Interview: Andreessen targets 'fundamental breakdown'

Loudcloud Inc, the latest venture of Netscape Communications co-founder Marc Andreessen, marks its first anniversary as a company this month. Thus far, Loudcloud has signed up 30 users of the Web infrastructure technology that it develops and then runs on an outsourced basis for large companies, e-commerce businesses and application service providers.

Andreessen, who is Loudcloud's chairman, spoke recently to Carol Sliwa about his new company - which has 250 employees and more than $US188 million in venture capital financing - and about the software business in general.

Q: It's surprising to see you turn up in a nitty-gritty infrastructure company. What interested you in Loudcloud?

A: The truth is, this is an actual business with revenue. Our customers pay us mid-five-figures to mid-six-figures of revenue a month for [our] service. This sort of comes full circle with much of the stuff we saw at Netscape. Netscape was a commercial software company with all the typical characteristics of a commercial software company. We'd take all the customer's money up front, we'd throw the software over the wall and the customer would have to work with it . . . And so as a result, there's a tremendous amount of software that got built at Netscape that never got effectively deployed by customers.

And it's endemic to the commercial software industry that there's this misalignment of interest between the vendor and the customer, where the vendor's not necessarily motivated by customer satisfaction. And therefore, the customer is not necessarily motivated to treat the vendors particularly well.

Q: It seems like a real hate/hate relationship?

A: It's a nasty business. You know, Gartner trains customers how to screw software vendors by doing negotiations on the last day of a quarter. And the only way out, the only profit mantra in the software business, is to be a monopoly. There are all these sorts of nasty aspects to the [software business] model. It's incredibly inefficient.

And the situation gets worse and worse and worse and worse and worse all the time because the software keeps getting more and more complicated. And then you look at the Internet, and you say, "Wow, a high-speed network interconnecting all businesses". And all of a sudden, businesses should be able to go out there and pull down [the information technology] resources they need, all kinds of services . . . on an outsourced basis. If we can pull this off, it'll be a pretty fundamental breakdown of how this business was created.

Q: When do you think your company will become profitable?

A: For the company, I won't talk about it. But the [strategy] is to acquire customers and then keep them for a long period of time. We get paid every month. And the [business] model is also to build our infrastructure and then fill it up to a high percentage of utilisation over time. So like a teleco company, you'll be able to look at us from a financial standpoint on a per-customer basis or . . . evaluate us per unit of capacity. The [goal], obviously, is profitability. But a lot of implementation has to be done between here and there.

Q: Your company talks about building "Opsware automation technology". What is that?

A: It's software that we built for provisioning, managing and scaling our infrastructure.

Q: So it's like a system network administrator in a box?

A: Right. We do provisioning of everything but the CPUs. So it's app servers, databases, customer code, customer content, networking configurations, security. It's provisioning of that, and then it's [hardware] management of that, and then it's scaling of that. It makes it really easy for people to start out. It also makes it very easy for people to scale, because if you're growing, you just bring [capacity] online as you need it, as opposed to having to make a capital investment . . . If you don't need it the next month, we bring the capacity back down again. We can use it to run another customer.

Q: Do you offer network consulting services?

A: Our people would never go in and actually analyse anybody's network on an hourly basis. There's a lot of demand for that kind of consulting service, but we're trying to build a totally different kind of business. Software environments keep getting more complex to manage, and so we're saying we're going to take an automated approach towards offering that as a packaged service . . . We're constantly taking people out of the loop and replacing them with automated processes. And it leaves, by the way, a huge amount of room on top of our infrastructure to do custom development, because we don't do that.

Q: Do you advocate one vendor's technology over another?

A: We're completely technology-agnostic. We have no investments in other vendors or anything.

Q: It seems like the biggest impact on globalisation is already happening, and it's mobile and wireless. What are you doing in that area?

A: We haven't formally done anything there yet, but I think what's going to happen is that all the Web applications that are being built today, in the US primarily, are assuming that users have a PC-based Internet connection. And I think a lot of those applications are going to have to be completely redone . . . What that says to me is the complexity of these software environments is about to double again, because we're going to have to re-create all this stuff for a mobile environment.

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