The Accidental Zillionaire
Microsoft spawned two billionaires. Paul Allen is the other one.
By Paulina Borsook
We grow up hearing, If you're so smart, why ain't you rich? -- and the
corollary is, If you are that rich, you must be that smart. People want
the hugely successful to deserve their wealth; it's not in the American
grain to believe in accidental zillionaires. But Paul Allen, the
little-known billionaire and co-founder of Microsoft (net worth about
US$3.3 billion, number 11 on the Forbes 400), may be just that.
In the last year or so, Allen has been making sexy, high-profile
investments in the infobahn/multimedia/digital-convergence marketplace.
He's this year's (and maybe next's) golden boy; he's the object of a
flurry of gee-whiz, behold-our-latest-captain-of-industry media attention.
He's being touted as the high-tech investor cat to watch.
But this impression of Allen may stem more from the quantities of money he
holds than from the qualities he's demonstrated as an investor. Because
Allen has so much money, he contaminates technology markets, where he
tends to do much of his investing.
People in a position to understand Allen's investments either have deals
with him, want to have deals with him, or are part of a deal he is also
part of. It's natural to be drawn to glamour, and the reflected glint from
all that money contributes to the myth-in-the-making about Allen the
high-tech business seer. In fact, Bill Savoy, one of Allen's senior
managers, has a name for this phenomenon: the Paul Allen effect. Allen
invests in something, and because he invests in it, it's considered to be
of value. Recent Allen investments include America Online (Wall Street's
current online darling), Metricom Inc. (hot wireless data company), and
Virtual Vision (television anywhere!).
His wealth is a lucky trick of time and place, and particularly of his
involvement with Bill Gates. While Allen was co-responsible for the early
creation and early technical successes of Microsoft, his tremendous wealth
came later. Gates made them both billionaires after Allen left off an
active involvement with Microsoft.
Allen's own companies suggest that if he hadn't hooked up with the Jay
Gould of our era when they were both teenagers, he might have ended up no
more than, say, an engineer at Boeing or an employee at a software
company. Allen himself, with characteristic modesty, says he doesn't see
himself as a visionary and has never promoted himself as such, though he
has harbored entrepreneurial yearnings since high school.
Contrary to the myth surrounding him, Allen has not built a successful
company on his own since leaving Microsoft in 1983. While he has recently
made some wise purchases, sources within the companies he has started
claim another kind of "Allen effect": far from being profitable, these
companies are rarely required to come up with products that meet market
tests of innovation and timeliness. Scores of former and current employees
in Allen's far-flung empire spoke to Wired for this story; most talked
under the assurance that their anonymity would be protected, to avoid
financial loss (including remarkable severance packages). In most cases,
they spoke up out of affection and interest in the truth -- and not
rancor. But they gave Wired the impression that many of his companies
might be better off as foundations than as competitive businesses.
Allen responds to these charges by saying that he is happy with his
successes to date, that different kinds of investments merit different
measures of success, and that he is in the really nice situation of being
able to take unusual or high risks without worrying about quarterly
returns or being beholden to stockholders. Or perhaps it's true what F.
Scott Fitzgerald said ("Let me tell you about the very rich. They are
different from you and me.") -- when it comes to Paul Allen, perhaps
different rules of engagement and different measures of success apply.
Allen, 41, is shy and roly-poly, a nerd nonpareil, resembling nothing so
much as a manatee with dancey blue eyes. Former business associates say
they have had just-fine one-to-one conversations with Allen, but add that
when they have run into him say, in an elevator or some other slightly
out-of-context environment, Allen won't so much as make eye contact or
otherwise much acknowledge their existence. Nerd social maladroitness,
rather than arrogance, is the key to understanding this
After meeting with him in person, you realize Allen really has little of
the arrogant entrepreneur persona. He has the capacity to be humbled
before great art, like that of, say, Jimi Hendrix. "Listening to Jimi's
music is a very inspiring thing," Allen says. "I'm strictly an amateur
musician, but here's someone who is self-taught who did some incredible
stuff." And he's earnest, considering himself "fortunate to be present at
the start of the microcomputer industry." He adds: "The information
superhighway is another such wave; and you don't get a chance to catch two
such waves that often." Allen doesn't want to place himself in the class
of the idle rich because "the definition of the good life is doing
creative things, whether making music, trying to figure out how to do a
particular piece of code, or putting together investments."
Allen owns or has the majority interest in several organizations
(Asymetrix Corp., Starwave Corp., Ticketmaster Corp., Portland Trail
Blazers, Interval Research), has three investment-oversight entities
(Vulcan Northwest, The Paul Allen Group, and their parent, Vulcan Ventures
Inc.), and has significant investments in lots of other companies. As the
number of his tech investments has grown, Allen's ability to be involved
in day-to-day operations has diminished. His most successful companies
(Ticketmaster, Portland Trail Blazers) are those he bought intact, as
well-run organizations with proper management and profit-generating
mechanisms already in place.
The companies he has started on his own have not fared as well. Allen's
acquisitions and investments suggest the cyber-equivalent of the
19th-century tycoon's practice of owning the cattle, owning the stockyard,
owning the railroad that transports the beasts, and owning the
meat-packing company that delivers the chipped beef to consumers. In the
world of digital convergence, he intends to buy part of the pipe that
delivers the goods, part of the content being carried, and part of the
hardware and software that underlies it all. Playing the part of a venture
capitalist, he is investing in many different companies, with the idea
that a certain proportion will fail, some will do OK, and some will
generate great returns. Allen says he's aware that because of Microsoft's
success, the public expects he will be responsible for another such home
run. However, he says he knows those home runs don't come that often, and
he is not necessarily expecting one. Instead, he's looking to create and
cross-fertilize interesting ventures.
Bill Savoy, president of Allen's investment organization Vulcan Ventures,
says that the philosophy behind Allen's investments is to invest in the
ways microcomputers can become more television-like, the ways televisions
can become more computer-like, and all the ways products and content can
fit into that matrix. Vulcan Ventures takes its name not from the home
planet of Mr. Spock, but from the Roman god of the forge. To Allen, Vulcan
stands for change, fire, and creation.
Through Vulcan Ventures, Savoy oversees Allen's entire investment empire,
involving stocks, bonds, real estate (a ranch in Montana, the largest
private island in Puget Sound's San Juan Islands), and the usual
high-net-worth individual financial instruments. Savoy exudes nothing more
than a cool, matter-of-fact efficiency. He still maintains relationships
with the colleagues he outlasted at Layered Inc., an early Allen
acquisition that was sold to Peachtree Software Inc. after it fell
mortally ill. That's where Savoy first intersected with Allen.
Vulcan Ventures has a staff of 24; among their other tasks is assessing
the investment proposals that come Vulcan's way -- approximately 1,500 in
1993 alone. Proposals are vetted for financial soundness: potential
beneficiaries must be making a product and generating income -- Allen is
not in the business of providing seed capital. The investments must also
be technologically interesting: that they make business sense is not
considered sufficient grounds for investment. About 1 percent of those
reviewed make the cut.
Savoy says about 20 percent of Allen's net worth is invested in
technology. He says that even aside from the $100-plus million killing
Allen made in the stock market with America Online, the Allen companies
are up $175 million from last year. Since details of these investments are
largely private, there is no way to confirm or deny these numbers, but
Savoy says that Allen's publicly known investments have beaten the market,
and his private ones did too, if they could be compared. Savoy also says
that a cable channel is in the works, but he declines to give
Vern Raburn, president and CEO of The Paul Allen Group, says that the
answer to the mystery question Why is Paul Allen all of a sudden making
all these highly visible investments? is that Allen now perceives that he
can be a major player in the emerging I-way biosphere. Allen says he has
dreamed of the "wired world" (you know, the one where you can order a
pizza online) since the 1970s; only recently has it seemed possible that
the shy and private zillionaire could invest in technologies to make that
When Allen was scuba diving with Raburn after Gates's wedding last year,
he asked Raburn to come work for him. Someone Allen knew in his pre-mogul
days, Raburn was also an early employee of Microsoft and had tenures at
Lotus Development Corp. and Symantec Corp.; he did some venture-capital
work while his wife was at MIT's Sloan School; and he was involved with
Slate Corp., a Scottsdale, Arizona, pen-computing software start-up that
failed, as have most pen-based efforts.
The Paul Allen Group was formed to provide synergy among Allen's
investments: it attempts to foster cooperation among the Allen companies,
a la zaibatsu and keiretsu (Japanese practices of investing in other
companies), and it fosters cooperation among the managers of the various
Allen investments. The idea is to leave Savoy with more of the investment
and financial responsibilities, offloading management of Allen
investments, once they're made, to Raburn.
To deconstruct the myth before it grows into Allen-as-latter-day-J. P.
Morgan, consider Asymetrix, the admiral's headquarters on Allen's business
net. As the first company Allen started after leaving Microsoft, Asymetrix
tried to develop Crucible, an artificial intelligence-inflected, corporate
financial analysis tool. (Programmers labored for years without specs or
even being told what the first dialog box should say. Sources say Crucible
never came close to being released.) Asymetrix then turned to Toolbook, a
multimedia development tool that until May 1994 had not been upgraded in
three years. Then there are Compel, a package for multimedia
presentations, and InfoModeler, a database front-end tool, reflecting the
recent purchase of ServerWare, a little Seattle-area database company.
There's a Jurassic Park screen-saver, too. These are not products that
would have on their own made Allen's name -- or Asymetrix's name. Sources
say the products alone, without Allen's money, would not have kept the
company afloat, although the company may now be finding its stride.
Asymetrix has been called "the reorg of the month club." It is
characterized by high staff turnover; by the unusually strong
qualifications of the people who have come and gone; by the plushy
accoutrements; and, in years past, by the habit of promoting secretaries
to be heads of marketing. Sources say the company has always lost money,
anywhere from $30 million to $80 million over the course of its privately
Allen refuses to discuss the financial details of Asymetrix, but says that
high-tech companies are always competing with other technologies and other
companies. "Things can seem exciting first, but then there's a constraint
on their success, or the market isn't ready for what you've got."
Sources say Asymetrix is known in Seattle as a "stiff check," meaning
working there is like getting a government welfare check. You don't have
to leave if you don't really produce, as long as you can manage upward
(that is, get along with your bosses and make them look good).
Asymetrix has been headed for years by Bert Kolde, a former Seafirst Corp.
bank executive and Allen's roommate at Washington State University. He is
the Allen business associate said to have Allen's best interests most at
heart. Kolde's presence underscores Allen's trait of seldom trusting
anyone who didn't know him before he became blotto with money. But just
knowing someone for a long time has never guaranteed management genius,
nor does it provide the positive resistance and the ability to say no that
true loyalty dictates. At Starwave, former Allen company employees sign
agreements stipulating that they will never make disparaging comments
about the company, under threat of loss of remarkable severance packages
(in other circumstances, this would be called hush
Many of the people who leave Asymetrix do so because they want to feel
that their work has some meaning, that their tasks can be accomplished
without erratic meddlings from higher-ups they perceive to be incompetent.
Allen is said not to want to be bothered with the day-to-day direction of
the company, but he has dipped down occasionally to make suggestions,
often adversely affecting programmer deadlines.
Allen is famously conflict-averse; sources say he hasn't wanted to listen
when folks have tried to talk to him about how badly run they feel
Wealthy, private, Allen may have inadvertently surrounded himself with
folks whose best interests lie in making sure no reality-testing comes his
way. These people may be taking advantage of Allen's tragic flaw, that of
not being a good judge of character, to carve out lucrative sinecures of
their own. Allen doesn't believe this to be the case and is content with
the track record of his managers. He says that he doesn't believe that
"anybody has a monopoly on good ideas, and I hope people will tell me if
something is screwed up. You want someone who will challenge you back;
sometimes that's the way the best decisions get made."
But he may be confusing the kind of intellectual contentiousness
characterizing discussions in a dorm on an elite campus -- where argument
is a favored intramural sport and reality-testing has nothing to do with
the fun of the game -- with the ability to be confronted with unpleasant
Former employees of Asymetrix tell stories of endless debate-team type
arguments where nothing got accomplished and the efforts of the truly
innovative were quashed. People who leave Allen's companies are dismissed
as "not being with the vision," when in fact, their vision may have been
all too clear.
In further assessing Allen as a businessman, it might also be instructive
to examine some clear-cut Allen business failures. Early on, Allen's
management team invested in -- and some say, ruined -- Layered Inc., a
software company in Boston. A few years later, the team invested in an
amazing high-tech boondoggle called Skypix Corp. This late-'80s satellite
broadcasting system had a spectacularly messy flameout. Some sources say
that these failures (and the ways they failed) point to intrinsic
shortcomings in how Allen corporate culture and management operate, and
that they may augur similar screw-ups to come. Others say that anyone is
entitled to mistakes in high-risk, high-tech investing.
Layered, a mid-1980s Allen investment, was a Boston-based software company
whose founders had been successfully marketing DEC minicomputer-based
accounting packages prior to launching Layered. Layered was the first to
market an Apple Macintosh-based accounting program, which was generally
The company's founders had tainted reputations in the computer industry:
some sources claim they were expert at acquiring venture capital, but not
so great at running the company.
Interest in Layered sprang up because, Allen says, "In the early days at
Asymetrix, we were focusing on business automation." Allen was also
interested in Layered's application of GUIs to business software. He had
seen an early version of a GUI on the Xerox PARC Alto in 1981, and thought
GUIs were the way to go.
Though the etiology of the ensuing catastrophe is murky, once the Allen
financing was in place, things went severely awry. Layered's senior
management was fired; Velle Kolde, the brother of Allen right-hand man
Bert Kolde, was brought in. Twenty-five percent of the work force was laid
off. Development was halted on versions of the product for other operating
systems, not a prudent move at a time when no other Windows accounting
packages were on the market (the lead developer of the canceled product
left to work on Improv at Lotus). General cost cutting was instituted, in
curious contrast to the extravagant working conditions at Asymetrix.
Savoy, then a young man in his 20s, emerged from his position as Layered
comptroller to become company president. Savoy was said to be
knowledgeable about accounting, but not necessarily about computers or the
Macintosh market. With little direction from Allen's management team, the
company drifted. Savoy was charged with selling what was left of Layered
to Atlanta-based Peachtree Software in
Up, up, in the sky
Another business failure was Skypix, the investment that first got Allen
jazzed about investing in the information superhighway. Allen says that
the missing link for the information superhighway was high bandwidth into
the home, which got him looking at direct satellite-broadcast systems.
Skypix's raison d'etre was to provide these pay-per-view capabilities for
the home market. But Skypix also turned out to be more business operetta
than deal-of-the-century. Formed in 1988 with $30 million from mostly
Seattle-based investors, Skypix continually missed deadlines and lied
about the state of its finances, manufacturing, and marketing until it
went into bankruptcy in 1992. The company now faces roughly $400 million
in claims against it.
Sources say that Allen found the Skypix data-compression technology
"cool." That "coolness" was for him sufficient reason to make an initial
investment of $10 million. They also say that the Skypix technology was
indeed credible, although by 1990, many in the engineering community began
to have serious, never-to-be-answered questions about how technologically
feasible it truly was. Savoy says that little was known at that time about
just how sleazeball the Skypix entrepreneurs -- brothers Frederick and
Richard Greenberg -- were.
Allen was not alone in his enthusiasm for Skypix: Comsat Video Enterprises
and GTE Spacenet had dealings with this Crazy Eddie-ish
fiasco-in-the-making. Compression Laboratories Inc., an established
videoconferencing manufacturer, was supposed to manufacture decoders. (It
later became one of the many corporations involved in lawsuits against
Skypix founders.) Mitsubishi International Corp. agreed to manufacture the
home receiver units. Warner Brothers and other Hollywood studios got in on
the act as content providers. Even TCI's John Malone offered his cable
empire as a testbed for Skypix.
Yet, had any of these companies done their homework, they would have been,
at the very least, titillated by the true-life saga of the founders of
Skypix, the brothers Greenberg. By the time of the Skypix bankruptcy, the
Securities and Exchange Commission and a federal grand jury were looking
into Greenberg scams, for the brothers had participated in an array of
questionable activities. To mention just a few: the FDIC froze their
assets and limited partnerships after the failure of the Bank of New
England; a Florida court forced Chapter 7 bankruptcy on the Greenberg
venture after 27 plaintiffs were awarded damages in a Florida real estate
deal; the US Office of the Comptroller of the Currency shut down First
City National Bank & Trust of New York in 1989, where Fred Greenberg had
been chairman for four and a half years.
After years of missed deadlines for product and service rollouts and
endless management churn, by 1992 Skypix had begun to collapse. For lack
of payment, Skypix lost access to its ten Hughes Ku-band satellite
transponders. The Home Shopping Network pulled out of a $30 million
agreement, suing Skypix for an unpaid $6.2 million loan. The Greenbergs
were hit with SEC investigations.
Savoy now says he and Allen knew Skypix was a 10-to-1 long shot at the
time. But long shot or no, Allen was still sufficiently committed to the
enterprise that he at one point was proposing to salvage the company
through alternate bankruptcy reorganization plans that he devised and
presented to the judge.
Post-Skypix, Allen is said to have become a much smarter investor. One
venture-capitalist who has dealings with Allen says that his investments
have become much more astute, and Raburn says that Allen has "gone through
a growth process; characterizing him as he was two years ago wouldn't be
Allen himself has said that what he learned from Layered and Skypix was to
be more careful about choosing partners.
One of Allen's newest wholly owned companies is Starwave, which he plans
to make into his multimedia content provider. Starwave is headed up by
Mike Slade, another early Microsoft employee who left to work at the
company Steve Jobs started after Apple, NeXT Computers. Starwave's mission
is to envision products and services as if bandwidth were infinite and
free -- in other words, as if there were no technological and financial
limits to how titles and services could be produced and delivered.
Starwave content could be anything from children's games on CD-ROM to
Hollywoodish productions. Its first offering is an online sports service
through Ziff-Davis Interactive's Interchange Online Network that will
compete with Microsoft's Complete Baseball. Starwave has also announced
the development of an online service for lovers of outdoor sports in
cooperation with Outside magazine.
As with other wholly owned Allen ventures, it's not entirely clear whether
Starwave is really supposed to make money, or in any way subject itself to
bottom-line disciplines. Allen says that he does want his companies to
make money as well as be technologically innovative; but sources say that
in other moods he admits to being more truly concerned with his companies'
technological finesse. These mixed messages have no doubt contributed to
the confusion and exasperation former Allen employees, at Starwave and
Asymetrix, have felt. Sources say employees are already either being
forced out or are trying to find ways out of Starwave. It will be
interesting to check back in a year to see what Starwave has actually
And the winners are
Perhaps Allen's most successful property to date in Info-Hiway-Land is his
$300 million, 80-percent interest in Ticketmaster. Ticketmaster gives
Allen both recurring revenue streams and a working transaction engine,
perfect for prototyping various kinds of interactive services and
electronic shopping. Not to mention the emotional appeal of such a company
for a man as in love with sports as is Allen.
The pre-Allen Ticketmaster was already exploring joint ventures with Time
Warner Cable for an interactive home-shopping service, and America Online
has an agreement with Ticketmaster and the Chicago-based Tribune Company
to sell tickets in Chicago and Florida as part of the deal. Ticketmaster
was probably glad to have Allen as its main investor, for while it has
nationwide domi-nance in ticket sales, it needs deep pockets and
technological expertise to move beyond the rather flat market it now owns
for plain-vanilla admissions to events. It recently partnered with music
divisions at Time Warner Inc., Thorn EMI, Polygram, and Sony Corp. to
create a rival to MTV.
Ticketmaster has been slapped, however, with a variety of antitrust suits
alleging kickbacks to promoters, excess service charges to consumers, and
other not-nice business practices.
One unqualifiably successful property for Allen lies pretty much outside
the realm of the wired world but within the realm of pure Allen joy: his
$75 million ownership of the Portland Trail Blazers. Allen took a winning
basketball franchise that had been well-run for years and didn't mess with
a great formula: the Blazers had 769 consecutive regular season and
playoff sellouts through the 1993-94 season, a record unequaled by any
other NBA team, ever. Allen is said to show up for most home games and to
invite the players to frolic at his Mercer Island mansion once a year.
Not only is Allen the wealthiest owner in the NBA, he is the wealthiest
team-owner in all of the four main US spectator sports. Some sources say
those in the Blazer organization, aware of the Allen touch in other
businesses, live in dread of the day that people from the Allen
organization decide to take a more activist, hands-on role with the team
and half-joke about the arrival of monsters driving south to Portland on
Interstate 5 from Seattle.
The Rose Quarter, the Blazers's new 20,000-seat arena and sports complex,
is the most technologically advanced and expensive arena in the NBA. No
less than $46 million of the more than $262 million for the arena,
scheduled to be finished in time for the 1995-96 season, came from
The brains of the outfit
Perhaps the most rarefied of Allen's business units is Interval Research,
Allen's own private $100 million think tank. (Now, there's a rich-guy toy
not available through The Sharper Image.) Sources say this is the Allen
business entity that may come the closest to succeeding, because it is in
the greatest alignment with Allen's true nature: his affinity for
technology R & D.
Interval came into being in part, it has been said, because Allen was
concerned about the decline in funding for R & D in the United States,
whether in universities or in the corporate world, such as AT&T's Bell
Labs. While Allen doesn't bristle with intellectual energy, he says he
left Microsoft because, at the time, he was stuck working on the next
versions of unchallenging Microsoft programs. "Blame me for having to type
the backslash in DOS," he jokes. Microsoft didn't have a true R & D
department at the time.
Headed by David Liddle, who was aggressively recruited for the job,
Interval's mission is to be self-funding in ten years, supporting itself
from the licensing fees its inventions generate. Operating with great
secretiveness, Interval has a reputation, depending on whom you talk to,
for having hired either the best and brightest on the cyber frontier, or
folks who couldn't get a job elsewhere. And the institution of Interval
itself poses fundamental questions: can a think tank operate successfully
as an extension of one man's mind, whether Allen's or Liddle's? Allen is
said to want Interval to pursue some of the computing-research interests
and problem areas that concern him; Liddle, similarly, is said to hold
fairly direct powers of pruning and oversight over Interval staffers. This
is a model quite different from what holds at other research institutions,
where those chosen to work there are often left on their own to stumble
serendipitously into the good stuff that matters.
As deeply as Allen cares about R & D, his great love is music. "I
certainly loved writing code, but if I had to stop playing guitar, and if
you were to ask me a year later if I missed it -- well, [as] an outlet
there's no equivalent to music." He hopes his band will eventually be good
enough to stand to hear itself on CD: like all garage bands, it has played
at a few parties and wedding receptions.
Allen has proposed a 100,000-square-foot Jimi Hendrix Museum, slated to
open in 1997. The museum would use computers and synthesizers and
multimedia to explicate displays of Hendrix's memorabilia, music, roots,
and life. Hendrix's Electric Lady Studios would be recreated, as would a
reconstruction of the backstage of a concert. Exhibition space would be
provided for other Northwestern musicians and other music-related
subjects. There would be the usual round of museum-type activities:
concerts, film series, lectures, and programs in the schools.
But there's a subtle contradiction built into the project: in recreating
the Hendrix experience (as in the name of Hendrix's band, as in the
Hendrix song, "Are You Experienced?"), the museum will not necessarily be
building drugs and dissolution into the museum-goers' experience. Great
rock and roll in the Hendrix era (and maybe in any era) was precisely the
music of outsider sensibility, of unconventional, even unsavory ways of
being, the soundtrack to a travel documentary on all the nifty places
drugs and outre sexual practices can take you.
The Hendrix Museum serves as a pointer to who Allen really seems to be: he
means well but has more money than vision. It is premature to talk about
what will happen with his major investments: perhaps the ways of doing
business that have hobbled Allen's previous ventures won't prevail.
Perhaps he has learned from failures such as Skypix. Maybe through contact
with such sharp corporate operators as Ticketmaster President and CEO Fred
Rosen, Allen and his organization will be able to create companies that
thrive with good employees who are happy to stay at them. Perhaps with
decent financial-oversight mechanisms in place, Allen will stumble no more
than any other investor who has his shares of both hits and misses. And
who among us would want to be judged only on the screw-ups in our past and
be denied the capacity to learn from mistakes?
But the operating metaphor for Allen might be that of an ascendant to the
throne of the ancient Persian Empire: a ruler who, not quite sure how to
deal with the power and wealth he has been blessed with, ends up
surrounded by courtiers who intrigue among themselves and manage the
kingdom to their own benefit. Meanwhile the Emperor, who'd rather be
playing his zither or fooling with one of those clever machines his Greek
tutor invented, occasionally checks in to see what his lieutenants are up
to. And the empire has so many resources, that even when they are
squandered, the Emperor is effectively buffered from the consequences of
The companies listed here are merely those that are visible in Allen's
portfolio now; Allen is said to be making, additionally, up to 30
investments per year, averaging $5 million each. The total count of active
investments is 25. In fact, sources say that in the Pacific Northwest,
it's hard to find a company Allen doesn't have a piece of. These start-ups
may be grateful for cash they couldn't acquire elsewhere, but end up
dismayed by the management directives (from Allen's management team) they
end up being saddled with. Still, what doesn't kill you may make you
stronger; since there is never enough cash for enterprise, there are
rewards to enduring management vagaries.
No doubt, other companies and deals and synergies will be announced after
this article goes to press but before it appears in print.
America Online (Vienna, Virginia). Allen's 1992 investment started
at 24.9 percent, then dropped to 18 percent. An initial $30 million has
increased in value to between $120 million and $130 million, depending on
America Online's stock price. An online service that was the only
pure-play available in this sector, America Online and Allen put each
other on the map. Because Allen bought such a huge stake in the company,
the financial hive-mind decided that it must be a good investment. This
drove the stock price up, which de facto did make it a good investment:
America Online stock has risen almost sevenfold since it went public.
Conversely, many people had never heard of the very private Allen until
his deal with America Online, which was the first online service to
achieve the cachet of the hula hoop, The Breeders single "Cannonball," or
the cellular phone (fun, easy-to-use, trendy as hell).
Allen wanted to buy the company outright, which America Online management
resisted, adopting a poison pill to keep him away. Sources say that the
company and its other investors were perturbed not just at the thought of
any takeover, but particularly at a takeover by Allen himself: they were
well-acquainted with the potential downside of Allen-derived management.
In any event, America Online denied Allen a seat on its board of
directors. Disappointed because he couldn't make enough synergies happen
between America Online and his other companies, or for other reasons
(increased competition and other factors may cost America Online its
lustre as an investment), Allen may be looking to sell his stake in
Cardinal Technologies (Lancaster, Pennsylvania). Allen's investment
of $15 million gave him a less than 20 percent share. A former modem
manufacturer, Cardinal is a supplier of sound cards and multimedia upgrade
kits, including DSP (Digital Signal Processor) technology that is software
upgradeable. A company created through managers buying out RCA's New
Products Division, at bottom what Cardinal really offers to Allen is
manufacturing capacity. As we went to press, Vern Raburn was acting CEO,
and Cardinal still wasn't being mentioned in the same breath as Creative
Labs or MediaVision, the dominant multimedia upgrade-kit makers.
Darwin Molecular Technologies Inc. (Bothell, Washington). Allen's
$5 million stake matches Gates's investment. This two-year-old biotech
start-up intends to use DNA sequences in the human genome to create
remedies for AIDS, cancer, and auto-immune diseases. Leroy Hood, one of
Darwin's founders, was recruited by Gates from the California Intstitute
of Technology in 1992 to head the Department of Molecular Biotechnology at
the University of Washington. The company was co-founded by the former
chairman of Cetus, one of the original biotech start-ups, and is said to
use techniques of molecular evolution -- survival of the fittest compounds
-- to discover drugs. Stay tuned to see if Darwin meets its target date of
1996 for testing its first
Harbinger*EDI Services (Atlanta, Georgia). The amount of Allen's
original investment remains undisclosed, but has given him an 18 percent
share. Founded in 1983, the company offers Electronic Data Interchange
software, which makes it possible to route electronically such business
paperwork as order forms. The company also runs its own EDI-based network,
with 7,000 corporate subscribers. Revenues are between $10 million and $20
million per year. Has licensing agreements with Sprint to target Western
companies doing business in China. Computerworld readers gave a Harbinger
product the highest rating in its category. Might be a strategic fit with
Lone Wolf (Seattle, Washington). Allen's investment undisclosed.
This start-up developed a real-time networking protocol (MediaLink) for
wired or wireless transmission, useful to the music business, whether in
audio equipment, musical instruments, CD-ROM drives, or video cameras. Its
Visual Network Operating System makes it possible for programmers to write
applications to interconnect these devices. Think of it as 22nd-century
MIDI. Tina Turner and JBL are among the early adopters of Lone Wolf
technology. One big upside of this technology is its potential application
to home automation. Imagine your heater talking to your air conditioner
and your room lighting.
Metricom Inc. (Los Gatos, California). Allen's $27 million garnered
him 17.5 percent. One of the few pure-plays available (other wireless
providers were owned by big corporations) in the wireless communications
market, Metricom specializes in low-cost microcellular technology (unlike
conventional cellular, it relies on lots of little cheap cells scattered
across a campus or city), used Apple Computer as a pilot site, and has had
serious involvements with utility companies such as Southern California
Edison. Since it went public, Metricom is much beloved by the investment
community. Might offer synergy with Lone Wolf or Starwave.
Microsoft Corp. (Redmond, Washington). The value of Allen's
holdings depends on the stock price that day; his share amounts to 13.4
percent. What can be said? He is still on the board of directors, and he
and Gates are friendly competitors in terms of fancy boats and cars
purchased and manses constructed. Allen started out with a lower
proportion of the stock than Mr. Bill, who later talked him into taking an
even smaller portion. Sources say that an original non-compete agreement
about not raiding each other's companies for employees has soured into a
situation where efforts are made to prevent ex-Asymetrix employees from
being hired at Microsoft.
Nationwide Wireless Network (Jackson, Mississippi). Allen's $10
million bought him 3 percent to 4 percent. Nationwide Wireless Network is
a new venture being jointly developed by Microsoft and Mobile
Telecommunications Technologies, known as Mtel, the largest paging company
in the United States. As the name implies, NWN will be a national wireless
data (no voice) network. It will not have to go through the FCC spectrum
auctions later this year -- an exclusion grandfathered in through a "final
pioneer's preference." NWN's estimated time of arrival is the second half
of 1995; the network covers the top 300 US markets. Gates also invested
STATS Inc. Or Sports Team Analysis & Tracking Systems (Skokie,
Illinois). Allen's investment not disclosed. Named in Inc. magazine's 1993
list of the 500 fastest-growing private companies in the US, STATS
compiles, analyzes, and distributes sports statistics to professional
teams and media such as the Associated Press, USA Today, and ESPN. STATS
provides an astonishing degree of granularity in its data stream (for
example, it tracks the direction, velocity, and distance of every batted
ball). The company makes interactive baseball software for the Apple
Newton, publishes books annually (The Scouting Report: 1994, 1994 Football
Book), and provides online and facsimile football and baseball services.
It also offers fantasy (rotisserie league) baseball, football, and
basketball. Starwave is using STATS data for its sports online service;
STATS is another natural, given Allen's love of sports and the company's
SureFind Corp. (Seattle, Washington). Allen's investment not
disclosed. Originally started as an automated alternative to classified
advertisements, the company ran into serious snarling from newspapers,
which were aghast at what this upstart might do to their main revenue
base. The initial incarnation of the SureFind technology used touch-tone
telephones to navigate through real estate listings selected by size,
location, and price; the service faxed or called clients if likely new
properties came on the market. To protect their turf, Seattle newspapers
refused to run SureFind ads in their real estate classifieds sections. In
the spirit of If you can't beat 'em, join 'em, SureFind has now positioned
itself as a supplier of its telephone-based, consumer-database search
service to newspapers and major catalog retailers. Now in talks with
Egghead and Ticketmaster.
Telescan Inc. (Houston, Texas). Allen invested $2.8 million for a
14.6 percent share. Best known for its interactive online financial
analysis services, whether for companies such as Charles Schwab or for
individuals. Telescan joint ventures include American Institute of
Architects Online, Editor & Publisher Online, BPI Communications
(Hollywood Reporter Online, Billboard Magazine Online). In addition to the
normal keyword-search capabilities of most online reference services,
Telescan makes it possible for people to interrogate databases using
natural-language queries, so that software can respond with responses
weighted according to their relevance to the search. In other words,
something akin to meaning can be factored into trips through Telescan
infobanks. Its subsidiary, Knowledge Express Data Systems, hosts online
services for technology licensors (Licensing Executives Society, the
University of California) and is involved in defense-conversion work in
the Philadelphia area.
Virtual Vision (Seattle, Washington). Allen's investment
undisclosed. Drawing on work done at the University of Washington Human
Interface Technology lab, Virtual Vision makes glasses that enable people
to watch television or other video images while doing something else.
Like, say, actually attending the football game they're watching on TV, or
having a root-canal done while they're watching a videotape of Hell in the
Pacific. A wireless version of the product is in the offing; the existing
product was mentioned in the "Fetish" section of an early
issue of Wired (Wired 1.2, page
Visionary. In a small way. He did have the original technical ideas
behind the early Microsoft. And DOS, the Microsoft product that has made
the company's fortune, was purchased from outside Microsoft -- its
business brilliance lay in how it was marketed to IBM and beyond.
It's been suggested that Allen's current investment strategy consists of
searching for another DOS -- i.e., a fortunately purchased technology that
turns out to be seminal (Allen does say he isn't expecting such a windfall
twice). It is true that Allen was interested in both GUIs and multimedia
in the mid-1980s, years before these technologies were familiar to the
mass of humanity. They were also then familiar to and of interest to the
thousands of other technologically astute, computer-aware folks on the
planet -- technology workers who, like Allen, were regularly exposed to
the far-out fringes of techno-thought. His current investments in
convergence and online technologies make sense, but given his background,
they're not that surprising: the kinds of investments Allen is making are
where lots of investment capital is now flowing. It's hard to find anyone,
after all, who is still investing in minicomputers, and pretty easy to
find investors for, say, 3DO.
Likes rock and roll. True. Said to have a professional-grade
recording studio at his house, and to play at guitar -- with a passion.
Now funding a Jimi Hendrix museum in Seattle; agreed to be interviewed for
Rolling Stone, in spite of his famous reclusiveness and discomfort with
the press, possibly because of his rocker yearnings.
Socially maladroit. True. Notoriously shy and ill-at-ease. What
many people have interpreted as cold-ness is more likely the ineptness at
human contact that comes from nerd-bashfulness. His demeanor is even said
to have lost him a major business deal because of his inability to be
personally forthcoming, make eye contact, project himself with strangers.
Still, many people who know the man like him, asserting that he is a nice
guy. Unlike Gates, whom no one has ever called a nice guy, but whom
everyone perceives to be an interstellar business champ.
Loves sports. True. Has a professional-level basketball court at
his house, part of a recreation complex that he occasionally opens up to
Allen company employees, and occasionally plays there himself. His love of
sports informed his recent majority purchase of Ticketmaster, solid
investment opportunities aside. It makes for a vertically integrated
sports operation: he owns a team, he owns part of a stadium (Allen is
currently helping build a new sports complex in Portland, the Rose
Quarter), he owns the place to get tickets from, and he owns a service
that gives out electronic infor- mation about it all.
Close to his family. True. Unmarried, Allen turned to his sister
Jody Allen Patton to manage his foundations; she is also senior vice
president of the Oregon Arena Corporation and executive director of The
Jimi Hendrix Museum. Mother Faye lives in a
library-that-masquerades-as-a-house on Allen's compound. Perhaps his
single biggest charitable contribution -- $10 million to the University of
Washington library -- was made in the name of his beloved late father,
himself an associate director of the library.
Amateur astronomer. True. Among other acts of largesse to the
astronomy community, contributed to the private-sector rescue of the SETI
(Search for Extra-Terrestrial Intelligence) Institute (Mountain View,
California). SETI uses radiotelescopes to observe the 1,000 closest stars
for signs of civilization; originally funded by NASA in 1992 to run for a
decade, Congress canceled SETI funding in October 1993.
Recovered from Hodgkin's disease. True. Some say his bout left him
just wanting to have fun. Others say it left him wanting to leave his
mark. This might mean coming up with a technology universally acknowledged
by those who know about it as cool, whether or not the technology becomes
a commercial success. Still others who want to accord him the trappings of
hippie right-livelihood say he wants to give something back to the
community that gave him his gazillions, and so would like to create
software tools or products that will enable others to similarly make
San Francisco-based writer Paulina Borsook (email@example.com) wishes to thank the many, many former longtime business associates of Paul Allen who took her into their confidence. Thanks, too, to Richard Brandt for being, as ever, a great sounding board.
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