As my final act for the print edition of Business 2.0, I interviewed serial entrepreneur Bill Gross of Idealab. Gross is best known for his Web 1.0 companies, especially GoTo.com/Overture and CitySearch, and eToys. So he’s had his share of both successes and failures.
But if you look at his portfolio of startups today, other than the click-per-action search engine Snap.com, it is dominated by atoms businesses instead of bits businesses. These include Energy Innovations, eSolar, Evolution Robotics, and Desktop Factory. I asked him, what made him shift his focus. Excerpt:
Q. Why did you move away from pure Internet companies?
We started making only Internet companies because we felt this was an incredible new medium that had unbelievably high gross margins. If you could make a Web site, you could sell something online and you could make margins of 90 percent or higher. When we looked back at the ones that were most and least successful, we realized it had nothing to do with their margins. It had to do with how protectable the idea was. Was there a core intellectual property with which you could differentiate yourself and earn sustainable margins? Because you can make good margins online, but if you can’t sustain them, it doesn’t mean anything.
So that led us to take another look at all businesses - even companies that make physical products. We had shied away from making anything with atoms; we were all caught up in doing only things with bits. But you can make things with atoms and still have a huge amount of intellectual property in them, where you can earn good margins and protectable margins.
That’s a lesson most Web 2.0 entrepreneurs have failed to grasp. I guess that sometimes it takes a bust to learn these things.
There are other worlds outside the http://WWW.
I don’t know what ATOM and BITS stand for..Is this coming from chemistry if so how does it applies here..
I think idealab invented contextual advertising too — didn’t google pay idealab a billion or so for patent issues many years ago, after google “stole” the idea and did it better?
That’s where he learned a “defensible product” is important
Amazing, it took a bust or too for Gross to learn that “barriers to entry” is an important idea in business? Sheesh.
People learn differently. At least he did learn which is better than most of us can say.
Different is so powerfull on the net…..
I have heard him speak. There were alot of people envious of him back in the day and his rap seemed that he was a spin guy. But all he talked about was interest in great engineering and how that can create great companies. I guess that is what he is doing - investing in great engineering no matter if it has bits or atoms.
“When we looked back at the ones that were most and least successful, we realized it had nothing to do with their margins. It had to do with how protectable the idea was.”
I don’t agree, at all, with this statement. Let’s look at the long-time successful Internet companies: Ebay, Amazon, Google. Which one has a “protectable idea”? None. It’s all about great execution, IMO.
Bahh.
Hey Base,
Atoms are physical goods - things made up of atoms
Bits are virtual stuff - like a web site or a computer program
When you get down to it, bits business rely on things made up of atoms to make them run (servers, wire, etc.)… so everything is an atom business at heart… and on the other side, you would be hard pressed to find an atom business that does not use technology and bits…
the circle of life
Hey “Being Parents”, your link doesn’t work…
Bill and I crossed paths several times back in the day, and as another Web 1.0 vet (Photodisc, MyFamily.com, others), it’s interesting that I’ve sort of come to similar conclusions– including using the “bits” vs. “atoms” comparison.
There is a whole new revolution brewing in “real world” physical manufacturing and production that is every bit as exciting as what some of us have been doing in the electronic/computer tech industry for over 20 years. Bill’s involvement in Desktop Factory illustrates he sees it as well.
I recently wrote a short post on this as well at http://shurikensystems.com/wor.....ally-over/
But if Desktop Factory is the manufacturing equivalent of the desktop ink-jet printer, a company called Tangible Express (http://www.tangibleexpress.com) is gearing up to be the global “Kinkos” that fills the massive gap between personal hobbyists/inventors and global (typically offshore, at this point) mass production.
The 21st century equivalent of Henry Ford’s “production line” innovation is just around the corner, and within the next 20 years will do more to make “The Jetsons” a reality than anything we’ve done in the computer industry in the last 60.
I’m going to go out and patent gravity, magnetism, big bang @ time zero and photons, whatever those are.