Why the wireless Internet is for real

When he was at Microsoft, Brad Silverberg was Bill Gates' go-to guy--first shepherding Windows 95 to completion and then quarterbacking the company's late but successful rout of Netscape.

Silverberg faces an even more daunting challenge these days: predicting where to place some very expensive bets in the emerging--make that slowly emerging--world of the wireless Internet.

As the CEO of Ignition, a Bellevue, Wash., venture capital firm, Silverberg and his partners invest money in start-ups targeting the sector. Though Ignition has begun to branch out, the company remains chiefly focused on wireless Internet infrastructure companies, investing the proceeds from a $140 million fund.

This is more difficult than it might appear. Hype and overoptimism contributed to the ensuing disappointment when the wireless Web market failed to develop into the next big thing. Silverberg and his partners have to carefully weigh the talents of a prospective management team and gauge its ability to execute--no easy task as has been demonstrated during the market meltdown of the last 18 months.

Still, Silverberg remains bullish about the sector and says he has not wavered about its long-term prospects. In a recent interview, he discussed his thoughts about wireless Internet technology and what will ultimately separate the winners from the also-rans.

Q: You've been investing in wireless Internet technologies. The sector has had its difficulties. Do you see any breakthrough event on the horizon that would essentially open the floodgates to mass adoption?
A: I see progress happening in incremental, rather than a single, breakthrough. A key barrier that's preventing us from breaking through right now is the overall user friendliness. Most of these mobile devices have a user experience that's frankly terrible. Until that gets fixed, this is going to continue.

Anything in particular that's really awkward about the user interface?
It's a combination of things. They've got to improve the user interface, and they have to build in some elements in the underlying infrastructure the way Docomo in Japan has done. What Docomo has done is head and shoulders above what everybody else has done. The key is keeping it simple. You have to get to a packet-switched network which allows, even on a slow-speed network, to get to high speeds.

Who's done it well on these shores?
On the PDA-sized form factor, I would point to the RIM Blackberry. They kept it simple and focused on a narrow set of problems that benefit users. Anybody can learn how to use it. Now, you wouldn't use the Blackberry as a stand-alone PDA, but wireless defines that product.

A lot of wireless investment is premised on people using cell phones for data. Why do you think that wireless adoption has gone slower than anticipated?
This is a key point. A year ago, there was a lot of hype, misguided hype, about people wanting to surf the Web on cell phones. I'm not sure there were some brain cells being engaged there. It's not about surfing the Web; it's about communication. That's what you learn from the Blackberry and SMS (adoption) in Europe. People want to stay in communication.

Most providers offer some access to the "wireless Web," but interfaces are still clunky, and the service has yet to make a significant dent in the mainstream consciousness. If you talk with analysts, some are saying that a lot of the companies in the U.S. are really years away from doing it right. Do you agree, and if so, why do you think that is?
It certainly hasn't taken off the way some people expected last year, but you shouldn't be surprised. Look at the end-user experience; it's crummy. Where the end-user experience is better, it's taking off.

Do you think WAP will ever get going in the U.S?
Again, it comes down to how do you keep it simple and build the right apps and offer a great user experience. There's nothing inherently good or bad about WAP.

So you see it as salvageable?
Yeah, I think you would want to evolve it...The WAP people are aware of (the issues) and they're working on correcting it.

What is going to be the hot, new wireless technology of 2001 and beyond? Or is it a case of just the evolution of the user interface?
Our major focus has been on the infrastructure level, which needs to be evolved. We've avoided making investments in commerce or wireless portals because we don't think the infrastructure level has caught up to make applications. That's going to change in the next couple of years. But for now, I don't think 3G will take off overnight. There's plenty of opportunity to improve the underlying infrastucture for 2.5G and 3G. I don't think anybody believes it will take off this year or even next year. It's going to take awhile, and people need to be patient.

Have you changed the way you measure a start-up's prospects before deciding to invest?
Fundamentally, no. When we started in 2000, we were--and continue to be--believers in fundamental business principles. It was an interesting time for us since we have built big companies in the past--and being grounded in those values at a time when the world had gone a little crazy. People were talking about stuff that sounded really good, but you walked away saying that didn't make sense. I mean, the greed just got out of whack. People suspended their better judgment and got caught up in that stuff. We were lucky we stayed true to the principles which served us well during our other careers.

Is this an especially tough time to invest as a VC?
Now is a great time to invest. Valuations have come down to earth, and people understand again what it takes. It's sort of like back to the future.

Is it much more difficult for a VC to hit it right these days?
We like it when it's hard because it gives us a real opportunity to stand out from the pack because we've built big businesses in hard times. If you're an early stage investor, then you're investing in companies that take 3, 4, 5 years to develop, and you have to be patient.

But consider the other side of the equation. Say that someone's an entrepreneur with a great idea but without much of a track record. If a young Bill Gates went looking for financing these days, it would be much more difficult for him to find financing, wouldn't it?
Well, I take a different point of view. Ideas are important, but they're not sufficient. It's not ideas that work, it's execution. It's their ability to turn the ideas into a business, and success is in the execution. A great idea is fine, but it is not enough. And remember that Gates took very little VC money.

Are there particular qualities, then, that will separate the people who get financing and those who don't?
You look for inherent leadership abilities, too--whether someone can attract a great team and hire other people with experience to build a great team. VCs are apprehensive about investing in capital-intensive ideas, and so people will learn to do more with less, which is a very healthy thing.

I was talking to (former Emachines CEO) Stephen Dukker about the odds of another PC start-up arriving in the market. He was very skeptical because of the financing issue.
I don't know if that's completely true...but the days of three kids walking into a VC and raising $100 million, those days are gone.

Will you remain confined to investments in wireless or will you expand?
When we started, we thought it was important to focus only on those areas we knew where we have first-class expertise. About six months ago, we began to broaden our focus to other areas where we have years of experience--in the Internet, software and network infrastructure. We know these businesses.

Do you miss being out of the limelight? Any itch to start your own company?
I love doing what I'm doing now. I haven't had this much fun in years.

Still putting in as many hours as you did at Microsoft?
That would be impossible.

How about one day returning to Microsoft? There are recurring rumors?
I have a lot of friends and stay in touch, but my life now is with Ignition.

Speaking of your former digs, how do think the trial has affected the company?
I think they've grown from the experience. I look at how they've been transformed, and it's a good thing to see. They are more externally focused, learning to articulate a new, exciting vision. There's some maturity the company has gone through, and I look for that to continue. Building a new platform means getting other partners involved, and that's a good thing to see.