Roger McNamee Says the Consumer Tech Will Remain King in 2003

Click on the company name to jump to McNamee's comments on the stock.

Apple

AT&T

Best Buy

CheckFree

Circuit City

Dell

Electronic Arts

Expedia

Google

Hotels.com

Intuit

Linear Technology

Nextel

Overture

Sprint

Symantec

Take-Two Interactive

Verizon

Yahoo!

Roger McNamee is a unique combination: The leader of a Grateful Dead-inspired band who also manages billions of dollars in technology investments. What makes him even more of a rara avis: He actually managed to make money investing in technology in 2002.

McNamee is the cofounder of private-equity firm Integral Capital Partners and buyout firm Silver Lake Partners, two Silicon Valley outfits that invest in tech of all sizes, from venture-stage saplings to megacaps. The hoi polloi need not call their brokers; McNamee's funds are not available to the masses. (His Flying Other Brothers band is more egalitarian: You can receive free concert tapes via the Taper's Section of the band's Web site.)

However, we were eager to interview McNamee for this week's 10 Questions because TSC readers can learn a great deal from a man with a superlative long-term record in tech investing. As he says, "I've been doing it for 21 years and have lived to tell the tale." While his firms don't publicly disclose annual returns, McNamee called 2002 a surprisingly good year, thanks in part to the 2000 LBO-then-2002 IPO of Seagate Technology. McNamee wasn't allowed to discuss Seagate because of the mandated "quiet period" around stock offerings, but he freely discussed what worked in technology in 2002 and what he thinks will work in 2003 and beyond. In fact, since our conversation was as lengthy, far-reaching and involved as a Grateful Dead musical interlude, we have decided to run it in two segments over the next two days.

McNamee strikes several key themes about tech investing. First, he says consumer technology (i.e. -- video-game makers such as Take Two, online brokerages such as Ameritrade), after a great 2002, remains where it's at in 2003. Meanwhile, enterprise technology -- companies that serve corporate America and garner more attention from Wall Street -- look poised for another bad year, on average. However, McNamee thinks a few incumbent giants will do well -- explaining why he changed his tune on Cisco. He also discusses, among other things, what the future holds in wireless, why top-holding Overture Services isn't threatened by Google, how the Internet will evolve, why businesses are still leery about IT spending and why the 1990s will never happen again. So tune in, turn on and make money.

1. Where is the technology industry today, how did it get here and where is it going?

The most important thing is to understand the context of the technology world in 2003. We've come off three years of brutal contractions that were necessary after the excesses of the 1990s. The industry really needed some kind of rationalization and consolidation because so many of the principles on which the industry was built in the late 1990s turned out to be misguided.

There were three layers of demand superimposed on each other. In the mid-1990s, it started off with the client-server applications wave. Toward the end of the decade, you layered on the whole Y2K infrastructure upgrade. Lastly, you layered onto that Internet B2B thing.

Roger McNamee Co-founder of Integral Capital Partners and Silver Lake Partners

Well, the return on investment on ERP [enterprise-resource planning] -- the heart of client server for large enterprises -- turned out to be a lot less than people expected. The return on investment from Y2K was very hard to measure. It's fair to say that many of the upgrades were valuable. And B2B was almost a complete nonstarter.

The amount of money that enterprises spent on these three waves of technology was prodigious. An awful lot of people had jobs -- both in the tech industry and large enterprises -- that were based on activities that weren't going to be happening any longer. Once January 2000 happened, you weren't going to have any more Y2K. And once everybody figured out that B2B wasn't solving a real business problem, that went away.