Founders at Work.pdf

68 Founders at Work
Kraus: First, back in those days, it was legitimate to ask, “Why would I use a
search engine more than a couple of times to find the sites that I like? Then I’ll
bookmark those sites and never go back to a search engine again.”
Microsoft made a buyout offer for Excite in late ’95, and even then I had
Microsoft’s CTO, Nathan Myhrvold, yelling at me, “Search is not a business.
People are just going to search a few times and then bookmark what they want
to go to.”
The second was that nobody knew what the business model was going to be.
In fact, Excite really never got the business model right at all. We fell into the
classic problem of how, when a new medium comes out, it adopts the practices,
the content, the business models of the old medium—which fails, and then the
more appropriate models get figured out. For example, all the television programming
in its early days looked like radio. It was literally the same guys reading
the radio program on television, and it was extraordinarily boring. And
advertising was radio advertising—the announcer reading the ad.
We too adopted the business model of the prior medium, which was print.
Cost per thousand impression (cpm)-based advertising was how we made
money in search, and that was wrong. We never figured out the cost-per-click
piece of it. We got too buried in our legacy of cpm-based advertising and that’s
how we died. Or at least that’s how the Excite piece of the business wasn’t as
much as it could have been.
By 1997 everybody was diversifying into portal strategies, because nobody
knew how to make money from search. Search was viewed as the traffic director
to other more profitable businesses, when in reality, search was the
business. That wasn’t obvious at the time.
Livingston: What competitors did you worry about?
Kraus: Early on you worry about the ones that don’t matter, because you don’t
know any better. Early on, as a search technology company, we worried about
Verity, PLS, Open Text. We were too young to realize that existing companies’
biggest problem is legacy. Period. They can’t focus on new businesses because
they’ve got to manage their old ones. And so when we moved to web search, it
was never clear to us that Verity, PLS, and Open Text wouldn’t actually go and
do this. But they couldn’t because they were servicing all their existing businesses
and could never invest enough in this new kind of business.
We worried about Yahoo, Lycos, and Infoseek the most when we started
getting into the web search business, for sure. There were some rumors of
entries from big companies, like MCI. Was AT&T going to play in this space?
What was AOL going to do?
Livingston: You felt there was the threat of the larger companies with deep
pockets getting into the space?
Kraus: Right, and they never did. When Microsoft made its buyout offer for
Excite in late 1995, they offered about $70 million. We’d just launched in
October ’95 and they’re offering $70 million. We said no, and we told them the
number needed to be more like $100 million. And apparently what happened