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Nerds 2.0.1 - A Brief History of the Internet - Part 2 - Serving the Suits | Multimedia HyperGuide | YouTubeToText
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funding for this program has been
provided by the annual financial support
of viewers like you
and by the Alfred P sloan Foundation [Music]
and my the information superhighway of
the 70s the first ever computer network
was a tool built mainly by graduates of
MIT for universities but linking
mainframes on campuses had no commercial
application it took the invention of the
personal computer to transform it and
spread networking from campus to offices
[Music]
with personal computers proliferating on
company desktops it was a logical next
step to connect them all into a network
logical maybe but first someone had to
figure out how to do it and the guy who
did was Bob Metcalfe apparently their
sleep is deep not working today they're
old and rare and they're Gloucestershire
old spud pigs there's a sort of pigs
picked the classic pig they're not
commercially viable yo Bob fortunately
Bob Metcalfe owns a farm in Maine but we
wouldn't call him a farmer this farm
exists to preserve genetic diversity not
to make a living
bob doesn't need to work his claim to
fame is to be the first computer
networking millionaire how did he do it
it helps to have good parents and then
it helps to work really hard for a long
period of time and go to school forever
and then it works to drop quite by
accident in the middle of Silicon Valley
where you're swept up into a inexorable
process of entrepreneurship and wealth
generation and you pop out the other
side with a farm in Maine I hate to
oversimplify Bob Metcalfe started his
computer science career as a summer
alternative to working at the beach club
I took computer programming courses
because my fraternity brothers told me
that if I took six to fifty one which
was systems programming that I could get
a job in the summer for appreciably more
than I would was then getting during the
summers as a cabana boy they have a
waiting list because these are really
scrumptious scrumptious lamb chops he
helped build the original ARPANET work
as a graduate student and I was at
Harvard and miserable and unhappy
looking for research and I ran across
ARPA opportunities to work on the
ARPANET he landed a research job in
Silicon Valley but Bob went from Boston
to California via Hawaii Bob had just
finished his PhD he had taken a job at
Xerox PARC and Bob is a consummate
salesman imagine this if you had just
gone into a new job before you showed up
for work you get your boss to send you
Bob's career in networking really took
off when he got hired here in the
history of PCs this is the place the
whole enchilada it's Jerusalem Rome and
Mecca all rolled into one
think of anything about pcs one
processor for user graphical user
interfaces laser printers it was
invented right here at Xerox PARC and
that includes a method of linking
desktop computers together so that nerds
could share work software spreadsheets
printers and my sister's phone number
push another button and the information
is sent elect the folks at Xerox PARC in
the mid-1970s were living in the future
long before the IBM PC or the Macintosh
at Xerox they invented a personal
computer called the alto and there was
one on every researchers desk we knew we
knew as a fact what the world was gonna
look like 10 years because we had
already built it and we saw that it
worked so we knew what to do first you
do this then you do this because we did
it already
using technical ideas from both ARPANET
and Aloha net Bob Metcalfe invented a
way of linking parks Altos together
people don't get how revolutionary that
was but it was our research goal to put
a computer on every desk not let alone
every building so we needed a network
that would connect hundreds of computers
at hundreds of kilobits per second at
hundreds of meters of separation that
was our spec and out popped a network
for doing that at 3 megabits per second
among up to 256 computers separated by
up to a mile along one big piece of
coaxial cable which we called the ether
Larry Tesler remembers Bob's break
through a technical triumph of bigger
bits and smarter packets it came up a
little bit at a time first they were
able to just send a few signals back and
forth and then a few bytes back and
forth and entire packets and then they
were able to do entire streams of
packets and after a while it really
worked and they created a lot of
Ethernet boards and everybody in Parc
who had an Alto got a board and we could
start using the ethernet it was pretty
exciting time we built computers to sit
on everyone's desk and then watched what
happened and so we worked in an
economics free zone which is a way that
research is often conducted and produce
this network of pcs and Internet of PCs
we built our own internet call it a
paper explosion or data overload or
asset mismanagement what's needed is not
a new system but a new concept this is
the Ethernet cable a passive carrier
capable of accepting transmissions from
various kinds of office machines and
terminals and with the invention of
Ethernet PC networking became a
practical possibility with PC pioneers
this was the realization of a dream the
whole vision of why personal computers
would be a great thing on every desktop
in every home had to do with the using
them as a communications tool had had
them connected together people watching
say something had a device that really
wanted to plug into a network so they
would all work in concert or at least
can exchange messages and Sharaf
that kind of thing so the PC really gave
birth to the networking age we suddenly
had something that we wanted a network
it's right here see it okay the technologists
technologists
he's also an entrepreneur when Xerox
didn't exploit Ethernet widely Bob
thought he could so he opened up the
directory of Western venture capitalists
starting in November 78 I started going
through that directory having breakfast
lunch and dinner
with everybody I could find on that in
that directory not to raise money I just
asked them how to start a company in
June of 79 I sat down to name my company
and ended up calling it computer
communique manned a check from his
backers Bob's new company set about
building Ethernet cards just as the PC
boom began great timing thing and very
profitable amazing gradual ations you
know member of the maze club yeah one
card for $1000 they now go in quantity
for nineteen dollars each but a thousand
dollars could put your PC on the
ethernet of course we had to build a
network operating system to make it
useful which we did and we shipped all
that in September of 82 and people
started buying it and by 1983 we were
growing 50 to 80 percent per quarter
sequentially and by March of 84 we were
public with about 12 million in revenue
and by the time I left in 1990 we were
400 million people 400 million dollars a
year with 2000 people and now in 1997
three incredible this Xerox sales pitch
exaggerated Ethernet sir Ainge it was a
thousand feet but Ethernet still vastly
transformed the usefulness of pcs the
challenge now was to design a commercial
computer specifically to exploit the
advantages of a network it wasn't long
in coming
is it a PC is it a mini-computer no it's
a workstation what's the difference well
unlike those first two this machine
can't do any work by itself it has to be
part of a network this is the original
Sun workstation from 1982 quite a
landmark in the history of the internet
the young people who designed it coined
the term the network is the computer so
with this workstation I can access
information on other computers on the
network I can store my information on
other computers on the network and I can
harness the power of every computer on
the network those folks at Sun they're
very bright the Sun workstation has
become an 8 billion dollar business when
the PC was little more than a
high-powered typewriter workstations had
the processing power to meet the needs
of Wall Street NASA and even Hollywood
guess where it started this is Margaret
Jack's hall at Stanford University one
of the most historic buildings of the
digital age three companies got their
start here Cisco Systems in the basement
Silicon Graphics on the second floor and
Sun Microsystems on the fourth
collectively they must have a market
value of 100 billion dollars and
Stanford University never made a penny
from any of them what are they doing to
this place the first Sun workstation was
built in an office on this floor by a
young German graduates dude named Andy
bechtolsheim who just couldn't wait to
get out of the fatherland I was actually
quite frustrated with the the German
university program at the time because I
really felt it was wasting my time you
know so the first thing I went when I
went to German University and in the
middle of middle 70s was I applied to
come here it's like it was very boring
simple things like you know we have to
sign up for terminals to use a computer
and you can only get one hour of
terminal time per week you know I mean
how can you even learn programming in
this way a clever geek like Andy is
essential to any digital startup but in
order to succeed you also need someone
with a driving ambition to get things
done for son that spark came from a
for graduate from India Vinod Khosla
ever since I was 16 going to high school
in India I dreamed of coming to Silicon
Valley to start a company I was a
technology geek and it was a very much a
dream of mine to start a company in fact
in 76 when I graduated from engineering
school in India I tried to start a
technology company in India short of funds
funds
he used standard parks like the Motorola
processor and Ethernet and licenses
designed to anyone who'd pay we had this
crazy idea that if we build a little bit
a micro computer with a big screen
display and the Ethernet connection
running the the UNIX operating system we
would have the perfect product for the
you know the researchers and these
scientists and the students at Stanford
Indy was developing the Sun technology
at Stanford he had complete rights to it
he was in the middle of finishing his
ph.d when I first approached him he said
he didn't want to start a company but he
would license all of the Sun technology
to me for $10,000 and I said I don't
want to do that he said he didn't want
to quit his ph.d and he said he had
already licensed it to about five other
players I said I want the goose that
lays the golden egg I don't want the
golden egg Bernard made Andy an offer he
couldn't refuse half his share in the
embryonic company Vinod got his goose
and with an Indian and a German on board
how about an American Scott McNealy
Vinod's best friend now it was time to
divvy up the jobs there were two MBAs
Vinod Khosla and myself he had done a
start-up before so he was sat around and
he said what job do you want I go huh
you know I don't know I don't know
anything about this stuff and he goes
why don't you be CEO and I said no no I
don't know anything about it you B so we
had an argument and he finally agreed to
be see they went for the best a
legendary program or at Berkeley named
Bill joy who had already delighted his
university by creating for them their
very own version of the UNIX computer
operating system they showed up in my
office at Berkeley and I thought these
were like the engineers and not that I
didn't realize these are the principles
you know they looked so young and so
innocent that I just I sat them in that
corner of my
office' made them wait till the rest of
the people showed up and then we had
Bill join Andy the first time they met
they did a Vulcan mind-meld me or just
kind of like hold each other's forehead
you couldn't get too near him because
the sparks and the smoke and the flame
and at Berkeley bill would simply take
the system the UNIX system and rewrite
it over the weekend
no no human on the planet could do this
except for Bill and you'd come in in the
following week and say what has bill
changed now and every once while he
decided to do a new release and he do
were released every three months and he
would personally read and write would
rewrite all of the code in the system
including all of the applications
inconceivable today and amazing at the
time so far this was a startup from a
textbook but for this quartet from
America's melting pot there was still
one final hurdle to be crossed getting
funding for their idea often this is a nightmare
nightmare
but for these Sun seekers this American
Dream was well a no brainer we wrote a 5
page business plan a week or two later
he showed us some venture people they
said oh this is great you know here's a
check for you basically we shot them
that the plan on Thursday Friday on
Tuesday we had a cheque in the hand and
we started the company it was four of us
sitting in a little basic basically rent
by the our office space in Santa Clara
iodine we were all 27 and we got our
first load of furniture and got asset
tag numbers and tagged one of the chairs
asset number one and had employee number
one with all the intellectual property
in with the cardboard box sit in asset
number one and took a picture the Sun
workstation was designed from the start
to be part of a network the whole
concept of the network is the computer
we started the Sun fifteen years ago
based on the fact that every computer
should be hooked into every other
computing device on the planet and
that's been our strategy and our goal
from day one computers become much more
useful once they're connected because
it's that the some of the computers on
the network that allow you to do more
than you could do in an individual computer
computer
because Andy had used off-the-shelf
software and hardware for his
workstation son made a virtue of
necessity and based all their products
on these open standards it made them
different from companies like Microsoft
and Apple and they've been the champions
of open standards
ever since we added openness in other
words nobody should own the written and
spoken language of computing in the same
way that nobody owns English French or
German and Microsoft might disagree and
think that maybe they ought own the
written and spoke like to use license to
speak English or Windows or whatever
they happen to own on the Stanford
campus computer scientists are known to
be nimble both at juggling and business
opportunities most networking advances
come from graduates and university labs
get its the geeks smart enough to
exploit their work who have reaped the
financial rewards Sun may stand for
Stanford University Network but Stanford
didn't cash in Stanford never one owned
a piece of Sun they did not want any
piece of it I bet they lived to regret
that they lived to regret that in fact
the funny story gives Prime and Dec both
looked at the technology evaluated it
and said they didn't want it on that
basis I think Stanford decided that
wasn't of much value and they let Andy
on it Stanford actually had a very in
fact Berkeley had very enlightened and
still do very enlightened technology
perspectives and that is the student
developed that they could take the
intellectual property and go out so Andy
when he created the Stanford University
network under government grants as well
as help from Stanford he was allowed to
walk out with the intellectual property
[Applause] [Music]
[Music]
Suns timing was perfect
they caught the wave of networks
computers and offered a low-cost
solution for another need this was the
80s and Wall Street was crunching
numbers faster than ever with junk bond
issues arbitrage deals and other kinds
of financial smoke and mirrors Sun
workstations filled the trading rooms of
banks brokerages and minimum security
prison I think was Wall Street is it's
extremely competitive in other words if
somebody can can compute something or
figure something out fast in the Ganic
store it doesn't matter what the
equipment cost that rating and Sun
eventually became the dominant standard
on Wall Street for trading workstations
not just on what's traditionally
worldwide it wouldn't be the last time
that Stanford would watch a hugely
Utah journey's end for the early Mormon
wagon trains and home to their church an
unlikely place on the face of it for the
next development in network perhaps not
when you consider the virtues of the
Church of Jesus Christ of Latter day
Saints hard work commitment the will to
overcome great odds to reach the
promised land and of course great
singing voices [Music]
the networking breakthrough occurred at
a most unlikely place a computer systems
company in deep financial trouble here's
just the faintest reminder that this was
the first home of Novell data systems
now Novell it was a startup that failed
lots of startups fail some fail and die
others fail and are refocused and reborn
that's what happened with Novell the
company was really in trouble they were
shopping around for new venture
capitalists they'd run out of money and
actually at the eleventh hour the week
before rain order came on they were we
actually had a little auction at the
company we were selling desks and chairs
and equipment so we could make the
payroll but next week and rain order
literally came at the eleventh hour and
rescued us
it wasn't the US Cavalry but the next
best thing
rain order was a veteran turnaround
wizard venture capitalists and Mormon
some say the company the treasure Rainer
de found in the ruins of Novell was a
software project called net where
started only a month before net we're
allowed users to store their data files
on big PCs called servers to share their
data with other users and to use any
printer on the network PCs just couldn't
do this stuff before and the guy who
thought it all up drew major wasn't even
a Novell employee but that Ray he knew a
winner when he saw one
mountain biking in the Wasatch Range I
quickly discovered that my brain
functions better at sea level
but despite the thin air Novell
prospered ray came in Fester's brought
him in and said can you fix this can you
can you turn some money and he said you
know in the future his software his
software that connects these computers
together and got us out of hardware and
later God is completely out of hardware
which was at one time hardware was 60%
of nobels business sort of to get out of
that was a big move but it paid off in spades
spades
we caught this vision we knew that the
industry was gonna need file servers and
they're gonna need to share data and
though the company was falling apart we
just kept cranking on it because we knew
that for example if the company would
have went bankrupt
we were contractors they didn't even
have us under a contract we would have
had at least some some rights to what we
developed and so so that kept us going
and of course the vision even though the
company itself business-wise was in real
trouble and then ray saw that enthusiasm
I think he got a glimpse of how big it
was I think in the high tech area you
know you could you could say it was
technology we were fast you could say it
was people drew is really smart he's a
brilliant man
arrey was strategic in what he did but
it has a lot to do with timing the
advent of the PC the market need Novell
filled it in December we went and saw an
IBM PC the first one in Utah IBM did a
lot of stuff right so we thought well
hey we could network network data and so
uh we bought the first IBM PC in Utah we
were the first guys to network the IBM
PC we've got three calls holding in
network client utilities 22 minutes
being the longest wait time for calls
this is Novas very own customer radio
station it's here to keep netware users
amused while they're on hold when you
have millions of customers this is the
here we go into the next step nor does
business savvy and major software skills
created a global market and turn Novell
around quite frankly the thing that's
amazed me the most is other people for a
number of years didn't get it they're
focusing on other things the sexy things
this was kind of plumbing you know who
must write files sort of file systems
you know that's that's old stuff it's
not but it was very strategic and very
fundamentally valuable for us I had
figured out the most cost-effective way
to link a bunch of personal computers
together that taking a very small part
of the problem they decided we're going
to let you you know share files off
disks really detach all these computers
together networking when you share files
and we share printers and maybe send
email back and forth and that's pretty
much it and virtually everyone wanted to
do that with their PC Network and they
came to utterly dominate that PTIN you
know at the PC Network world and that
red box at their height was as common as
any logo I can think of it was the equal
certainly the equal of Microsoft in
those days if you needed a PC network if
you you know and the IBM PC and the
Intel based pcs were just growing by
leaps and bounds and we connected them
together better than anybody so ours was
the land operating system of Treasury
Betty but the rewards for success in
Utah are not so different from Silicon
Valley well maybe you wouldn't have a
trout stream at the bottom of your Palo
Alto guys certainly the guys at Novell
have done nicely David Bradford is their
general counsel he catches the fish here
so often he knows them by name dive
deeper may be coming up the other side yeah
yeah
so I'm gonna time you how long will it
take the catch of fish it could be two
casts but I would guarantee a fish
see that we lost him
but he was a nice one in the 80s no one
could catch novell I know what you're wondering
wondering
here we are halfway through the story
we've had everything from prize pigs to
Mormons and still no sign of Microsoft
how can that be
what's Bill Gates doing an archive
footage issues the 80s was good to Microsoft
Microsoft
thanks to their partnership with IBM the
money rolled in and the company got
bigger and bigger but it was a love-hate relationship
relationship
they loved the royalties from selling
all that software for IBM pcs and clones
but Bill Gates hated having to fit
Microsoft's plans into IBM business
strategy one thing that's hard to
remember now is that all of us were in
fear of IBM because IBM wasn't trying
most of the operating systems in the
world's personal computers might be
enough for some people but Bill's always
hungry for the next opportunity in the
computer market when the first person
comes along and does something very well
if they get over a certain threshold
then it really develops momentum because
the distribution channel doesn't want a
customer base they start talking to you
about why don't you fix this why don't
you improve that and we've seen many
many products like that in the history
of personal computing some Microsoft
products some non Microsoft products
NetWare it's a great example of that
whenever someone builds a big business
you know some people say that this is a
bad thing some but it's a good thing but
it's clearly a thing bill looks at how
does that business way to the businesses
we're in and if that's a good business
on a standalone basis let's get into it
and certainly if it's a good business to
Jason to our businesses we better get
into it [Music]
in the 80s there was a very good
adjacent business that Microsoft didn't
dominate networker Novell it was
stomping all over the competition Novell
grew up with a gun to its head remember
when when when Novell started there was
two companies I'll remind you they were
Microsoft and IBM Novell was an accident
in their minds should not have been and
you know I guess we challenged that and
we're an underdog we we had nothing to
lose and everything to gain
one thing about Microsoft is you know
we're very competitive and and if we
don't start seeing results I mean you
know it you know bill makes life tough
on everyone and I mean I kind of felt
bad for the networking guys because you
know we continued to struggle and around
83 and 84 and certainly 85 net where we
reached a critical mass and to Microsoft
felt really like there was a huge missed
opportunity on fact I remember some
memos bill wrote in Easter 85-86 where
he said you know one of the biggest
disasters for the company is that is
that we have no assets and networking
are very weak acid to networking why
Novell had great assets in networking
they even had net where conventions and
zany netware infomercials while IBM
wasn't interested in networking chi sees
microsoft was so bill cast his eyes to Utah
Utah
well Gates was very focused on Nova was
the first time he contact us late 1989
to see if he wanted to see if Novell was
interested in being bought really so
that started two episodes of Microsoft
trying to buy Novell we all thought
maybe if we band together we'll be able
to compete and get you know some portion
of the market in a world that that IBM
dominates and and so that was a
motivating factor both of the times that
we sat down and talked the thing that
makes it tough though is you get to
different development sites and if you
have this vision of an operating system
a single operating system it's going to
do everything having those multiple
sites and those different visions is
tough but I have to say it's it's
surprising that we never got together
there's a traditional Microsoft tactic
if you can't join them beat both
Microsoft looked for a partner to line
up against Novell at the time and we
thought that well you know wouldn't it
be great to align ourselves with someone
else and and we thought that the best
partner to compete against Novell you
know would have been 3.com and so we
actually entered into a kind of a
strategic relationship with 3.com that
ultimately you know didn't turn out very
well but but nevertheless it it actually
got us in our frustration with no Val we
throw in we 3com threw in with Microsoft
to unseat Novell in the networking
software business we both went into it
with a lot of enthusiasm a lot of energy
I think we wound up having a business
relationship that was cumbersome at best
a technical relationship that was a
little bit difficult and that Enterprise
met a horrible end in the late eighties
ultimate horrible and ultimately leading
the cause of Bob's horrible end is still
a matter of dis
but everyone now agrees that Microsoft
and IBM had a falling out and then so
did Microsoft and three top what
Microsoft failed to tell us was that
there our relationship with IBM was
falling apart at that moment which came
as a big surprise about three days after
we signed the deal we eventually
separated I think there was good intent
on both companies part I frankly did
this day think we managed the thing very
professionally I know Metcalfe has has
you know some bitterness about it but we
were both properly looking after our
business interests and properly both
companies trying to be good partners and
then in 1989 Microsoft announced OS to
land manager and I can remember reading
the headlines OS to land manager going
to put the network operating system out
of business and they predicted by 1991
Microsoft would have 60% share of the
network operating system market with OS
to land manager and said that Novell
share of the same market would drop to
25% by 1991 well by 1991 our share 50%
that we had in 1989 had grown to 75% and
they still hadn't made a dent so well
that product failed to take off to
Microsoft satisfaction the middle level
managers at the company there had to
blame someone they blamed us and so the
Microsoft double-crossed 3com and went
around us to our own customers with our
own product and so 3.com went into a
loss situation just long enough for the
board of directors and 3com to decide
they needed a new change a new
management I don't think he has the
reason to be as bitter as he is no I
mean we were two companies to grow in
companies with grown people are
operating the companies and we attempted
to do a business deal but was their
products and they weren't able to do
that and I think that he felt that we
sort of unfairly got them into the
contractual situation but you know takes
two people to sign a contract when I
complained to Microsoft about this so
why is it doing this
and the guy involved who I will not name
but the guy involved looked me straight
in the eye and said you made a mistake
you trusted us [Music]
[Music] [Laughter]
far from the high-stakes rivalries of
networking market share the grassroots
of the internet were steadily growing
and in unconventional directions more
users were tuning in and turning on
attracted by the chance to connected
no one should underestimate the
influence on the development of the
Internet of the Grateful Dead so get my
t-shirt my VW Microbus and I'm headed
out now to see a guy who knows exactly
what a long strange trip it's been to
you are listening to dead to the world
on KPFK or kpf be in Berkeley or KFC F
in Fresno my name is David Gans there
are a million ways to appreciate the
Grateful Dead and we found a lot of ways
to talk about them for space deadheads
could now meet in an online virtual
community called the well or whole Earth
electronic link even a virtual community
needs a real computer the wels server
was based in Sausalito calafate some
entities like the deadheads the people
that were basically following the
Grateful Dead we were not a regional
phenomenon at all and where they became
regional was on the well that was their neighborhood
neighborhood
on March 1st 1986 the Grateful Dead
conference opened its doors and various
people from the net came over and got
accounts and even more interestingly
various people went out and bought
computers so they could get online and
start talking with us we're credited
with generating sufficient cash flow to
keep the well going through its early
startup days it was it was great to see
it it was really really fun because we
were people who had a lot to talk about
well I know what his impact was on the
well which was it probably saved her but
al just gave us a commercial scale of
absolutely dedicated customers all in
you know a couple of months one fell
swoop suddenly there's a bunch of people
who want to talk to each other all the time
time
then take training I would imagine that
tape trading is responsible for 18
percent of the entire packet traffic on
the internet right now I made that up
but it's huge there's a book called a
great good place that came along about
half way long and starting with the will
which is about freight pubs and
barbershops and beauty shops and coffee
shops for play people go and they just
hang out and it's not work and it's not
their house it's this other third place
that they go to just hang the well
became a great good place [Music]
fringe Lee's fourth law of commerce
states new media create new
opportunities but what kind of profit
could anyone turn on the strictly
non-commercial Internet John McAfee was
the first person to answer that question
he gave away his antivirus software and
made a fortune nice life [Music]
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the unique thing about software which I
had thought about you know ever since
the mid seventies is that software
production is unlike any raw materials
are required no time is required and no
effort is required you can make a
million copies of a piece of software
instantaneously for free and there's
something unique about that and I kept
you know running it around in my mind
think you know what can you do this what
it's so unique it's so unusual nothing
like it has ever appeared in the world
before and finally it came to me aha
a new business paradigm you just give it
away because it doesn't cost anything
you simply charge for the update process
you get the copy free you can use it as
long as you want if you want the updates
we'd be happy to give them to you for a
nominal fee and after we had five or ten
million copies out there it was a very
simple process to turn the switch and
begin charging for updates it's time to
explain another key figure in our story
the venture capitalists without the VC
few new technologies would be built
fewer geeks would attain fabulous wealth
perhaps even the information revolution
itself would never have happened this is
a VC watering hole near Palo Alto in the
1980s networking companies became a
third industry segment alongside PCs and
software more companies met more venture
capitalists and more power breakfast
this is bucks restaurant in Woodside WA
the VCS meet to figure out how many
millions they'll give for what
percentage of each startup you want to
call it mega bucks must be a great place
for tips oh thanks
are the tips good here venture
capitalists you love them or you load
them but if you need money for your pet
idea you can't ignore them these digital
temples monuments to the success of
information technology all needed
venture capital to leave their garages
behind for all of them it began with the
occasion which strikes fear into the
heart of every Silicon Valley entrepreneur
entrepreneur
this is the mating dance of Silicon
Valley entrepreneurs with business plans
perform for venture capitalists with
bags of money to invest each needs the
other yet it's the VCS who decide
whether or not to mate they call this
dance the pitch and it can mean the
difference between failure and a billion
dollar IPO some entrepreneurs do this
dance a hundred times and never raise
anything we are the outsourced messaging
service for the Internet
despite cautionary tales and horror
stories that could outdo both grim and
ESOP this is a scene which has played
out thousands of times a year in front
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it's horribly repetitive for everyone
nine out of ten pitches failed but just occasionally
occasionally
a venture deal presents itself which
looks like a sure thing for example
McAfee associates in 1990 employees and
a run rate of a burn rate of $300,000 a
year so we didn't need money we needed
advice and so we took on the to venture
partners and certainly the best deal
they'd ever done and and for me I didn't
get hurt either they turned it into a
real company it just strikes me as a
kind of lay person here that fifteen
million dollars in the bank is a real
business it depends on its you know it
depends on how you want to measure
yourself yeah yeah invested ten million
dollars and I believe for my last
conversations with DEA in Summit that it
was the largest deal in terms of net
results today they have ever done each
autumn netted over a hundred million
dollars on this so they they each put in
five million bucks and each got a
hundred million you know as much of a
bad reputation as VCS have they are in
fact sharks there's no question but once
they're on your side they're yours about
they're your sharks and and it's like
wow you know so you know you if you
struggle with them and if you can come
out you know bleeding as little as
possible and survive then you're you're
in you're in Fat City John McAfee pulled
off the final coup in start-up business
the exit strategy of selling his company
for a couple of hundred million dollars
now there has to be a way for a geek
like me to get access to venture capital
back in Silicon Valley there's naturally
a very Californian way of conducting
business here instead of three-martini
lunches east VCS play Ultimate Frisbee
that's co-ed American football with a
frisbee instead of a ball but forget
about the rules and come up with a great
cruise league get-rich-quick scheme I
gotta get some money I'm gonna network
and I'll think oh never underestimate I
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as I set out to test my Ultimate Frisbee
skills I also had ringing in my ears the
wise advice of one of the Valley's most
renowned venture capitalists John doar
Cesar said all of Gaul is divided into
three parts well all of risk is divided
into four parts there are really four
risks you've got to look for in every
project the first is people risk that is
how the team is going to work together
because invariably one of the founders
doesn't work out it falls out which is
why you want their options or equity to
vest the second risk is market risk and
that's incredibly expensive risk to
remove that's about whether or not the
dogs are going to eat the dog food is
there a market for this product and by
the time you get the product to market
you may have expenses of another the end
dollars a month you don't want to be
wrong about market risk [Music]
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the third risk that we're quite willing
to take on is a technical risk that's
about whether or not we can make a pen
computer that works we'll be the first
to commercialize a web browser or to
split the atom if you will that
technical risk is one we're comfortable
trying to eliminate and take on the
fourth and final risk is financial risk
if you have all of the preceding three
right can you then get to the capital
that you need to go grow the business
and typically you can there's plenty of
capital to finance rapidly growing new
technologies that are addressing large
markets there's this myth that Silicon
Valley companies are always started in
garages but there are other options the
biggest company in the networking
business for example was started in a
living room in this house where Len
Bozak and sandy Lerner used to live
they were Stanford academics but they
were in different departments on
different computer networks and unable
to send email messages like did you feed
the cat so they invented a way of
networking networks with things called
routers the company they started in 1983
Cisco Systems today does ten billion
dollars a year in business routers
created great wealth for the Cisco
founders sandy Lerner and her former
their story is a classic nerd saga that
started by accident and ended in a
boardroom drama that many company
founders have experienced - their cost
was it your your love of computers and
networking that drew you together or he
had great legs or what you know I'll
just have to tell you something that's
so bizarre you'll just have to assume
that it's true
lenz mother had done this miraculous job
and when I actually knew how to bathe
and eat with silverware and I was
absolutely enchanted there he used to
take risk and like wash his collars and
cuffs which was way more than I ever did
and I just I just didn't think that a
more perfect man could exist
let's meet Len Bozak and find out about
his work ethic sincerity begins at a
little over a hundred hours a week you
can probably get to 110 on a sustained
basis but it's hard you have to get down
to eating once a day and showering every
other day things of that sort to really
get you'll by Forgan eyes to work 110
hours a week and the and and the level
that follows sincerity what do we call
that commitment Len was a brilliant
Network technologist theory is art at
work in a snapshot from Sandy's Cisco scrapbook
scrapbook
it was do-it-yourself networking if you
wanted it you had better do it yourself
because no one else was going to do it
for you you couldn't buy it we basically
pulled wire through manholes we pulled
wire through just you'd sewer pipe we
built a lot of things by ourselves I
mean it was very very much at that point
a guerrilla action we had no money we
certainly didn't have any official
sanction in the end I guess the
university was kind of allowed not to
like it but they did get a net work out
of it the Stanford campus was 16 square
miles in 1984 it's 5,000 computers were
grouped in their own networks in
separate buildings like Islands they
needed causeways or bridges to connect
them into a campus-wide network we first
built some bridges and then we built
some crude routers and we built better
routers and that solved for Stanford the
same sort of problem that it solved 10
years earlier for ARPA how to use a
on the digital highway packets are
blasting this way and bath going from
network to network on the way to their
ultimate destinations and every point
where one network is linked to another
there's a box called a router think of a
router as a traffic cop like the cop a
router does three things it stops
traffic it starts traffic and it gives
directions so routers keep local packets
from leaving their own network and
plugging the internet internet packets
they let go through and even give them
directions to the next router what
routers don't do is eat donuts or give tickets
tickets [Music]
once Glen and Sandy had solved
Stanford's networking problem they saw
an opportunity to offer the solution to
other users but Stanford didn't want to
do it and so we kind of really tried to
get them to license the technology to
these other universities and they just
were not going to do it and so with
tears in our eyes we took our five
dollars up to this you know Secretary of
State's office in San Francisco and made
Cisco Systems and took it anyway so how
did you go about it well in the same
tradition that anyone else in the gulch
does you go out and buy a bunch of parts
and try and make the stuff and then go
sell it and solve the problems that come
up Len and Sandy's dedication wasn't in
question this archival gem from 1989 may
be a little low on production values but
it shows just how single-minded these
two were in part the result of some
well that's very interesting that wasn't
the Wellfleet marketing department
bombing the Cisco premises that was a
genuine San Francisco earthquake not
even an earthquake could divert their
attention from the glorious business of
routers and bridges so the Cisco
headquarters was their house the
technology was well borrowed from
Stanford and their operating budget was
plastic you sort of spend against your
credit cards and hope the checks come in
from your customers fast enough to meet
your expenditures how did you decide how
much to charge for your or your products
we guessed now how big a business could
you build on your credit cards about a
half a million dollars a month one
bedroom was the lab another bedroom was
office space and when it was time to
build and test something well that was a
living room we financed the company on
credit cards we were turned down by 70
or 80 venture capitalists yeah it was it
was pretty touch-and-go there's a
downside to VC involvement for all that
money they expect to own most of the
company to sit on the board to tell you
whom to hire to generally question the
competence of the founder to run the
company it can end in tears Don
Valentine was venture capitalists number
77 and his previous investments show
that he understood the potential of this
business we knew from the experiences
that Apple and had three-cone that the
world was going to be connected at that
point I think we were Cisco was doing I
think a quarter million maybe maybe 350
thousand a month without a professional
sales staff and without an official
conventionally recognized marketing
campaign so it wasn't a bad business
just right then and so I think just for
the novelty of it the folks at Sequoia
listen to us we ended up taking money
from Don Valentine in Sequoia Capital he
was a very savvy player and Len and I
were not and I think that's probably
about the best way to to
but that done does just what he does he
has a formula and he executes against it
and that doesn't make him a good or a
bad guy just what he is the commitment
we jointly made to each other is that we
at Sequoia would do a number of things
we provide the financing we would find
and recruit management and we would help
create a management process none of
which existed in the company when we
arrived sandy and I agreed to a
forfeiture contract a type of indentured
servitude where if we didn't do what the
company asked they would have the right
to repurchase the shares that we
actually already owned we ended up with
a four year vesting agreement and 30% of
the stock in a company and no employment
contract and I would strongly advise
anybody watching this program not to do
it that way how should they do it well
certainly get your own lawyer sandy and
Len soon discovered what many
entrepreneurs before them have learned
that the company you found it is no
longer the place you were it was August
28th 1990 but who's counting okay and
what what happened that day well quite
simply I got fired we had discussed this
event and that sooner or later the
venture capitalists always want to get
rid of the founders that's just part of
Don's formula both were very critical
and helpful people to launching Cisco no
question about it Len is a very very
good technician and recognizes that he
has little interest or little ability in
management and positions himself
accordingly so in the company he was the
chief technical officer sandy who is a
person very committed to a number of
aspects of business is or was very
acutely sensitive to how well the
customers were treated Don's opening
words to me you know the first time I
ever met
man I wouldn't have known him from the
man in the moon where I hear you
everything that's wrong with Cisco you
know I'm also the reason why there is a
Cisco what went wrong back at the ranch
well the end of the story is that one
day with the President John mortgages
prior approval seven vice presidents of
Cisco Systems showed up in my office we
had a reasonably civil meeting in our
conference room the outcome of which was
a very simple alternative either I real
nted and allowed the President to fire
sandy Lerner well they all seven would
quit it was probably time for Len and I
to go you know in that Len and I do not
have company personalities and I think
we we were finding it difficult to work
in a larger organization I think the way
that it happened was wrong the most
regrettable thing I would think from
their point of view is they lost
perspective and urgently sold their
shares in Cisco at a time when the
valuation of the company was a mere 1
billion dollars or so had they somehow
or other suffered this outrage with a
little more financial wisdom they might
have sold when the company's market
value was 10 billion or 20 billion or
the pain of not having 18 billion
dollars must be slightly lessened by the
pleasure of having 100 million to your
name what to do with all that money
sandy learners foundation acquired the
manor-house in the English village where
Jane Austen wrote her novels it came up
for sale in 1992 and I for some very
illogical reason bought it thinking that
it would be just a wonderful place for
the Center for the study of early
English women's writing today sandy is
also the proprietor of a successful nail
polish empire urban decay which
specializes in grunge colours called the
bruised mildew an acid rain whatever
would Jane think Pride and Prejudice or
Sense and Sensibility Len Bozak now runs
a Seattle technology company his
charitable donations fund the search for
extraterrestrial intelligence Len is not
kidding he's serious about the universe
very very serious it's one of the most
important questions that a sentient
being can ever formulate and that is are
we one either answer if you could obtain
it is of tremendous import but you
surely do not expect little green men to
come and present you with a message on
the other hand if you don't listen if
you don't in any organized way ask the
question of the universe what if it has
an answer waiting for you think of what
you've missed a billion dollars today
Cisco Systems is worth 60 billion
dollars in the intervening years Cisco
and its competitors went from steady to
spectacular to incredible rates of
growth much of it fueled by the next
great Internet invention the world wide
web and look what became of Len and
Sandy's living room [Music]
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funding for this program has been
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