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The Alexandria Project, Chap. 5: So how do ya like them iBalls?

Alexandria Project (a Cyber Thriller)

Our story so far:  Our hero, Frank Adversego now understands where the name "Alexandria Project" comes from, but hasn't been able to figure out much else yet about the mysterious cracker whose exploit threatens the Library of Congress.  Read the first chapters here.

Creative Commons Attribution 2.0 Generic - Thanks to Chris BuechelerFrank fidgeted next to the cheese and crackers, looking helplessly for his daughter in the crowd. He hated social events with a passion, and especially having to speak to people he didn’t know. He was sure that every sentence he uttered came across as a brainless non-sequitur.

But fair was fair. Marla was finishing up an internship with a local high tech company, and at the last minute, her date had come down with the flu. She had kept him company at the Library of Congress holiday party the weekend before, and this time it was his turn.

“Please, Dad,” she’d said over the phone, “There’s this guy at work that’s been hitting on me all week. It’ll do you good to get out of your crummy apartment, and how can you turn down a request to protect your little girl?”

How could he indeed, he had thought at the time. But now, all he wanted to say was, “Where the hell are you?” But be fair, he told himself as he nursed his Dos Equis. Marla had started looking pretty green around the gills on the way over and had disappeared into the Ladies' Room almost immediately after they arrived. Likely enough she was coming down with the flu, too. Wasn’t everyone?

Frank sighed again. He held his beer in one hand and drummed his fingers quietly against the wall behind his back with the other. Across the room, someone was making an entrance. Oh joy, Frank thought. That must be iBalls.com’s CEO.

Frank snorted. iBalls! What a lame concept! He thought he’d seen everything during the madness of the Internet bubble years – companies formed to sell dog food over the Internet; year-old start-ups raising $100 million investment rounds; companies going public without a dollar in sales. He had assumed it would be decades before the high tech industry saw that type of insanity again.How could he indeed, he had thought at the time. But now, all he wanted to say was, “Where the hell are you?” But be fair, he told himself as he nursed his Dos Equis. Marla had started looking pretty green around the gills on the way over and had disappeared into the Ladies' Room almost immediately after they arrived. Likely enough she was coming down with the flu, too. Wasn’t everyone?

But no - things seemed to be heating up all over again, and maybe worse. Now that Twitter had re-legitimated the no-revenues business model, the venture capitalists were charging back in, hoping to raise mega-funds once again that were far too big to invest intelligently. Too big, that is, unless they started fire-hosing money down the gullets of companies with nonsensical business plans again, just like before.

Frank gave a short, humorless laugh. That was just the right metaphor, wasn’t it? VCs were like French farmers - force-feeding the goose until its liver turns to pure fat, then selling off the bird before it dies of the farmer’s own absurd excess. Pâté de foie gras start-ups! Frank felt pleased with himself. The metaphor summarized the inanity of venture capital just perfectly. Frank gave a short, humorous laugh.  That was just the right metaphor, wasn’t it?  VCs were like French farmers - force-feed the goose until its liver turns to pure fat, and then sell the bird before it dies of its own absurd excess.  Pâté de foie gras startups!  Frank felt pleased with himself.  The comparison summarized the inanity of venture capital just perfectly.

Of course, it had been pretty bloody for everybody who’d had their face in the trough after the bubble burst in 2000. Somehow, though, the VCs got away scott free, in public, at least. As Enron flamed out and Arthur Anderson collapsed, and even as Congressional subcommittees were humiliating Wall Street bankers before CSPAN-TV cameras, the VCs simply melted back into the shadows and rode it out. Everyone seemed to forget that it was the VCs that had tied these laughably inappropriate companies up with shiny red bows to begin with.

Of course, no one spoke up who really knew what a huge part VCs had played in the pump-and-dump charade that had driven the NASDAQ index to such absurd heights. Say you were an investor. You’d made money with VCs in the past, hadn’t you? And the best funds were hard to get into, right? So if you wanted to get into the next fund, best to keep mum, so as not to offend.

Well, how about if you were a high tech lawyer or accountant? You still needed the VCs’ business, didn’t you? And if you were an entrepreneur, well, it’s not like you wanted to go back to work for IBM. So everyone just kept their mouth shut while the ugliness unwound behind the scenes. The VC funding scene should have gotten back on a healthy foundation after that, Frank thought. But that could only happen if the VCs had returned to the rules of the old days, when a $200 million fund was a big one, and there were plenty of deals to go around.

But that wasn’t good enough now, and the reason was obvious. If you could get 2% a year of a $100 million fund as a management fee, why not get 2% of a $400 million fund? Or how about 2% of $800 million? Hell, why not make it 2% of an even $1 billion? Some VCs did.

Maybe things never would have gotten so crazy if Netscape Communications Corporation hadn’t been such a big hit, Frank thought. But only seventeen months after being founded in April of 1994, Netscape went public in one of the most successful IPOs of all time. There was just one problem: unlike Apple Computer, which had raised more money in its IPO than any company since Ford Motors, Netscape was only just starting to produce revenues. Still, the stock ran up from $28 to $75 on the opening day. After that, everyone wanted to play the VC game. That’s what allowed the funds to balloon in size.

Soon it wasn’t unusual for a fund targeted at start-up companies to raise $600 million, $900 million, even a billion dollars – and then even more. In a rational universe, these new megafunds would have hired more people and made more investments. But what sense would that make? Then the VCs would have to split the profits with more partners. And gosh knows, they were too smart for that. Better to stick with twenty-five investments per fund and drive their portfolio companies to hire one hundred employees the first year - even buy Super Bowl ads if they couldn’t spend their VC money fast enough to justify an IPO before the bubble burst, just as everyone knew it eventually must.

And now we’ve got “iBalls!” Frank though in disgust. By now, his no-longer covert finger drumming was beginning to turn heads.

Just then, someone tapped a glass held high in the air. It was iBalls.com’s twenty-something CEO, Chad Derwent.

“Quiet, everybody, quiet!” Chad called. “Welcome to the iBalls.com holiday party – I’m delighted you could all make it. It’s been a great year for the Company, and next year we’re going to knock the old iBall right out of the park!” People began to quiet down.

“I’ve got two really big pieces of news for you tonight,” Chad continued. That made everyone shut up, because a rumor had been circulating that everyone wanted to be true.

“The first is that we filed our S-1 Registration Statement with the Securities and Exchange Commission today! That’s right, everybody, we’re going public!” A collective cheer erupted among the lower level employees. Senior management, already in on the good news, smiled smugly. Chad waited for the hoots to die down, and when they didn’t he started tapping his glass once more, but to no avail. Every employee in the room had stock options, from the receptionist up to the most senior members of management. Frank groaned at the utter, recurring absurdity of it all.

Finally, Chad succeeded in shushing the crowd. “And now for my second announcement: we’ve got a very special guest tonight. I’m sure all of you have heard of Josh Peabody – one of the founders of TrashTalk LP – the very coolest VC fund in Silicon Valley. No one’s got a better nose for a hot company than Josh - without him, there’d be no MyPuppies.com site to help you find names for pets that go great with the names of your kids (or, hey, even the other way around!). Or any MyFace.com, where you can find a future spouse who looks as much like you as possible (how can you help but fall in love?). Who else do you know that thinks like that?” Frank’s blood pressure was rising dangerously.

“Anyway, when Josh offered us a term sheet, we knew the rest was going to be easy. It took us a long time to convince him to let us keep the name “iBalls” instead of, “My…,“ well, you can guess “My What”, but... ”. Laughter drowned him out.

Frank already knew the rest through Marla. Josh’s fund persuaded iBalls.com to take $50 million in exchange for 60% of the company’s stock, but who cared how much stock the Company had to give up? It would be smooth sailing with a Triple-A tier fund like TrashTalk backing the Company.

“And here he is now! Let’s give a bit, warm iBalls.com welcome to Josh Peabody!”
The crowd began to split like the Red Sea to let Peabody stride through, shaking his clasped hands over his head like a victorious boxer. This being the Beltway, everyone was dressed fairly conservatively, but Josh was resplendently Silicon Valley, wearing a tailored sports jacket, black shirt, pressed jeans, hand-tooled boots and a haircut that John Edwards would have envied.

After he shook hands with Chad, it became clear that the great VC would grace the crowd with a few words of his boundless wisdom. Josh wasn’t very tall, so he hopped up on a chair so everyone could see and hear him.

“Let’s hear it for you, iBallers!” he shouted, and everybody cheered happily; those that had taken greatest advantage of the open bar pumped the air with their fists.

“Settle down, settle down,” Josh laughed, but he was happy to wait them out. “You know, I just can’t tell you how psyched we all are back on Sand Hill Road about iBalls.com. iBalls! It’s got to be the greatest, purest concept I’ve ever seen. Within one minute of Chad and Sanjay starting their pitch, I turned and whispered to my partner, “We’ve got to get this deal!””

Everyone cheered again. “No really, people, I mean it! I mean, in the early days of the Web, it was all about eyeballs – getting people to visit your site. The hell with revenues – if you could get the eyeballs, you knew – you just knew – that somehow the dollars would follow. And they did! Netscape ended up having to give their browser away, but how much did AOL pay to snap them up? $4.2 billion, that’s how much! How about Google? Sergey and Larry didn’t have a clue how they’d make any money for years, and now their stock is over the moon! And hey, how many of you use Twitter?”

The response indicated that a great many indulged in the occasional tweet.
Josh paused for effect, and the crowd grew quiet. “So just how do you beat that? Where do you go after Google, YouTube, Facebook, and Twitter? None of them had revenues until they’d blown through a fortune, and look at them now. How do you top that?“

“With iBalls, that’s how!” he shouted. “It took a couple of geniuses like Chad and Sanjay here to get that Web 3.0 isn’t going to be about traffic at all – it’s not going to be about getting potential customers to you – it’s going to be about you going to them! We’ve all heard the phrase “virtual company” before, but no one had ever thought of making a virtual company totally virtual! How can you be more “all about your customer” than to exist only at their websites? Now that’s true genius!”

“So no surprise where iBalls can be found today: as of this morning, there were over 1.5 billion iBalls out there! By this time next year, Chad tells me there should be an iBall on over 10% of the Web pages in the entire world! And every day, it costs the Company less and less to put an iBall on a Web page. That’s because our unique, patented reverse auction process drives our price down farther and farther as more and more website owners reverse-bid their way in.”

“So it’s no wonder that today it’s almost impossible to surf the Web without seeing one of our iBalls winking back at you, no matter where you go. In just one year, the iBall has become the single most recognizable new brand in the on-line world. One day soon, we’ll come up with a way to monetize this amazing, amazing asset. So let’s hear it for Chad and Sanjay – and, of course, for TrashTalk!” The crowd obediently gave it up.

Marla had told Frank that paying tens of millions of dollars to people all over the world to put a stupid logo on their sites hadn’t been what Chad and Sanjay had originally had in mind at all. Instead, they intended to offer an array of free, fun animations and other “widgets” that people would want to put up at their websites for visitors to enjoy; the iBall was just one of hundreds of animated graphics they had in mind. Anyone could download them and do whatever they wanted with them – even delete them any time they chose. All Chad and Sanjay wanted in return was the ability to pull back a modest amount of anonymized click information from as wide an array of websites as possible, using their widgets to gather the data. With that kind of information in hand, they could spot usage trends and sell Web analysis to customers for a profit.

Of course, that would have been far too tame for Josh Peabody and the other cowboys at TrashTalk. And then there was the problem that Chad and Sanjay only wanted to raise $500,000 – after all, getting your programming done in India was cheap. After that, their business plan called for relying on viral, word of mouth marketing to spread the news. If all went as planned, they could then raise of a million dollars or so to build on the buzz and move out into the broader marketplace. With any luck, they’d still own most of the stock and be able to sell the Company before the competition moved in. Making $20 or $30 million wouldn't get their faces on the cover of Wired magazine, but it wasn’t an unreasonable target. And it would be enough to produce a great return for all concerned within a few years’ time.

Indeed, until they connected with TrashTalk, everything had been going according to plan, only better. They got the first $500,000 from a local angel group for about 15% of the Company’s stock, and completed the programming off shore on time and within budget. They had a real stroke of luck when a buddy of Sanjay’s came out with a killer iPhone app, and as a favor, included a feature that automatically added an iBall to the phone of everyone the app downloader called. Soon, iBall’s were popping up and winking at mobile phone users everywhere, and everyone wanted to know just what those iBalls were all about.

That was when the guys at TrashTalk noticed. They invited Chad and Sanjay out to Menlo Park to present their business plan. They even sent a charter jet back East to pick them up at a private airstrip outside Washington. Chad and Sanjay were understandably impressed, and almost before they knew what hit them, their company had $50 million in its bank account, and TrashTalk had 60% of its stock. Oh - and the Company had a new business plan, too.

That had been one of the conditions to TrashTalk’s investment. While Chad and Sanjay were still in the Valley, Josh had pitched the reverse auction idea – why wait for viral marketing to take the Company to a paltry $20 or $30 million valuation? Why not conquer the world in record time - go for an IPO at a billion dollar market cap in 18 months? After all, the TrashTalk fund had $900 million to put to work, so Josh couldn’t waste his time and his investors’ money with any Company that couldn’t soak up its fair share of cash. TrashTalk money was for big boys, not kids who didn’t have the vision and the cajones to swing for the fences.

Who could blame Chad and Sanjay for being blown away? Only a year before they’d been roommates in college, and now a famous venture capitalist was telling them they were geniuses. Soon they were being profiled in Wired Magazine – not long after, Chad appeared on The Daily Show, and how cool was that?

Frank thought he was going to puke. He remembered Josh from his MIT days, although he was sure that Peabody wouldn’t remember him. Back then, and for quite a while thereafter, Josh had been nothing special. But then he’d been lucky enough to be in the right start-up at the right time. It got snapped up by a big company in 1997, and for cash – a whole lot of cash. All of a sudden, Josh was a rock star. A few months after the sale, the old-line VCs who had funded his venture invited him to join them as a partner with hands-on Internet start-up experience. Josh’s company had been the one home run in their current fund, and they wanted to have someone with Internet credibility on the team as they went out to raise a new fund.Josh turned out to have the golden touch. Before the bubble burst, he brought the fund into some of the only late bubble-era companies that managed to sell for a tidy profit after the crash. But by 2003, he was tired of being under someone else’s wing, so he contacted a couple of up-and-coming young Turks at other West Coast VC funds and suggested they go out on their own. The smart money liked what they were pitched, and lo and behold – TrashTalk LP was born.

All of this could be learned from the extremely complimentary Wikipedia profile that Frank was sure Josh had paid someone to write. About the only detail it contained that didn’t scream money and success was the fact that Josh was gonzo over cats.
Venture capital and cats…. Just as the Big Man from Silicon Valley appeared at the cheese and cracker table, Frank remembered a sardonic idea he’d had years before. On impulse, he shot out his hand.

“What a pleasure it is to meet you, Mr. Peabody. I mean, what a privilege it is to meet you in the flesh – I’ve heard so much about you.”

Josh gave a half-polite smile, and tried to side step his way past Frank to the food. But Frank matched him side-step for side-step.

“Say, let me get you a drink while you fill your plate,” Frank said. “What will it be?”

“Scotch and soda, thanks,” Josh said with resignation, realizing he’d been snagged for at least a minute or two. Frank gave the order to the bartender, and turned back to Josh. “Say, I’ve got an idea that I’ve always thought could be a real money maker. Let me take just a minute of your time to tell you about it.” Josh hoped the bartender would hurry; he’d been buttonholed this way too often in the past.

“You know, I heard what you said about volume now, revenues later, but I think having a revenue stream can still come in pretty handy – in fact, I believe that in difficult times like these, you really need two – and three revenue streams would be even better.”

Josh’s drink was ready now, but Frank was too quick for him. He grabbed it from the bartender and held on tight while Josh dropped his arm, itching to make his escape.
“So here’s the idea – I don’t need you to sign a non-disclosure agreement, do I? No? Great! It’s all about cats.”

With that, Frank thrust the drink into Josh’s hand. Against his will, the VC found himself wavering between the desire to flee, and curiosity over what kind of cat-centric business plan this oddball might have in mind.

"So here’s the idea – the first revenue stream, that is. Everybody loves kittens, right? I mean, they’re cute, they’re playful – who can help loving a kitten, even if they don’t really like cats? But hey – everybody knows what happens with kittens. Before you know it, they grow up to be fat, snotty blobs of fat, and what do you have then? Just an arrogant, furry doorstop, that’s what!”

Josh was turning desperately away when Frank stopped him in his tracks. “So I asked myself, what if you could invent a perpetual kitten?”

Josh’s love for dollars got the better of him, and he turned around again. “And, uh, did you figure out how to do that?”

“Yes – sort of, anyway. Here’s how: we breed a line of genetically identical cats, just like they do with lab mice. Each one will be black, with cute little white mitten paws – maybe even six toes, for people that go in for that sort of thing – and we call every one of them “Fred” so they’ll always answer to the same name.”

Frank paused for effect, and then hit Josh with the clincher: “And instead of selling them to people, we rent them.”

“Rent them?” Josh asked blankly. “Why rent them?”

“Because that’s how you get a perpetual kitten, of course. Once your energetic, darling little Fred starts showing symptoms of morphing into a door step with a bad attitude, you trade it in for a new Fred, and Presto! You’ve realized the magic of the perpetual kitten! It’s really just like pet cloning, except much easier and cheaper - instead of paying a fortune to clone your kitty at the back end, you breed an endless supply of identical ones at the front end.”

Against his will, Josh found himself listening more closely. “That’s an interesting idea, in a totally weird kind of way. But you said there were three revenue streams?”

“Absolutely!” Frank suddenly looked at him suspiciously. “Say – are you sure I don’t need you to sign an NDA? No? Well, you are a VC after all, so I guess I can trust you. We'll need the customers to sign NDAs, though, and that brings us to the second revenue stream.”

Frank looked to his right and then to his left to be sure no one could hear him, and then leaned closer to Josh. “Here’s the second revenue opportunity,” he said in a conspiratorial whisper. “So now we’ve got all of these superannuated Freds, right? But what can we do with them? They cost money to feed, and you couldn't get much from someone who wanted to grind them up for fertilizer.”

Josh stepped back involuntarily, but Frank followed him.

“Luckily, though, there’s always a big demand at medical laboratories for cats for experiments, and it turns out they pay pretty good money if you can provide the pedigree of your pussies.”

A look of vague horror began to spread across Josh’s face. He tried to take another step back, but found that his back was already up against the wall.

“Don’t worry, don’t worry,” Frank laughed, pulling him back with an arm around his shoulders. “We won’t really have to sell the kitties to the nasty doctors - or at least not too many of them, anyway - mostly, that’s just a story we tell people when they come back for a Fred exchange.”

“You see, when the customer asks what’s going to happen to ol' Fred after they turn him in, that’s when you casually mention the cat lab – and how cool is that? I mean, how often do you get to use a word like “vivisection” as part of a marketing pitch? Anyway, when the customer hears that, they’ll almost never want to give poor Fred up to the guys with the scalpels.”

Josh waited, aghast. What could possibly come next?

“And that’s when you tell the customer about the lease buy-out option. It might have been cheap to rent-a-Fred to begin with, but if you don’t turn him back in, it’ll cost you a bundle!”

Frank stopped abruptly, beaming with triumph.

“So what do you think?”

But Josh was already edging sideways in shock, bumping into someone and spilling his still-full drink down his shirt.

“Hey, wait a minute,” Frank called, “I haven’t even had a chance to tell you about my other idea – you see, you pair the parents of thirty-something couples who won’t give their folks grandkids with single parents that never get a weekend of peace to themselves.” But Josh had finally succeeded in escaping into the crowd.

Frank was still chuckling to himself when Marla, looking pale, found him.

“Sorry to leave you alone so long, Dad, I know how much you hate events like this. Did I see you actually talking to someone?”

“Yes indeed,” Frank said. “And this time around, I think you would have been proud of me.”

- 0000 - 0001 - 0010 - 0011 - 0100 - 0011 - 0010 - 0001 - 0000 - 

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