The Innovation Factory

The Innovation Factory

At Pasadena’s Idealab, the remarkably inventive Bill Gross creates and spins off new-tech businesses the world doesn’t even know it needs — yet.

By Bettijane Levine 11/01/2011

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When the next chapter of Pasadena’s history is written, it will undoubtedly include a section on Bill Gross, the visionary entrepreneur whose ingenious ideas helped change the way businesses are created in the Internet era, who pioneered the “Internet incubator” business start-up model and who almost single-handedly put Pasadena on the global e-commerce map.   

Gross founded Idealab in 1996, to create and run innovative technology companies — simultaneously. In other words, he didn’t want to start just one business at a time, but dozens. Like playing darts, he’d imagine them, fund them, recruit talent to operate them and stick with businesses that succeeded, killing off those that failed. He was a one-man Cirque du Soleil of e-commerce, and his inventive concepts led to dozens of copycat “incubator” firms, many of which have since crashed and burned.

But Gross, now in his early 50s, succeeded beyond imagination in the 1990s, because many of his original ideas were pure gold. He started companies like eToys, in 1997, which became one of the best-known Internet brands; it went public in 1999 and was later acquired by KB Toys. He created Citysearch, which invented the concept of local online city guides, starting in Pasadena before spreading nationwide; the firm merged with Ticketmaster Online in 1998 and then went public on Nasdaq.

Gross dreamed up GoTo.com (1998), which pioneered the then-radical new concept of paid Internet searches, which have since become a staple of successful e-commerce. GoTo “was one of the most impactful companies we ever had,” Gross told a group of Stanford entrepreneurial students earlier this year. “We created pay per click,” and people thought it was a terrible idea. He remembered one particular Wall Street Journal story in which a Yahoo executive said Gross’ [monetizing] concept was “the most awful” idea he’d ever heard of. “We’d never do [pay per click] in our search results,” the Yahoo guy said.

GoTo went public, changed its name to Overture and was acquired by Yahoo in 2003 for $1.6 billion.  

Gross also came up with NetZero dial-up service, CarsDirect, Cooking.com, Tickets.com and dozens of others — all of which sprang from his own hyperkinetic brain.

Gross  seems to have been born with an entrepreneurial gene. The son of an orthodontist, he grew up in Encino where he started his first business at age 12, selling alternative energy kits for $4. “When I was in high school, I lived through the 1973 energy crisis. I used to read Popular Science magazine,” he told Bloomberg Businessweek. “And there were a lot of starry-eyed people hoping for an alternative energy source back then. So I began working on my own solar projects, making concentrators and thinking up other cost-effective solar ideas, but only on a high school student’s budget.

“Still, I made enough things that I began to sell the kits and plans for them in the back of Popular Science. I paid my way through college with that small business, which I called Solar Devices.”

As a student at Caltech, he sold stereo systems based on a speaker technology he’d patented. After graduating in 1981 with a B.S. in mechanical engineering, Gross launched a software company called GNP Development, Inc., which made a natural language product (using English-language commands) called Hal, for Lotus 1-2-3. In 1985, Lotus acquired GNP, and Gross signed on as a Lotus software engineer for about five years. Then, when his son started school, he became interested in tech tools for learning and launched Knowledge Adventure, an educational software publisher that was eventually sold, reportedly for $100 million, to a company owned by Vivendi Universal.   

We are talking here about a monumental financial and intellectual success story, one already etched in stone for entrepreneurship students everywhere. And, as with all such sagas, there is monumental failure as well. Which is how Gross’ smiling face wound up on the cover of Fortune in 2001, next to a caption reading: “I Lost $800 million in Eight Months. Why Am I Still Smiling?”

The author of the Fortune story, Joe Nocera, now a business columnist for The New York Times, has apparently been in a love/like relationship with Gross since he started writing about the Great Man, whose intellect and charm seem to conquer most who come in contact with him, erasing doubts about his sometimes improbable-sounding ideas.

When the dot-com bubble burst in 2000, Gross had raised $1 billion in private financing and filed with the Securities and Exchange Commission a statement of intent to take Idealab public. Gross told Nocera that the IPO might rekindle the entire market. “I believed him,” Nocera wrote, evidently shame-faced. “I was dazzled by him… A small, wiry man, Gross had an infectious boyish enthusiasm that was charming and irresistible. He spoke so rapidly — jumping from topic to topic — as if he were hyper-linking, that it was hard to keep up with him, and he had so much energy he seemed constantly on the verge of jumping out of his own skin. He bubbled over with irrepressible optimism. And his brain! That is what really set him apart. You could practically see the ideas bursting out of it, one after another, each more offbeat, more original, more promising than the last.”

Idealab’s public offering never happened. The firm’s businesses were unavoidably devalued in the market downturn. Idealab was sued by some prominent investors, and Nocera went on in the article to explain where Gross had apparently gone “tragically” wrong.

Fast-forward to 2005, and Nocera was forced to figuratively eat his own negative words, this time in a positive article in the Times. Revisiting Gross, he was amazed to discover that Idealab “is still very much with us.” And its CEO and board chairman was still creating exceptionally inventive start-ups, although they were not all Internet firms.

In fact, Nocera noted, one of Gross’s Idealab start-up companies was just about to install a newfangled solar energy system on the massive roof of Google’s headquarters in Mountain View, Calif. And now, five years after that article, Bill Gross and his Idealab seem to be continuing merrily on their way.

Gross tells journalists and students that one can learn as much from failures as from successes, that people should not be punished for trying bold new ideas that may not work. At Idealab, he said in his recent Stanford lecture, “We start out and look for big problems and challenges that the world will face. We’ll try and brainstorm technological solutions to them and then start prototyping the idea like crazy and then kill a lot of things that don’t work.”

A really crucial part of all that, Gross told the group, was to be able to kill projects with “no negative impact to the people” who took a risk and worked on the project and tried something bold and new. The ideas that don’t work out, Gross said, “we just shelve” and put those people to work on other new ideas.

These days, Gross says, he is committed to start-ups that will help make the world a better place. He’s particularly interested in robotics, alternative transportation and solar energy innovations, among other things. Among Idealab-sired companies in residence at the low-slung, red-brick headquarters on Union Street, where 200 people toil birthing or running its businesses, are Energy Cache, described as a company developing the most cost-effective grid-scale energy storage technology invented to date. It will offer an extremely low-cost energy storage solution to improve grid reliability and better manage transmission networks.

And there’s Thermata, a firm making industrial-process steam for a lower cost than natural gas. Because one-fourth of the world’s energy right now is consumed by U.S. steam boilers, Gross’s website explains, this company sells its advanced technology to places like paper mills and chemical plants where “roof-mounted heliostats reflect the sun’s energy” to produce steam, thus cutting natural gas use and reducing emissions. Then there’s WorldHaus, described as a “breakthrough kit home that puts clean, safe, electrified housing within reach of millions of families around the world.” And just for fun, there’s GO Interactive, offering “a new world of fantasy sports” that combines “the competitive spirit and live spectatorship of professional sports with the instant networkability, user interactivity and multifaceted gameplay of Facebook.”

And let’s not forget UberMedia, founded by Gross in 2010 as TweetUp (later PostUp). Offering a way to monetize Twitter, it’s predicted by some to be Gross’ next humongous hit. Gross describes it as “the world’s leading independent developer of feature-rich social media products that make it easy to publish, consume and engage, no matter who you are.” One of its most intriguing features is that it provides Twitter users with a way to find, organize and prioritize the world’s best tweeters on any subject that interests them.

The list goes on. Will any or all of the above survive and thrive through the years in their current incarnations? Nobody knows for sure — certainly not Gross. But watch his lecture to Stanford students at idealab.com and you’ll see that his eternal optimism hasn’t dimmed one tiny bit. He’s just as motor-mouthed, youthfully energetic and unrepentantly visionary as he has always been. Success is possible, he tells the group, if you pursue an idea you believe in, if you offer equity in the company to those working on it if it succeeds, if you don’t penalize people for trying bold new ideas that don’t pan out and if you know when to ditch an idea that just won’t work. If you don’t take risks, he says, nothing new and good will ever happen. Even then, hope the gods are on your side. All in all, Gross says: “It takes a lot of luck and timing to make everything work out.”

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