Bill Gross Is Into Atoms

picture-101.pngAs my final act for the print edition of Business 2.0, I interviewed serial entrepreneur Bill Gross of Idealab. Gross is best known for his Web 1.0 companies, especially and CitySearch, and eToys. So he’s had his share of both successes and failures.

But if you look at his portfolio of startups today, other than the click-per-action search engine, it is dominated by atoms businesses instead of bits businesses. These include Energy Innovations, eSolar, Evolution Robotics, and Desktop Factory. I asked him, what made him shift his focus. Excerpt:

Q. Why did you move away from pure Internet companies?

We started making only Internet companies because we felt this was an incredible new medium that had unbelievably high gross margins. If you could make a Web site, you could sell something online and you could make margins of 90 percent or higher. When we looked back at the ones that were most and least successful, we realized it had nothing to do with their margins. It had to do with how protectable the idea was. Was there a core intellectual property with which you could differentiate yourself and earn sustainable margins? Because you can make good margins online, but if you can’t sustain them, it doesn’t mean anything.

So that led us to take another look at all businesses – even companies that make physical products. We had shied away from making anything with atoms; we were all caught up in doing only things with bits. But you can make things with atoms and still have a huge amount of intellectual property in them, where you can earn good margins and protectable margins.

That’s a lesson most Web 2.0 entrepreneurs have failed to grasp. I guess that sometimes it takes a bust to learn these things.