1993: The Year in Review
“Gresham’s Law?”
“Nitchicon was part of our group?”
“Onex too?”
Surprised voices filled the meeting room. ID Group’s culture had always been relaxed, so even with Yoo Jae-won present the atmosphere never grew stiff. Most of those reacting were project leaders overseeing mobile phone development, Shell Book, or New Egg. Whenever they needed materials or components, they would first speak to their direct superiors; if that failed, they emailed Yoo Jae-won. Any problem that reached him was solved one hundred percent of the time. That was why the development teams had given him the nickname “Cheat Key.”
Yet half of the solutions Yoo Jae-won proposed involved connecting them to Japanese companies. Those firms already possessed the exact specifications the teams required, and supply negotiations proceeded smoothly. The shock came when they learned those companies were subsidiaries of Shin-Nihon Investment Bank, the Japanese investment arm of ID Investment.
“Shin-Nihon Investment Bank was established several years ago, during Japan’s economic crisis, to acquire distressed but technologically world-class companies that were going under due to liquidity shortages. The initial capital outlay in 1991 was four billion dollars. Today those companies are valued at roughly ten billion dollars.”
The Nikkei was climbing rapidly on the back of Japan’s low-interest-rate policy. Having bottomed out at fifteen thousand points, it had now recovered above twenty thousand. The companies folded into ID Group through Shin-Nihon Investment Bank were the clearest beneficiaries. Sanyo Battery and Onex saw dramatic improvements after supplying components for Shell Book and New Egg 2. Expectations for the coming mobile-phone market sent Sanyo Battery’s stock price soaring several times over. Lithium-ion had already been chosen as the secondary battery for the tens of millions of handsets that would be sold, and no company was better prepared to produce lithium-ion battery materials than Sanyo Battery.
Vincent Greenhill had kept his report high-level. Detailed information was omitted; only what could be disclosed without directly reporting to Yoo Jae-won was included, which kept the slides simple.
“Finally, I will report on our investments in the entertainment sector.”
Right on cue, Bellfort advanced the slide. The screen now displayed the Billboard Hot 100 year-end chart for 1993, showing the top ten singles. Listing all one hundred songs would have been impractical. These were America’s hottest tracks, and for any artist to place even one song on that list was an extraordinary honor.
What stood out was the number of entries bearing the ID logo on the left. From Whitney Houston’s “I Will Always Love You,” which had dominated the charts since January, to UB40’s “Can’t Help Falling in Love,” the ID mark was clearly visible. There was also Silk’s “Freak Me.”
While everyone looked puzzled, Vincent Greenhill spoke briefly.
“Any song marked with the ID logo received investment funding from us during album production.”
The chart suddenly looked different. More than one-third of the songs that ranked in the upper tier of the Billboard year-end chart carried the ID logo—an astonishing hit rate. Yet there was more. The next slide showed the 1993 box-office rankings: Jurassic Park, Mrs. Doubtfire, The Fugitive, Sleepless in Seattle, Schindler’s List, Cliffhanger. Six of the top ten films bore the ID logo.
Movies were the classic high-risk, high-return industry. Breaking even was difficult enough; achieving a blockbuster was rarer still. There was a supposed blockbuster formula, but it did not always hold. ID Investment had succeeded at the near-impossible. Still, under the awed gazes of the presidents and executives, Vincent Greenhill felt embarrassed. Every project he had personally selected had flopped; the hits had all come from choices made by Yoo Jae-won and Stefan Barber. Stefan Barber possessed an almost supernatural instinct for popular taste and had essentially been appointed president of ID Entertainment on the strength of that talent.
Even more remarkable, however, was Chairman Yoo Jae-won’s eye. If Stefan Barber’s accuracy hovered just under fifty percent, Yoo Jae-won’s reached eighty or ninety. His success with oil futures had already defied common sense; his record in film investment was simply unbelievable. It had reached an almost religious level of certainty. The pity was that only he and a handful of others knew the truth. Yoo Jae-won was already reshaping the world through his genius in software, semiconductors, and mathematics. If word spread that he was equally gifted in film and music, the burden would become too great, so he had attributed the entertainment successes to ID Investment’s powerful analytical capabilities. Vincent Greenhill could only feel sorry and grateful; he offered Yoo Jae-won a silent nod of thanks. Yoo Jae-won returned the look with a meaningful expression and a slight nod.
For Yoo Jae-won it had been simple. Everything came from the future knowledge stored in his memory repository. If he wished, he could achieve a one-hundred-percent hit rate without effort. He had merely adjusted the probabilities slightly to avoid suspicion. The faint twinge of guilt he felt was negligible. Regression and the memory repository had come at an enormous cost in his previous life; using them in moderation posed no problem.
Vincent Greenhill concluded his presentation with a report on angel investments. The total amount invested so far stood at roughly two hundred million dollars—larger than the combined angel investments of Wall Street and the wealthiest individual investors. ID Technology also made angel investments, but the selection methods differed. ID Technology’s investments were chosen by Yoo Jae-won’s personal judgment, while ID Investment’s were selected through analysis by its investment research team. Comparing the results in a few years would be interesting.
At the end of Vincent Greenhill’s presentation, ID Investment’s asset position appeared. Its current total assets, measured at market value, stood at an imposing 16.9 billion dollars. That figure fell short of JP Morgan’s market capitalization of 38 billion, yet it placed the firm comfortably among the top ten investment banks on Wall Street. Even to Yoo Jae-won, this was the best possible outcome. At present, Shin-Nihon Investment Bank remained ID Investment’s largest asset, but in a few years the seeds planted in the American IT sector would explode in value.
After the presentation, a break was announced. ID Investment’s slides had been numerous, and the talk had lasted nearly thirty minutes.
“We will take a twenty-minute recess and resume afterward.”
During the break, people visited the restroom or had coffee. When the meeting reconvened, the person who stepped onto the stage to applause was Kevin Johnson, president of Android Corporation. He was one of the few executives retained when ID Group acquired Microsoft. While all willing rank-and-file employees and programmers had been kept on, most senior executives had not renewed their contracts. Replacing middle management had been the most effective way to transplant ID Group’s corporate culture into the former Microsoft organization and to secure control. Kevin Johnson had risen to the presidency of Android through active cooperation with Yoo Jae-won and demonstrated ability.
“Good afternoon. I am Kevin Johnson, president of the Android Division.”
With a crisp greeting, the slide show for his ID presentation began. While previous slides had been free-spirited, Kevin Johnson’s retained the crisp, formal feel of Microsoft.
“Android operating system made 1993 a year of remarkable growth.”
The slide highlighted global PC sales for 1993. Until summer, 486 and 586 machines had sold in a chaotic mix; after the summer launch of HPC, a rapid generational shift had taken place. The explosive popularity of the internet and multiplayer games had driven PC sales to record levels.
“By the end of December, approximately 36 million new PCs had been sold worldwide. Of those newly shipped units, 28 million—eighty percent—came pre-installed with our Android operating system.”
The market share was overwhelming. Android was inexpensive, powerful, and stable; there was no reason not to use it. The only alternatives for PC operating systems were Linux, the outdated DOS, or IBM’s proprietary OS/2. While OS/2 had the highest technical polish, it could not compete in the number of available applications. Killer software such as ID Office, along with the daily flood of new applications and games, belonged to the Android world.
Kevin Johnson next displayed total revenue figures. The enterprise supply price for Android 2.0 was $9.90. After volume discounts, actual revenue slightly exceeded $230 million. A low murmur ran through the seated executives. Two hundred thirty million dollars was not a small sum, yet compared with the earlier ID Investment presentation it prompted many question marks. Market share and shipment volume were enormous, but the extremely low retail price was the reason. Had Microsoft’s old pricing of $120 per package been maintained, revenue would have been ten times larger. Yoo Jae-won, however, had no intention of raising the price of the consumer operating system. ID Group’s strength flowed from the operating system itself. Using that foundation to generate far greater profits in office software, games, and the internet was sufficient. Android was not engaged in charity.
“Demand for the Android Enterprise edition also continued to rise, with 2.24 million units sold through December.”
The Enterprise edition, designed for corporate use and supporting everything from network configuration to server and workstation deployment, sold for $120 per package—twelve times the price of the consumer version, yet still cheaper than competing Unix products. No other Unix-like operating system matched Android’s completeness of features or after-sales support. In the commercial server market, Enterprise edition was steadily gaining share and had already recorded sales of 1.23 million units.
“Total revenue from the Enterprise edition reached $268 million.”
Although fewer units sold than the consumer version, the higher unit price allowed it to surpass consumer revenue almost instantly. Unlike the heavily discounted consumer edition, Enterprise had no discounts at all, making revenue calculation and settlement straightforward. Combined revenue from both Android editions totaled $498 million—regrettably just short of $500 million. December orders had already been factored in, leaving no room for further upward revision. Still, converted to Korean won the figure exceeded 400 billion won—an enormous amount. The real excitement lay in 1994. Far more PCs would be distributed than this year, and Android’s revenue would rise accordingly.
“We also have a hardware division.”
Many assumed Android sold only software, yet it was a formidable player in hardware as well. The keyboards, mice, joysticks, and joypads produced and sold by the hardware division were regarded by gamers as premium products. The Live Force Feedback vibration feature in particular was seen as essential for immersion; anyone claiming to be a gamer was expected to own at least one. Even so, hardware was sold at low prices, keeping total hardware revenue just over $100 million. The profit margin, however, was extraordinary. The largest expense items were personnel and marketing costs. There were no factories to run and no vast distribution networks to maintain. Everything came down to enabling programmers to do their best work. In addition to Android, ID Talk, ID Web Browser, Prime Cut, and numerous other programs were under simultaneous development, driving explosive demand for talented programmers. Compensation packages were set at highly competitive levels to attract top talent, yet the overall burden on the company remained manageable. Legal affairs were handled by ID Group, so Android incurred no patent or litigation expenses.
“The overall gross margin stands at seventy-two percent, with projected net profit for 1993 at $430 million. Thanks to this performance, preparations for listing are proceeding smoothly.”
The word “listing” made the presidents’ ears perk up. Yoo Jae-won had never intended to keep ID Group private forever. Massive capital raising was essential for large-scale business, and no venue was more convenient than the stock market. Not every subsidiary would be listed, but ID Technology and ID Entertainment could certainly go public.
“The current average PER in the market is 13.4. Applying that to Android’s projected net profit yields an estimated market capitalization of $5.76 billion.”
When Kevin Johnson finished, reactions among the presidents split. Stefan Barber, newly appointed, let out an involuntary gasp of admiration. Remington and Vincent Greenhill, however, looked as though $5.76 billion was modest. Before Stefan joined, ID Technology had already merged with Microsoft. At the time of the merger, Microsoft’s market cap had exceeded $6 billion, yet it had been absorbed by Android’s fierce advance. Remington and Vincent Greenhill had personally overseen the merger. Android now wielded far greater market dominance than Microsoft had then; a lower market cap seemed unacceptable.
“This is a simple calculation, so the margin of error is considerable. Moreover, Android’s value is substantially higher than the Nasdaq average. The primary reason for the discrepancy is Android Gaming Edition’s price of $9.90. What would happen if we had priced it at $120 per copy, as Microsoft once did?”
Kevin Johnson adjusted the variables and recalculated. The arithmetic was straightforward, and the answer came quickly: $33 billion—an enormous figure. Of course, such calculations diverged sharply from reality. Android’s massive adoption rate stemmed largely from its low price. Raising the price would certainly reduce volume, and illegal copies would proliferate. Still, computers cannot function without an operating system, and some argued that large manufacturers would simply pass the higher cost on to consumers by embedding it in the product price. Even under the simple calculation, net profit would increase more than tenfold. Applying the industry-average PER of 13.8 to that figure produced the $33 billion market-cap estimate. Yoo Jae-won had no intention of raising the consumer PC operating-system price, so the number could not be applied directly. Nevertheless, even with a substantial discount at the offering price, a market capitalization of at least $12 billion was realistic.
The mood at the close of 1993 was exceptionally bright. From ID Technology to Android, tangible growth was evident. Presidents and senior executives alike gained direct confirmation that the ID Group they served possessed formidable financial strength and organizational capability. Nextcomcast, however, was running large deficits due to the information-highway project, set-top-box replacement, and ADSL rollout. Henry Samuel, its president, showed no sign of discouragement. Sharing Yoo Jae-won’s vision, he had no doubt that once the large-scale investments ended, Nextcomcast would become a cash cow comparable to ID Investment. In California, where ADSL was being deployed rapidly, the company was already turning from loss to profit. The same held for cable television. The new set-top boxes were quickly reducing cable theft. Analog cable broadcasts had been easy to pirate by simply tapping the line and connecting an unauthorized box; satellite analog broadcasts were equally vulnerable. Digitization completely blocked unauthorized viewing while dramatically improving signal integrity. Set-top-box replacement also enhanced picture quality, pleasing viewers. A slight delay in channel changing compared with analog boxes drew occasional complaints, but nothing serious.
The report from the High-Tech Research Institute followed a similar pattern to Nextcomcast’s. The institute, researching everything from nuclear power and communications to aviation technology, computer security, and drones, was ID Group’s true black hole. Yet several technologies showcased at the Expo had already found buyers, and the U.S. government had even offered research funding for joint drone development. The one-click online credit-payment function developed by the Kaspersky team had also been commercialized, rapidly transforming online shopping.
Finally, Stefan Barber, president of ID Entertainment—launched earlier that year—delivered his report, bringing the 1993 settlement to a close. ID Entertainment, aside from ID Software, was still in its infancy and had little to report. One meaningful highlight was that Doom 2 had surpassed five million units sold. Although the game had been out for some time, the spread of HPC and its inclusion as a bundled title with the latest 3D accelerator cards had driven a sharp increase in sales. Another feature of current Doom 2 sales was the CD version, indicating how quickly CD-ROM drives were proliferating.
All that remained was Yoo Jae-won’s presentation of the 1994 plan. He would not begin immediately. Because individual presentations had run longer than scheduled, a thirty-minute break was agreed upon. Yoo Jae-won himself felt no physical strain, but out of consideration for the older attendees he extended the usual break by ten minutes. He returned to his hotel room, opened his Shell Book, and reviewed the slides with Kim Dae-seok. While he was studying the script, a faint vibrating sound reached him. The noise came from his suit jacket, which he had removed and set aside. The vibration motor was intended to signal an incoming call discreetly, yet in a quiet room it was nearly as loud as a ringtone. A call on this phone could only come from someone very close to Yoo Jae-won. The highest probability was Tiffany, followed by his parents or friends. He took the call himself rather than handing the phone to Kim Dae-seok.
“Hello?”
—Chairman, this is Jung Byung-woo.
Instead of the expected voice of Tiffany, a deep male voice spoke. Jung Byung-woo? It took several seconds for the name to register as the partner at Kim & Jung Law Firm, affiliated with the ID Foundation. He recalled that President Kim and Kim Young-chul had said they would look into the lawsuits regarding wartime forced labor and comfort women that Kim & Jung was handling, yet days had passed without any word.
—Please rejoice! The date for the verdict has finally been set.
“Oh! Really?”
He had planned to call again if no news arrived by mid-December. It seemed the promise had been kept.
—Yes! December ninth.
The ninth? Today was the fourth, so the first-instance ruling would come in five days. The sudden decision after weeks of silence clearly indicated movement from above.
—I will be sure to bring you good news!
“Very well. Please contact me as soon as the verdict is delivered.”
When the call ended, the break was nearly over. Yoo Jae-won slipped back into his suit jacket and left the room. His steps felt light. Just as ID Group’s 1993 settlement was filled with remarkable achievements, it seemed the lawsuit for Japanese wartime victims would also bring welcome news.