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OPSWARE INC. On the record: Marc Andreessen

In the mid-1990s, Marc Andreessen was one of the wunderkinds of Silicon Valley. After co-creating Mosaic, the first easy-to-use Web browser, as a student at the University of Illinois, Andreessen, then 23, headed to Northern California, where he co-founded Netscape Communications Corp. in April 1994. Eight months later, the Netscape Navigator Web browser premiered.

San Francisco Chronicle

The browser technology revolutionized the Internet, and Netscape’s explosive initial public offering in 1995 was one of the opening bells of dot- com mania. Netscape was eventually sold to America Online, but not before Andreessen — by this time a millionaire many times over — was lauded on the cover of Time magazine in 1996 as one of "The Golden Geeks."

Andreessen, now 32, is chairman of Opsware Inc. (formerly known as Loudcloud Inc.), a provider of data center automation software with headquarters in Sunnyvale. He recently sat down with a group of Chronicle reporters and editors to discuss his company, the tech industry and Silicon Valley. The following Q&A has been edited for space and clarity.

Q: A young guy from Wisconsin moved to Silicon Valley about a decade ago, with big dreams and ambition. When you consider what Silicon Valley has gone through in the last couple of years, and where it may be heading, would you make the same journey today?

A: In a heartbeat. Silicon Valley today reminds me of what it was like when I first got here.

Ten years ago, you’d go into the bookstores and it was very hard to find any books on startups. It was very hard to find coverage of startups in the major publications. The VCs were in the process of shutting down, more than anything else. They’d had a lot of wipeouts and had gotten very conservative. About six months ago, we reached the same point.

I look at it this way: What is Silicon Valley really about? It’s about a culture of risk taking, a culture of entrepreneurialism, a culture of new company formation.

People tend to be in Silicon Valley for a fairly long time — people who like going through the full cycle, including the downs and the ups. The people who didn’t want to go through the downs left and went back to New York. And that’s great.

Q: Larry Ellison was here for a Q&A three months ago, and he predicted that Silicon Valley would look more like Detroit in the years ahead, with a few large companies emerging as survivors amid massive consolidation. Ellison, who believes that innovation primarily comes from big companies like Oracle, mentioned a recent conversation he’d had with you.

Ellison told us, "I made a comment recently and Marc Andreessen said to me, ‘Larry has to be wrong, because innovation comes from companies that are 2 years old, populated by 19-year-olds.’

"Of course, Marc believes that," Ellison said, "because he’s young, and what he experienced in the industry was a few years in Silicon Valley and at Netscape. It’s just preposterous that Marc should think that innovation is somehow the province of little entrepreneurial companies. The historical facts don’t bear that out."

OK Marc, what’s your view of innovation in the valley?

A: Larry’s projecting because he has a very interesting set of challenges on his hands. Also, there’s a specific reason he says that innovation comes from companies like IBM, not from startups.

The product that made Oracle, the relational database, was invented by IBM in the early 1970s. Larry had a small consulting firm he was running. He implemented it and that became the Oracle database. So in his case, innovation actually did come from IBM.

The Oracle database was a huge success. But Larry’s spent the last 25 years trying to come up with the next product, the next piece of innovation. But at this point, Oracle’s financials are still dominated by databases and its consulting business. So he’s projecting.

One of the problems big companies tend to have with innovation is not that they don’t have ideas. It’s just they’re so big that the next innovative idea — if it’s not equally huge — isn’t going to move the needle on their financials.

Q: That leads to the next question: What’s the next new thing?

A: There is no single answer. There is no way to predict.

The really big new thing will almost certainly come out of the fringe, out of left field, as they tend to do. History suggests that recessions are good times for the next big things to emerge — although they’re never viewed as such at the time.

Q: Why is that?

A: Because you have time. You have a four-, five- or six-year period where the technology can fundamentally change and create new opportunities.

Contrast that with the bubble period we went through (in the 1990s), where there was such a high level of hyperactivity, any idea that looked new had 30 well-funded competitors jumping on it.

I can’t predict what the next big thing is going to be. But there’s going to be growth in a whole bunch of digital industries.

Q: Can you give us some examples?

A: Digital photography, digital music, digital video, digital gadgets and gizmos. Mobile telephony, mobile data, high-speed wireless, broadband, satellite.

Just across the board. Everywhere you look, it’s proliferating like mad.

Digital cameras for this Christmas are so cheap and so good it’s unbelievable. Consumers are adopting digital video in their homes at phenomenal rates, whether it’s digital satellite, digital video recorders or DVDs.

Digital music is enormous. And what’s happening in the record industry is going to happen in the TV and movie industries. Half a million movies are being dialed up on the Internet each day. I mean, it’s like rolling. You know, it’s happening.

Telephony is changing very quickly. The people who did Kazaa for music sharing have another thing called Skype, which is free, peer-to-peer Internet phone calls. They’ve nailed it.

Wi-Fi is proliferating like mad. Broadband is proliferating very quickly.

On the business computing side, there’s another set of changes. The server hardware landscape is commoditizing (prices are dropping) right now. It’s what happened to the PC in the 1970s and 1980s.

Storage is commoditizing. Network computer is commoditizing. Software is commoditizing.

People say nothing interesting is happening in software. Google, Amazon, EBay, Orbitz, Expedia and Match.com — all these Internet things — they’re software companies. They’re not shipping you software in a box, they’re putting the software up on a Web site.

If you peel back those companies, all they have are software developers. Software developers, a big server complex and a big marketing campaign. It’s a new kind of software company, and it’s exactly the kind of thing we should get excited about.

Changes are rippling out all over the place. I find it funny because everybody’s depressed. Everybody’s like, "Oh, nothing’s happening — there’s no innovation."

And I say, "Why is everybody so depressed if all this stuff is happening?" I guess part of it is we all lost so much money.

Q: What’s your current strategy with Opsware?

A: We’re not a primary vendor — we’re not supplying computers, we’re not supplying operating systems. Those markets are way too mature.

So you look at that and say, what’s happening?

Well, what’s happening is businesspeople are proliferating an enormous number of Intel-based servers, an enormous amount of Linux and Microsoft, an enormous amount of Java.

Intel itself internally runs 50,000 servers. Government agencies run tens of thousands of servers.

Opsware is a way to run those servers. You hear a lot of buzzwords these days like utility computing or on-demand computing or automated computing. As companies adopt a lot more servers, they’re faced with issues that we help solve.

Q: What are some of those issues?

A: Security, for example. If I’m running 10,000 servers, probably 5,000 of those are Microsoft servers. There’s a new security patch that comes out every three or four days. Every one of the 5,000 Windows servers has to be patched and up to date or they’re vulnerable to hacker attacks. Our software helps coordinate the process of cementing that patch across your servers in a way that you don’t destroy the other stuff you have running.

We’re doing about $8 million or so in business every quarter, so we’re not very big. Whereas the PC business or the server business — all these older things — are much larger.

But people get confused about size. We all take big things more seriously.

The problem is, by the time something’s really big, its best years may not be ahead of it — especially in this industry.

Q: There have been a huge number of jobs lost in Silicon Valley in the last couple of years, including a lot of outsourcing of work. Do companies have an obligation to the communities in which they do business? Or should they just go wherever the cheapest labor is and the smartest developers?

A: That’s a difficult question because at one extreme, none of us wants to live in a world in which there are no such obligations. That would be a pretty unfriendly place.

On the other hand, if companies allowed themselves to be controlled by those obligations, they would go out of business in a hurry. There has to be some middle ground.

We’re at an interesting turning point on this topic in the U.S. The growing anger about China, for example, is going to be an interesting political issue for the next several years. It’s a fundamental question: Is free trade with China in Americans’ best interests or not?

Some well-meaning people argue that we have to take drastic measures and put up various barriers to protect American jobs. My personal view is the facts absolutely refute that. The growth of China and job creation in China is purely a net gain for the U.S.

Over a long period of time, increased economic activity in China and India and anyplace else in the world will lead to more opportunities and economic growth — not less. That’s the result you want.

On China, things get interesting real fast. I read something recently I hadn’t realized — Wal-Mart single-handedly accounts for 10 percent of China’s exports. So let me get this right. Every Wal-Mart customer is an American citizen. Wal-Mart has fundamentally been a force in the U.S. for the average U.S. citizen to be able to buy more goods and services for declining prices over a long period of time.

We know they’ve wiped out a lot of department stores and other businesses.

But fundamentally, consumers are better off going into Wal-Mart today than they were going to Sears 20 years ago. They’re able to buy more for their dollar.

Do you want to put up a tariff, do you want the price of Chinese goods to rise? You’re taxing your own citizens, and you’re paying more for the things you buy at Wal-Mart. Why would you do that?

In the next few years, will jobs be lost? Absolutely. But after all we’ve been through in the last 30 or 40 years, I’m not sure who in manufacturing in the U.S. in 2003 thinks their job is permanently going to stay in the U.S.

Q: Tell us what it was like to sell Netscape to AOL (the $4.2 billion deal was announced in November 1998), particularly in hindsight of AOL’s merger with Time Warner (announced in January 2000).

A: I left (AOL) right before the Time Warner merger. (Editor’s note: After selling Netscape to America Online, Andreessen became AOL’s chief technology officer. He left the company in September 1999).

When I left, the big topic in board meetings was the slide. It was a ranking of all the media and telecommunications companies in the world including AT&T, Viacom and the major newspapers. Everybody. Rank order by market cap.

And there was a dotted line, which was AOL. The implication being, we can buy anybody to the right of the line. And the line kept moving left.

When AOL’s market cap was at $170 billion, the executives added up the parent companies of the five major newspapers in the country — the Wall Street Journal, New York Times, L.A. Times, Washington Post and USA Today.

They could have bought all five for about 10 percent of their outstanding equity at the time. And they almost did it, except for the fact that they didn’t think they could get antitrust clearance. But they thought that would be a good thing to do.

They had all kinds of scenarios like that. They thought about buying a telecom company. They thought about merging with AT&T. They thought about WorldCom. They thought about a lot of those things and ultimately pulled the trigger on a media company (Time Warner).

Today, AOL’s a good example of technology change, right? They were great in an environment in which dial-up modems were how you connected to the Internet. They’re terrible in an environment where people have broadband and where you have cable modems and DSL. It’s just night and day.

AOL had an internal belief, which probably is arrogant in retrospect but seemed to make sense at the time to the people who were there, that consumers would not move to broadband. Consumers who were on AOL liked AOL so much they wouldn’t move to broadband unless broadband was available with the AOL name on it. Of course, that turned out not to be true.

The big issue they have — and continue to have with their immediate (merged) company — is they don’t understand what they’re dealing with. They just don’t get it.

One announcement they made that I just love was they said, "As part of our turnaround strategy for AOL we’re going to take People magazine off the Web and make it exclusive to AOL." What the hell are you talking about? Like, if I want to read People magazine, I can go to the newsstand and shell out two bucks for the magazine. It’s not difficult.

Like it’s going to motivate me that I’m going to get People magazine online? That I’m going to sign up for AOL instead of going to broadband? Like what on earth! They just don’t get it. You know, when you have a hammer, everything looks like a nail.

Q: They played for the content, not the infrastructure. Was that a mistake?

A: Yes. In retrospect, you look at how people use AOL. At its core, it was a communication medium, not a content medium.

Q: Does it bother you to see how insignificant Netscape has become under
AOL?

A: Yes. I wish it wasn’t so. On the other hand, I’m very happy about how Netscape turned out for its shareholders and employees.

In the final analysis, Netscape was several things that I’m proud of. It was a tremendous learning environment for a large number of people who have gone on and are very successful throughout the industry.

On the numbers side, Netscape exited at north of $10 billion. (AOL’s rising stock price more than doubled the value of the original deal). The ability of employees to send their kids to college and do all the things they wanted to do was hugely positive. So from that perspective, it was clearly the right thing — to take that kind of deal.

Q: What about from a personal standpoint?

A: From a personal standpoint, you’d clearly wish it (Netscape) was still that kind of (company).

The biggest trick in this industry, given the rate of change, is starting and maintaining a company like an Intel, Cisco, HP, Oracle or Microsoft — companies that have flourished over a 20- or 30-year period. To do that is really impressive.

Q: Talking about things that have had a big impact, take us back to Mosaic, to your eureka moment, when you were figuring out this thing might work.

A: Oh, we didn’t have a eureka moment. It was one of those things — and, again, it was very similar to the current time.

Q: Now where were you exactly?

A: The University of Illinois at Urbana-Champaign. And if you’ve been there, you know what that’s like. Cornfields on three sides and a pig farm on the fourth side.

Q: A pig farm?

A: Yeah, so you wake up most mornings hoping the wind is blowing in the right direction, because if it’s not, you’re going to have an issue.

The university has one of the top three electrical engineering departments and one of the top 10 computer science departments. It’s phenomenally good. The reason it’s so good is because there’s nothing else to do. People tend to work a lot.

Mosaic was originally aimed at scientists who were using the Internet to access supercomputers placed in central locations like Illinois, even though they might be at a campus somewhere else in the world.

Mosaic was going to make it a lot easier for them to exchange information and work collaboratively over these networks. It was funded by the National Science Foundation.

But the Internet community back then, the key technical people, didn’t want the Internet to become easy to use or graphical, because that would pollute the environment. Only smart people could use the Internet, was the theory, so we needed to keep it hard to use.

We fundamentally disagreed with that. We thought it should be easy to use and graphical and you should be able to point and click.

It seemed like an obvious idea. But it was weird, right? Because the computer industry wasn’t taking the Internet seriously. It was viewed as a little academic toy; it certainly wasn’t anything that consumers were going to use.

Q: You couldn’t possibly be first, right?

A: Right, because if it was that big of a deal, why weren’t other people doing it?

And that’s my point about innovation. The trick is finding that one crazy idea. The problem with crazy ideas, though, is that for every one good crazy idea, there’s a thousand bad crazy ideas. Being insane helps in tech to a point. But completely insane and you can’t get through the day.

Anyway, we never figured there was going to be anything to the Internet outside of the small environment in which it was successful. As history showed,

it turned out to be a big deal.

Mosaic started with 12 users in February 1993. It had 1,000 users within three or four weeks. About 10,000 users by spring. It was up to 1 million by early 1994. That’s how we knew it was going to be successful.

Q: And then you moved to California?

A: Yes. After I got out here, the original business plan that Jim Clark (the former chairman of Silicon Graphics) and I worked on was for interactive television.

We were going to make software for interactive TV, and we said, "OK, great. Which interactive TV platforms will it run on?" And we couldn’t come up with any, because there weren’t any. Then we said, "OK, so how widely proliferated are those going to be in three years?" And we said, "They’re not."

Nintendo was about to come out with Nintendo 64, and we said, "Let’s do an online gaming service with Nintendo 64, because that’s going to be a volume platform."

We almost did that, except that Nintendo 64 was supposed to ship at the end of 1995, and we were starting in early 1994, and figured that was too long to wait. If they had shipped a year earlier, we probably would have done that instead of Netscape.

We were starting to get really depressed because none of our ideas were working.

Q: And you said, "Oh, by the way, I have this program (for Mosaic)?"

A: Yeah, and Jim kind of looked at me sideways and said, "Why didn’t you bring this up earlier?" (Laughter). No, he knew about it. But it was basically a process of elimination, where the Internet was the only thing you were left with that was going to work.

Q: What do you think about the comparisons being made between Netscape’s blockbuster IPO and Google’s potential IPO?

A: Google’s IPO, if it’s successful, which everybody expects it will be, will certainly encourage the venture capitalists to fund more companies. It’s going to draw attention to Google and will be a great branding event for them. It will help them raise a lot of money.

But in and of itself, it means very little. It won’t do anything for the rest of the valley.

We had a little bit of this when Loudcloud went public (in March 2001). VCs told us it would reopen the IPO window and all kinds of other things. No. It won’t. It has nothing to do with that.

Same thing with Google. If Google goes public tomorrow, I don’t think it does anything fundamentally (to the market).

Q: Sergey Brin and Larry Page, the co-founders of Google, are in the same boat you were in. What advice do you have for them? Should they try to stay in control of the company? Or should they get out?

A: They’re very much in control of that company. They’re very much in the classic Silicon Valley mold, the Steve Jobs style of leadership. They’ll do extremely well.

It’s remarkable they didn’t take the company public sooner. If they were just in it for a hit-and-run, they would have taken the company public a year and a half ago. Or they would have sold it to EBay or whoever — there were lots of people who wanted to buy it.

They want to build something that’s going to be around for a long time. I really admire that.

They’re going to go through all the things that companies go through during a period of hypergrowth. They’ve hired about 1,500 people in two years. When that happens, you have to start being really careful about who you hire and the kind of culture you’re building.

There’s another consequence when your revenue and earnings are growing off the charts. At first that makes you like a little bunny rabbit: Everybody wants to play with you, everybody wants to talk to you, everybody admires you, you’re up on a stage getting interviewed and all that.

And then within a year, you’ve got about eight really fearsome competitors shooting at your head with high-powered ammunition. Because you’ve created this huge profit stream that other people want.

Q: Should a founding technologist run a mature company?

A: Absolutely.

Q: Why doesn’t it happen a lot?

A: It does.

OK, so this one’s controversial. List the large successful technology companies over the last 50 years. IBM, HP, DEC, Microsoft, Intel, Oracle, AOL, EDS, Computer Associates, Dell. I’m leaving out a few but not a lot. Then add some Internet companies like Amazon.

Cisco is a counter-example and maybe EBay is the new counter-example. But it’s literally like 20 to two.

At all the companies I named — except for EBay and Cisco — the founding technologists were in charge for a 20- to 40-year period.

For me, you are much better off having a founding technologist run things if you want a long-term strategy. If your goal is to flip the company, like a VC’s exit strategy, then having a professional CEO makes a lot of sense.

Q: Google did bring in a professional CEO (Eric Schmidt).

A: They did, but in a way that allowed Sergey and Larry to stay in control. When the personalities mesh, the partnerships can work really well. Eric is a great addition to Google, but it’s very important to Google that Sergey and Larry stay there.

Q: How would you grade yourself on running a company?

A: At Netscape, I was not in an operational role for the first three years. I don’t have the temperament for it.

We have four co-founders (at Opsware), and I have a really good relationship with my CEO (Ben Horowitz). He’s also a co-founder and a longtime friend of mine. I think he is born to (run the company on a daily basis), and I’m not.

Being a CEO is very lonely. Who do you talk to? Who do you bounce ideas off of? You can’t really bounce ideas off of your board, because that’s exposing vulnerabilities. You can’t open up with your employees because you have to be a strong leader for them. You can’t talk to other CEOs.

I have no interest in being the CEO of Opsware. But I have every interest in having the company be successful.

Q: Would you have done anything differently at your current company? You’ve had some layoffs and haven’t turned a profit yet. (Opsware on Thursday reported a net loss of $2 million on net revenue of $5 million for the third quarter ended Oct. 31. The company said it generated positive pro forma cash flow from operations of $1.2 million).

A: Oh yeah, always. But does it do any good to go through that analysis of second-guessing? Not particularly.

Everybody would do things differently if they had perfect information. But the nature of leadership is that you did the best you could with the information you had at the time.

Q: Marc, because what you did at age 23 was so spectacular, do you ever feel like a former child star and that people are only interested in what you did in the past — not what you’re doing today?

A: No. That doesn’t bother me.

A lot of this is sheer persistence. It’s sheer persistence either at one company, or it’s sheer persistence at whatever you’re doing in the future.

I really like what I do. I like the whole process of growth, the whole cycle of building a company.

That, to me, is what’s important. I define my own role and contribution and happiness on doing that. I figure everything else will come out in the wash.
Beyond the boardroom

Morning routine: "I try to not get up in the morning. No, that’s not true.

Usually around 8 or 9. My morning routine is that I stumble out of bed and get dressed. Usually, I wake up about two or three hours after I get up.”

Do you exercise in the morning: "It depends. I prefer working out late at night. I run and do weights."

Other hobbies: "Going to the movies, reading, those are some."

Favorite all-time movie: "That’s a tough one. I came up with a Top 5 list once, but I can’t come up with a single best movie."

Any recent favorites: " ‘Lost in Translation’ was very good."

Favorite music: "A lot of jazz, a lot of classical."

Who do you admire most in the business world: "Maybe Bill Hewlett and Dave Packard more than anybody. They were successful with their company over a period of decades. HP is still an important company."

Ideal vacation: "I’m looking forward to going to St. Martin for Christmas. "

One thing you’d change about yourself: "Geez, I don’t know. Maybe be a little shorter, so I wouldn’t hit my head as often. (Andreessen is 6 feet 4 inches). And tone down the sex appeal a little bit."

Biggest regret: "I can’t even think of one."
Briefcase

Name: Marc Andreessen

Age: 32

Job: Chairman of Opsware Inc., a provider of data center automation software with headquarters in Sunnyvale. Co-founder of Netscape Communications Corp., now part of AOL.

Education: Bachelor’s degree in computer science from the University of Illinois at Urbana-Champaign.

Board affiliation: Director of Blue Coat Systems.

Marital status: Single.

http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/12/07/BUGMP3GOVK1.DTL&type=business

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