The Curious Case Of Marc Andreessen


andreessen

Last week we learned that Marc Andreessen and his business partner, Benjamin Horowitz, had raised a $300 million venture fund. Without question, it’s a remarkable achievement to attract that much money in what has to be one of the most inhospitable environments for raising venture capital in memory. 

The size of the fund is also impressive, though on its own won’t change the world, or have a discernible impact on the valley’s start-up economy. But on a symbolic level, the fund’s success certifies Andreessen’s place as the new godfather of Silicon Valley.

Andreessen embodies so many facets of the valley. He is an innovator, an entrepreneur, investor, networker, and in some cases, kingmaker. If Andreessen accomplishes nothing more from here on out, his place in Silicon Valley history is secure.

Which is why it may sound surprising that I find this endorsement so curious. It’s not necessarily misplaced. But it does speak volumes about the career Andreessen has carved out, his philosophy, and the priorities and values of Silicon Valley.

For most people around here, Andreessen is viewed as rock star, who has moved from one success to another. My view of him is a bit more shaded. When I see Andreessen (and I’ve never met him), I see two people.

There’s Marc Andreessen, tech genius and Web visionary. He developed the first commercial browser and started Netscape to commercialize it. He understands, perhaps better than anyone, the rapidly evolving dynamics of how the Internet is changing our lives and the economy. He’s a geek’s geek, and wise, a deadly combination.

And then there’s Marc Andreessen, the businessman, who seems to me to be — how can I put this charitably? — a bit of a dud.

That failure is largely discounted by the valley. Part of that goes to the central ethic of this region which elevates failure to the level of blessed sacrament. I’m sure most people around here would probably dispute my assessment of Andreessen, and as evidence they’d point out how fantastically wealthy he is.  Which is true. But enriching yourself, and building a successful business are two different things, as we’ve seen repeatedly over the past decade in the valley. Unfortunately, you can fail in spectacular fashion and still make a bundle.

I don’t want to imply he’s a failure, because he’s not. But when I look at Andreessen’s business track record, I’m less interested in his checking account than the financial statements of his companies. As far as I can tell, Andreessen has never started or operated a profitable business, with one exception: Netscape turned an annual profit, back in 1996 when it posted a $19 million profit. Of course, that was when the company still charged you $49 to buy a copy of Netscape Navigator. Once Microsoft started giving its Explorer browser away for free, that was all she wrote. Andreessen and Netscape couldn’t figure out another business model, and vanished a couple of years later in a complex deal with Sun Microsystems and AOL that was announced November 1998.

After a brief stint as chief technology officer with AOL, Andreessen re-emerged with a new start-up called Loudcloud, which sputtered after its IPO in 2001, and was re-launched as Opsware. In its six years as a publicly traded company, LoudCloud/Opsware failed to turn an annual profit. Still, it was sold for $1.6 billion to Hewlett Packard in 2007. 

Andreessen’s take from that sale was $98.2 million, while Horowitz took home about $60 million. Not bad for a company that never came close to breaking even. 

But does that mean it was a success or a failure?

In the eyes of Silicon Valley, it was the former. And since then, Andreessen’s reputation has only risen as he has emerged as a leading angel investor for the Web 2.0 industry, advising or investing in companies like Facebook and Twitter. These companies reflect the philosophy of service and technology over revenues and profits.  

Meanwhile, Andreessen has co-founded another company, Ning. On a personal level, I’m a huge fan of Ning, which lets you build your own social network. I’ve been using Ning now for almost 18 months for a project I did on behalf of the Knight Foundation. Ning’s traffic and users are exploding. But revenues? It’s still private, but it’s safe to say it’s not profitable. And it’s unclear if it will ever be. 

Of course, at some point, these priorities have to change. A company has to actually make money. Innovation can’t be sustained by creating a venture-backed Ponzi scheme where one money-losing start-up is sold to another, which is then sold to another. 

Losing money indefinitely isn’t just a financial failure. It represents a failure to truly understand how a service or product is creating value for a customer, how to communicate that value, and how to persuade the customer to pay above and beyond for that value.

That, all too often, is where the valley still falls short: Failing to innovate around the business to same degree it innovates around the technology.

This isn’t Andreessen’s fault. But his ascension as the valley’s leading light embodies that ideal. And that shows the valley is no where near ready to change its ways.

 

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  • http://500hats.typepad.com dave mcclure

    I think you’re a little short-sighted with the perspective on profitability. Amazon was running in the red for a very long time before it turned a profit, yet achieved massive scale and eventually became a dominant force in online retailing… would you call that a “failure” in it’s first 5-7 years simple because growth was emphasized, and Bezos used equity & debt capital to finance the growth rather than focus on short-term profitability?

    while I don’t disagree that there are many unprofitable businesses in the valley that may someday have their day of reckoning ahead of them, this is not an indictment of valley culture / VC culture overall. the fact is, venture capital emphasizes the creation of large, risky businesses. in most cases, proof of large market opportunity is a primary concern; monetization is a secondary concern. VCs aren’t successful if their investments are profitbable, but not large in scale. on the other hand, as you note with several examples, it’s not uncommon to have some M&A successes that achieve large scale but haven’t quite evolved to cash-flow profitability until a later point in their maturity (and sometimes in fact, never).

    to suggest this lack of prioritization on profitability is wrong or needs to be cua GED somehow, well all I can say is I think you’re missing the whole point about why venture capital exists and how it works. again, not to say there isn’t *plenty* of things about VC that need to be changed, and average IRRs may be crap for far too many funds in the past decade, but fundamentally VCs aim for large markets first and profits second.

    in this light, I think most would judge Andreesen’s business acumen just fine, thank ye.

  • Kevn

    It’s not that most of these companies are unprofitable, they have zero revenue.

  • http://www.cfwhisperer.com Mike Brunt

    @Dave I think your example of Amazon is not necessarily a good one, for this reason. Amazon from the off was a seller of merchandise, where providing enough volume was sold to the reading public, there was a foreseeable path to profitability with “x” volume and of course, they did become very profitable. The likes of Twitter and FaceBook have obviously invested heavily in infrastructure and personnel and as far as I am aware or have read, have not yet turned in a profit as yet. FaceBook obviously is pursuing an Ad revenue model of some kind as does MySpace who recently announced 400 lay-offs and as discouraging as that might be to MySpace they do, at least, pretty much own an established market, Musicians. Twitter do not yet seem to have turned full on to an Ad driven model and I would assume are still getting some revenue from premium, injected messages. As we found out in the DOT.COM fallout period profits do matter and I think Chris makes some valid points in this piece.

  • Are you sure?

    The Valley’s leading light? The godfather of Silicon Valley? … really?

    p.s. Andreessen didn’t run Netscape.

  • http://www.danmartell.com Dan Martell

    @Tim interesting perspective but I don’t agree with you at all. Business, IMHO, is about creating value – and from what I’ve seen, Andreesen is more than capable of doing this.

    As @davemcclure mentioned, sometimes you sacrifice revenues (profitability) for growth. It’s a question of priorities and has nothing to do with business acumen. I have no doubt that Andreesen could easily build a profitable company with his eyes close – it’s not hard. What’s tough is what he’s been able to do -> solve big problems at scale and return value ($) to his shareholders.

    On that note, I really appreciate the post – thoughtful and worth the discussion. Thx.

  • Numbersix

    The problem with your argument Dave is that these multi-billion dollar buyouts of VC funded start-ups by big public companies have a hard time ever paying out for the companies who buy them. Chris is right on when he says that “Innovation can’t be sustained by creating a venture-backed Ponzi scheme where one money-losing start-up is sold to another, which is then sold to another.” I get a good laugh any time someone calls people who advocate good business practices “short sighted”. What Chris is trying to say is that Silicon Valley needs to focus on building businesses, not just technology and hype, and stop kicking the can down the road. At the end of the day, the gravy train ends when the people REALLY funding the whole thing – the people who invest in these funds and the companies that buy these start-ups – see it as a bad investment that doesn’t earn out and I would say that is what is starting to happen. As HST used to say, “when the going gets weird, the weird turn pro.” Its time for the Valley to turn pro.

  • http://500hats.typepad.com dave mcclure

    @mikebrunt: srsly? you’re using Facebook & Twitter as your examples of reckless VC investment? you just destroyed any credibility you had with the rest of your argument.

    check back in 3 years on Facebook, 5 years on Twitter. they’ll both be turning a handsome profit (at scale). and you’ll owe me a beer.

    @numbersix: um, right… quoting Hunter S Thompson at me as a guide on how to fix the VC industry. blogga, please. you need to cut back on the peyote my friend.

    as stated previously: the industry is full of idiots on both the investor and entrepreneur sides, and returns have been crap for a decade… but without VC we would not have Google, Yahoo, Amazon, Cisco, etc etc. the excesses of the late 90s have largely NOT been duplicated (retail-fueled crazy IPOs, insane Mktg budgets, growth at all costs) even though some may draw parallels.

    VC is dead. Long live VC.

  • http://siliconbeat.com Chris O’Brien

    Hey all:

    First off, thanks for this thoughtful conversation. I was off the grid for a few days so I’m little tardy in jumping back in.

    I think this comes through, but let me clarify a couple things on my feelings about Andreessen. First, although I’m not sure that Opsware would have been profitable as a sthand alone, there are a couple of notable things about it. First, Andreessen and Ben HOrowitz took a disaster and turned it around to the point where any initial investor in the stock would have made money. That’s not nothing. And in essence, they spotted the whole “cloud” trend much earlier than most, maybe a little too early for their own good.

    I do agree with @Mike Brunt on the Amazon example. In that case, they were trying to achieve scale to the point where the margins kicked in in their favor. In a sense, Oracle has been doing this with its acquisition strategy, and now sees its margins just exploding. Of course, Amazon had trouble transferring this success beyond books (thus, the Kindle). Margins on other products have never really scaled.

    But to @dave mcclure’s point: Twitter and Facebook are awesome, game changing companies in my opinion. I continue to impressed by FBook’s evolution, but also dumfounded at how terrible their ads are. Has anyone ever clicked on a FB ad? I’m not sure what’s going on over there, but I do know they have real revenues, and are investing in a lot of infrastructure. So I think there is some parallel in that sense with Amazon. I think FB is going to conquer the world, and if it ever makes it possible to actually search within FB, then we may just forget Google ever existed.

    Twitter, I love. But I fear that what makes them great (open ness) will make it impossible for it to ever become a success. Twitter’s success seems almost like a wonderful accident, and I think the best outcome is likely a big acquisition by a benevolent owner.

    For me, both Twitter and Facebook do raise the overall failure of online advertising as a business model (not just because of the downturn). I think Google will prove to be the last, great ad-supported business.

    That means everyone else needs to get a lot more creative on the business side. I’m not condemning VCs for all of this. But I think there’s still way too many of them out there, and there’s going to be a big contraction. But the best will survive, angels will play a larger role, and it’s absolutely critical that the valley continue to have a healthy supply of capital from investors who understand big risks, get excited by them, and understand the entrepreneurs’ world.

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