Steve Perlman's Wireless Fix

(Corrects where Perlman grew up in 13th paragraph. His childhood years were spent in Connecticut, not New York.)

Lunchtime, Lytton Ave., Palo Alto, Calif.: It’s a bright, mild July afternoon, and khaki’d professionals meander past the boutiques and coffee shops, heading back to their digital workstations. One of the slower pedestrians, who gets more than a few curious glances from passersby, is a middle-aged guy in jeans and a green T-shirt, carefully rolling a utility cart down the sidewalk. The cart is one of those black, plastic, double-decker jobs you find at a home-improvement store. It’s laden with electronics and has white vinyl plumbing pipes that stick into the air from two corners. “It’s a very small group of people that actually turn the wheels around Silicon Valley,” says Stephen G. Perlman, the Silicon Valley inventor and entrepreneur who once sold a company to Microsoft (MSFT) for half a billion dollars, as he hunches over to keep the gear from jostling.

“What’s that?” asks an onlooker, a scruffy guy with gray hair and a beard to match. He looks like he’s been to a few too many Grateful Dead concerts.

Perlman patiently explains that he’s developing a new type of wireless technology that’s about 1,000 times faster than the current cell networks. It will, he says, end dropped calls and network congestion, and pump high-definition movies to any computing device anywhere.

“Huh. Cool,” says the guy, evidently deciding that Perlman is some sort of technological busker. He dumps a handful of acorns on Perlman’s cart and walks away. Perlman shrugs: “You get all kinds here.”

Now that he’s stopped in front of the Private Bank of the Peninsula, the demonstration is about to begin. It’s the first he’s ever given of his latest technology on the record. He points to the laptop on his cart. There’s a square with purple dots dancing around like television static. Perlman calls his office and tells an engineer to activate some software. Suddenly, the dots form a tight ball in the center of the screen. Perlman explains that the antennas, fastened to the ends of the plumbing pipes, have just picked up a radio signal sent from his office across the street. “It’s almost like magic,” he says.

A radio signal from point A to point B is hardly magic, but it isn’t just any signal his utility-cart contraption has picked up. This one reached B without encountering any hiccups or degradation of the sort familiar to anyone who tries to make a mobile call or watch a streaming video on a smartphone. The tight ball of dots represents what Perlman calls “the area of coherence,” and it means the device has found a pure signal.

Perlman named the technology DIDO, for distributed-input-distributed-output, a wireless technology that breaks from the time-tested techniques used for the past century. DIDO, he says, will forever change the way people communicate, watch movies, play games, and get information.

Perlman, who’s 50 and has been building companies and technology for 30 years, has earned a reputation as a showman. But, like a boastful 19th century explorer who has to raise money and excitement to launch his expeditions, Perlman really does discover new lands and species. Not long after graduating from college, he got a job at Apple (AAPL), where he helped create QuickTime, which let people play movies on their Macs. Then he started WebTV, one of the first services to link the Internet with TVs, and sold the company to Microsoft in 1997 for $503 million. Perlman has secured about 100 patents and has 100 more awaiting review. “We don’t really have a Thomas Edison or a Henry Ford pumping out inventions,” says Richard Doherty, who is director of the tech consulting firm Envisioneering and is familiar with Perlman’s DIDO system. “Steve is coming close, and he’s still a young man.”

Most of Perlman’s ideas come to life at Rearden, a business incubator in San Francisco that he created in 2000. Rearden has given birth to Moxi Digital, which made a combo DVR, music player, DVD player, and interactive set-top box (a forerunner to the home digital media hubs now coming to market), and Mova, a company that solved the problem of capturing actors’ facial movements to allow for computer-generated effects in movies. OnLive is a Rearden-backed service that has made it possible to play graphics-rich video games—the bulkiest of data—via the Internet.

“Rearden,” it’s worth noting, comes from one of the protagonists of Atlas Shrugged, the novel by Ayn Rand. In the book, Hank Rearden is an honorable genius who battles the small-minded meddlers trying to bring him down; he invents a stronger kind of steel and gets the girl. Perlman has since tried to distance his incubator from Rand and her politically divisive libertarianism, but he still talks like one of her characters, especially when he gets going about Silicon Valley and his place in it. He figures that this region once teeming with risk-takers has grown soft and unadventurous. Venture capitalists have succumbed to funding Internet eye candy like social networks and coupon services at the expense of breakthrough inventions. And yet a few people out there—him, for instance—are still willing to do the whole blood, sweat, and tears thing. “People have decided they don’t want to invent anything new anymore,” Perlman says. “To hell with them.”

DIDO, Perlman says, will right the wrongs of the wireless networks crumbling under the weight of iPhones, Android smartphones, and tablets—and create a platform for completely immersive digital experiences. He wants to build Mova facial-capture technology right into TVs and computer monitors, so people’s heads could replace those of characters in video games. “You can become Batman, and the other players in the game will see your expressions,” Perlman says. He’s also exploring virtual retinal technology. “It’s a new form of optics that allows you to see the world in 3D. It’s not just an image coming out of the TV screen. It’s viewing your entire surroundings in 3D and having them be totally virtual.” Perhaps wireless technology could be used to create standing fields, he says, so people could one day reach out and touch the virtual 3D objects. His description sounds a lot like a Holodeck, a room depicted in Star Trek where anything can appear as real. “We’re looking at creating entire virtual worlds,” Perlman says. “Eventually, we will get to the Holodeck. That’s where all these roads lead.”

Rearden’s main office is near the entrance to the San Francisco Bay Bridge in an old building that used to house a printing company. The two-story space looks like a large, luxurious library crossed with a TV studio, with dark wood paneling along the walls and towering wooden beams in the center of the main room. Desks take up the first floor. The second is lined with shelves filled with toys, movie scripts, and research files on historical figures collected by Perlman employees who travel the world in search of good stories. Dozens of high-powered lights dangle from the ceiling, flanked by speakers. There are motorized lifts for moving bulky cameras, bars that hold up giant blue-screen backdrops, and grand, sliding whiteboards for brainstorming. Up top, one of Perlman’s staffers works at a state-of-the-art editing bay where Perlman produces TV and Web commercials for his various companies.

Perlman’s blend of fantasy and technology goes back to his childhood. He sums up his early years with four salient facts: He was born in 1961, grew up in Connecticut, his parents were both physicians, and they denied him an Apple II computer. They feared he would spend all day playing video games on the blasted machine—and they were right. “I was forced to build my own computer and create a graphics display for it and then write video games that I could play,” Perlman says. From that point on, Perlman began scrounging around computing stores for parts and sending off faxes to order the latest chips coming out of Silicon Valley to build more machines.

Perlman would use this self-taught ability to understand electronics and computers as a way of getting out of jams. During his senior year in high school, he skipped so many classes that he was in danger of not graduating. So he built an illuminated marquee for the drama department to secure an English credit. Then he designed a computer simulation of the forces behind swings in the U.S. economy during the 19th century for a history credit. Later, while attending Columbia University, Perlman says he took a computer-programming class and taught himself Pascal during the open-book, midterm exam.

Perlman graduated with a computer-science degree and headed for Silicon Valley. At 23, he started work at Apple with the lofty title of principal scientist. “He just made stuff work,” says John Sculley, Apple’s chief executive officer at that time. Perlman emerged as one of the key developers of Apple’s QuickTime technology. Most of the QuickTime team worked together in a shared space. Sculley won’t go into details but says Perlman didn’t always fit in with his colleagues. He eventually gave Perlman his own space near the CEO’s office. “It made sense for him to focus entirely on doing his own work,” Sculley says.

After Apple, Perlman started WebTV in 1995. At a time when many people were just discovering the Web, Perlman and his team built a $300 device that could turn a television into an Internet appliance capable of browsing sites and sending e-mails. At one point, he paid a staffer to travel to the island nation of Tuvalu, attempting to secure the rights to a TV domain name. The Prime Minister received a Mac and a printer, and returned the gesture by sending Perlman shell necklaces. “We traded silicon for calcium, I guess,” says Perlman. “We did get the domain, but the government was overthrown and the new regime did business a different way.”

Aaron Burcell, an early WebTV employee, remembers Perlman’s management style as a mix of hard-headed business strategy and technology evangelism. Most people bought into the message—it was “emancipating the Internet” back then. “I don’t want to say it’s a religious experience, but we found the way he talked inspirational,” Burcell says. Those who fought Perlman’s reasoning or requests would face his temper. Andy Rubin, the senior vice-president of mobile technology at Google, describes Perlman as being consumed by a drive to create breakthrough technology. “I think true visionaries push their employees really hard,” says Rubin, a close friend of Perlman. “You have to be signed up for a 24 by 7 type of deal. Some people can do it and some can’t.”

In 2003, Rubin had run out of money while pursuing some new cellphone software at his startup Android. “Without flinching, Steve brought over $10,000 in cash in an envelope,” Rubin says. Perlman declined to take any equity in the company, which would later be acquired by Google and become the basis of its smartphone software empire. “I think he would rather invest in his own ideas,” Rubin says. “Steve only thinks about the things that will change history.”

Perlman laid the groundwork for his total-immersion-media vision in 2004 when he started Mova. Most motion-capture work involves affixing sensors to actors’ bodies, then turning their movements into computer-generated movie characters. Perlman wanted to tackle the more difficult prospect of capturing peoples’ faces with all their subtle gestures, sly crinkles, emotions.

One early idea: Submerge actors in liquid and grab their faces via ultrasound. “There’s this one experimental fluid that exists where people can be submerged and still breathe without a mask,” Perlman says. “It’s been tested on rats.” Before trying it with humans, the engineers discovered that something simpler—Halloween makeup—could be applied to an actor and allow a camera to track more than 10,000 points on his or her face. The technology made its debut in The Curious Case of Benjamin Button to handle the reverse aging of Brad Pitt’s character. It has since been used in the Harry Potter films, The Incredible Hulk, and TRON: Legacy.

The technology has gotten good enough that Hollywood actors have started asking Mova to capture their faces while they’re young. The hope is that their youthful, virtual visages can keep earning for them in the decades to come. He won’t name names. Video game makers have also turned to Mova to make their characters more realistic. Perlman plays a clip for an upcoming game where a mad doctor tortures a man strapped to a chair by shocking him in the neck and stabbing him with a syringe. The veins in the man’s neck throb, his face tenses, and pain sweeps over his face. It’s only after the clip has run for a couple of minutes that Perlman reveals that the man in the chair and the doctor are computer-generated. With OnLive, Perlman has built an entirely new set of data-compression and networking technologies to bring interactive games with that kind of photorealism to the home. Could DIDO take the next step and deliver all that wirelessly? “That’s the plan,” Perlman says.

“They thought we were crazy,” Perlman says of the response he got from scientists during the concept stage of DIDO. He says he had his first inklings of the technology around 2001. He’d been demonstrating his Moxi Media hub on the trade-show circuit, specifically showing off its ability to handle video over Wi-Fi. His demos always ran smoothly in those days—this was before laptops, smartphones, and tablets owned by every conference attendee clogged up the Wi-Fi. But he feared the coming bottleneck. “As soon as everyone saw how convenient this was and started sharing the network en masse, we were doomed,” he says.

Wireless networks all suffer from a basic limitation: interference. Radio signals are waves. If you’re watching Netflix (NFLX) on your iPad via Wi-Fi, the tablet’s antenna is receiving a signal from a transmitter. If no one else is around—and you’re in a room with thick walls that block other radio signals—you’ve got a great connection. If someone else has an iPad in the room, each person ends up with half the maximum data speed. Throw a second Wi-Fi signal into the mix, perhaps from another office or home, and interference becomes an issue. Both signals hit your iPad at the same time, and the device has to try to discern the movie from this noise. People in apartment buildings or at crowded coffee shops know all too well just how shoddy a Wi-Fi connection can be when lots of signals collide.

Cellular operators like AT&T (T) and Verizon Wireless (VZ) face similar problems. They would love to put up towers all over the place, but they can’t. Signals from towers bleed into each other, causing interference. One tower covering a certain area works fine until too many nearby users make calls or pull up Web pages at the same time. That’s when data transfer rates fall and calls drop, aka iPhone syndrome.

Perlman had an idea. Interference happens when a device receives multiple signals at once and the wave is muddied. The physics gets very complicated here, but Perlman thought there might be a way to turn interference into a virtue—use that combining property of radio waves to “build” a signal that delivers exactly the right message to your iPad. Multiple transmitters would issue radio waves that, when they reach your tablet, combine to produce a crystal clear signal. If there’s another person in the room with an Android phone or a laptop, the system would take those devices into account so that they, too, received unique waves from the transmitters. Such a system would need to precisely analyze wireless information from the devices at all times, and constantly recalculate the complex combinations of signals from each of the transmitters on the fly. Figuring all that out in real time would of course require some extremely powerful computers.

That, in a nutshell, is DIDO. About seven years ago, Perlman set out to assemble a team to test the concept and, assuming it worked, build it. He shopped his idea to scientists at universities around the country, and eventually found a taker, a PhD candidate at the University of Texas named Antonio Forenza. After graduating with a degree in electrical engineering, Forenza agreed to work for Perlman and has spent the last few years of his life bringing DIDO to life.

Forenza built a makeshift lab at his house in Austin, Tex., which overflows with equipment—antennas, radios, power supplies, and computers. Much of this equipment goes toward testing DIDO in urban and suburban settings, but Forenza has a rural setup as well. He’s conducted long-distance tests linking Austin with ranches about 25 miles away in Pflugerville and Elgin. Forenza purchases prefab mini-barns from Home Depot (HD) and packs them with his homemade gear. “We’ve had cows chew up our cables,” Perlman says. “And some amorous bulls get friendly with our antenna masts.”

To make DIDO work, Forenza and other members of the Rearden team developed three basic components. First, there’s a server in a data center that uses a complex set of algorithms to create a “digitized waveform”—the unique, interference-resistant message that will reach someone’s computer or phone. The server sends this message over the Internet to the second component, a small device that could sit in an office or a home, much like today’s Wi-Fi routers. That device then delivers the message to a phone, laptop, tablet, or TV that’s equipped with the third part of DIDO, a special antenna.

All three components are in constant communication. As a person moves around with a smartphone, the server recalculates and keeps crafting new waveforms. The result is a consistent, full-powered signal, rather than one that’s shared with other nearby devices. In urban settings, a DIDO transmitter can cover about a mile. That’s a huge leap over the 100 feet to 300 feet for Wi-Fi access points that must limit their broadcasting oomph to avoid interference. (The details are in a white paper Perlman shared with Bloomberg Businessweek and plans to publish on a Rearden website on July 28.)

Since electromagnetic noise does not affect the DIDO transmitters, they can be placed anywhere. They’re small, too, which could mean no more not-in-my-backyard fights over the placement of unsightly cell towers. The multi-city tests conducted by Forenza also showed that DIDO transmitters could be tuned to bounce signals off the ionosphere, a layer of the atmosphere about 150 miles up. Using this technique, the technology could serve rural areas and even airplanes. “We can provide DIDO service down to the floor of the Grand Canyon,” Perlman says, adding that he could cover huge swaths of rural America with high-speed wireless using just dozens of DIDO access points.

There’s plenty of work left to prove the mettle of DIDO in real-world conditions. The tests to date have been conducted on the amateur radio spectrum with a maximum of 10 people communicating simultaneously, and the software that performs the complex calculations behind the scenes is still buggy. But as the geek saying goes, those are engineering problems, not science problems. Doherty, the technology consultant, has examined the DIDO system and says it’s breathtaking. “Steve needs to put up more transmitters and play around with different wavelengths,” he says. “He’s talked about simulating 1,000 times performance improvements over cellular, but there’s no reason why even greater gains might not be possible. Steve’s discovered things that aren’t in any of the textbooks or the patent roster.”

The greatest obstacle for Perlman, as Doherty sees it, may be the telecommunications industry, which has invested billions setting up conventional cellular networks. “The current use of radio is bound more by inertia and successful lobbying efforts than by efficient use of spectrum,” Doherty says. “But Steve has shown the old models are limited, and there is something else we can do. People will demand this.”

Now that he has proved the technology works, Perlman has started to receive investor interest in DIDO. He declines to reveal the names of any specific organizations, but says that European groups have requested the most information. “Frankly, we’re getting more interest from foreign governments than the U.S.,” he says. “It is very likely the first widespread use will not be here.”

Should DIDO become widespread, it’s a safe bet Perlman will have moved on to some new breakthrough by the time it does—like the heroine of a movie he wrote about a decade ago. The script, set in present-day Silicon Valley, tells the tale of a student at Stanford University. She’s created some virtual retinal technology that lets people see computer-generated 3D objects in the physical space around them. The woman sets out to form a company to develop the technology, bringing along a motley crew of hacker and stoner friends.

They watch as venture capitalists woo the woman with makeovers and trips on private jets. The late nights in the lab give ways to parties and investment presentations. “Her friends don’t recognize her anymore,” Perlman says. “I have seen this happen time and again.”

The plot is Ayn Rand. The triumphant ending is pure Steve Perlman. Slowly but surely, the VCs coax her into bad financial deals. Her work grinds to a halt. All seems lost. But then the old crew of misfits comes to the rescue and gets the girl to go back to the garage where they use borrowed parts and scraps to bring the new technology to life. “That’s my kind of company,” Perlman says. “That is what Silicon Valley is like for those of us that work all night long. It’s crappy offices. It’s borrowed spaces. Welcome to my world.”