San Francisco, CA (written by Maria Bartiromo/USA Today)
Start-up nation has been one way to describe the entrepreneurialism raging across the U.S. Start-ups from social-media and health care applications to cloud computing produce technology enabling industry developments. I caught up with Max Levchin, who co-founded Pay-Pal and has invested in some of the hottest tech names, including restaurant guide company Yelp, where he's chairman. Yelp is one of the few names in social media that's soared since hitting the market. I asked him what's behind the rise at Yelp and whether the tech euphoria is hype or sustainable. Our interview, edited for clarity and length:
Q: Why has Yelp been one of the few successful social-media IPOs?
A: It's one of the few companies that executed really well on what's become a recently-in-favor strategy of going local and conquering market by market, locale by locale, bringing a great service to communities. It takes a long time to deliver that quality of service to each city and town in America, but they've built up a great brand and really strong voice for the consumers and have a fabulous business procuring content. People bring the reviews themselves. It's the Yellow Pages that writes itself, and the value to the consumer, especially as a shift to mobile is occurring, is tremendous. You live in a new city or a new neighborhood or just (want) a new place to eat or a plumber to hire, you can pull out your iPhone, and within seconds, you have (an) immediate kind of a spectrum of what the locals think to be the best value for the money.
Q: The mobility part of this is important. Yelp has done a better job in mobility than others. For example, people are questioning whether Facebook will be able to get the advertising dollars from mobile.
A: The scenarios are obviously perfect for mobile phones. If you're walking down the street looking for a spontaneous dinner spot, you're not going to drive home, get on the desktop computer and start typing in Google queries. You're going to pull out your phone and try to use whatever is the most appropriate app on your iPhone or your Android device. Yelp saw that very early on. And when we launched the mobile product, we saw immediate growth, and we were stunned. I've been developing mobile for years before anybody else really thought it was that important.
Q: Is mobility driving the euphoria in tech?
A: Mobile is the perfect example of what is enabling economic growth in the technology sector. The shift from desktop to mobile is probably one of the biggest, most important trends that has been going on globally for a while. The emergence of smartphones, and the versatility and the creation of convenience that generates, is enormously powerful. Years ago, you bought clothes in a store, and then one day you said, "I'm going to buy that on my desktop because that's more convenient." The same thing is happening now, where you're saying, "I don't have to wait until I get to my desktop. I have my smartphone with me. I can just buy it on this phone right now while I'm waiting in line for a sandwich." There's a tremendous amount of spending shifting from off line and desktop onto phones.
Q: There are 5 billion cellphones vs. 1 billion PCs. Of the 5 billion, only 1 billion are smartphones.
A: That is showing the opportunity and that it's just going to get bigger. So many things are basically going to go directly into your pocket, which will create communities and will generate frequent gift transactions. A huge number of transactions are abandoned because people don't have a way of executing them immediately. There are always opportunities to create more transactions, price things more efficiently and create real-time competition between vendors, because it's all connected. It's an amazing collection of shifts that are all pointing at the smartphone as the primary decision-making and transaction tool. The single most important top-level trend is the shift to mobile.
Q: What went wrong on Facebook's IPO?
A: The hype was deserved. It's one of the most successful and, easily, greatest growth and engagement stories on the Internet for a very long time. They are, in many ways, the definition of social Web. It was reasonable to be excited by the IPO. The pricing of the IPO and the structure of the IPO and the execution on the first day of trading may not have been perfect, but long term, I'm generally bullish on Facebook. The real challenge for them is not so much about managing their stock price or short-term investor perception, but really, the shift to mobile. The number one question a long-term investor should ask about Facebook is, will it be disrupted as the world rapidly shifts to smartphones? Facebook dominated the idea of using a big screen, a laptop or a desktop, to look into the lives of people that you care about. Facebook, ultimately, is an amazing photo-sharing utility. That's taken them as far as they have gone today, except the big screen has changed. It's not really the big screen anymore, it's the small screen in your pocket. You have to connect with people in real time and know where they are physically. The jury's still out.
Q: What is your opinion of Yahoo?
A: They, at some point, shifted from what was a product-driven organization that cared a little bit less about creating a dominant experience in their area of success to meeting their quarterly earnings goals. That's what happens to you when you go public and need a certain type of leader to balance that well with the need and the impetus to innovate. They've been screwing up for a very long time. They built initially such a fabulous business, including a great brand, but they've gone on that momentum for a long time, making a lot of money and dominating a segment they had no business dominating. But at some point, every story like this comes to an end if you are not doing anything to further your advantage. (New CEO) Marissa Mayer deserves an enormous amount of credit for even agreeing to do it, because it's a herculean task. If she succeeds, it would be amazing and a huge manifestation of her ability. If she fails, I'm not sure that many people will blame her, because she's taken on a huge task.
Q: What about Apple?
A: In the medium term, they have very little to worry about. The quality of the brand and the momentum of that company have been defined by the now-departed founder. They have five, maybe 10 years of just hitting it out of the park. The real concern I have that's something to watch is the number of people who were at Apple because Steve Jobs was running the place. He was clearly a genius. These kinds of people can be complicated, but they attract a cadre, almost like a cult.
You have the galvanizing leader who has just amazing amounts of attraction to give to other amazing people, and they all gather around and produce amazing products. Over time, some of those people will think, "The reason I was here, the reason I was putting up with crazy work hours and worked myself as hard as I did, is gone. And now, it's my turn to relax and go start my own company or do something else." As those people trickle out, you start getting into compromising on quality and compromising on vision. It takes a long, long time to really happen. But the jury's still out on whether a new leadership can create a galvanizing environment as Steve Jobs did.
Bartiromo is anchor of CNBC's Closing Bell.