By Anthony Perkins
From the December 1999 issue of Red Herring magazine

When we int…

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By Anthony B. Perkins
From the June 1994 issue of Red Herring

Larry Ellison enjoys the celebrityhood his billion-dollar leap to the top of the information management software industry has earned him. You can see it in his eyes.The Herring waited patiently by Mr. Ellison's side as he graciously exchanged cordialities with a crowd of Oracle customers, emp…

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Mr. Peres was the prime minister of Israel from 1984 to 1986 and 1995 to 1996, president of Israel from 2007 to 2014, and a member of twelve cabinets in a political career spanning 70 years. As foreign minister under Prime Minister Rabin, Mr. Peres engineered the 1994 Israel–Jordan peace treaty and won the 1994 Nobel Peace Prize with Rabin and Yasser Arafat for the Oslo Accords.

From 1996 to 2006, I had the great privilege to meet up with Mr. Peres at the Annual World Economic Forum, where he would attend a party I hosted with Joe Shoendorf of Accel Partners each year. Joe and I firmly believe that Mr. Peres’s early advocacy of the Internet as ‘the new language for the world,’ oratorical brilliance, and his ability to inspire peace and entrepreneurial capitalism left an inedible mark on the fledging country he so loved and fought for his entire life. You can feel this spirit in our 1999 interview below. May God bless this extraordinary man’s soul.

By Anthony B. Perkins
From February 1999 issue of Red Herring

On the day we landed in Jerusalem, 250,000 Israeli protesters ended a prayer rally by declaring seven times that the Lord is God. The demonstrators were largely Haredi (fervently religious Orthodox Jews), including both Ashkenazim and Sephardim, and they carried angry posters about recent Supreme Court rulings that placed Reform and Conservative representatives on local religious councils, allowed kibbutz shopping on Shabbat, and enacted other laws that appear to be paving the way to the recognition of Reform and Conservative branches. But despite fears that some of the participants might recklessly try to break through police barriers and attack the Supreme Court building, the day ended in peace, to the relief of everyone we encountered.

The Red Herring was in Israel, in part, to speak with Shimon Peres, the former Israeli prime minister and winner of the 1994 Nobel Prize for Peace. Although Mr. Peres has been active in public life since the age of 16, he has recently taken a more businesslike approach to establishing peace in his region, with a specific emphasis on promoting science and technology. Excerpts from the enlightening conversation we had with him follow.

Perkins: You formed the Peres Center for Peace with the aim of advancing Arab-Israeli joint ventures. That is a rather novel approach to peace.

Mr. Peres: In business, as in politics, the real art is to be ahead of the storm. if you wait too long, you may start in the middle of it and get destroyed. We can accomplish great things using businesslike assumptions rather than charity ones. For our part, we need to give Palestinians 100 percent of their freedom and help them build a modern economy, or we will not have peace. For a nation to prosper, it must be able to enjoy the prestige of technology, science, and democracy. My ambition is to see that the Palestinian state is the first Arab country to enjoy all three. Countries no longer survive off their land. We now live in an economy of the brain, where strength and richness come from intellectual power. Part of this challenge is to ensure that the triangle of countries — Israel, Jordan, and Palestine — join economies.

Perkins: What have been some of your specific initiatives?

Mr. Peres: We are very careful not to sponsor symposiums and write booklets like other institutes do; we focus on projects that raise the standard of living and on mobilizing the support and involvement of internationally-minded people, companies, and governments. For example, we have an Italian company, Pela Nova Pelvilla, that has taught us that the best wheat for pasta grows in the desert. So, we applied this knowledge to an Egyptian desert, a Jordanian desert, and an Israeli desert. There was a pharmaceutical company, Benif Narbartist, that gave us the money and resources to fight a disease that has attacked the Palestinians of the Middle East. Several companies, including Siemens, are helping us develop high technology. We have an international bank helping us build a fund for high-tech investment in the West Bank; $20 million of the fund came from private Israeli investors, $20 million from Palestinians, and $17 million from the World Bank.

Perkins: Has overcoming cultural barriers been a challenge for this effort?

Mr. Peres: The great hope lies in the hands of the new generation. When I attended the funeral of King Hussein, I saw the sons of Iraq, Sudan, Iran, Algeria, and Pakistan there. All must follow their fathers, who lived through wars, blood, and poverty, and they must have the courage to let go of old traditions. But this will be difficult because there are more than a billion Muslims, many of whom are poor, armed, and at war with modernity. It is now possible for high-tech bombs to fall into the hands of underdeveloped, aggressive countries — and technology without democracy is very dangerous. This situation is further exacerbated by the fact that the price of oil has gone down by half.

Even still, I have great faith in the young. The new generation is more globally inclined and professionally oriented. They understand that we live in a new world, one without borders. Instead of fighting, you have to compete — you must show the same daring talent, and courage in competition that you showed in war.

Perkins: Do you still believe that corporations are better suited for globality than governments are, as you said when you and I talked at the World Economic Forum in Davos, Switzerland?

Mr. Peres: If you consider that the CEOs who came to Davos represented $5 trillion in revenues per year, compared with the United Nations, which represents entities that can’t change things, it’s easy to see where the pendulum is swinging. The U.N. is a meeting of the have-nots, and Davos is a meeting of the haves. The have-nots are governments with a list of wishes without any consequences, and the haves are the companies that can create jobs and wealth and improve the global standard of living. Science and technology are driving globalization, and these developments are in the hands of companies. As a result, companies are becoming much more powerful than governments. This is why privatization is important. But business must consider and live up to its new global responsibilities, which is a big challenge.

Perkins: Given this global transition, are you concerned that businesses gain power by winning in the market rather than in the voting booth?

Mr. Peres: There is no power without responsibility. It’s been my experience that if you seek power for its own sake, you will misuse it, and it will evaporate. But I think that the modern business manager is far more educated and world-conscious than the average politician. At the end of the day, they don’t just sell things for a profit. I find that CEOs generally understand that the better the condition of the world, the better their corporations will do.

Perkins: Realistically, how long before Israel reaches peace?

Mr. Peres: I believe that within half a year, the peace process will be renewed. The greatest obstacles to this peace are the internal systems of our two body politics: our electoral system and the Palestinians’ lack of tradition. We have to change our system; it’s holding back the peace coalition, and it is not governed by the majority but by a precarious minority. Like America, we need to become a government of two major parties, rather than be dependent on small satellite parties.

Perkins: So when you say that you see things improving in six months, is that assuming that Benjamin Netanyahu will no longer be prime minister?

Mr. Peres: That is my hope.

Flash Forward to December 2022

Mr. Peres’s hope to see his nemesis, Mr. Benjamin Netanyahu, defeated in 1999 came true — for a moment. After serving a single term, Netanyahu and his Likud party were heavily defeated in the 1999 election by Ehud Barak’s One Israel party. However, Mr. Netanyahu returned to the leadership of Likud in December 2005 after Sharon stepped down to form a new party, Kadima. Mr. Netanyahu was the Leader of the Opposition from 2006 until 2009 when he was elected as prime minister for a second time and still serves in this position.

Mr. Netanyahu may be back on his throne, but Mr. Peres’s gospel preached in our interview below to foster Israeli entrepreneurship has materialized perhaps beyond his most optimistic wishes. Israel has created the fastest-growing startup community in the world. According to the 2021 Tech Review report by IVC, Israeli tech startups attracted a record $25.6 billion last year in 773 deals, more than double the $10.5 billion raised in 2020. In 2021, exits of Israeli startups 2021 reached $82.4 billion from 238 deals. There are over 80 Israeli unicorns, with 42 companies joining the Unicorn club in 2021 alone. Israel now has more companies listed on the NASDAQ stock exchange than any country outside the United States, save China.

The three largest earning sectors in Israel were Enterprise IT and Data Infrastructure (which raised just under $6b), Cybersecurity Technologies ($5.9b), and Fintech ($4.2b).

By Anthony B. Perkins
From December 1995 issue of Red Herring

At 16, Richard Branson formed his first serious enterprise when he launched Student, a U.K.-wide magazine for his peers. A few years later, he parlayed his publishing experience into founding Virgin as a mail-order record retailer, and shortly thereafter, he opened a record shop on Oxford Street in London. By the time he was 22, he had built his own record studio. Over a 20-year period Virgin Records worked with artists such as Peter Gabriel, The Human League, Steve Winwood, Simple Minds, Phil Collins, Janet Jackson, and The Rolling Stones and grew into the sixth-largest record company in the world. Somewhere along this magical mystery tour, Mr. Branson founded Virgin Atlantic Airways, which has since grown to become the second-largest British international airline--and he also found time to sail his boat and fly his hot-air balloon across the Atlantic in record time.

In 1992, Mr. Branson rolled up Virgin Music Group's assets--the record labels, music publishing operations, and recording studios--and sold it all to Thorn EMI for a cool billion dollars. Not quite ready to retire yet, Mr. Branson took his kitty and built the Virgin Group into international "Megastore" retailing, book and software publishing, film and editing facilities, and clubs and hotels; altogether over 100 different companies operating in 15 countries. The combined annual sales of the Virgin Group of Companies now well exceed $1 billion. The Herring caught up with Mr. Branson when he was visiting one of his more recent startups, Virgin Sound & Vision, a Los Angeles-based interactive software publishing company. Our visit with Mr. Branson also happened to coincide with the launch of Virgin Cola, a soft drink that he thinks will give Coca-Cola a run for its money. Listen in and find out why things just might go better with Virgin.

Perkins: The Virgin Group of Companies represents every aspect of the publishing food chain--from artistic talent, to multimedia production, to mega-retail distribution. Is it accurate to assume that this was all part of a well-calculated plan on your part?

Branson: I suppose quite early on, we started by signing artists. And the artists needed a recording studio, so we built a recording studio, and they needed a video studio, so we built one of those, and they needed to export their records, so we started an export company. We also found that it is nice to make films, so you can use your artists' music for the soundtracks. Now none of these were essential, but fairly early on we decided that we might as well be masters of all these areas, so we could make sure the quality standards were high. And, effectively, we were building up businesses that were valuable in their own right. Since then, we have gone into completely different areas, such as the airline business, but we have followed the same philosophy. Now we have our own freight company, our own courier company, and our own holiday company.

Perkins: In the early days, it seems that all your business units grew almost organically. You appear to be pursuing a slightly more aggressive strategy these days.

Branson: Yes, with the entertainment business, one thing led to the other. I think the reason Virgin Records became the strongest independent record company in the world was that instead of licensing our product to other companies overseas, we set up our own companies in each of the key markets around the world to handle our business. So in France, not only did we have our own company distributing our foreign product, but we also had another company signing bands, like Telephone and Renault and all the top French bands, as well. In the end, 50% of our sales in France came from local product. We always like to be in control as much as we can. Just as here at Virgin Sound & Vision we were discussing whether we should license our titles to somebody else. The danger is that your product takes second place--their own product gets preference. So we generally try to control everything as best we can.

Perkins: In 1992, just when the Virgin Music Group appeared to be on top, you sold out. Why?

Branson: I suspect that any successful entrepreneur who didn't go into business to make money--you know, they went into business to find something to do, or for the fun and challenge, or to prove something to themselves, like I did--is going to hit a point where things become incredibly successful, and it almost becomes boring. And in a strange way, when I got to that point in the entertainment business, I tried to create difficulties for myself, like going into the airline business, for instance. Now that the airline business is finally well-established, it's time to take on Coke, or to start moving into the financial services business. I don't like the idea of getting comfortable. The sea life is one long challenge.

Perkins: So there hasn't been a well-plotted financial plan in your activities?

Branson: No, we have never had a game plan, like the idea that the company is worth x million dollars now, and in five years it's going to be worth x million-plus. It's been more opportunistic, I suppose.

Perkins: An innate aggressiveness.

Branson: Well, there are a lot of fat, complacent industries that have ripped off customers for years because of their monopolistic size. We've just tried to take advantage of that. In the airline business, for instance, all the prices were fixed very high. And the fact that Coke has had only one main competitor is almost unheard of in any other business. The same went for the record business. When we first started Virgin Records, the big record companies had been ripping off artists for years. So it's been kind of fun to go into these businesses and try to shake them up by offering better value to the consumer, and to make a profit for oneself at the end of the day.

Perkins: And to do it all with style.

Branson: Exactly.

Perkins: : Virgin has also been the master of building brand value.

Branson: To be honest, we only really began to realize, say in the last couple of years, how powerful the Virgin brand name has become. To young people all over the world it seems to mean a sense of youth, quality, innovation, and fun. Having realized this, the idea of putting the Virgin name on a new cola started to make sense. Of course, you must have a product that tastes as good, or better--and we believe we've got that.

Perkins: There probably aren't too many brand names that could take on Coca-Cola.

Branson: In the first six weeks after we launched Virgin Cola in Britain, we sold 60 million cans and captured 10% of the total cola market in Britain. Coke dropped from 56% market share to 43%. And we believe that within 12 months we will overtake Pepsi, and within five years we should overtake Coke. That's the value of a brand name. It's so powerful that we can go into a completely different industry and capture 10% of the market on day one. It's a very exciting position to be in. We now have almost everybody in Britain with any product, from soap-pads to paging phones, coming to us and asking to use the Virgin name.

Perkins: At some point you begin diluting the value of the brand, don't you?

Branson: The key to making sure the Virgin name stays fresh and successful is obviously not to overdo it, and to make sure any product we apply it to is really going to go in there and shake up the industry it's in. So we are really only working with products that we think can grow into global billion dollar businesses within five years, businesses that are also fun to build.

Perkins: This will be sort of a ridiculous question, but if you had to start all over again today, and you could only own either the Virgin brand name or all the intellectual property you currently own, which would you choose?

Branson: Oh dear. I think the Virgin name is the most valuable, as long as we could apply the name to any product or any industry we wanted to. A brand name that has a global reputation for quality is more powerful than almost anything. If you have that to start with, it is relatively easy to build industries.

Perkins: In a sense, you have been surrounded by technology your entire career. When did you start appreciating the value of interactive technology?

Branson: It began a few years back, when I realized that my children were spending more time playing interactive games than listening to music. That's when I decided to buy the rights to Sega games for the world outside of Japan. Over the last 8 to 10 years, we've built Sega into quite a powerful force in Europe--it is stronger than Nintendo there. We also saw great possibilities with interactive technology in some of our other businesses. We have a 15-channel video system on all of our planes, for instance. So the idea that passengers can sit down and play one of Virgin's latest CD-ROMs for three or four hours on the plane seems perfect. Explore the world while you are traveling across it, if you will. Of course, we hope they enjoy the titles so much that they go out and purchase them in one of our Megastores, which would then complete the circle.

Perkins: What's the mission of Virgin Sound & Vision?

Branson: What we are doing here is all kinds of children's and family reference CD-ROM products--the ones that are not adrenaline-based. Many believe that this segment of the market could end up being bigger than the entire game business. I can see how this growth may happen, now that my oldest child is 13 and starting to lose interest in games, and moving on to music and educational CD-ROM titles where she can actually get a little bit more out of the experience than a thrill. For us, it is a business that may lose money for two or three years, because it's still in its infancy. But CD-ROM titles are the fastest-growing part of our Megastore business, and if you can be in on the ground floor of a business like this you can become synonymous with that business--people will come to you first, when they want to publish their titles.

Perkins: A lot of your philosophy sounds like that of Peter Gabriel. He has an altruistic side to what he does, as well.

Branson: You're a Peter Gabriel fan, yeah?

Perkins: Well, he's just a great guy. I consider him a friend.

Branson: Yes, he is. I think we both see interactive technology as the future for education, worldwide. Perhaps it won't matter so much if you have a bad teacher in school, because the good teachers will be the programmers here who are spending hundreds of millions of dollars creating great educational material for everyone. This will really change the face of education over the next 10 years.

Perkins: What is the biggest challenge for Virgin Sound & Vision?

Branson: CD-ROM titles are that rare product that can be sold in book shops, record shops, video shops, and generally in a much broader range of outlets than records or books. And that's the challenge, having these outlets give your product the shelf-space.

Perkins: Is the mission of your Megastores then to be the ultimate outlet for entertainment and educational content?

Branson: Yes. We want to be the best record shop and CD shop in town. We don't necessarily want to be the best book shop, because we would have to have a huge shop to do that, but we want to be the best in records and CDs.

Perkins: How do you accomplish that?

Branson: Well, unlike most businesses, to be successful in the retail business you have to offer the customer the widest range of quality product. Then you need to break up the space in your shops into specialty areas and have people running those areas who have developed a specialty in what they are selling. It contradicts everything else I have ever believed in, which can be summed up in the phrase "Small is beautiful."

By Anthony B. Perkins
From 1994 issue of Red Herring magazine

Silicon Graphics founder Jim Clark began his remarks at a recent gathering of the Stanford Business School Alumni Association by chiding a certain politician for creating the fantasy of the “information superhypeway” as a means of trying to emulate his father’s role in the construction of the interstate highway. The Herring won’t take issue with that insight. But don’t let it fool you into believing that Mr. Clark is dismissing the idea of an interactive highway into the home.

Last January, Mr. Clark resigned from his post as chairman of the multibillion dollar visual computing company he built to start an interactive software company for the Internet, Mosaic Communications, which could quite possibly represent an even bigger opportunity than he had with Silicon Graphics. “The Internet is more exciting than 3D graphics,” he told the Stanford audience. Mr. Clark is the sole investor (“Venture capital is good for the raw entrepreneur”), and his start-up team includes Mark Andreeson, the 22-year-old whiz kid, and his development team from the University of Illinois, who created the Mosaic interface software which has been responsible for the soaring popularity of the Internet. “I’ve learned everything I know about the Internet over the last three months, have become convinced that the Internet is the information superhighway, and that Mark Andreeson’s vision is right on,” Mr. Clark said. He explained that the Internet currently has 25 million users and that number would double by the first quarter of 1995. “By mid-1995, there will be more Internet users than cable TV subscribers,” he prophesied.

Mr. Clark also described what he saw as the impracticality and inefficiency of involving the cable TV companies, which he views as a lumbering and bureaucratic industry “basically controlled by Time Warner and TCI.” Mr. Clark admitted that his comments might surprise some people, given that his last four years at Silicon Graphics, with Time Warner as his partner, he spent evangelizing the cable TV/phone company model for the consumer interactive network. He even speculated out loud that it’s conceivable that he would debate SGI’s current CEO, Ed McCracken, some day on their conflicting visions for how the network will shape up. Unfortunately, that’s all the detail about his new project Mr. Clark leaked that night at Stanford. But he did promise that Mosaic would be making some announcements shortly, including news about the significant strategic relationships the company has formed.

For a contrasting view of the consumer interactive network, readers can delve into this month’s bull session with Oracle CEO Larry Ellison (see below). At this point, Oracle appears to be outpacing the software pack, including Mr. Gates’ Microsoft, as the dominant software provider for the phone company/cable TV interactive network. And Mr. Ellison wasn’t afraid to say so. “We are two years ahead of Microsoft!” he declared. Mr. Ellison views the Internet as too slow to ever be the primary multimedia hook-up into the home. “The networking bandwidth has to be at least 1.5 megabits per second, and you don’t get that with the Internet unless you have T1 lines to everybody’s house and that would be prohibitively expensive today.” So, according to Mr. Ellison, “the information highway itself is in the province of the telephone companies.”

Mr. Ellison also predicts that his version of the consumer interactive network will fall into place soon, citing Bell Atlantic’s plans to have a million homes online by the end of 1995 and his own belief that by the end of 1997 or 1998 there will be tens of millions of households hooked into the interactive highway. “It will be a huge business long before this decade’s over,” he said.

When we asked his opinion about whether the primary interactive device will be the home PC, as industry pundit George Gilder and Jim Clark believe, Mr. Ellison responded by saying, “That’s like trying to figure out what’s going to be more successful, the stove or the refrigerator. PCs, Macintoshes, personal communicators, smart televisions — and air conditioning systems, for that matter — will be attached to the information highway. All sorts of devices. This whole argument on whether it’s going to be PCs or set-tops is bizarre and ridiculous.”

At a certain point, all arguments about the emerging interactive networks become bizarre and ridiculous. In the final analysis, however, the consumer will decide who wins. The Herringbelieves that if one really ponders the consumer-demand angle, one can begin to see how the visions of Larry Ellison and Jim Clark may actually both be right. Think about it. The interactive crowd like their PCs and use them as interactive devices (e.g. e-mail and online services) almost every day. They are also rushing to sign up for the Internet; and, for the most part, these folks are not television watchers. So, it’s easy for The Herring to see how companies such as Mosaic could end up making lots of money selling Internet-related software and services to the interactive consumer and this powerful new interactive medium could take hold and create a huge new industry.

The entertainment/couch potato crowd (i.e. the Larry Ellison folks) will probably have the pizza box sitting on top of their TVs running Oracle software and ordering up programming on demand, playing games, and, perhaps, engaging in a little home shopping and gambling to pass the time away. Do these folks want to sit around their dens interacting with their home PCs? We don’t think so. They represent a whole different market of consumer. It’s kind of like the difference between the people who contribute to public television and members of the Rosannefan club. Venture capital industry dean Don Valentine describes the scenario well in his interview with The Herring this month: “The people who think they’re going to convert television watchers into interactive players who will want to change the ending of movies and play interactive games are engaged in pure 2001fantasy. Hal will have to be there verbalizing how to operate the interactive TV set before the couch potatoes in Des Moines, Iowa, will learn how to use it.”

In his forthcoming book, Telecosm, George Gilder warns Al Gore that people won’t build the interactive consumer network unless they can get rich doing it. The Herring agrees. The potential for significant financial reward in return for intelligent and hard work is a basic tenet of the American dream. Jim Clark and Larry Ellison have become rich as a result of the tremendous success of the companies they founded. After spending a little time listening to the current visions of these two raging cowboys, The Herring feels a little more comfortable about the future of the American economy. We are also looking forward to our interactive future.

By Anthony B. Perkins
From the December 1993 issue of Red Herring 

By the age of 40, Tom Perkins had already established a legacy of successfully working under his mentor, David Packard, and driving Hewlett-Packard into the computer business. Along the way, he took $10,000 of his personal savings and built a company around a low-cost easy-to-use laser he invented. His initial investment eventually turned into a couple of million dollars when he sold the company to Spectra-Physics. “I guess I was already a de facto venture capitalist before I even raised my first fund,” he told The Herring. When we interviewed Mr. Perkins in his glass-walled office on the thirty-fifth floor of a San Francisco high-rise, we experienced the keen intelligence and casual confidence of his lore. All one has to do to measure Mr. Perkins’ success as a venture capitalist is to count the hundreds of thousands of jobs and billions of dollars in wealth created by the companies his firm has started; many in its spare offices, including Tandem Computers and Genentech.

Over the last thirty years nothing has been more important to the transforming of the American economy than the unleashing of technology entrepreneurs who were spurred by venture capitalists. And just as the semiconductor and personal computer industries required a few brash, young, risk-takers to launch their enterprises, so did the venture capital industry. Read on and meet two gentlemen who pioneered venture capital.

Thomas J. Perkins

Kleiner, Perkins, Caufield & Byers

The Herring: You presumably had a terrific job at Hewlett-Packard before you started your first venture fund. What inspired you to leave H-P and become a venture capitalist?

Perkins: I did have a great job at H-P, and I had been there a long time. I think I was the first MBA they ever hired, and, believe it or not, H-P’s annual revenue rate at the time was only about $25 million. But during my tenure, I left H-P for awhile and went to a small enterprise that Dave Packard and Bill Hewlett had personally backed. And the company failed. So Dave Packard recruited me back to H-P to start its computer business. By the time he went back to Washington to serve as Deputy Director of Defense, my division, the computer business, represented the single largest chunk of the company’s revenues. Eventually, other managers took over the computer division, and Hewlett asked me to be his assistant. During this time, I started moonlighting, with Packard’s permission, and started a company to leverage a low-cost, easy-to-operate gas laser I invented — my one and only significant scientific achievement. (laughs) The company ended up being very successful, and we merged the company into Spectra-Physics, which was a public company. So you might say that my first venture deal was a big hit, which was fortunate, because I financed the company with the money that my wife and I were saving to buy a house.

The Herring: That was probably the biggest risk you ever took!

Perkins: Yes. (smiles) Anyway, when this was all happening, Dave Packard was just returning from Washington, creating sort of a natural break for me. So instead of staying with H-P and running another division, I decided to become a venture capitalist. About the same time I ran into Eugene Kleiner.

The Herring: Were there any role models in the venture capital business for you at the time?

Perkins: At the time, you could fit all the venture capitalists in the United States into this office. It was a very small community. There was Art Rock and Tommy Davis in San Francisco, Fred Adler in New York, and Pitch Johnson and Bill Draper down on the Peninsula. But I would characterize them all as being financial guys. Kleiner and I characterized ourselves as more technologists and entrepreneurs who could help start companies. We were really the first industry guys to go into venture capital.

The Herring: How did you get together with Eugene Kleiner?

Perkins: Both Kleiner and I had separately contacted Sandy Robertson [founder and chairman of Robertson, Stephens & Co.] about our interests. Sandy put us together because he felt that we were both speaking the same language and had a similar vision of what we wanted to accomplish. So Kleiner and I met for a couple of days and explored each other’s philosophy and background and decided that two heads would be better than one. [The one phone call Mr. Perkins took during the interview was from Sandy Robertson.]

The Herring: How big was your first fund?

Perkins: Believe it or not, our first fund was only $8 million, which, however, was the largest venture fund ever raised at that time. In the end, we never invested all the money, but we returned hundreds of millions of dollars back to the investors in that first fund.

The Herring: What were your biggest hits?

Perkins: We had two super deals in that fund and only two. They were Genentech and Tandem Computers. Both were incubated by our partnership. I think that we were the first venture firm to try to incubate a company right out of our own office. Jimmy Treybig [CEO of Tandem] and Bob Swanson [chairman of Genentech] were both partners in our fund. In both cases, we were the only venture investors.

The Herring: Why were those deals so successful for you?

Perkins: Both were very high-risk deals. If we have any kind of investment formula, it’s that we try to isolate whatever the biggest risk is in a given deal and structure our initial investment so the money is used to eliminate that risk. In the case of Genentech, clearly the biggest risk was whether or not God was going to let us create a new form of life. (laughs) And in the case of Tandem, we had to prove that we could develop software that could work in a multiprocessing environment. The market opportunity was clear and exciting, but there was a big technical risk.

The Herring: These days, putting the technical risk behind you, at least in the computer business, is a much more expensive proposition.

Perkins: That’s right. But it was harder to start companies in those days because there weren’t as many entrepreneurs around, and the support structure in the investment community didn’t really exist. Today, it’s a lot easier to start companies, but, you’re right, it costs more money.

The Herring: What were some of your more memorable failures in the early days?

Perkins: We had some failures. I’d have to go back and look, you know; like other venture capitalists, we don’t like to talk about our failures. Our most famous one was a company that made a combination motorcycle/snowmobile. (laughs) It was a great product. I had a lot of fun with it up in the Sierras. Jimmy Treybig worked on that deal. Unfortunately, just when we launched the company, the oil embargo hit, when everybody had to wait in line for gas, and the deal never really had a chance to get off the ground.

The Herring: Is it harder to be successful in venture capital today than it was back in the early 1970s when you got started?

Perkins: I don’t think so. It’s probably harder to make the enormous returns some of the early funds did, because there’s so much money available and it’s a much more competitive business. But I think it’s easier to make more consistent returns. When Kleiner and I first got started, entrepreneurs were also more skeptical as to what, if any, contribution venture capitalists could make beyond signing a check.

The Herring: What is KPCB’s competitive advantage?

Perkins: Since the very beginning, I think that we had developed a way of doing business here in the partnership that is very powerful and has given us a natural momentum that you won’t find at other venture firms. Maybe that’s what I’m most proud of in my career. The way we structure the partnership, the way we raise money from our limited partners, the way we treat our limited partners, and the way we create general partners have ultimately been our greatest competitive advantages. To explain the specifics of each of these practices would take a long time.

The Herring: Let’s focus on creating general partners. What are the elements to success in this department?

Perkins: Kleiner and I tried to pick partners who thought and acted like we did. Frank Caufield, Brook Byers, John Doerr, Jim Lally, and Vinod Khosla are hands-on guys, with strong technical backgrounds and very competitive, impatient personalities. They’re all very ambitious about the companies we invest in — often more ambitious than the entrepreneurs running the companies. They all push hard, because they want to win.

The Herring: What drives that ambition?

Perkins: Well, I suppose you could say that we all want to make a lot of money. If you look back, I think that we have divided up some $30 billion dollars between our investors and management. But I think our motivation runs much deeper than that. The money we make is really the by-product, perhaps the scorecard, for our drive to build successful companies that are on the cutting edge, that are developing new and exciting technologies that will change the world. If we can, we like to create new industries rather than just companies, and we’ve been successful at that a number of times. Our investments gave birth to the biotechnology industry and the ASICs business, for example. I suppose that we’re also proud of the fact that the enterprises we’ve incubated and funded have created over 100,000 new jobs. But, again, that’s just another by-product of our drive to be successful, and, well…have fun!

The Herring: You’ve been credited with making KPCB the number-one brand name in the business. What was the science behind this effort?

Perkins: I think that we did a number of things, which, in retrospect, seem obvious. First of all, we’ve always recognized and appreciated that our limited partners were the sources of all our capital, so we set up some rules from the very beginning to protect their interests. For example, to this day, no general partner will have a personal investment in a company that the partnership might have an interest in, even if the partnership turns it down. This principle assures that there’s never a conflict between our personal interests, and the interests of the partnership. Even when we’re individually given cheap stock for sitting on a board or something, we’ll throw that stock into the partnership so the limited partners can benefit as well. Second, unlike other venture funds, we never reinvest profits. All profits are distributed back to our limited partners immediately, so there’s an end to all our funds. Our investors like that. Another principle is that new funds are not allowed to invest in deals our previous funds had invested in, so there’s never the perception that new money is going in after bad. And, of course, we have had great returns.

The Herring: Where does the entrepreneur’s interest fall into this money-making lovefest?

Perkins: With entrepreneurs, I hope that we have the reputation of not cutting the toughest, tightest deal. We try to make sure that the entrepreneurs make a lot of money, too. We like to tell the entrepreneurs that the only time we’re on the opposite side of the table is when we’re cutting the pie in the very first round. We also try not to fund competitors, because we want the entrepreneurs to feel that we’re solidly in their corner. This is getting harder because we now have 180 deals that are all going in different directions, but we try to stick to this principle. We also try to figure out how our companies can work together. This has been a very successful strategy. John Doerr would be better able to give you examples of the dozens of different relationships we have helped to create among the companies in our portfolio. I think that this gives a new entrepreneur a tremendous incentive to work with us.

The Herring: And join the Kleiner Perkins club.

Perkins: Right. Join the club. And it’s free!

The Herring: Do you ever take a risk with an entrepreneur who doesn’t necessarily have the “right” background?

Perkins: Oh, absolutely. Sometimes it works, sometimes it’s appalling. Every entrepreneur says, “If I’m ever not able to run this company, then I’ll be the first one to recognize it.” Of course, that’s absolute nonsense. But you take an entrepreneur like Sam Maslak, I don’t think he ever had even a secretary working for him before he started Acuson, and we took that risk, and he turned out to be one of our greatest CEOs. I have learned a lot from Sam.

The Herring: How would you summarize KPCB’s competitive advantage?

Perkins: Well, everyone says we’re arrogant. I hope that’s not our only differentiating factor. (laughs) I think that we’re proud, ambitious, and work very hard right alongside the entrepreneur. Once we sign the check, we’re on the team. We consider it our responsibility that the company never runs out of money, we help them hire the right people, and we help them identify the risks and put those risks behind them. If anything, we have been accused of being too involved.

The Herring: What’s the hardest part of building a successful company?

Perkins: The greatest problems in a start-up environment are people problems — the ability of entrepreneurs to recruit, retain, and motivate their people. I think we all could get our post doctorates in psychotherapy, because what we really do, for the most part, is help people work together for the common good of the company. All venture capitalists are accused of firing entrepreneurs, that’s why entrepreneurs are generically afraid of us. Actually, we do very little of that, but when it happens it’s excruciating.

The Herring: KPCB is known for swinging for the fence. Is that a gospel you preach?

Perkins: We try to avoid “me, too” deals. If we can, we try to be the first in new markets. And, yes, this is a higher-risk approach. But if we’re right, we win big and knock the ball over the fence.

The Herring: Where does KPCB find its deals?

Perkins: Our sales force is made up of the entrepreneurs we’ve backed in the past. Almost without exception, every deal we’ve ever done has come to us from an entrepreneur we had previously backed. I don’t think we have ever funded a deal that just arrived in the mail.

The Herring: Can you make more money as an entrepreneur, or as a venture capitalist?

Perkins: As an entrepreneur. I tell that to a lot of people who want to get into the venture capital business. You can make more money faster as an entrepreneur. And if you fail the first time, you can always make a come-back and get another turn at bat. This isn’t to say that young guys like Kevin Compton and Doug Mackenzie [KPCB’s newest general partners] won’t do extremely well if they hang in there through a couple of funds. It may take longer, but I’m certain they will do very well.

The Herring: You started reducing your participation with the firm a few years ago.

Perkins: Yes, I did. Six or seven years ago I was on seventeen boards of directors and chairman of sixteen. It was just too much. And nobody ever calls you with good news. I felt like I was in Sarajevo with mortars blowing up all around me. So I cut way back. I now sit on only four boards, Tandem, Genentech, Acuson, and Internet Systems, a private company in Chicago. But I felt that if partners aren’t willing to work twenty hours a day, they shouldn’t carry their interest forward in the partnership. So I set up a way for partners to scale back slowly. I’ve done that, and Frank Caufield has done that, and I think others will follow suit when the time is right for them. It makes it possible to bring on new partners and let them own a good chunk of the partnership.

The Herring: What is your advice to the new generation of venture capitalists?

Perkins: I’m not sure that I have any great advice. I suppose I would say that unless you have gained some operational experience within a growing enterprise, it’s going to be very difficult to take a hands-on approach to helping the companies you invest in.

The Herring: If you were dropped into the world today as a thirty-year-old, what would you do?

Perkins: I’m pretty sure I would be an entrepreneur rather than a venture capitalist. But the real question would be where in the world would I do this, and I’m not sure it would be in the United States. When I came to California in 1957, it wasn’t the same as it is now. Recently, I’ve been to Australia and China, and I was pretty impressed by the possibilities for business success in those two countries.

By Anthony Perkins
From May 1993 issue of Red Herring

Perkins: You made a pretty big jump from journalism to venture capital. Other than the fact that you had been an observer of the business, why do you think you were offered the opportunity to join Sequoia?

Moritz: I think there are two sorts of venture capital firms. One firm likes to recruit partners who are identical to the people sitting around the table -- folks who have been to the same schools, people who got married at roughly the same period in life and have the same number of children, and people who have spent the obligatory amount of time at either H-P or Intel. Other firms try to bring together an eclectic group of partners because they believe in gaining the perspectives of people from different backgrounds. This has always been the approach used at Sequoia. That's why I think the people here were willing to take a flyer on me.

Perkins: What makes a good venture capitalist?

Moritz: Don Valentine [Sequoia founding partner] will tell you that, to this day, he has no idea what makes a successful venture capitalist. He always uses Arthur Rock as an example. Arthur's life prior to becoming a venture capitalist did not for one moment suggest that he was going to be the incredible, spectacular, out-of-the-park home-run hitter that he became. Bill Hambrecht is another example. The best I can recall was that he was a history major prior to becoming an early force in venture capital and the pioneer of technology investment banking. Then there have been people who have come into the business with blue-chip, gold-plated, platinum-tipped resumes who have flamed out.

Perkins: Do you have a role model in the venture business?

Moritz: The closest role models for me are right here at Sequoia because these are the guys I have worked with for a long time, and they are all very successful people. There are attributes that each of the partners possesses that are fabulous. Don [Valentine] is a cool and very rational thinker when it comes to analyzing companies and different situations, Pierre [LaMond] has a tremendous competitive drive, and Gordon [Russell] radiates a friendly courtliness. Contemplating those attributes is very helpful as I think about how to conduct myself in the venture business. But I don't believe in modeling myself after one particular bronze bust.

Perkins: When you look across the venture capital landscape, what are Sequoia Capital's competitive advantages?

Moritz: We have a very tight focus on making sure there is a sizable market opportunity in front of us before we make an investment. We are much more focused on the market growth potential and the ability of a company to reach a market successfully and profitably. We have also demonstrated, as a firm and individually, the ability to get companies off the ground with a small amount of fuel. We like to start wicked infernos with a single match rather than two million gallons of kerosene. This is clearly a differentiated way of getting a company put together. This approach has terrific benefits for the people who start the companies and for all of our limited partners. You might say that we have a morbid fascination with our ROI, as opposed to the amount of dollars we put to work. And this is a very, very, very different message than you get from a lot of other venture firms.

Perkins: Our observation is that there is a relationship between the amount of equity capital a technology company requires to get off the ground and the prospects for the company's success. Basically, the more money a company needs, the less likely it will be successful. Would you agree?

Moritz: Yes, I think that's true. There are few exceptions where we have felt or were convinced by others that there was a real need to spend money because everyone was afraid that if the company's product didn't quickly make it to market, its window of opportunity would evaporate. That would be about the only way we could get coaxed into investing more rather than less money into a company. We are big believers in the notion that lesser is better. This approach forces companies to be more disciplined -- they are hungrier, and they worry about how they spend pennies. Frugality is a real virtue. And that attitude starts around here. We save paper clips.

Perkins: Did you pass on the 3DO deal because you thought it would take too much capital to be successful?

Moritz: Electronic Arts started in Sequoia's office a long time ago. So Trip Hawkins occupies a permanent place in the Sequoia Capital Hall of Fame. The issue we had with 3DO was the question of how many people would be prepared to shell out $700 for a box that sat on top of their television. If the proposition had been $199 for that box, with Trip running the company, we would have become believers.

Perkins: In the case of 3DO and Nationwide Network, Kleiner, Perkins, Caufield & Byers appears to have pursued a strategy in which they were the sole venture investor in each deal, and they leveraged their investment by raising money, presumably at higher valuations, from corporate partners. Is this a strategy you would consider?

Moritz: It's a strategy we have employed. Our portfolio company C-Cube, for example, has Texas Instruments as a corporate partner. Corporate partnering is a fact of life in the biotechnology and medical industry. It's an interesting and often necessary way to proceed, but it's not the only way to be successful.

Perkins: Hasn't C-Cube raised and spent a ton of money? Didn't they violate The Eleventh Commandment?

Moritz: We financed effectively the restart of C-Cube. Don and Pierre are working very closely on the deal -- so we are using maximum firepower! (laughs) Don is the chairman, and Pierre runs the engineering department while a search is underway. The president of C-Cube, Bill O'Meara, is one of the founders of LSI Logic and a partner of ours. So we have surrounded the company.

Perkins: How often does a Sequoia partner actually go in and help operate a company?

Perkins: Pierre is the great unsung hero of Cisco Systems. He spent a tremendous amount of time at the company, working behind the scenes and helping to make sure the engineering department was designing and getting new products to market. People don't realize the significant contribution Pierre made to Cisco because Don's name is on the hubcaps as the chairman of the company. The ability we have to help operate companies is a very useful tool in our arsenal.

Perkins: Sequoia's image on the streets of Silicon Valley is that you are the Los Angeles Raiders of venture capital -- the tough guys who are quicker than the other firms to boot the CEO or pull the financial plug.

Moritz: We are congenitally incapable of pouring good money after bad. Some people, for their own purposes, will thrust us into a position to be harbingers of bad news to management, which is all right. But we do not want to continue propping up a company if we think its chances for success have evaporated. We would be wasting our money as individuals and wasting the money of our limited partners. There have been very few instances when we decided to stop funding a company and regretted it.

Perkins: What's the hardest part of your job?

Moritz: We usually don't make mistakes when assessing the market opportunity. And we are reasonably accurate in predicting how long it will take to bring a product to market. The great imponderable is to judge accurately and predict how well a president is going to be able to run the business. It is easy to mistake the façade for reality.

Perkins: What characteristics does Sequoia look for in a company president?

Moritz: Frugality, competitiveness, confidence, and paranoia.

Perkins: Where is Sequoia investing its money these days?

Moritz: We continue to mine the territories in which we have traditionally been successful. There's tremendous opportunity in digital video. C-Cube is positioned right at the center of that universe. I suspect that our investment there will lead to lots of other opportunities in ancillary companies that depend on some of the technology C-Cube is deploying. The internetworking business also has stacks of opportunities. This is a segment that has done well for us and, we expect, will continue to do well for us. Since Cisco, we've invested in Magellan, a GPS company; Positive Communications, a paging company; and SpectraLink, a wireless in-building telephone company. One other area is the software business. In the late 1990s, object-oriented technology will enable the disassembly of large, monolithic applications and will provide people with the building blocks to tailor and fashion the tools they will need every day.

Perkins: Tom Perkins preaches to his troops that you invest in technology products that are ten times better than existing products because by the time you get to market, they are only going to be two times better. Would you agree with that?

Moritz: It's always nice to invest in a company with a massive technology advantage. But we have been able to help build companies that perhaps don't have a 10x technology advantage but are able to get to market early and build a formidable sales and distribution machine that becomes a very difficult barrier for others to hurdle. Cisco Systems is a classic example. So it's really the marriage of good technology and great channels that make competitive companies.

Perkins: Once a company is up and running, what do you watch out for?

Moritz: We are perpetually vigilant and concerned that companies have a 12-cylinder product development engine that isn't going to sputter. What will ultimately kill almost every technology company is a product development engine that begins to sputter and backfire. The Valley is littered with companies whose development engine has failed. It's very tempting for companies to coast on the success of their first product. They forget that the only reason that they're in business is that they took advantage of a fellow at a big company who fell asleep at the product development wheel.

Perkins: Kevin Compton at KPCB told us that of the 150 deals they have funded, none came over the transom. Is it ditto for Sequoia?

Moritz: We're always asking that question around here, and we struggle to find the answer. Ultimately, a deal has to stand on its own, no matter how it is referred into the partnership. So our message to entrepreneurs is that our doors are wide open. If you can leap tall buildings in a single stride, we would like to hear your story.

By Anthony Perkins
From May 1993 issue of Red Herring (the first issue!)

Timothy Leary calls virtual reality "Electronic LSD." Others look to it to provide the ultimate experience in safe-sex"virtual sex." Some fear it will fall into the hands of the military-industrial complex and go awry, as in the Stephen King movie Lawnmower Man. Yet others dismiss it as nothing more than science fiction, a cyberpunk fantasy about a world that will never happen, no more feasible than the holodeck in Star Trek. Who is right? None of the above, at least not yet.

The fact is, virtual reality (VR) is already with us, but not in any grandiose form. VR can not yet bring your favorite fantasy to life, but it is being used to solve real problems. Pilots can now take their first test flights in realistic flight simulators, and architects can test their designs by walking through a simulated building. VR even has applications in surgery—doctors use it to perform minimally invasive operations. In many applications, VR saves a considerable amount of time and money—in some cases by letting designers fine-tune their plans before any real materials are committed, in others by letting professionals hone their skills before they take the wheel of a multi-million dollar machine.

One of VR's pioneers and chief spokesmen is Jaron Lanier. Variously described as "amiable, round, and dreadlocked....a Rastafarian hobbit," "the wizard of odd," "Bigfoot," "a new age Jabba the Hut," and more recently by Business Week, as "an enigma" and "a Guru without a portfolio," Lanier epitomizes the kind of alternative personality required to pursue a field as unconventional as VR.

Lanier comes by his pursuits naturally. He grew up in a remote corner of New Mexico in a geodesic-domed house. His mother was a concert pianist; his father a science writer. Bored with school, Lanier dropped out to pursue music; but later, at age 14, he took advanced math courses at New Mexico State. His interest in math led him to computers, which in turn led him to Silicon Valley. In 1984, Lanier founded his first VR company, VPL (Visual Programming Language) Research, Inc. VPL developed many of the key components of VR, including the DataGlove, the EyePhones that go into the latest head-mounted displays (HMD's), and DataSuits, which make possible a more complete sensual immersion into VR. VPL was in fact the first off-the-shelf vendor of VR components. By 1991, it had annual sales of $6 million.

At the same time, however, VPL was becoming increasingly indebted to a French company, Thomson CSF, originally only a minority investor in the project. By July 1992, VPL owed Thomson $1.6 million -- the French company closed in, seized VPL's patents, and ousted Lanier. But this turn of events has not phased Lanier. He's now Chief Technical Officer of a new VR concern, Domain Simulations, a software company based in Sausalito, CA.

We interviewed Lanier in his unmarked bungalow in Sausalito, close to the offices of Domain Simulations. His house sits atop a quiet hill overlooking the San Francisco Bay. In this scenic and remote setting, Lanier works away on several new virtual reality projects. Even at night, his answering machine is constantly working—it's not unusual for Lanier to get 40 to 50 calls in a single evening.

Lanier's one-room cottage is filled with the implements of his work and play. In one corner are some 300 musical instruments from around the world, all of them played by Lanier. The walls are filled with his artwork, dreamscapes painted in bright colors, shades of surrealism showing the influence of his favorite artist, Hieronymous Bosch. A tall bookcase in the corner is crammed with books on art, music, business, interpersonal communication, and social commentary by favorite authors such as Timothy Leary and Marshall McLuhan.

We also found Lanier's house littered with computer equipment -- CPUs, monitors, scanners and switch boxes. The collection includes an audio station with a piano keyboard and 8-track mixer. Wires of all sorts criss-cross the floor. Yet there are no software packages, manuals or technical guides lying around. In fact, aside from an outline and a few sketches sitting on his drafting table, there are no papers in sight. The only TV in the room is used to play videotapes of virtual reality products -- there is no cable or antenna hookup. The furniture is minimal -- we sat on piano benches during the interview. In our several hours of discussion with Lanier, he impressed us with his thoughtful analysis of his business experiences and the industry he created.

Perkins: You coined the term "virtual reality." What does it mean to you?

Lanier: Oh that question. Well, the term "virtual reality" is applied to just about everything. There are clothing stores called Virtual Reality and rock bands and for all I know rubber kitchen items. If I was raising money from you, it means one thing. If you're an academic, it means something else. Ultimately it's the marketing term; general purpose simulation technology. It also forms a rubric over a community of researchers and entrepreneurs very much as other terms like biotechnology or the famous horror story of artificial intelligence. What happens is that you have to create a certain shared set of philosophies and goals in a community in order for them to work together, and virtual reality vaguely defines such a community.

Perkins: What has been your contribution to VR?

Lanier: In terms of the technology, probably the most important thing I did was network head mounted displays together to create a shared virtual place. Nobody had done that before. Prior to my work, VR was considered a user interface and after my work it was considered a communication tool.

Perkins: Tell us about your first company, VPL. How did you go about raising money for it?

Lanier: In the beginning I really didn't intend to start a company. After Scientific American published an article I wrote about some research I was working on, people just started calling me to see if they could invest, so VPL was born. The first serious attempt to make money was in 1988 which was based on the realization that VPL was truly becoming a manufacturing company and was going to need working capital.

Perkins: What was the opportunity for potential investors?

Lanier: The opportunity was to do a good enough job at making virtual reality hardware that we would cause the market to grow faster than it otherwise would have. We would have a very large share of that market; so that rather than entering a competitive market later we could define a market of which we were the top. It could have happened but it didn't.

Perkins: And why didn't it?

Lanier: I think ultimately there were a few reasons for that. One is that the company failed to bring in the type of management that it needed early enough. That was the first problem. Now it's not that we didn't talk about management, we simply failed to hire somebody who was really qualified until too late in the game.

Perkins: What type of person did you need?

Lanier: It's not just a single person that we should have hired. Manufacturing was a big issue and quality control was a big issue; internal management of a growing number of somewhat eccentric creative technical people was an issue, customer communication was an issue -- but more important than any of those was just having organizational coherence and I didn't provide that. I'm not good at that and the other candidates from the organization weren't either.

There were also very serious problems on the investor side. We had an investment group, Thomson CSF, which is a frequent minority investor in the valley but rarely involved as a lead investor the way it was in VPL. The problem is that they're ultimately run by a big French bureaucracy on the other side of the planet. If you know the French and you know bureaucracy, you can imagine what a French bureaucracy is. They weren't able to make coherent decisions. In one board meeting they would take one position very strongly on, say, which product plan should be emphasized, and then at the next meeting they would reverse the decision without explanation. It was very clear there was some process going on back in Paris that was filtering down at this end, but we never could really understand the process itself.

Perkins: At some point you weren't meeting your projections and you needed more cash. What happened then?

Lanier: I wanted to raise money; we had to raise money and initially Thomson was simply opposed to it for reasons that I never understood. Either through incompetence or intent, Thompson blocked attempts to raise money. There were a lot of sincere investors and VPL people who put up initial money or put money in escrow, and we just kept on failing to close deals. The reason the deals fell through, I think, was really because of the board and particularly Thomson being unconstructive in managing the process.

Perkins: Is there any particular reason for this?

Lanier: I don't know; I've certainly speculated a lot. What you have in Thomson is an example of why government shouldn't run big companies, and it's really a terrible mismatch to have that kind of organization, which is the ultimate anti-entrepreneurial formation, as a lead investor in a very challenging young entrepreneurial company. That was a major mismatch, a very serious one.

Perkins: How did the mismatch play itself out?

Lanier: The key events were that, first of all, the initial investment that was made by Thomson had preferences attached to it that put them in the position to block further investment -- intended for anti-dilution purposes. I think that their use of the preferences was very unusual. They seemed to simply never be able to come to terms with new investors and in some cases they would insist that their own attorney handle the negotiations, and their attorney would put in terms favoring the other side that weren't requested; and that would submarine the whole negotiation. This went on and on; there were a series of incidents like that. There was sort of a rationing effect where each time an investment deal would not come through they would sort of say, "Tisk tisk, why can't you guys raise money?"

Another thing that happened was the creation of an institution called the financial committee, which took all power away from the board as part of the conditions of one of the bridge loans. The financial committee had the power to hire, fire, approve contracts, budgets, and on and on. All expenditures were under the auspices of the financial committee, which Thomson controlled completely. Thomson essentially took over the board, even though they were only a minority shareholder. They began to micro manage the company, and had people in the company on a daily basis -- one managing finance and the other working on patents and technology. That situation was very difficult. During the same time, VPL's product quality started to decline, at first a little and then I think very seriously.

Perkins: What contributed to the decline?

Lanier: Initially the company was run by entrepreneurs who might have been a little out of control, and I was always hoping to get better management into the company. But then there was this transition to being run by a huge bureaucracy. There was one guy in charge of manufacturing, a Thomson favorite, and there were a couple of remarkable things about him. One is that he refused to even try the products and never did. He never actually experienced a virtual reality demo. And this in my opinion made it impossible for him to assess the product. He was Mr. Specification. You have to work as much as you can with statistics and math and objective information, but then you also have to bring in the touchy feely side, and you have to love the product and care about it and get everybody involved with it.

Perkins: So what happened in the end?

Lanier: What happened was one morning a Thomson representative stated that a new CEO be hired and that the old one had to go that day without any explanation or notice. The way they told me was loud enough to penetrate the glass wall of the conference room; so that the rest of the company became informed of it. I got threats of resignation from the entire technical and marketing staff. That became a sort of standoff which was one of the events that led to the conclusion of VPL as we knew it. At any rate, in late November 1992 the entire marketing and technical staff, the creative staff and the management left, because there was absolutely no hope. It was like a game of chicken -- there was nothing to be won. Thomson wasn't backing down and yet there was no way out, so it was a check mate.

Perkins: So how do you feel about being out of VPL?

Lanier: You know, I started an industry and I've gotten an education that perhaps took twice as long as an MBA but is also probably twice as good. So I feel good about it. Although, I think there's a kind of schizophrenia about exactly what capitalism is in Silicon Valley. On the one hand there's a sort of belief in extreme winners and losers so that either you make a billion dollars or else you're crud. And of course any market that functions only between those extremes is very unhealthy. What I hope people understand the market to be is a friendly, reasonable place where people treat each other well whether you succeed or fail at any given stage.

Perkins: What did you learn?

Lanier: The single most important and the single hardest thing to do is pair up with the right people. That's true especially with partners and top executives, but it's also true for every single employee. Another lesson is that there's irrational motivations at the basis of every great achievement and you can't pretend that those aren't there. So when you're selling the product or you're selling yourself or when you're designing the business or motivating a team, you have to accept that there's a type of madness that takes hold that's part of the process of achieving things. What I really notice in start-up companies is that the well planned ones, the really rational ones, often don't go very far. It's the ones that are a little bit mad, that have this intense belief in what they're doing, this intense caring that isn't limited to financial motivation -- those are the ones that succeed. Everybody in Silicon Valley has seen it again and again.

Perkins: At one point Thomson assigned your patents as collateral. What are those patents worth today?

Lanier: There's a pretty good patent that covers gloves for use in virtual reality and clearly a lot of virtual reality systems don't use gloves. That patent is already licensed around in so many markets and so many companies that I think Thomson might make some money from it. But the way the patent system works is kind of strange; it's not based entirely on the merit of the patent but it's often based on how aggressively the patent is managed by its owners. Based on what I've seen from Thomson, the value of the patents is certainly lowering.

Perkins: Give us your analysis of VR as an industry.

Lanier: Right now there is a lot of attention paid to the extreme high end and the extreme low end. At the low end, for instance, there's a Sega product coming out this year, in which I was a major participant before I left VPL, called Virtua. And then you see a lot of attention to the high end for military simulators or something like that. In the middle there's a hole. This is a problem on the hardware side. Then on the software side you have to engage in a very ambitious program. You have to build something that's sort of a real-time authoring operating system that can function in a bunch of different areas at once and includes graphics and physical dynamics. If you look at the scope of that software, it's pretty large; and what you see among the small virtual reality companies that are swimming in VPL's wake, is that they are all kind of groping and making many of the same mistakes that VPL did.

Perkins: So where do you see things going from here?

Lanier: One company can't do it all. One scenario is that somehow, magically, all the little companies function together and support each other and there's some kind of symbiosis among them and you start seeing the products that really could exist. There's no reason from a technological point of view that you couldn't have, say, a $10,000 product attached to a $10,000 SGI in a year or two from now that provided a spectacular experiential virtual world that was easy to program and would be immensely useful for data visualization. That's a do-able project. However, if you look at the money you can make selling those and the size of the market, that market by itself -- that niche -- isn't enough. So with the exception of medicine perhaps, none of the application niches are large enough to drive the market. There's your dilemma. A second scenario is more likely. And that is that the whole thing is going to be chaotic and crazed for maybe five or seven years until finally the market demand is so great that the products burst through the chaos. So which will it be? One of the reasons I started VPL and tried to build a generalized company was to try to promote the first scenario and I still would like to; I'd like to find a way to do that but it's pretty tough.

Perkins:VPL was reported last to have $6 million in sales, is that the largest virtual reality company?

Lanier: Yeah.

Perkins: Is there an opportunity today to grow a VR company larger than $6 million in sales?

Lanier: There isn't yet. I would suspect that the world of virtual reality is growing fast enough so that in a fairly short time some of the various companies might have larger sales than VPL did. But they still are going to be very niche oriented; whereas VPL was able to be very general. That particular role will be very difficult for any company to achieve again. That's one of the reasons it was so bad for the whole industry that VPL wasn't more successful. Not so much that VPL would have dominated, but it would have created more coherence than there is now. They need to have somebody who can blaze a trail through a market, whether or not they are going to dominate it later. It just avoids confusion. VPL had the potential to play that role, but it didn't work out that way.

Perkins: So where does that leave the industry?

Lanier: Well you can think of it as two axes. One axis has all the different scattered technologies you need to make a VR system -- all the sensors, the displays, the software, the special purpose computers, the special communications capabilities and on and on and on. Another axis has all of the niches where there are real markets. Now if you look at virtual reality today, what you see is that none of the markets is large enough to support development of the full array of the technologies that need to be developed. If you look at the graph you might say, "Wow! Look at all these users -- it's a great business!" But then you start to strategize on how you are going to make this business happen. Well, you need to fill in all the pieces on the technology axis. But in order to do that, you need to pay for it by selling things to the markets on the other axis. But the markets are a bunch of little villages without a big city of users. So the question is: "How do you build the full array of technologies in this very competitive environment where you have companies that specialize in these little market niches and never have enough resources to develop all the necessary technologies. That's why there's a chaotic situation right now.

Perkins: So will there be a standards fight like there is in the software industry?

Lanier: The standards fight hasn't started yet and that's probably the greatest strength that VR has right now. Obviously VR has the potential to go the route of the so-called multimedia market which would be devastating and would cause it to be delayed by perhaps a decade, just as multimedia has been. I'm very much hoping that virtual reality avoids that. What I would like to see is a more rational behavior on the part of the virtual reality community than has existed in multimedia and a recognition that without unity on the software standards issue the entire field will be stilted. I've been bringing up these issues with a variety of groups, including the National Academy of Science. There are areas of potential agreement that could be worked out, and I'm trying to network and accomplish that. I think I might have enough clout individually to be able to influence it. Especially since right now I don't have a portfolio so I can be unbiased.

Perkins: Given this chaotic situation, when do you think virtual reality will reach the mainstream?

Lanier: There's a lot of factors that can influence this and the overall economy is probably the single biggest one. If Sega gets its act together this year, we're going to have the first toy head-mounted display in homes, just as we had a lot of gloves in homes a few years ago. And in terms of a real VR system, meaning something that has the flexibility to really manage a lot of applications, I think around the turn of the century something like that will start to hit the home. As far as acceptance in areas of work, I expect training, medicine and construction to be the three that happen first. By training, I mean training industrial and maintenance workers.

Perkins: What about entertainment?

Lanier: I think it's an interesting market. I know the entertainment industry quite well because I've been involved in a virtual reality theater project for some years. There's a number of different ventures that are all approaching the same market in a somewhat similar way and they include Battle Tech and its offshoots; there's also the IWERKS company and there's Tim Disney's new venture.

Perkins: What do you think about Battle Tech centers? They've already been called the Chuck E. Cheeses of the nineties.

Lanier: I'm much more polite than that about other people's work but I still think that that's a very valid comparison. They might find some success; I think they have a pretty good chance. I think they're making a little bit of a demographic mistake in that there's an obsession in the entertainment industry with the young adult on the theory that this is the person that has the disposable income and the time and the desire to blow money. I think there's some truth to that. Younger people tend to understand technology better than the previous generation. On the other hand, they're creating a facility that is so specialized for that market that it's actually going to be vulnerable, as all things in that market are, to suddenly becoming uncool the year after it was cool. That's a perfectly acceptable risk if you're marketing a movie because you only expect it to have a short life span, but if you're building buildings then I think that's a problem. The approach that we've tried to take in our theater project is to create the next generation of theaters that I think are going to replace the movie theater or at least replace a lot of movie theaters. The idea is to have a facility that in itself has no content. It's just a place that runs absolutely stunning shared simulation experiences (voomies) that change all the time. That's where it's like movies -- movies they come through town and some of them bomb and some of them sing but they'll all be different and they'll all be oriented towards different markets.

Lanier: Who are you working with in the voomie business?

Perkins: There's a company based in Los Angeles called Quanta Communications which is now managing the development of the voomie business. There's some complexity to that because it started out under the auspices of a joint venture between VPL and MCA and now it's transferred into an independent company. They have some of the original people who've always been involved with it and there's also some new people; and it's plowing ahead. It's a very ambitious project. We are truly creating the theater of the next century and it's a very long term approach and as I say we're trying to keep risks to a minimum by taking a very general approach towards the audience and towards the material.

Perkins: So are you part owner?

Lanier: I'm not going to comment on that.

Perkins: So what other business enterprises are you involved in?

Lanier: In addition to Quanta, I'm involved in Medical Media Systems, which is surgery. I'm also involved in Domain, which is specifically software. I'm doing some research that's basic science; it's not commercial. I'm trying to do some public service; I'm doing some teaching. And I'm trying to be an advocate for the industry in Washington.

Perkins: Earlier you described the two axes -- the enabling technologies and market niches. Which enabling technologies do you think need to come first?

Lanier: There's a lot of them and what's remarkable is here we are in 1993, and we've been selling VR systems since '89. There're hundreds of labs around the world and thousands of users, millions of conferences, millions of spin-offs and bullshit artists and you have all this stuff and you still can't buy a head-mounted display that just shows you a sharp, color picture. So we're dealing with something that is still nascent in a sense. You still can't buy a software development tool that will let you build a whole virtual environment that includes interactive elements. The basic rundown would include special purpose computer resources for computation of real time physical simulations: graphics resources such as Sil by Silicon Graphics but bundled in a more focused way; optical systems that are better; tracking systems that are better; displays that are better; sensors that are better; force feedback systems that are mass produceable and generalizable enough to be used in a variety of applications and it goes on and on. I'm just scratching the surface.

Perkins: Finally, we'd like to touch on the social implications of VR. In one interview, you criticized TV as a manipulative tool. Couldn't VR be used the same way?

Lanier: Of course -- that's part of the story of communication. Surely every venture capitalist knows that they are being emotionally manipulated every time they make an investment. And they love it, they love the attention. Communication involves many unpleasant things. You can find examples of the most heinous works of communication, for example, Mein Kampf. What you have to do is look at it with a broad brush and recognize that the potential outweighs the danger. There's a very interesting thing about communication. There's a sort of faith in it -- it's a kind of sweetness. When you invent a new media technology you're displaying a faith that people are ultimately good.

—Anthony Perkins is Founder, CEO, Editor-in-Chief and The Red Herring.

STALKING BILL GATES
By Anthony B. Perkins
From September 1993 issue

Minutes before hopping into my car to catch a plane to the European Technology Roundtable Exhibition (ETRE) in Barcelona, Spain, we held a hastily organized editorial meeting. When the discussion got around to whom we should interview for our interactive TV (ITV) issue, Technology Editor Zack Herlick piped up and said solidly, “Bill Gates.” Up to that point, Zack had spent more time than any of our staff researching the ITV market. His research led him to believe that Mr. Gates would have more of an impact on this emerging market than any other player. “He’s our ultimate interview candidate,” Zack said. I didn’t yet know the specifics of Zack’s research, but who was I to argue that Bill Gates isn’t going to dominate anything? As I organized my briefcase one last time and started for the door, I remember telling Zack that a Gates interview would be great, but he has been granting fewer interviews lately so it would be a long shot. I suggested that Silicon Graphics’ chairman and founder, Jim Clark, one of the nation’s top technology visionaries, might agree to be interviewed.

Fourteen hours later, I was sitting in Terminal 3 at Heathrow Airport in London, waiting for the Iberia Airline’s shuttle to Barcelona. Waiting for the same plane was Fred Gibbons, founder and CEO of Software Publishing. Fred pointed to a disheveled-looking young man checking in at the counter to board our flight. “Look who’s here?” he said. It was Bill Gates, of course, the featured speaker for the ETRE conference. As we boarded the plane, adrenaline began rushing through my system. “I can’t believe it!” I thought, “I am about to spend an hour and forty-five minutes on the same plane as Bill Gates! What a perfect time to get his opinion on interactive TV.”

The pressure was on. I was grappling with a difficult decision. On the one hand, I’ve always had a deep respect for the personal time of public figures. As a rule, Red Herring never writes about or publishes information concerning the private lives of business people or even politicians. We also prefer to pre-arrange interviews rather than accost people at public forums. On the other hand, I had a vision of the troops back home. The folks I have been preaching to over the last several months about the virtues of “capturing information directly out of the mouths of the most powerful players in technology.” There was no way I could let them down.

As I settled into my seat, I noticed that The Man was seated just a few rows in front of me. The stress must have been written all over my face. As I waited for the plane to fly and the seatbelt signs to turn off, the two elderly English women on “holiday” sitting next to me began giving me some strange looks. To ease the tension, I leaned over to the two women, lowered my voice, and said, “Want to hear some gossip?” Obviously adventurous by nature, the two women perked up and said they certainly did! “Two seats in front of us is the richest man in America,” I informed them. The women giggled like teenagers. While they weren’t quite sure if they had heard of Bill Gates before, they were pleased to be in the presence of someone wealthier than the Queen. When they learned of my mission, they became part of the conspiracy. They nudged and poked me until I got out of my seat to close the deal. Embarrassed, I got up and slunk over to Bill’s seat, only to find him horizontal. Yes, he was lying across three seats, dead to the world!

Eventually, Mr. Gates woke up, I got the interview, and my two new friends had a good story to tell their grandchildren. It was a good thing, too, because I later learned that Jim Clark was on sabbatical. So, Mr. Clark, if you’re back yet, we would still like to talk to you! Maybe I’ll catch him on my next flight out of town.

Bill Gates Interview—The Once and Future King of the Information Superhighway

Barcelona, Spain, September 10, 1993
Bill Gates, Chairman & CEO of Microsoft, talks exclusively with Red Herring editor-in-chief Tony Perkins about his company's plans to be a major player in building the information highway.

The network build-out to the home, which aspires to convert our living rooms into an interactive TV nirvana, will take billions of dollars and the cooperation of hundreds of small and large companies. To complete the job, giant switches, and set-top converter boxes must be built; fiber optic cable must be laid, and, as Bill Gates reminded The Herring this month, "tons and tons of software needs to be developed." And it shouldn't surprise you to learn that Microsoft's founder and CEO also told The Herring, "Whenever there's a lot of software needed in a certain area, Microsoft likes to be there to make its contribution." We don't doubt that Microsoft will be there substantially when the interactive TV revolution hits home. That's why we felt that this special issue would be incomplete without the first-hand insights on the fledgling rollout of interactive TV from the American Gladiator of Software himself.

Perkins: Is Microsoft planning on being a big player in the interactive TV market?

Gates: Isn't everybody planning to be a big player in that business? (Laughs). The holy grail in the consumer market will be to bring new applications into the home. Chief amongst those applications will be software that will provide two-way communications through a new device we call the TV/PC. The TV/PC will be like a TV in that it will be fairly inexpensive, fit in your living room, and be operated by a remote control device. But inside, will be chips that are much more powerful than today's PCs. Users will be able to select from a broad range of programming and services, from education and entertainment services to ordering movies and pizza. You will also be able to hook up your keyboard or printer and do PC-like applications. For some time now, we have had a group working on software for the TV/PC. We're betting that there's going to be quite a breadth of applications and that those applications are going to need a lot of depth, which means a lot of software. You'll need a very rich software infrastructure to operate the switch, servers, and the box that's going to sit on top of your TV and run the applications. Software is the glue that will hold the entire information highway together, and whenever there are huge software requirements, we like to contribute. So we'll have to see if we're right.

Perkins: Are we going to be running Windows on our TV sets?

Gates: No. The user interface on your TV will have to be very simple to use. I don't know exactly what it's going to look like, but I can guarantee you that it is not going to look like a computer. It won't be Windows on your television. It will take a new genre of software. This will not be a canned package, either. The technology and intelligence in the operating system will learn what you like and present options to you that take into consideration your preferences.

Perkins: Is Microsoft biased toward any particular network option?

Gates: We are network neutral. We are committed to solutions that work together across different and dispersed networks, whether cable or fiber-centric. In order for everything to function properly, we will have to deliver an open-system solution.

Perkins: How much money are you spending on R&D in the consumer area?

Gates: About $100 million a year.

Perkins: Some analysts predict that the cable companies will run out of cash trying to build the infrastructure to play in the ITV market.

Gates: No, no, no! Come on -- it's all debt financing! All you have to do is prove how the monthly revenue stream from service subscriptions can cover your loan payments, and you're in business! I think that even when you include the converter box, the fiber infrastructure, and the switch, the home build-out will cost less than two thousand bucks per home. All you have to generate is fifteen to twenty bucks a month per subscriber, and you can easily make up for that expense. The revenues that will be generated by the initial interactive services, such as movies, shopping, and video conferencing, will justify the big capital investment. I think that cable companies will be able to get as much debt financing as they need.

Perkins: Paul Kagan Associates projects that there will be over four and a half million converter boxes sitting on TVs by the end of the decade. What do you think about that projection?

Gates: Random. It's a random number. It's all finance! Demand means nothing! It's some market analyst spewing out numbers because he's supposed to! Once you prove that the revenue stream is there, you can borrow the money you need to build the network which runs the applications that create the demand. It's all finance. No one can project what the numbers are going to be by the end of the decade. It's random!

Perkins: How long is it going to take for this new segment of the consumer market to develop?

Gates: Nobody knows exactly how the information highway is going to unfold. Even the most optimistic people say that it will take four to five years for the home market to develop. We will have to endure years of speculation and posturing by companies that may or may not bring products to market. It's going to take a lot of cooperation between companies. We will partner with chip manufacturers; the RBOCs; the consumer electronics companies for their expertise in marketing and manufacturing; and the cable companies, who will provide the bandwidth to make it all possible. And, most important, will be the content companies. Clearly, the profits generated by interactive TV will be split among many companies. No single company is going to dominate the new information highway.

Perkins: How is Microsoft going to work with the content providers?

Gates: We must work closely with content providers. When we deliver the operating system and the information highway becomes a reality, it will be very important for the content providers to be right there- ready to turn their systems on. Microsoft will also provide the tools so that content people can create interactive programming relatively easily, cost-efficiently, and quickly.

Perkins: For all its hype, the information highway doesn't yet exist. What do you think will be its different stages of development?

Gates: In the beginning, we'll see many new consumer applications on public kiosks. Today's cash machine will become an information network terminal that provides public access to multiple services. That's how this new industry segment will be bootstrapped. In the end, I think that these applications will be plugged into your home. Traditional channels will be replaced by menus of topics and services displayed on your screen.

Perkins: It seems as if everybody is jumping into this market. How do you see the competitive environment shaping up?

Gates: Right now, everybody is "working" with everybody. We see ourselves as simply one of many companies working together with phone companies, cable companies, and content companies to build these new types of applications. There will be some really wonderful pilots that will be demonstrated in the next two years. There will also be some terrible pilots. It's only when we expose this two-way highway in a rich form and encourage the same kind of software developers that fostered the PC phenomena that we'll be able to develop applications for the broader market. For this to happen, we must draw on everything we know, everything the computer industry has developed in the last ten years.

Perkins: So, are we all going to end up being couch potatoes?

Gates: (Smiles) We're at the center of the true information revolution. As these information tools become pervasive in business, on the road, and in your home, how we live our lives and conduct commerce will be revolutionized. I think the idea of information available at your fingertips and instant global communication is realizable. It will happen substantially over the next four or five years. As a result, we may suffer a little from information overload or spend a little more time on the couch, but I see that as a symptom of our success. Everything we've been talking about will create incredible opportunities for software companies like Microsoft that are even larger than we can imagine. And, frankly, I'm very excited about it!

The last Steve Jobs and Bill Gates joint interview circa 2007

Introduction

By Anthony Perkins, founder & editor, Red Herring
From December 1993 issue

Ever since his days with Genesis, Peter Gabriel recognized the inherent interactivity of the rock medium. During his distinguished career, he has sought to combine his musical talent with technological inspiration to create a universal language. Mr. Gabriel’s Real World MultiMedia, which released the critically acclaimed entertainment CD-ROM Xplora, merges his music with the interactive medium to promote creative expression and educate people on global human rights and environmental issues. He is also the co-creator of the Real Experience theme park in Barcelona, Spain. Along the way, his ten solo albums have sold 20 million copies worldwide, his album Sowon a Grammy, he wrote and produced the soundtrack for The Last Temptation of Christ, and he co-founded WOMAD (The World of Music, Arts, and Dance), a series of festivals combining traditional and modern music and dance from around the world. By early 1994, Mr. Gabriel found himself operating six different business units — ranging from one of the prime residential recording studios in Europe to a music video production operation. He also saw the opportunity to turn his interactive software company into a huge business. I caught up with Peter Gabriel and David Stephen recently at The MIT Media Laboratory Digital Expression Symposium in Cambridge, MA.The following are excerpts from our talk with two gentlemen pioneering interactive music. Read on and learn what it’s like in the Real World.

PETER GABRIEL
FOUNDER, REAL WORLD

Perkins: How did you get involved with technology?

Gabriel: After time, we just kept acquiring computer tools that we could play around with and use to enhance photographs and music videos and things like that. I have always fancied myself as a designer of experiences. Both the WOMAD festivals and the theme park we’ve been working on in Barcelona are examples of experiences you can create. So for me, learning how to implement technology in my work has been a slow process of experimenting with different ways to create new and interesting experiences for people.

Perkins: At some point, you broke away from classical music and started experimenting with pop music. Was this the beginning of your personal evolution towards artistic experimentation?

Gabriel: Or devolution. [Laughs] One day, a friend and I bought a ninety dollar kit and assembled what I think was the first programmable drum machine. I was so excited, because I had actually tried to teach myself to be a drummer for a long time, but I never really mastered it. So I had to spend a lot of time negotiating with whoever was my drummer at the time trying to get the right groove. The nice thing about the drum machine is that it never talked back. But it really changed the way I wrote music. That tool became an inspiration for me during the idea generating process. It helped me to be more sophisticated about my approach.

Perkins: Could you explain that process a little more specifically?

Gabriel: Well, for example, tempo lets me sample rhythms. I program the tempo I am experimenting with into my keyboard and use it as a rhythm composition base. That is an inspiring tool to work with.

Perkins: Some would argue that CD-ROM technology is a rough medium — that it is difficult to leverage as an art form. How do you create a quality, satisfying experience for people with CD-ROM technology?

Gabriel: With Xplora, we tried to make the look and feel very pleasing. We used the earth, the sky, and some other elements to create a natural experience. Xplora is also designed to invite people into the experience, and make them participants. Users can actually mix their own music for example — which I think is going to become very popular. That’s the great thing about interactivity, it allows us to step inside and work on the interior, instead of standing on the outside as an observer. But I would agree that CD-ROM technology still has certain limitations. I think it is only an intermediate technology until online fully develops. But we think a lot more can be done with CD technology, and we’ve only scratched the surface of its capability so far. We are now working on several other CDs that should be even more satisfying.

Perkins: When you’re developing a CD title, you have to take into consideration so much more than merely the composition of the music. That seems like it would be a lot harder than writing a song.

Gabriel: I still feel very much at the beginning stages of learning about what the new media can and cannot do, so there is clearly more experimentation that goes into the process. But it’s a lot of fun. It’s also much more about collaboration than the work I did before. In developing CD-ROM titles and the experience parks, there is more collaboration and interaction within the artistic process.

Perkins: How do you think interactive technology will change the role of the artist?

Gabriel: Traditionally, the artist has been the final arbiter of his work. He delivered it and it stood on its own. In the interactive world, artists will also be the suppliers of information and collage material, which people can either accept as is, or manipulate to create their own art. It’s part of the shift from skill-based work to decision-making and editing work — where choice becomes as important as the actual construction of the piece of work. That’s what’s so exciting — the fluidity and flexibility of technology is a good complement to the human artistic spirit. In other societies, it’s just assumed that all people are born artists who can express themselves through visual art, music, or language.

Perkins: You often talk about the potential of technology as a communication tool that helps bolster democracy and human rights.

Gabriel: That’s right. PC technology allows people to communicate and disseminate information around the world at any time, which I think has positive consequences in furthering the idea of democracy. The ideal would be that all citizens could use computers and video cameras, and other types of technology to record their stories for people around the world. I’d like to see a building immediately opposite of the United Nations which would be an archive of human rights abuses, so any citizen of the world could film and record their story and send it to this archive, no matter how gruesome it might be, and people could acknowledge and answer them. At least their experience wouldn’t be denied. Even Gorbachev used his video camera to show what was happening after he was kidnapped.

Perkins: How important is it to you that the human rights message in Xploraactually makes a difference?

Gabriel: I think it’s important that the message is there.

Perkins: At Red Herring we always promotes the idea that technology can also promote economic growth. Do you agree?

Gabriel: Absolutely — especially in the Third World. It is clear that information technology provides the Third World with the opportunity to jump from an agriculturally based economy to an information economy and skip the pains of an industrial transformation. So it’s very important to me that the Third World is not excluded from the information revolution.

Perkins: In our interview with your new CEO, David Stephen, he talked about your emphasis on producing quality work, and how that’s going to make his job of building a strong brand name for Real World much easier.

Gabriel: I’ve always been driven to produce the best work I can, which I think is also good business. You see, I believe that in the long run, we all have a natural tendency to pursue quality. There was an experiment done with kids where they were put in a supermarket and told they could eat anything they wanted. In the beginning they all ate cookies, chips, and sodas, but after a couple of weeks they moved on to primarily fruits and vegetables. So I do believe, hope, and trust that people will migrate towards nutritious information.

Perkins: I guess it’s conceivable that people could get hooked on junk information, just as some have junk food habits.

Gabriel: I had a conversation with Bill Joy [inventor of Berkeley UNIX and co-founder of Sun Microsystems] about the side effects of the information revolution, and he proposed the idea that perhaps the ultimate freedom is the freedom frominformation. I think Bill’s observation was very interesting, because, if you think about many of the spiritual disciplines, achieving a state of absence of information — the meditative state — is the ultimate goal. So, as we move forward, we should probably try to find the right balance.

Perkins: As you have changed and progressed as an artist, has your audience changed over the years as well?

Gabriel: Ah. One of the ways I test that is when I go out on stage, I look at the faces in the front row and see if they can sing along with some of my old songs. [Laughs]

Perkins: Just like Sinatra does. How long did it take before people stopped asking you to play Genesis’ songs?

Gabriel: Oh, about ten years. But I think that as our tools have changed, so has our audience. We are no longer asking people to just sit there for several hours and take in our output. We are trying to give them tools so they can engage in an activity, and take our music where they want to go. We are trying to provide a fishing rod for every fish. This focus tends to appeal to a younger, more computer literate crowd.

Perkins: While technology can unleash creativity, it also has a tendency to automate things. How do you avoid the risk that new technology tools, of whatever kind, might make your work or your performances stale?

Gabriel: Technology is just a tool. It still takes an artist behind the wheel. I always leave room for improvisation, and I really think much of the equipment provides some real advantages in expanding the creative process. Brian Eno talks about transparent technology, and I think that’s what the goal of tools should be, really. Like the drum machine, which can be there to inspire you during the process, but in the end the tools disappear. Until an artist finds a way to achieve a degree of fluency, when physical actions become more instinctive — bypassing the body — I think it can be helpful to use technology interfaces to get you there.

Perkins: You have also experimented with using technology in the audience, so they can interact with the show, haven’t you?

Gabriel: Yes. We try to use technology to give the audience a way to interact with what’s happening on stage. That approach has the potential to make each show a very unique and different experience for people. I know when I am sitting out in the audience watching someone else perform, I like to feel that I am powerful enough to influence what I am about to receive. But there is always a danger that if things become too programmed you give the audience a sense of powerlessness that they can’t change the nature of the performance.

Perkins: What are your thoughts on interactive TV?

Gabriel: I still think there will be a large demand for couch potato television. I watch television in the studio to switch off. But I think the prospects of getting viewers more engaged in television are good. I agree with Nicholas Negroponte [founder and director of the MIT Media Laboratory] that technology will allow the distribution of television to become more decentralized. That the walls between telephones, television, and content development will be destroyed, and the communications and entertainment industries will take on a new and exciting shape and form. It will be harder to distinguish who does what.

Perkins: In the end, what would you like to think your contribution has been?

Gabriel: Well, I’d just like to be part of the process that gets technology out there in the hands of everyone so they can be empowered to pursue their economic and artistic freedom. Real World would like to help use multimedia technology to create a new language so kids and people from all nations will be able to better communicate the richness of their cultures. That excites me.

Perkins: So, what can we look forward to next?

Gabriel: Our current project is a double live and video album called Peter Gabriel Secret World Live. And I think you’ll find the interactive titles we publish in 1995 very exciting.

Peter Gabriel’s Secret World Live tour in November 1993, Palasport Nuovo, Modena, Italy. Secret World won the Grammy Award for Best Music Movie in 1996. Put on your headphones, beam the show up on your big screen and step into the Real World of one of the most creative artists and ‘designers of experiences’ of our time.

Gates vs. Jobs: The Rematch

Apple Computer’s iCEO, Steve Jobs (the ‘i’ now stands for Internet rather than interim), tells a story about a recent dinner with Bill Gates in which they talked about how they used to be the youngest guys in the business, and now they are the graybeards. That both men are just 44 is ironic enough. More profoundly, Mr. Jobs and Mr. Gates find themselves once again, after a 15-year reprieve, locked in head-to-head competition over the leadership of the personal computer industry.

This last statement may surprise you. How can Apple Computer, with barely over 3% worldwide PC market share, be a competitor to the mighty Microsoft? Sure, Mr. Jobs has guided the company he co-founded out of a garage in 1976 back to consistent profitability and revenue growth. Best of all, he has also increased Apple’s stock price tenfold since retaking command for shareholders. But will Apple become anything more than a computer maker for a high-end niche, the Porsche of PCs? “What’s wrong with owning 100% of the Macintosh market?” industry pundit Stewart Alsop used to say. And Mr. Jobs is certainly making a business out of Apple’s monopoly of the Mac market again.

‘New Platform’

To dig deeper into what I believe is a bigger competition, however, consider what Mr. Gates said at the World Economic Forum in Davos, Switzerland, in January about his new job as “chief software architect.” First, he reiterated that he would spend 100% of his time on product design. Specifically, he said he would “evaluate all the new technologies coming out of our research group, and out of the software industry as a whole, and develop a three-year plan to create a new platform so users can easily access, manage and share information, whether stored on a personal device or out on the Web.”

Mr. Gates’s ambitions go far beyond Windows 2000, which began shipping last month. He aims at “building a whole new user and Internet interface, and a whole new set of applications that go behind it.” During the development process, much of the old Windows code will be thrown away, and what will emerge will be a more modern, “Linux-like” operating system platform.

For Web surfers, single-browser access to our computers and the rest of the world is a welcome dream. For Mr. Gates, it’s more than a dream — it’s bet-the-company time. This is the same kind of gamble Microsoft made during the transition from DOS to Windows or developed Windows NT. “But the stakes of this bet are even higher,” Mr. Gates said, “because the stakes in our business are greater than they have ever been, and that’s why I have to give 100% of my attention to the big picture.”

Meanwhile, Apple has re-emerged as an industry player primarily because Mr. Jobs has focused on the company’s product development and marketing campaigns like a laser. He reduced the product line to four easily understood and well-differentiated classes of sleek machines, some packaged in vibrantly colored, translucent computer cases. He promoted these new creations with equally slick and fun advertising campaigns that made the 20 million existing Mac users feel young again and seduced a whole new generation into becoming Mac converts. Roughly 30% of iMac buyers are first-time PC users. Apple’s new buzz is summed up in the banner that adorns the company’s headquarters in Cupertino, Calif.: “The re-birth of cool!”

Sounding exactly like Mr. Gates, Mr. Jobs aspires to marry the iMac to the Internet with an easy-to-use new operating system and a set of complementary Web services. “The user experience is what we care about most, and we are expanding that experience beyond the box by making better use of the Internet,” Mr. Jobs told the throng attending January’s annual MacWorld trade show in San Francisco.

Here lies the crux of the competition between Microsoft and Apple, and the reason I believe Steve & Co. deserve attention. Apple has already leapfrogged ahead of Microsoft in the Internet innovation game. At MacWorld, Mr. Jobs showed off his newest baby, a completely new implementation of the Macintosh operating system called OS X (that’s a Roman numeral 10), including a new user interface called Aqua. Designed by a team headed by Avie Tevanian, Mr. Jobs’s chief software guru, OS X represents more than a glimpse of the dream Bill Gates is chasing.

For the all-important constituency of software application developers, OS X makes it easy to recompile their older applications to run “native” in the new operating system with higher performance and stability. And OS X comes equipped with a set of tools and interfaces called Cocoa that allows developers to create new applications in about a tenth of the time it would take to write for Windows. The goal here is to lure back developers, who had drifted away from Apple because of its dwindling market share.

For the iMac user, OS X is far less likely to crash, and it offers far superior Internet access. Its new graphics system called Quartz makes it easy to view any text document or graphic file received over the Internet. Mr. Jobs came to MacWorld armed with a whole new set of free Internet services, called iTools, such as online data-storage services, tools for building personal home pages, and e-mail and greeting-card services.

To be sure, many of these Web services are currently available from companies such as Yahoo! and AOL, but Apple’s key innovation here is integrating them into the operating system, a technical achievement that is, as Mr. Gates acknowledged in Davos, “the new Holy Grail” of the computer business. Said Mr. Jobs: “I actually think that our new Internet services are going to be equal to the OS X in making the Macintosh stand out.”

An interesting side note is that Apple has a head start on Microsoft because most of its innovations are based upon technologies first developed at NeXT, including NextStep, a Unix-like operating system that the European physicist Tim Berners-Lee and his team used to develop the original foundation of the Web. In many ways, this connection vindicates the 12 years Mr. Jobs spent in the wilderness at NeXT and soothed the cynics who claimed that the $400 million Apple paid to acquire NeXT in 1997 was a funny money deal of grandiose proportions.

The bottom line is that while Apple and Microsoft may be pursuing different technologies, they are trying to execute essentially the same business model. The goal is to create a proprietary Internet operating system platform and unique Web services that can run only using that platform. The major difference is that Mr. Jobs is also in the business of selling hardware, and he is proposing to provide most of his Web services for free. On the other hand, Mr. Gates will strive to hold on to Microsoft’s existing model of selling both the operating system and the applications. No matter how the economics shake out, both Mr. Gates and Mr. Jobs must face a world that is moving increasingly toward open Internet standards and will be, by nature, hostile to colonization efforts pursued by either company.

Also in Davos was the software industry’s other Bill — Bill Joy, the crafty co-founder and chief scientist at Sun Microsystems. “There has been no innovation in the PC business for 15 years!” he moaned to all who would listen.

Making the PC Industry Interesting Again

Mr. Joy is right. And it’s no coincidence that the last time we saw real innovation in the PC market, Steve Jobs was still at Apple and unveiling the Mac, with its now-ubiquitous graphical user interface, a feat that would take Mr. Gates almost 10 years to imitate successfully. Well, Mr. Jobs is back, and he and the Internet are making the PC world interesting again.

While Mr. Jobs’s new operating system is due in stores this summer, Mr. Gates is still straddling the old world with Windows 2000. Just like the last time around, Mr. Jobs has gained the early technology edge, while Mr. Gates maintains the market edge. Most industry seers would bet on King Bill. I will stick out my neck and put my chips on Apple. At a minimum, I think Mr. Jobs will gain significant market share in this next round. No matter what, Bill is right to make it his full-time job keeping up with his buddy Steve.

By Anthony B. Perkins 
Red Herring, January 1996

Steve Job tell’s his new story

Steve Jobs was happy to tell us that Pixar Animation Studios is “the only true digital studio in the world.” Pixar gains this distinction, of course, by being the first digital effects house to actually produce a full-feature film entirely on a computer. Standing in front of a packed house at the San Francisco premiere of Pixar’s new blockbuster, Toy Story, Mr. Jobs was at his best. He told a story of how his four-year-old son watches the Disney classic Snow White and the Seven Dwarfs over and over again. “The thought of participating in the production of a classic film such as Snow White, which our grandkids may watch in 30 years, is what’s exciting for me.”

What is also special is that, on the heels of its first movie release, Pixar went public at an astounding market valuation, flying by the $1 billion mark by the end of its first day of trading. The preceding day, power journalist John Markoff of The New York Times wrote a story on the comeback of Mr. Jobs that landed on his paper’s front page under the headline “Apple Computer Co-founder Reaps a Billion Dollars on Stock Issue.” Mr. Jobs reached this billion-dollar zenith by buying Pixar from movie mogul George Lucas 10 years ago for $10 million, then pumping an additional $50 million into the company to keep it puffing until it finally showed a profit last year. Whether Pixar’s whopping market valuation holds up or not, Mr. Jobs deserves all the success he can garner for hanging in there with his fledgling company. Few venture capitalists we know would have done the same.

This magical success is neither the beginning, nor will it be the end of the Jobs story. In 1976, at the age of 20, Mr. Jobs co-founded Apple Computer. Over the following decade, Mr. Jobs designed the Apple II, and led the development, manufacturing, and marketing of the Macintosh and LaserWriter, two products that still make up the lion’s share of Apple’s $10 billion revenues. In 1985, Mr. Jobs left Apple to found NeXT Computer, a pioneer in object-oriented software. While the NeXT story is not nearly as glamorous as Pixar’s, we think the company is going to have a hugely successful year in 1996, and may also go public soon. [The Herring got a full update on NeXT in our below with Mr. Jobs.] Mr. Jobs is betting NeXT on two new initiatives, by building software development frameworks for both Windows and the World Wide Web.

When we met up with Mr. Jobs for the interview, we noticed that some of his legendary idiosyncrasies still exist. The minute we showed up, he slipped out the back door “for a walk” — for 45 minutes. His PR people still dote on him. When our photographer tried to take photos during the interview, he snapped at her sarcastically and made her stop. Manipulation, selfishness, or downright rudeness, we couldn’t figure out the motivation behind his madness. But he gave us a great interview, so we don’t really care.

What we do care about is that Steve Jobs is an original. He’s a guy who loves “people who work their butts off on a concept…and bring it to market.” It is very clear that he isn’t in business for the money, but for the opportunity to create, as he used to say, “insanely great” products. Over the course of the couple of hours we talked with him, he spoke proudly of the Mac, he described several of NeXT’s new technologies as “far-and-away the best in the world,” and his eyes sparkled when we asked about Toy Story. There is a slight difference in Mr. Jobs’ demeanor these days, however. He has ventured out of the infamous “Steve Jobs reality distortion field.” He understands now that the best technologies don’t always win. He thinks that the biggest issues that will determine the fate of the Web are not technical issues, but geopolitical. He also made several references to being “older” (he just turned 40), and even ironically commented that although Netscape co-founder Marc Andreessen is very smart, he is still “very young.”

British psychologist and author Anthony Storr points out in his book Solitude — A Return to the Self that there is a fine line between the madman and the genius. Both require a rich fantasy life; to be the latter requires that you keep at least your big toe on the ground. Over the years, Steve Jobs has been both. But today he seems more firmly grounded in reality, and it is beginning to pay off. No matter what his plans are for the future, we hope he keeps pursuing his imagination. All you have to do is see Toy Story, or see a demo of WebObjects, and you’ll know what we mean.

What is NeXT?

In 1976, at the age of 20, Steve Jobs co-founded Apple Computer, where he not only built the Apple II, but helped develop and manufacture the Macintosh and LaserWriter. Since ’85 his entrepreneurial energies have been focused on running NeXT Computer, a leader in the object-oriented software market. Mr. Jobs spent an afternoon with Red Herring philosophizing about Netscape versus Microsoft, the Internet promise, and the pros and cons of youthfulness.

Perkins: Beginning when Jim Clark met Marc Andreessen and founded Netscape, every technology executive seems to have had their own “road to Damascus” experience regarding their newfound faith in the Internet. How long have you been thinking about it?

Jobs: For probably seven or eight years. I don’t know if you have tried the NeXT e-mail system, but it is really the best in the world. So we’ve been using the Internet for a long time to send mail to people. They never did that at Apple. The more relevant question, I think, is when did we start recognizing the value of the World Wide Web. NeXT has had a long association with the Web. Tim Berners-Lee, the European physicist who led the team that developed the original foundation for the Web, used NEXTSTEP. So we were somewhat exposed to it from the very beginning. But I don’t think we quite got it until maybe two years ago. That’s when we started to see that the Web was going to be phenomenal, and it was going to change the way people think of computing.

Perkins: How so?

Jobs: The old way to look at computing was as a straight line between the desktop and the enterprise, with the primary focus on improving desktop productivity. That world, as we all know, is owned by Microsoft. But the Web is changing all of that. One way to view the Web is as the ultimate direct-to-customer distribution channel. At least that’s how NeXT looks at it. Now who cares about that? Businesses! Suppliers! They are the people who can best leverage the Web by using it to conduct business and make money. So the Web completes the computing loop by providing businesses with a new way to interact with their customers.

Perkins: Perhaps ironically one could say it’s like the old mainframe computing model, but with all of your customers hooked into your network, too.

Jobs: Exactly! The browser is just a 3270 terminal [IBM workstation] on multimedia steroids. Right?

Perkins: What do you think about Netscape’s vision that someday soon we will all be automatically hooked to the Net when we boot up our computers, and their Navigator platform will be our primary interface to the world?

Jobs: I wish the world could work that easily, but it doesn’t. You are talking about ideas, I am talking about reality. Look, I love Marc Andreessen, he’s a great guy. But he’s young, and he’s got Microsoft to deal with.

Perkins: But Netscape does have 10 million customers using the Navigator, and that is reality.

Jobs: Yeah, but they give it away. They have probably made $20 million off their browser business. Do you think they will make a lot of money on 2.0? It just ain’t gonna happen. They don’t have 10 million customers anyway, they have four million.

Perkins: We haven’t personally checked the numbers, but Netscape claims to have a system in Mountain View that identifies users every time they fire up Navigator, and so they can verify those numbers.

Jobs: Okay. So maybe they do. And I think that’s wonderful. But, by the way, I couldn’t give a shit about the browser. We are not going to make any money by selling browsers, and I personally don’t think they are going to make any money from it either. If you can get a browser from Microsoft for free, why are you going to pay $39 to Netscape?

Perkins: But if Navigator is platform-independent, and…

Jobs: But everybody uses Windows. Come on — 90%+ of the people use Windows, so 90%+ of the people are going to hook into the Internet using Microsoft. Now, you know me, I love the Mac too, but I am trying to be really objective here. Plus Microsoft is…

Perkins: …busy making all its apps Web-friendly.

Jobs: Microsoft is busy trying to kill Netscape. And it has a certain track record of being successful at those kind of things. So I wouldn’t write off Microsoft right now. But all I am trying to say is that no one is going to make money by selling browsers. I do think a lot of people are going to make money off the pipes, but that ain’t us. The pipe is going to be owned by the RBOCs. Pac Bell and all those guys are going to provide cheap ISDN lines into the home that come with a little box that turns it into Ethernet, and they are going to be impossible to compete with. But, as we’ve been talking about, the new Web set-up is just like the mainframe computing model, where all the apps will run off the server, and these will mostly be custom apps.

Perkins: Enter NeXT Computer.

Jobs: Well, as it turns out, the businesses that can best use the Web are the exact same people we have been talking to for several years about NEXTSTEP and Enterprise Objects. Those customers now have a real need to build custom apps on the Web so they can vend products, information, and services to their customers. As we started to think about it, we came up with four categories of things these customers are going to want to do with the Web. [Mr. Jobs gets up and starts drawing on his whiteboard.] One, they are going to do static publishing. That’s where somebody makes a Web page and vends it. Anybody can look at it at the same time as 3,000 other people, and it doesn’t change until someone goes in there and changes it by hand. The second thing people will be able to do, which is going to be a lot more exciting, is what we call dynamic publishing. There are already a few examples of people doing this — like the Federal Express package-tracking Web page. You give it a number, it goes into four or five different databases and finds the information you need, and then presents it to you so you can browse it. Now there isn’t a little gnome in there that makes up this page for you, the computer makes the page for you. It’s a custom page answering your custom request, dynamically created on the fly. And this is just the tip of the iceberg. Have you seen our Chrysler demo?

Perkins: Only when you demonstrated it on CNN.

Jobs: I will show it to you in more detail in a few minutes, so you can have a better idea of what I’m talking about. The third big application for the Web will be commerce. The security issue here is the red herring, so to speak. And frankly, it is going to take Visa and MasterCard to solve this problem. Netscape can’t solve this problem; we can’t solve it. Before you start sending your credit card number all over the Web, you want someone to guarantee that if there is fraud, you aren’t going to be held responsible. And who can guarantee that? Not Netscape. Only Visa can say that, and it will solve that problem. The real issue here, however, is that if you are going to sell something over the Web, and you’re a medium-to-big company, you’ve got to have an order management system. But guess what? You already have an order management system that you’ve been running your company on! So, to be efficient, you need to tie the Web into your existing order management system. It becomes multi-platform that way, right?

Perkins: Right.

Jobs: Now you are constrained with the UI [user interface], but a lot of apps can be written in constrained UI. Look at the number of 3270 apps that have been written in the world and are still used. So, if you can constrain yourself to the existing UI today and write your app, not only will you get multi-platform capability, but you can roll your apps out to the contracted agents working for your company, and eventually out to your end-customers. For example, Merrill Lynch works with over 10,000 people who do not work directly for them, but help Merrill Lynch sell its products and services.

Perkins: How long do you think it’ll be until this Web-centered world fully comes into play?

Jobs: Static publishing is already happening today. Dynamic publishing is just beginning to happen, but is really going to be the big thing in 1996. Web-based commerce should also start kicking in 1996, and, in my opinion, building internal apps for the Web won’t really get going until 1997. When we looked at these developments, we realized that the final three require custom software. And that’s what we do here at NeXT, Custom ‘R’ Us, right? So we created this thing called WebObjects to help make it easier for people to build custom apps for the Web. For example, it took Federal Express four months to build its Web site — using WebOjects, you could build that same site in four hours.

[Mr. Jobs then showed us the Chrysler Corporation Web site that the NeXT team built with WebObjects and an Oracle 7 database. During this demonstration, Mr. Jobs searched the site for several specific models of cars, at different price ranges, in different colors, and sorted in different ways, and each time he was instantly presented with a Web page that included all the cars he had requested. He also showed how the NeXT team had built a custom function into the site that allows customers to calculate their own financing options and identify which dealers have the exact models they are looking for.]

Perkins: That’s pretty cool. How did you do that?

Jobs: It takes your request, parses it in WebObjects, grabs all the data, and dynamically builds it into a Web page for you to browse. The way we set up the car financing feature is that it actually sends an OLE call to another Windows computer that launches an Excel spreadsheet that does the calculation for you, and then OLE messages the information back and shoves it onto the Web page. You can’t possibly do this in a static environment. I would think that this site is, what, an order of magnitude or two more dynamic than any other Web site out there right now. Wouldn’t you agree? And we set up the whole Oracle database, we built the whole app, we scanned in all the pictures — everything, in about 48 hours with four people. And, to reinforce something I talked about earlier, the site I just showed you will help Chrysler sell cars, because it distributes information to customers far better than Chrysler’s dealers can.

Perkins: And pretty soon, with 3D immersion on the Web, you’ll be able to get in the car and test drive it.

Jobs: I personally don’t think that will happen for a long time. But what will come soon, when we have MPEG decoder chips in every computer, is the ability to download a high-quality video so you can watch the car drive around.

Perkins: Does WebObjects work across all platforms?

Jobs: It’s very portable. It can run on our Mach operating system, it runs on Solaris, H-P UX, Digital UNIX, and it now runs on Windows NT. It’s also fully distributed, so you can have objects on different machines and one object can send a message to another object without even knowing where it is. In fact, you can move an object from one machine to another without ever changing the app, it just automatically works itself out.

Perkins: It also seems to work pretty seamlessly with the Oracle database.

Jobs: We discovered over the years that almost all mission-critical apps make extensive use of databases. So we tried to figure out the coolest way to integrate data sources with objects, and we came up with this thing called the Enterprise Objects Framework [EOF]. In essence, EOF allows you to graphically connect the data-structures in your objects with any SQL database, and it will automatically — automatically — make the data in your object persistent and coherent with that data in your database without any programming. And it is exceptionally powerful. EOF is far-and-away the most aggressive database technology out there for objects. It’s really slick. With EOF, you don’t have to know about SQL. It has full TCP/IP communications built in, so you don’t have to know about that. It also has Sybase and Oracle client libraries in it, so you don’t have go out and buy those. You literally just point it at the database on the network and it works! So when we wrote the WebObjects framework, we based it on our experience with EOF. What that means is that your object doesn’t have to know anything about the Web — it literally doesn’t have to know anything about its UI, it doesn’t have to know about HTML, it doesn’t have to know about URLs. And, like EOF, it doesn’t have to know about the database or the connectivity. Everything is taken care of automatically. So WebObjects is far ahead of anything anybody else is doing out there.

Perkins: Why do you think you have built up such an advantage?

Jobs: The reason we are ahead, I think, is because our understanding of the fundamental business model of the Web is more advanced than Netscape’s, or that of anybody else we’ve talked to. We’ve spent eight or nine years developing PDO [Portable Distributed Objects, NeXT’s object model], we’ve spent four years developing EOF, and we have just leveraged that by spending about 1.5 years developing the WebObjects framework. The other guys haven’t even gotten started yet.

Perkins: When will WebObjects ship?

Jobs: WebObjects is in alpha right now, it will go into beta by the end of this year, and we are shipping in production in the first quarter of 1996 — my guess is by February.

Perkins: Do you worry about Microsoft?

Jobs: My goal over the next few years is to stay far ahead of Microsoft, until the Web is so ubiquitous, that even Microsoft can’t own it.

Perkins: Could a Windows-compatible-only Web strategy become Microsoft’s Achilles’ heel?

Jobs: I gotta tell you, multi-platform compatibility ain’t what it used to be. Windows has won. It beat the Mac unfortunately, it beat UNIX, it beat OS/2.

Perkins: But it took 10 years. [Laughs]

Jobs: We can all laugh at how long it took, but then we can all cry about the fact that it did happen. An inferior product won, but it won. And there is no changing that. I still think multi-platform is important, but not as much as it used to be.

Perkins: Netscape’s vision is that multi-platform capability is important, and…

Jobs: Wait a minute, let’s zoom back for a moment. It’s not Netscape’s vision, it’s Tim Berners-Lee’s vision. His original idea was that the Web would become the circulation system connecting us all together. Netscape embraced this vision, and it has done a better job than any other company in doing so. But as we all know, Microsoft has embraced the same vision Netscape did two years ago. So to state that Microsoft and Netscape have diametrically-opposed views would be foolish. They have both bought into the Tim Berners-Lee vision, and Microsoft is going to be a force on the Web, whether you like it or not. Look, I remember the day when Microsoft entered the application business for the first time — its first programs ran on the Mac, not the PC. It was back in 1984, when we launched the Mac. Today, half of Microsoft’s revenues come from application software, and it is the leader in that business. Now I am not a cheerleader for Microsoft, but I think it would be stupid to think it isn’t going to be a big player with the Web. And don’t get me wrong. I take my hat off to Netscape. I love Netscape.

Perkins: Why do you love Netscape?

Jobs: I love Netscape because I love any group of people willing to work their butts off for 18 months to get something done and take a new concept to market. I love that!

Perkins: How about Sun’s Java software?

Jobs: My view is that putting a programming language like Java in the client will slow the Web down, and allow Microsoft to catch up. So while NeXT thinks Java is a fine language, and eventually it would be great to see it in the client, I actually feel that for the good of the Web, and for the good of the industry, the Web ain’t broke, so let’s not fix it. The most important thing right now is to let the Web accumulate users and establish ubiquity, until it’s so entrenched that even Microsoft can’t own it, and then let’s add in all the cool stuff. Now I am not denying that the UI on the Web strains its use, but I am a little worried that in the microcosmic lust for perfection, macrocosmically we will give Microsoft the time it needs to own the Web. I hope that doesn’t happen.

Perkins: We suppose that’s one way to look at it.

Jobs: As an example, I predict that by the end of this year, Microsoft will announce that it has a Visual Basic variant or deviant that it proposes as the Web-client language. And Sun and Microsoft will have a war. And Microsoft will put everything it has into that war, because if it can win, it will have killed Netscape along the way. Netscape will put everything it has into that war, because if it loses, it is in trouble. So I ask you, who will win that war? Probably Microsoft. I hate to say it, but it has a lot more resources. So, in a way, Java may be the undoing of some very good things that are happening with the Web right now. I want to emphatically say that I like Java, but I am looking at it from a geopolitical perspective, not a technology perspective. So having said all of that, WebObjects works perfectly with Java. [Laughs]

Perkins: In our interview with Jim Clark, he said that Java “has a facility to protect you against the transmission of viruses, and a cryptography envelope that can wrap around and protect programs delivered over the Internet.”

Jobs: Well, that is just not a true statement. We know a lot about cryptography here. We have invented far-and-away the best public key encryption technology in the world outside of what’s inside the NSA. It blows RSA away. We have been told by people who know. Therefore we know that any language in the client is going to be susceptible to viruses.

Perkins: Any thoughts on @Home? You’ve already stated that the RBOCs will own the pipeline.

Jobs: I think several of the RBOCs will make a lot of money selling unlimited use of ISDN and an Internet account for $20 to $25. That’s reality, that’s product you can have in your home in January, and @Home is talking about a cable modem product that I may be able to get in a year or two. I mean, fine, asymmetric cable modems are very interesting. But all I’m saying is that you have these multi-billion RBOCs who already have customers in every home in their territory, and they have trucks with people who can install new products, and they have bought a zillion servers and have set up Internet farms, and they are ready to roll. I’m just mentioning that that is a fact.

Perkins: What about Apple?

Jobs: Well, I love Apple. I hope they make it.

Perkins: You sound concerned.

Jobs: [Shrugs]

Perkins: So what is NeXT’s growth strategy?

Jobs: We have three major new things coming out in the next nine months. One is D’OLE, the distributed OLE product which will be out by the end of the year. We have WebObjects shipping in the first quarter, which takes us into the Web market in a very big way. And we have OpenStep for Windows shipping in the second quarter. Our big initiatives then are really the Web and Windows. With the introduction of our Windows product, we are really going from having 10% of the seats available to us, to having over 90% of the seats available to us. And we think WebObjects should become pretty big, because we think the Web is going to be pretty big.

Perkins: Is an IPO in the near future for NeXT?

Jobs: We don’t have to go public, but there are other issues such as employee liquidity and credibility with our customers. So I see an IPO sometime down the road.

Perkins: Closing comments?

Jobs: The Web is great because it breaks down two big barriers. It breaks down the platform barrier, because it is multi-platform, and it breaks down the internal/external barrier. Small to medium-sized customers will be able to share information seamlessly across the Web with their customers, and that should increase everybody’s productivity. But, again, I think the biggest issues that are going to determine the fate of the Web are not technical issues, they are business and political issues. Maybe I am getting too old, but that’s what I think.

Steve Jobs’s Toy Story

Red Herring Interview, January 1996

On December 19th, 1995, Pixar became a charter member of one of the most exclusive clubs in Hollywood. On that day, Pixar's Toy Story surpassed $100 million in gross domestic receipts, making Pixar the only company besides Disney to create and produce a "blockbuster" animated feature film. When we spoke to

Pixar CEO Steve Jobs for last months issue, he could not talk about Pixar or Toy Story because of the company's pending IPO. Since then, however, Pixar has joined Netscape as one of the most successful IPOs of *95, making Mr. Jobs, who controls roughly 80% of thecompany, a very rich man. Now, Mr. Jobs can talk—and talk he did. Never one to mince words, he analyzes the current state of animation and explains why Toy Story is, in his words, "the first product of a new medium of filmmaking."

The Herring: How does 2D animation compare to 3D animation?

Jobs: Our point of view is this new medium —while it will not replace 2D— is far richer in the capabilities it gives to the artist to express story and character. I'll give you a simple example. As you know, 3D computer animation is not the computer animating but the computer doing all the drawing. For each frame in Toy Story, there is approximately 300 MB of data that is fed into the computer. Sun's fastest workstation —one of the fastest computers you can buy — cranked for three hours on average to produce one Toy Story frame. Computers can draw a lot in a second. Imagine what they can do in three hours! The subtlety of expression that you can see in our 3D film, in my opinion, goes way beyond anything done in a 2D film, because I the animator has| more information to work with.

The Herring: You can reuse those elements, too.

Jobs: Oh, we do. Our animation is the first reusable animation in the world. As a matter of fact, we reused all sorts of sequences throughout the film. We also reused major sequences from the film and re-rendered them for the appropriate resolutions for CD-ROMs that we're making. A lot of the animation for the CD-ROMs is of the same quality as the film re-rendered for CD-ROM. We might want to change a camera angle, so we take a few minutes to do that and re-render a scene from a different angle that looks totally different. In traditional animation. changing a camera angle means re-drawing every frame, because there isn't a camera. There's a person and a piece of paper drawing. It really is a new medium of expression. And I think Toy Story con-dusively demonstrates that this new medium has been extraordinarily well-received by the public.

The Herring: Do you think it was the medium or the second-largest creative team in the world, and we story that attracted audiences?

Jobs: I think story will dominate any medium. However the medium can bea tremendously integral parti in helping the storytellers tell their story. In the case of our medium, it was used by the storytellers very well to help them get across the story they wanted to tell, to help them portray the characters and the deoth of characters that they wanted to create. It's hard to imagine certain scenes in Toy Story in any other medium—-certainly the chase scene at the end I think that means the storytellers really used the new medium adroitly in telling their story.

The Herring: So CGI (computer-generated imagery) isn't a fad?

Jobs: Oh, no. No more than Snow White was a fad. Disney invented the animated feature film market in 1937 with the release of Snow White. It was the first of a new medium. We believe that Toy Story is equally the first of a new medium of entertainment, and what gives us tremendous satisfaction is not just that it's the first but that it's a good film. I think most people expected the first computer-animated film to be a landmark in terms of computer graphics but not a very good film. We have a four-year-old son. We bought Snow White when they released it last year, like about 30 million other families did. and my son has watched it a lot. That film is almost 60 years old. I think people are going to be watching Joy Story in 60 years, not because it was the first computer-animated feature film, but because it's a good film.

The Herring: Creative content is always a huge unknown. Is Pixar goug to have to continue working with Disney in order to create compelling content?

Jobs: Pixar conceived, wrote, directed, animated, and produced Toy Story. In other words, the story was Pixar's. Disney mentored us in some critical ele-ments. They were terrifie actually. But we have a 20-person story team. We have a creative team now that's 50 people. To our knowledge, we have the second-largest creative team in the world, and we believe we have the second world-class creative team outside of Disney.

The Herring: Maintaining that creative edge is essential.

Jobs: Oh, absolutely. John Lasseter was a part of Pixar the day we started. Before we went public, he owned approximately 4% of the company. He owns a big chunk of the company.

The Herring: Why do you think Disney decided to develop a feature animated movie with Pixar?

Jobs: When they first did the deal with us to produce these films, it was around the same time they did the deal with Tim Burton to do Nightmare Before Christ-mas. And it's my understanding that their perspective on this was that it was going to produce a boutique product. And that's exactly what Nightmare was. It did about $50 million in revenues-more than they had hoped-and everybody was happy That's what they expected our film to be like— until they started actually seeing some of the film output. Then they began to realize what we felt all along. which was, This is mainstream product.

The Herring: Are you going to renegotiate your relationship with Disney now that Toy Story is successful?

Jobs: No. We have a very good deal with Disney, and we share in the success of the film.

The Herring: And merchandising as well?

Jobs: Yes. We share in the success of the film and all other related profits, including merchandising. There was something written in Fortune that said we didn't, but we do participate in everything.

The Herring: So you don't want to renegotiate?

Jobs: You're asking the 'more question-"Would you like more?" Yes, we'd like more. And it's hard to imagine a time when we wouldn't say that. But we have the best deal in Hollywood of anyone we've heard of. except possibly Steven Spielberg. He probably had a better deal than us. But when he struck that deal, he had a lot of films under his belt. When we struck our deal, we had zero films under our belt. Twenty years from now, we think we will look back on our deal with Disney as the biggest single event in the company's history, because we have been able to work with masters in this industry, and we've learned not only creative skills but business skills, as well. But my view is that ultimately we hold all the cards, because we make all the films. We take the long-term view here. Pixar's going to make a lot of money on Toy Story, and I think Pixar is certainly getting a fair amount of recognition for it.

The Herring: How quickly do you anticipate turning out films in the years to come?

Jobs: We plan on being able to make a film every two years, although our second one will be coming out in 1998. But we'll be on a two-year cycle after that. Disney is in a cycle of one animated film every 12-18 months. We'll be at two years. That could increase in the future, but at the present time, we don't think that's wise. We better walk before we run.

The Herring: Is film the major revenue source for the company, or are you also planning on generatingrevenue from other sources.

Jobs: Here's our business model. Let's take the film first. Toy Story has generated $150 million in domestic box office, and a film of this success will probably generate equally that much in international box office. That's $300 million, of which the distributors keep half, so that's approximately $150 million to the studio. That's a pretty big product. Now Disney and Disney's marketing partners have spent roughly $125 million on marketing. That's a larger marketing budget than most things I know. Plus, it's all being spent in a three- or four-month window. That's up there with Chrysler. Now, what this does is create a consumer awareness that's very broad and drives demand for the film, which in turn creates demand for ancillary products that surround the film such as merchandising, home video, CD-ROMs, direct-to-video sequels, or theatrical sequels. These related products can draft, if you will, behind the marketing.

The Herring: Is this a hits business, then?

Jobs: Oh, absolutely. But I will put forth my theory to you, because, of course, I get asked this question a lot. My response is very simple— can only look back at my own history. The Apple 2 was a hit. The Apple 3 was a miss. Lisa was a miss. The Macintosh was a hit. Silicon Valley is a hits business. It's no less of a hits business than I see in the film business. At least Pixar's second film doesn't have to be backwards compatible with its first. So that's my answer. Life is a hits business as best as I can tell.

The Herring: Do you think there's going to be more competition in this field in the coming years, and whom do you see as your primary competitors?

Jobs: I think everyone is going to try to get into this field. But there are some significant barriers to entry. The first one is the creative hurdle. Disney invented the feature film market in 1937 with their release of Snow White. Ever since then, every major studio has tried to get into the 21) animated feature film busi-ness, [but] in almost 60 years, only Disney has succeeded in making a blockbuster animated feature film. The rest of them have all failed, including Spielberg—twice.

The second thing they need to overcome is tech-nology. Pixar did not go out and buy the technology to do what it does; it literally had to invent the wheel over the last 10 years. To our knowledge, more PhDs worked on this film than any other film in history. We have 10 years of proprietary software systems that you cannot buy anything close to in the mar-ketplace. You have to build them yourself. Although Disney has the creativity, they do not have the tech-nology, and it is not available for license or use or sale from Pixar to anybody, including Disney.

The third one is blending. We have spent 10 years merging two cultures together. It sounds really easy, like you put a technical person here and a creative person there, and they go out to lunch, and some-how, it all works. It's not. It's really tough. And it took us 10 years to figure out how to do this. No one else has even started. Add up those hurdles, and it's hard for us to understand who is going to succeed. Most of the folks now are trying to copy Disney.

The Herring: Do you have any scoop on Dream-Works?

Jobs: DreamWorks is trying to build a major studio.

And if you look at what they're doing, they're creating live-action pictures, animated features, a music company, and television content, They're doing a lot of stuff. We wish them well, because the more studios out there, the more studios we have to work with eventually if we want to have a studio distribute our product for us. But in terms of animated films, they're trying to copy Disney. They're using 2D cell animation exactly like they did at Disney. Their first film is about Moses! [Laughs] They'll probably be successful at it because they're smart guys.

The Herring: We talked to Jeffrey Katzenberg (see Hard wired. p. 120), and he seems to view CGI in the same manner as the work of a director-in other words, as one style of filmmaking, not necessarily as a new medium.

Jobs: You know, I have tremendous respect for Jef-frey, but Jeffrey has never appreciated technology. He never understood and never appreciated it, and that's line: there's room for all sorts of different people in the world. But we just respectfully disagree with him on this issue. Obviously, we do. We're doing 3D, and they're copying 2D.

The Herring: Who is going to manage Pixar going forward? Are you in the process of hiring a CEO?

Jobs: No. We have a pretty good management team. The three of us at the top are Lawrence Levy, who is the executive vice president and CFO; Ed Catmull, who is the executive vice president and chief technology officer; and myself, who is the CEO. We have an office of the president, and we run the company on a day-to-day basis. I think it's a pretty good team.

The Herring: How quickly do you anticipate turning out films in the years to come?

Jobs: We plan on being able to make a film every two years, although our second one will be coming out in 1998. But we'll be on a two-year cycle after that.

Disney is in a cycle of one animated film every 12-18 months. We'll be at two years. That could increase in the future, but at the present time, we don't think that's wise. We better walk before we run.

The Herring: Is film the major revenue source for the company, or are you also planning on generating revenue from other sources?

Jobs: Here's our business model. Let's take the film first. Toy Story has generated $150 million in domestic box office, and a film of this success will probably generate equally that much in international box office. That's $300 million, of which the distributors keep half, so that's approximately $150 million to the studio. That's a pretty big product. Now Disney and Disney's marketing partners have spent roughly $125 million on marketing. That's a larger marketing budget than most things I know. Plus, it's all being spent in a three- or four-month window. That's up there with Chrysler. Now, what this does is create a consumer awareness that's very broad and drives demand for the film, which in turn creates demand for ancillary products that surround the film such as merchandising, home video, CD-ROMs, direct-to-video sequels, or theatrical sequels. These related products can draft, if you will, behind the marketing phenomenon of a successful feature film. And that results in tremendous demand for these products.

The Herring: Is this a hits business, then?

Jobs: Oh, absolutely. But I will put forth my theory to you, because, of course, I get asked this question a lot. My response is very simple— can only look back at my own history. The Apple 2 was a hit. The Apple 3 was a miss. Lisa was a miss. The Macintosh was a hit. Silicon Valley is a hits business. It's no less of a hits business than I see in the film business. At least Pixar's second film doesn't have to be backwards compatible with its first. So that's my answer.

Life is a hits business as best as I can tell.

The Herring: Do you think there's going to be more competition in this field in the coming years, and whom do you see as your primary competitors?

Jobs: I think everyone is going to try to get into this field. But there are some significant barriers to entry.

The first one is the creative hurdle. Disney invented the feature film market in 1937 with their release of Snow White. Ever since then, every major studio has tried to get into the 2D animated feature film busi-ness, (but] in almost 60 years, only Disney has succeeded in making a blockbuster animated feature film. The rest of them have all failed, including Spiel-berg-twice.

The second thing they need to overcome is tech-nology. Pixar did not go out and buy the technology to do what it does; it literally had to invent the wheel over the last 10 years. To our knowledge, more Ph.D.s worked on this film than any other film in history.

We have 10 years of proprietary software systems that you cannot buy anything close to in the mar-ketplace. You have to build them yourself. Although Disney has the creativity, they do not have the tech-nology, and it is not available for license or use or sale from Pixar to anybody, including Disney:

The third one is blending. We have spent 10 years merging two cultures together. It sounds really easy, like you put a technical person here and a creative person there, and they go out to lunch, and some-how, it all works. It's not. It's really tough. And it took us 10 years to figure out how to do this. No one else has even started.

Add up those hurdles, and it's hard for us to understand who is going to succeed. Most of the folks now are trying to copy Disney.

The Herring: Do you have any scoop on Dream Works?

Jobs: Dream Works is trying to build a major studio.

And if you look at what they're doing, they're creating live-action pictures, animated features, a music company, and television content. They're doing a lot of stuff. We wish them well, because the more studios out there, the more studios we have to work with eventually if we want to have a studio distribute our product for us. But in terms of animated films, they're trying to copy Disney. They're using 2D) cell animation exactly like they did at Disney. Their first film is about Moses! [Laughs] They'll probably be successful at it because they're smart guys.

The Herring: We talked to Jeffrey Katzenberg (see Hard wired. p. 120), and he seems to view CGI in the same manner as the work of a director— in other words, as one style of filmmaking, not necessarily as a new medium.

Jobs: You know, I have tremendous respect for jef-frey, but jeffrey has never appreciated technology. He never understood and never appreciated it, and that's fine: there's room for all sorts of different people in the world. But we just respectfully disagree with him on this issue. Obviously, we do. We're doing 3D, and they're copying 2D.

The Herring: Who is going to manage Pixar going forward? Are you in the process of hiring a CEO?

Jobs: No. We have a pretty good management team. The three of us at the top are Lawrence Levy, who is the executive vice president and CFO; Ed Catmull, who is the executive vice president and chief technology officer; and myself, who is the CEO. We have an office of the president, and we run the company on a day-to-day basis. I think it's a pretty good We're doing real well working together, and we enjoy each other's company.

The Herring: How are you going to divide your time between NeXT and Pixar?

Jobs: Well, you know, that is an issue. Right now I'm spending about half of my time at Pixar—probably more.

The Herring: Are you considering folding NeXT into Pixar?

Jobs: No. I did consider that in the early days, but they're two very different companies with very different missions. In an era where larger companies are trying to regain clarity and purpose about their mission, I didn't think it was wise to take two groups that had real purpose and clarity and muddle it up by throwing them together. I kept them separate, and I'm very happy about that decision. I think it's the right decision, and I would do it again. It's my problem to manage it, but the way to solve it is not to hurt the companies.

The Herring: Did you ever have any second thoughts about Pixar? Did you ever consider selling it?

Jobs: I think there were a few moments where if someone had come along and offered to write me a check of sufficient size. I would have really seriously considered it. [Laughs) And thank God they didn't in those weak moments.

The Herring: You're now sitting in control of two companies. Is there poetic justice here?

Jobs: It would be really great if there was, but I don't think that way. Town a lot of Pixar and NeXT for two reasons. In the case of Pixar, I've been the venture capitalist. As a matter of fact. I've been five venture capitalists [laughs]. If you look at Pixar on a fully diluted basis, I own a little over 60%. VCs own that percent of a lot of companies. So think of me in that role, and my ownership makes sense. In terms of NeXT, I haven't been the primary financier, but 1 have been the second-largest. So that's one reason for both companies.

The second reason is I've seen a lot of bad things happen to some very good companies. They were traded like baseball cards, sometimes by venture capitalists, sometimes by others. I wanted to make sure that I controlled enough of the stock that 1 could make sure that these companies were taken care of through tough times. Does that make me any less sad about some of the events that happened earlier in my life? No, it doesn't at all, and it doesn't feel like sweet revenge or anything else. But I think "96 is going to be a great year.