over his curriculum vitae, youd imagine
that Elon Musk C/W95 must have roared out of West Philadelphia four
years ago with his sites squarely set on quickly amassing millions: Barely
28 years old, he is a full-fledged Silicon Valley cyber-mogul whos
already sold his first Internet companyZip2
Corporationfor more than $300 million and is now poised to launch
what may become the worlds premier virtual financial-services companythe
Amazon.com of personal finance.
Actually, as the South African-born Musk tells
the tale, the first decision he made after collecting his degree in finance
was to quit the field and swear off business completely. "I wanted
to have a sense I was working on something having a fundamental impact
on peoples lives, and going to Wall Street or into a large corporation,
I became sure, was not going to be a way of doing that," he recalls.
Musk, who built Zip2 into a technology leader, hopes lightning will
strike twice with his new venture X.com
Real impact, Musk decided, meant high-energy
physics, which he pledged to take up professionally. If all had gone according
to his plan at the time, this article would be a portrait of the ex-business
student as experimental physicist, struggling to perfect his pet technological
breakthrough in power generationan advanced high-energy storage
device capable of replacing batteries, an "ultra-capacitor,"
about which Musk still waxes rhapsodic. "High- energy physics is
where some major technical revolutions are going to come from," he
predicts. "By getting down to the quantum plane, its going
to make much more power available more cheaply and with less pollution."
A funny thing happened on the way to the ultra-capacitor
lab, however. In the summer of 1995, as Musk was getting geared up to
begin doctoral work in physics at Stanford University, he found himself
captivated by another, at that time new, technologyone he believed,
and still believes, will be seen centuries from now as the most important
development of our time. It was the World Wide Web, itself the creation
of the physics-research community.
"I dont remember one great Aha
moment, when I suddenly had some grandiose commercial visionthat
classic story entrepreneurs are supposed to have," he says. "What
happened was, in working with the Web, I became absorbed by its astounding
possibilities as a medium which could completely change the economics
of the delivery of printed information. Its become a bit of a cliché
recently to talk of it as a breakthrough as important as the Gutenberg
printing press, but that doesnt make it any less astounding. Or
less true. It was hard not to try and see if I could push it forward."
So, less than a week into the doctoral program
Musk decided to put high-energy physics aside, at least temporarily, and
throw his energies into a business plan. His idea? To develop software
code allowing newspapers to take advantage of the new medium to link readers
with local merchants. "What Elon saw, ahead of everyone," observes
Steve Outing, columnist for Editor and Publisher magazine, "was
that presenting local content and classified ads on the Web involved a
radical rethinking of how to present information interactively. Many newspapers
were anxious to put sites up on the Web but really didnt have a
clue how to do it right. Elons innovations were important to helping
companies like The New York Times start to make the transition."
"It was a tough decision," Musk admits.
"Im not a born risk taker. I also had a scholarship and financial
aid, which Id lose. Being young helped. So did the fact that the
field was literally brand-new, with no experts. But Im a realist,
so I hedged it and took a deferred admission from September to January."
The chairman of the department, Musk adds, "whos seen Valley
start-ups come and go, and knows that most fail, said, Well, give
it a shot, but Ill bet well see you in three months."
Musk hasnt been back since.
In the fall of 1995centuries ago in Net
time, when Amazon.com was just a gleam in Jeff Bezos eye and Yahoo!
a student hobbyMusk holed up in a windowless $200-a-month Palo Alto
flat and began a year of doing the classic Silicon Valley start-up shufflegoing
from one venture-capital firm to the next to scrounge up funding for his
new venture, to no avail. Finally, in 1996, after the wildly successful
Netscape initial public offering (IPO) set off shockwaves in the financial
world and prompted a mad rush for all things Web-related, Zip2 found its
first backer in the venture firm Mohr, Davidow. "They must be crazy.
Do they have any idea what theyre doing giving me all this money?"
Musk remembers thinking, after the firm fronted him the back-then-unbelievable
sum of $3.5 million. "I was terrified of blowing that money."
Overthe next two years, though, Zip2
(www.zip2.com) more than came through
for its backers. Major media companies, including The New York Times Company
and the Knight-Ridder newspaper chain, began partnering with Musk to launch
high-profile "City Guides," such as the Times "New
York Today," that provided Web surfers with local information on
restaurants, movies, concert reviews, jobs, used carsjust about
In exchange for providing consultation on site
development and an integrated package of content management, editorial
workflow and e-commerce applications, Zip2 received hefty consulting fees,
as well as transaction royalties on sales and ads generated by the sites.
Currently a $100-million-per-year market, the
City Guide niche is projected to top $1 billion per year by 2002. Not
surprisingly, the field has become crowded with competitors. Among those
out to get Zip2 are Microsoft, with its "Sidewalk" locations;
Barry Dillers Ticketmaster, through its "City Search";
and America Online, which has launched AOL "Digital Cities."
Zip2, however, is still seen by most industry afficionados as the technologys
Like most Web start-ups, Zip2 has yet to turn
a profit. However, by early this year Musk had built Zip2s network
of sites to nearly 150 and brought the companys annual revenues
into the tens of millions of dollars. In February he sold the firm to
Compaq Computers AltaVista subsidiary for a reported $305 million
cash. Many employees and investors did well, but as the companys
major individual shareholder, Musk pocketed a good chunk of the money,
putting him in the unexpected position of being a near centi-millionaire.
"I guess itd be really easy for me
to spend the next 40 years doing absolutely nothing, hanging out, buying
an island" or playing video-games and watching the San Francisco
49ers, his favorite football team. Yet, with barely a break, Musk finds
himself jumping back into the Web fray. "Its not that Im
a workaholic, I dont think," he says. "Actually, I just
cant resist seeing and being a part of whats going to unfold
with the Web over the next decade or so. Im still endlessly curious
about how it will evolve. I know its nowhere near fulfilling its
In addition, Musk has come to realize hes
more at home as an entrepreneur than as a manager. "Something about
the culture of start-ups, at least at this point in my life, seems inevitable.
Its more fun, the atmosphere is more creative, and I think more
gets accomplished." Musk also thinks the collegiality of the Silicon
Valley start-up style, which eschews most traditional props of corporate
authority, is the natural way to organize educated workers in knowledge-based
industry. "It actually may make it harder to manage people, in that
you cant order someone to do something arbitrarily just because
of who you are, but I have a gut feeling its more than a Silicon
Valley or generational trend," he says.
What he envisions in his ambitious new venture,
called X.com (www.X.com) which is due to launch this fall, is a new generation
of Internet-based financial services. While Zip2s strategy was to
partner with old-line media powerhouses, X.com, Musk says, will seek to
go directly to consumers, outflanking the perennial giants of traditional
banking, insurance and brokerage. "The huge brick-and-mortar financial
institutions," he explains, "the Bank of Americas, the Chase
Manhattans, the Citibanks, all have gigantic investments in existing assets,
which include thousands of branches, millions of tons of concrete, steel
and glass, legacy information systems, and organizational boundaries between
service divisions. From a consumer standpoint these make the coordination
of different services into a unified package expensive, complicated and
"A really well-done, pure Internet-based
service, without all that overhead baggage, could pass along enormous
savings to consumers in the form of discounts," he insists. Perhaps
even more important, he believes, X.com promises to provide a truly simple,
easy-to-use interface for individuals to access all facets of their financial
affairspay bills; shop; deposit, withdraw and invest funds; obtain
credit; and take out mortgages and insurance. Currently, according to
the research firm Inteco of Norwalk, Conn., nearly 7 million American
households access bank, stock and other financial accounts online. Within
five years, Musk believes, the technology will move far more deeply into
the mainstreama view corroborated by the market-research company
The Gartner Group, which in a recent survey predicted that a whopping
9 billion bills would be paid online by 2005, a more than 20-fold increase
over current figures. X.com will be competing with a number of other pure
Internet financial start-ups, such as Compu-Bank, Netbank and Wingspan.com,
pursuing the same vision.
The irony of his return to finance doesnt
escape Musk. In fact, it seems to bemuse him. "In a certain strange
way, Im ending up back where I startedthough in a radically
different context I never could have predicted," he says.
technology has put the entire economy
on its wildest ride in decades, and Musk is betting the next five to 10
years will "be just as intense in terms of technological and business
change." Still, this is one high flyer who says hes committed
to keeping in touch with reality. "Any change this profound is bound
to set off speculative frenzy," he cautions, "and people need
to do their homework, and not blindly buy into companies that arent
well put together. There are a lot of Potemkin villages out there built
on flimsy foundations and many, many will fail. Theres going to
be a lot of weeding out" in the future.
He also worries that many younger people, conditioned
to the good times, will not be mentally prepared for a downturn. "This
is the longest peacetime expansion in history, and for young people whove
never really seen a serious recessionand anyone whos studied
history knows they happena downturn will be a rough experience."
Nonetheless, he emphasizes, "the radical cost advantages the Net
brings are real and viable long-term."
While many winning entrepreneurs seem to see
success as a sign of moral superiority, Musk acknowledges that luck and
timing are an inevitable part of the mix, however bright and hard-working
you may be. He also seems at pains to keep his stratospheric rise in perspective,
doubtless far from easy in the epicenter of the high-tech success ethos
of Silicon Valley.
"The bottom line for me, which I dont
let myself forget, is that challenges are what drive me above allthe
challenge of creating things that I hopefully will get a chance to look
back on and be proud of."
Phil Leggiere C79 lives in Hokoken, N.J.
He wrote about Constitutional scholar and Internet expert Lawrence Lessig
W83 in the Nov/Dec 1998 Gazette.