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Q&A with Mary Meeker September 16, 1999 "Playbooks for the Evolution of Internet Businesses" Morgan Stanley's Mary Meeker on the Net's growth -- and her role in it Mary Meeker, managing director at Morgan Stanley Dean Witter, stands out as a Wall Street guru who understood early on the huge impact the Internet would have. Meeker recently talked about her job and investment opportunities with Business Week's Heather Green. Here are edited excerpts: BW: When you began covering Internet companies, you had to take a step back and explain to people what this industry was. What is your job now? Meeker: In 1994-95, There weren't a lot of people who "got" the Internet. Marc Andreessen and I estimated in 1995 there were 400 max. Now, clearly a lot more people understand what the Internet is and its implications. From a technology perspective, we have moved from the cowboy and Indian stage to a more mature stage. But from a human interest and financial perspective, things are more wild and wooly than they were four to five years ago. Many entrepreneurs seem to think it's really easy to start Internet companies, do the IPO thing, and become instant millionaires. And investors, fortified by their seemingly easy Internet successes (or anxious about there abstinence) in many instances, have become reckless with their capital commitments. While we continue to believe that the wealth creation related to the evolution of the Internet is still in its early stages, we are about to enter a period where there will likely be many gargantuan losses. My job has shifted from being part of small group who helped create a framework for the evolution of the Internet and Internet-related businesses. In addition, we attempted to determine which companies would win/lose. Now, we do more of the same with a lot more blocking and tackling related to determining how the incumbent companies will adjust/compete with one another, and how emerging companies will define their own categories or compete with the incumbents. In many respects, the jobs of Internet-focused research analysts and investment bankers have become more difficult as companies -- and there are thousands of them -- are attempting to go public at ever earlier stages at ever higher valuations. One can argue that on a relative basis, the risks are higher and the rewards are lower. BW: How would you describe your contribution so far? Meeker: I'd prefer to have you or someone else answer this question! I'd like to think that the folks at Morgan Stanley and I helped create important, insightful, and credible playbooks for the evolution of Internet businesses and that we helped legitimize the financing of Internet companies with early, critical, and aggressive financings for especially successful companies such as America Online, Netscape, excite@home, and Amazon.com. And, importantly, while I have certainly had my share of screwups, so far [over the past decade] we have been on a ride with our stocks and investors for hundreds of billions in market capitalization appreciation. BW: Can you give me examples of companies and new opportunities for building Net businesses? Meeker: Ariba in business-to-business (B2B) software and a host of private companies in the exchange area that are going after industry verticals such as health care/life sciences (Chemdex), financial services, industrial products, transportation, energy, and real estate. BW: Will the impact be bigger than an Amazon or an AOL? Meeker: That's a tricky call as these B2C companies are the uber-players in very broad markets and for now the emerging B2B companies are focusing on more narrow opportunities. Many believe that B2B will be bigger than B2C. But don't rule companies like AOL and Yahoo! out of being players in B2B. BW: Can you give one example of a company in the health-care, financial-services, and music areas that you think will be as important as the Net leaders today? Meeker: Health care: Healtheon. Financial services: Our financial services analyst Henry McVey likes Schwab, and I like it too. Music: Too early to call the biggest winner (other than musicians and their fans), but this will be a huge space. Continue to watch for evolutionary moves from RealNetworks, Yahoo!, AOL, Amazon.com, MP3.com, and lots of emerging companies. This is a fantastic time to be an entrepreneurial Web-savvy musician. I wish I could hold a tune! BW: What are the broad trends that will direct the growth of the Net? Meeker: First, customer satisfaction needs to improve so users make the Internet a more integral part of their daily lives and more users go online; faster access speeds (assisted by broadband); content/commerce that is increasingly easy to access and relevant to customers; more rollouts of successful/useful Internet-related tools/products, like the Rio and the Palm VII. Second, telecom and computing costs need to continue to decline. These trends should especially help Internet-usage growth in the non-U.S. markets. Third, to date, consumers have been critical drivers of Internet usage; increasingly, businesses will drive usage growth as we move into a wave of Internet-related business reengineering. Fourth, in order to warrant ongoing financing and support, Internet companies will be tested to demonstrate clear paths to profitability. BW: How do you figure into that picture? Meeker: I hope the Morgan Stanley Dean Witter folks and I can help create some playbooks for the next waves of Internet growth; that we can continue to help finance the market leaders and help them grow; that we can continue to help our investors outperform the market, and we can continue to keep our failure rate low. BW: Do you think the money flowing into all this goes away anytime soon? Meeker: First, it's our assumption that investment capital exists. All bets are off if we have a superaggressive ramp in interest rates, a Y2K debacle, or a serious recession. It's our basic theory that the business changes caused by the Internet are so fundamental that capital will follow the opportunities to fund businesses that capitalize on these changes -- and that capital may simply flow out of businesses that are experiencing revenue slowdowns as Internet-focused companies take away incremental sales. Internet financing has occurred in waves, and will likely continue to do so. We have two points here: Financing trends for Internet segments will rise and fall and rise and fall; and in "networking effect" businesses, the No. 1 player usually gets more than his fair share of the spoils. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS LVMH's Arnault: "I Don't Think E-Commerce Will Replace Traditional Shopping" Amazon's Bezos: Nurturing a New Species of Business Webvan's Louis Borders: "We're Building the Last Mile to the Consumer" AOL's Case: "At the Epicenter of the Revolution" Minority and Women Executives: Can E-Biz Become as Diverse as America? Morgan Stanley's Mary Meeker: "Playbooks for the Evolution of Internet Businesses" Priceline's Walker: "It's a Completely New Way of Buying"