Like almost everything O'Reilly Media has done since, the fortuitous decision to enter the book business -- which coincided with the rise of the personal computer and, therefore, an explosion in the market for computer books -- happened thanks to the founder's observational acuity and a series of happy accidents. O'Reilly began offering discounts to clients who allowed him to retain the copyright to the manuals he was writing for them. He initially resold these manuals to other consulting clients, but in 1985 he began distributing them to the public. The volumes were slight -- just 80 pages or so, stapled together -- but that made them more attractive to consumers than the big, expensive textbooks that existed already. And because they were small, they wound up in their own section in bookstores. "Our whole model was exploratory," O'Reilly says. "We didn't know very much, but that helped us. Our ignorance was our strength."
As early as the late 1980s, O'Reilly was pretty sure his consulting clients would eventually want their manuals available on computer screens as e-books, and he and Dougherty began investigating ways to make that happen. The search led Dougherty to a number of software developers who were working on ways to display graphics online, as opposed to the plain text system that already existed on the Internet.
In 1992, O'Reilly published The Whole Internet User's Guide & Catalog and, at the last minute, added a chapter about the World Wide Web. At the time, there were roughly 200 websites, none of them run by companies. To market a general-interest book from a small publisher about a relatively obscure topic, O'Reilly devised a novel marketing strategy: He would turn himself into an activist. He hired the former director of activism from the Sierra Club and devised a campaign that treated the adoption of the Internet like the effort to save the rain forests. He mailed copies of the book to every member of Congress and then went on a media tour in New York City and Washington, D.C. "I was saying, 'The Internet is coming; the Internet is coming,' " he says. And O'Reilly Media had the only book that could explain it to you.
The strategy worked brilliantly. Many of the first mainstream newspaper articles about the Internet were pegged to the release of O'Reilly's book. "Internet Provides Way to Tap Into World of Information," was the headline in the Chicago Tribune. By the time dot-com fever hit, O'Reilly was the expert in the field. The Whole Internet sold more than a million copies, a huge windfall for the tiny publisher.
Another outgrowth of O'Reilly's interest in digital publishing was something more ambitious: the first Web portal. In 1992, Dougherty decided that a good way to market The Whole Internet would be to place computer kiosks in bookstores to show people what the Internet looked like. Unfortunately, there wasn't a whole lot on the Internet to see. So O'Reilly hired a team of five people to build the world's first commercial website. It featured a boxy design, multiple fonts, cheesy clip art, and advertising from the likes of MasterCard. The chief attraction was a directory of useful websites.
The Global Network Navigator, or GNN, was a "wild-ass scheme," O'Reilly says. It cost $2 million -- an enormous sum for a company with $7 million in revenue -- and it ate up all the company's profits for two years, causing tensions between book publishing employees and the new Web team. "Our employees were unhappy," O'Reilly admits. "But for me, it was interesting work." In 1994, O'Reilly Media was approached by two Stanford students, Jerry Yang and David Filo, who were looking for funding for their nascent Web directory, Yahoo.
But O'Reilly couldn't afford to back Yahoo. In fact, he barely had enough money to run GNN, so he began meeting with venture capitalists about a possible investment. But the more VCs he talked to, the more he worried that taking other people's money might either force him to pursue uninteresting things or cause him to lose the business altogether.
In 1995, O'Reilly negotiated the sale of GNN to AOL for about $14 million in stock and cash. From a predatory perspective, this was a very bad deal -- a year later, Yahoo would go public at a valuation of about $300 million. But for O'Reilly's lifestyle business, things worked out just fine. By the time he sold his stock, he walked away with roughly $40 million (enough that he would never have to worry about money again); he kept control of his company; and he insulated the company from the worst excesses of the dot-com bubble.
O'Reilly says he sometimes wonders what would have happened if he had raised venture capital and given his company a chance to get really big. But he sounds more amused by this question than truly troubled by it. "Money is like gasoline during a road trip," he says. "You don't want to run out of gas on your trip, but you're not doing a tour of gas stations. You have to pay attention to money, but it shouldn't be about the money."
Do you know anything about chemistry?" O'Reilly asks me. The answer is no, not really. But I say yes, not wanting to disappoint; and O'Reilly, like any good professor, assumes that I'm lying and proceeds to explain it to me anyway.
Chemical reactions, he says, require activation energy in order to begin, but once that happens they tend to proceed on their own. "I think there is that quality in this company," he says. "Right now, the industry is getting really excited about e-books, but we've been working on e-books for 23 years." Book publishing has been in crisis for the better part of a decade. For every three independent bookstores that were in business in 1990, two are now closed. But O'Reilly Media is making more money selling books than it ever has. Overall, revenue at the company is up 20 percent from 2000, when the market for computer books peaked.
