Priceline.com (PCLN) founder Jay Walker personified the Web boom to many: Big dreams, big boasts, big riches -- and a big fall. Now running a startup called USHomeGuard that hopes to use the Web in service of homeland security, Walker's pride in Priceline, and the Net as a whole, is as strong as ever even after the market's fall. He recently discussed the technology industry and dot-com mania with BusinessWeek's Timothy J. Mullaney. Following are edited excerpts of their conversation:
Q: Is the tech industry slowing down?
A: It couldn't be farther from mature. The only industry less mature is biotech. Here's why: As a nation, our ability to collect, analyze, manage, and use information is just in its infancy. Almost every part of our lives is still based on mass-marketing technologies and processes and Industrial Age organizations.
In just about every commercial interaction, the seller knows very little about you -- very little about your history, very little about what you want, and has very little opportunity for dialogue with you. Even the most vaunted companies like Wal-Mart (WMT) know very, very little about you. That's going to change. Information systems will make our time look as backwards as the first railroads now look in the history of transportation.
Q: How far will that go, and how fast will it happen?
A: Internet usage was immaterial five years ago. Only in the hyperintensive daily news cycle of technology does technology growth seem slow. In any picture of the speed of this growth, there's almost no precedent in modern history.
Q: Gary Hamel [consultant at Strategos and an influential e-biz thinker] makes the argument that if everyone buys the same technology, there's little comparative advantage.
A: IT without imaginative new systems is just yesterday's IT. If software never changed, it would be mature. That's true. But innovation is not about using yesterday's ideas with today's tech. It's about using new ideas with tomorrow's tech.
This is like 100 years ago. People looking at yesterday's trends say: If this continues, we'll be up to our knees in horse dung. And it was true. But the internal combustion engine changed the rules.
Q: Were companies sold empty tech promises?
A: A lot of companies were playing a shell game with technology and wanted to believe there was a magic bullet to add value to their customer proposition. They wanted to believe technology would make up for their inability to serve customers better. When it proved that anything with a dot-com wouldn't serve customers better, they blamed tech rather than themselves.
But Wal-Mart never blamed technology. Southwest Airlines (LUV) never blamed technology. Federal Express (FDX) and UPS (UPS) never blamed technology. These were companies that were fixated on serving customers. Companies who blame tech are a lot like dieters who take a pill and blame the pill when they don't lose weight. Technology is not the problem.
Q: Companies got penalized in the markets for not having an Internet strategy. Was that part of the problem?
A: The companies fixated on Wall Street got stuck in the echo chamber. Those who concentrated on Main Street didn't have these problems. It's Wal-Mart vs. Kmart (KMRT). Management is hired to screen out noise and create value. And when management doesn't do that, management should be held accountable. [It's] not some magical problem someone else created.
Q: Will Silicon Valley lead the next tech cycle?
A:I think Silicon Valley has to change if it wants to retain its leadership. In the last generation, Silicon Valley was the incubator of hard technology. In the future, the battle goes to people who can put together systems and recipes for creating value.
AOL (AOL) is a system for creating value, not a technology. HP (HPQ), IBM (IBM), and others represent creators of technology. Apple (AAPL) is moving from a tech company to a company that creates value with the systems [such as music] that sit on top of technology, not the tech itself.
Silicon Valley needs to make that jump, which they're not well equipped to make. They're in love with the technology, and they don't have a lot of love for soft, squishy technology factors. Wal-Mart is in Bentonville, Ark., and they love the customer. Their favorite sound is a cash register. The Valley loves a gently humming computer center. That's their favorite sound.
Q: What are the greatest threats to recovery?
A: I think the greatest threat to a recovery is the expectation that tomorrow will look like yesterday -- the belief that somehow yesterday's weather is coming back tomorrow, or that technology by itself will save us. The economy will stall to the extent that we believe that. It's people drawing lines from the roulette wheel and saying we know what this is going to do.
The threat of terrorism is such a wild card. The biggest threat to our whole society is that a handful of maniacs can knock us off track. Twenty maniacs with four of our planes did a trillion dollars worth of damage. You don't have to hit a plane with a missile in America. All you need to do is fire one, and no one will fly. All you have to do is destroy demand in America. Demand can be destroyed by leveraging media. Supply has to be destroyed by explosion.
Q: What are the lessons from Priceline?
A: There's an implicit assumption in the question that needs to be broken out -- that from a stock-price perspective a lesson needs to be learned. But Priceline is still only five years old, and it has done $4 billion in sales. It has about 16 million customers. It went from zero to a billion in sales in year two.
The lesson of Priceline is that if you create something entirely new, no matter who your competitors are, if you have a really good idea that serves customers, you can get very big in America very fast. That's a lesson of Priceline.
If you have a five-year-old, do you ask why he doesn't have a college degree or why he doesn't have a job? If you're going to tell me that exogenous forces held up Priceline as a stock everyone should run into, I had no control over those exogenous forces. But if you build something valuable on the Internet, you can become a big company in a short period of time.