*Extra* Revisiting a Conversation With Jurvetson

The leading venture capitalist takes a moment to elaborate on his Merrill Lynch conference call comments.
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Jurvetson, Part 2: Beyond Jurvetson

SAN FRANCISCO -- In the "grand" tradition of James Cramer I proudly present my second "rewrite," although it's really more of a "retake". I caught up with Steve Jurvetson, managing director of San Francisco-based venture capital firm Draper Fisher Jurvetson, Thursday, and his additional thoughts are published below, in bold for easy identification. We've made the effort because some of Jurvetson's views are truly controversial and thought-provoking. Moreover, he's not just some random dude rambling about the Net. Jurvetson's firm made early-stage investments in companies such as HotMail (later sold to Microsoft (MSFT) - Get Report) and now-public entities such as Preview Travel (PTVL) , as well as a host of others. In addition, he was recently named "The Valley's Sharpest VC" by

Business 2.0

magazine. Think of Jurvetson as the Silicon Valley's version of Goldman Sachs' Abby Joseph Cohen. In many ways, he is


quintessential Valley dude. (Fer sure.)

In an Oct. 7

Merrill Lynch

conference call, Jurvetson expressed confidence online companies will eventually be able to "monetize" the eyeballs viewing their sites. "Every media found a way to make efficient use of that media for advertisements," but only over time, he said, noting the 30-second television commercial was not standard at the onset of that industry. And the Internet is in the "the very early part of the first inning" of its evolution, the VC declared.

Asked during that call by Merrill Lynch tech analyst Steve Milunovich which public companies he would invest in today, Jurtveston said he's "excited" about



, for its "eyeball aggregation" and "natural monopolies," such as


(EBAY) - Get Report


He also sees great opportunities for Internet software developers, especially those focused on business-to-business markets, an example being




Conversely, the VC is avoiding companies whose mantra is, "'I am a dot-com; I want to sell you something.' Unless it's a special angle, product or service that's viral in its nature, we're not investing there."

Waxing philosophic, Jurvetson then discussed how, thus far, there "has not been very creative interpretation of how to use" the Internet.


(AMZN) - Get Report

, for example, is a "pure carryover from a physical world retailer," and thus "completely out of place on the web," he said. "We believe strongly Amazon.com is an anachronism."

Although everyone seems to be rushing to build "brand awareness" online, Jurvetson believes "the notion of a retail brand is out of place on the Web."

"I don't mean to talk about product brands, like


(GPS) - Get Report or


(DIS) - Get Report or even


(TSCM) ," he continued in our subsequent interview. "With multiple distribution channels online, there doesn't need to be a distribution intermediary" like a traditional retailer. "Unless

Toys R Us

(TOY) gets into private-label products, I don't see them" having a significant online presence. Asked whether things like reliability and ease of use don't matter and won't extend Amazon.com's leg up, Jurveston replied: "Those things are always important. Amazon has the best products and is reliable. We're loyal today because for a few extra dollars, it's worth it. I don't have to fill out new forms. And I know what the experience is like. "But do I want to rely on Amazon.com for back-end fulfillment? It's a great place for delivery, but not necessarily for telling me what I want to buy. People are experimenting with interesting ways to help you find what you want to buy."

Instead, he foresees customers putting their faith in a "personalization agent," which -- like

Consumer Reports

-- has no economic incentive to "steer you one way or another."

For example, the VC asked what would happen if

Peter Lynch

decided to break away from

Fidelity Investments

and provide his own recommendations. "You'd trust his opinion more than Fidelity telling you to load up on (FMAGX) - Get Report Magellan," Jurveston said. "The analogy is, there's no Peter Lynch equivalent" on the Web right now. "But don't think it won't exist."

Imagine this: You're at Amazon.com (or any other site) looking at a particular item and an "eyeball bandit" pops up to tell you the same item is available for less elsewhere, he explained.

These companies will then provide "timely delivery and enable things like same-day delivery," or partner with organizations that can, he said, mentioning


as a potential example. "It could be," Jurvetson replied, when I asked whether that is the online promise investors have been looking for in


(FDX) - Get Report or the soon-to-be-public

United Parcel Service

. "UPS and FedEx will be there. For FedEx, it's logical but they seem to be outsourcing that functionality. UPS is moving that way and -- if they play their cards right -- may be the single best investment thesis out there."

Furthermore, this party knows your address, credit card number and other pertinent information and "you trust them as your fulfillment agent," Jurvetson continued. "The ability to poach

consumers at the checkout stand is powerful and new."

He mentioned



, the free Internet service provider that went public late last month, and privately held


as examples of companies with the potential to employ these tactics. Draper Fisher Jurvetson was an early stage investor in both firms. (

Sniff ... do I smell a merger?


"It's by no means out of the question, but I would suggest they partner and don't vertically integrate," Jurveston replied when I asked about my sense of smell. "Brodia is more powerful if they work with every possible eyeball aggregator. I don't think it makes the most economic sense" to merge. "It's an open market approach. You'll work with the best company du jour." On the issue of vertical integration the VC referred again to the PC industry, where


(IBM) - Get Report attempts to be a "one-stop shop" for all elements of the computer ultimately led to it being supplanted as the industry leader. Jurvetson foresees the same "horizontally integrated" model being victorious on the Internet because there is "rapid development at each layer." Because of his confidence in the horizontal model, Jurvetson reiterated his belief that Amazon.com will evolve from its current incarnation.

As for Amazon.com, "I don't think

they're doomed," Jurveston said. "I have faith in

CEO Jeff Bezos. But Amazon.com as we know it is likely to go through some profound changes."

The company has done a great job in "phase one" of its existence by "replicating

online what we understand well," he added. "Bezos is brilliant. He's very quickly migrating and shoring up alternative strategies," most notably the


initiative unveiled last month.

I played phone tag with Jurvetson Friday to get additional comment, and will report anything pertinent when (and if) we do catch up.

See, there is truth in advertising, after all.


In regard to the

first half of the story, Jurvetson said the Internet does have some deflationary potential, but "at the end of the day, it's not going to override other factors."

He compared the Internet to mechanized farming and the industrial revolution, which brought about "huge price efficiencies." The online movement is a continuation of a trend toward "more and more repetitious-type tasks moving toward machines, which "allows human capital to be freed up" to pursue further innovation.

And while there are difficulties facing entrenched players, the opportunities for new entrants are vast, the VC said.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at