay his interest in the information. In the middle of the Atlantic Ocean he pored over downloaded documents like a man perpetually on a hair trigger.

  Many of the crew of Hyperion, in the spirit of their captain, had also become kamikaze investors. All of them owned shares in Netscape and Healtheon; a few of them owned shares in other Silicon Valley companies; Allan Prior owned them all. The frustration of selling too early was as alien to them as it was to their captain. They, like millions others like them, believed the future would be better than the past. This happy mood was what egged Clark on in his quest to invent that future.

  Today they saw for the umpteenth time the brilliance of the strategy. Cisco, another of their favorites, was up more than three points. AOL was up, too. Lucent was up again; it had quadrupled in the eighteen months since Allan first discovered it. Indeed, every single stock into which Allan had plunged was up big.

  “The problem with investing in the U.S.,” said Allan, still talking mainly to himself, “is the capital gains tax.”

  “They get you even if you aren’t a U.S. citizen,” said Simon, knowledgeably.

  I asked Simon how he made his investment decisions. “I just take Allan’s advice,” said Simon, causing Graham and Dodd to perform a pas de deux in their graves. “He’s been right most of the time.”

  “Most of the time,” said Allan, somewhat modestly. He’d told Simon to buy @Home when @Home was at 25. Today the stock had reached 57.

  “Except on eBay,” said Simon.

  “eBay!” exclaimed Allan. “Should have done that one.” eBay had gone public a few months earlier. Since then it had gone from 10 to 215.

  “But imagine the capital gains tax if we had!” said Simon.

  “It is unfair,” agreed Allan, “but…still.” He looked at his printout. His newly recalculated wealth appeared to diminish his sense of being done wrong by the U.S. government. The truth was, since Allan never sold, the U.S. capital gains tax was to him more a theoretical than a practical problem.

  “I don’t really see the point of selling,” he said.

  The remark caught Steve’s attention. Steve was a day trader. “Day trader” was one of those phrases popularized by the Internet, which made it cheaper and easier and less embarrassing (since, like masturbation, it typically was a purely private act) for people to buy and sell the same stock in the same day. As a confirmed day trader, Steve enjoyed looking for patterns in stock prices and thought the market often offered these up to anyone willing to watch. “Netscape used to go through a regular cycle,” Steve explained, without looking up from his screen. “You’d buy it at 20 and sell it at 28. There was nothing to it, really.”

  “Netscape used to be the dog of my portfolio,” said Allan. “Now…” He gazed down the long page listing his portfolio…he’d bought Netscape at 44…it had plunged to 17…but now…

  “It’s all right!” he said. Not as all right as the portfolio, but then the portfolio is up 300 percent.

  For the next half hour or so, until Robert wandered up from the engine room, the computer programmer and the deckhand and the skipper of Hyperion dwelled on the miracle of Internet investing. Then Robert appeared, and Allan found something else to do. “I think they are all mad,” said Robert, after Allan had left. “Allan just sits there all day thinking about his money. But if you ask him what any of these companies do, he has no idea. He wants to be rich. But he’s not logical about his money.”

  That night the engine quit again.

>   It happened at nearly the same time as before, around two in the morning. Once again Jaime, Peter, and Celcelia were on watch; once again Clark, Steve, and Robert came out of their berths to cope with the problem; once again the captain was left to sleep. The only difference this time was the level of frustration on Robert’s face. He’d spent the better part of the day searching for whatever had caused the engine to fail the night before. At some point he decided that he must have fixed it. “Every engineer will tell you,” he said, “that it is much harder to find what’s wrong with a machine when it seems to be working. It’s called chasing ghosts. I spent all day chasing ghosts.”

  This time Robert did not tarry on the bridge with Clark, who, once again in God Mode, sat punching buttons on the computer screen. Instead, he went immediately down two sets of stairs to the engine room. The engine room was the only place on board to which no thought had been given about the comfort of the people inside it. It was hot. It was loud enough that Robert needed ear mufflers. But it was as tidy as any place on the boat, maybe tidier. Robert’s tools hung neatly in their racks, and his dirty cloths were piled primly in a can outside. “A good engineer has to be orderly,” Robert shouted over the roar of the machines. “If I died tomorrow, someone else could come into my world and pick up where I left off—because there is a logical way of doing it. A structure.” He paused. “If you want to be a good engineer you have to be willing to be replaceable. This whole ‘I’m irreplaceable’ thing drives me bloody nuts.”