Intel, Yahoo! chiefs square off on future of e-business

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by Ashlee Vance

(IDG) -- A veteran of the PC industry squared off Thursday against one of the most vaunted darlings of the Internet in the closing panel discussion at Intel Corp.'s eXchange seminar in San Francisco.

The most colorful moments of the debate came as Intel Chairman Andy Grove demanded that the glory days for unprofitable but popular Internet businesses may very well be coming to a close. Grove delivered a somber message to the eXchange crowd as he addressed the struggling performance of tech shares in recent weeks.

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Turning to panelist Jerry Yang, cofounder and chief Yahoo! at Yahoo! Inc., Grove remarked that while the Internet offers a real and valuable medium, the business models of Internet companies like Yahoo! will need to focus on more traditional business principles to survive. The boom sparked by companies like Yahoo! may be over, Grove urged, and some of the most accepted views on the new economy may need reevaluating. "It is a period of time where we have reason to doubt some of our own beliefs that we have relied upon," Grove said. "We have to worry about the returns, and we have to worry about the investment." He pointed to the Nasdaq's fall below 3,000 at one point during Thursday's trading as a signal that the flood of money that has poured into start ups and Internet projects is slowing down and could affect the way tech companies do business in the years ahead. In particular, Grove said that lagging tech shares mean companies will have to start generating funds using more traditional methods. "Trickle down investing is probably over, if not forever at least for a period of time," Grove said, referring to the cash generated by the markets and delivered by venture capitalists. Grove took Yang to task somewhat, saying business models that rely on a myriad of Web customers and limited profits might not be celebrated in the months and years ahead. He acknowledged that Yahoo! will likely still be in business two years from now, but added that a reduced stock price means that monies for marketing and for back-end growth may be in limited supply. Not one to be thrown on the defensive, Yang also testified to some of the hype associated with the Web. "It can be said that the Internet over the years has been overheated," he said. "The market has said we are no longer going to grant the benefit of the doubt to companies that can't show immediate profitability." While some tension marked the exchange between the two men, they seemed to agreed that business models on the Web that have been acceptable until now will need to be reevaluated in the near future.

Jay Walker, founder and vice chairman of Priceline.com Inc., also showed up for the day's discussion and said that his company, like Yahoo!, sees the changing tides coming and hopes to make the decisions necessary for survival.

"Sometimes you have to say, this is not going to be financially successful for us," he said, relating to the recent cuts Priceline made of its grocery and gas selling divisions. Walker noted that while he believes those services seem useful and helpful to users they simply did not pay off and had to go.

"I think it is like anything else," he said. "There are capital issues and consumer issues, and, often, they don't go together."

Walker claimed that the doom and gloom surrounding Net-based companies in the financial markets still seems premature. He argued that services over the Web remain in their infancy. Customers will likely go to the Internet for things they cannot even imagine at this point.

"It's about satisfying desires customers have and desires they don't think they have," he said. "I think there is a lot of new ideas, new systems and value creations yet to come."

In the case of Yahoo! and Priceline, Grove admitted that the sites have shown impressive performance. He did, however, take another jab at the newcomers when saying that the rise in Napster Inc.'s membership overshadows anything done by a Web company to this point. While Yahoo! may have close to 150 million unique visitors to its site each month, Grove contended that the meteoric rise in usage of Napster music-swapping site stands as the most impressive growth seen to date.

"The growth rate of Napster blew away any previous web site growth rate, approaching an order of magnitude," Grove said.

Grove suggested that Napster's success shows real user demand and a desire by the public for a new technology. He looks for peer-to-peer file sharing, similar to that done on Napster, to continue its profound effect on the media industries and across the technological board.

Yang again seemed less than impressed with the celebration of Napster's user count over his site, which stands as one of the most popular destinations on the Web.

Yang quipped that if Intel dumped thousands of free processors by the road people would flock in droves to pick up the charity chips.

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Intel tries to put the 'e' in e-Business
(IDG.net)
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Tech sector gets schooled in economics
(The Industry Standard)
Napster's home user base increases 500 percent
(IDG.net)
Yahoo fails to save the economy
(The Industry Standard)
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Intel's PIII relaunch postponed
(IDG.net)
Dotcom cost cutting strategies don't work
(Publish)

Yahoo! Inc.
Intel Corp.
Priceline.com Inc.
Napster Inc.

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