The problem with Marc Andreessen

By Felix Salmon
April 26, 2012

2005-new.jpg It’s easy to see why Marc Andreessen is grinning on the front cover of Wired magazine this month. Inside, there’s an interview where he’s introduced as a “tenacious pioneer”, one of “our biggest heroes”, and someone who was so far ahead of the curve on his “five big ideas” that he had them “before everyone else”.

It’s easy to admire Andreessen, a man whose disarming and engaging blog was a must-read during the financial crisis, when he would provide some very smart perspective from the point of view of a wealthy man, thousands of miles away from the epicenters of the crisis, who had some very sharp insights into what was going on. He then launched Andreessen Horowitz, and the blog became more of a public seminar in how to be senior management, which is great if you like that sort of thing. And it’s true that the five big ideas in the interview are all pretty revolutionary things, although I don’t think he actually had them all first.

But Andreessen has never really been a public intellectual. His single greatest achievement — the creation of the world’s first web browser, Mosaic — took place under the auspices of the National Center for Supercomputing Applications at the University of Illinois. But ever since then he’s been a red-blooded capitalist, founding and funding a long series of for-profit companies, and becoming one of the wealthiest and most powerful men in Silicon Valley in the process.

And when you look at Marc the capitalist, rather than at Marc the ideas guy, the hero-worship becomes a bit more difficult. I certainly like the way that he’s dragging Silicon Valley into the world of philanthropy, where it’s historically been very weak. But a lot of my own Wired story, last month, can be read as a push back against the IPO culture which Andreessen, almost more than anybody else, has managed to create.

“Silicon Valley is full of venture capitalists who have become dynastically wealthy off the backs of companies that no longer exist,” I wrote in that piece, and Andreessen is Exhibit A if you want to look for such a person. His first company, Netscape, lost the Browser Wars and ended up getting sold to AOL. His second company, Loudcloud, was (to be charitable) too far ahead of its time, so it “pivoted” into something called Opsware; eventually Andreessen managed to sell it off to HP. His third company, Ning, was even less successful, and ended up buried somewhere in Glam Media. None of them exist today in any recognizable form; none of them ever made much money; and none of them even really made it as far as building anything approaching a permanent income stream.

The Netscape IPO, in 1994 1995, was in its own way revolutionary. It broke the rules by going public without ever having made any money, and it also had that eye-popping first-day rise, from the issue price of $28 to as high as $75 in the first day’s trading. For the first time, people in Silicon Valley understood that you could make enormous sums of money just by timing the markets — buying in at a low valuation and selling at a high valuation — even if the underlying company never made any money at all.

Andreessen’s current company, Andreessen Horowitz, is devoted to doing exactly that. Andreessen Horowitz does provide a bit of expert advice and name recognition, but at heart it doesn’t make anything at all; its sole predictable income stream is the management fee it skims off while investing other people’s money. Those investors, in turn, are not particularly interested in creating long-lasting standalone companies which have large profits and create jobs. Instead, they’re primarily interested in buying into any company, no matter how flash-in-the-pan, where Andreessen Horowitz can exit its investment for a large multiple of whatever it bought in at.

After all, that’s how Andreessen made his money. I’ve never met anybody who thought that Netscape was a good acquisition for AOL, or that HP gained much from buying Opsware beyond getting Andreessen to sit on its famously-dysfunctional board. (He became the semi-official spokesman for the board in 2010, which did almost nothing to improve the board’s reputation, but did quite a lot to hurt Andreessen’s.) In many ways, Andreessen’s entire fortune has been built on the greater-fool theory: if you build something trendy enough, there’s probably going to be a huge lumbering company out there somewhere willing to overpay for it. Hence the buzziness of the Wired interview — clouds! social! SAAS!

Andreessen’s also very shilly, when it comes to his own businesses: when Ning finally died, for instance, he put up a blog post all about how the team there had “brilliantly executed a dramatic transformation of the company”. The fact is, as a close reading of the Wired interview will attest, that while Andreessen does have a lot of good ideas, brilliant execution is not at the top of his list of abilities. His own social-media company went nowhere, and his consolation prize — a seat on the Facebook board — is so important that Mark Zuckerberg didn’t even bother to consult him before dropping $1 billion on Instagram. His main job there is to ensure that Mark can do whatever he wants, to provide a layer of insulation between Zuckerberg and shareholders. Meanwhile, the Twitter guys didn’t let Andreessen Horowitz invest in their company, forcing AH to buy its stake in the shadowy secondary market instead.

While Andreessen is very good at making money, then, he’s much less good at creating lasting value for the long-term shareholders of his companies. In his world, buy-and-hold public shareholders are the patsies, the people left holding the bag when the fast money has long since departed. He’s smart; the rest of us are chumps. I guess it makes perfect sense that he’s recruited Larry Summers as a Special Advisor.

Update: I should have mentioned (I was going to, and forgot) that Mosaic 0.9b is, to this day, my favorite-ever web browser. It was a beautiful thing, which worked wonderfully. And yes, in large part it was responsible for The Internet As We Know It today. Andreessen’s influence is felt far beyond the companies he started. But there’s another thing that Netscape started, which is the monster funding round which is so big that no one (except a true giant like Microsoft) will dare compete. A correspondent writes:

Firms such as his have been leading truly insane rounds lately, sometimes in excess of $100 million. This is a different kind of investment than traditional venture capital. Under the old model, a hundred companies raised a million dollars each. Market competition then (theoretically) selected the best. Under this new model, kings are made, and there is no competition. Who would compete with a company that just raised $100 million in a day? Who would invest in a company that would dare to compete with such a sudden colossus?

This kingmaker strategy (also at work in the payments world, see Square) is the opposite of portfolio diversification. It encourages the formation of massive bubbles. And it locks out true innovation to the extent that the kingmakers choose incorrectly–which they often do.

Update 2: Chris O’Brien, writing in 2009 when Andreessen Horowitz was launched, made much the same points in a more rigorous and quantitative way. It’s a really good post, you should read it.


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