Opinion

Felix Salmon

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.

Comments
19 comments so far | RSS Comments RSS

Yeah to all that, but at least he is one VC who not only acknowledges that treating their carry as capital gains is totally bogus, but is doing something about it (giving away a big chunk of it).

The money-oriented publications like to parade VCs as genius capitalist heroes who spend their days creating jobs, and I guess the publicity Andreesen gets from his place under that spotlight helps him raise money for his funds and attract potential portfolio companies, but it’s not all bad. Think of it as a form of wealth re-distribution. Okay, a lot of those companies that get acquired or go public, and whose performance never justified their price, but at least they converted somebody’s wealth into jobs (however brief), and re-assigned ownership of that wealth to a new set of formerly middle class workers (disclosure: I was in that category). He is a vehicle for re-cycling and re-using capital, and without people like that, capital would remain even more concentrated.

Posted by KenG_CA | Report as abusive
 

Well – they can’t be all that bad when the company just announced that partners are donating half of their salaries to charity:

http://pandodaily.com/2012/04/25/holy-ph ilanthropy-andreessen-horowitz-gps-pledg e-to-give-half-of-their-income-to-charit y/

Posted by TimO4 | Report as abusive
 

Note that the blog (http://blog.pmarca.com) archives appear to have been truncated. Posts are available beginning in July 2009

Perhaps the blog was a “must read” during the financial crisis, but for some reason those posts are not available.

Posted by drocto | Report as abusive
 

I don’t think you should dismiss Opsware so easily just because it got absorbed by HP (or elide that it was a $1.6B acquisition). The product still exists, it’s just rebranded. That’s persistent value creation.

Posted by absinthe | Report as abusive
 

@drocto, I was wondering that myself. Andreessen’s take on Facebook, for example, used to be at http://blog.pmarca.com/2007/06/analyzing _the_f.html but now it’s all 404.

Posted by FelixSalmon | Report as abusive
 

It will be interesting to see if their VC funds produce stellar returns, consistently AND over the long term. The “typical” VC fund has underperformed

1. buyout funds http://www.verisi.com/resources/buyout-v s-venture-capital.htm

2. hedge funds http://www.verisi.com/resources/venture- capital-performance.htm

over the past decade (over the past 30 years when compared to buyout funds).

With regard to VC industry profits. It would be interesting to see what share of their profits they retain, and what goes back to their investors. In the case of hedgies, a vast majority of profits flow to insiders:

http://www.verisi.com/resources/hedge-fu nd-profits.htm

Posted by datascientist | Report as abusive
 

Netscape IPO-ed in 1995, not 1994. August, in fact. I, and most other internet industry vets, know this because we literally remember where we were when it happened. You can have a long discussion with anyone who was even remotely involved in tech about that event.

It’s easy to attack legends, and find faults. Marc has been in the arena, in a way very few people can match. So, as Fred Zinnemann famously said, “You First.”

Posted by DevBhatia | Report as abusive
 

Awesome. Needed to be said.
Business is about building an enterprise that makes money, repeatedly.

I’m a bit embarrassed to put these links here but just so happy to have stumbled upon a fellow traveler!

http://brianshall.com/content/where-robe rt-scoble-and-silicon-valley-get-it-all- wrong-about-facebook-and-instagram

Posted by brianshall | Report as abusive
 

Wow, this post feels like a hatchet job on Andreessen (perhaps by someone who has an axe to grind?)

* Very, very few companies last for over a decade or two in the technology industry, it is the very nature of the beast; so that argument of creating lasting value is bogus and rarely applies here. If the time scale is anything smaller than a decade, then he has clearly demonstrated value creation

* Calling him “Shilly” for pumping his own companies and investments is also hitting below the belt; hell, people would love to have their investors/leaders marketing the hell out of their companies in whatever way they can, and back them and not throw them under the bus if things didn’t pan out as planned.

* Companies that put their money in buying his companies or investing in the same “trends” that he is touting in all likelihood do so after a lot of due diligence by resident experts. So I guess you are calling all of them fools too :-p

There seems to be very little of the detached, balanced, factual reporting in this post, which surprises me……

PS> Lest you wonder, I don’t know Andreessen and have no relation with him or his companies; but I do worry about my hairline resembling his in the not too distant future ;-)

Posted by DineshNambisan | Report as abusive
 

This is why I’m so fond of you, Felix

Posted by BrianVan | Report as abusive
 

Good article but saying that Zuckerburg didn’t even look to him for advice is wrong. AH made an investment in Instagram and therefore would be in conflict if he consulted on the acquisition of a AH portfolio company.

Posted by SteveRozanski | Report as abusive
 
 

It’s just the New American Way, get yours before the getting’s gone.

Posted by MyLord | Report as abusive
 

I’ve been working on a company for a year that doesn’t fit this insane funding model. We’re doing something that has a clear market, but our true potential STARTS in 7-10 years with returns (both culturally and economically) coming sometime after. We’re capital efficient, but realistic about our growth.

I’ve almost given up looking for money in this country. Thank you for speaking truth to power and exposing the brokenness of a bubble-making system.

Posted by AaronHuslage | Report as abusive
 

Gotta disagree with you on this one, Felix.
When we look back to see who were the most influential figures of the internet & cloud days, Marc will be near the top of most people’s lists.
Netscape was not only a transformative technology, but also transformed the way that Silicon Valley works. We may not love what it’s turned into, but those heady early days certainly drove a lot of innovation. And with Microsoft throwing tons of cash at IE, the fact that Netscape didn’t win in the end doesn’t tarnish its accomplishments IMO.
Opsware, while not a home run, was certainly a double. Timing is often everything, and it was a bit ahead of its time.
Ning was a whiff – but he’s hardly the only one to strike out chasing ways to monetize social media tools.

When I look at Marc Andreessen, I see a visionary innovator with as good a sense for where technology may be headed as anyone in the market.
What he probably has needed through his career is a top notch operational manager/COO to partner with, much in the way that Ray Lane helped execute Larry Ellison’s vision during the boom years at Oracle.

Posted by Graubart | Report as abusive
 

Its hard to watch a guy have Andressen get so much credit.

You should add in that he was going to take a job when James Clark approached him and ask Andressen if he would start a company with him. The point there is that Andressen wasn’t even an entreprenuer at that point. Without James Clark he would be another coder in a room somewhere. Now he’s just playing the VC game.

Felix, you are my hero.

Please write next about Mark Cuban.

Since you are so good at hitting the MARK :)

I never thought anyone would write the truth about these guys.

Raising huge amounts of money and throwing it around to ultimately find the bigger patsy is all they do.

Many of us have started much smaller companies and worked really really hard just to stay alive, earning real revenues but never getting any credit for anything really.

Thank You

Posted by Since1978 | Report as abusive
 

So.. what’s the point of this article? Your thesis statement seems to be: “People think Marc Andreessen is great, but he’s not really all that great.”

Not sure what good this does me as a reader. Seems kinda lousy, actually.

Posted by escapist | Report as abusive
 

“he’s dragging Silicon Valley into the world of philanthropy, where it’s historically been very weak.”

Umm. No.

Dave Hewlett and Bill Packard, and their families, have been philanthropists for decades. The value of their gifts to Stanford University exceed the Stanford family’s original endowment (or so I was told by some development folks there). The Lucille Packard Children’s Hospital, the open space trusts that have kept a significant part of Silicon Valley from turning into places to park Range Rovers in front of McMansion… not to mention a variety of locally-famous schools, charitable foundations, etc. etc. ad infinitum.

Too elitist? Fundraisers for schools sound too self-serving? Maybe Santa Clara U.’s social innovation prizes, and its goal of improving the lives of a billion poor by 2020, is a bit more to one’s liking.

Indeed, you might make the case that Marc learned about the value of philanthropy from his spouse, whose family real estate business shaped Silicon Valley, and whose family foundation has shaped Silicon Valley in different ways.

So Marc’s not inventing a new tradition. If anything, he’s doing a great job of showing how new money legitimates itself by imitating old money. (And yes, here in the Valley money made selling klystrons and calculators– anything before about 1990– is Old Money. Those dollars might as well have been printed by Rembrandt.)

Posted by askpang | Report as abusive
 

Felix:

Thanks for the linkback. My post came when Andreessen was just jumping into the VC game. He and I both agreed that the VC industry was in steep decline and the result would be that a handful of big firms would end up with the lion’s share of investors and deals. He was absolutely confident that his new firm could be among the 5 to 10 big firms left standing, though I was a bit more dubious. The game’s not over, certainly, but their track record so far has given them a lot of momentum. Given the way entrepreneurs revere him and the firm, it seems like he’s got a shot.

Now, whether this ultimates is a good thing or a bad thing for the larger tech economy, well, we’ll see.

Posted by sjcobrien | Report as abusive
 

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