Rich Barton & Bill Gurley Unplugged at the GeekWire Summit 2013

Hello down there. Hello. Are you guys ready for this? We're going to have some fun, I think. I'm really looking forward to this discussion. It's pretty fun to have both entrepreneur and venture capitalists sitting on a couch together and telling some war stories about what it's like building companies. And I think we'll find, at least with these two, it can be a very symbiotic relationship and actually can lead to some great things, as we've seen with Zillow, Benchmark being an investor, of course, in Zillow. Jonathan touched on some of the iconic brands that you've been a part of, Zillow, Expedia, Uber, Twitter, and I guess that's where I want to start, which is kind of a big 30,000-foot view question of what does it take to build a company at that scale, and what is the secret ingredient that leads to getting a company

to a Twitter-size, Zillow-size outcome. I'm not talking just about the small-scale startup, the big home runs that both of you like to swing for, and I have a home run question for you guys later, too, but talk about what's the secret ingredient that gets to that size of company?

I think, John, first of all, that this couch is from my senior year in college, my dorm room. Thank you, Knoll. Really, I think I can smell the old bong water here. It's good. It'll be a loose session.

Just what our sponsor, Knoll, wants to hear. Sorry, sorry.

It's legal here now. It's okay. That's right. You're just back from Burning Man, too, right? So it's probably on your mind. So, yeah, I might be saying some strange things. It's okay. I think a certain amount of craziness, you know, I think... A big dream and a clear vision and a little bit of nuttiness is required to take something from an idea stage all the way to creating something that is, with Expedia, it's the largest seller of travel in the world. $25 or $30 billion a year of travel is sold through Expedia. And that was our dream. Many of the people in this room were part of that. That was our dream right from the very start. Everybody thought we were crazy. We probably were crazy, but...

Having a dream like that that resonates with people, changing the world, achieving something big—it turns out that's what pulls you through the hard times. Every company has hard times. Every company has setbacks. And it's having that mountain in the distance that you're trying to scale, that is what gets everybody through.

So, nuttiness and craziness. Now, Bill, you're kind of on the flip side of this. What I appreciate about you is you've never been an entrepreneur. You make it clear you're a capitalist. You are the investor. You're the money guy. Right?

That and capital. Sorry. That—the big dream and capital. That's right.

That's right. So what is it like hanging out with the nutty side here, the entrepreneur? And how do you make that work from a business standpoint?

It's, ironically, one of the really challenging things when going about making an investment decision, because some of the people that are purportedly crazy are, like, really crazy. And you don't want to invest in them. Identify—so you can't just use that metric, but identifying the appropriate level of—you know, crazy is an interesting word, but it might just be audacious, right? Someone who's either naive enough or brave enough to think that they can go do something or accomplish something that no one else thought they could. The other thing that I think is really important: there are a lot of companies, although it's still a small percentage, there are a lot of companies that kind of make it.

And what I mean by "make it," they get to 100 million in revenues, they maybe get public. There's an even smaller subset that then go from there to multi-billion in market cap. And I've been thinking a lot about what it takes for that second part. And it's interesting because a lot of times focus gets you to the first level. And the thing you need to get to the second level is to have some ambitious scope where you're thinking about what's next. If you look at Bezos, for example, as he keeps adding things in to what they do. And that's really hard for some people, and it's especially hard for someone who thinks focus was the key to success in getting there. And so that's a really nuanced kind of answer to your question.

But that's where venture capitalists make all their money, too. So you have to be thinking about that, how you get from the $100 million to the multi-billion dollar company. And those are the true disruptive technologies, the things that actually really change our lives. And you guys have actually played a role in many of those types of companies, as we've mentioned, Uber and Twitter, OpenTable in the restaurant space, certainly. And as I alluded to, you don't really fancy yourself as a disruptor. You're not one—Bill, I'm speaking to you here—you are the capital behind it, but you're still in the business of trying to figure out what is going to be disrupted. So where are you looking now?

Where do you think there is opportunity to actually make some big-time disruption in the entire ecosystem here?

I'll say some things that are rather obvious. The mobile platform is really interesting right now for a number of reasons. One, it's structured differently than the desktop platform was. And so that kind of means "jump ball." You know, whoever can get there first is now going to be the leader in that category. I think companies like Zillow and Yelp have done an amazing job of kind of jumping on board that quickly and then establishing themselves. And I think companies that lead on mobile actually have an advantage over those that lead on the desktop in that being a URL is kind of a one-in-a-hundred kind of thing, but having a spot on someone's screen is a more sticky thing and a harder thing to replace or compete with.

So that's a big one. Mobile's also basically created a platform that allows you to do embedded systems, using yesterday's speak, at a very low cost, because you can just write apps. No one has to do hardware anymore. And so there's a whole bunch of new businesses that are possible because you can automate workflows, you know, in small businesses or in different verticals or in other industries, because these devices are out in the hands of the people, and it's just totally different, the things you can do.

So, are you looking at opportunities in the mobile space—a company like Zillow has had to pivot and essentially become a mobile company—or are you looking at just companies that are coming right out of the gate that are mobile right away?

Well, we're lucky enough to be an investor in Instagram, Snapchat, and Uber, and they're all three basically mobile-only. There's a website, but you can't do much there.

And Rich, I know this is something you're also passionate about. I alluded to the pivot at Zillow where now the majority of traffic is actually on a mobile device. On your own investment philosophy as you do angel investments, I read a Wall Street Journal story here recently where you were quoted as saying that if an entrepreneur—tip to all the entrepreneurs out here—if you're an entrepreneur and you come and pitch Rich on your PC or your desktop computer, don't even think about it. You only want to see pitches on a mobile device. Is that true, and why?

Yeah, the cat's out of the bag now. But no, I mean, if someone comes in on a pitch and they show me the demo on a PC in a browser window, I show them the door. It's shocking that anybody who's starting a company now doesn't realize that the platform of the future, in fact, the platform of now, is the mobile device. And so if the entrepreneur's not thinking that way, that means the team's not thinking that way. And if the team's not thinking that way, they're gonna get beat, right? They may never succeed. Last quarter, more mobile devices—internet-connected mobile devices—were activated than there were people using the internet when we launched Expedia. So a whole new internet gets launched every quarter, in my opinion.

And the magical things that we're working on now, we can't even imagine actually what we're going to have 10 years from now. It's all going to be based on the revolution that's happening here right now. So it's exciting.

So I want to jump around a lot, and again, anyone tweet me at GeekWire Summit if you have a specific question, I'm monitoring that. I have about 100 questions I could ask these guys. Tell me about the early Zillow story and the capital formation and how that came together and the way... I want some of that early history. I think it'd be interesting to hear about how that deal came together. And why didn't you give Bill more than 2.4% voting share?

Zillow's very tightly held, tightly controlled. More of that than the economics, then. But maybe you start.

So when we saw Rich left Expedia, or left IAC, I guess, which had acquired Expedia, we made a beeline to get to know him better. And we were begging for meetings, not knowing what he was going to do next, and developed a relationship and a huge respect for all the reasons you mentioned. Rich is one of the most talented people I've ever met, able to both lead a company in a CEO role and also able to think strategically and to think like an investor. It's an amazing combination, which is why he's had the success he's had. We did everything we could to get to know them, and after many, many attempts, eventually convinced them to let us be a part of the ride, which we are greatly appreciative of.

And then, Rich, how about the capital part and how that mapped on Zillow?

Not everything, but... You know, I think that... I think that being appreciative of the fuel that needs to go into the tank of the startup and the octane of that fuel that needs to go into the tank of the startup to get it from here to there, to get it from here to the moon, to get the rocket from here to the moon—it's a skill and an appreciation that not every entrepreneur has. I think a lot of people just think money is money. Just give me money at the lowest price. I want to get the best deal on my money. In my experience, that couldn't be further from the truth. The money that you, as entrepreneurs, take, it could very well determine whether or not your rocket gets out of the gravitational field of Earth.

Because smart money is much, much better than dumb money. And so when I start companies, when I started Zillow, when I started other companies like Glassdoor and Trover and others, getting the smartest, getting the highest octane fuel in the tank is really critical. In Zillow's case, it was very obvious to me which money I wanted to take. It may not have been obvious to Bill, but it was obvious to me. Let me give you just an example of where it can make a difference, the venture capital that you take. So when we started Zillow, my default was at Expedia, I was spending hundreds of millions of dollars a year on advertising. And that's how we got people to Expedia. We sold airline tickets and hotel rooms, and it became a huge business in marketing.

Advertising expenditure was just part of the mix. And so my default with Zillow was thinking, well, we'll do the same thing with Zillow. We'll launch Zillow. We'll spend advertising money. We'll get people to the site. Bill pointed out to me that my model at Zillow was probably not going to be an e-commerce model. And that it might be a little bit foolish to spend to bring eyeballs to your site when in fact you were turning around and simply selling those eyeballs for media revenue as well. So effectively an arbitrage. And it took a while of convincing, but he finally convinced me that maybe we ought to launch Zillow with a marketing budget of zero. And maybe we ought to try to run Zillow as long as we possibly could with a marketing budget of zero.

Well, what we found was this released immense creativity on the part of the product team. The product team had to figure out how to build a product so compelling that people wanted to talk about it at the church coffee and the sidelines of the soccer games. Everywhere they go, we had to have a product so cool that they wanted to talk about it.

Which is probably the Zestimate. That was the Zestimate. Bill, you're indirectly responsible for the Zestimate. Right.

And so therefore, this was high-octane fuel that we got when we took this money. And I'm super appreciative of the capital I take in all of my companies.

Well, now on the flip side of that, Zillow is spending a lot of money on marketing. I mean, upwards of $20 to $30 million. So Bill, do you still think they shouldn't do that?

He's so pissed off. He's so pissed off.

Bill's still on my board. Just speak. I know we've talked about that.

Can you measure that?

Speak briefly about the marketing, though, on Zillow and why you're doing that now. Because I think it is similar to maybe the Expedia days.

Spencer Rascoff, who's the CEO of Zillow now. Many of you guys know Spencer well. And he may be here. Actually, he's out of town. So Spencer had lots of jobs at Zillow before he became CEO, but one of the great mechanisms of controlling marketing expense, Spencer was CFO. He was CMO, Chief Marketing Officer, but we gave him the job of CFO at the same time. So he was head of both marketing and finance. I remember this.

It was the weirdest thing. I remember this.

It was the weirdest thing, but that was great. If you want to control costs in your startup, make your CFO your marketing chief. So when he got promoted to CEO, he didn't have that constraint anymore and he started to want to spend. But in all seriousness, we spent seven years fertilizing the soil and tilling it and planting the seeds and preparing the field. And wonderful stuff already started growing in this field. So brand awareness of Zillow was already pretty good. People loved it. We had tens of millions of people using the site. And it turns out when you pour some advertising dollars into a situation like that, when you add some fertilizer to a field that's already ready to go, really magic things can happen really quickly.

And so that's what we've seen happen with Zillow's current television advertising campaign, which isn't huge—it's not a big campaign—but we're really seeing good things happen, taking the brand into new places, bringing the right kinds of people into the site. It's very difficult to measure, it's very difficult to draw straight lines, but at Zillow we do have a business model that can support this, and we have investors who, largely investors who support the move as well.

Well, I would go back to... So certainly, I mean, I think it's working quite well. But the comment Rich made, and the reason I have this philosophy—and I've written a blog post on it called 'The Dangerous Seduction of the LTV Formula,' if anyone wants to read it—but it's really this creativity thing.

Lifetime value. Everyone knows that.

Bill is a former stock analyst on Wall Street.

The creativity issue is really the key one, which is companies that become heavily SEM-dependent, it's almost like they get blinders on and they don't think about... product in the right way. They don't think about the user experience in the right way. And there's a reason that they do it. It's because it's the easiest possible thing you could do to get customers: like, spend dollars.

Bill used to show a slide when he'd give this speech back in the day where he had basically like a needle with heroin cooking and like an arm with like big veins sticking out. And he basically called... SEM is crack, basically. Don't get hooked on the crack.

There was a great slide, which is included in this blog post, from Niklas at Skype that he used to give at presentations where it said, 'Cost of customer acquisition: Vonage, $400; Skype, .0001 cents.' And I thought that kind of said it all.

So you were interviewed, Bill, recently by TechCrunch founder Michael Arrington. And I watched the interview here recently. And you were naming some of the iconic brands that you're involved with and also some of the iconic brands in Seattle, like Microsoft and Amazon. You mentioned Zillow in the same breath. And Arrington kind of laughed. Arrington's a jerk.

I literally threw an apple I was eating at my monitor when I was watching. What a jerk, huh? I hate that guy.

All right. Well, there you go, folks. So that'll create some Twitter buzz there. There you have it. My question is, do you think Zillow is on that path to be a truly iconic company on the scale of a Microsoft and an Amazon and growing beyond just the... You know, a lot of people are surprised by the $3 billion market value on it now.

Two things I would say about that. So one, I do think there's something in the water in Seattle that allows companies to grow big and strong and long, which isn't true in Atlanta or Austin or New York City, even, or where, where you have, you know, so the four pillars of the community here were all venture-backed: Costco, Starbucks, Microsoft, Amazon. And you've got Expedia, and, and now I think Zillow has a chance to play at that same level. And, and it's really missing from these other communities, this ability to have a company that can be around 30 years later that's still defining their market and still—and it's a real testament to this community as a place to build a company if you want to go for the long ball.

Absolutely agree. I've been writing about that, actually. And as it compares to New York City, I saw some of your remarks as well while you were speaking in New York, which was great because it's one of the things I pointed out as well. How many over-$100-billion market-value tech companies are based in New York? Zero. And here we've got Amazon and Microsoft, certainly, and growing towards this new style of company. So I think you're absolutely right.

And then the second thing I would say is just the execution that I've seen at the company, at Zillow, is perhaps the best I've ever had the honor of being close to. And it gets back to what I said earlier, like, you know, you get to one level and that's a huge accomplishment. But then how do you keep expanding what you're doing, defining new goals, you know, creating new BHAGs, and taking a company to the next level is super hard—like really, really hard. But I mean, I've already seen the elements of it here. What they're doing in the rental space is really impressive. And that's something that most people probably wouldn't be ambitious enough to take on.

So if Seattle is swinging for the fences more, why aren't we seeing more Silicon Valley capital coming into our entrepreneurs here?

I have several investments here and have my whole career, so— "Bill's done his part." So we'll throw everyone else under the bus. You've helped build some big companies here. It's hard. If you believe in what Benchmark does in the art of company building, then your ability to get involved in recruiting, which is probably 50% of what we do early on in young companies, or to spend enough time with the founder where you can really bring to light some of the pattern recognition you have from other companies—it requires proximity. It's just hard to do that type of work from far away. And as a result, the other thing is most venture capitalists, their unit of work is their time. It's how many boards they're on.

And if working with one company requires, you know, a six-hour commute one way and a six-hour... Seattle's better than, like, the East Coast, right? Or China, even, which is nuts. I don't know how anyone's on boards in China from Silicon Valley. I don't know how you do it. But it makes it harder. And so I think that's the real issue, you know?

Let's talk about Amazon.com, obviously one of the tech titans of the region. A lot of people might not know this, but Bill, as I mentioned, was a stock analyst and was covering Amazon and actually helped lead their IPO out the gate. And in fact, from what I've read, you also have a bound prospectus from the original Amazon.com offering, which is probably worth something on eBay right now, which is another one of Benchmark's great investments.

It was actually our pitch book. We created a leather-bound pitch book to try and win the business.

That's what did it for you.

It may have.

A banking business, it's complex.

So you know the company and know it well from its very, very early days. It's really taken it to a... It's gone into a new stratosphere here in the last five years. Has that emergence surprised you from what you saw in those early days?

I don't think... And I think if you took that same question and applied it to any of the iconic companies, whether it's Google, which I met with when they had 25 employees, or Microsoft, even at the time of their IPO, it would be impossible to have that much forward vision to think someone could accomplish something so outlandish.

So you didn't think they were going to get in the cloud business when you were starting?

Who could have even thought that up, right? And I think it ties back to what we're talking about earlier, which is just having that kind of, you know, ambition to, to the, you know, to launch AWS. It's like nearly heroic that someone would think that up, and what, 99 out of 100 boards would probably try and shut it down as an idea. And it's a good argument for super-voting stock. And it's crazy. It's crazy. And Rich and I were talking, he's become iconic. He is clearly the most respected CEO in Silicon Valley. Really? I think without question. And part of that's because— Is there a fear of him in Silicon Valley? A little bit. I mean, if you're running an e-tailing company, you should be afraid. I mean, I think it's... Well, you guys are investors in eBay, so...

It depends how close you are to the platform, you know, I think. But, yeah, I mean, you should be afraid.

Yeah, I mean, he's shown an ability not just to dig a wide moat around his castles, but to, like, scorch the earth for a mile beyond the moat. Yeah. Right? But...

But the other reason I think he's so respected is he shares his ideology. And so you can be a fan. You can learn from him. When he goes on like Charlie Rose, it's just awesome. You hang on every word. And so he's the real deal. He's on top right now.

We should, we should—did Brad plug his book on stage? Oh, I've plugged it. Yeah.

October 15th, The Everything Store. Absolutely.

We're looking forward to it. I can't wait for it. I know.

He won't let us read it. I pre-ordered it. Yeah. Well, it's going to be fascinating. My Kindle. So keeping on the Amazon thread, um, you know, they have obviously disrupted some businesses, cloud, and now they're getting into delivery, and we really don't know what is next. So, so where do you think they'll go next? What, what, uh, what do you think would be on the roadmap? Where would be, if you're a venture capitalist, where do you see the opportunity for them to expand given their business?

I mean, some really quick ones. AWS is a fairly horizontal layer, and most companies that build platforms like that think about going up the stack, and we've seen a little bit of that there. There's more tie-in they could do between that and mobile and things like that.

And there are lots of startups that have built, basically begun to build the stack on top of AWS on behalf of clients.

So it's obvious. People are very, very—I hear a lot of people say that he's just really, really obsessed with Kindle and making that great. And so I think that if that's where his intellectual time is being spent, I would expect that you'd see great things on that platform. But that's a tough game, obviously, competing with two very, very successful and resource-rich companies like Apple and Google.

Yeah, so you actually had a great blog post about this. Going back to your poker days, I know you played some poker, talking about the rake and how Apple has a great rake. They were taking 30% of the cut and essentially made Amazon, which could have been a friend, into this great foe. And so I just wanted to—where do you see that rivalry right now?

To that point being that Amazon didn't know whether Apple was going to try and compete with Apple with the bookstore of Kindle, the digital bookstore of Kindle, and forced Amazon into doing something on their own. A mistake by Apple not to play nicer with Amazon? I totally think so.

This requires a little more explanation, though. Have you guys had the experience where you're in your Kindle and you're on your iPad? You're in the Kindle app on the iPad or in the Amazon store app on the iPad and you want to buy a book. for your Kindle, to download to your Kindle right away. Well, you can't do that. You actually can't just buy a book from inside the Kindle app, and the reason is is because Apple would not loosen up its guidelines that it takes 30% of everything that happens inside the apps or in the app store. And so you guys have probably all done this. You have to bop out to a browser window, go to Amazon in your browser window on your smartphone, buy the book, do the one click there, and then go back to the Kindle.

All right. This is what—this is the effect.

You're basically bypassing that 30% cut, Amazon is.

But that forced—that is what forced Amazon to say, 'All right, we got to do our own thing.'

Which may have led to the Kindle, even. And you've invited an executive into your market that is very willing to play low-margin games, right? And so may be willing to subsidize a free piece of hardware—it's been discussed in the press the past few weeks—for Prime customers or something to that nature. Yeah, which is not something that would be all that great for someone that makes their margin as a gross margin on hardware products. So you invite orthogonal, disruptive competition.

So, Bill, you were big investors in Webvan, not to go back and bring up a painful chapter here. It's true. But was that a bad idea, bad execution, or bad timing? And then I have a follow-up as it relates to Amazon Fresh.

You just made me laugh, because one of my partners occasionally says—he'll be remembering one of his failures, and he said it was a bad idea, poorly executed, which always... But I don't think Webvan was that. I actually think the product execution was phenomenal in that everyone loved it. And this is an important lesson. A lot of young entrepreneurs think a high Net Promoter Score means you're going to be successful. If you're offering something of value that's worth way more than you're charging for it, you're going to have a high Net Promoter Score. You know, back to the dollar, selling dollars for 80 cents. People will love you if you do that. And that's what the problem was, I think. They've created a remarkable, very high-end customer proposition, and they didn't charge for it.

And I think if they went back and had a surcharge on delivery, the model would have worked a lot more. They wanted to... for it to work for everyone, and... and they got too ambitious. They tried to do too much too fast, and then the bubble happened, which, if you have a high-capital business and you're being overly aggressive and you surf over a... a financial reset, you're dead. Like, that... that's just going to happen. But we're seeing other companies emerge in very... in different geographies with that model, but not just Amazon. There's companies in New York and London. So I actually think it's going to work. So I would say it was a good idea. I think it's something we would do again at that moment in time.

And perhaps, I think, it was well-executed on the product side, less so on the business side. Yeah.

So Amazon Fresh, you think that has good... I mean, they've taken so long to roll that out. I mean, they're just expanding it outside of Seattle. Do you think that's good business, or do you think there's good opportunity there then?

The whole Prime experience has become so unfathomable. It's just ridiculous that you can go to your... You can think of the most ludicrous thing that you want delivered to your house and, like... 36 hours, and it shows up. It's crazy. Like, it's just crazy.

Nadia Shouraboura at Hointer wants you still to go to that store. She doesn't want you to get in those boxes.

It's, you know, hours, not 36 hours.

By the way, one of our Twitter followers out there has said that she wants to see a poker match between Nadia and you since you're both poker players, which I think would be actually pretty awesome. Maybe we can set that up in the VIP room. She scared me.

Yeah, yeah, yeah. I know her based on... You're sitting with her at lunch. I am. I don't want to play betting games against Russian scientists.

So let's jump back onto the venture capital scene here a little bit. The VC model has just changed a lot here in the last 10, 15 years, and really in the last couple years with crowdfunding and whatnot. And what we've seen here a lot of are kind of the rise of incubators. And I'd just like to get a very blunt question: What are your thoughts on incubators, both of you? I mean, is this good for the ecosystem or not? You talk about the Series A crunch. There have been hundreds of companies that have been, or thousands of companies that have been created that can't really go and move on to the next level to raise capital. Are incubators good or bad?

I mean, I'll be quick. The more capital coming in, the more ideation happening, the more electrons colliding, the more interesting things come out. And so how could this be anything but good for the ecosystem to have more collisions? It's fantastic. Now, at certain points in the financing chain, it may not be necessarily a good thing. But at least where Benchmark sits, it's great. It's great. We have more companies to pick and choose from.

Yeah, I would say, I would echo those thoughts that anything that gives more entrepreneurs the opportunity for ideation, the more you're going to have this competitive ecosystem bubble up great ideas. So it's going to be a natural correlation with how many great companies that come out of it. There's... there's a part of it that I'm a little more dismissive of, which is some of the people in those ecosystems have created this kind of counterculture narrative that's almost a bad boy thing, like, 'You know, we're going to go do these things, and we're not going to... We hate the establishment, and we hate venture capitalists, and you don't need them.' And I think they're teaching some things that actually are inconsistent with... with building companies for the long term.

And so there's some of that out there in the water that I think actually does a disservice because, you know, regardless of however you get financed and people like Marc Benioff took Salesforce straight up, went from angel to late stage and never incubated. So there are people that can do it. But you still have to build an HR department. You still have to have a CFO. You don't get to shortcut those things. And so anyway, it's a subtlety.

Interesting. I don't know if you guys saw, but Mark Zuckerberg has kind of been the poster boy in the Valley for a movement that began with him, which was delay an IPO, avoid an IPO at all costs, delay it as long as you possibly can. He was on stage at TechCrunch Disrupt yesterday or the day before, and I guess he came out and said that was a mistake. He said there are lots of good things about being public from a discipline perspective. I don't know what the exact quote is, but he basically said that was a mistake. We shouldn't have been so religious about that.

So speaking of which, IPOs, when's Twitter going to go public?

If I knew, which I'm not even sure whether I do or not, I wouldn't be at liberty to say. We've got to make some news here, so I want to hear the inside scoop on that. I have not answered that question more than any other question I've not answered in my entire life.

Good stuff. Talk about Twitter, though, just as an investment and what you saw there and why you thought that was a—I mean, here I'm soliciting questions via Twitter. I mean, it's just an amazing platform.

I think this ties in with some other questions you asked. I think we're constantly looking for optionality. There's a gentleman in the room, Tren Griffin, who I had dinner with last night, who is a big thinker here in the Seattle community that I love to talk to. And we talked a lot about this concept of optionality. And it's a hard thing to describe. It'd be hard to write a list of this is what defines optionality. But does it have the ability to become something bigger than we ever expected? And Twitter has a lot of elements of optionality. The one that just... I get so excited about every time I see is how the people that use Twitter are so codependent on their handle. And every time they promote the @ sign, they're promoting Twitter.

And it's just such a cyclical loop. You know, it's unbelievable. And it's everywhere. You know, you go and...

I'm kind of bummed out it's not up on the screen right now.

And at Rich underscore Barton. Rich underscore Barton.

I thought that was a good idea at the time, the underscore. When the Golden State Warriors take the court and they're putting up their photos, they put their Twitter handles up. The Boston Celtics, it says @Celtics on the floor. It's in the paint. And it's just amazing. Great advertising. Zero marketing budget again. It's very self-reinforcing. Absolutely.

Yeah, absolutely.

So let's talk about another one of your big investments, Uber. Why are you so excited about Uber in terms of a disruptive type of company?

Well, the primary reason is there's a lot of different entrepreneurs that are messing around with this notion of marketplaces. Not all marketplaces are created equal. There's different elements that are going to make them either more susceptible to being a great business or not. In this particular case, the layer of technology, the algorithms, the routing, the availability that sit on top of this hyper-fragmented set of drivers is actually hugely beneficial to the rider. And the two ways it plays out in a market that's highly liquid is pickup time and density of coverage—how far away and how quick. And that's something that keeps getting better the more drivers that are on the system simply because of math, the routing algorithms that you would put on top of it.

So it's a product that keeps getting better over time. For both sides of the marketplace? For both sides of the marketplace. And it's just hugely dynamic. The second reason is that Travis is one of those rare few people who has kind of an ambition and an audaciousness that is—

Huge. He's right on the edge of that good crazy, bad crazy.

He sees the opportunity in a way that 99% of entrepreneurs wouldn't.

Do you think, combining a couple of questions here, going back to the Webvan days—and I know they've experimented with this some degree—delivery of product through Uber, is that a real thing that we will see more of?

They have experimented. So on Valentine's Day, they make roses available for $100, a dozen roses, delivered anywhere. And it's really easy to implement. They built the platform in such a way that they can turn these things on and off real quickly. They have a day once a year where they do ice cream trucks. And it's not only a testament to the platform, but it's a testament to this kind of idea of innovative PR and creative thinking as opposed to just buying advertising.

So for Halloween, they could have pumpkins delivered to you and turn that on.

But those things give us data about whether or not that might be something that we could do in the future. So right now, it's not the focus of the company, but who knows long-term?

So, Rich, I know you follow the comment threads of GeekWire very carefully since I occasionally see you popping in there. Have you noticed the person in here on our posts on Microsoft and the Steve Ballmer transition who is advocating you to be the next CEO of Microsoft?

It's Bill. That's Bill doing that. Really? He keeps saying that to me. Okay. No, I actually didn't notice. Honestly, I didn't notice. Okay. There is a person doing this. Is it anonymous or is it a person with a name?

I do not know that. So I do want to ask, are you in the running? Seriously, Rich is too much of an entrepreneur, I think, to take on that challenge. But you do have a lot of history there.

Here's the thing. I found out over the years that I give direction better than I take it. And I think the next CEO is going to have to be able to do both. The next CEO of Microsoft is going to have to be able to do both.

Speaking of which, who do you think it will be? Open to both of you.

Since I arrived in Seattle last night, I've had this question getting close to the Twitter question. A lot of people were asking. I think entrepreneurs, because I know that's a large part of the audience here, in general, don't pay enough respect to how hard it is to run a really large company. I think it's probably the most difficult thing you could possibly do as an executive. And so when I see things like what John Donahoe has done at eBay, I'm like, "Wow, you know, we should all really praise," because I think it's just that hard. And, and I think the Microsoft situation is—will be like that, you know, to try and, and take something that's in its current state where it's got a lot of disruptive competition coming at it,

with what I, once again, I call kind of orthogonal competition. It's like they're not playing the game the way you were. It's tough. It's like really difficult.

So would Donahoe be a potential?

Yeah, they could do that. Interesting.

So let's open it up for...

That would be a little harder probably to integrate, although they just got Nokia. Let's open it up for questions. Todd's going to be roving around with the mic if anybody has quick questions for Bill or Rich.

You know, a friend of mine, Chamath from the Valley, has argued that Apple should buy Tesla to get Elon to run the whole thing. That could be interesting. Yeah. Yeah.

Any other theories out there?

I don't know.

Cool. Any questions for Bill and Rich as we go? I can ask another question here as Todd looks around. You know, speaking of, I talked about poker, but you also were a collegiate basketball player at the University of Florida. Somewhat. Somewhat.

Yes, you were the practice squad that got beat up against the first team squad. I kept the stats. So what is it about your 6'9", your commanding presence, what is it about sports? Can you make some parallels between competing at that level and building a startup? I mean, what lessons have you taken out of that experience that you applied to doing your job and building big companies?

I mean, I'll try and answer it quick because I think it could just be fairly obvious, but I think a lot of the team dynamic stuff and that, actually, the way Benchmark is the only venture capital firm on Sand Hill Road where we have completely equal economics amongst all the partners. We don't have a hierarchical firm. There's no senior partner that's been there 20 years that has different economics.

Which last night you were telling me puts additional pressure on you if somebody does hit an eBay. Sure. You feel like you've got to deliver. Absolutely.

There's a nice peer pressure, but it's a team orientation. And we take a lot of pride in that, and we think it's a better model. We're not competing with one another to say, 'Well, I'm better than you, so I should have a higher amount.' And I think that's true in a startup as well. You have to have a team orientation. And, you know, look, you know, read some of the Nick Saban stuff. It's pretty fascinating. There's actually stuff you can draw from to a startup. Coach Krzyzewski, you know, has written a couple books that I think a great CEO should read. Like, it's good stuff. It's applicable. So, but I think those are obvious things, you know.

And it looks—I was going to ask you about poker since that's a solo game, which is probably a totally different skill set. But let's go to the questions out in the audience. Great. We have a question over here from Steve Price.

Morning. I'm in the investment and finance world, and I'm sort of curious, given all the recent press about how low the returns have been for many venture capital organizations, sort of what you have to say about that, and are most outfits that are calling themselves VC firms and investment firms, are they really lacking the skills and lacking the connections they need to provide decent returns to their investors?

So the answer is it's a really hard thing to measure venture capital performance because the average life of a company has gone from seven years to 10 years. And so to get the explicit IRR of a fund, you have to wait, and you make an investment 13 years before you can look back and say, 'Aha, that definitively was the IRR of that firm.' And so it's really hard to measure. Because of the way the funds are structured, the exit time is really long. And so it's an industry with low barriers to entry and high barriers to exit, which is horrible from a Michael Porter's Five Forces standpoint. And as a result, the corrective waves take forever. And so in the past five years, since 2008, the number of venture funds has been reduced somewhere from 800-ish to 400-ish.

Now, most of you can't name 20, so there's still 380 venture firms you don't know, but it's a lot less. And so that's led to some of the Series A crunch stuff and people saying they're not. But it's funny because the press loves to roll around in the fact that VC returns suck, but then they also write about the Series A crunch and they're mad that VCs aren't investing more. You can't have it both ways. If they suck, they're going out of business and then there won't be as much money. All right, we have a question over here from Lou.

Thanks, Todd. Two questions. Rich, how many squirrels have you killed over the summer? Secondly, that's an insider, so we'll get it. But secondly, the IoT automotive market has really taken off. Inrix, Airbiquity, electric cars, self-driving cars. We just love your kind of global view on this market and Seattle's kind of place in it.

Yeah, you gotta explain the squirrel thing, Rich.

Okay, all right. I can't remember exactly what the question was that I was asked, but I was at a...

I was on stage like this, and somebody said something about getting distracted by things and not having focus. And I basically related a story that my dad used to say to me whenever I was always kind of scattered and getting distracted by things. I still am kind of that way. And my dad would say to me, "Kill the squirrel." Basically, you have to think about it for a sec. John, let him think about it for a sec.

I think you need to explain it. Basically, you don't want to swerve. If the squirrel runs across the street, you want to run it over. Run it over.

Don't swerve because you'll hit the tree or hit somebody else on a bike. Anyway, automotive technology, I haven't thought about much, honestly, other than as a user, it's awful. It's really, really awful from a user interface perspective. And I think it's because most of the car companies, everybody wants to be a hardware designer. Everybody wants to design a UI. Everybody wants to be the prime user UI, right? And so what we have here now is a bunch of different car companies with their own software people and other software people, outside software people, trying to design the ultimate UI to interface with the car. Personally, I think that's stupid. I think the assumption should be that everybody has one of these.

And this should be my interface with the car. This is how I want to interface with the car. This is how I want to control things. This is how I want to monitor things. This is how I want my mapping to be delivered. This is how I want to control climate, et cetera. As companies make the leap towards that, you're going to find they're going to be more successful. It may be that a company like Tesla, I don't have a Tesla. I think I'm one of the few guys in technology that doesn't have one of these whizzies. You have one?

I do. Really? My wife does.

Oh, your wife? I thought you just got that other one. All right. Anyway. He hadn't taken me in that car. So you should probably talk, but I think that basically they're beginning to understand that the smartphone is simply an extension of the car's user interface.

Yeah, I mean, for me, from a venture standpoint, it's not a great market. And the reason is because there's not enough fragmentation in the supplier base and it's heavily regulated. And regulation is the friend of the incumbent. And all those things make it very hard to break in. And what Elon did, which is as remarkable as John Donahoe's turnaround, maybe more, like he had to do everything. So he didn't try and sell his, you know, he built the whole car. It's amazing what they, they just won safest car. And it's like the fastest and the safest. Is that possible with the best UI? Anyway, you have to end-run the whole thing, which is remarkably expensive. And they still will use regulation as they're doing to him.

To say he has to have dealers, which is insanity, insanity. My biggest hope over the next five years is that social media, Twitter, transparency, Rich and the Zillow guys used to say they wanted to shine flashlights where they haven't been before around data on homes. I hope that we get rid of the ridiculous cronyism that exists in our government that the highly regulated incumbents use to protect themselves. Because otherwise, we're not going to have the innovation you want to have in autos or health care or some of these other heavily regulated industries.

We've got a question over here from Buzz Bruggeman.

Bill, if time is the currency or one of the currencies of venture capitalists, why not a Benchmark office here in Seattle?

I was waiting on the reaction. There are two things that we, and I'm going to speak specifically about Benchmark, that we think about relative to those types of things. And we actually expanded geographically in late 2000, early 2000s, late 1990s, to Europe and Israel. We found that managing the relationships across the ocean there actually took away from our ability to practice our art. And we made a decision, and our competitors are actually expanding in scope in a whole bunch of different ways, but we made the decision that we are able to be more effective by being around each other more frequently and sharing the pattern recognition and being able to help each other's companies. I'm not saying we would never add a partner that's not in our office, but right now, I think our philosophical bent is that we wouldn't.

So we do have investments outside of Silicon Valley. I'm involved in several companies here in Seattle and in New York and one in Chicago, but we value being around each other. Great.

So Rich Barton, Bill Gurley, thank you so much for being a part of the GeekWire Summit. Thanks, John. Really appreciate it. Thank you. All right.