“I guarantee that the telecommunications market will recover within three years. It won’t return to the level of 1999-2000, but it will make a big comeback. I’ve been dealing with start-ups for 31 years. I went through the 1960s electronics crisis, the 1970s software crisis, the 1980s PC crisis, and the 1990s communications infrastructure crisis. Everyone now working in the Internet knows that it is growing,” Yossi Vardi said in March 2001. His prophecy is coming true on schedule in March 2004.
Three years ago, Vardi made a presentation to a skeptical audience that highlighted the contrast between despair on the part of investors and the meteoric rise in the number of Internet users. Vardi, who won fame as the entrepreneur who sold Mirabilis to America Online (Nasdaq: AOL) for $400 million, estimated that the number of users of ICQ, Mirabilis’s instant messaging network, would reach 100 million, with 100,000 new users per day. Mirabilis has reached 270 million downloads up until now, but his audience found his figures unconvincing at the time.
Vardi: People were confused
Vardi believes that people remember only the most recent event. If they absorb a blow, they remember it. “The crash will be followed by a renewed surge. Just like it fell, it will rise again.” The evidence is all around us: the number of Internet users, the number of web pages viewed, the number of instant messaging users. At the global conference in Dabos, the chairman of VeriSign that the number of calls to the company’s servers (which administer the .com and .net domains) had shot up ten-fold during the four-year recession, from one billion calls per day in March 2000, when the boom collapsed, to ten billion calls per day. These indicators show the enormous power of the system.
”Globes”: At what point on the graph are we right now?
Vardi: ”It will rise further, and then level off. I don’t know when. Grow will continue for a while, because all sorts of forces are making the Internet grow, including lower prices for equipment, bandwidth, and storage. More accurate paradigms have been devised which users find more satisfactory in a large variety of fields: entertainment, video, music, games with many multiple players, e-commerce, searching and finding operations, and operations on to do after searching and finding.
”When the Internet was just beginning, the paradigms for advertising and e-commerce were unclear. Now all the paradigms are emerging from the fog, and we see very large numbers of companies that know what to do with those paradigms. Only now are those companies starting to take full advantage of them. In my opinion, we’re in the second scene of the first act of this play, which has quite a few acts. We’re only at the beginning, although prophecy is a risky business.”
Vardi avoids questions about what he expects in the next few months. When he doesn’t want to talk, he starts quoting other people: “I can only quote JP Morgan, when he appeared before the US Congress in the early 20th century. They asked him what the stock market would do, and he answered, ‘Fluctuate’. John Paul Getty listed the three requirements for success: ‘Get up early, work hard, and find oil.’ That’s a good formula. As Luciano Benetton once said, it’s a pity that the only people who know how to manage Italy’s financial policy are busy driving cabs.”
Vardi recited these quotations while glancing frequently at his new toy the Treo 600. His office phone never stops ringing. He answers in a friendly voice, types away at the gadget, retrieves figures that support his forecasts, goes to the crowded bookcase and pulls out books about mass psychology written in the early 20th century. Will there be another bubble? Another crash? Another technological revolution? Vardi suggests that reading “Extraordinary Popular Delusions and the Madness of Crowds”, written in 1850, will make you realize that we’ve invented nothing new.
Vardi, a graduate of the Technion - Israel Institute of Technology, began his career as a cofounder of Advanced Technology, the largest computer company in Israel in the late 1960s. In the 1970s, he was cofounder and the first chairman of Israel Chemicals (TASE: CLIM). He was later involved in founding about ten high-tech start-ups, some of which had IPOs, and was director general of the Ministry of Development (1970-1974) and the Ministry of Energy (1978-1979). He was considered a confidant of late Prime Minister Yitzhak Rabin, has been a consultant for the Ministers of Foreign Affairs and Finance, and planned Middle East projects that were presented to regional conferences in Casablanca, Amman, and Cairo. In addition to his promotion of regional economic cooperation, Vardi participated in secret talks with Syria.
Disengaging from the financial markets
”Things couldn’t be better, happier, better looking, and promising for the future. Change in government will make it possible to realize the potential of cooperation in the Middle East, and the hope of workable arrangements brought by the new government will improve the general atmosphere. This will clearly affect the high-tech industry, and more companies will do business in Israel. Up until now, companies have done business in Israel despite its image around the world; it can be assumed that more companies will come now.” Yossi Vardi in “Globes” in May 1999, forecasting a positive turnaround.
Vardi’s forecasting ability is impressive. The secret of his prophetic powers seems simple stay in touch. “You need a strong belief in the power and force of the field you’re working in, whether it’s the Internet, real estate, or retail sales. You have to disengage from the fluctuations in the financial markets, which are usually managed by people who don’t understand the field, and which are affected by investors running after the latest fashion. US fund management company Brandes Investment Partners has established a fund that buys short positions on companies appearing on the front page of ‘BusinessWeek’.
”You need commitment and faith in order to succeed. You don’t have to be a genius. You have to open your eyes and ears, believe in yourself, and check yourself. You have to realize that the Internet isn’t a curiosity or a fashion; it is one of the biggest changes that civilization has experienced, without our awareness of the fact. More people feel comfortable shopping online with their credit cards, more people are getting to love their computer, at least to the extent that you can get friendly with an unfriendly machine like a PC, or they have at least learned to put up with its eccentricities, with the help of their neighbor’s son, who helps them maintain the machine.
”Anyone who really knows the Internet, who has followed consumer behavior, saw how the capital markets were totally out of touch. That’s why I repeatedly told people to forget about the capital market, and do their work. During the four years after the bubble burst, I personally went on investing in start-ups without a stop. How did I know? I knew because I knew ICQ, and I saw that people went on downloading that kind of software - tens of thousands of times a day. Internet use was increasing, and it was only a question of time before the market regained its confidence,” Vardi explains.
A week ago, Vardi got his Treo 600, the latest version of handspring.com’s telephone-handheld computer. The device never leaves his hand. “I sleep with it. In bed in the morning, before I get from under the blanket, I check my e-mail, read a newspaper, and say hello to my kids with a short messaging service (SMS) message. I do all that with one thumb. It may not sound like a big deal, but thanks to the user interface, my use of the wireless phone has soared. Every morning, I buy 300 Kbps from bed. The Internet makes a qualitative difference, not just a quantitative one. The Internet makes it possible to search for products, information, spouses, anything at all, and to find what you’re looking for. The link between human beings and software and hardware is in the process of evolving.”
Big money has arrived
”The experts and human researchers disagree about the exact reasons for the reasons why silicon sapiens appeared on Earth. One group claims that the process was inevitable, because human technology has matured and reached a dead end, in which new ideas can no longer be applied without extra help from something. Others believe that it’s too early to draw any conclusions whatsoever. They say we’re still in the middle of the process.” Yossi Vardi in “Globes” in September 1999, in a discussion on the next successful start-up.
”I’m glad to know that the biggest thing in the Internet, the number one motivating force, which explains the dizzying success of ICQ, is cooperation between users. Software and tools for instant messaging and file sharing have become the most important Internet technologies. They have broken loose from the Internet, and have reached wireless telephones. Instant messaging has become an important and growing industry. I have articles here explaining that cooperation yields big dividends in terms of dopamine secretions by the brain. That’s obvious; otherwise, boys and girls wouldn’t rush to their keyboards the minute they get home. Instant messaging is what attracts them to the Internet. Just think how talented they’ll be at age 20. The power that the Internet gives users is another exciting feature. Since democracy was first invented in the Greek town square, this is the first time that end users have had such power. People may not know each other, but they have common interests,” Vardi says.
Social networks and the services surrounding them are a new example from the past year of what Vardi is talking about. “It’s wonderful, which I personally find enchanting, that the whole industry is still at a stage where the critical factor is creativity. We’re still seeing all sorts of things like this produced by young people in garages, in all sorts of unlikely places,” Vardi exclaims.
”In many cases, the big companies, the major players, are left open-mouthed, not really understanding what is happening. The institutional Internet industry is now experiencing what happened in all the major industries. The big money has arrived, with or without the boom. Consolidation has taken place. Companies have been founded, headed by managers having little connection with events in the field. A gap has emerged between the decision-makers and the manufacturers and consumers of innovation, which means that small companies and start-ups still have a major role to play in the industry. There is room for innovation, for solutions,” Vardi states.
Perfume is a good metaphor for a possible direction for Internet development. Vardi believes that like perfume, we’ll circulate within a digital miasma. “People will want their digital property to be available, regardless of where they are. You’ve got your MP3 collection, your pictures, your screens, and you’ll want this digital mist to go around with you, like perfume, at home, at work, in the bathroom, when you leave the house, in your car, in the street, and in the office. In meetings, you’ll want them to be available to you without disturbing other people, while in clubs, you’ll want them to be available to others. Digital accessories, such as MacIntosh’s iPod and Treo, open up a whole industry of hardware, software, and services.”
The link between digital perfume and the financial markets will continue to stochastic, with fluctuations in both directions, up and down. “Desire and fear were both acting powerfully in 1995-2000. There was a wild rush, followed by disappointment,” Vardi says. He feared a crash in real time, and preferred cash money when he sold Mirabilis in 1998. Many eyebrows were raised in astonishment, and were later lowered. Soon, he believes, the roller coaster will resume.
Published by Globes [online] - www.globes.co.il - on March 16, 2004