Why Wall Street Is Betting on Austin's Multimedia That Magic Touch

illustration illustration by Jason Stout

The rush is on -- you strike it rich now, or stop complaining. FG Squared did it. These four guys scrapped their college classes at UT, got $500 together, combined their computer, engineering, guitar, and verbal wit skills, and started a "multimedia" company. Dad was not happy. But producing business-to-business promotional and training material using 3D animation and Web site development has made FG Squared co-founder Jason Fellman a nice chunk of change. He won't say how much exactly, but he assures me it's in the millions-plural range, and that revenues will increase 300% this year. Need more proof? Take a look at their client list: Canon, Hitachi, Dell, Microsoft, Compaq, and about 10 other big names we'd all recognize. Not bad.

This citywide media gulch is gaining fast on Silly Valley and Route 28 in Boston as the interactive center to beat. Certainly, Austin has been a top dog this whole decade for its hardware and chip development, but nobody really cares what's in their hot dog, so what? The new big thing this year is sexy Internet-based start-ups, which are even scrapping those stodgy old "business plans" when they meet with venture capital firms. Who cares about a business plan when there's money to be made? And who cares about projected revenues if your little start-up can do the IPO thing and suck millions from a voracious pack of Wall Street investors hot for Internet stocks? Austin is on the newest wave for IPOs (initial public offerings, or "stocks" to you and me), which makes everybody rich, from the investors who took a chance on the start-up down to the stock option-carrying staff gopher.

The pace is exhausting; vague terms never get defined; and far too many conversations about what's hot, what's cool, and what's next are buzzing in our ears. So if we must talk in terms of what's hot, what's cool, what's next -- then here it is:

1) Venture capital, e-commerce, Web development software

2) education software

3) online gaming

Meanwhile, the liberal arts majors take entry-level receptionist jobs at FG Squared hoping to pick up a little code ...


Everything That Rises ...

It all sounds so sudden, but this happy environment exploded out of a convergence of money, innovative technology, and creative talent. And each part of the convergence hinges on one thing: the Internet -- as a marketing and commerce center, a learning tool, and a shared experience. Sorry, no content-driven sites make the list. A few pure content-driven sites based out of Austin do, like Deja News Inc. and Excite!, but info-only sites just don't make the buzz list this year. No single-player computer games either, which were so hot in 1997. Neither do non-Internet tech ventures. But do add local hotties (Davis Design, see sidebar on Conduit Festival) specializing in digital film to the good list, because Hollywood trumps the Internet any day (especially in a town obsessed with becoming the newest satellite office).

Mostly, though, what's hot is money ... Isn't that always the case?


Adventure Capital

Money feeds the companies which feed the talent which feeds the technology making the product feeding the hype. That leads us back to money, because hype about Austin -- and its job opportunities -- and money for start-ups, draws the super-dope talent. All of which makes Austin a good investment for Wall Street. Venture capital companies in Austin and around the country view our town as a fashionable technology center -- their final goal is graduating their start-ups into publicly traded companies for big profits and high market capitalization.

"The number of funded companies in Austin has gone from two or three in 1990 to 30 or 40 today," says John Thornton of Austin Ventures, the its largest venture capital firm in the country. "And that's due to Austin Ventures," he continues modestly. With $800 million in funds and 25 Austin companies under its belt, Austin Ventures is by far the biggest player in this town. Along with Tivoli, Deja News Inc., Garden.com, and Human Code, Austin Ventures counts Vignette among its biggest success stories, particularly since it went public last month, making millions for everybody.

Just how much? How about $75 million for starters? Vignette's IPO raised that much during their first week as a public company, and ended up with a surprising $1.1 billion in "market capitalization," which is how much Wall Street thinks you're worth. The first local software company to go public since 1997, Vignette offered 4.6 million shares at $19 apiece on February 19. After catapulting to $52.75 per share during the second hour the market was open, the stock settled down to $42.68 by the end of the day. The $1.1 billion figure seems out of whack, especially since the company has reported no profits since its inception in 1995. But no one's counting. Wall Street investors are eager to jump on "trendy" Internet stocks, and local companies like Vignette and pcOrder, which also went through the roof on its IPO in February, are cashing in because of it. In reality, Vignette's soaring value is based less on actual revenue figures and more on the market potential of their "StoryServer" e-commerce software.

"There's definitely cachet in owning these stocks," Austin Ventures' Thornton says, "and we're taking full advantage of that. We're beginning to have success stories like Vignette. And Austin is the unwitting benefactor of this IPO-driven frenzy.

"People are attracted by success, and success occurs because of capital, so it's a chicken-and-egg thing," Thornton continues. "We like to think it's people that bring the money -- that we're such a dynamic community people see the opportunity, and their arrival here pushes the economy forward."

The goal of improving e-commerce is the common link between the Austin Ventures-funded companies, a focus that will make our city an e-commerce center. We already have the infrastructure of Web development and software firms in place. Vignette, pcOrder, and Mediatruck, just to name three, are working on software products that make e-commerce simple for big and small companies.

Newcomer (and still privately held) Mediatruck is offering something slightly different -- a real Austin-style experience in Web site building and e-commerce. Their software package provides a holistic environment where even those content-loving liberal arts majors can make some dough off their sites. Simplifying the process for plebes, Mediatruck's program lets you wallow in your wordy documents and lets the software do all the formatting and database work. Founder Paul Pugh, who has a journalism background, came at this one-stop Web building idea while developing the Texas Monthly "Ranch" Web site. "Sites like theirs enable all these liberal arts majors to have new careers around building Web sites," says Pugh. "But at the upper management end, it's no longer valuable to teach them design ... I wanted to create a new method to building Web sites using databases, and enable these nontraditional developers to build dynamic sites and applications."

Mediatruck is "prime" for venture capital, says Thornton, who indicates he's already contacted Pugh to talk about financing. Neither will confirm that a deal is in the making, but Pugh confirms that Mediatruck is in the market for serious backing.

Then there's the big boys, and girls, to show us the end result of good e-commerce software. Dell sells $14 million in computer equipment per month off their Web site, and Garden.com is raking in national press for its innovative "content, commerce, and community" package.

Garden.com's comprehensive package includes feature stories, shopping, articles, and chat rooms for its customers to meet, swap stories, and ideally, promote the company's products right there on the site. To explain how this all works, imagine that Garden.com is a real-world store you just read a very informative article about, with information about what to plant in your garden. You go to the store, and on your way in, you run into a fellow gardener, who tells you that Garden.com has "some very healthy peonies, and great lettuce seeds that germinated quickly, and there's also a discount on 90-pound manure bags." You head right back to the peonies, pick up a flat, order a few bags of cow crap, and wander through the aisles for other items that catch your eye.

Sounds silly, but in a perfect retail world this would happen every time you went shopping. On the Internet, it does. Garden.com is playing every angle, since you're much more likely to purchase something if you've been exposed to the product a million times through a million sources.

Without a doubt, the Internet is not a viable communications medium until someone makes some money off it. Without profit, it would eventually be devoid of meaningful content and abandoned to sociology wonks and religious fanatics -- much like public access TV. Profit drives progress: Which is why it took the sex industry to push the envelope on Internet graphic technology and e-commerce software. The explosion of sheer XXX profit numbers drove less seamy companies to invest also. Their participation online pushed technology farther, mainstreaming what could have become an elite medium for the research purists -- or just a nasty little playground for the rest of us.


Distance-Free Learning

Lucky for the social engineers, some of the original purity of the Internet survives. Take the "learn, work, play" indoctrination at Human Code. Sounds like a bad way to make money, but at Human Code their products converge around innovative technology the same way you'd want your kid to interact in kindergarten. It's all about sharing ... By the way, this is the "feel-good" part of this article, where the less fortunate and underserved can begin to share in the wealth that has eluded them. The homeless aren't getting a blanket or anything, but with education software, those normally left out of the high-tech scene here in Austin can get in on the action.

"Welfare-to-work" is a phrase most anyone could love. HC's latest CD-ROM/Internet hybrid program broadens access to entry-level tech jobs for the underskilled. HC developed a program with the Texas Workforce Commission that takes the learner through a virtual job application process at say, IBM, AMD, Dell, or Motorola. The viewer is guided through a series of simulated activities, including how to find the right person to talk to at human resources, how to prepare a list of their skills and education, how to dress, and what to say at the interview -- even how to arrange day care or carpooling. "These are global skills, soft skills," asserts Dr. David Palumbo, director of the Learning Technologies division. "It's nothing magic. ... We're just broadening access."

This particular interview is beginning to feel like a Microsoft commercial: Where do you want to go to school today?

Because you will be able to make that choice -- soon. Just look at "Plus," another HC CD-ROM hybrid that will supplement university textbooks and enable "distance-learning." Palumbo jokes that it's a "distance-free learning" tool, with interactive quizzes, reading syllabuses, notes from the instructor, and links to relevant texts. The idea, to Palumbo, is that if "the best professor in English Literature is at Princeton. ... Should you have to go there to have that experience? I don't think so. That learning experience should be available to everyone who wants it." Will Princeton go along with it? "Probably not," Palumbo concedes, "but the University of Phoenix is interested in using our technology and sharing their professors with the rest of the world, and pretty soon, others will follow."


Game for Anything

Why online gaming? After all, it's been around a while in the form of the Ultima series by Origin Systems. But game companies say they're increasingly sensing the power of the Internet as a safer, more challenging social activity. EverQuest just started up its Ultima clone, and more will follow from at least one homegrown girl game company.

She's shouting now. "Girls are going to kick ass on the Internet!" Katherine Jones, the senior vice president of Girl Games, is pretty darned excited about the place "where boys don't rule": the Internet. "Girls are on the Internet as much as they are, and that's where the future is for them," she says. The company knows it better move a ton of dough into Internet games and the PlanetGirl.com Web site if they want to stay abreast of the competition. Jones won't give any details, but look for an online game based, hopefully, on slumber party interaction. No more trolls. (By the way, new non-Internet activities at Girl Games, a Web site called Shredbetty.net, centers around girls in extreme sports. Naturally, there'll be a Shredbetty line of clothing and other products to buy, and Jones reveals that there will probably be a Shredbetty TV show as well on the Fox Sports Network. All us girls are gonna want to be Shredbetties soon.)

As for Ultima, word is the online gaming buzz is so loud that Origin will be stripped down to just online gaming this year -- with all other projects farmed out. Origin, which is owned by Electronic Arts -- the largest game publisher in the country -- boasts 100,000 members of Ultima, with 10,000 active players at any given time. They charge about $10 per month for membership, and for that price, you can practically live on their server in their little medieval world. You can create your own character, choose your skills, start a business, buy goods, sell goods, make friends, hang out with people online in virtual bars, and pay for drinks from the bartender who is some other person online. It's weird. But interesting.

Despite the buzz around online gaming, it has its skeptics. Single-player games like Ion Storm's Quake are the company's bread and butter. "If someone says online gaming is what I have to do because that's the future, then I'll go open a bookstore now because I have no interest in it," Ion Storm's Austin branch director Warren Spector contends. Spector is finishing up Deus Ex, a conspiracy game from a single perspective, set in beautifully animated re-creations of parts of New York City. No release date yet.

Certainly, he makes a compelling argument: "I don't want to interact with 10,000 people in the real world, why would I want to do it in the virtual world? ... Why would I want to talk to 14-year-olds who want to yell 'fuck, fuck, fuck' under the cloak of anonymity because they're Nimrod the Conqueror in this game? I don't want to do that."

Neither do I, but I would go to a slumber party online.


The Short Kiss Goodbye

Here comes the part about "keeping Austin beautiful" so we don't lose quality of life and spoil the goose that laid the golden blah, blah, blah ... We love being the most happening place in our universe right now, and like Paul Stanley of Kiss said, "What, am I going to complain that I'm a big star and I didn't get the love I need? No." We can just say thanks. So, what's the coolest, hottest, happening-est thing? We are. The end.

A note to readers: Bold and uncensored, The Austin Chronicle has been Austin’s independent news source for almost 40 years, expressing the community’s political and environmental concerns and supporting its active cultural scene. Now more than ever, we need your support to continue supplying Austin with independent, free press. If real news is important to you, please consider making a donation of $5, $10 or whatever you can afford, to help keep our journalism on stands.

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KEYWORDS FOR THIS STORY

Sxsw Interactive, Human Code, Venture Capital, E-commerce, Girl Games, Web Software, Garden.com, Education Software, Online Gaming

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