Google Plays The Anti-Competitive Card

Burlingame -Since about late December, more people have been searching on Google for "Steve Ballmer" than they have for "Eric Schmidt."

Don't count on that continuing.

On Sunday, news began to leak out that Schmidt, Google's chief executive, had put in a call to the doubtlessly miserable Jerry Yang of Yahoo! offering his help in warding off the barbarian at the gate--namely Steve Ballmer of Microsoft.

Google had also issued on Sunday a suitably pious press release from its general counsel: "The openness of the Internet is what made Google--and Yahoo!--possible. ... So Microsoft's hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."

Make no mistake: This isn't about the Internet. It's hardly about Yahoo!. Instead, Yahoo! has become a football in an epic battle between Microsoft and Google--and, between their team captains, Ballmer and Schmidt.

Both Google and Microsoft will try to claim the moral high ground by asserting that their actions will enhance competition in the Internet industry. Like seasoned politicians, no two other high-tech titans have had more experience debating "competitiveness" than this pair.

And both have tasted the sweetness of monopoly profits--and crave more.

First a bit of history: Both Yahoo! and Google were founded during the height of Microsoft's monopoly power--Yahoo in 1994, Google in 1998. Hatred of Microsoft, particularly in Silicon Valley, ran deep during those years. The Redmond software giant commanded fat margins for its operating system and office productivity software.

Microsoft Co-Founder Bill Gates was savvy enough to know even then that Microsoft was most vulnerable to what it didn't expect. He used to like to joke that Microsoft's toughest competitor was probably some tiny start-up no one had ever heard of.

Silicon Valley pundits, by contrast, warned darkly that the days of innovation were over. Microsoft's shadow was enough to frighten entrepreneurs away from whole areas of software. Just look, they charged, at the fact that no company dared try to build an operating system or even a new word processor.

Leading many of those assertions was Scott McNealy at Sun Microsystems, ably supported by his chief technology officer, Eric Schmidt. In April 1997, Schmidt left Sun to become chief executive at Novell, a network software company that had been seriously bruised by its battles with Microsoft.

Much of the personal animosity against Microsoft was directed against Bill Gates. But Microsoft also had a relentlessly aggressive sales force, encouraged to push for the best price and the most favorable contract terms. The tone of that sales force was set by the company's No. 1 salesman, Ballmer.

Schmidt, whose technological specialty was networking, tried unsuccessfully to rekindle Novell's fortunes around its directory services. The effort petered out. Schmidt jumped to Google in 2001.

Had Microsoft truly "chilled" competition? Commercial efforts to build conventional operating systems certainly had poor results. Sun continued to develop its operating system, Solaris. Apart from Apple's operating system, which limped through the mid 1990s, no other significant operating system for PCs emerged. Microsoft squashed enthusiasm for one pen-based operating system called Go. Another, Be, fizzled.

Microsoft then poured its energy into battling Internet browser pioneer, Netscape Communications, ultimately to the detriment of both. Netscape closed up shop and sold the remnants to AOL. Microsoft wound up tied up in antitrust litigation and penalties that continue still.

Outside the areas that Microsoft dominated, innovation flourished.

Gates was ultimately right: His company overlooked the importance of the emergence of the open source (not-for-profit) operating system, Linux. Palm Computing came out with an operating system for handhelds--leaving Microsoft to scramble in its dust to develop its own mobile operating system. And most critically, even after Gates announced that Microsoft was set on understanding the Internet, the packaged software company couldn't spot the need for search engines for sifting through all the data--leaving a big opening for what became Google.

Thank heavens none of those companies thought it would be a good idea to simply build another PC operating system.

Now the tables are oddly reversed: Google commands 75% of search-ad revenues worldwide. It carried out more than 65% of all the Internet searches done in the U.S. during the first four weeks of January, according to market research firm Hitwise. Combining Yahoo! Search and MSN Search would amount to 28%.

Both Microsoft and Google, as well as other industry titans, have flirted with Yahoo! for years. Yahoo! turned out to be its own most devastating competitor: It tried to doll itself up as a Hollywood company. It was slow to build an effective back-end system to monetize advertising. Yahoo! drifted.

Among the deals that have been considered in the past: breaking Yahoo! into chunks, including selling its search advertising business to Google.

That move would leave Microsoft even further out of the online ad business.

Ballmer--the salesman and long-time basketball fanatic--pulled the best lever he saw by offering a sizable premium over Yahoo's! current--and dwindling--share price. Expect to hear him bang the table for a fast decision from the company's board.

Schmidt, who knows Ballmer and Washington, D.C., better than any other high-tech executive, will play a different hand. To buy time, he has set his general counsel beating out the familiar rhythm of "anti-competitive" charges. He will try to round up allies. They will white board a dozen ways to slice and dice Yahoo! to keep it out of Microsoft's hands. Just as Microsoft dragged Google through anti-competitive hearings in Washington, D.C., over the search engine's proposed acquisition of ad company DoubleClick, so, too, will Google call in all its favors and demand that the antitrust busters scrutinize this deal. Schmidt's Washington ties run deep: He currently sits on Apple's board alongside former Vice President Gore.

Both Schmidt and Ballmer know it's easier to delay a multibillion-dollar deal than it is to speed it up. Expect to see this contest go into overtime.

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Column: Why Apple Won

Letter From Silicon Valley

10.23.06, 6:00 AM ET

Burlingame, Calif. -The best piece of management advice I’ve ever heard came from a boss who said his job was to set the bar for performance incredibly high and cheer like crazy for his employees to clear it.

I thought of that advice this past week as I set my iPod to “shuffle,” and flipped through a new book on the iPod and that sultan of Silicon Valley, Steve Jobs. The Perfect Thing: How the iPod Shuffles Commerce, Culture and Coolness, by veteran journalist Steven Levy, is a gushy but fascinating set of essays about the iPod. (Levy and his publisher have taken iPod’s “shuffle” motif to heart: Every copy of the book starts with the same essay, entitled “Perfect.” The next eight essays, however, are “shuffled” and so appear in different orders in different copies of the book.)

Every great company starts with some phenomenal product. The hard part is doing it again, and again, and again.

Google's big breakthrough was its search engine. Since that smash hit, Google has been vacuuming up talent and then giving them enormous latitude. (See: "Who's Really Running Google?") Managers encourage engineers to spend about 20% of their time on projects they’re passionate about. This lets Google crank out dozens of new products and widgets a year, but few have had much impact. And the company's most notable new products are ones that started outside the Googleplex : GoogleEarth and now YouTube.

What has been most remarkable about Apple Computer under the steely scrutiny of Steve Jobs is the number of genuinely big hits the company has rolled out. It certainly has not invented everything it sells. But because we’ve seen Apple with Jobs and without, the company is almost a laboratory experiment of the role of top management in turning an idea into a “perfect” thing.

In his book, Levy vividly chronicles the story of the birth of the iPod in the essay entitled “Origin.” The first team of engineers who tried to squeeze a thousand songs into a gadget that fit in your pocket was a team from Digital Equipment’s Palo Alto, Calif., research division. (Interesting historical note: A group of engineers in that same lab also invented a marvelous search engine called AltaVista, which, before Google, was topnotch.)

Other companies, both in the U.S. and Asia, were scrambling to create small MP3 music players. Still others were working on software that would simply let Macintosh computers play MP3s. None of this was going on at Apple.

By June 2000, Apple executives, starting with Jobs, realized that they would be missing a big opportunity if they didn’t jump into the music business. Apple snapped up one tiny company that had written Mac-based music software. What was missing from that product, Levy writes “was the trademark conviviality that characterizes just about everything that Apple does. Steve Jobs would not tolerate a program that was ugly or acted ugly.”

For music aficionados--and Jobs counts himself as one--playing music on computers wasn’t good enough. (Most of the speakers were lame.) None of the first flush of MP3 players was good enough. The only answer was to build a player that would be not just good enough but awesome.

Levy’s account has all the great details--how Apple contracted with an outside developer to put together a prototype, how Apple strong armed the guy into working full time for the company. (“I’m doing this for your own good,” Apple executive Jon Rubinstein loftily told the engineer, who would have preferred to make up his own mind.)

Where does Jobs come in?

At every go or no-go checkpoint. On every detail. Engineers were told to finish “builds,” in-process prototypes of software and hardware, on Fridays instead of more typical midweek deadlines. “I think ... they were giving the build to Steve, who would take it home for the weekend and play with it,” one engineer told Levy. Mondays started with long “to fix” lists.

“Steve would be horribly offended [if] he couldn’t get to the song he wanted in less than three pushes of a button,” another engineer said.

“Jobs certainly has an aesthetic that permeates the whole company,” Levy told me, when I asked him about Jobs’ influence on the iPod. “He can be super, super critical--it can be very frustrating to work with him.”

There are more than a few stories about people who worked their hardest on a project only to have the results razed in a review with Jobs. “Yet after a horrible evaluation, you crawl back to your office and try again--and this time, you surpass what you thought you could do,” Levy says.

Ideas can germinate anywhere. Getting you to surpass what you thought you could do is ultimately the job of top management. Somebody has got to hold up that bar insanely high. That can make for an agonizing work environment or an inspiring one, depending on how the critiques are delivered.

Just remember to cheer like crazy.

http://www.forbes.com/digitalentertainment/2006/10/20/ipod-itunes-jobs-tech-media-cz_ec_1023valleyletter.html

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Column: The Irony Of Large Numbers

Letter From Silicon Valley

10.09.06, 6:00 AM ET

Burlingame, Calif. -Call it the irony of large numbers.

It’s not just enough to make a fortune in technology these days. To be taken seriously, you’ve got to have a philanthropic cause. Bill Gates, of course, is saving the world from nasty diseases. John Doerr, the Valley’s über-venture capitalist at Kleiner Perkins Caufield and Byers, wants to save the planet from greenhouse gases. Jeff Skoll, eBay co-founder, is footing the bill for movies with a message, including An Inconvenient Truth, Syriana and Good Night, and Good Luck.

But in order to make those big fortunes, the venture firms that nurture entrepreneurs want to invest in Really Big Ideas--ideas that hold out the promise of making 30% to 40% returns, the kind of ideas that Google might be willing to fork over $1.6 billion or so for, such as YouTube. That means that technology that might do good for many people--but not quite enough to be a lucrative market--falls through the cracks.

“An idea that requires, say, $3 million upfront investment only to make break-even returns is a nonstarter in the for-profit world. But it could be a barn burner in the not-for-profit world,” says James Fruchterman, founder of the nonprofit Benetech, based in Palo Alto, Calif.

Fruchterman speaks from experience. He is one of a handful of people at the forefront of starting not-for-profit technology companies. Another such person is San Francisco-based Victoria Hale, founder of OneWorld Health. Both of them were among the John D. and Catherine T. MacArthur Foundation’s most recent pick of “geniuses.”

Both Fruchterman and Hale have traveled different paths to reach strikingly similar conclusions: There are orphaned technologies out there with great potential. They’re unlikely to make anyone fabulously wealthy--with patience, they could be break-even investments--but they could do a world of good. The trick is finding them a home.

Fruchterman has been a lifelong entrepreneur and technologist. He got his start by quitting a PhD program at Stanford University to join a commercial rocket launching company. (The rocket went up in flames.)
In the early 1980s, Fruchterman co-founded Calera Recognition Systems to commercialize a character-recognition system that let computers read printed text. It was a hit. But when Fruchterman proposed using the technology to build reading machines for the disabled, the idea was nixed. The market was too small.

Fruchterman wound up starting a not-for-profit venture to make the reading machines. Over a decade, the company began generating annual revenues of $5 million--enough to be slightly profitable and even attract a buyer. With the proceeds from that sale, Fruchterman started Benetech. This time, instead of just developing one technology, Fruchterman decided to try to incubate multiple ideas. “We’ve got an engineering team to develop the technology. We don’t give people seed money--we bring them in house and help them launch their idea.”

Benetech currently has six projects underway, including two aimed at promoting literacy for disabled adults. Another hopes to develop hardware to help farmers pinpoint live mines in their fields, based on technology originally developed for the U.S. military. “It’s our riskiest project,” Fruchterman says, “but has tremendous humanitarian payoff.”

Hale was a government bureaucrat--a pharmaceutical chemist working at the Food and Drug Administration in Washington--who got frustrated when she saw pharmaceutical companies shelving medically promising compounds because the anticipated profit margins would be too thin. (See: “Protecting The Orphan Drugs.”)

In the computer chip industry, squeezing more transistors onto roughly the same postage stamp-size slice of silicon means the cost of computer power has fallen dramatically. By contrast, the more complex pharmaceutical products have become, the more expensive the final drugs. “The pharmaceutical industry has created wonderful products for the West but not for the poor,” Hale says.

At OneWorld Health, Hale decided to look for drugs already developed by industry that could be targeted at devastating illnesses in impoverished countries. For instance, visceral leishmaniasis, also called “black fever,” is a parasitic infection transmitted by sand flies that causes blindness and death. About 500,000 people, many in India, are infected every year.

An established antibiotic, paromomycin sulfate, had been used to treat a range of parasites. It had been experimentally shown to combat visceral leishmaniasis, but again, given the relatively small (and impoverished) market, it was a nonstarter for any mainstream pharmaceutical company. OneWorld Health negotiated the rights to the abandoned drug, arranged a partnership with an Indian drugmaker to reformulate it and ran clinical trials to demonstrate its effectiveness against visceral leishmaniasis. In August, the Indian government approved the drug, which should go on sale by the end of the year in the state of Bihar for about $10 per treatment course.

Hale’s group is now working on a new generation of low-cost anti-malaria drugs. Researchers at the University of California, Berkeley and a startup called Amyris are developing novel techniques for creating an anti-malarial agent. So far, the science works: The scientists have shown they can use biotechnology techniques to produce materials that otherwise must be extracted from plants. Now OneWorld Health and Amyris must make the economics work by demonstrating they can manufacture the substance at affordable prices.

Come up with a novel way to distribute video clips these days and you’ll find no shortage of investors: The Silicon Valley support network that helps startups with big ideas works just fine in the for-profit world. But projects that payout in goodness, not gold, are a much bigger challenge. That makes Fruchterman and Hale true technology mavericks.

http://www.forbes.com/technology/2006/10/08/benetech-philanthropy-fruchterman-tech-cz_ec_1009valleyletter.html


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Column: The Pretexting Way

Letter From Silicon Valley
09.22.06, 6:00 AM ET

Burlingame, Calif. -Hewlett-Packard has my number. Not only my work and cell phone number, but probably also the numbers of my father, the nanny of my son’s best friend and a host of others. My husband, George Anders, works for The Wall Street Journal. He was one of the nine journalists targeted by private investigators hired by HP to figure out who was leaking corporate information to the press. For us, the story has gone from weirdly funny to downright creepy as more details have emerged. Ultimately, there are going to be quite a few casualties from this hit-and-run demolition of HP’s ethical standards.

We entered the story when a beleaguered sounding HP spokesman called us at home one evening to tell us about the probe and apologize for the fact that investigators hired by HP decided to snoop through our phone records. We were, quite honestly, surprised: My husband published a book about HP and Carly Fiorina in 2003. Since then, he’s written stories about everything from options guzzling executives to quaint ghost towns--but only an occasional piece on HP. A few days later, news dribbled out that the investigators had rifled through the phone records of the PR guy, too. (HP’s bosses say they’re sorry about that one as well.)

As it turns out, the techniques the investigators considered seem unbounded by decency, common sense or even by a budget. Along with scrutinizing phone records, they watched people's homes and even thought about planting spies disguised as janitors in the offices of The Wall Street Journal and CNET to look for clues.

HP executives, too, seemed to be devoting an astonishing amount of time to faking out one journalist in particular, reporter Dawn Kawamoto of CNET. The Washington Post has served up some astonishing details of the HP plot. Senior Council Kevin Hunsaker apparently oversaw the investigation, which was largely handled by private firms in states that follow the old East German approach toward privacy. Hunsaker helped create a fictitious persona, “Jacob,” who would leak inaccurate information to Kawamoto. By including a “tracer” program in Jacob’s e-mail, investigators hoped to track down anyone Kawamoto later e-mailed with the fake news. (Like all too many programs, the software turned out to be a dud.)

The Post reports that on Feb. 22, Hunsaker sent a copy of the faked product information to HP Chair Patricia Dunn and general counsel Ann Baskins in an e-mail. "I made up everything in the slide, trying to make it at least somewhat feasible," Hunsaker wrote to Dunn and Baskins. "I won't quit my day job, but hopefully neither the name nor the information on the slide are terribly off-base."

Suggestion to Hunsaker: Go ahead. Quit your day job.

One private investigator, a long-time family friend, scoffed at the methods reportedly employed by the firms working on behalf of HP. Any investigator worth his retainer could have used much subtler methods, our friend suggested.

All of which begs the question: Is every company spying on people?

Just about every publicly held company worries about leaks. The most obvious leaks occur during the so-called “quiet” period--the typically 20 or so days after a company closes its financial quarter and before it reports the results. Trading on these results is a big no-no (otherwise known as insider trading). But frequently analysts’ estimates of quarterly results get awfully close to the mark during those magical “quiet” days.

To try to stem leaks, company managers will zero in on the employees who get a glimpse of e-mails. Companies can--and do--monitor e-mail. Routinely.

Some companies let employees know that the penalties for talking to the press are stiff. At Apple Computer, CEO Steve Jobs has lashed out at those suspected of dealing in leaked Apple information. In January 2005, Apple sued a Web site, Think Secret, run by a then 19-year old, for allegedly soliciting insider information from employees and publishing it on the site. You can bet Jobs lost little sleep in going after anyone inside Apple who might have gossiped with Think Secret.

Scott McNealy, formerly CEO of Sun Microsystems, put it succinctly in 1999 when he said, “You have zero privacy. Get over it.”

Ironically, McNealy was less hung up on leaks than many other Valley CEOs. In the mid 1990s, when Sun made a bid to acquire Apple, insiders on both sides of the proposed deal were throwing buckets of details to the press in hopes of nudging the sale price up or down. One insider told me that McNealy never bothered trying to figure out who was leaking what. (Ultimately, the deal tanked for other reasons.)

Clearly those days are over. The level of suspicion has risen dramatically. Journalists must weigh whether information is fabricated and interviews covertly monitored. Sources, too, will feel that no conversation is ever private.

Zero privacy--and zero trust. These are poignant legacies for HP to give to the Valley.

http://www.forbes.com/technology/2006/09/21/hp-spy-corcoran-tech-cz_ec_0922valleyletter.html

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Column: Back To Silicon Valley's Future

Letter From Silicon Valley

09.11.06, 6:00 AM ET

BURLINGAME, CALIF. -Tim O’Reilly has invented a time machine. Not the H.G. Wells version, but an intellectual time shifter that briefly brings back some of the inventive magic of Silicon Valley’s past. Last month he offered me a ride. It was a vivid reminder of what made Silicon Valley great--and a tempting promise of things to come.

For the past 28 years, O’Reilly has run a privately held publishing and conference company located in Sebastopol, Calif., a 45-minute drive north of San Francisco. Many of the books published by O’Reilly are intensely geeky: JavaScript: The Definitive Guide is among its top sellers. O’Reilly doesn’t care about becoming a media mogul. Instead, he continues to feed the old home-brew spirit of innovation, while providing savvy commentary on the state of techdom.

In 2003, O’Reilly kicked off a series of conferences, mischievously called “Foo Camps" (the name is a tribute both to programmers, for whom “foo” is a placeholder word like “whatchamacallit," and to himself, as in “Friends of O’Reilly"). The camps--which sometimes actually take place in an old apple orchard outside O'Reilly's Sebastopol woods--are purposely not about business plans and marketing proposals. That's where the time travel comes in: The gatherings are a throwback to Silicon Valley's early days, when it was populated by dreamers who reveled in building stuff and did only what they had to do to
pay the bills.

The Internet changed all that, raining so much money on the Valley that business plans washed away chip diagrams. But O’Reilly is still inspired by ideas, not cash. And so he’s made his Foo Camps a place for starting conversations, not generating business leads.

In August, O’Reilly, in conjunction with Nature magazine and with support from Google, convened the first SciFoo: A gathering of about 200 carefully picked scientists, pundits and writers. The broad mandate was to discuss emerging science and science policy ideas, particularly ones that have been supercharged by the Internet or other vast database technology. That was it. No agenda, no keynote speakers, no public relations crews and no trade floor booths. People came to stir up ideas. And as far as I could tell, everyone went home thinking about something different from when they arrived.

SciFoo was held at the memorably indulgent Googleplex, in Mountain View, Calif., where the cafeteria is lavish, the bathrooms feature high-tech toilets with warm seats and nozzles for squirting water at delicate spots, and a glassed-in laundry room offers employees a chance to take a personal hygiene break.

Many of the SciFoo “campers” were the people that other conferences are built around: Bill Joy, co-founder of Sun Microsystems and inventor of Berkeley UNIX; Danny Hillis, co-founder of Thinking Machines, one of the first massively parallel supercomputers; Esther Dyson, long-time technology pundit and now venture capitalist; the Google duo, Larry and Sergey, along with their new compatriot, Larry Brilliant, who helped squash smallpox and is now running the billion-dollar Google Foundation; and Donald Hopkins, who directs health programs at the Carter Center and is leading the fight to eradicate guinea worm disease.

O’Reilly’s team plopped a big whiteboard in a common area just outside the Google cafeteria and suggested that people sign up to give presentations on their work or host a session on a topic they find interesting. The board filled quickly with topics such as managing enormously complex datasets, fighting pandemic diseases, teaching science to children, building robots and studying the history of technology. Some sessions attracted dozens of people, others just a handful. In every case, however, I saw some of high-tech’s big names listening and brainstorming with people they had never met before the conference.

One researcher described the change in the way the World Health Organization tracks emerging potential epidemics, due in part to a tiny Canadian organization called Global Public Health Intelligence Network. Since the most effective way to derail an epidemic is to catch it early, the WHO relies on countries to report the health trends they’ve detected within in their own borders. But GPHIN has sped up detection enormously by also sifting stories and Web sites from global media sources, using carefully chosen keywords. Stories that use the term “dead birds” and “dead nurses," for instance, may indicate an outbreak of avian flu.

Now imagine expanding that kind of Internet trolling to include many more sources, starting with personal blogs. What would researchers see? Who should get the findings? How reliable would they be? What if people tried to send out misleading information?

Another researcher proposed creating an even earlier flu warning system by using low-cost sensor chips to test for a thousand strains of different viruses. The chips could be put in health clinics around the world and the data could be fed into a central organization. Could that kind of mesh help researchers catch--and quash--epidemics? Again, who would get to see the data? What if it missed a virus?

In another conversation, researchers described projects that collect information from webs of tiny sensors, measuring everything from ocean currents to lightning strikes, and then plot the data on global maps, such as Google Earth. (For example, see Biltzortung.org for data on lightning strikes in Europe or Ogle Earth for a blog about using Google Earth maps.) What else could be mapped? Where else are people gathering data? What happens when databases are fused together--say, mapping demographic or income tax data onto local maps?

Getting nonscientists excited about science was another favorite topic. One intriguing approach is a new series of comic books, slated to come out early next year. Saul Griffith, an alum of the Media Lab at M.I.T., has been developing what he calls “HowToons,” an adventure series in which kids design cool gadgets. (See Instructables or check Amazon.com.) Griffith gives kids, with a bit of help from adults, step-by-step instructions on how to make cool gadgets, including marshmallow shooters and rocket ships. Will Griffith’s work inspire kids to detach themselves from computer monitors and head to the garage?

The conversations continued long into the evening. Future collaborations were forged; proposals began to germinate. Guessing what real change might come from such a meeting is harder than pinning down a cloud. But surely, without such conversations, innovation would happen more slowly.

http://www.forbes.com/columnists/2006/09/08/conference-science-google_cz_ec_0911valleyletter.html


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Column: Quiet Power

Letter From Silicon Valley

08.14.06, 6:00 AM ET

Burlingame, Calif. -In early 2005, when the board of Hewlett Packard sent then-CEO Carly Fiorina packing, women in Silicon Valley didn't exactly smash their LaserJet printers in protest. But there was a widespread concern that the demise of the Carly Era might make it harder for other female candidates to prevail in races for top jobs--to become "power players"--particularly in Silicon Valley.

That's why I went to chat with Judy Estrin.

Estrin has been a Silicon Valley star since 1987, when the first company she helped launch, Bridge Communications, went public. Since then, she has co-founded three more startups. She featured on magazines' "power" lists when she held the top wizard job--chief technology officer--at networking giant Cisco.

But genuine power is subtler than fancy titles and big market caps. Estrin knows how to pick her spots, and that's why her story holds some important lessons for anyone--but particularly women--who aspire to helping shape the future.

Estrin, 51, has wielded influence at two critical points in corporate life: She has started companies, helping to change the direction of technology. And she has overseen companies, by becoming a major force on corporate boards. These days, she sits on the boards of Disney and Federal Express, along with two private companies. (She has also served on boards for Rockwell and Sun Microsystems.)

Getting the chance to start companies and to serve on boards starts with credibility. In a community where really smart engineers are revered–and everyone else makes sure not to offend them unduly–Estrin can compute with the best of them. As a UCLA undergraduate, she majored in mathematics and computer science. After college, she picked up a master's degree in electrical and computer engineering from Stanford.

That kind of technical expertise meant that Estrin has commanded respect without clamoring for it. Among those she impressed early in her career was James Barksdale, at the time chief operating officer at Federal Express. When his boss, FedEx founder Fred Smith, was looking for a new board member for the Memphis-based company, Barksdale nudged him to talk to Estrin.

"Fred wanted to add diversity but he didn't want a token woman," she recalls. "He wanted to add other capabilities"--particularly someone with technology credentials.

Still, when Estrin joined the FedEx board in 1989, she couldn't have felt more out of place. "I was 20 years younger than the other board members, the only woman, and the only Californian!" She tried wearing conservative business-style suits but the airlines conspired against her. Estrin arrived for her second board meeting in Memphis late one Sunday night. Her luggage did not. The next morning, Estrin strode into the boardroom in an anti-power suit: jeans, a Memphis tee shirt from the hotel gift shop and sneakers.

The directors stared. Then one board member laughed. "Is that how they dress in California?" he teased Estrin.

Over the years, Estrin realized that learning to listen was one of the big lessons that a CEO could glean from serving on a corporate board. "If you get on a board, you've had a lot of success--so people have a sense that you should know all the answers," Estrin notes. But board members who are honest with themselves realize they don't have any ready-made solutions. They may not even know much about the company's industry. The best board members listen first--wrap the problems into their own experience--then offer guidance. "Listening doesn't mean you keep your mouth shut," Estrin adds.

Serving on a board in an industry outside your expertise is also a jarring reminder that the world is bigger than your own P&L. "I was always selling technology. Sitting on the boards, I got a different look at my customers," Estrin says.

Then there's learning to get along--or, in corporate-speak, learning to "craft consensus." CEOs expect to call the shots. But on a board of superheroes, no one is in charge--not even the chairman. Estrin declines to share any gossip about the battles she witnessed on the Disney board over the past two years. But learning to be part of a consensus is humbling and inspiring for executives of both genders, she says.

Those skills--listening, seeing the world from different perspectives, building consensus--risk sounding like stereotypical "female" traits. Estrin shrugs impatiently at the suggestion. "There are a lot of women in business who go out of their way to act like male stereotypes. There are strong men who have those qualities."

The bottom line: Getting power and keeping power is one of those classic yin-yang maneuvers. You get power when you prove to the world you can get things done--say, by inventing a product, designing a marketing campaign, or starting a company. The more credit you grab, the more glory you get.

You only get to keep power, however, when you learn to play well with others.

http://www.forbes.com/columnists/2006/08/11/judy-estrin-management_cx_ec_0814estrin.html

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Column: Rabbit Feet 2.0

Letter From Silicon Valley

07.24.06, 6:00 AM ET

Burlingame, Calif. -Ancient Greeks touched oak trees when they wanted Zeus to protect them. Irish farmers nailed horseshoes to their doors with the tips pointed up to keep their luck intact. But in this high-tech age, people have progressed far beyond such superstitions.

Or have we?

Poke around Silicon Valley, and you'll find lots of entrepreneurs who rely on quirky habits meant to improve their luck. It takes a while for them to own up to these private rituals. They insist that the can see the future, and that their carefully crafted business plans are bound to prosper. Yet at the end of the day, they're not that different from the hopeful bride who pins something borrowed and something blue onto her dress just before marching down the aisle.

So when tension mounts, even people with Ph.D.s and stock options start relying on lucky numbers, favorite colors and the like. "Everybody's got their own karma generators," says Stephen DeWitt, chief executive of Azul Systems, which sells cost-efficient servers and computing services.

DeWitt's own foibles involve the color blue. The first company DeWitt ran was called Cobalt Networks. Everything was dyed to match: the logo, the corporate tschokies and, at a crucial moment, even the employees. When Cobalt went public in late 1999, all the employees dyed their hair blue. Call it coincidence, but Cobalt's stock hit $158 on opening day.

DeWitt was so blue-focused that when he joined his next startup, he insisted--at a cost of some tens of thousands of dollars in legal expenses, new stationary, signs and the like--that the name go blue. Hence Azul.

Every superstition has a halfway-plausible basis jangling in the background. DeWitt says his blue fetish started with IBM. "When I got started in this business, Big Blue was the kingpin," DeWitt says. "So when I got my opportunity to take a swing, I wanted to emulate the staying power of IBM."

Greg Tseng, who runs Tagged, a San Francisco-based startup that is a social networking site for teens, heeded the suggestions of his Taiwanese mother and made sure that Tagged's main phone number has plenty of "8s"--three of them, to be exact. "In Asian cultures, the number '4' is unlucky, since it sounds like the word for 'death,' whereas the number '8' is lucky, since it sounds like 'prosperity,' " says Tseng.

Vasudev Bhandarkar likes to lay the blame--or perhaps the credit--on his wife. Bhandarkar has started or led three companies. At the outset of each new opportunity, Bhandarkar's wife, along with the wives of his cofounders, have insisted that their very modern husbands pause to offer a tribute to the ancient gods who ward off evil spirits. "All my companies have had very good exits," Bhandarkar says. "Our wives take credit for their success."

Peggy Burke had no one to blame but herself: When she planned to move her graphics design firm, 1185 Design, to a new space in 1999, she fell in love with a building graced with high ceilings and exposed beams.

Too bad, a long-time Vietnamese-born colleague told her when he got a glimpse. The place was packed to the ceiling with bad luck, he explained. (He said that the "pressure" from the exposed beams would create a bad environment for the designers.) The solution? Burke hung several dozen large bamboo flutes, tilted at different angles, from all the beams. So far, so good. "After Sept. 11, 2001, a lot of design firms closed down--but we're still here," Burke says. "Could be something to this."

Bill Coleman laughed when long-time venture capitalist Bill Janeway whispered his own superstition: "Bill told me that as soon as a company gets big enough to have a building with a big lobby, the stock will go down."

Coleman ignored that friendly advice. In August 1998, his company, BEA Systems, was growing briskly, with a healthy stock price in the mid-$20s. Then BEA moved to a new office. "The lobby wasn't huge--but it was big," concedes Coleman. A month later, BEA's stock was down to $8. Coleman now runs software-infrastructure maker Cassatt. Cassatt's lobby, he says, is intentionally downscaled--think Starbucks, not Trump Tower.

Some buildings come complete with their own mojo. Executives from Netscape Communications were always proud to have their offices on the grounds once occupied by Fairchild Electronics, the company that served as the seedbed for Silicon Valley's chip powerhouses. Turns out the karma there was inescapable, though. Netscape, now a small part of Time Warner's AOL, followed Fairchild's trail to irrelevancy.

That may explain why no one has been eager to touch the former site of the once high-flying dot-comer Excite@home. Since the company closed shop in 2001, the building's empty windows have stared mournfully onto Route 101, a central Silicon Valley artery, a haunting reminder that even the best-laid plans of venture capitalists can go bust.

And then there's what many consider the luckiest spot in Silicon Valley: 165 University Ave., a modest building on Palo Alto, Calif.'s bustling downtown street. Logitech, a chip company, started there. Ebay's PayPal started there. And so did Google.

That success has certainly been magical for building owner Rahim Amidi. His family started out selling Persian rugs, but now he invests in real estate and early startups. "We lease the space to special people," says Pejman Nozad, a partner in Amidzad investment group. One condition of any lease: Start ups have to let Amidzad invest.

"I consider myself lucky just walking down the street in Palo Alto," says Nozad. "There are so many smart people here. You can get into a good deal just by talking to a person in a café."

http://www.forbes.com/columnists/2006/07/21/superstition-luck-technology_cz_ec_0724valleyletter.html

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Column: What Options Scandal?

Letter From Silicon Valley

07.05.06, 6:00 AM ETBurlingame, Calif. -
Only the pushy succeed in Silicon Valley.

Only the people with a bullheaded belief that they're right persevere when others laugh at their ideas. Only people willing to push the envelope, to break the rules of civility, can nail a big sale to a skeptical customer. Or transform a concept into a company worth billions.

Most of the time, we celebrate this against-all-odds spirit of Silicon Valley. And periodically, we change our minds.

That's why Valleyites feel so beleaguered about the options controversy that's enveloping one public company after another, decimating stock prices as it spreads. Outsiders don't get it, they argue: If they want companies who push the limits in their companies, they're going to get companies who do the same thing with their balance sheets.

Most of the scandals center on options granted during and after the last tech boom, before a new set of rules regarding pricing, reporting and expensing were set in place. Look hard at how options pricing happened in those days, when the rules were fuzzy, and you'll conclude that executives--along with their legal and accounting advisers--did what they do in every part of their jobs. They pushed the envelope. What's not explicitly forbidden is permitted was the rule of the day.

A few weeks ago, senior partners at the San Francisco law firm Morrison & Foerster, which counts some of the Valley's top companies among its clients, invited a group of reporters for a lovely lunch and a friendly chat about stock options pricing. They put the problems into three categories: a very tiny number of truly nasty practices, such as altering documents; "technical housekeeping problems"--in other words, folks who were just too darn busy to bother filing their options paperwork on time; and companies trapped in the "gray" zone of previously ambiguous laws.

Corporate executives are supposed to create value for shareholders--and part of doing that means getting the smartest and most creative employees to stay at the company, the lawyers pointed out.

"You're supposed to provide strong 'handcuffs,' " not simply to enrich people but to keep them at work, said partner William Sherman, who has been involved with about 250 public offerings.

And executives were supposed to price options wisely, Sherman argued. "If you believe that a market analyst is going to put out a report--say, on the semiconductor industry's increasing book-to-bill ratio--isn't it smart to do options grants at a time when there will be less dilution to shareholders?" Translation: If management thinks the stock might rise on positive news about the sector, shouldn't they grant options quickly before the corporate stock rises? "There's nothing that says it's wrong," Sherman insisted.

The bottom line: If you reward people for pushing the envelope of technology, for working overtime to get that next sale, you shouldn't be surprised if they have similarly pushed the understanding of how to reward themselves and their colleagues.

Was it right? Not from the point of view of shareholders.

"Is this a criminal offense?" one of the reporters at the luncheon asked the Morrison & Foerster partners.

Eugene Illovsky, a partner and formerly an assistant U.S. attorney in the criminal division in the U.S. attorney's office in Sacramento, looked distinctly uncomfortable.

"Is it stealing?" the reporter persisted. "The money comes from the public market. The company isn't paying for it."

Illovsky paused. "We'll see creative prosecutors come up with interesting theories," he said.

Last week, Apple Computer acknowledged that it, too, is taking a look at the "irregularities" of its past options granting program. That put Apple, widely proclaimed as one of the most innovative, envelope-pushing companies in Silicon Valley, on a list with about 19 other Valley companies all now scrutinizing how they rewarded their best and brightest.

The only surprise is that the list is so short.

http://www.forbes.com/2006/07/01/options-technology-scandal_cz_ec_0705valleyletter_print.html

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Column: Gates' World Of Good

Letter From Silicon Valley

06.19.06, 6:00 AM ETBurlingame, Calif. -
So why'd he do it?

Why did Bill Gates decide to walk away from full-time work at Microsoft--the software giant he founded 30 years ago--in favor of a new career as a full-time philanthropist?

Gates himself didn't offer much of an answer last week. Most commentators have been so busy picking apart the strategic implications for Microsoft (relatively minor) that they haven't tried to probe the private motivations of the world's richest man.

But for those of us who have watched Gates redefine himself over the years, there are plenty of clues. No younger upstart pushed him out; after all, Gates is still Microsoft's biggest shareholder and can do anything he wants at the company. Instead, his choice reflects how much his dreams and opportunities have changed in the two main arenas of his life.

Walk around Microsoft's Redmond, Wash., campus, and you can tell right away that you're at a mature, slow-growth company. Huge teams of people worry about how to upgrade long-established products so that existing customers will buy them one more time. There's a dash to the parking lot at quitting time. Employees grumble that the stock isn't going up and that their once-magnificent equity compensation packages have lost their luster.

It didn't used to be this way. When I first visited Microsoft in 1990, engineers and even marketing managers were filled with a change-the-world zeal. I remember one young engineer telling me in awed tones how he felt knowing that the code he wrote could change the lives of people he had never met in places he barely knew existed. He could literally feel power surging from his typing fingers into the world.

OK, so maybe that guy had an exaggerated sense of self-importance. But the Microsofties believed in something bigger than themselves. And Gates, who lived, breathed and slept Microsoft, was the most energized of all.

If you want to find that sort of enthusiasm in the Seattle area today, cross Lake Washington and visit the unmarked gray and glass building that houses the Seattle headquarters of the Bill & Melinda Gates Foundation. There, scores of program officers are running the world's largest private foundation. They talk excitedly about ways to improve education or to battle Third World diseases such as malaria and AIDS.

Their ideas are audacious, teetering right on the edge of genius and possible failure. In philanthropic circles, the Gates crowd is seen as brash--chock-full of a belief that technology will cure the world's problems. And their budget is enormous. Led by the threesome of Gates, his wife, Melinda, and former Microsoft comrade Patty Stonesifer, the foundation is hiring teams of the "smartest" people it can find.

Sound familiar? For Gates, stepping inside this foundation is a lot like turning back the clock to 1990, when Microsoft was young, proud and daring.

At Microsoft, the top job is not about changing the world--it's about reinvigorating the company and sustaining the stock price. That's no place for someone with big dreams.

When Gates has talked over the past couple of years, he has doggedly described the importance of software, how Microsoft is fighting Internet hackers and how it can help make companies more efficient. But his heart hasn't been in it.

Even within internal meetings at Microsoft, people say they see the old Gates passion light up his eyes when he talks about the mind-numbing statistics of mortality due to diseases like diarrhea, tuberculosis and malaria.

But doing good, especially with a lot of money, is surprisingly hard. It's not enough to simply want to do good. You need a plan, a willingness to cope with setbacks, the brains to figure out how to recover when things go awry, and the stomach to deal with misfortune, incompetence and, sometimes, sheer fraud.

Gates believes technology can help save the world--not by handing out computers but by doing hard science to develop new vaccines and by crunching data to understand the supply chain of getting life-saving drugs to remote villages. That makes him unusual in the world of global public health, which typically has been driven by medical workers who started their careers working in rural clinics and ministering to one person at a time.

Gates isn't a one-at-a-time kind of guy (see: "The (Almost) Exit Interview"). Imagination drives great philanthropy--a techno-colored vision of how the world can be a radically different place, writes Mark Dowie in American Foundations: An Investigative History, one of the few hard-hitting books on the subject.

At the Gates Foundation, there are big visions: a world where every child can be vaccinated; where the age-old diseases that cripple developing nations finally can be quashed; and where high-school students everywhere will be excited about school and their opportunities. These ideas are bigger than serving the enterprise. Bigger than software itself.

And this time, the world is probably going to thank Gates.

http://www.forbes.com/home/columnists/2006/06/16/gates-retires-microsoft-cz_ec_0619valleycolumn.html

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Column: Who's Really Running Google?

Letter From Silicon Valley
06.05.06, 6:00 AM ET

This is the first in a series of dispatches from Silicon Valley from Forbes magazine Senior Editor Elizabeth Corcoran.

BURLINGAME, CALIF.--Imagine that the earth's magnetic field flip-flopped: Instead of compass needles pointing north, they'd quiver around the "S."

That's what's happened in Silicon Valley. Since the early 1990s, entrepreneurs and engineers in the Valley have compulsively looked north toward Redmond, Wash., peeking over the shoulder of Microsoft. Writing a business plan? Start by finding out what Microsoft is doing. Dreaming up a product? Better calculate how much time you have before Microsoft makes it part of its operating system.

Now the compass needle has swung south and points to Mountain View, Calif., home of the Googleplex. Microsoft is still around, of course, just like the Grand Canyon. But it's not likely to slink around in the middle of the night and trip you up. Microsoft has become more predictable. Now it's Google that people obsess over; Google that has become the great vacuum cleaner of talent, sucking up all those "really, really smart" people; Google that dreams up dozens of nifty ideas a year and plugs them into its dominant search engine.

In a Microsoft-oriented world, it was easy to figure out who was in charge: First , and later . But who's running Google?

Eric Schmidt, of course, is the chief executive, the guy who cheerfully called himself the "adult supervision" when he signed on. And he puts on a good face for the outside world: "The only way we'll deal with our growth and scale is with a systematic approach to each and every thing we do," he declared at Google's press jamboree in May. The company's focus, Schmidt assured reporters, is really on search. "We have more people working on search than ever before," he said.

But as charming as he is, Schmidt runs Google about as much as much as the Dalai Lama runs the world's spiritual life.

Google hardly has a classic corporate command structure. Instead, Google executives seem to carry themselves with all the authority of an overindulgent parent, constantly worrying about what employees think. Before Google announced that the company would obey the Chinese government by censoring the results of some searches, senior executives knew they'd take heat from human-rights advocates for the decision. They could cope with that. More nerve-wracking, however, confided one senior executive, was what people inside the company would say.

This attitude draws snickers from outsiders. "I've heard that they have a lot of cacophony in the development process. I'm not surprised," deadpanned Microsoft's Ballmer at a recent Silicon Valley gathering. "It's important to have lots of flowers--but important to have coherence, too."

Peek inside the Googleplex, and what you'll see looks more like swarm behavior than a military drill. In many families, everyone has to pitch in and do some grungy work to keep the household running. But at Google, every engineer acts like the favorite child. From a Google employment Web site: "Because great ideas need resources to grow into reality, at Google you'll always get the resources you need to make your dreams a reality." (As my 9-year-old son would say, "Swe-eet!")

According to Peter Norvig, who directs Google research, "We rely on the Lake Wobegon Strategy, which says, 'Only hire candidates who are above the mean of your current employees.' " Managing people who are told from the minute they pick up their ID card that they're probably smarter than their boss is like supervising the wind. Ever think your boss was wrong? Well, if you're smarter than he is, then clearly you must be right. The logical conclusion: Just ignore him.

Once inside the Google tent, engineers are free to spend 20% of their time on projects that they're passionate about. But hey--no one's standing around with a time sheet. Just imagine the conversations:

Google boss: "Hey, how about getting that Google toolbar to work with the next version of Firefox?"

Engineer: "Oh, that." Yawns. "Yeah, I'll get to it. Right now, I'm passionately working on a mash-up that will help you plot a trip to Elvis festivals all over the world!"

Even Schmidt has conceded that the balance between gotta-do's and wanna-do's has gotten a bit out of whack. Google managers recently surveyed their workers and discovered that they weren't quite spending 70% of their time on the company's "core" areas--namely, search and advertising. "So, we're taking steps to encourage people to shift their energy back to that 70%," Schmidt assured reporters.

Schmidt has been through this before, with mixed results. He spent his formative years at Xerox's Xerox Parc, that incubator of brilliant ideas that sadly made only marginal dents in the corporation's bottom line. And at Sun, Schmidt helped promote Java, which turned out to be quite handy for much of the tech world but did little more for the company than provide a cool advertising campaign. By the time Schmidt reached Novell, that company was in dire need of forceful leadership. But oddly enough, all the leadership in the world rarely produces innovation--just better execution of what you already know how to do.

What those experiences have shown, time and again, is that innovation comes from contrarians, from the folks who pick a different path, who could care less about the rules, who aren't good soldiers.

One of Schmidt's great strengths is that he accepts that fact. As a result, he has defined his job not so much as leading Google but as running interference for it--placating the investment community, soothing nervous regulators and policymakers and doing whatever it takes to create a magical force field protecting Googleteers, so they can follow their instincts and invent new stuff.

The Internet, Schmidt has said, turns power relationships upside down. That's true inside the ultimate Internet company--Google--as well as out on the raw and woolly Web. As long as the masses are running Google, innovation will flourish. When management forcefully steps in, the pace of change will slow.

So, no, Schmidt isn't in charge--and for that, we should all thank him.

http://www.forbes.com/2006/06/02/internet-microsoft-google_cz_ec_0605valleyletter_print.html
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