The New New Thing: A Silicon Valley Story (19 page)

Jim Clark obliged. “Just after Netscape I was interested in a vertical market,” he began, deploying the usual Internet lingo. A vertical market was a market for a single good or service, like books or travel. A horizontal market was a market that cut across many different goods and services, like a Web browser. Netscape was in a horizontal market; Healtheon was in a vertical market. “I always thought that the biggest opportunity on the Internet was the vertical markets,” Clark continued. “I didn’t know anything about health care, but I was looking for something worth doing and…”

He went on for a few minutes about why turning the $1.5 trillion health care market on its head was “worth doing.” Then he leaned his chair back on two legs against the wall and as much as handed the floor back to Mike Long. “The Internet changes everything,” said Long. “Everyone can get connected on the Internet. And thank you, Jim, for that.”

The bankers chuckled appreciatively. By their tone and their manner they conveyed the general idea that everyone who mattered in this new world was in this one little room. They felt safe here. The playing field was now Silicon Valley. Of course, an investment banker in Silicon Valley wasn’t exactly a player. He was more of a waterboy. But at least he was
in
Silicon Valley. His colleagues back in New York were relegated to the bleacher seats of capitalism—and it nearly killed them. After all, what possibly could be the point of being an investment banker if you didn’t make more money than everyone else?

Still, Wall Street bankers were higher up on the capitalist food chain than Swiss bankers. They participated directly in the miracle of Jim Clark, or thought they did. True, they’d been shoved a rung or two down the chain by entrepreneurs like Clark and venture capitalists like John Doerr. True, when Morgan Stanley and Goldman Sachs called Mike Long and said in their puffed-up way that they would take Healtheon public only if they were given sole possession of the deal, Long had only to say in a stern voice “put that in writing” before they caved and said they would do whatever he said, when he said it. But they’d made hundreds of millions of dollars off the Internet boom. They could plausibly claim, at least at that moment, to be the perpetrators rather than the victims of change. To take a company like Healtheon public they charged 7 percent of all monies raised, plus expenses. If a company raised $50 million, the investment bank would net $3.5 million for a few weeks of work. That fee was usually just a kind of down payment. Once the stock price of one of these Internet companies took off, it could be used to acquire other companies with lower stock prices. The Wall Street bankers acted as agents for these acquisitions. Their fees did not make them as rich as Clark or the people who worked for Clark or the people who worked for the people who worked for Clark or even the people who worked for the people who worked for the people who worked for Clark. But they were richer than Swiss bankers.

The meeting with the Wall Street bankers lasted four hours, from two until six, with one long break for coffee and phone calls. Long introduced the company with the new Healtheon diagram. The new diagram was even more impressive than the Magic Diamond, which it had replaced. It looked like this:

Informally known as the Chart of Many Bubbles, eleven to be exact, it still showed Healtheon in the center. But now the little company, which still had fewer than two hundred employees, sat in the middle of many obviously complicated things. The Chart of Many Bubbles proved that Mike Long, before he took over the health care industry, had at least bothered to learn the names of its component parts. The Morgan Stanley people took only a polite interest in the Chart of Many Bubbles, however. The opening of the meeting was pure ritual, a sprinkling of holy water over the sheep before it was slaughtered. You could tell how serious they were about it from their attitude toward the black box on the conference table. One of their colleagues, a woman who had stayed home sick, listened by speaker phone. From time to time a squeak or a gurgle emanated from the box at the center of the conference table. A baby! The woman from Morgan Stanley was holding a baby, and the baby was refusing to keep quiet. Each time it mewled, the room used it as an excuse to depart from the Chart of Many Bubbles and share a hearty laugh.

“If you’re going to play the health care game,” Mike Long said, “you’ve got to have a large percentage of your staff that can talk the talk.”

“Gibagibagibagiba” went the baby.

“Ho, ho, ho,” went all the people in the room.

But the Chart of Many Bubbles suggested one obvious question, and the investment bankers raised it: How would all the companies in the little bubbles feel about a Silicon Valley upstart organizing them into a Chart of Many Bubbles and moving into the middle? Long had a long and happy answer: Healtheon could slide in and eliminate $250 billion in waste without causing the people who made their living wastefully to raise hell, and it would do this by forming partnerships with the stronger companies. The stronger companies in each sector would use Healtheon services to kill the weaker ones. By the time the stronger companies figured out that Healtheon didn’t need them either, it would be too late. The way Long said all this was perfectly soothing. He was not describing a ferocious upheaval in which hundreds of billions of capital would be redirected and hundreds of thousands of people would need to find new jobs. He was describing a friendly bake-off.

This was the Easy Listening version of Clark’s original intention. Clark had seen the health care system as he saw much of the world, in black and white. To his way of thinking there were health care professionals who clearly served a purpose. They were called doctors. And there were people who clearly needed health care. They were called patients. Everyone else in between—the hundreds of billions in paperwork and bullshit—could go. All Mike Long’s soothing talk about “partnering” and “win-win relationships with other health care firms” was a smoke screen for what Clark was up to when he created Healtheon. “We want to empower the doctors and the patients and get all the other assholes out of the way,” Clark had once told me, then laughed. “Except for us. One asshole in the middle.”

Long didn’t mention the part about the one asshole in the middle. Instead, he handed the Chart of Many Bubbles to the doctors and other health care authorities in the room, mercenaries in a new civil war. Each man in turn explained how he planned to worm his way into his particular bubble and make it his own. First the drug companies (the drug company SmithKline had a seat on the Healtheon board), then the insurers (the insurance company United Heath Care also had a board seat), PPOs, HMOs, hospitals, doctors, patients, and so on. Each bubble represented a gargantuan market all its own. Over the past nine months Mike Long had talked one large entity in each bubble into becoming a guinea pig for Healtheon’s software. In essence, the Healtheon employees were explaining to the Wall Street bankers how they planned to build, simultaneously, eleven separate multibillion-dollar businesses.

“So what have you been doing for the last year?” asked one of the bankers, when they’d finished. Everyone laughed. The baby cried. Everyone laughed some more.

“Pavan Nigam will now explain why all of this is going to work,” said Mike Long.

Pavan had been sitting quietly to one side pretending to be interested. Now he rose and stood in front of a giant screen, and I wondered if this is what he imagined when he put down the copy of
USA Today
in the Delhi hotel and decided to become an Internet entrepreneur. “Three years ago this would have been impossible to pull off,” he began and then launched into a perfectly baffling presentation on the inner workings of Healtheon’s software. Abstraction followed abstraction in the manner of contemporary art criticism. The Morgan Stanley people did not have much to say to this. How could they? They didn’t understand it any better than you or I could. If they could write software, they wouldn’t be schlepping companies for a living. But at the end of it one of them, perhaps hoping to dispel the impression that the reason investment bankers are investment bankers is that they don’t have the brains to be software engineers, asked, “Is there any major piece of the platform that has not been built?”
Platform
.

“Not really,” said Pavan.

The investment bankers just nodded knowingly. No one dared dig further. The baby squalled. Everyone laughed.

Through it all Clark had remained silent. At one point, when the bankers were asking about Healtheon’s possibilities, he said, “This could be as big as Microsoft, and quicker too.” Otherwise he sat back and watched the proceedings with the detachment of a small boy who has rolled a rock down a hill and watched it become an avalanche. His chief contribution to the meeting was to be there. He was attached to the business in the same way that Jack Nicholson was attached to a film script—thus increasing the likelihood that the script will become a movie. Simply by floating around and taking an interest, he makes all involved feel as if they are engaged in something very special.

“What about competitors?” asked one of the bankers. “IBM has something called Health Data Networks.”

Clark came alive, briefly. “They’ve got nothing on us,” he said. “As soon as we hire a PR person, we’re going to flatten them.”

All talk of competition ended right there. The conversation turned to finances. The bankers asked several perfunctory questions: How much money did Mike Long think the company required? ($40 million) How fast could it grow? (How fast did they want it to grow?) How much was at stake? (The future of the single biggest market.) “The benefits of first-mover advantage in this space are so huge,” said Long. “That’s why we have this land-grab strategy.” The bankers agreed mightily with this statement. One of them said, “That’s true in every Internet space. Amazon.com is doing $87 million a quarter. Barnes and Noble is only doing $9 million. And Barnes and Noble has been as good as it gets in responding to the Internet threat.”

“That’s why we are in a mad panic to go out and
get lives on the system
,” said Long, calmly. “Lives” was what health care business people called their customers. Mike Long was the sort of man who could claim to be in “a mad panic,” while giving the impression of being in such complete control that there was no point in further discussion.

“The investor base is becoming a lot more creative in evaluating these deals,” said the woman in the box on the table. The investment bankers had all these wonderfully soothing phrases that implied the world outside the room was climate controlled. The investor base! What she was referring to was a teeming peristaltic mass of junkies high on the giddiest boom the U.S. stock market had ever seen.

“No traditional Graham and Dodd investor invested in AOL,” said a banker at the table. “They shorted it. And got fucked. They’re learning the new model.”

Mike Long said, “The main point is that
nobody
has driven a growth strategy in health care.”

“That’s why this is such an exciting opportunity,” said one of the bankers. “It’s like AOL in the beginning. Or Yahoo.”

The baby in the box made the most perfectly delightful noises. This time no one paid it any mind.

They’d arrived at the true purpose of their meeting. The true purpose of the meeting was
not
to determine whether Healtheon was worthy of Wall Street’s attention. It was to determine just how enthusiastic the bankers were prepared to sound about Healtheon. Their money was cheap: there was so much money pouring into the Valley that Mike Long had about twelve different ways he could get his hands on what he needed. The Valley was a little experiment of capitalism with too much capital. For a brief but shining moment capital lost its purchase on its own process. The process took on a momentum all its own, and the old-fashioned capitalist just came along for the ride. All he could offer was his ability to influence the minds of investors who had not figured out what had happened. The investment bankers were no longer selling money; they were selling talk.

The people from Wall Street now fell over each other praising the future of Healtheon. One said, “The opportunity really is huge.” Another said, “The only problem is finding a way to explain it.” A third said, “It’s like AOL all over again.” For the first time Clark became truly interested. “The market opportunity here is bigger then all of those guys put together—bigger than Netscape, than Amazon, than AOL, than Yahoo, than
all
of them,” he said. “That’s why when I look at your revenue projections they seem laughably small.”

What
was
Healtheon worth? How did a sane person value a company that had never made a profit? The old formulas of old Graham and Dodd investors like Warren Buffett no longer applied. By those formulas Healtheon was worth zero. The company’s balance sheet was filled with negative numbers. It showed losses running out as far as the eye could see. Like other Internet companies, it said to the stock market: our future will look nothing like our present; ergo, you cannot determine our value by looking at the present. You must close your eyes and imagine a new world. Look to the future! The future is bright! The belief was partly self-fulfilling: belief often is. Once the stock price took off, the company was halfway home. The competition would fall away or, more likely, offer itself for sale to Healtheon. Mike Long spoke of “an M&A strategy for growth.” What he meant by that was that as soon as he was able to buy potential competitors with Healtheon stock he would do so.