Reconceptualizing Commerce
Friday, November 12, 1999
2-3:15p.m.

Ryan R. Nelson: On behalf of the McIntire School of Commerce and the University of Virginia, it's my pleasure to welcome our live telecast, web cast, audience to the afternoon session on Reconceptualizing Commerce. My name is Ryan Nelson and as Director for the Center of Management of Information Technology here at McIntire, I'm obviously quite interested to hear this panel's views on how commerce will change in the future.

Following this morning's lively discussion on the wide-reaching impacts of the Internet on society, our objective this afternoon will be to focus on the role of the Internet in reshaping, re-engineering, indeed, reconceptualizing how we will conduct business in the future. To help us accomplish this objective, we are extremely fortunate to have a world class panel of experts on the subject. From left to right, we have five panel speakers beginning with Shelby Bonnie, Vice Chairman of CNET Incorporated. Since it's founding in 1993, CNET has become the leading source for information on computers and technology via the Internet and television.

Tim Koogle, Chairman and CEO of Yahoo!, Incorporated. Since its founding in 1994, Yahoo! has become one of the leading portals and search engines on the Internet. Yahoo! is now visited by over 80 million people each month and will sell about $500 million in advertising this year.

Jeff Walker, Managing Partner, with Chase Capital Partners. Chase is a $10 billion global private equity fund. Mr. Walker is the Director of numerous corporations including 1-800-Flowers and iXL.

Bill Battino is a Partner with PricewaterhouseCoopers, the world's largest consulting firm. Mr. Battino serves as the firm's e-business strategy leader for e-business strategic change services.

Sonja Hoel is General Partner and Managing Director for Menlo Ventures, a venture capital firm which specializes in Internet investments. Ms. Hoel serves on the board of directors of numerous firms, including Bravo Gifts.com, e.com, and f5networks.

Seated in the front row are four panelists that will serve as discussants today. Robert Harris, Chief Operating Officer International for About.com, the leading network of niche vertical site for users and markets. Their network of sites includes over 650 highly targeted environments, each overseen by a professional guide.

Joel Ramin is a fourth year student at the McIntire School concentrating in finance and management. Mr. Ramin is editor of the business section of the Angle.com, a student-run on-line magazine at the University.

Dave Smith is a Professor of MIS at the McIntire School and has been a consultant to more than 50 organizations. Mr. Smith serves as the school's resident expert on e-commerce technologies.

Randy Smith serves as chief technology officer for both the McIntire and Darden Schools at UVA. Mr. Smith teaches courses on e-business strategies for both schools.

Please join me in welcoming our excellent panel today .

I would now like to describe the format for today's program. We will begin with a series of questions directed at each of our five panel speakers. Following their initial responses, I will open up the floor to other panelists who may wish to comment or ask a follow-up question. Immediately following the panel's coverage of these five questions, I will open up the floor for questions from our live audience, so I ask that you please be patient with your questions until the Q&A portion of the program. At approximately 3:00 o'clock or so, we will look at cutting over to Darden across Grounds for some additional questions.

The first question that I have is directed at Shelby Bonnie. In his recent book Bill Gates discusses the notion of friction-free capitalism, that is, Adam Smith's concept that all buyers know all sellers. They have perfect information and search costs are very low. Do you believe that the Internet will help to achieve friction-free capitalism and what are the implications for business?

Shelby W. Bonnie: Well, first, I think there's no question the Internet will get us a lot closer to "friction-free business." What I think's really kind of the big revolution and the big [so-what] with the Internet is you have this kind of building of an information infrastructure which allows for kind of a better, smarter information to help you make better purchasing decisions and also, as a seller, to make better decisions about what to sell and where to sell it. If you think about the first experience you had when you went out and bought a car and so you'd gone out and kind of gotten the dealer invoice pricing and you went and for the first time you walked into a car dealer and you kind of-- You knew something about what that thing was worth and how you should negotiate for buying it, and for the first time, you could say I want to pay $500.00 over cost and you knew what that was, and what you see now is you see that same thing happening which is better information about different markets happening across all sectors of the economy, both relative to consumers, relative to business to business, and that's a very very very powerful idea and you're doing it in a medium where it's free.

What the Internet is allowing is it's allowing lots and lots, I mean, huge amounts of information. You're also doing it in a way that's very easy to access so using things like searching. You have the ability to get particular pieces of information that you want relative to a decision, and probably most importantly, it's free which for a lot of times, there're been places where you could get good information, but you as a user didn't have the resources or didn't have access to it, and for kind of the first time, you do have access to it.

I think one of the things as we all look at kind of what's happening with the Internet, the big winner and there's a lot of-- We all look and see companies that have gone public and all that stuff. The clear big winner above anyone is the consumer. This is the most consumer-friendly revolution we've ever had, so the first time, consumers are empowered with better and more information about what they should be paying for something, what particular product they should be buying. They have the ability to get very good reviews and get to do it in a way that's free, so the Internet, in essence, is a very big kind of deflationary opportunity looking forward.

The second part of the question which was implications--first of all, I say businesses that are based on customer ignorance will be destroyed, and you think there aren't a lot of businesses like that. Well, in a lot of cases, there are businesses so you take the small stereo store that sells for kind of a small market and they're really only a stereo store and you decide you want to go in, you want to buy a receiver and they say this Sony receiver is $350.00. You don't have any idea if that's good or bad and you have no discussion of it. It might turn out that you can buy that receiver somewhere else for $250.00, but you're totally beholden to this retailer, and for the first time, you have the ability to go in and get information about that, so even if you don't buy on the Internet. If you go to a service like CNET and say what should I pay for this Sony receiver and we say there's all these people that will sell for $250.00. At least the fact that you know that's the price empowers you as you walk into that local retailer and you might say, look, I'm not willing to pay $350.00, because I know I can buy it for $250.00, but I really want to buy it locally and so I'm willing to pay you an extra $20.00, so I'll pay you $270.00, and the ability for customers to have better information, businesses that have had margins because they've benefitted from imperfect information are really going to be in a tough position.

I think the other thing which is both inevitable but also scary which is I think the big have an opportunity to get bigger. If you think about kind of the physical world, a company like Wal-Mart. Wal-Mart rolls into a local market and they sell toothpaste cheaper than the local retailer can buy toothpaste and so they decimate people in whose categories they compete and they will roll into these different markets. Kind of the good news for local markets is they literally have to go buy land and build a store and hire a bunch of employees and do all those kinds of things, so though they have a more efficient model, they're literally gated by their ability to manage expansion in a physical world.

One of the things I think that the Internet can allow is it can allow friction-free expansion, so if you are a company like Wal-Mart and you are better at something than everybody else does and have better economics, the scary thing is there's nothing slowing you down and you literally have the opportunity when they talk about "category killers," you really have the opportunity to be a global category killer. I think that's inevitable. I think in some ways it's also a little scary.

I think clearly it creates new opportunities for people to communicate with customers. I think we all know that we have the ability for the first time to know who buys something and be able to actually have a communication with them and follow up with them and also new ways to merchandise and I think one of the-- As I look at e-commerce on the Internet right now, there's very few people that I think do a particularly good job of merchandising. If you think about the experience you have when you walk into a physical store, typically you went in to buy one thing. You end up walking out and buying five things. They're very few sites where I think happens right now and I think Amazon is one of the exceptions where you go in to buy a single book and they suggest four other books and you end up buying five books. Most sites, though, don't do that and I think do a really poor job of merchandizing. I think you're going to see a whole new revolution because you have better information on a micro level about particular buyers.

I think the final thing is the Internet has to be core to your business and I think it's something that all businesses need to fully embrace and I think this whole move to do "Internet spin-outs" in traditional business is a huge mistake. The example I would give is if you think about Barnes & Noble and I don't know anything about the book business so I'm just using it as an example, but if you think about a company like Barnes & Noble, it might be the case if you look at the Internet you might say, well, I need to rethink what a store is and maybe a store is not a place where I keep 50,000 titles. Maybe I only should keep 2,000 titles and I should take the money saved on not having inventory and have a bunch of smart people sitting in front of computer screens helping people interact and having a discussion about what books to buy and what would be good suggestions and that might be this new form of "retail store."

Well, if you as Barnes & Noble did have spun out your "Internet business," now you have this weird thing which is you have the physical business and you have the Internet business and they're kind of separate and they're run by separate management who has different agendas and it makes it very hard for them as they look at from a corporate perspective how do you kind of embrace this and make this part of what you do and how you market and how you sell and merchandise, and how you have relationships with customers. Well, if you've done kind of "spin-out" of your .com business, I think you create a challenge and I think this whole spin out notion is purely driven by people trying to capitalize on capital markets and that is a bad reason to do something from a business perspective, so I think businesses have to embrace the net to make a part of what they do.

Nelson: Thanks Shelby. Tim, next question, following up on what Shelby said. What impact will the Internet have on traditional concepts of competition, strategy, logistics, and organization structure and also please describe the new and innovative business models that you see. Perhaps also who you see disappearing in the future.

Timothy A. Koogle: [laughter] We hope all of our direct competition disappears [laughter].

______________: You have competition?

Koogle: Yes, looks like it's happening. So, the first part of it is about-- What's the first half of the question?

Nelson: About just changing business models and organizational structure that result.

Koogle: Interesting question. In the context of commerce, I spend a lot of time thinking about this because-- A little background. This is not a commercial about Yahoo! but being in the business we're in, we are basically an open, independent, comprehensive aggregator on behalf of merchants and audience basically. We integrate information, content, merchant services and communication services, and do that as broadly and as deeply as possible on behalf of users who want to reach it. What it means it that when we interface with merchants, whether they're advertising clients or premier merchant partners or increasingly companies that come and use our tools and our server clusters to offer and have us host e-commerce sites in whatever-- We build these platform businesses, but we as of September probably represented well over 10,000 independent merchants who were doing commerce with us, using us to distribute their goods to an audience out there, so we have everything about our thinking when it comes to making sure the quality level is high in serving our paying customers is about trying to figure out the basic business models of our merchant customers and how we can help them succeed. So there's a little bit of background on what I think about this a whole lot and this 10,000 number continues to grow really really fast.

When you step back away from this and look it as a medium and, by the way, I believe that a lot of friction will be removed, a lot, and some friction will be added back, different kind of friction however in commerce. The fundamental nature of the Internet is that it allows merchants, people who want to sell things and people who want to buy things, to connect directly with each other. Right? Pretty profound. Wow. Simple idea. Everything about it past that point, though, changes.

If you think about it, going out in the future, there's no reason to not think that ultimately primary amount of goods are going to be sold by the manufacturers direct to customers. There's nothing in the road map that the world is on right now with respect to the Internet to assume otherwise interestingly. Companies that are in the middle, right, who aren't making goods but they're reselling goods or services continue to need to find new value that they add and areas in which they are in the food chain, kind of in the middle, either blocking through lack of information in the past or the fact that they're standing in the food chain taking a cut of the transaction but not truly adding value either need to change to where they add value or they will go extinct. They will get replaced, and the reason I'm going down this path is that it's important, I think, to probably think in general terms about what's happening.

Literally, the food chain is getting rearranged by this thing called the Internet because there's at one end of the spectrum somebody who's making stuff and at the other end of the spectrum entirely there's somebody who's consuming stuff and in the middle there's a bunch of steps and in the physical world it's pretty inefficient, and every step in the food chain in every product segment and every service segment is at risk if it's not adding value because this thing called the Internet removes all those barriers for free information and everything else for consumers.

The organization structure--there's a little sort of dangling phrase down there about organization structure in order to compete and everything else. A little bit of footnote about that--this is all about rapid change and rapid change that requires companies to embrace the fact that the only thing that you know for sure is that things will change. That's the only thing that's constant actually, and have an organization structure that is very flat, very distributed from the standpoint of decision making and implementation, so that you can actually react faster, right? It's one of the rules of Darwin that organisms that survive are actually the ones that adapt fastest. Same is true. It's got to be mimicked in organizational structure.

If you scan the landscape of products and services that are likely to change in terms of models and this sort of leads to the last part of the question--which companies are going to survive and which ones might survive and thrive. I'll posit that any existing business that's been in the business of selling goods or services through physical world distribution and promotion channels that doesn't change, some or all of its business practices with respect to the value that it adds in the various points in the distribution chain will go extinct. That's pretty radical to say that. The ones that do change have a chance at surviving because I guarantee there'll be a bunch of companies that will be born with no baggage and really say I'm going to try to basically enable this transaction between somebody who makes something and somebody who wants to buys it in the friction-free way.

There's a bunch of candidates for goods and you see some of these already on the web. If you scan the whole spectrum of goods or services that are being sold, it's not surprising to see that the goods or services that are currently in electronic form that are easiest to distribute electronically are the ones that are actually growing the fastest right now, and that's because you don't have to reconstruct a physical distribution system. And financial services, financial products, fit those sorts of things. Electronic ticketing fits that sort of thing. Increasingly, I think, and I'll hypothesize that you'll find information-based products like music and video which are actually information-based products that can be distributed digitally join the category of, first, to grow very fast and will bring about actually some very interesting fundamental changes in the food chain.

Beyond that, I think the fastest to grow are ones in which the food chain is pretty short already and the suppliers in the chain will change along with it and that's a general statement but there's lot of examples to point at on this thing. Books are growing really fast for one fundamental reason. The distribution channels have actually been pretty rational for a long period of time, and so we didn't have to remake the fundamental distribution channels to get the books moved. Somebody just had to get real efficient on the front end to put up the offers for how to find books and how to buy them in a place like Amazon to kind of take advantage of that opportunity, so think through it fundamentally if you're trying to conceptualize what kind of companies are going to grow fastest. Which product or service areas go first. They're the ones that on the front end don't require physical distribution or in which physical distribution rearrangement is minimal.

Nelson: What role do you think bricks and mortar will play in the future?

Koogle: Well, you know, let me start by saying that we very much think about-- I know I do all the time about friction and removing friction and as an entrepreneur I'm brutal about this sort of thing and it's lot of fun. Back end, there's a phrase called back end that you hear people batting around, and in the world of commerce where you actually have physical goods that will always have to be shipped, there's this whole business of logistics and fulfillment. That whole role is very key. It's very key. I will bet that the world of physical logistics and fulfillment will get rearranged fairly significantly over the next five or 10 years because right now it's pretty distributed and pretty irrational. It is a piece of friction that you can't remove because the stuff has to go from here to there physically and it plays such a huge role.

Nelson: Jeff, what factors influence your decision to invest in an Internet-related firm?

Jeffrey C. Walker: I'd like to respond to a couple of comments first before I-- Actually Shelby's comment on the spin-off idea. I tend to agree with him and have had discussions in our group about whether we should ask some of our companies to do the spin-off strategy and that's taking an old basic business and put an e-commerce business that's within it and spin it out and give it nice financing because the public markets-- Shareholders only want to buy growth and shareholders only want to buy the Internet today. They don't even want to buy businesses that actually have cash flow [laughter]. Funny how it works.

So we have a company. I'll use the example--we have a company called Vitamin Shop which is the largest cataloguer in the vitamin industry and it has retail stores in New York as well, and we bought for $150 million two years ago. We got an offer probably a year and a half later to buy it for about $350 million. We didn't sell it because we brought the Internet to it and Excel helped put together the web site and they used their merchandising skills and their fulfillment skills and their catalog skills and their telemarketing support skills to build a site, and they built $30 million in revenue within a nine-month period and we just went public with a thing called Vitamin Shop.com which is a spin-off, which, again, my initial gut says don't do that. But you had to get that business set up and we were losing the talent to other people like Mother's Nature.com which didn't have a catalog and didn't have a retail concept to leverage off of and Vitamin.com and there's a couple of others, and so our choice was get in the business and keep in and how you retain the people and how you get the leverage with the cheap money that is available and so the decision was let's spin it out but let's keep it linked. We currently own 70% of the business through Vitamin Shop parent. My bet is in five, seven, eight years, it'll be rolled back in. In fact, I bet you the parent gets rolled into the .com company because I think in the end the Internet is not the end answer in any of these businesses. The Internet is a tool to get to a better way of doing business and a better concept and approach, so I tend to agree with you, but there's some things have to do it, I guess.

On what you look at in businesses. Leveraging off something that Tim said, look at those businesses that already have skills that you can leverage into an interesting space, and so we've gone to [Cabella] and 1-800-Flowers and Guitar Center and House of Blues and some others and said, let's set up-- Let's use their franchise. Let's use their brand to set up virtual companies and to use their skills to get in ahead of others. That's dangerous. I've told a lot of managers at Chase that I'd rather start up a company to compete against Chase than to use Chase's advantages because of the culture shift that has to occur, so you have to pick the right people to be able to do this and you have to have the right flexible structure and open structure, open environment, to support this new enterprise that's growing.

Also, what we've done in Vitamin Shop, for example, we gave Vitamin Shop. com stock to everybody in Vitamin Shop so that everybody feels like they're a participant in the upside, in this other business.

What else do we look for? We look for obvious visionaries, leaders, people that are actually charged up. There's still a lot of people now who are going out saying I've got to in the Internet. It's going to die with nine weeks and so, gee, I have to set up my company today. I don't want those people. I want somebody who's coming in and actually says I know I have a vision of the way my new concept's going to change the world and I'm going to make it happen and seeing them up and if they're that kind of leadership teamed up with a group and a team of people who can implement is the perfect concept, but linking it also with other companies, through a network, and so you go and set up a relationship with Yahoo! or CNET or you go to Time Warner and say I need a media deal cut and gee, you can help me on the media side get exposure and I can help you get a piece of the upside. We did that in Star Media with Reuters we brought in. We brought in [Hersh] Corp. We brought in others who actually brought data and value as well as money.

So, that leads you to-- When you look at these businesses. How can you have a competitive advantage over other people in being an investor or being that business and it's building your network. In our company we have 500 investments so we actually trying to bring together each of the CEO groups. We had a music off site a week ago with 12 of our music-related companies and sharing ideas and sharing concepts and can we really add value? Can we bring these guys together to help them get a leg up on the competition?

Expertise--do we have some expertise that we can add value to with a potential portfolio company that we bring that's come in. It gives us an opportunity to help them grow and gives us a leg up on our competitors when we're coming in. I'm competing today against a deal that [Kleiner], Perkins, Benchmark, ourselves, General Atlantic and Highland are all competing. How do I differentiate myself? I look at, gee, we're global and so we can get them access to the markets outside the U.S. We know wireless. We know telecom. That's the great future. I think that's got as much upside in the investment business as Internet in the last couple of years.

We've taken a company called Trident PCS public two weeks ago and Call Up Networks which is a server that supports the business and Digital Island and a bunch of others, and so it's Telecom Wireless that helps implement and deliver the Internet data and information that I think is another interesting new world.

Nelson: Sonja, you're also in the venture capital business. Does that jive with your thoughts?

Sonja L. Hoel: It does. We do earlier-stage, probably more earlier-stage investments than Jeff does, but the number one thing that we look for and it's blinding to us, actually, is market and market size. We also care about nothing else. We want to have people that are visionary. We want to have people we can work with, but if you have a market that's growing really rapidly and it's quite large, you can make a lot of mistakes and still do well in the market. If you look at the search engine companies, we were actually in Infoseek which unfortunately wasn't Yahoo! [laughter], but it did pretty well.

We're looking for business models that work and I think right now in the Internet everyone's taking some flying leaps. At first, we took a big flying leap whether or not Internet advertising was going to work. It turns out it worked quite well and now we're taking a flying leap that all the traffic that the Amazons and the .com companies are going to bring to their sites will actually be profitable and we're hoping that brand new companies can do that, and so we want to find companies that have reasonable gross margins that have branded products and also have quality and service that people will buy from. We would never invest in a low-cost .com kind of company because many of those companies will go out of business because there's always going to be somebody selling a product lower than you.

And then back to the people issue. People are important, but I think Tim Koogle has done-- You've made my job much much easier, I must say, because now when I'm working with young entrepreneurs who have great ideas, who are very visionary but have no management skills to speak off, I say every Jerry and every Jeff and David, they all need a Tim Koogle and that helps a lot. Thanks, Tim.

Nelson: Bill, you're in the consulting business. How does your firm add value in these Internet times?

William Battino: The kind of issues we're brought in to deal with a lot of times tend to bifurcate between the incumbent companies and the new entrants. They really are facing some different challenges. For the large incumbent companies it may sound really rudimentary but the first thing we ask them to do is just to really get a sense of all the different e-business and Internet initiatives they have undergoing. Many times you do an inventory, there's 50, 75, 100 different initiatives, many conflicting, and while it's good to say incent creativity and entrepreneurship. Rarely are they aligned in the best bets placed around the best opportunities, so we've done a lot of work around real option values and really trying to think through the Internet for a lot of people is taking options on a future scenario and you're not sure which way it's going to go because of all the uncertainties, so help them sort out what should be their priorities.

We also help people try and think through what are the industry structural crutches, so if you look at all the changes that have gone on in the brokerage sector. There was a crutch there around information, 5, 10 years, ago, the consumer, in particular, was beholden to the broker to provide information about stocks and then mutual funds and other product and services, and we've now seen how dramatically value can shift because that crutch has been taken away.

Another point is we're dealing with people and it may sound incredibly fundamental is that in particular the larger companies, they need a vision and you can see it from walking in a company after a couple of hours those who have it and those who don't. I was in Nokia's facilities in Finland two weeks ago and it is amazing. You talk to all the people in management. They absolutely all have religion around wireless access prototypes and wireless access protocols. All the things that are going to flow over wireless devices and what their culture is really good at is telling stories. They engender that in their meetings. They engender that in their social gatherings. Story-telling is very powerful and it's one way to make sure the vision gets inculcated in the most important people and those who don't have a vision can disappear.

If I look at Shelby's competitors, CNP Media, they were one of the leaders of the Internet back in '97. They were one of the top 10 sites. They had more revenue in the computing category than anybody. CNP didn't have a vision. They had a publishing model. They didn't see where CNET was coming from. They didn't understand Earthweb going after a developer community and how they're no longer in business. They've been sold out, so having that vision-- It's amazing. We're talking about two years going from someone being a star to someone who had a cash out of the business.

And finally, there's been a lot of discussion around organizational structure. The classic strategy approach is figure out the lot, then figure out the house, so your competitive position, your product and services, your customers, and then align your processes, people, and ultimately the organizational structure to deliver on that set of properties and that part of the market. What we're finding out is because things are moving so quickly, oftentimes we have to look at a company and say what is your structure right now and if we want to do things in three months, four months, six months, an order change is probably going to slow you down, so we try and modify the structure that they have.

For the new entrants, it's different issues. For them, issues like scalability come up time and again around customer relationship management, how to send out bills, how to handle the calls, how to keep it highly personalized. The issues around how to maintain the brand and again, we've seen it split different on the B to C side versus the B to B side. On the B to C side, if you look at, I think it's something like 45 of the top 50 brands right now are I brands. Only five coming from incumbents like Sony and CNN and Microsoft. On the B to C side, the top 10 sites are all incumbents. It's the General Electrics of the world, so the whole issue of branding, I think, is absolutely central.

The final point--I'll differ just a drop. For those companies that don't have the currency, retaining and attracting people right now is a brutal challenge and we're encouraging the people as long as these full valuations occur to really leverage the currency, to use it for relationships for acquisitions, and to pay your people because I can tell you, there is, in my sense, a migration of talent away from those who don't have currency to those who do, and while it's important to inculcate in the business, that .com can't be discounted in terms of its attractiveness at people part.

Nelson: Shelby, I know you brought that same topic up at an earlier venue, the value of people and how critical that has been in your success, your company's success. Would you want to comment any further on that?

Bonnie: Yes. I think the most important asset we have is our people and I even think established companies like ourselves in this space, we have a difficult time hiring, so I think it's a very very competitive market for good quality people. I took a little bit of an extreme view. There clearly is a balance. I think on the other hand I think organizationally, you create this weird situation where certain people have-- You're the smart people and you're in the place where you get more money and you're in the old business and I just think that there's a lot of short-term necessities around doing it. I think everyone has to go in knowing that probably strategically it's a very difficult thing to do.

Battino: I'd agree. To internalize it, we're a company now of 160,000 people and we went through all these discussions a year and a half ago about should we spin off a .com and so forth, and the decision we ultimately took was not to do that all. We think e-business is business and don't think of it differently and we try to embed it in every one of our line consultant and professional services businesses and not take it out, so it does depend what business you're in and I'm just saying for some, it is a challenge they have to face and just like you and us, we have that challenge of finding good people.

We had a breakfast session in London with Bill Gates that was a public session about three weeks ago and he was saying one of his biggest challenges is he used to be a high flyer and give tons of options and always thought they had the best and brightest and over the last 12, 18 months, he has seen a huge migration of talent, so it is an absolutely pervasive phenomena.

Koogle: Let me chime in a little bit because I think that options matter a lot in giving people kind of some upside, but it doesn't have to be just about money at all. In fact, I would say that probably if you're going to build a business to last, I mean really last, it shouldn't be about the money and you shouldn't have a culture that's about that, really, and the companies that last really aren't about that money. It turns out that it's a byproduct and it ought to be viewed only as a byproduct of stuff. That you build value, you make everybody an owner and they share in that ownership. That's cool, but that a result.

What it really should be about is I think everybody wants to win, frankly, and if you have an organization structure that's getting in the way of that, you have to change it and if it means taking people literally out of the company to set up an independent company itself, a brand new company, that's what you have to go do, and if it means you can set up an organization structure inside and a center scheme that says you really can build new business units within the company, that's what you do. You shouldn't ever artificially spin something out just to hang a name on it that it's a new .com company and therefore you can get this stock appreciation and everything else. It will fail if that's why you're doing it. It will fail.

Existing companies have a tough time. I've done a full circle in my life from start-ups that I did when I was in graduate school to selling one to a bigger company and then running stuff for them, so big company, then being recruited off to a medium-size company as a turn around that we were about to buy and they recruited me away to go run it and now back to start-ups at Yahoo! and it's a company that's actually now trying its damndest to become a big company again, and so I've seen the full circle with this sort of stuff and I will tell you that during my tenure at existing companies in trying to turn them around and getting sales kicked, especially in the one life just prior to Yahoo!, it is a tough road to hoe.

You fundamentally don't want to build an S&M structure inside, have disparate incentive schemes, the haves and the have nots within the company, so you can't really do that. You do have to face channel conflict and you have to rip that out, especially in the context of the commerce that's being done on the web. That means redoing your wholesales channel while you're operating the company and it is tough if you're an operating person, especially if you're running a public company. Nobody likes to stand up in front of 5 to 10 screaming analysts who say now, tell me again why you're going to take your sales down by 50% next quarter so that you can anticipate this next major change. It is not an easy thing to do, so you've got to applaud any exec who makes any kind of radical move to embrace this whole thing.

Walker: People love to work for a growing enterprise, either outside or within a large company and so you can have a division that's the hottest thing in the world and people will stay and they'll love it. Banks have had a lot of experience in paying people a lot more than the chairman, whether it's foreign exchange or whether it's M&A business or venture business or whatever it is, and so you can put disparate compensation schemes into the same company and still allow them to work together and you do that by cementing it on top with a lot of stock and a lot of meaning and a lot of communication and actually having each other help each other, but it's hard and it's a constant task. It's a constant task at communication and forcing team and partnership kinds of activity.

Bonnie: To that point, I find banks one of the more mercenary businesses. If you're running the foreign exchange desk and someone else comes along and offers you $30 million more, you're like see you later. Done.

Walker: $30 million more, yeah, that's a problem [laughter].

Nelson: Sonja, you get my favorite question, I guess. It helped settled a debate that we've had in the McIntire School of whether or not we should become the McIntire School of e-commerce. Whether we should have a separate concentration in e-commerce or something else? What do you think? If you were just able to blow it all up and start over again?

Hoel: It's interesting. I think the University of Virginia is quite fortunate in that it has lived through two revolutions. The first one is the industrial revolution and today it's the Internet revolution, and so yesterday I went to Alderman Library and, by the way, the industrial revolution started in Great Britain in the late 1700s and it became widespread through the United States and Europe by the mid-1800s, 1850 approximately, so I went to the library yesterday. They were very helpful, much more helpful than when I was a student [laughter] and I looked at the catalogue from 1825 to 1850 and I thought well, wonder what kind of courses I'm going to see at the heart of the industrial revolution and I didn't see classes like Power-Driven Machinery, nor did I see a class called Societal Changes from Agriculture to Manufacturing or anything like that. Things were classical languages, Latin and Greek, mathematics, physics, civil engineering which my dad was happy about, and law, and then I also noticed the McIntire School didn't start until 1925 and the Darden School was started even later after that, and so I thought about the Internet after thinking about that and I was thinking about some classes that I sure would like to see taught today, which would be-- My favorite one would be Valuing the Private Internet Company Start-up to IPO.

______________: Science fiction?

Hoel: Yes. That would be great. We thought we paid a lot for F5 networks. We thought we got a lot for Hot Mail and I think in reality, we sold it too cheap and F5 we got a bargain, and then I'd like to see another class called Building Internet Brands Driving Web Traffic to Your Site and How Do You Convert Customers or How Do You Convert Visitors Into Customers. That's a big problem for Eve.com and also Bravo Gifts.com and then the next one I wanted to see and maybe Tim, you could be the guest lecturer in this one, is Business Models That Work On the Internet. That would be another great way, and then the final one, which I think the folks at Web Band and maybe Amazon would like to hear about-- Creative Ways to Raise Capital for Internet Companies That Are Spending a Lot.

But then I thought about it, and I thought maybe in five years from now, those classes would seem a little bit like Advanced Textile Manufacturing With Machines might sound today here, and I thought what are the skills that are really necessary that most of us here on this panel have to build Internet companies because we all went to the University, some of us to the McIntire School, some of us to other schools, and we didn't have those special classes or those special skills that were taught, but what we all learned from some of our classical classes were things like how do we think out of the box. How do we go beyond traditional business models and think about new business models that are enabled by this wonderful distribution system called the Internet?

The next one is how do you adapt to rapid change? That's what we all have to do right now in this Internet economy because we have to make decisions quickly or we're dead. You have to do it and you can't be stuck with old ideas and thinking and then the next one which I think is really important which I think about every day is how do you take advantage of new markets? How do you first recognize these markets and then how do you get your act together and build a business or fund a business that solve the problems of those markets? And so, I think there should be some changes in the McIntire School, but I think they're more broad and I think that the .com should be woven into every class because it's here to stay. It's like the air that we breath. It's integrated into everything that we do and all of us will more and more and more be using the Internet if we don't do it yet, and it's just absolutely-- I mean, we're going to say remember when we used to go the library to do research? Kind of like how some people today, oh, remember when we used to do everything long hand and you didn't use a calculator. It's just crazy how these paradigm shift so quickly.

The first thing I think ought to be really stressed and these are actually in no particular order, but I'll just say it anyway. Marketing should be stressed and I've been saying this to the McIntire School for a long time because people really need to understand markets and marketing before you can ever implement a business. You can have the smartest people on earth running a company with no market. What's going to happen to the company? They're not going to be successful regardless of how strong the people are, and so it's really important that visionary people can see new markets and also capitalize on those markets with specialized skills.

The next thing I think is important is entrepreneurship. Students of any age need to learn that, yes, they can be entrepreneurs and they can be entrepreneurs right after college, as long as somebody like T.K. will help manage the company as well [laughter], but they need to be encouraged to go out and start companies and how do you that? Well, first of all, you have classes on entrepreneurship. Maybe you write a business plan and have a little bit of a competition there, but also you need to take classes that tie everything together and an entrepreneur is typically one person who doesn't just think about finance all day long. They have to think about finance, especially cash, but they need to figure out other things about management. They have to understand, again, markets. They have to understand everything so being able to tie the courses together so that finance isn't just taught alone but it's done in conjunction with the other things of business.

And then another one, which I know everyone's going to sleep over, but organizational behavior. This is basically classes that teach people how to work together and get along and manage people effectively and efficiently because these organizations are changing so quickly you've got to learn how to manage people and everybody has their own agenda and to effectively manage a large group of people that is growing quickly is important and then the last thing I would say is that is really really really important to use technology, to use it in the classroom, to encourage students to buy their books on the line over the Internet, to schedule their classes over the Internet, to use e-mail, to do research, and just kind of use the Internet and other technologies as a tool and that enables the students to think about problems and issues as well as kind of enhance what they're doing.

And then I guess I have one more thing. I also think that the McIntire School needs to attract a different kind of student or maybe a little bit more open to the student that doesn't have the highest grade point average but is incredibly entrepreneurial. I just met a guy last night who's 21 years old. He dropped out of Western Albemarle High School because he was bored and then he didn't get into University of Virginia so he started his own company. Well, I would put him in any single one of my companies right now. He was one of the most smart people that I've met and the school needs to start allowing those kind of students to be in the class that have this maybe non-measurable entrepreneurial skills but could definitely add value.

Nelson: Well, we have two professors and one student serving as panel discussants. I'd be interested to know what their reaction to that redesign of the McIntire curriculum would be.

______________: I can follow your math a little bit. It took 100 years for the industrial revolution to go from the U.K. to the U.S. and it took 125 years for the University of Virginia to get a marketing class, so let's see-- How long's it going to take us to get a e-commerce class? [laughter]

Hoel: I don't think it's going to take that long.

______________: Oh, okay, because we're moving at the speed of business, right?

Hoel: But the point with that is that students who went to the University from 1925 forward, they did find, they were able to adapt to changes and they got a broad education and they didn't have to take textile weaving and things like that in order to be good students and good people in society.

Nelson: Joel, how does that jive with what you'd like to see in the classroom and what you are seeing?

Joel G. Ramin: I would love to see it and I'd love to see some of these people teach it. I think that would be fantastic [laughter].

[David G. Smith]: That's why we have all this stuff here.

Ramin: Can I actually while I have the mike pitch out a question? It just strikes me that we've talked a lot today about business to consumer companies like the Amazons and the Yahoo!s and the CNETs and iVillage and everything and earlier this morning, Mr. Koogle, you mentioned that your greatest fear is one company gaining too much control over specific technology that your company depends on. And I was wondering if-- It's a type of supplier fear I guess, if you could pinpoint one technology that your company as managers depend on and that your investments as investors. One technology that they depend on and then there's a follow-up to that, if your dependence on that technology is growing or diminishing, and what company is best at providing that technology.

Koogle: Cool question. Got a bunch of parts to it. I'm going to actually-- Let me know if I'm right on on this. If you're asking it from the standpoint of what to invest in, that's one question and can you identify one that going to be key to everything and that's a cool investment, especially if you can get it in an early stage and elbow out all the other VCs and not pay too much money. That's one way. I can tell you as an operating person, I think about things that we're reliant on from the standpoint of supplier stability and reliance, right, from the standpoint, and will it block our ability to grow our business and how to execute around that, and I'll answer that second one. Was it the first one you're looking for?

Ramin: Both. I guess you guys can answer the first and then the others can answer the second one.

Koogle: We have acquired 13 companies now in our life and we've invested in about the same number as a minority investment, and I state that as a way of kind of pointing out one thing which is a big belief that I've always had. The rate of change is so fast, so high, and the market we're playing in is so big that no one company can afford ever to develop everything itself if it's going to be doing business in a big way and we fully intend to do business in a big way at our company. We're not building this small niche business here.

Building the process inside the company to be able to partner and/or make decisions about investing and then acquiring companies as a way of growing and staying in front of things like you're pointing out is key and I have that fundamental very core belief that you build that process inside your company to identify threats, opportunities and to be able to act on them, the process to act on them, so we've done that at the company and we have this filter we shove stuff through. It's a metaphor. A filter, you shove stuff through it and what makes it through, then you kind of look at that and you throw part of that up against the wall and see if it still sticks and, right, you get on with it. Our filter's always been on the key technology on which we're reliant kind of question is we identify at any one point in time what it is that we're going to need in technology, truly need, to run our business and deliver to customers what we anticipate both their-- See what they are using in big numbers and anticipate what they'll be using in the future, and of the stuff that gets through the filter called we'll need it, then we say can we license it for more than one stable vendor, more than one stable vendor. Those parts are really important, and if the answer to that is yes, then we'll always license it and we'll keep an eye on the vendors and we'll keep them honest by having them compete for our business all the time. If it gets through the filter and says you need it but you can't get it for more than one stable vendor, we'll always make it or buy it.

Of the one key technology-- I think what I was getting to this morning was a little-- It was a lot less actually Yahoo!-centric. Somebody said what keeps you awake at night and what's your key fear? And then there was an allied question about what do you think the government's role should be in legislation and stuff? And what I was trying to articulate was that there is an operation system right now and a browser which is required by all users of the web and anyone also who wants to, on the other end, on the publisher side of things, if you really want to connect with users, and as long as there's a list that has at least two companies in it that are competitive and as soon as they're truly competitive in the market, right, things are fine. If the browser and the OS gets down to one vendor, then you hope that that one vendor has pretty high ethics [laughter] because it can be used as a technology basis and really, in the field of technology that we look at it, it really only comes down to that one--the OS level and the browser level right now, because we cannot identify-- We've not identified anything in the communication front, in the carriage front, on the networking protocol side of things, etc., etc., on box design, on hardware or anything else. It really comes down to that one layer at OS and browser.

I was making the statement mostly from the standpoint that I think it would be awful for the industry and for the global users if it got down to one supplier and that one supplier used their software to preclude users from freely getting at anything they want on the web. That was also the Yahoo!-centric thing.

Nelson: Robert, I'm starting to hear a lot about vertical on-line communities. You're with About.com. What's your take on what's happening that area?

Robert W. Harris: Well, certainly that's a big piece of what the business is today. Yahoo! and others are networks of communities. Yahoo! would probably say they are a community because a Yahoo! person is a community. Certainly CNET's a vertical and that's really a big part of what the business is is trying to leverage all these different communities that you might be a part of in your daily life, whether it's your local community, your special interest, things you do as a hobby, what you do at work, and turn that, leverage that, in some fashion to enable you to work with others and better accomplish your goals in life.

Nelson: I guess as we get ready to open things up for the audience. In fact, anyone else in the room that has a question, please we might want to divide the room in half here and try to head towards the mikes with your questions. I'll open amongst the panel members.

Harris: I guess I had a question about reconceptualizing e-commerce and what people think might be happening in the near future. Those of us who've been working here for a while once heard a lot about micro payments and e-wallets and what people think might be coming there and whether that'll change radically what they're doing.

Koogle: I'll take a first shot at it. Does everybody know what these terms mean? Micro payments and-- Yes. Okay.

Walker: Mostly not.

Koogle: This was a concept of actually truly splitting hairs on a currency level, you know, down below sort of sub-penny sort of level if you're in U.S. dollar kind of currency kind of equivalence and there was a thought for a while and a number of start-ups actually formed around the concept that that was a necessary thing to remove friction between people making transactions of very small sizes and because for a while using your credit card had a sort of a minimum transaction size associated with it, if you're familiar with that. Credit card companies had sort of a minimum transaction level that you'd have to pass as an exercise, as a vendor, to be able to use their credit card as currency fulfillment means. And it turns out that that kind of went away. As you might imagine, various schemes for aggregating the order so that the minimum buy actually is higher because you store currency in a wallet and then fulfill in a kind if in batch is one approach that's being taken. The credit card companies are finding that in fact, it's way better to have a big piece of a expanding pie than to keep this floor and there are economics associated it which make it feasible and it's certainly important for them to compete and so this minimum size of transaction thing is being relaxed. Most people don't know that, but that's what's happening behind the scenes. And the last part is that consumers are generally very comfortable using their credit cards to make transactions on the web.

Bonnie: And I think one of the bases behind kind of the micro payments is the belief that people like us who are "content providers" would not be able to make it go on an advertising-only model, so the belief was, hey, you're going to have to figure out a way that when you see a story and read a story, that you're going to have to pay 1/10th of a penny because that's the only way the CNETs of the world are going to be able to survive and there were a lot of "content companies" which were struggling with that when you look back because you can't think of many products that you're really going to buy that you're going to pay 1/10th of a penny for, so the belief was if our model didn't work and I think what you've seen is you've seen companies within our space, "the content media" space that have demonstrated that there ar profitable models and I think it's taken a lot of the pressure off people looking for doing these kind of various small payment mechanisms.

Walker: There're still some people working on focused aspects of that. Digital rights management's important. Who owns the data? And then once you determine that, who gets paid for the data? And so does that require a micro payment strategy? Chase thinks yes probably in the end because they don't really want to go through the credit card system. They don't want to pay the credit card, what is, 22 cents.

Koogle: It's too much.

Walker: It's too much, and so, gee, maybe if you actually did have a little bite on a piece of the data associated with a piece of music that you downloaded, you will be interested in paying 10 cents to hear it and that'll go through another whole separate system that'll take out the middle man. Take out the credits cards which is the goal

Battino: The other thing is--I think we have to think about the U.S. model versus how it plays out elsewhere. In Europe, obviously, you're much more comfortable in a debit-based form of transaction where we're so credit-centric, so I think when you go overseas, some of those micropayments may actually happen quicker. If you look at what VISA and Barclay's are doing over there, I think it's a another case where a European trend may start and then come here.

One last point I want to make, back to the curriculum, if there could be a course on international fads and trends. I would like to see that because I think we figure the U.S. is tilted and everything goes from the left coast to the right coast, but there are things that are happening in Asia and Scandinavia right now, in particular. Those two places I think are fascinating to make sure people are baking that into their thinking here to me is a critical element.

Koogle: I absolutely applaud it. The wireless thing actually is floating up and that's why sort of Scandinavia and Europe in particular, and playing off the micro transaction kind of a theme is interesting. To give you a tangible example, there is product now being distributed to consumers broadly in Europe which look like cell phones in which you have a debit chip (grossly missaid) and basically so there's currency stored in there and you walk up to something. In vending machines there's an interface now and you buy a Coke with your cell phone, and it sounds silly but it's being broadly adopted with [GSM] and everything else and this is trend that we're not even seeing here in the country, right, so having visibility on international trends. Plus it's fun to travel.

Battino: These phones. Everybody carries them around. They call them SMS, short messaging services. All the kids in Scandinavia now run around and type these little messages on their cell phone to each other.

Harris: Not everything in the Internet starts here and you can see that with Free Service and free ISPs and things like that.

Battino: And free serve, that last point on that, they've just lost about 80% of share for someone who's come in and gone really free without the BT local charges, so there's a lot of great case studies going on.

Nelson: A question from the audience.

[Shawn ______________: Actually I stepped up here with a question and a comment on the micro transactions. You switched subjects on me and I have no idea what you're talking about [laughter], but I'm stuck here, but dropping back real quick and you were talking about Europe and North American purchasing habits. I read recently the other day what's called e- cash and electronic checks has become widely popular in Europe but has yet to catch on in the United States. It's different from the cyber cash in that you can actually make a purchase but it doesn't send them your personal customer information so it's the same as if I walked into a store and exchanged hard cash, they have no idea who I am or they can't track my purchasing habits and since personalization and membership are really driven by aggregating customer data, is that one of the reasons that this hasn't caught on in the United States because a lot of times these virtual communities in stores really want to or they rely or they're moving towards tracking and gathering that data, so any reasons or any predictions that this might catch on?

Hoel: How do they know where you live to send the product?

Shawn ______________: I just read it. It was a short article. I don't know the--

Hoel: Well, I think the personalization works both ways. The companies get a lot of information about you when you buy something from their site but then in return they give you some information back which actually can be quite value added to the consumer, so I think in a lot of cases people want to be served information that has something to do about them. My Yahoo! is a great example, where I log onto My Yahoo! and it's just for me and it's got my stocks. It's got my horoscope. It's got what I want to watch on TV tonight if that's what I want to do. It's got all the news about all my portfolio companies. It tells us the sports scores in my area. It also tells me what the weather's going to be like that day, so I think that there's a lot of people that want it but I'm sure there are some transactions kind of in the dark side of the Internet that people might not want to--

Walker: On the micro payments side, that's what they're trying to get to. That's why banks are working on that right now because I think what you want is a trust source, somebody you trust to hold your cash, and that won't necessarily tell the other side who you are, but you don't want just give anybody here's $500 bucks. I'm going to start drawing down on that, so they're working out a system with the micro payment strategy that'll draw right down on your DDAs and support it. In Europe maybe they have that trust level already built. I'm not sure.

Koogle: And so the way it works-- I'll do this really fast. There's a bunch of stuff being worked on. It's all very cool. In the end, when you walk up and you use cash and you hand cash to somebody, right, all they really have to care about is whether or not it's counterfeit or not. And an analogy can be made in an electronic transaction where in fact you've pre-validated the currency that you're passing without personal identify information associated with it. Follow it? So basically there's kind of a stamp that's put on the currency that you're passing that says to the recipient this is valid currency and at the end

Walker: Chase currency.

Koogle: Absolutely. It's not a credit cards stub. It's Chase. And there's stuff being worked on there. I don't think that the lack of take up has anything to do with either consumers worrying about it or whatever. I do think it has everything to do with the existing infrastructure. It's, again, a food chain issue. There's an existing payment fulfillment infrastructure that exists both here as well as other parts of the country that's going to have to get rearranged. Right? For companies taking a cut of the transaction, they're literally just sitting in the transaction stream, not really adding much value, and they have a lot to lose from this sort of thing.

Nelson: Let's take one more question here before we cut over to Darden.

Audience question: The broadcast industry is about to make a big transformation from analog television to digital television and at first glance it seems like this is going to be another reconfiguration or it's another merging where they're going to be able to broadcast not only traditional program streams but it's the same technology that's at the heart of the Internet. It seems pretty cool, and it combines the mass marketing and the branding and everything that broadcast is so good at today with some of the things that are really driving e-commerce. I'm just wondering--have you all thought about this or seen any plans or I haven't seen too much about how these are going to work together but it seems like the potential is enormous.

______________: For broadcasting content across the web or what?

Audience question: No. For traditional broadcasters who'll now be able to send not only TV programs but all kinds of data, data casting. How this might combine the Internet to drive e commerce?

Koogle: Hopefully this is being broadcast by Broadcast.com which--

Hoel: Well, also, I think right now there's a big-- I'm sorry, are you through?

Koogle: One little brief thing--this is an example really of-- We acquired Broadcast.com so it's Yahoo! Broadcast now. This is at a base level using IP (Internet protocol) and the infrastructure, right, to distribute without geographic bounds video images and audio images at the same time. I think you were asking something that goes a little beyond which is how do you then optimize that to bring a commercial message across and enable commerce as well or not?

Audience question: Well, what I was getting at was broadcasters, networks, now broadcast just video and they'll be able to broadcast not only several streams of video but also data. They can basically--

Walker: Digital radio. We're developing that now in one of our companies and it's going to transmit a lot more than just radio shows. It's going to transmit a lot of the Internet information, and a lot of data that you're going to probably want to access in your car. A lot of people are working on that.

Bonnie: From our relationship with NBC, they've looked at clearly one of the ways you expand is you theoretically create, get better use, more effective use, of spectrum as you go digital waves, things like HDTV which partially is a government-legislated product, but they're also looking for-- Already people are using the digital blanking signal to communicate information. I think there's a lot of ideas. I'm not sure that there's a lot of breakthrough ideas right now and I think that the Internet as a distribution vehicle is pretty robust, and I think there's a lot of services that have been built on that and I think the challenge you're going to have on TV does TV want to build a whole different theoretical pipe using broadcast signal and I'm sure there's some product that's going to be really important that comes out of that. I just don't think we know what it is yet.

Hoel: Well, actually it brings up an interesting point kind of merging video and the Internet and that has to do with the bottleneck to the home. Today, most of us just have a regular phone line that goes into our house. Maybe we have two lines or three lines. It's probably unlikely you could get a fourth line at all because there just isn't the number of wires to go into the house and so the big challenge that a lot of these broadcasters especially are facing is how do you get massive amounts of data from the sidewalk to the home and we've see a number of companies. There's a company in Minneapolis called Optical Solutions Inc. that has a fiber to the home solution that allows voice, video and data over a one fiber to the home. There's a company called [Infolibria] which does caching and another one called [Intome] that does caching where it cached information close to the home, so it happens, but I think we're going to all feel a lot of pain going forward because you just can't get all the information that you want, but once those pipes are opened up, the sky is going to be limit in terms of what you can get from your home, a video that just comes over a pipe into your house or your sister's filming her baby somewhere in L.A. and you get to see it in Charlottesville and all those kinds of things which I think there are some applications like Broadcast.com which is amazing but to get it home is a challenge.

Battino: I'd say don't just think about the consumer with television technology. Vertical blanking interval was initially used for business transmission of information services and it's certainly going to be a series of those applications enabled as well.

Koogle: So one last little thing. We're doing an interesting experiment in Japan right now with a couple of partners with what's called fixed wireless which is fundamentally you come off a fat fiber optic pipe onto a server which is like a little computer. It's like a transceiver actually that you can put on the side of a building and then you transmit very low power spread spectrum wireless onto a wireless card that you slip into your computer. It looks like a little PCMCA card with an antenna on it. It spread spectrum at high frequency Internet protocol. There you're using-- What's interesting and probably important to kind of keep in mind is that there is a very robust infrastructure right now called the Internet and there's a protocol that's been developed over a long period of time interestingly from a bunch of academic institutions originally that works and it is a fundamental distribution mechanism.

In the short hop, from the head ends into the home or into the business or whatever, in many cases, using the same protocol, there's going to be a ton of wireless kind of hops that go, but what's probably not going to happen is any time soon in a real coherent way is for the radio business, the radio industry, to kind of retool and reshape their own distribution, I bet.

______________: I guess that's the question os whether traditional media people can utilize all that new space to do any content that you'll find compelling [laughter].

Nelson]: Now speaking of television, we're going to try and cut over to Darden now. Good afternoon.

Audience question: Lou [Gersher] mentioned in his speech some time ago that he believed that m any of the players currently in the Internet space are fireflies before the storm. I was wondering if you comment on what you see the role of many of the larger established companies like Wal-Mart, MG, IBM, GE, what role do they play. Are they just going to sort of sit back and let this thing pass them by?

Koogle: Who wants to take that? [laughter]

Bonnie: I think there're a couple of things happening. I think one is I think a lot of the successful companies you've seen so far on the Internet are really building a "information infrastructure" around how you access information and I think there's not a shock that those companies are going to away. I think it's the companies like Yahoo! are phenomenal and very successful and I think it's getting harder and harder to get traction within those categories and I don't think-- I'm not sure that big companies have even a need to do it. I do think that there clearly are a lot of big companies that are going to begin to take the Internet more seriously. I do think it is hard to compete and I think it's some of the challenges we talked about earlier with this. Do you spin out? Do you not spin out? How do you get good talent?

We've been in a business where we competed against [Zif] Davis which of all "traditional" companies, is probably one of the most forward-thinking great management team. I think has really been extraordinarily aggressive and we consider them and they're a good competitor, but it is hard and they're very challenging in things and there's things we can do that they can't do. There's places we can go they can't go. There's things where we can kind of turn the model in end where it's very hard for them to do and I think that the trick is going to be-- I think big companies have to take this more seriously. It changes the way they have to think about the world and I think it's going to be difficult and I think that the notion that the successful companies we see now are "fireflies" and somehow they're going to go away or are less relevant I think clearly it's a self-serving answer, but I think really it underestimates both how hard it is to do what is necessary to make a really good product on the Internet. Two is how hard it is to get really good people who "kind of get it" and understand.

Three is how hard it is to organizationally structure yourself. You talk about organizational structure.

We constantly have to rethink about what functions do we centralize, what functions do we decentralize and we go back. It's very hard. Do not underestimate it and we're a company that relative to everybody else has very little baggage so I think that the people who were there early and have really been able to evolve and learn and make decisions and are really well positioned. I think it's going to be very hard to displace.

Hoel: I kind of have a different opinion. I think that-- I call them the .bms, kind of .bricks and mortar and they have two competitive things that a lot of the new Internet companies don't have. They have brand and they also have back-end infrastructure and I think if you look at those two things, those are probably the most expensive and the hardest things to create and a lot of companies were started. I'm involved with Eve.com and we have a great idea, a great company, all that, but our back end infrastructure isn't quite there yet. I think you'll find that with all the new .com companies. With the .bm companies, the one thing they don't have is that front-end Internet infrastructure nor do they have the front end kind of pretty page or however you want to say it or the vision, but I think they will definitely get it.

In fact, the other day I was looking at the top 100 web sites in the country and you'd be amazed at some of the names that are on there. It's Barnes & Noble, Amazon is on there, as well as Wal-Mart, J.C. Penney is on there, Sears is on there, so these companies are being a little sneaky and they're kind of catching up and--

______________: Well, let me give you a flip to that which is we will do a focus group and we'll sit down and we will talk to people about the difference between our content and Zif Davis's content and Zif Davis is a great company with great content. People perceive that our content is better. Now, the reason they perceive it is they believe that somehow Zif Davis must be holding back. It's interesting kind of what people apply against these models. They assume that Zif Davis must be kind of holding something back or playing something to their, because they certainly couldn't give away their good stories or they've got to hold off and give it a little later so the assumption is irrespective even looking at stories that there is a belief that the people that are dedicated solely to this business somehow are giving you better, more timely, more accurate, because people perceive that we have nothing to lose.

Hoel: But I think thought it'd be naive to think that Wal-Mart is not going to be a successful web company.

Walker: It's not an either/or. To me, what Gershner, if he calls them fireflies, they're the light in the night that'll show us the way. I mean, bottom line, the big companies will get there. You look back in the biotech boom 20 years ago and you saw that the way biotechnology got started was with small businesses, with those that accessed the public markets and were separate from the old drug companies because the old drug companies would pull them down, and now the other drug companies have all acquired all of these biotechnology businesses--[Genentex] and all the world, and made them one of their own and now that function is core to their business, and so I don't think it's an either Wal-Mart's not going to survive or it is going to survive. Wal-Mart's absolutely going to survive, no question. It's how it evolves and how at what point can it acquire that knowledge and that culture that it needs to keep going?

Battino: It appears the purer players have won round one, but I wouldn't discount some of the larger players in round two, and if we think that it used to be about managing assets and people and now it's more about managing knowledge and relationships and if you just look at what came out last week from GM and Ford. They're going to very heavily exploit their relationships and they're going to be in a very powerful vertical as well as some horizontal markets, so I wouldn't count them out so fast.

Nelson: I'm afraid we're going to have to make that our last question given that we're bumping up against another session following this one. In closing, I would like to thank our panelists for sharing their thoughts on how the future of commerce will unfold and based on what we have heard today, it promises to be one of the most exciting and challenging periods in history. As our University's founder put it, we have the wolf by the ears and we can either hold him or safely let him go.

Remember today and thank everyone for attending.