"Competitive strategy is not an end in itself"

HearMe's Paul Matteucci talks about the future, the Stanford mafia and what Silicon millionaires are going to do with their money.

By Mark Gimein

Jan 4, 2000 | In the age of the Internet insta-millionaire, it's easy to forget that the dot-com explosion is fueled not just by wide-eyed visionaries bobsledding their way to Net riches and programmers working through marathon coding sessions, but by seasoned strategists who remember what the business world was like before there even was an Internet.

Paul Matteucci, CEO of HearMe.com, has worked in Silicon Valley since the mid-1980s. He spent years studying and managing the workings of computer-hardware companies like Tandem and Adaptec before teaming up in 1996 with Brian Apgar, an engineer, and Brian Moriarty, a game designer, to launch Mpath, a company that let gamers play strategy and shoot'em-up games over the Net. Since then, he's deftly steered the company through a series of big changes that included changing its main line of business from games to voice-enabled chat sites -- the Web's much-more-sophisticated answer to the telephone party line -- and a corresponding name change to Hearme.com. And, naturally, he's taken it through that key Silicon Valley rite of passage for both company and chief executive -- the public offering.

Matteucci's office, furnished with castoff furniture from his own house, looks like a suburban rumpus room, in sharp contrast to the slick, over-designed offices of many of Silicon Valley's moguls. Salon Technology got Matteucci on the couch to talk about how to compete in the tech business, the Stanford mafia, and the length of his commute.

How has the atmosphere in Silicon Valley changed since the 1980s?

I see fewer people coming to me in their, let's say, mid-20s to early 30s and saying, "Hey, I want to work with a mentor for a period of time and learn how to be a general manager and then maybe eventually become a chief executive of a start-up in the Valley." More people think, "Well, we want to figure out how to make a lot of money pretty rapidly so we have more life choices when we're 33 or 34 years old," as opposed to, "I'm just going to build my skill set so I can manage more interesting and more challenging companies in the future."

It will be interesting to see sort of what this new wave of folks that are focused on [getting] to the point of material comfort are going to do with it. Are they going to sit back and just enjoy their blessings? Or are they going to then contribute their lives and time to helping the poor or helping children or solving world poverty or whatever? Are they going to express themselves in the arts? I don't think we know yet. I don't think we know what's going to happen with the new sort of cadre of very, very wealthy 30-year-olds coming from Silicon Valley and the development of the Internet. It could be great if they devote the second part of their lives to things that are beneficial, or it could be kind of self-indulgent.

You started at Texas Instruments when personal computers were just a blip on the technology radar. T.I. tried and ultimately failed to make a dent in the PC business. Did you take away any lessons from that experience that you brought to Silicon Valley?

At T.I. the PC was pooh-poohed. But there was an underground movement to use personal computers at T.I. and every department had their guy. And I was kind of the guy in the corporate relations department. I was kind of the pusher.

I learned a lot of things from that experience. In fact, I wrote a case [study] while I was at Stanford Business School on the home PC competition between T.I. and [companies like Commodore Computer]. If I had to pull one major lesson I've applied again and again -- um, mostly successfully -- is that business is really not about competing. It's about making money. T.I.'s culture was so competitive that they would destroy entire market segments in order to make a competitor lose -- even if it meant they lost too. In electronic watches and calculators [T.I. drove] prices down way faster than they could get costs down. To the point where the markets just went away.

Competitive strategy is a means to an end. It's not an end in itself. That's lost in the way some people learn competitive strategy. In our world we get rewarded by avoiding competition -- by building things that are truly innovative, creating markets where none existed before. It really bugs the heck out of me when I'm [advising] a small company and they're focused so much on competition that they're spending way too much time thinking about how "We head this guy off or we head that guy off" rather than building a product that will generate revenue and profit.

You've spent many years in Silicon Valley in the hardware business. Now you're at a Net company, you're running it and you've gone public. How does it feel to run a public company? Do you feel intense pressure from Wall Street to keep your stock price up?

I had the benefit of being at a high level at Adaptec when we were a public company, so I was used to meeting the numbers every quarter. That hasn't really bothered me so much. When I was in the PC peripheral space if you met and exceeded your numbers you were going to get rewarded.

[But on the Internet,] when you don't have objective numerical metrics by which to judge and compare companies, you begin comparing stories. For example, if a company has a choice of getting a bad deal with a portal or five really, really good deals with other companies, the bad deal with the portal will probably generate more market capitalization for them than the five really, really good deals with five other good companies. There's too much credit being given to the size of the relationship that you have with another firm. And not enough credit, frankly, being given toward just showing a steady progression of revenue growth and profitability. An AOL deal is worth a lot of market cap -- whether or not it's a fundamentally sound deal to the company.

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