Intel chairman: Net companies must become self-sufficient

SAN FRANCISCO--The Internet era will continue, but it won't be nearly as fun as it once was, according to Intel chairman Andy Grove.

Grove, speaking

Gartner analyst George Weiss says since today's e-business systems require both scaling up and scaling out, PC servers may satisfy one dimension but not another. see commentary

on a panel at Intel's eXchange conference here, told the audience that companies, especially Internet start-ups, are going to have to become financially self-sufficient to survive. Although the technology economy will continue to expand, investors are no longer in a speculative mood and will abandon companies that do not cover their costs.

"The era of trickle-down investing is over, if not forever, then for a long period of time," he said. "We have to use self-generated cash to pay for our advertising and our infrastructure. We have to worry about return and about investment."

Indirectly, the harsher climate will help Intel. The company, along with Microsoft, Hewlett-Packard and other PC-centric companies, is engaged in a crusade against Sun Microsystems in the market for expensive, high-end servers for Web sites, databases and other complex computing transactions. Sun leads the market, but these companies have said that they can deliver equipment that is either more powerful or much less expensive.

Grove didn't mention Sun by name but emphasized at several junctures that cutting computing costs must become a priority for Web companies. Computing costs, in fact, have always been a consideration "except in the fairy tale years of the last two years."

"On the whole, scrutiny on costs benefits us," Sean Maloney, senior vice president and worldwide director of sales and marketing for Intel, added after the panel discussion.

Priceline.com founder Jay Walker and chief Yahoo Jerry Yang, who joined Grove on the panel, expressed similar ideas.

"The market is very uncertain about companies that aren't yet profitable," Walker said. Some of Priceline's recent moves, such as terminating its grocery division, have been directly related to cost considerations. While popular, Priceline could not justify continuing the services because of the cost structure.

"You're constantly making these difficult decisions that are unpopular," Walker said. "There are capital issues and customer issues, and they often don't go together."

Grove added that the Priceline concept is still in doubt. "The scalability of Jay's business model has yet to be proven," he said.

Despite the doom and gloom, however, all agreed the Internet continues to show huge promise as a communications and commercial platform. Yang pointed out that the Web has shifted from being an entertainment medium to a venue for commercial transactions and research.

Peer-to-peer networking also shows promise as a medium, Yang noted, but its current popularity in the form of Napster can be attributed more to the content available through the system--in Napster's case, music. Peer-to-peer networks allow individual computers to trade files with each other, mostly avoiding the centralized servers run by companies like Yahoo or Amazon.com.

"It is more the application and use than the network itself," he said.