LEADERS OF THE DIGITAL ECONOMY.
He who tries to seize an opportunity after it has passed him by is like one who sees it approach but will not go to meet it.
--Kahlil Gibran, Poet
NEVER HAS OPPORTUNITY KNOCKED AS LOUDLY AS IN THE '90s. The rise of the personal computer, coupled with the explosion of the Internet, has ensured that our lives will never be the same. By the time the dust settles, computers and information technology will leave very few aspects of our lives untouched. Shopping, banking, travel and investing are just a few of the industries that have been transformed by the king of all networks.
Last year's business to consumer online shopping total reached $7.2 billion, nearly a 300% increase over 1997 totals, with analysts expecting it to reach the 10 billion mark by the year 2000. Rapid consumer acceptance of online shopping was the X factor, says Melissa Bane of the Yankee Group, a Boston-based technology market research firm. "Visa USA's $25 million ad campaign touting online shopping didn't hurt either," She adds, Visa's move gave those Shoppers who were skeptical of e-commerce a symbolic OK to shop online.
Buying goods via the Internet may be the most visible of the effects of the new economy, but it's certainly not the only one. "In the old economy, information flow was physical: cash, checks, invoices, bills of lading, reports and face-to-face meetings. In the new economy, information in all its forms becomes digital--reduced to bits stored in computers and racing at the speed of light across networks," states Don Tapscott in The Digital Economy (McGraw-Hill, $14.95).
For businesses, adapting to these changes is crucial. Many companies have found ways to cut overhead by employing methods such as videoconferencing and managing their vendor relations via the Internet. Some, such as computer maker Dell--which sells $2 million worth of PCs via its Website per day--have harnessed the power of the Internet to boost their profit margins. Others have boosted sales in their traditional stores by providing marketing and product information to individuals who can follow up in the real world, adds Bane.
The new economy will also create new industries, and will reward handsomely those who build them. The following profiles are people who've heard the knocking, and answered the call.
Kimberly Davis has traveled the globe. She counts the dramatic extremes of Alaska's frozen tundra and the South American tropics among her recent excursions. However, it was a trip to Nepal--which included a 14,000-foot trek up Mount Annapurna--that left the biggest impression. "The people of Nepal have what we would consider a basic lifestyle, yet they're very passionate and in love with life," says the 32-year-old venture capitalist. "It's the exact opposite of Silicon Valley."
But Nepal isn't in the Dark Ages. "A surprising number of places had Internet access," says Davis, who is rarely without her trusty PalmPilot organizer. "We even saw a Web cafe." Such are the temporary reprieves from her post at ground zero in the new economy.
Davis is a general partner at IDG Ventures (www.idgventures.com), an $80 million technology-focused venture capital fund based in San Francisco. As an African American woman, she is a rare bird in an industry dominated by white males, yet she rarely finds it an issue. "People usually have a problem with my age rather than my skin color or gender," says the Harvard M.B.A. However, her credentials and experience in the technology field typically waylay any doubts.
Davis also has a B.S. in industrial engineering and has worked as a product manager at Microsoft and a senior consultant at Andersen Consulting. "I enjoy working in high-tech because I like to see how it changes the behaviors of businesses and consumers," say Davis, who honed her venture capital placement skills as an associate at BankAmerica Ventures. Being a venture capitalist allows Davis, an admitted technology junkie, to get up close and personal with the latest industry advancements.
"I tend to focus on Internet, software and networking investments," states Davis. She is responsible for finding, structuring and managing start-ups on behalf of her firm. Though she may review 10-15 deals a week, only three or four a year get funding--typically between $500,000 and $2 million. These investments usually garner a 10%-20% stake in the company and a seat on its board of directors. According to research firm VentureOne, venture capitalists poured an estimated $5.8 billion into information technology companies through the third quarter of 1998--totaling 60% of last year's VC investments.
"The ultimate goal for a venture capitalist is liquidity through acquisition or an IPO," says Davis. "We generally expect a 50% return on investment." She has two main criteria for companies looking for funding, which should help prospective technology investors ferret out the potential stars from the glut of also-rans:
* "The market for the technology should be large," she advises. She initiated a $2 million investment in f5 Labs, a Seattle-based Website firm. The company provides Fortune 1000 companies with software that makes it virtually impossible for their Web servers to crash and jeopardize valuable online content.
* "Will the dogs eat the dog food?" she asks jokingly. "In other words, the technology has to solve a real problem."
Last year's online shopping surge during the holiday season caused several companies' servers to crash or slow down drastically, and likely won firms like f5 a few more customers.
For entrepreneurs looking to get in the technology arena Davis suggests: "There's a lot of opportunity in vertical applications where someone can automate a mundane process in a particular industry." PlanSoft, a Twinsburg, Ohio-based software company that creates productivity products and applications for the meeting and convention planning industry, received a $1.5 million investment at Davis' behest.
"In Silicon Valley there are more venture capitalists than good companies to invest in," says Davis, who leaves no stone unturned when looking for the next Yahoo! or Amazon.com. In a true display of putting her money where her mouth is, Davis invests personally in the companies she finds.
RIDING THE WAVE
Ever since childhood Dwayne Walker has had a passion for real estate. "My parents used to pacify me by taking me to open houses in the area," says Walker, who couldn't buy a home at the time because he was a minor. Hughes Aircraft, however, was concerned with his computer operating and programming skills, not his age--he started at 17. "By the time anyone asked me how old I was, I had already turned 18," he admits. Around the same time he purchased his first home. "The thrill for me was in knowing that I could actually buy a house," he recalls.
At 37, his passion for buying and selling hasn't waned. The former Microsoft executive still purchases real estate but today he's more concerned with staking a claim on the Internet. Walker spent seven years at Microsoft in a variety of positions before running his own company. Most notably, he grew the Microsoft Solution Provider Program, in which independent companies and consultants recommend and install Microsoft products, from 300 participants to nearly 7,000 and generated over $1 billion in sales.
By 1995, Walker was ready for a break. "I really wanted to test the entrepreneurial waters while I was still young, but at that point I was just burned out," he says. He'd already amassed enough company stock options to join the ranks of other Microsoft millionaires and had invested in several promising companies, including one called TechWave (www.tech wave.com), which focused on distributing software online.
"I never had any intention of running TechWave," says Walker who initially invested around $300,000 for a 75% stake in the company and the title chairman of the board. "But the founders were ready to pursue other things so the burden of running the company fell to its largest shareholder." In the summer of 1996, he and former Microsoft co-worker Othniel Palomino purchased the remaining 25% of the company and Walker added CEO and president to his titles.
Once he took the reigns, Walker realized the need to diversify the company's revenue streams. "The model for electronic software distribution was slow to mature," says Walker, who saw tremendous opportunity in online sales. He decided to take advantage of the burgeoning e-commerce market by providing business owners a complete e-commerce solution, including creative design for online order processing, secure payments and electronic distribution. "One of TechWave's strengths is that it has stayed very dynamic," explains Bane of the Yankee Group. "On the Internet especially, it's important not to focus too narrowly on a market that might not take off early enough."
"I think that all the analysts' predictions for the growth of electronic commerce are way off," Walker announced at an investor's conference in New York City late last year. "They're all too low." He was right last year's holiday season generated $2.55 billion in online shopping, a 219% increase from the previous year. "Every company is not going to have the expertise to build their own e-commerce solution from the ground up," says Walker. "That's where we come in and get them up and running quickly and inexpensively."
As online shopping grows, Walker is betting that companies will turn to his total electronic solution package. Currently, TechWave has 15,000 online stores, any one of which can carry 100,000 items. TechWave can get an online software store up and running in under two weeks for less than $10,000.
Based on Walker's revamped business model, Seattle-based TechWave secured over $30 million in venture financing, the majority raised through Madison Securities, a Chicago-based
securities firm. Walker used the money to purchase several companies that could help further his goal of creating a global standard for e-commerce transactions and generate additional revenues. These include E-Warehouse, CyberTrust Inc., Shop.now Inc. and the Haggin Group. The acquisitions gave TechWave a complete set of e-commerce tools, such as online store development, transaction processing and electronic and physical fulfillment. The combined companies have over 5,000 merchant partners with a reach of millions of business and consumer customers each day.
Today, electronic software distribution sites such as Tryandbuy. com, Buysoftware.com and Savishopper.com are the most successful of TechWave's online sites. The company also licenses its retail computer stores to other sites such as PC World and Yahoo! In these arrangements both TechWave and the licensee get a percentage of the sales. "Our percentage depends on the relative size of the partnership," explains Walker. Advertising on its e-commerce sites and custom e-commerce solutions make up the rest of TechWave's revenues.
Although he is intent on growing TechWave, which he intends to take public soon, Walker has no illusions of conquering the entire e-commerce industry. "Everyone should open a store on the Net, no matter how big or small," he says. "Learn the basics of buying, selling and reaching people on the Net because e-commerce is the wave of the future."
THE BANDWIDTH BARON
Kenneth Jackson is an opportunist--in the best sense of the word. In 1985, while a sophomore at San Jose State University, Jackson saw a commercial that asked "How would you like to be your own phone company?" Intrigued, the engineering major followed up and found out that the Federal Communications Commission was having a lottery to issue cellular licenses across the United States. "At the time, there was only one cellular provider in the area, and I knew that it was going to be a huge industry," says Jackson. Fortunately, he heard of an engineer in the area who could draft the detailed and difficult FCC application--whose guidelines required population density studies, engineering reports and the like for only $500.
"There was only one other company selling FCC applications and they charged $5,000 apiece," says Jackson, who charged only $1,000. "Once I got the first application done for $500, I had a template that could be duplicated and resold any number of times." He then raised $10,000 from a group of 30 friends and produced a television commercial, featuring a white actor, to offer his services. After only two weeks on the air, Jackson had received orders for hundreds of applications.
Once he paid his investors, the actor and the television station, Jackson had enough money left over to apply for 80 licenses. In 1986, he and several groups of partners were awarded 40 cellular licenses in markets throughout the U.S. "I had no intention of using the licenses," he says. "Instead, I sold them to service providers for $10,000-$100,000." From 1986 to 1995, Jackson received and sold licenses for paging, cellular and cable television. In fact, he and several hundred partners sold the license to Skytel, a nationwide paging network, for over $24 million.
Jackson, who sold his last license in 1995, cleared over $4 million by simply applying for licenses in the wireless spectrum. It was time to move on to something else. "I knew I wanted to get involved in the Internet, but I didn't want to work for anyone," he recalls. Instead, he produced a local cable access television show called InternetTV. The show enabled him to talk to Silicon Valley CEOs such as Oracle's Larry Ellison and Steve Jobs of Apple.
"Everyone I talked to had the same problem--Internet bandwidth," recalls Jackson. A waiting list of up to six months is not uncommon for installation of wired T1 connections (30 times as fast as a 56kbps modem). He once again heard the knocking of opportunity and turned to the airwaves to solve their problems. "If they were having so many problems with their wired connections, why not provide wireless T1 connections?" he muses.
Jackson launched Innetix (www.innetix.com), a wireless Internet service provider, in 1996 with $2 million of his own money. "Given the service and installation problems of many of the major landline providers, the market for wireless broadband access is potentially huge," says Reginald Van Lee, a vice president at Booz, Allen & Hamilton Inc., a New York-based consulting firm.
Using radio transmitters with a radius of approximately 20 miles, Jackson can provide customers throughout the San Francisco Bay area with up to 3 megabits of wireless bandwidth. He is one of only a handful of companies offering the service in the United States. "It's not a tremendous market right now, but [Innetix] clearly has the `first mover advantage' of an installed customer base," states Lee. "His goal should be to provide the best customer service possible so that he'll have loyal customers by the time the major providers begin offering wireless broadband."
Innetix provides bandwidth to over 800 companies, including the San Jose Convention and Visitors Bureau, the Fairmont Hotel and the San Jose Black Chamber of Commerce. Jackson also provides landline dial-up access to 400 businesses and consumers. "I expect to move to only wireless service within the year," says Jackson, who's planning to offer voice services over his lines in the near future. With wireless devices proliferating every day, Jackson is poised to capture a huge share of a developing market. The key, says Lee, is for Jackson to be able to adapt his service to emerging technologies.
Jackson, Davis and Walker have seen a glimpse of the things to come and have made their way to the front of the line, rather than let opportunity pass them by.
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|Author:||Muhammad, Tariq K.|
|Date:||Mar 1, 1999|
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