BILL GROSS, ONLINE IDEA FACTORY
He has created 20 cyber-startups. One even makes money
Bill Gross wants to start an Internet record label. It's only the germ of an idea, and he's not quite sure how to go about it. But the 39-year-old Californian is convinced there's money to be made by signing up artists, paying them huge royalties, and selling their songs as files that can be downloaded over the Internet--cutting out the traditional record companies and distributors.
It's a wild-eyed scheme--and just the sort of radical concept that has propelled Gross into the front ranks of the Net revolution. In the past two years, Gross has raised more than $250 million for his privately held idealab! and its score of Net ventures. Working out of offices in trendy Old Pasadena, Gross has spun off 15 little operations as their own independent businesses, each with its own CEO, board, and investor groups. "I run an idea factory," says Gross, whose previous startup was Knowledge Adventure Inc., the children's software maker he sold to Cendant Corp. for $100 million in 1997.
So far, only one of his 20-odd sites is in the black. But many of them show strong promise. idealab!'s CitySearch is the leading operator of local Internet city guides. As measured by advertising revenue, it has an estimated 50% market share. That has placed CitySearch out in front of such formidable competition as America Online Inc.'s Digital Cities and Microsoft Corp.'s Sidewalk. Other hot prospects for idealab! include eToys, cooking.com, tickets.com, and search engine GoTo.com. "One success will probably fund this place forever," Gross insists.
There have been a few flops, too. But Gross is too busy thinking up his next project to worry much about those. The wiry, bespectacled CEO comes up with most of his own ideas. And as he races around the angular idealab! offices in blue jeans and sneakers, looking every bit the geek he professes to be, he fires off questions at everyone in his path. But Gross is no micromanager. "idealab! comes from my own self-realization that I don't like managing the details when a company is up and running," says Gross. For that, he has relied on others, including his brother, Larry, 36, who still runs Knowledge Adventure. Says Larry of his brother: "He has always been the creative idea person, and I executed those ideas." "TOTAL RIP-OFF." Long before the Internet was imagined, Bill was hatching business schemes. In junior high school, he figured he could buy candy bars at a drugstore for less than what they sold for at the school cafeteria. So, he opened up for business out of his locker. In high school, he came up with a solar energy gadget. Tiny ads in the back of Popular Science produced enough revenue to help pay for much of his education at the California Institute of Technology. There, he designed and produced loudspeakers in the school's workshop and began selling them around campus.
Before his 1981 graduation, Gross started GNP Loudspeakers Inc. (the initials stand for Gross National Products). While Caltech students turned out loudspeakers, Gross, fiddling with his personal computer, came up with an idea for an accounting add-on for the popular Lotus 1-2-3 spreadsheet. So he started a software company, GNP Development Corp., with brother Larry. By the time sales reached $1 million, giant Lotus Development Corp. had taken note of GNP's look-alike packaging--and sued. "It was a total rip-off of the Lotus box," concedes Gross, then 23.
But Gross won over his foes by pointing out that anyone who bought his template had to buy 1-2-3 to use it. Lotus dropped the suit after Gross agreed to change the packaging. Then, in 1985, Gross sold Lotus President Mitchell D. Kapor on a program that vastly simplified using the spreadsheet program. This time, Kapor bought the company for $10 million and funded the Gross brothers to develop a slew of new products.
In 1990, Bill, who copies the paintings of Old Masters brushstroke by brushstroke and gives them to friends, wanted to take a year off to paint. He wanted to study sculpting. He even wanted to write a symphony. Instead, with plenty of time on his hands, Gross became fascinated by observing how his 5-year-old son, David, explored the world and learned on his own. In 1991, Gross founded Knowledge Adventure, which quickly grew to become the third-largest publisher of children's software.
Knowledge Adventure also taught Gross an important lesson about himself: that he was better at starting companies than running them. "I love the invention part, but I wasn't paying attention to the details of making a profit," he says. In 1995, he turned control of the company over to Larry. "Had Larry not stepped in and run the company, I don't think it would have survived," says one former board member.LOYAL BACKERS. Making good on a 1996 New Year's resolution to do "what I enjoy and what I do best," Gross launched idealab!, backed by such investors as director Steven Spielberg, Compaq Computer Chairman Benjamin M. Rosen, and former AT&T executive Robert M. Kavner II. Despite its unproven record, idealab!'s supporters remain squarely behind Gross. "If he's involved with it, I want to invest in it," says Spielberg, who is in talks with Gross on developing KidsOnLine, another idealab! company.
Others, however, aren't so sure. "idealab! is a good idea, but I'm still waiting for some sign of success out of the company," says Kate Delhagen, an analyst at Forrester Research Inc. in Cambridge, Mass. Adds Patrick Keane, an analyst at Jupiter Communications Inc. in New York: "Looking at the companies he's incubated, they haven't set the world on fire."
Indeed, Gross has had to pull the plug on three sites, including ideaMarket. The information store closed after 13 of 14 employees quit when they couldn't agree on what to sell. Another idealab! venture, shopping.com, is under a Securities & Exchange Commission investigation for possible stock manipulation by its underwriters. "It tried to go public too soon," explains Gross.
For Gross, such embarrassments are just part of the cost of doing business on the cutting edge of Net commerce. He has high hopes that he'll soon find funding--possibly from Spielberg's Dreamworks SKG--for his Internet music label. In the meantime, Gross might be able to draw some inspiration from his own opus, Secrets of an Entrepreneur, which promises to "help you persuade potential investors to part with their money." And on that subject, Gross has no shortage of ideas.By Larry Armstrong in Pasadena, Calif., with Ronald Grover in Universal CityReturn to top