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New criteria for Idealab businesses:

A few weeks ago, Google announced that it planned to install a large solar energy system on the roof of its headquarters in Mountain View, Calif. “Green tech” is all the rage right now in Silicon Valley, with venture money pouring into environmental start-ups, and hip technology companies falling all over themselves to show their earth-friendly bona fides.

But that’s not why the Google announcement caught my eye. No, what intrigued me was the company that was building its solar system: EI Solutions, a division of Energy Innovations. And Energy Innovations is — are you sitting down for this? — an Idealab company.

Idealab? The original “Internet incubator” founded in the mid-1990s by the charismatic, hyperkinetic Bill Gross? The one that flew so high during the Internet bubble — with companies like eToys and Eve.com and PetSmart.com — only to crash and burn once boom turned to bust? The one that was sued in 2002 by some of its most high-profile investors, including T. Rowe Price, which asserted that its money had been misused and wanted it back? Yes, that Idealab.

We haven’t heard much about Internet incubators lately — and with good reason. Many of them no longer exist. Several that went public during the boom, like CMGI, now sport anemic stock prices, and aren’t really incubators anymore. The essential business model of an incubator — that a company could exist purely to create start-up companies — is now viewed largely as bubble folly...

But Mr. Gross and Idealab, it turns out, are still very much with us. Idealab is still a company that exists to create start-ups, most of which begin life as a glimmer in Mr. Gross’s fertile brain. The companies it starts aren’t always about the Internet anymore, though some are. Mr. Gross has started a company that is making an affordable 3-D printer, which it hopes to bring to market next year. Another Idealab company sells proprietary robotics technology to supermarkets and toy companies. Yet a third, Spin.com, is an Internet search engine in which advertisers pay only if customers take an action, rather than simply click to a site. (Mr. Gross is the inventor of the “paid search” idea that Google went on to perfect.)

He never lost his belief that his model of company-creation could work — if, that is, he could learn to bring his own frenetic idea-generating brain under control.

So, no longer would Idealab start a company a month. “We needed a much higher bar for the kind of companies we would create,” he said. “We needed to have protectable intellectual property. Our companies had to be in growing industries, with high margins — and protectable margins. That was something we never used to think about. EToys had great customer service, but it had no protectable intellectual property. Anybody could do it.”

And finally, Mr. Gross said, the companies he wanted to start had to be able to make a real difference in the world. You could argue, I suppose, that to make such a grandiose statement suggests that Mr. Gross and his colleagues were still afflicted with at least some of the hubris of the bubble days. But Mr. Gross argues that building a company requires so much effort, and entails heartbreak, that it just didn’t seem to be worth it unless Idealab companies were going to do something that mattered.

One of the first companies to emerge from this new focus was Energy Innovations. www.idealab.com

From New York Times 10/28/06
http://select.nytimes.com/2006/10/28/business/28nocera.html?th&emc=th