The New New Thing: A Silicon Valley Story (21 page)

This had been Long’s way of saying: if Healtheon failed to sell in Europe, he could blame the failure on the European resistance to change. Now, before he read the article on the front page of the
Wall Street Journal
, Mike Long said, “George is a cynical guy.” He was referring to George Anders, the
Journal
reporter who had written the article. If George Anders panned Healtheon in the
Wall Street Journal
, it was because George was a cynical guy.

And then Mike Long began to read. For the next hour he read and reread the article many times. He read it front to back, then back to front. He skipped to the middle to reexamine a particularly noxious passage. He put it down, then picked it up again, as if starting in on it fresh might somehow alter its meaning. In that hour Long did not speak or change expression. He was a man in a trance.

The article about Healtheon that appeared on the front page of the
Wall Street Journal
on October 2, 1998, was a rocket from pre-Internet America. It quoted industry experts saying things like “a lot of the challenges we face in health care have very little to do with the Internet.” It pointed out that Pavan and his team of engineers were late delivering Healtheon’s software to doctors, and left it to the reader to surmise that this just might be because the software did not work. It went on to say,

The implication was clear: no man who spent a week a month in Holland building a boat could plausibly claim to reform the U.S. health care system. Never mind that only a man who spent most of his time programming a boat to sail itself would persist in his quixotic ambition to reform the U.S. health care system. Just a few months earlier no journalist would have dared to cast such a skeptical eye upon any enterprise associated with Jim Clark. The climate of the Internet had changed. Clark was suddenly like one of those big hairy mastodons at the dawn of a new Ice Age. ClarkWorld was now treacherous. Stocks were falling fast, and Internet stocks were falling fastest.

Mike Long, like everyone else on board the jet, up to and including Clark’s pilots, who held shares in the Healtheon, knew instantly that the road show was over. Oh, they would travel from city to city in the United States with the slide show. They would explain the Chart of Many Bubbles fifty times more. But wherever they went in America the article in the
Wall Street Journal
would follow them.

That article marked the final rite of passage for Mike Long, the Serious American Executive. He had spent twenty years building a robust computer business in Austin, Texas, without reading a word about himself, except perhaps in the local paper. Certainly no one dared to criticize him publicly. No reporter would ever dare analyze him and dissect his business. Now, as Long read the
Wall Street Journal
, he found that he had opened himself up to a new set of forces. The Serious American Executive read the piece over and over again. He’d just become a citizen of ClarkWorld.

“Pavan doesn’t fidget,” Long finally said. His voice was cold with anger.

“What?” asked Clark, who through it all had been sitting next to Long and paying him no attention.

“It says here that ‘Pavan Nigam “fidgeted” when asked for a firm delivery date for the software.’ Pavan does not fidget.” Then Long tossed the article onto the seat and wandered back to a sofa to take a nap. Clark just watched him leave. “Mike’s going to have to get used to the press” was all that Clark said.

T
he final leg of the European road show was a triumph of habit over reason. Mike Long went on selling even after it was clear that selling was a waste of time. The Europeans probably would not have been able to
do the math
in any case. But at least, as he stared out at teenage European investors devouring their bizarre breakfast foods, Long could remain hopeful for his prospects in America. Now he knew that he was doomed in America, too. Selling Healtheon required him to manage the perceptions of investors. No investors would be able to evaluate Healtheon’s software; they relied on the reputations of the people involved. Now those reputations had been called into question. Until now investors would have wanted to believe that the software worked; now they would want to believe it would not. For that reason Pavan Nigam was called out of his cube at Healtheon and onto the road show.

Of course, in a rising stock market the
Wall Street Journal
might not have had such effect. Indeed, the people at the
Journal
might not have had the nerve to run such an article, as they faced the likelihood of being made to look like fools the moment Healtheon’s stock took off. But with the market collapsing the article was as definitive as a stake in the heart. After his final European presentation Mike Long returned to the plane, flew back to the United States, and finished the job. As he traveled the country he wrote e-mails to Kittu and Stuart and the three hundred or so other employees back in the Valley, who he knew were simply waiting to find out how rich they had become. They convey the spirit of a man disguising from his loved ones his knowledge that he will be executed in the morning.

From New York he wrote:

From Philadelphia:

From Dallas:

From Chicago:

From San Francisco:

The road show came to a screeching halt in New York in late October 1998. A couple of hundred institutional investors who had spent the morning selling any stock or bond not fully guaranteed by the U.S. government gathered over lunch in a hotel ballroom to hear the riskiest idea they’d heard in a while. Before Mike Long’s slide show Clark offered a few encouraging remarks. A male investor raised his hand and asked Clark to comment on the article in the
Journal
, and the quotation from the health care executive who said the Internet is irrelevant to his industry. “It’s quite typical of larger companies that are threatened by smaller companies,” Clark said. “They say, ‘It’s not important.’ And that’s what keeps them from responding.”

Mike Long then rose and delivered the slide show. The phrases rolled off his tongue:
The Internet changes everything…. There is constant media scrutiny of this company…. A one-point-five-trillion-dollar market is ours to win or lose…. You do the math.

He made all the right noises. But at the end of the show the investors had only one question.

“If you guys are successful,” a New York investor asked, “how long will it take before Microsoft is in the business?”

Mike Long got this world-weary look on his face, and repeated the question for anyone who hadn’t heard it. “The question is Microsoft. Are they going to blow us away?…Well, their strategy is that they are going to dominate all vertical industries. And their hubris is unlimited. So, yes, we have to assume that they are coming, sooner or later.”

The man from Morgan Stanley rose and said, “Thank you very much. And we’re looking for an early-next-week pricing.”

It never came. A few days later the man from Morgan Stanley drove from his office on Sand Hill Road down to Healtheon and told Mike Long that they hadn’t found enough interested investors to justify taking Healtheon public. Oh, they probably could sell a small stake in the company to a handful of believers—at the same price that Clark and the venture capitalists had paid for it. But what was the point in that? A few hours later, after a conversation with Clark, Mike Long canceled the deal. The deal had been, of course, central to all of Mike Long’s plans. Without a highly valued share price, he would be unable to buy all the little companies he wanted to buy, and seize control of the entire U.S. health care industry. Nevertheless, he called all the employees together in a conference room and persuaded them that one day soon they would triumph.

But even as he spoke he knew he had one very immediate problem: he needed another forty million dollars just to keep the company running. He called the Wall Street bankers and the venture capitalists and Jim Clark, and told them.

At that moment, I think, it dawned on Clark that the food chain of capitalism was missing a link and that, if he summoned the nerve to hoist himself up, he could be that link. And that if he didn’t have the nerve to do so he would make a mockery of his entire remarkable climb. He once told me, “I can’t be a venture capitalist, because I’m not that kind of person, and I can’t be a manager, because I’m not that kind of person. The only thing I can do is start ‘em.” His role in the Valley was suddenly clear: he was the author of the story. He was the man with the nerve to invent the tale in which all the characters—the engineers, the VCs, the managers, the bankers—agreed to play the role he assigned to them. And if he was going to retain his privilege of telling the stories, he had to make sure that the stories had happy endings. If that meant supplying forty million dollars more to Healtheon, so be it.

In that decision, taken during a financial panic described by Alan Greenspan, the chairman of the Federal Reserve, as “the worst” he’d ever seen, you could, if you looked closely enough, see the first glimpse of the new new thing. Clark’s willingness to take risks others shunned was the source of his financial power. He was the guy who always won the game of chicken because his opponents suspected he might actually enjoy a head-on collision. With the markets falling fast, and the financiers hemming and hawing, he called first Mike Long and then the investment bankers, and told them all he’d like to supply the entire forty million dollars to Healtheon. Forty million dollars suddenly looked like real money. Forty million dollars was the annual budget for a medium-sized city. More to the point, forty million dollars was at that moment nearly 20 percent of the after-tax value of Clark’s Netscape stock, itself falling rapidly.

Clark’s faith in his new enterprise was actually faith in his own imagination, as the new enterprise was merely an extension of that imagination. The power of that faith, once again, was transforming. One moment the financiers were wondering aloud where the forty million dollars was going to come from. The next moment they were trying to prevent Clark from supplying the full amount, and acquiring for himself an even larger stake in the troubled company. In the end the bankers and the venture capitalists agreed to let Clark give Mike Long twenty of the forty million dollars he needed. They supplied the rest. And so Clark bought half the canceled IPO, at six dollars a share.

I spoke to him a few hours after he did this. Technology stocks were collapsing, and a new pessimism had found its way into the heart of the miracle economy. All Clark said was, “I’ll be a billionaire again soon.” And then he returned to the serious business of programming his boat, and to the search for the new new thing.

C
lark said that Netscape “made anarchy respectable.” Late at night, when no one else was around, he must have wondered how long the odd sentiment could survive in corporate America. Institutions loathe disorder. They seek to socialize forces of anarchy. It’s one of the many internal contradictions that have failed to collapse capitalism: wealth generation is suppressed by those who are supposedly most interested in wealth. Rapid technological change threatens people who already have power, even when those people are technologists. This simple fact creates a certain internal tension in putatively high-technology corporations. While promoting change, big established companies also wish for change to occur slowly enough that it does not overwhelm them. Netscape was so threatening to the established order because it suggested change could happen outside of that order, as fast as people like Jim Clark could make it happen, without regard to the establishment.

Any number of events could conspire with the high-technology establishment to nudge the anarchic spirit off center stage and back to its usual, less reputable place in the wings. The stock market could collapse, for instance. Back in August 1995, when Netscape went public, the stock market had more or less said, “Okay, we know it is insane to encourage a company that has no profits, no clear idea of how it will make profits, and is, in fact, sort of making up its business as it goes along, but so long as we all agree to pretend that this is reasonable commercial behavior, we may create a miracle.” When the Healtheon public offering failed in October 1998, the stock market was saying, “Wait a minute. Maybe this was all a big mistake.”

But the market was not quite the threat to ClarkWorld that Microsoft was. About a year after Clark created Netscape, on June 21, 1995, the company’s marketing director and Clark’s old buddy from Silicon Graphics, Mike Homer, called Clark and told him that seven Microsoft executives, led by a man named Dan Rosen and acting on instructions from Bill Gates, had flown down to Silicon Valley and told Netscape that, unless Netscape gave Microsoft a seat on its board and sold Microsoft a piece of the business, Microsoft would put Netscape out of business.

This was more of a promise than a threat. To run on the world’s five hundred million or so personal computers, Netscape’s browser needed to be compatible with the latest release of Microsoft Windows—at that time Windows 95. Anyone who wished to write software for the personal computer obviously had to make sure that it was compatible with Windows. Netscape, like every other software company, needed Microsoft to release early versions of something called “the APIs” for Windows. API stood for application programming interface, a typically incomprehensible piece of geekspeak. An API was a kind of keyhole into Windows. To create keys that fit, Netscape needed to know the shapes of the holes. Microsoft’s programmers routinely provided these to programmers who created software that didn’t threaten Microsoft. They had been slower than usual to provide them to Netscape. On June 21, 1995, they told Netscape that unless Netscape caved in to its demands, they would not provide them at all. As the Microsoft executive Dan Rosen put it, according to notes kept during the meeting by Netscape’s Marc Andreessen, “If we had a special relationship, you wouldn’t be in this position.”

Later Clark recalled what he thought the moment he put down the phone: “Fuck these assholes.” A simple thought, easily acted upon. He immediately called Gary Reback, an attorney with the Silicon Valley law firm of Wilson Sonsini Goodrich & Rosati, told him what Homer had just said, and asked Reback to inform the U.S. Department of Justice (DOJ). Two days later Reback did just this—though he arranged for it to appear as if the DOJ had requested the information. Clark later told me that he’d taken this initiative because he “didn’t think Barksdale [Jim Barksdale, Netscape’s new CEO] was going to do anything about it.” In any case, after Reback mailed his letter, the DOJ invited him in for an informal chat. At the time the DOJ was toying with the idea of revisiting a settlement it had reached with Microsoft a few months before, in which Microsoft had agreed not to “bundle” new products with the operating system. Clark and Reback, together with several Netscape executives, flew to Washington.

At his one and only meeting in Washington, D.C., with U.S. government lawyers, Clark first tried to explain what was about to happen in the computer business. The Justice Department had been concerned with Microsoft Network—an ill-conceived early attempt by Microsoft to “contain” the Internet in a single, Microsoft-controlled space. Microsoft Network was a threat to no one, Clark argued, since it missed the whole point of the Internet, which was that it was uncontainable. The threat, he said, was Microsoft’s inevitable entry into the new market for Internet browsers.

Back in 1990 Clark had described his telecomputer as “a kind of underbelly thing with Microsoft.” If the digital revolution occurred on the television rather than the personal computer, he figured, there was at least a chance Microsoft would not control it. Netscape also was “a kind of underbelly thing,” but it lived much closer to the belly. To get onto the Internet, at least for the moment, you had to go through a personal computer. And the personal computer had a single point of entry—the first window that popped up on the computer screen after a user had logged on. To get to any software inside the computer the user had to pass through that window. Since Microsoft controlled that window, it controlled everything on the other side of it, too. This sort of power was not unique to the computer industry—the railroad industry had some of the same monopolistic tendencies. But in the computer industry the power was much harder for outsiders to discern, and thus to fight.

The Internet challenged Microsoft’s monopoly power, in a roundabout way. The Internet did not have an “operating system” as such. Instead, it had several points of leverage from which the dominant company could nudge consumers this way or that. The first and seemingly most important was the browser—the software that enabled you to travel on the Internet. Computer users tended to follow the path of least technical resistance. Netscape’s browser, which made it easy for people to travel around the Internet, was the first real window out of Windows. Windows became merely a starting point for a longer and more interesting trip. In the long run the Internet would make it possible for users to reach out and collect all the software needed to run their computers. In the extreme case, it could render Microsoft’s operating system superfluous.

Of course, Microsoft held itself out as a friend of change and progress. Its founder, Bill Gates, the world’s richest man, was forever publishing books and articles under his name the sole purpose of which was to convey the idea that he was some kind of visionary. Gates’s first book, published in November 1995, was called
The Road Ahead
.
The Road Ahead
came out a year and a half after Clark had said, “The Internet is the future of all data communication, and all communications are data communications,” and yet the author barely mentioned the Internet. The books and the magazine interviews and the advertising campaigns were a smoke screen. All Bill Gates wanted from the future was for it to look exactly like the present. To survive, Microsoft didn’t need to discover the new new thing but to tame it.

That is why Clark knew, from the moment he created Netscape, that sooner or later, and probably sooner, Microsoft would seek to destroy him. Clark told the DOJ lawyers that Microsoft would use its monopoly to control the market for Internet browsers. For instance, Microsoft would be able to go to computer manufacturers such as Dell and Compaq and say, in effect, “If you include on your machine Netscape’s browser, or exclude Microsoft’s Internet Explorer, we’ll put you out of business.” And the DOJ’s lawyers did not think that mattered! At least they didn’t at first. “Jim had sort of seen the future,” says Gary Reback, “and he kept saying to the Justice people
that’s not it
. He’d seen the future before Bill Gates, and he was trying to explain it to the Justice Department. But the Justice Department insisted on fighting the previous battle.”

It was almost instantly clear to Clark that any legal action would come too late to make any financial difference to him. An hour into the meeting he began to fidget; an hour after that he walked out, and left the others behind to finish what he had started. “It was just clear to me that it was a waste of time,” he said. “At that point I sort of gave up on the American legal system.” “When I caught up to him,” recalls Gary Reback, “Jim said, ‘Sorry, I just couldn’t take it any more. But you keep it up.’”

It was a full two years after Clark, through Reback, alerted the DOJ before the DOJ formally announced it had come around to his way of thinking. One reason it came around was that Reback had indeed kept it up. He peppered the government with news from the front lines of the browser war between Netscape and Microsoft. In March 1997 President Clinton appointed, and the Senate confirmed, Joel Klein as the department’s new chief of antitrust enforcement. The truth was, no one expected Klein to enforce anything; the senators who voted against his confirmation were Democrats who feared he’d lie down on the job. Klein later explained how he came to his surprising October 1997 decision to sue Microsoft:

That data in turn led Klein and his chief economist, Dan Rubinfeld, to reconsider their former view of Microsoft as a benign force. In the summer of 1998, while Clark was arguing with the investment bankers about what Healtheon was worth and hunting down bugs in his boat’s software, the lawyers from Washington and New York passed through Silicon Valley to collect testimony. The lawyers for Microsoft questioned Clark; they were followed a few weeks later by the lawyers for the DOJ; both groups videotaped Clark’s testimony. Several times that summer Clark turned up in the Seascape office wearing a suit. Whenever he put on a suit, he had the air of a man who had been invited to a costume party he did not wish to attend. On those days he looked like every other American businessman. It was an odd sight, a man with hundreds of millions of dollars and an inclination to do whatever he wanted to do, up to and including turning entire industries on their heads, agreeing to live by someone else’s dress code. Very deep inside him Clark harbored the desire to be
a good boy
. The real rebels never exactly play the assigned role.

To Clark the upcoming Microsoft antitrust trial was moot. In the three years since he phoned Gary Reback, Netscape’s share of the Internet browser market had fallen from 85 percent to 45 percent. Microsoft’s share had risen from zero to 50 percent. When people logged onto the Internet, their first impression was, increasingly, Microsoft’s Internet Explorer. More important, the market expected Microsoft to win; ergo, Microsoft would win. That simple fact gave Microsoft fantastic power over the Internet’s future. Its software was regaining its purchase on the consumer. Once that happened the goods and services Microsoft sold over the Internet would have a critical edge on the goods and services of others. “I can
guarantee
you what will happen next,” Clark said, often and loudly, usually apropos of nothing. “First Microsoft will put us out of the browser business. The moment they have control of the browser business, they will cut out the links to other portals [Yahoo, Excite, Lycos, etc.]. You’ll have to go through Microsoft’s portal. And once they’ve got control of the portal business, they’ll get all the vertical markets. You don’t think that’s what they want to do? They’re already doing travel. I guarantee you that Microsoft has the market power to take over every vertical market. Sooner or later they’ll get to health care.”

Three months later, and a few days after Healtheon, seeking to control the largest vertical market, canceled its IPO, the greatest antitrust trial of the era opened. The American legal system, in effect, would decide how well a man should be rewarded who gropes for the new new thing. By then pretty much everyone, including Clark, had forgotten the phone call to Gary Reback that set the trial in motion. Certainly no one saw the Microsoft antitrust trial for what it was: yet another rock Clark had pushed off the side of a cliff, and watched with godlike detachment, as it became an avalanche.

A
n American court of law is in many ways un-American. In our everyday lives we Americans celebrate the subversion of the social order; everywhere a visitor to our country looks he will find a poor American boy trying to make good, usually with the encouragement of his society. An American courtroom is designed first and foremost to preserve the social order, to keep the poor boy down. The judge sits on a raised dais from which he can condescend to the lawyers, the lawyers stand up so that they may condescend to the seated witness, and the witness, though he may have no one to whom he can plausibly condescend other than perhaps the curiosity seekers on the hard benches at the back of the room, at least has the comfort of his upholstered chair. If anyone dares to step the slightest bit out of line, a large man emerges from the back to shout, “Order in the court!” If the judge decides he needs to relieve himself, the large man appears again to shout, “All rise!” And everyone in the room stands and waits stupidly until the judge has ambled off to pee. There is not a “please” or a “thank you” or a “by your leave” in any of this. Our democracy’s system of justice is a feudal society in miniature.

The U.S. District Court in Washington, D.C., had the charm and efficiency of a Soviet customs office. The ceiling of grime-streaked white tiles was lit by horrible fluorescent lights. The seal of the United States over the full-moon face of Judge Thomas Penfield Jackson appeared to be made of the same hard plastic as a Halloween mask. For a number of reasons not worth going into, the main one being that the DOJ was not seeking monetary damages, there was no jury. The judge would render a verdict. Although it was one of the great antitrust trials since the antitrust laws were created back in 1890, the judge elected to hold it in the small courtroom. Most of the 450 reporters who turned up on the first day were left to rot in halls.