- Ladies and gentlemen,
welcome to the 2008
Portman Lecture in the
Spirit of Entrepreneurship.
My name is Andrew Samwick,
and I am the director of
the Nelson A. Rockefeller
Center here at Dartmouth.
This afternoon, in collaboration
with the Tuck Center
for Private Equity and Entrepreneurship,
and the Dartmouth Entrepreneurial Network,
we present Entrepreneurship
in the Digital Age,
by Richard Parsons, the current chairman
and former CEO of Time Warner.
Before introducing today's speaker,
I'd like to take a moment to
acknowledge the Portman family,
whose generous gift makes it possible
for us to host this lecture.
The gift was made by
Mr. William C. Portman,
a member of both the
Dartmouth class of 1945,
and the Tuck School class of 1947,
and his three children: Rob,
Dartmouth class of 1978,
William, Tuck School class of 1981,
and their sister, Virginia Portman Amos.
The Portman family's
relationship with Dartmouth
began over 90 years ago,
when Arthur Portman,
Bill's father, arrived in
Hanover as part of the class
of 1915 at the Amos
Tuck School of Business.
The purpose of the
Portman fund is to foster
an understanding and
appreciation of small business
development, entrepreneurial
activity, and risk-taking,
and the role that public policy
takes in shaping its course.
In addition to the Portman Lecture
in the Spirit of Entrepreneurship
that has become a mainstay
of our spring programming,
the Portman Fund helps
to support a number of
initiatives on campus over the whole year.
Including the Founders
Forum, Greener Ventures,
and our Women in Business Program.
The internet revolution
that began in the mid-1990s
ushered in a tumultuous period in national
and global economic development.
Tumultuous here does not
necessarily mean bad.
All technological advances,
but particularly technology
that goes directly to the ability
to connect people together
to exchange and improve ideas, serves to
lower the barriers to entry
in all sorts of activities.
The value of existing physical, human,
and organizational capital changes.
Some capital is relegated
to the old economy,
some is extolled as being
part of the new economy,
and some is not easily
classified as one or the other.
New opportunities are created to produce
the same goods and
services more efficiently,
or to produce entirely new products.
Technological progress
fosters all manner of
opportunities for those
who have access to it.
But even low barriers to entry
are still barriers for some.
The advent of new technology
also has the potential
to radically widen the
disparities in economic,
social, and political outcomes,
between those who have access to it,
and those who do not.
In the case of the internet
and related technologies,
this is the digital divide,
and it is so wide today
that it is causing us
to reexamine our notions
of what becomes a basic right
of national or global citizenship.
Against this backdrop of
societal developments,
we are very fortunate today,
to be visited by Mr. Richard Parsons.
From May 2002 to December 2007,
Mr. Parsons served as Time
Warner's Chief Executive Officer.
He became Chairman of
the Board in May 2003,
and retains that position currently.
Time Warner has been an
industry leader in the fields
of filmed entertainment,
interactive services,
television networks, cable
systems, and publishing.
In its January 2005 report,
on America's best CEOs,
Institutional Investor
Magazine named Mr. Parsons
the top CEO in the entertainment industry.
As CEO, Mr. Parsons put
in place the industry's
most experienced and
successful management team,
strengthened the company's balance sheet,
and simplified its corporate structure,
and carried out a disciplined
approach to realigning
the company's portfolio of
assets to improve returns.
Mr. Parsons' tenure with Time
Warner extends back to 1991,
when he joined the company's
Board of Directors,
and 1995, when he became
the company's president.
His responsibilities included
all corporate staff functions,
whether in finance, legal affairs,
or public affairs and administration.
There is literally no one
who has seen and experienced
the wonder and challenges of
the internet revolution and the
digital age from a better
vantage point than Mr. Parsons.
He has been at the interface
of the old and new economy
for over 15 years, and we are
delighted that he brings the
experiences and insights that
he has gained to campus today.
We are particularly
excited to welcome him to
the Rockefeller Center in 2008,
as we celebrate the 25th
anniversary of the center,
and the centennial of
Nelson Rockefeller's birth.
After completing his
undergraduate education
at the University of Hawaii,
and earning his law degree
from the Albany Law
School, Mr. Parsons held
various positions in state
and federal government,
including as counsel for
Governor Rockefeller,
and as a senior White House aide,
under President Gerald Ford.
Nelson Rockefeller had
a reputation for hiring
and mentoring the brightest
young people he could find.
I think Governor Rockefeller
would be proud of his protege,
not just for his success in the boardroom,
buf for his civic engagement.
Mr. Parsons has served as
co-chairman of the Mayor's
Commission on Economic
Opportunity in New York,
Chairman Emeritus of the
Partnership for New York City,
and Chairman of the
Apollo Theater Foundation.
He has served on the boards
of Howard University,
the Museum of Modern Art, and the
American Museum of Natural History.
It is a great honor for
us to have Mr. Parsons
with us today, his presentation
will be followed by
a brief period for questions and answers.
During the Q&A we will have
helpers in the audience
who have microphones,
please wait for one of them
to arrive with a microphone
before asking your question.
Please also take this opportunity
to turn off your cell phones.
Without further delay,
please join me in welcoming
the 2008 Portman Lecture in
the Spirit of Entrepreneurship,
Mr. Richard Parsons.
(applause)
- Thank you Andrew, appreciate that
over-generous introduction,
and good afternoon.
Ladies and gentlemen, when
I was asked to do this,
I was told that it was gonna be,
not so much a speech,
but an informal discussion
with a group of interested students.
So what I've done is I've made some notes,
and I will share some reflections with you
on the subject of entrepreneurship
in the digital age.
And then as you just
heard, we'll move to Q&A,
which I'll try and get
to as quickly as I can,
because my limited
experience in these matters,
is that people are always more interested
in what's on their mind
than in what's on my mind.
So, I think I can get through
this in about 20 minutes,
25 minutes, but I guess
the place to start,
as you just heard from
Andrew that I worked for
Nelson Rockefeller, basically
for the decade of the 70s.
I worked for him when he was Governor of
the State of New York, and
when he was Vice President,
and then in his years prior to his death
when he was back as a private citizen and
it's always an honor and a privilege
for me to be able to
do anything that helps perpetuate
the legacy and memory of a
man who I thought was a giant
in American politics and American life.
And who was an example of what
a public servant should be.
Because he was all of that.
Now I'll take you back to, in
starting this discussion about
entrepreneurship in the digital age,
to 1970, because everything,
in order to understand anything,
everything has a context, right?
Including that broad subject matter,
what does entrepreneurship
look like in this digital age?
And as a point of
reference for the context,
I will tell you about a speech.
Well, not a speech, many
speeches, that Nelson used to give
back when he was Governor of New York.
He would start almost
every speech by saying,
or reciting the fact
that we live in a world
of fantastic and accelerating change.
So much, he would repeat that so often,
we'd call that a WOFAC.
You know, BOMFOG is actually a term
that you hear nowadays,
nobody knows its origin,
it was from speeches I think
Hoover gave or something,
brotherhood of man, fatherhood of God.
But we called Nelson's a
WOFAC, because he would
start every speech by
saying, "We live in a world
"of fantastic and accelerating change".
The fact of the matter is, he was right.
But if he were around today,
he'd be more right today.
The pace of change in the
world accelerates over time.
So that, you know, for
my grandmother, right,
to live in a time where
they invented airplanes,
for goodness sake, and
telephones, was remarkable.
Well, you know, we'll
have four equivalents,
four generational equivalents
of those in our lifetime,
because the pace of change
just accelerates over time.
And one of the things
that has been driving
that acceleration in the last 20 years,
has been this so-called
digital technology.
And to give you some sense
of how dramatic and rapid
change is today, and it's
only gonna get faster.
I will recite my own history with sort of
digital technologies and companies built
on digital technologies.
If I were to ask you, what
company, what American company
had the greatest return to
shareholders in the decade
of the 90s, that is to say,
the highest stock price
appreciation over the
course of the decade,
anybody know?
It was AOL.
AOL's stock price grew
more, and more rapidly,
than any other company,
14,000 public companies,
or any other company, during
the decade of the 90s.
Here we are eight years
later, AOL is just a footnote
whenever you read articles
about internet companies today.
And who replaced AOL as the hot shooter?
By the way, when we did, as Time Warner,
when we did the merger with AOL,
Time Warner, a company that had
been around for 75-80 years,
which had household name brands,
I mean gold standard brands,
in their magazine group,
Time Magazine, Fortune,
People, Sports Illustrated.
And their cinema group, Warner Brothers.
And the cable business and
the music business we had,
you know, Warner Music Group,
which was the number one
record label in the country
back in the 70s, and we had
just company after company after company
that were just household names,
in terms of who we
represented and who we were.
Time Warner had a market
cap of about $100 billion
back in the turn of the
century, back in 2000.
AOL had a market cap, which
AOL the company is around
less than 15 years, and had
hit its growth stride less than
10 years ago, had a market cap
of $200 billion at that time.
Today you almost couldn't give AOL away.
They were replaced by
Yahoo, Yahoo was going to be
the next company that was
going to sort of take over
the world but on the back
of this digital technology,
and that lasted for just
about a couple of years.
Yahoo pioneered in the you
know, free-to-web portal.
And then somebody came
along and obsoleted them,
they were called Google, and Google,
you know if you read the papers today,
or certainly if you read the
papers six to eight months ago,
you would think that Google was
about to take over the world
and then along come these
things called social networks.
Myspace, you know,
Facebook, which just had a
valuation of $15 billion
put out by Microsoft.
Every sort of fourth year
there's some new company
that comes along and seems
to shoot to the moon,
and it's going to represent the future.
Things are changing so
rapidly in this space,
that it's hard to keep
up, and the scary part is
it's only gonna accelerate,
because we do live in a world
of fantastic and accelerating change.
So what does all that, that's
the context for the discussion
of what does entrepreneurship
look like in the digital age?
And of course, digital technology is
changing the way we live, to some extent,
and the way we conduct business,
but it's not changing everything.
For example, it's not changing
the nature of the beast,
people are still people, so
a lot about entrepreneurship
in the digital age is the same
as prior to the digital age
in the pre-digital age.
And those are aspects of character.
So let's talk first about
what's not changed, or what's
not different, and then we'll
get to what's different.
What's not different is that, A,
all of us are not entrepreneurs.
Entrepreneurs are a, if not special,
I would resist that characterization, but,
a unique brand of person.
Since I always like to argue by analogy,
think about the difference between
explorers and settlers,
you know, in the old days.
Explorers were the ones who
went out into the wilderness,
and to see what was there,
and to find new things,
and try new ways of life.
And then once they went
out and kind of established
a beach head, then the settlers followed,
then the lawyers and the doctors,
and the accountants and the dentists,
and the schoolteachers,
and the moms and the pops
all followed them to
sort of form settlements.
But the explorers were the risk-takers.
And that's the way I
think about entrepreneurs.
Entrepreneurs first and
foremost, they're risk-takers.
They're people who are
comfortable taking risk.
But risk in a business sense.
Well, what else
distinguishes an entrepreneur
from the rest of us?
I will give it to you from the
perspective of an investor,
what to investors look
for when they see someone
who purports to be entrepreneurial?
Other than someone who's
prepared to take risk?
Well they look for the normal
things that we look for
in any kind of human
interaction, you know,
intelligence and integrity,
but they look beyond that.
I'd say first and foremost
they look for passion.
Most entrepreneurs are true believers,
they believe passionately
in whatever it is
that they're about to undertake.
And that's why they're
prepared to take the risk,
by the way, because their
belief is so strong,
they sort of look past the risk.
And they sort of have such
fervent belief in what
they're trying to do, that
that drives them to sort of
disregard the risk and go out
into the wilderness anyway.
Secondly, and this is the part that,
particularly for those of you who are
on the younger end of
the age curve and think
that you may wanna be
an entrepreneur one day,
investors look for a balance between
idealism on the one part,
but pragmatism on the other.
Most entrepreneurs really do believe,
almost in an idealistic
sense that you know,
they're going to change the world.
I'm going to do something that's
going to change the world,
that's going to make the world
a different and better place.
But that idealism has to be tempered,
for a successful
entrepreneur, with pragmatism.
I was talking to some
students earlier today,
and one of 'em asked me,
"Well I got this great idea.
"And can I bring it to
funders and investors
"to fund, you know, to
build out on my idea?"
You can't do that in
today's world, you have to
show investors that
you've taken a concept,
about which you believe passionately,
and which you think has
an ideal driving it,
but you've surrounded it
with business discipline,
that you have developed more than an idea,
you've developed a product, maybe.
That you've developed a
business plan that shows
how this idea is going to
be productive of revenue,
and ultimately productive of profit.
That there's enough, that
you have enough of a,
at least one foot on the
ground, that you're just not
another idealist who is you know,
sort of dreaming great dreams,
but who has the practicality
to make those dreams come true.
Third thing investors look for is,
I'll put it this way you know,
somebody once told me that
the beginning of wisdom is
knowing what you don't know.
All of us don't know something,
most of us don't know a lot.
The wise ones among us have a
sense of what we don't know,
and therefore, have a
sense of who we need to
bring along on a journey with us,
who fills in our flat spots.
Who has knowledge, expertise, skills,
that we're going to need
to become successful,
because in a complicated
world, almost nobody
has the whole package.
So when we look at, and
we do a fair amount of
investing in entrepreneurs
in this digital age,
when we look at someone
who's coming to us with
an investment proposition
we not only sort of
evaluate the qualities of
the individual in terms of
their character, their
idealism, their pragmatism,
but do they have people in
their professional world
who can help them navigate all of the
various roads they're
gonna have to navigate?
Now that sometimes shows up
in the team they put together,
sometimes is shows up in
advisory boards that they
put around them, or full boards
that they put around them.
But is this a person who knows that
he or she is not the whole show?
That he or she is going to
need other talented people
who have other skill
sets and other knowledge
to help them launch and
implement a business?
That's the key thing
that investors look at.
And then the last thing
I would say in terms of
the human qualities, and
this is almost more important
from the point of view of the entrepreneur
himself or herself, than even an investor.
You know, are you, each of you who
thinks, "Maybe one day
I'll be an entrepreneur",
are you a half-full or half-empty person?
You know, the glass is half-full
or the glass is half-empty.
Because the one thing that's certain,
for everyone who sort of
starts down the road towards
launching a new business
or a new enterprise,
is they're going to encounter
some fair modicum of failure.
Things never work out the
way you drafted it up in
your initial business plan or
the way you've thought it up
in your initial thinking about business.
And if you're not a person who
has resilience and optimism,
and who can see the glass
as half-full all the time,
you shouldn't start down that road because
at some point in time, the
disappointments and the failure
will just become overwhelming.
But for those who have
optimism and ebullience,
and who basically look at
life like, you know it didn't
happen this time, but I'm
gonna get it the next time,
and I'm gonna keep putting one
foot in front of the other,
and persist, that's an important quality
for most successful
entrepreneurs, and I'll come back
to that in a minute when I
talk about a specific example,
because that always
helps illustrate things.
So those things, whether
you were an entrepreneur
50 years ago, today, or 50 years from now,
I think those human
characteristics and qualities
are gonna remain a constant.
That said, the landscape
is still much-changed
for entrepreneurship in this digital age.
And so now I'm going to
talk a little bit about
in what ways has it shifted?
Let me start with an old business axiom.
Which is that you need two things
to launch and sustain
a successful business.
You need management, and you need capital.
Management's all the stuff
we were just talking about,
you know, the ability
to conceive of a vision,
to be practical about how
you approach that vision,
to put people around you who can help you
manage your way through to the vision,
to have that persistence and
perseverance to stay on track.
That's all in the realm of management.
Capital on the other hand, is the money,
the resources you need, to
launch and sustain a business.
It costs money to start almost anything,
and particularly to start a new business.
The difference between
the digital age, however,
and the pre-digital age, let's call it
post-industrial but pre-digital age,
is that in the pre-digital age,
it costs a heck of a lot of money.
Capital was usually the
principal barrier to entry
for people who had great ideas.
I have a great idea, you
know, I think I've figured out
a better way to build a
mousetrap, or a better way,
you know, to have an
internal combustion engine,
or whatever it is I've figured out.
But now I need the resources
to put my ideas to the test.
And you know, finding those
resources and finding someone
who would back you, was a
much much more formidable
process in the pre-digital
age than it is today.
And there are a couple
of reasons for that.
The first is, and both of them relate to
the onset of so-called digital technology,
which, I probably should
have started here,
you know, what's different
about digital technology
than previous technologies?
It's really the ability to
reduce anything that can be
carried by voice, by
video, or any form of data,
to sort of electronic
impulses that can be sent
and then reassembled
at the speed of light,
anywhere in the world,
instantaneously, right?
So that you know, in the old days where...
You, as you heard, I went to
undergraduate school in Hawaii.
And I remember distinctly,
back in the days,
this was in the 60s, they had tape delay
for the football games and big, you know,
the race that was just run on Saturday,
the Kentucky Derby, so you
would have to lock yourself
in your dorm room, and
have no contact with
any living person for 24 hours,
if you wanted to sort of see
an event that was broadcast
live here in the United States,
in real time in Hawaii,
because otherwise somebody
would tell you who won the
Derby or something like that,
then it would all be ruined.
And that was because we
didn't have the technology
that could move video around the world,
it went by antennas, right?
And the same was true for voice,
and the same was true for data and so
we've had years and
years of putting in very
expensive infrastructure to
move these things around,
and then along comes
digital technology where
images, where voices,
where sounds, where text,
can all be reduced to electronic impulses,
packaged, and sent anywhere
in the world like that.
So that technology has had
two profound effects on
the availability of
capital to entrepreneurs.
The first is it gave
rise to what I'll call
the venture capital industry.
As people began to
understand that there was
a whole new wave of
technology coming along that
that would enable clever
entrepreneurs to create
new business forms or new
business models, from scratch,
a group of investors said,
"You know what we need to do?
"We have to start making
capital more available
"at the very early end of
these business enterprises
"creating these business enterprises
"so that we can nurture them and grow them
"into full-fledged businesses."
So you don't have to deal
with the bank anymore,
or classic traditional source of capital,
you had a whole new group of people,
one of whom was Laurance Rockefeller.
Nelson Rockefeller's brother,
who founded something
called Venrock, which was one of the first
venture capital firms
focused on nascent businesses
built around, building
around new technology.
And so that was the source of funding for
companies that are household names today.
Intel, which was one.
Apple was one of their early investments.
So that industry, which
got its start in the 70s,
is now in full flight.
It's a mature industry, there is,
you know there are established
venture firms around,
that look to put capital
in ideas at early stages.
Whereas there was not the case prior to
to these venture capitalists coming along.
But the second phenomenon,
and one that is,
I think even more powerful,
is that the technology
itself has obviated the
need for a lot of capital.
And by that I mean, I'll give
you some historic examples,
then I'll give you one
that's very current,
and that really makes the point.
For a good while after
our merger with AOL,
Steve Case and I would sort of, you know,
we were partners, he was
the Chairman, I was CEO.
And he would talk about
the difference between
how he built AOL, and how Time Warner
built all of its other, I'll
call them analogue businesses.
You know, the rule for example
in the magazine business
has always been it takes the
magazine about five years
to get to profitability.
Because you have a lot
of up-front expense,
you have to have writers,
the printing and manufacturing process
for the magazines themselves is expensive,
you have to get distribution
in, you have to build
a subscribership over time
and get some advertisers.
And if you're breaking even,
or turning into the black
after five years, you're
about on the industry average
for a successful magazine.
Because it costs so much to get started.
Well, the way AOL got started was
they rode over the existing
telephone lines, right?
They didn't have to spend a penny
to put in the infrastructure
that they needed
to build their business.
Now, they did have to buy servers,
and routers and things like that,
so there was some capital
involved, but the big money,
the big money had already been spent
over the last 70-80 years
by the phone companies.
Who spent billions of
dollars putting in a network
of wires and fiber optics
throughout the United States,
on which this new, digitally-augmented
business could ride.
So that it didn't cost
Steve billions of dollars
to get into business with AOL, in fact,
it cost him tens of millions, but that's a
way big difference from billions.
And nowadays it's even
simpler because nowadays,
that the internet has
really sort of grown out
and is robust and has
what they call open-source
infrastructure, I won't, software,
I won't get into too much detail.
But basically, you don't have to even have
servers and routers and other
forms of infrastructure,
you can sit at your computer,
and if you have software
development skills, you can
essentially, use someone
else's infrastructure
to create a business.
So to put that in context.
To give you a real-world example.
And it's the example it's called Bebo.
I talked about it to a group
of students earlier today.
Bebo is a social networking site.
It's a place you can go on
the internet where you can
engage with other people,
you can share information,
you can share music and photographs,
and something about your life, and just
network in a social way.
It was created by a guy
who was a 1991 graduate
of something called
Imperial College in London.
He was a physicist, but
just undergraduate level.
Got out of school in '91,
his name's Michael Birch.
And went to work for an insurance company.
Worked for an insurance company for about
seven or eight years
in their IT department.
And decided that he not only
liked working with computers,
but that he was good at
it, and that he wanted
to be his own boss, so he quit.
And in the classic fashion,
as I was suggesting before,
he launched a couple of
businesses out of his kitchen,
which failed.
So from 1999 when he started
on his own, to about 2001,
he launched a couple of businesses,
they went nowhere, failed.
He actually ended up
moving in with his in-laws.
In 2001 he launched another business,
which was one of these
sort of e-card businesses,
which actually succeeded,
that was his first success.
Which he sold, for a
small amount of money,
so that he could move out
from under his in-laws,
and then in '03, he had his
first sort of real big success,
he launched something called ringo.com,
which was a music site.
Which he ended up selling to somebody for
like a million and a half bucks.
So now he was on his way.
in 2005 okay, three years ago,
he launched this Bebo, this
social networking site,
by essentially, he was
the only programmer.
His wife was the rest of his staff,
his wife did everything else.
He programmed it, she managed
you know, the revenue part of it,
trying to sell ads, trying
to get content for it.
And he didn't have to
put up any real money,
because he was able to ride
his service, his programming,
on the existing infrastructure
of the internet.
So it was just a question of,
you know, did people like the site?
Would people come to the site?
Could he build an audience?
He listened to his, you know,
he had a group of friends
who started using it,
listened, made modifications,
improved the site, got more content,
got more people to come and
bring their content to the site,
this is starting in 2005.
In March of this year,
less than three years
after he launched Bebo,
he sold it to us for $850 million.
We're about to, we'll close
that deal in about a week.
And he'll get $850 million,
and we'll get this Bebo site
that this guy created out of his head,
using the advice and expertise and talent
of a lot of his friends.
And he's got, he did his
first capital-raising.
He raised his first capital
for the business in 2006,
a year after he launched it 'cause
he know he had something going,
he had to hire some people,
so he raised $15 million
from a venture capital fund,
he's got about 100 employees,
and he just sold, he just
did a deal at $850 million.
That's $8.5 million per employee.
It's ridiculous, I mean,
you would never have heard
of something like that
15 or even 10 years ago.
But today, you know, this Mark
Zuckerberg, who has Facebook,
created it as a network for college kids
to stay in touch with their college peers.
I'm sure most of you here have
Facebook pages and whatnot.
He just got a valuation on his company,
by Microsoft, they didn't buy it but they
bought a small piece of
it, that values the company
at $15 billion, the guy's 23 years old.
And he put what he could come up with,
and what his father would
lend him, into the business.
I mean there was no real capital
required to get into that business.
And that's going to be more
the model in the digital age,
because what digital
technology enables you to do
is to create these
applications that ride on
pre-existing infrastructure,
infrastructure that
somebody else has paid for,
and is now open to you.
And so it really is going
to be an age of remarkable
opportunities for men and women,
I won't say young men
and women because I know
you know we've got a friend of mine who
was a housewife who uh...
Created a site for
mothers, because she hadn't
been able to find information
that she needed that,
a friend of mine just
bought for $25 million.
People who have fluency
in this technology,
excuse me, I'm recovering
from what Andrew told me was
a "sissy virus" that we
get down in New York,
because you get robust viruses up here.
(audience laughs)
But sissy or not, you know, it's taken me
a while to get over this thing.
People who have vision and sort of
a concept and who are
prepared to take a risk,
and who are prepared to, and
mostly now it's the risk of
your own time and talent and treasure.
But the doors are wide
open for entrepreneurs,
and the barriers to becoming one,
the requirements that used to apply,
and that still do apply
in the non-digital world
of having the capital to fund
your business enterprise,
are being alleviated at
an incredible rate, so,
I think it's a very
exciting time for people who
have the entrepreneurial instinct,
and who have skills in this digital arena.
And uh...
With that I think I'll
stop and take questions.
Yes sir?
- [Voiceover] Life cycle
for products and businesses,
are becoming shorter and
shorter (background noise)
varies tremendously--
- [Richard] Wait a minute.
You have to, you have to--
- [Voiceover] I'm sorry.
The life cycle of products,
the life cycle of businesses
becoming shorter and
shorter, easier to get in,
now you bought Bebo, but,
isn't it true that somebody
could come down the road
next week and that's something (mumbling)
make Bebo outdated and your company's
invested a fortune in it,
and suddenly it's redundant?
Or out of date?
For those of you making
purchases (mumbling).
- The lifecycle of businesses in this age,
just like you can get 'em up like that,
they can also be obsoleted like that.
That's a fair observation,
and we've actually
been to that movie, we were in that movie.
When AOL was created, it
was created on the back
of making emailing
accessible to everybody, right?
It was no longer just a tool for
professors or for the
Defense Department guys.
Anybody, your grandmother could email
you know her grandkids at school and send.
And AOL made it easy and fun.
And so their business model
was to charge for that.
What happened to AOL was, it became
so simple to manage that,
along came the Yahoos
of the world and said,
"Well give it to you for free".
And so AOL's entire business model,
and that's why AOL has now been reduced
to being just a footnote in the stories,
is because they've been obsoleted.
By the next generation, by internet 2.0.
And...
The reality about these
social networks, we,
you know we looked at Myspace.
Which Rupert Murdoch bought
for $560 million I think,
a couple three years ago.
And we concluded not to play because,
you know, who's to say you know,
there was something called
Friendster before Myspace,
Myspace came along and
knocked them out of the box.
Who knows when the next
one is gonna come along?
But Murdoch bought it, took the gamble,
and is gonna make a fortune with it,
I mean he's been trying to
sell it for $10 billion,
having spent $560 million, you know
about a half a million dollars
two and a half years ago.
Nobody's gonna give him that, but somebody
will give him $4-5 billion for it today.
And the issue for companies like ours,
is that if you're gonna be in
this space, you gotta play.
You can't value companies
by traditional means anymore.
And you have to take the chance that you,
if you have a first mover
advantage, that you can hold it.
But you take the risk.
That something comes along, like Yahoo
and the free portals came along and they
obsolete your whole business.
So it's a different business dynamic now,
a different set of risks.
Buf if you're going to be in the game
of media and communications
you gotta play.
- [Voiceover] I'm wondering
if you could just comment
one of the things that
happens that you see now
is that young people in this digital age
are increasingly interested
in pursuing careers
in that space as you suggested,
Mark Zuckerberg and others.
And just compare that
with your own career,
going really in public service initially,
and then getting involved
in business and (mumbles).
What did you learn that
you might not learn
if you jump into
technology at an early age,
about things that (mumbles) technology,
(mumbles) managing in business.
- It's actually a very
perceptive and good question.
First to the premise of it, which is that
lots of young people wanna
go into these new digital
enterprises, and it's because you know...
You know, who among the young nowadays,
and particularly the
young and the privileged
going to top-flight colleges,
and with the best educations,
doesn't fundamentally wanna
work for themselves, right?
They don't wanna work
for anybody else because
they don't wanna be shackled
by some chucklehead,
like me, when they know everything.
And it's just a matter of
them having an opportunity
to sort of show the world
they know everything.
So they wanna go into a
place of employment where
they are as free as they
can be to sort of bring
whatever level of talent they have,
and enthusiasm and idealism,
and then get rewarded for
it also on the other end.
So yeah we're seeing a lot of that.
And you know, it's good,
but it has its limitations.
One of the things that
we saw, for example,
when we tried to merge
AOL, this is going back to 2000-2001,
with the old Time Warner culture is,
they were riding a hot hand,
and they were full of themselves.
They had a lot of success, as I said,
it was the fastest-growing
stock in the 90s.
A lot of wealth, and a lot of,
of enthusiasm about changing the world.
But they really weren't business people.
They really weren't business people.
And you see that a lot in
a lot of the new technology startups.
Their orientation is to, "Let's
build something that's cool.
"Let's build something that is fun.
"Let's build something that's
going to change the world."
But not necessarily, "Let's
build something that will
generate a level of revenues
"that will offset the expense
"that we have incurred to build it,
"and that will give us a bottom line."
And so a lot of these
companies I just mentioned,
you know, the Myspaces, even the Bebos,
they have no revenue model.
They've built something that is cool,
and that people use, but that
people don't pay 'em for.
And therefore, you know,
you can have, as Bebo does,
80 million unique visitors,
something like that,
and generate no revenue,
and therefore no income,
because they haven't figured out
that part of the equation yet.
And so the challenge that the
overall business environment
is going to have over the next,
let's call it half a dozen years,
is taking the, "Let's
build something that's cool
"and has the potential to change
"the way people live their lives", cohort,
and blending them with
the old cohort that says,
"Okay, let's figure
out how to make money",
I don't wanna sound too crass with this,
but at the end of the day,
you can't sustain the former model.
At the end of the day,
you can't sustain a model
that is a free model, because
people will sort of say,
"Well it was cool, but now
I gotta go feed my family."
And the people over here
who were in the sort of
old-media world, have the business acumen,
and understanding of how you build and
and create a sustainable
business, but not the knowledge,
and the sort of almost
organic understanding
of the new technologies
to do this piece so
blending those two
cultures so that you have
cool, useful stuff that changes
the world for the better,
in a sustainable business model,
is the challenge going forward.
And while it sounds, it's easy to say,
that's not so easy to do because they're
very different types of
folk, very different.
Right back there.
- [Voiceover] Hi, my question
I guess has to do with
sort of revenue models and (mumbles)
new digital companies.
I think it's interesting that AOL,
which was once on the subscription model,
is now essentially an
internet potentializing firm
that (mumbles).
The revenue model for
these digital companies,
do think there's a revenue model that's
not all about advertising,
online advertising?
- The answer, well I think
everybody heard the question,
the answer is, probably.
And I think it's probably
going to end up being
some mixture of the two that
this new technology enables.
Just to give context to the
question, when AOL was launched,
as I said, in order to get access to it,
and to have access to
this sort of spiffy new
communication device called the internet,
and all these chat rooms and whatnot,
you had to pay a subscription fee.
And so their revenue model
was a subscription-based one.
We put all this up, we
create this world for you
to come and live in and communicate in,
and you pay us a monthly fee to do it.
What happened to AOL was, within 10 years,
virtually everything that
you could do inside the AOL
cloud, was replicated outside
the AOL cloud for free.
So that undercuts the subscription model.
So what's replaced it is
the advertising model.
Like think broadcast television.
You know you just, you buy a TV set,
you hook up your antenna, you turn it on,
you get ABC, CBS, NBC, Fox, for free!
How do they pay for that?
They pay for that by having advertising
ride along with what you
see on the television,
and the advertisers
essentially pay the load.
So that's the model that Google has,
and that's the model that
is now the kind of...
Model of the day if you will,
or answer of the day on the internet.
And the question is, is
there gonna be yet another
revenue-generating model
that takes its place?
I think it's gonna end up being a blend of
a little bit of subscription
at a much lower place,
you know, AOL got to $25-26 a month,
but you can get the music
services and other things
that are unbundled, for
$2.95, right, or $3.00.
There's gonna be some of that,
it's gonna be some advertising,
and then it's gonna be some pay-per
download, pay-per service,
whether it's a pay-per-view,
pay-per-listen,
pay-per-opportunity to hear,
it'll be a combination of discreet
pay-per-episode,
subscription, and advertising.
My guess is that eventually,
it's over the next half a dozen years.
We have, oh, excuse me.
- [Voiceover] Sorry.
- [Richard] There you are.
- [Voiceover] In the back.
I was just wondering, you
touched on the magazine business
a little bit, and I was wondering how,
(mumbles) the time in business,
how are they leveraging
(mumbles) technologies now
going forward (mumbles)?
- Magazine business.
Yeah, well, the challenge
for us with Time Inc.,
was to convince them that
they're no longer in
the magazine business.
Magazine business by the way, it's,
it's a great business.
It's...
Stable, it's productive of
a high degree of cash flow,
because the brands are, you don't have to
keep marketing behind them.
But its growth has been
stunted, sorta like
newspapers only not as bad.
A big part of the revenue
stream for magazines,
that's a two-revenue-stream business.
You get revenues from subscriptions.
And you get revenues from advertising.
And a big part of the
advertising base of magazines
is being siphoned away by the internet.
And some small part of
the subscription base,
though not much.
Because as one of my colleagues,
who once called the internet
a black hole, used to,
liked to say, said, you
know, "You have the three Bs
"that protect the magazine business.
"The bedroom, the
bathroom, and the beach."
You know people, people
don't take their computers
to those three locations,
although today they do.
But what we've said to our
magazine colleagues is look,
stop thinking that you're in
the ink-on-paper business.
You are in the content-creation
and editorial business.
You go, you have reporters and writers
who go and investigate
things, and report on them,
and give a slant on them,
and have insights into them,
whether it's sports, news,
entertainment, lifestyle,
information, and that
can live in a magazine,
in ink on paper, but it can
also live on the internet,
in a different form of distribution.
And so we've been, we're now thinking
of ourselves as in the
publishing business,
and we publish information
in ink-on-paper form,
into magazines, and on the web.
So if you were to ask me,
"What's the biggest celebrity site",
these are called verticles,
"on the web right now?"
It's people.com, because
we took the People brand,
which is, People Magazine, by the way,
is the most profitable
magazine in the world,
by orders of magnitude,
it's just unbelievable
how profitable that magazine is.
And it's because the
content is, you don't,
like for Time Magazine I have to have
news bureaus all over the world and
serious reporters and stuff like that.
For People, you just
snap a bunch of pictures
of a bunch of Hollywood
people running around
doing silly things and,
boom, you have a magazine!
That makes a lot of money,
and so now we've taken
that same content, and
we've put it on the web.
And it draws, and it's free on the web,
it draws, you know, millions of viewers,
and then you sell
advertising against that.
Now the difference
between the print version
and the web version is...
Advertising is far more lucrative
in the magazine space right now,
than impressions on the web.
People just don't, they
still don't know how
to value that and how to pay for it.
So an ad that runs in my magazine that
may generate a dollar in revenue,
that same ad on the web may generate
five cents in revenue, so you have to get,
you have to get that much more reach,
to have it be a one-for-one tradeoff.
But you know, like everything
else, it's evolving,
and I think our magazine,
our former magazine company
is going to be fine, so long as they can
make the transition to a digital world,
and not just have the printed version,
but the online version that's formatted
and presented in a way that people
who access information online, want it.
You know, nobody wants to
go online to read a magazine
like you would read a
magazine in the bathroom.
They wanna use it differently,
they wanna interact with it,
they wanna have feedback
with it, they wanna
be able to take pieces and
send them to their friends.
So it has to have all of that,
those bells and whistles,
but so far so good.
I'm encouraged that
our publishing business
is going to be a survivor
in the digital age.
Whereas I think, like the newspaper's
gonna have a tougher go.
- [Voiceover] Um, this
question pertains to
the original thoughts (mumbles).
Not that it's not, assume that undermining
the content businesses
like Time Warner and
(mumbles) with all these
new properties with the
distribution businesses will get along
and would be very profitable,
and (mumbles)
And now that the business
community rewards (mumbles)
Time Warner's (mumbles) sellings (capable)
But people (mumbles).
Where do you think the road (mumbles)
with content business?
And how do you separate these two,
and when do you know to combine
content distribution like
Google is trying to do?
And when do you know like that,
one has no bearing upon the other?
How do you make that decision?
(microphone muted)
- Are a lot of questions,
in that one question, so.
(audience laughs)
So I'll try and unpack them.
The first question was, the
original concept with AOL
was you're going to have
essentially Time Warner content,
flowing through the AOL
distribution system,
and that was gonna sort of add value.
And it didn't work.
It didn't work for a number of reasons.
Number one, it turns out
that, particularly back then,
and it seems like something that happened,
this is 2008, something that
happened seven years ago,
right, 2001, wouldn't be back then,
but to me it's like
ancient history, I mean,
we've gone through several
generational turns.
People didn't go on
AOL, and in those days,
they didn't go on the web, to get content.
They still watched TV, they
still went to the movies,
they still bought magazines.
They went on the web and they used AOL
for communication purposes.
To email, to chat, to instant message.
Not to read People Magazine.
And so trying to feed them
a steady diet of content on the web,
we weren't getting any bang for the buck.
And so, and even now, people still,
you know, young people
tend to go more to the web
'cause we now have
YouTube and you can have,
you have multimedia
presentations on the web,
which you didn't even seven years ago.
So you can see full-motion video,
and you can watch a movie
and stuff like that.
But even still, it's pretty sub-optimal.
It's not the best way to watch a movie,
it's not the best way to listen to music.
You know, if you can
download it that's one thing,
but streaming music is not
the best way to listen,
it's not the best way to access content.
It's still primarily a
communications medium.
So the premise, to the
extent that that was
one of the premises that
supported the merger,
the premise was premature,
is the way I'd put it.
I mean, the, this gentleman
asked me before about what
did we, what was the difference
between the cultures and
what did the old guys know
that the new guys didn't,
and vice versa.
All of my AOL colleagues believed,
they were true believers,
remember I mentioned that before.
They honestly, truly
believed, that this technology
was going to change the
world in a couple of years.
I remember the Chief Technology
Officer at AOL stood up
at our first joint board meeting when
we put the companies
together, and he held up
a CD in one hand and a DVD in another
and he said to the board
he said, "In two years,
"18 months, two years max,
these are gonna be obsolete".
And he sorta threw them
over his shoulder and said,
"Everything is gonna come
into your house via the web"
and streaming and so on and so forth.
Eventually he's gonna be right.
He just wasn't right in 2001.
And so they thought that
there was gonna be a lot more
bang for the buck, in terms
of putting content on.
And that's not why people
were using that medium.
Now, when do you know that it's time to
decouple content from distribution?
In our case, we're not gonna
sell the cable companies,
we're just gonna spin it off.
We're gonna separate Time Warner Cable
from the rest of Time Warner.
In the past, over the past 20 years,
because we've had content
and distribution together,
we've been able to do some things
that really have led the industry, I mean,
almost everything that HBO, first of all,
the creation of HBO was because we had,
we had some content creation ability,
and we had this distribution
mechanism that we controlled.
So essentially you introduce
it into the marketplace
on your own bottom.
Video on demand, all that sort of stuff,
was done because our content guys
and our distribution
guys could work together.
The reality is today, however,
that the cable company,
for most of its 50-60 years of existence,
cable has meant delivery of video
signals into the home, video programming.
Cable was an equivalent of
television distribution, right?
That's what cable was.
In the last 10-15 years, cable has become
the equivalent of a phone company.
Right now, I've got almost
as many phone customers
on my cable system as I have TV customers.
And almost as many
high-speed data customers,
and the phone is catching up.
So cable is looking more
and more and more like
Verizon, and Verizon is looking
more and more like cable,
because they put fiber in so they could,
they could always do voice, and data,
now they can do video.
We could always do voice,
we could always do video,
now we can do voice and data.
So there's going to be a shakeout
down the road between the
distribution companies,
and the cable companies
are gonna look more like
phone companies, and
the financial dynamics
of that capital-intensive
utility-like company,
are just totally different
from the financial dynamics
of a content company, and
that's the primary reason
for separating them.
Now, which is a better business?
I like 'em both.
I really like, I like the cable business.
Because...
You know, sort of human being's appetite
for ability to connect and communicate
with each other seems insatiable.
You come up, any new communication
device you come up with,
instantly people jump on it,
and the next thing you know,
we were talking earlier about cell phones.
Somebody said when I started
here, she was a senior.
You know, if you had a
cell phone it was unusual.
Now, if you don't have a cell phone,
you're from another planet.
And no matter where you go,
people are on their phones.
And they're communicating with each other,
and the cable business is basically
right in the middle of
that trend and loop.
And I like the content businesses because
you know these are,
it's not commoditizable.
Each creation is unique, right?
Each movie is different
from all the other movies.
Each song is different
from all the other songs.
And if you can protect your
creations in a digital world,
you have something that lives for,
if not ever, for many business cycles,
that is unique and not replicable.
So I think both businesses, I know that
both businesses will be
around for the duration,
and I think they'll
both be good businesses.
To be investors in.
Whoops okay.
- [Voiceover] Thank you.
Time Warner seems to be in
a very good position to spot
kind of emerging trends
in media and technology.
How much intrapreneurship
goes on within the company?
- That's a really good question,
and the seeds of the answer,
at least the seeds of my answer,
were in where I started
off this talk by saying,
that you know, first it was AOL,
as the hot shooter in the space.
And then its place was taken by Yahoo,
and then Yahoo's place
was taken by Google,
and now Google's place is being sort of
snuck up on by the social
networking companies.
And it's because you know, big companies
have a hard time innovating
and being entrepreneurial.
What happens in a big company,
is that people are, people do,
this is a rule of management.
People do what they're paid to do.
Most people can figure
out, how do I maximize
my earnings in this environment,
and so that's where I'm gonna put
my time and attention.
And the bigger a company gets, the more,
and the more robust and
powerful the revenue streams,
the more the need to sort of control,
have budgets, have targets,
have business plans, and
then to meet your plan,
because that's how you get paid,
that's how you maximize your pay.
You meet and then just barely
exceed your business plan.
So most capable business
leaders sort of look at
their business, make some
projections going out,
you know, sort of on a steady course,
I can just take this,
build on it a little,
you know, squeeze the guys here,
take out a little expense there,
and then they build a
plan and then they wanna
stay on that plan, and that's how they,
that's how they perceive
themselves to get paid,
and that's how they pay their
people who work for them.
So in comes a guy or gal who says,
"I have a great idea, if we, you know,
"how about we go left over
here instead of going right,
"and it's only gonna cost us so much".
And when they say, "Well, have you,
"have you pre-sold this
to our advertisers?"
"No."
"Do we have any subscribers?"
"No because we don't have a product yet."
"Well let's not do that then because
"you know, that could
throw me off my plan."
That happens, and organizations become
risk-averse the larger they get.
And they know what they know.
And the last thing is, most frequently,
new ideas are inimical to the
existing business paradigm.
So an example.
When we merged with AOL,
Steve Case wanted to take
all of the music that
Warner Music Group produced,
and put it on AOL for free.
Well, the music guys went ballistic.
You know they had a $5
billion revenue business,
billion dollars in earnings,
and this guy wanted to give it away!
Now, Steve's theory was that,
if we had all that music for free on AOL,
the subscribers would stay.
And we'd get even more subscribers,
and you'd make your money that way.
Whereas for the music guys,
he was hollowing out
their business completely,
so they resisted, you know,
this was the Battle of Dunkirk.
They were sort of laying down in,
in the tide, saying,
"We're not gonna be moved".
Because nobody wants to jeapordize
an existing successful business model.
So these disruptive technologies are,
it's like tissue rejection
in a big organization,
they're just going (grunts).
So that's why all the
young people who are coming
out of colleges, who
think they have some swat
in this digital world, don't
wanna work for big companies.
They wanna go with these little
internet startups because
they're gonna change
the world, they're gonna
disrupt the existing business plan,
and they're gonna be creative.
And that's why it's so
hard for the big companies.
What ends up happening
is exactly what happened
in our Bebo example.
Now if you think about
it, AOL actually had,
it was the first social
networking company.
They were called chat rooms.
And literally millions
of people would occupy
these chat rooms, and they'd do what
college kids now do on Facebook.
They'd talk about each other,
they'd share information
about each other, blah
blah blah blah blah.
When we moved away from
the subscription model,
AOL was incapable of creating
Myspace, Facebook, Bebo,
as by the way, was Disney, was Fox, was,
was Google, was Yahoo.
So what happens, the
way the cycle works is,
young people come out,
they create these things,
and they get 'em to a point
where, as I say where,
it's cool to be cool, but now
you gotta make some money.
Then they sell them to
the bigger companies,
who try not to kill them in the crib.
I mean that's, that's the reality.
Every company you go
and talk to, by the way,
will tell you, "Oh no no, we
have a culture of innovation,
"and risk taking, and blah blah blah."
But just look at the results.
The results are all of these
new technology-enhanced
companies are being created
in somebody's garage.
And then being acquired after they're,
after a business has been created.
They're not being created
inside the big companies.
- [Voiceover] You mentioned
disruptive technologies.
I'm wondering how a
company like Time Warner
basically works with or
against companies like Napster
that might come out and promote piracy of
Warner Music Group songs,
of if there were to be
a website that promoted, I guess piracy of
Warner Brothers films right
after they were released,
how do you guys react
to something like that?
- We try and put 'em out of business.
And in fact, we did put
Napster out of business.
That's another, a fault-line on which
the battles are being fought right now.
I said earlier, the reason
I like the content companies
is because every product
is to some extent unique.
And the question is
whether you can protect it
in a digital world
because digital technology
allows you to make perfect copies
of anything that can
be digitized, which is,
anything in the entertainment space.
And send it to a gazillion
people with the push of a button.
So for companies like ours, Time Warner
was when we owned the music company,
I know we were the largest
copyright owner in the world.
I still think we are, still think we are.
So for a company that is so
heavily invested in copyright,
you can't tolerate people
stealing your stuff,
that's the way I think about it.
You know, not respecting
the fact that somebody
owns this intellectual property just like,
you know, you couldn't
have somebody come in here
and sort of un-bolt half of these chairs,
and take them in the dark of night,
and just let 'em get away with it!
So what we try and do is
first we try and hammer them,
to be candid, and then we
try and negotiate with them,
to sort of say there's
gotta be, you know because
in some respects, all the
content companies want their
content to get the widest
possible distribution it can get.
They just wanna be paid for
it on some rational basis.
So but, you know,
the generation that sort of
grew up with the internet
has a kind of in-built notion that
hey, music should be free,
or content should be free.
And so you gotta, as I say,
there's a clash of wills right now,
you have to first shake 'em
out of that perspective,
and then negotiate a way that
both sides can win, where
people can get what they want,
where they want it and how they want it,
and at a reasonable price,
and with the assurance of convenience.
But not let somebody just sort of
take your stuff and run away with it.
- [Voiceover] The music
business has changed
radically in the last five
years, especially since Apple
got into the arena with
iTunes and the iPod.
What do you think is gonna happen now,
in the next big battle which seems to be
the video and the movie business?
- Good question, the music
business has changed radically.
I had pointed out to a group
of students I met with earlier,
we sold our music business
just about five years ago.
Because we saw this coming.
And it's not that there
won't be a music business
going forward, I just don't
know what it looks like.
And I don't think anybody does.
I think Steve Jobs has a vision,
maybe his vision comes true.
I think the music companies are
sort of challenging that now
'cause they're not making
enough out of his vision,
he's making all the money.
But it's changing and
it's changed for good,
it's not gonna go back to the way it was.
Now the question is
whether that same paradigm
or model applies in the video space.
And I don't think so, I think
for a number of reasons.
One is the quality of the product.
You put on those little button speakers
that you put in your ears, with the iPod,
it's not like having you know, a...
40-amp Bose speakers in your living room,
but it's pretty darn good,
it's pretty darn good.
So the quality of what
you get on the music side,
is comparable to the quality
of what you would get
in a non-digital arena,
and it's also portable,
so that's an added advantage.
On the video side, that's not the case.
Looking at a movie
on a two and a quarter by
two and a quarter screen,
it just isn't as satisfying,
as looking at a movie
on a 51" plasma TV set
in your living room.
So the quality of the
delivery of the product
is not as compelling.
Secondly, the whole
business model around movies
and videos is different than music.
One of the complaints we
heard over and over again
when we were still in the
music business was from
you know, teenagers who
are saying you know,
"Why should I have to buy a CD
"that had 12 songs on it
when I only wanted one?
"You know, and that's
why I go to Napster or
"some of the other sites,
because I just want this one,
"and you guys are trying to
rip me off by making me buy
"11 songs I don't want
just to get the one I do."
So Steve solved that problem for them,
digital technology solves that problem,
'cause you can get exactly what you want,
you can get the song you want.
That's not the way video is marketed.
We don't sell movies 12 at a time.
Where you have to buy 12 movies
in order to get Iron Man.
If you wanna get Iron Man,
you go and see Iron Man.
And that's actually a very
significant difference
that I'm not sure Steve
and his Apple engineers
have fully taken into consideration.
So they got a couple of things different
in the video side of the equation, one,
an inferior product delivery mechanism.
And two, they're fighting against
a different business
model, so I don't see,
I don't see the world moving
from going to the movies,
as we know it today, or
buying, you know these big
flat screen plasmas, we sold more of those
in the United States last year than
in the history of those sets,
moving to a two or
three-inch mobile screen.
I just...
That's not to say that digital
technology isn't going to
have an effect, I don't see it as being as
disruptive as it is in the music space.
We'll see.
In the back.
- [Voiceover] Just a quick
question about valuation,
valuation in terms of what
was done in the early 90s,
and how valuation is being applied now,
can you give us a sense
on what the issues were
with the assumptions
that were being made then
and now how they've changed and how you
mitigate those risks today?
- Yeah um, must be a
business-school student.
You know, the art of valuation is
it's very hard for those
who were raised in my era.
And in fact...
I'll make a confession before this group
that I made only to my board of directors.
I'm not, I don't know that
we would have done Bebo,
if I was still CEO of the company.
I used to say, that's
why we didn't do Myspace,
'cause I was CEO of the company.
We didn't do a lot of things.
Because using traditional
valuation methodologies,
of looking at the revenues and
looking at earnings, right?
And applying some multiple to those
based on a cash flow analysis,
you can't do that in the internet world.
We looked at YouTube.
And how in God's name
the Google guys got to
$1.6 billion for YouTube,
I have no idea, I have no idea.
Because YouTube had, I think
$10 million of revenue.
They had no earnings,
$10 million in revenue.
If I could get that
multiple for Time Warner,
I could sell Time Warner
for seven trillion dollars.
I'd be the second-largest
economy in the world
next to the United States.
But so...
Valuation has moved in this digital space,
to what I call kind of
a hope and a promise.
That if you get the eyeballs,
which is what YouTube did have,
which is what Bebo has,
which is what Facebook has,
they have tremendous user engagement,
that somehow, someway, and at some time,
you're gonna be able to figure
out how to monetize those
in a way that will give you a return.
And since, you know, I'm
not of your generation,
I'm not even of the
generation between you and me.
You know I couldn't figure it
out, I couldn't get there but,
that was a sure sign it
was time for me to sort of
step down, stand aside,
and bring somebody else in,
to sort of start choppin' at this log,
because valuations now are based on
entirely different metrics
than they were in the 90s.
They're based on user engagement and
other projections as opposed
to revenues and earnings.
'Cause most of these
companies have no earnings.
Some of 'em have no revenues!
But they have people who
are devoted to them and
a growing belief on the part
of traditional business that
this is the way the world is moving,
and our job will be to figure out
how to monetize that traffic.
Pleasure, it's been fun.
(applause)
