A History of Silicon Valley

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(Copyright © 2010 Piero Scaruffi)

Introduction

This book is a history of the high-tech industry in the San Francisco Bay Area.

This book has two sub-titles: "The Largest Creation of Wealth in History" is Arun Rao's subtitle; "A Moral Tale" is Piero Scaruffi's subtitle.

Piero Scaruffi's Introduction

I have read many books on Silicon Valley. The best ones are listed in the (very selected) bibliography. Most of them are (explicitly or implicitly) collections of essays. Those are easy to write. We're all good at analyzing the world. I could not find a book that is a detailed chronological chronicle of Silicon Valley, which is, of course, much more difficult to write. I also felt that i disagreed with most of the conclusions of those books: those "essays" only partially represented Silicon Valley, and were based on a small sample of biographies and case studies. I felt that they pretty much missed the point, propagating a handful of very popular myths while missing too much of the real story. I cannot help thinking that there is a correlation between the two facts: because those authors did not study the detailed chronology of Silicon Valley, they formed a very partial vision of it. So i set out to write a very detailed chronicle, densely packed of facts. I know that a detailed chronicle is not an easy book to read compared with an eloquent analysis, but that's in my opinion the book that was missing. In a sense, i wanted to see the data before drawing the conclusions. After all, my background is in the empirical sciences.

Needless to say, this also means that my history is not fictionalized and not sensationalistic. I just stick to the facts. If you want to read Hollywood-style anecdotes, you are reading the wrong book.

As you read through this preface, you will find my bias to my history of Silicon Valley. It matured as i was writing. The more details i added to my chronicle, the more apparent some threads became. Alas, they will probably sound quite controversial to those who only heard the myths (and, obviously, to those who fabricated those myths). I just beg the reader to believe that the bias came after analyzing the data, not before.

It is difficult to write a history of Silicon Valley without mentioning what else was going on in computers around the world. Therefore this book is also a history of computing in disguise. Ditto, to a minor extent, for biotechnology.

The meta-theme of the book (that would require a much bigger book to fully explore) is how one industry led to the next one in an apparently endless cascade of continuous reinvention: gold led to railways that led to shipping operations that led to ports that had two side effects: ports created coastal cities that needed electrical power that required high-voltage power transmission that established the region as a leader in electrical engineering; and ports needed radio communications that needed electronics that created the premiere semiconductor industry that led to the microprocessor that led to the personal computer that created the premiere software industry that benefited from the Internet that created huge fortunes that were invested in biotech and greentech. That's, in a nutshell, the history of the Bay Area during the 20th century. The question is how.

Silicon Valley does not exist in a vacuum. Its history cannot be divorced from the history of the Bay Area economy and society at large. Even more importantly, its ascent cannot be decoupled from the artistic and cultural renaissance of the region. All the great centers of technological progress boasted artistic creativity at the same time: Athens, Italy during the Renaissance, Paris and Berlin at the turn of the century. Silicon Valley was part of a region in which creativity was treasured, and so was a provocative, subversive and irreverent attitude. Alternative lifestyle and utopian counterculture seem to have always been in the genes of the Bay Area, starting with the early poets and visual artists and then continuing with the hippie generation. Scholarly books tend to discuss too many abstract models and ignore the most important of all factors: creativity. Silicon Valley has consistently boasted a very high degree of creativity. One could argue that everything else is a detail.

Somewhat related is a mindset of independence and individualism that predates Silicon Valley and that led to the "do it yourself" philosophy of the hobbyists who started Silicon Valley. Traditionally, the emphasis on Silicon Valley's development has been on technology transfer from universities, in particular commercialization via start-up company creation. While that certainly played an important role, the hobbyist (whether university alumnus or not) played an equally important role. The hobbyists represent the passion to toy and tinker with novel technology. It was part of the USA psyche, but in the Far West it had the additional advantage of being far enough from all the industrial colossi.

That attitude might explain Silicon Valley better than any economic theory. We tend to take for granted that Silicon Valley is an economy of high-tech companies and we think it is natural that they were started by engineers, not businessmen; but maybe we should instead look at Silicon Valley businesses from the opposite direction: because this was a place where engineers rather than businessmen started companies, then it was inevitable that their companies would be high-tech companies.

There now seems to be agreement among scholars that Silicon Valley started way back in the early years of the 20th century, meaning that behaviors normally associated with Silicon Valley were pioneered back then. I feel that one should go even further back. As one analyzes how the various waves of business got started, one realizes that one thing they have in common is a spirit reminiscent of the spirit of the Far West. The Far West's eccentric and independent character is the predecessor to all the inventors and gurus of Silicon Valley.

The prominent attitude towards risk-taking may also derive from the pioneers of the Far West.

Each and every mass-consumed product has changed society, from Coca Cola to McDonald's, from the blue jeans to the movies. However, Silicon Valley has specialized in products that cause much bigger social change of a more endemic kind. There are, in fact, places in the world where much more sophisticated technology is created, from nuclear power plants to airplanes. But personal computer, web services and smart phones (and, in the near future, biotechnology and greentech) have changed our lives in a more invasive and pervasive manner. Somehow those are the technologies in which Silicon Valley excels. It is not about the complexity and sophistication of the technology, but about the impact it will have on human society. In a sense, Silicon Valley "loves" socially destabilizing technologies. Could it be that this happens because Silicon Valley arose from what used to be a very unstable quasi-anarchic society?

Much has been written about the "knowledge economy" of Silicon Valley, but i feel that mostly it has been written by people who worked at very high levels (or did not work at all in Silicon Valley companies). The knowledge that the average engineer has is usually limited to her/his field. In fact, it is hyper-specialistic. The anecdotal histories of Silicon Valley are full of self-made multimillionaires but they rarely talk about the thousands of engineers who retired early because their hyper-specialistic skills became useless and it was just too difficult for them to retrain. Those hyper-specialists actually had very limited knowledge (that was often worthless outside their cubicle). By definition, labs that are full of hyper-specialists are designed to produce incremental improvements on existing technology, not groundbreaking innovation. Most of the innovation came from something else.

The great innovators of Silicon Valley (Fairchild, HP Labs, Intel, Xerox PARC, Apple) built companies not so much around a technology as around their human resources. They hired the best and nurtured highly creative environments. The way companies cared for creating superior "fire power" inside their labs (rather than for a "return on investment") may have more to do with innovation than any other myth of Silicon Valley. And, again, a big chunk of innovation came from the independent eccentric hobbyist (whether inside or outside the academia), who did have a lot of "knowledge" about the technology and the industry, but not because of the famed networks of venture capitalists and entrepreneurs: hobbyists invest all their spare time into their hobby, absorbing knowledge from magazines, blogs and party chats.

Much has been written (including this book) about the importance of venture capitalists in the development of Silicon Valley. However, we need to give credit to the biggest venture capitalist of all: the government. The history of high-tech in the Bay Area constitutes a prime example of the benefits of technologies that move from military to civilian use, and of government intervention in general. The initial impulse to radio engineering and electronics came from the two world wars, and was largely funded by the armed forces. It was governments (USA and Britain) that funded the development of the computer, and NASA (a government agency) was the main customer of the first integrated circuits. The ARPA (another government agency) created the Internet. The World-Wide Web was created at CERN, a center funded by multiple European governments (the worst possible nightmare for those who hate government bureaucracies).

Much has been made of the way Silicon Valley attracts and spawns businesses, trying to explain it in terms of academic and financial factors. However, this model would not work in Siberia or the Congo, and not even in most of Western Europe and Japan. In fact, there were very few places where it could have worked, and there are still very few places where it can work in 2010. The Bay Area managed to attract brains from all over the world thanks to its image as a sunny, "cool", advanced and cosmopolitan region, a dreamland for the highly-educated youth of the East Coast, Europe and Asia. Because the Bay Area was underpopulated, those national and international immigrants came to represent not an isolated minority but almost a majority, a fact that encouraged them to behave like first-class citizens and not just as hired mercenaries. And i believe that the wave of college-level immigration got started in the 1960s, before the boom of Silicon Valley, and for reasons that are more related to the "summer of love" or to surfing than to microprocessors.

That said, we need to admit that Silicon Valley invented very little. Computers were not invented in Silicon Valley, and Silicon Valley never had the largest hardware company, nor the largest software company, in the world. Silicon Valley did not invent the transistor, did not invent the integrated circuit, did not invent the personal computer, did not invent the Internet, did not invent the World-Wide Web, did not invent the browser, did not invent the search engine, did not invent social networking, did not invent the smart phone. Neither biotech nor greentech are native of Silicon Valley. Silicon Valley was instrumental in making them go "viral". Silicon Valley has a unique (almost evil) knack for understanding the socially destabilizing potential of an invention and then making lots of money out of it; Schumpeter's "creative destruction" turned into destructive creativity. That's, ultimately, what people mean when they talk of Silicon Valley as a factory of innovation.

The eccentric independent is truly the protagonist of this story. People, especially Europeans, wonder why Silicon Valley happened where it happened. One simple answer is that the USA in general is friendlier than Europe towards the eccentric independent, and California in particular is the friendliest. The suit and tie is my favorite metaphor. In Europe you can't possibly be a successful employee if you don't wear a suit and tie. Therefore the employees who rise in the hierarchy tend to be the ones who are better at dressing up, and not necessarily the ones who are more knowledgeable, competent and creative. In California even billionaires wear blue jeans and t-shirts...

Another reason why it could not happen in Europe is the risk-averse mindset that i can summarize in an autobiographical anecdote. I worked for a decade in a European multinational. Every time one of us had the idea for a new product line, the management would ask us a trick question: "Has anybody else done it yet?" If we answered "yes", the management would conclude: "Then we are too late". If we answered "no", the management would conclude: "Then there is no need for it". The case in which we would work on something new just did not exist. Silicon Valley, instead, amplified the passion of the USA for risk-taking. Silicon Valley has cultivated a philosophy of risk-taking and turned it into a science.

Another key difference between Silicon Valley and most of the world, particularly Europe, is the mindset of faculty staff at universities. European universities are static feudal bureaucracies in which a professor is the equivalent of a baron (granting favors to assistants) and is, in turn, the vassal of a department head. For life. On the contrary, Bay Area universities and colleges encourage their faculty to start their own companies.

One can finally wonder why it happened on the West Coast and not on the East Coast, that was more educated, wealthy and cosmopolitan. I think the answer is the same to the question why the hippies were born in San Francisco, or why the Free Speech Movement was born in Berkeley: a unique strand of anti-establishment sentiment and a firm belief in changing the world.

I also felt that too little is written about the "failures" of Silicon Valley, i.e. the many industries that here had a strong base, including massive research programs at the local universities, but never made it big: artificial intelligence, laser, virtual reality, etc.

There were a number of financial stimuli to the development of Silicon Valley. Once fortunes were created, though, Silicon Valley benefited from the generosity of its own millionaires. Philanthropy and "angel" investing provided a secondary boost to the creation of creativity (excuse the pun). "Be creative when you are not yet rich, and support creativity when you get rich": that could be the motto of Silicon Valley entrepreneurs. The lifestyle of the Bay Area creates social pressure to "be different" and social pressure to "be good". Rich self-made people who meet at a party don't just boast of how they made their money: they also boast of how they are spending it to help worthy causes or to help fledging start-ups. In a sense, here self-made multimillionaires feel a sense of gratitude towards the system that allowed them to become self-made multimillionaires. It's a phenomenon that has been part of the fabric of USA society, and here may find its most sublime expression.

Therefore the theme of all themes is that Silicon Valley was a sociological and economic experiment before it was a technological and entrepreneurial experiment. Silicon Valley fostered a marriage of advanced technology and unbridled capitalism via a triangular relationship with utopian collectivism: Silicon Valley wed utopian collectivism and advanced technology (the sociological experiment), and, at the same time, Silicon Valley wed utopian collectivism and unbridled capitalism (the economic experiment). Silicon Valley was, first and foremost, a state of mind.

Piero Scaruffi, Silicon Valley, may 2010

P.S. 1:

I would like to make sure that my fact finding does not get confused with my personal opinions. For example, i have no sympathy for recreational drugs nor for the hippie movement, even though in this book i highlight their contribution to the "creativity" of the Bay Area. For example, i believe that the relative decline of the USA economy (and many other problems) started in the 1980s, even though in this book i highlight the contribution of that administration to increase the appeal of investing in high-tech ventures. This is not a book about my political opinions but a history of Silicon Valley and its context.

P.S. 2

I apologize for taking quite a few liberties with the English language. America is a continent stretching from Chile to Canada. I never use that word to mean "the USA": the USA is one of the many nations of America. And, by the way, it is called USA, not US. Therefore Obama is "the president of the USA", or "the USA president". The citizens of this country are "USA citizens" and not "Americans". I minimize commas: i rarely put "particularly" or "especially" or "notably" within commas; i do not like to put commas behind temporal ("After 1963...") or spatial ("In Europe...") expressions; i don't like to put commas before "and". I don't capitalize months (i have no idea why) or titles (president, king, emperor). I don't mention middle names (like in most countries of the world). And, as you can see, i don't like to capitalize the first-person singular pronoun "i". Blame the anti-establishment spirit of Silicon Valley for these linguistic quirks of mine.

Arun Rao's Introduction

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Piero Scaruffi's Biography

Piero received a degree in Mathematics (summa cum laude) in 1982 from University of Turin, Italy, where he did work in General Theory of Relativity. In 1983 he relocated to Silicon Valley to work at Olivetti's Advanced Technology Center, where he was employed first to port the Unix e-mail program to Olivetti's version of Unix and then to implement the first object-oriented system (Smalltalk) for a MS-DOS personal computer. In 1985 he started and managed Olivetti's Artificial Intelligence Center, based both in Silicon Valley and Italy, leading a number of joint projects with universities in the USA and Europe. After a visiting scholarship at Stanford University to conduct research on Cognitive Science, in 1999 he joined Intellicorp, where he continued to work on Artificial Intelligence-based business solutions. Since 2003 he has been a free-lance consultant for Silicon Valley and European companies. He has lectured in three continents on "Theories of Mind" and "History of Knowledge", most recently at U.C. Berkeley, and has published a number of books on Artificial Intelligence and Cognitive Science, the latest one being "The Nature of Consciousness" (2006). Meanwhile he pioneered Internet-based journalism with thousands of articles on music, science, cinema, literature, and history. In 1985 he had started his first e-zine, distributed by e-mail over the Internet. Between 1986 and 1990 he created an online database, downloadable via FTP. That database mutated into his own website Scaruffi.com in 1995. In 2006 the New York Times ran an interview with him titled "The Greatest Website of all Times". All along he has also continued writing poetry both in Italian (for which he was awarded several prizes in the 1980s) and in English. His book "Synthesis" (2009) collects poems and meditations. In parallel he became a controversial critic and historian of rock, jazz and avantgarde music. His latest books on music are: "A History of Jazz Music 1900-2000" (2007), and "A History of Rock and Dance Music" (2009). He has organized several interdisciplinary cultural events in the Bay Area, notably the monthly "Leonardo Art Science Evenings" (LASERs). He has also been on the board of the art magazine "Leonardo" (MIT Press). An avid traveler who spends months on the road, he had visited more than 130 countries of the world as of 2010.

Arun Rao's Biography

Arun Rao is an investor, entrepreneur, writer, and attorney in the San Francisco/Bay Area. He has previously contributed articles to the Economist and Seeking Alpha on business and the financial markets. Arun has worked in two investment firms in Silicon Valley, one on Sand Hill Road in Menlo Park and the other in San Francisco.

Bibliography

Below is the list of books that i read (not necessarily every page of them) and that i recommend. However, the vast majority of the practical data for my chapters (e.g., dates and names) came from computer magazines of the era. Sometimes i had to track down the announcement of a new product to find out where and when a company was founded and by whom, or when a product was introduced. Sometimes the source was an interview with one of the protagonists, again, published in a magazine. These days, of course, you can find a lot of them on the Web.

Abbate, Janet: "Inventing the Internet" (1999)
Bassett, Ross Knox: "To The Digital Age" (2002)
Bay Area Council: "Sustaining the Bay Area's Competitiveness in a Globalizing World" (2008)
Berube, David: "Nano-Hype: The Truth Behind the Nanotechnology Buzz" (2005)
Blank, Steve: "Secret Story of Silicon Valley" website (Steveblank.com)
Carr, Nicholas: "The Big Switch" (2008)
Castells, Manuel: "The Rise of the Network Society" (1996)
Castilla, Emilio: "Networks of venture capital firms in Silicon Valley" (2003)
Computer History Museum's online history of computing: http://www.computerhistory.org
Cool, Jennifer: "Communities of Innovation: Cyborganic and the Birth of Networked Social Media" (2008)
Cumings, Bruce: "Dominion from Sea to Sea: Pacific Ascendancy and American Power" (2009)
Bruce Damer's Digibarn: http://www.digibarn.com
Davidow, Michael: "The Virtual Corporation" (1992)
Englisch-Lueck, Jan: "Cultures@SiliconValley" (2002)
Ferguson-Reid, Edna: "Why 2k? - A Chronological Study of the (Y2K) Millennium Bug" (1999)
Finn, Bernard: "Exposing Electronics" (2000)
Flamm, Kenneth: "Creating the Computer: Government, Industry, and High Technology" (1988)
Freiberger, Paul and Swaine, Michael: "Fire in the Valley" (1984)
Gillmor, Stewart: "Fred Terman at Stanford: building a discipline, a university, and Silicon Valley " (2004)
Green, Milford: "Venture Capital Investment in the United States 1995-2002" (2003)
Hanson, Dirk: "The New Alchemists: Silicon Valley and the Microelectronics Revolution" (1982)
Hyde, Alan: "Working in Silicon Valley: Economic and Legal Analysis of a High-velocity Labor Market" (2003)
Kaplan, David: "The Silicon Boys and Their Valley of Dreams" (1999)
Kenney, Martin: "Understanding Silicon Valley: the Anatomy of an Entrepreneurial Region" (2000)
Lecuyer, Christophe: "Making Silicon Valley" (2005)
Leslie, Stuart: "The Cold War and American Science: The Military-Industrial-Academic Complex at MIT and Stanford"
Livingston, Jessica: Founders at Work (2007)
Lojek, Bo: "History of semiconductor engineering" (2006)
Malone, Michael: "The Valley of Heart's Delight: A Silicon Valley Notebook 1963-2001" (2002)
Markhoff, John: "What the Dormouse Said: How the 60s Counterculture Shaped the Personal Computer Industry" (2005)
McLaughlin, John: "Silicon Valley - 110 Year Renaissance" (2008)
Moody, Glyn: "Rebel Code: Linux and the Open Source Revolution" (2001)
Morgan, Jane: "Electronics in the West: The First Fifty Years" (1967)
Rheingold, Howard: "Tools for Thought: The History and Future of Mind-Expanding Technology" (2000)
Rogers, Everett and Judith Larsen: "Silicon Valley Fever" (1984)
Roszak, Theodore: "From Satori to Silicon Valley" (1986)
Saxenian, Annalee: "Regional Advantage: Culture and Competition in Silicon Valley and Route 128" (1994)
Sporck, Charles: "Spinoff: A Personal History of the Industry that Changed the World" (2001)
Saxenian, Annalee: "Local and Global Networks of Immigrant Professionals in Silicon Valley" (2002)
Stanford University's Silicon Valley Archives
Turner, Fred: "From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism" (2007)
Vance, Ashlee: "Geek Silicon Valley: The Inside Guide to Palo Alto, Stanford, Menlo Park" (2007)
Wilson, John: "The New Venturers: Inside the High-Stakes World of Venture Capita" (1985)
Yost, Jeffrey: "The Computer Industry" (2005)
Young, Jeff: "Forbes Greatest Technology Stories" (1998)

As a side note to the bibliography, Wikipedia turned out to be the worst possible source. Most of its articles are simply press releases from public-relationship departments, with all the omissions that they deem appropriate for their business strategies. On the other hand, vintage magazines and even newspapers were an invaluable source of information and analysis. If websites like Wikipedia are going to replace the magazines and newspapers of the past, the loss to scholarship will be colossal: the most persistent marketing department (or a mob of fans) will decide what information will be available to our descendants.


(Copyright © 2010 Piero Scaruffi)

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