The Third Wave: An Entrepreneur's Vision of the Future (2 page)

The Second Wave of the Internet began at the turn of the twenty-first century, just in time to inflate the dot-com bubble and let it burst—the Internet’s first real extinction event. A lot of entrepreneurs and investors lost fortunes. But those who survived were primed to lead the next era of Internet innovation.

The Second Wave was about building on top of the Internet. Search engines like Google made it easier to explore the sheer volume of information available on the web. Amazon and eBay turned their corner of the Internet into a one-stop shop. It was during the Second Wave that social networking came of age, too. Where Google sought to organize the Internet’s information, social networks let us organize ourselves—and attracted a billion users. And it was during the Second Wave that Apple introduced the iPhone, Google introduced Android, and a mobile movement was born. This convergence supercharged the Second Wave, as smartphones and tablets became the engines of the new Internet, creating an economy that would populate the world with millions of mobile applications.

The Second Wave has been largely defined by software as a service—social apps like Twitter and Instagram that make sharing ideas and photos easier, or traffic apps like Waze, which weren’t practical without ubiquitous mobile connectivity. And while the most successful of these companies all dealt with unique obstacles to climb to the pole position, they also have a great deal in common. First, their products are, practically speaking, infinitely scalable. Coping with new users is usually as simple as adding more server capacity and hiring more engineers. And, second, the products themselves—the apps—tend to be infinitely replicable. Nothing has to be manufactured.

• • •

Today, the Second Wave is starting to give way to something new. Decades from now, when historians write the story of technological evolution, they will argue that the moment the Internet became a ubiquitous force in the world was when we started integrating it into everything we did. This moment is the beginning of the Third Wave.

The Third Wave is the era when the Internet stops belonging to Internet companies. It is the era in which products will require the Internet, even if the Internet doesn’t define them. It is the era when the term “Internet-enabled” will start to sound as ludicrous as the term “electricity-enabled,” as if either were notable differentiators. It is the era when the concept of the Internet of Things—of adding connected
sensors to products—will be viewed as too limiting, because we’ll realize that what’s emerging is the much broader Internet of Everything.

The entrepreneurs of this era are going to challenge the biggest industries in the world, and those that most affect our daily lives. They will reimagine our healthcare system and retool our education system. They will create products and services that make our food safer and our commute to work easier.

But if this new generation of entrepreneurs is to succeed, the playbook from the Second Wave won’t do.

Third Wave company creation stories are less likely to begin with dorm-inspired apps that go viral, as they often did in the Second Wave. Third Wave entrepreneurs will need to build partnerships across sectors in a way that Second Wave companies never had to. They will need to navigate a policy landscape that most Second Wave companies could ignore. And they will need to do it all in a space where the barriers to entry—even for a worthy idea—are far greater than anything experienced in the Second Wave.

The playbook they need, instead, is the one that worked during the First Wave, when the Internet was still young and skepticism was still high; when the barriers to entry were enormous, and when partnerships were a necessity to reaching your customers; when the regulatory system was coming to grips with a new reality and struggling to figure out the appropriate path forward.

I am writing this book today because we are living at a pivotal point in history, and I want to offer whatever perspective I can to ensure a bright future. I am writing this because the history of the First Wave has become increasingly important as a way to think about this future—how we plan for it, adapt to it, and seize upon its opportunity. And yet much of that story, including my own, remains untold.

I come to this from a variety of perspectives. As a startup entrepreneur, but with experience at a big company. As someone who’s never served full-time in government but has worked in and around government. I come to this as both an investor and an advocate, and as someone who gets Silicon Valley but was never of Silicon Valley.

And so I aim to accomplish several things in this book. I want to tell you the story of how the consumer Internet was born, and how close companies like AOL came to not making it. I want to share my candid memories from behind the scenes—the details from a roller-coaster ride few have experienced. I want to tell you what it was like at the very top—and give you a view from the boardroom on the way down.

But I don’t want to do any of that in a vacuum. Each of these stories is meant to illustrate a broader thesis: that the lessons from the First Wave of the Internet will be integral to the Third. And so I want to zoom in on the Third Wave as well. I’ll describe what it will look like and how it will unfold, and give you a glimpse of the future it portends.

• • •

I’ve
written this for entrepreneurs to help shape their dreams and for corporate titans to help temper their nightmares. I’ve written it both for the business student and the casual observer. For people old enough to feel nostalgia about AOL CDs in the mail and for those young enough never to have heard the term “CD-ROM.”

My journey over the past few decades has been an unpredictable adventure, a thrilling, sometimes frustrating mix of ups and downs. It has been marked by moments of sheer terror, and many more of joy and jubilation. I’ve tried to convey that here. I’ve tried to bring you into my world. And what better medium than the book, which was invented around two thousand years ago?

I didn’t want to write a memoir, but I did want to share some of my stories, as I do believe, as Shakespeare famously said, “what’s past is prologue”—that there are lessons to be learned. I didn’t want to write a guidebook for budding entrepreneurs, as there are plenty of those—but I did want to explain why the rules of the entrepreneurial game are changing. And I didn’t want to get too wonky on policy, but I do believe America is at risk of losing its lead as the world’s most entrepreneurial nation, and I wanted to explain why—and what we can and must do about it.

Writing
The Third Wave
—part memoir, part playbook for the future, part manifesto—has been a labor of love. I hope that it might light the same spark for you that Toffler’s
Third Wave
lit for me.

M
Y BROTHER
Dan was just thirteen months older than me, and a year ahead in school. We shared a room growing up and, like most brothers, were fairly competitive. We hated to lose. That was especially hard for me, since Dan seemed to be good at just about everything he tried. He was the more natural athlete, and always at the top of his class. When I realized I couldn’t compete with him head-to-head, I tried to find interests apart from his. If he was going to play tennis, I decided, I was going to play basketball. But there was one interest we both shared that never felt like a competition. I wanted to be an entrepreneur, I was sure of it, before I even really knew what that meant. And Dan genuinely wanted to help. I got immense satisfaction from coming up with an idea, and he would revel in trying to help me turn it into something real.

We started our first business when I was ten years old. Dan was eleven, and brought to bear all of the wisdom of that extra year in our operation. We called ourselves Case Enterprises, and hoped that no one would notice that neither of us was old enough to drive. We billed ourselves as an international mail-order company. At one point we became the exclusive distributor in Hawaii for a Swiss watchmaker, though I can’t recall actually selling any watches. Most of our efforts involved knocking on doors trying to sell greeting cards to our neighbors. Most of our customers were buying what we were selling just to be nice. But Dan didn’t care. He called it our comparative advantage. Said it was part of our brand. We actually talked like this; our parents, a lawyer and a teacher, had no idea where we got it from. They used to joke that when I went to my room, I was going to my office.

Our early ventures may not have provided much in the way of cash, but they did provide a wealth of experience. And the process of coming up with new business ideas, or new ways to sell, left a deep impression on me. When I left Hawaii to attend Williams College in Massachusetts in 1976, I kept looking for new business opportunities. I started six little businesses while at school, including delivering fruit baskets to students during exam week (paid for by parents, of course). I had a growing interest in the music business, and spent a lot of time in New York clubs like CBGB, trying to find new talent to bring to college campuses.

I was diligent about going to class and doing my homework,
but these side businesses were my real passion. That didn’t go over so well at Williams. At one point my advisor pulled me aside and suggested I was spending too much time on my entrepreneurial efforts, and would regret it. “Look at all the educational opportunities in front of you,” I remember him saying. “You should immerse yourself in them. Your business pursuits are distracting, and, frankly, they are ill-suited for campus life.” He wasn’t alone in thinking that. I remember one of my fellow students attacking me in a school newspaper editorial. “I swore I would never go to a Steve Case party or buy a Steve Case record album,” the article began. “It’s nothing personal, it’s just that I despise rampant laissez-faire capitalism on the college campus.”

• • •

In my final year at Williams, I took an introductory computer class. I hated it—and almost flunked it. This was still the era of punch cards, where you had to write a program and then take your cards to someone to run them. Several hours later, you’d get the results—which usually (at least for me) meant finding a mistake and starting the process all over again. The tedium, and the resulting low grade, almost prevented me from graduating. And yet the experience stuck with me. The punch cards were a nuisance, but if used the right way, they could be powerful. We were building very basic computational programs, rudimentary by contemporary standards. And yet even then, the potential was obvious. Computers were solving problems in seconds that would otherwise take days, even
weeks. Frustrating as it was, in retrospect, I think it was formative. It was the first time I really began to grasp the potential of computers. Still, if I hadn’t stumbled upon Toffler’s book that year, I’m not sure I ever would have pursued the path I did.

With graduation approaching in the spring of 1980, all I could think about was breaking into the fledgling digital industry. I applied for a lot of jobs, always including, with my résumé, a cover letter breathlessly predicting the dawn of a digital age.

There were few takers. Most of my letters went unanswered. On a few occasions I did get interviews, but I rarely got past the first one. People seemed put off by my musings, worried that they were getting a nutty young kid who’d never be satisfied in a normal job. As the rejections piled up, I realized that my future would require my keeping my mouth shut—at least for a time. There was not much of a startup culture then, and of course no Internet, either. If I was going to get a job and learn any useful skills, I concluded, I’d have to join a big company. I eventually accepted a job at Procter & Gamble in the brand management department. It was a great place to land, all things considered. I could learn useful skills during the day while continuing to dream about the digital world at night.

If Procter & Gamble knew one thing, it was how to make a product understandable to everyday people. When radio serials were first introduced to the public, P&G saw an opportunity to advertise its home cleaning products to its key audience. So they began sponsoring programs, starting with
Oxydol’s Own Ma Perkins
back in 1933. They were known as soap operas. When the public jumped from radio to television in the 1950s, so did P&G.

The people I worked with were experts in understanding consumer preferences, doggedly pursuing R&D, and seeking breakthroughs that could give their products an edge against the competition. And they were world-class marketers, often ahead of their time. P&G was also responsible for pioneering the concept of giving away free samples to encourage trial use. (I later borrowed that idea when we launched AOL’s trial program and blanketed the nation with free trial discs.)

• • •

After a couple years of working at P&G in Cincinnati, I moved to Kansas to join Pizza Hut as Director of New Pizza Development. To this day, I’ve never had a better title.

My motivation was twofold: First, I was offered a healthy increase in salary and responsibility, and second, I thought it would be helpful to understand how a more entrepreneurial company worked. Pizza Hut was founded in 1958 by two brothers, Dan and Frank Carney, while they were still students at Wichita State University. It had grown from a single location at the corner of Kellogg and Bluff to become the nation’s largest pizza chain, which it accomplished largely by enabling franchisees to innovate. This bottom-up approach to innovation differed from P&G’s top-down style, and I wanted to understand it.

Originally, the job involved my working in the test kitchens in Wichita. But I advocated that we hit the road to find out what was happening throughout the country. My view was that, though innovation was possible within our walls, most of the innovation was happening beyond them. I created and led an advance team, and we started roaming the U.S., looking for a great idea to incorporate into the new menu. The company would send me to places like Washington, DC, put me up in the Four Seasons in Georgetown, and then task me with eating the city’s best pizza. There are worse ways to live. I did learn rather quickly how difficult it was to take something out of a test kitchen and then execute it across five thousand restaurants where the chefs were teenagers with limited skills. A lot of our ideas that made sense in theory flopped in practice.