Start Up's king Working On New Idea

Some people can't stop thinking about food. Bill Gross can't stop thinking about new businesses. One of the world's great serial entrepreneurs, he's launched more than 50 startups through Idealab, his incubator in Pasadena, Calif. His track record includes both winners (CitySearch, Cooking.com, NetZero/United Online) and losers (eToys, Eve.com, Free-PC). But he's best known for inventing the pay-per-click advertising model behind Overture Services (formerly GoTo.com), the pioneering search engine he sold to Yahoo! in 2003 for $1.6 billion.

Now, after more than a decade of launching dotcoms, Gross has rediscovered the pleasures - and profitability - of the physical world. Idealab's current lineup is crowded with companies that make actual products: robots, 3-D printers, electric cars, rooftop solar collectors. As Gross puts it, he's much more interested today in "atoms businesses" than "bits businesses." He recently sat down with Business 2.0 Editor-at-large Erick Schonfeld to talk about why.


Q. What do you look for when you start a company?

We like to challenge the status quo, to take on something that other people wouldn't do to solve a big problem. So when we look for a disruptive opportunity, we're really looking for a big problem and a way to solve it that no one else was willing to try.

Q. Do you go after industry incumbents, or are you looking for white space where customers aren't being served?

I would say we're going much more after white space. There are opportunities in both areas, and looking for a big industry gives you a lot of confidence that there will be customers there. But we prefer to look for a big itch that isn't being scratched.

Q. What are the drawbacks to going straight after a big industry incumbent?

The main drawback is that they are actually quite powerful. I think people underestimate big companies when they think of them as dinosaurs, as if they didn't have the power to fight back. For me, personally, if a customer is already being served, but just a little bit less efficiently, that's not as exciting as a customer with a problem that no one is trying to solve.

Q. Of all the companies you've started, which one was the most disruptive?

Probably GoTo. That company was designed to scratch an itch that wasn't being met. We had a whole bunch of small companies in the building that were all trying to buy advertising, but small advertisers were not being well served online. We thought the small advertiser needed some voice, some way to do business on a more cost-effective basis than cutting big deals with AOL. We had no idea that cost-per-click would have such a big impact - that it would change the economics of the Web. It was a disruptive thing that went beyond what we were hoping for.

Q. Didn't it become the basis for paid search, the economic driver for Google and Yahoo?

Yes, paid search has had an impact for Google (Charts, Fortune 500) and Yahoo (Charts, Fortune 500). But it's had an impact as well on many small publishers. Just as eBay (Charts, Fortune 500) empowers people to make a business online, so many publishers use AdSense and the price-per-click model to earn money online.

Q. How are you bringing search into the next phase?

Cost-per-click judges how many visitors you get, but it doesn't measure how effective those visitors are. Do they actually complete a transaction at the end? Do they become a customer of your Web site? We started Snap with the explicit purpose of introducing cost-per-action into search. An action could be anything the Web site cares about: a visitor signing up for a subscription or buying a book or deciding to become one of your customers. Since we introduced Snap, other search engines are starting to blend measurable actions into their final results.

Q. Is it frustrating that everyone copies you?

Well, we start these new companies for multiple reasons. Of course we're looking for economic gain; we have shareholders. But we are also looking to have an impact - and that's what makes us most proud.

Q. Was there a company you thought would be disruptive that turned out not to be?

Well, we felt sure Free-PC would be very disruptive - and it was, in fact. We were giving away free computers solely based on advertising. We started this in 1999. With today's economic model of online advertising, we might have been able to sustain it. We were just too far ahead of our time.

Q. What were some of Idealab's early successes?

We had a very big success with our first company, called CitySearch. It was doing local search way before it was popular. That was 1995 to 1996, and that company eventually grew up, merged with Ticketmaster Online, went public, and is now part of the IAC/InterActiveCorp family. We wanted to show that you could find local merchants much more powerfully and efficiently online, and I think we did. Of course, today everybody accepts that.
Read Full Text:http://money.cnn.com/2007/09/25/news/companies/Startupking.biz2/index.htm