A History of Silicon Valley

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(Copyright © 2014 Piero Scaruffi)

Introduction

by Piero Scaruffi

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

I have read many books on Silicon Valley. The best ones are listed in the 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 history 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 detailed chronicle, densely packed with facts. I know that a detailed chronicle is not an easy book to read compared with an eloquent analysis, but that in my opinion is 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 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 wrote. The more details I added to my chronicle, the more apparent some threads became. They may 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 minor history of computing (and biotechnology) in disguise.

A meta-theme of this book concerns 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 semiconductor industry that led to the microprocessor that led to the personal computer that created the 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’s economy and society at large. Even more importantly, its ascent cannot be dissociated from the artistic and cultural renaissance that took place in the region. The great centers of technological progress often boasted artistic creativity at the same time: Athens, Italy during the Renaissance, Belle-Epoque Paris, and Berlin at the turn of the century. Silicon Valley was part of a region in which creativity was treasured, along with a provocative, subversive and irreverent attitude. Alternative lifestyles and a 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 footnote.

It is difficult to explain where the spirit of Silicon Valley came from, unless you are familiar with the spirit of the counterculture of the Bay Area. Historians who have written mostly about the established worlds of technology and finance will find wildly different explanations for the phenomenon than a historian who has written a 1,000 page book on rock music (me).

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 startup company creation. While that certainly played an important role, the hobbyist (whether a 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 US 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 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 the one thing they have in common is a spirit of the Wild West. The Wild 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 Wild West.

Each and every mass-consumed product has changed society, from Coca Cola’s soda to McDonald’s burgers, from Levi’s blue jeans to Hollywood’s 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 computers, 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 these 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, mostly by people who worked at very high levels (or did not work at all in Silicon Valley). The knowledge that the average engineer has is usually limited to her/his field. In fact, it is hyper-specialized. 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-specialized skills became useless and it was just too difficult for them to retrain. Those specialists actually had very limited knowledge which was often worthless outside their cubicle. By definition, labs that are full of specialists are designed to produce incremental improvements on existing technology, not groundbreaking innovation. Most of the innovation came from elsewhere.

At the same time, though, the great innovators of Silicon Valley (Fairchild, HP Labs, Intel, Xerox PARC, Apple, Google, Facebook) built companies not so much around a technology as around their people. They hired the best and nurtured highly creative environments. The way companies cared for creating superior “firepower” 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.

Many have written 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 (US and British) that funded the development of the computer, and NASA (a US government agency) was the main customer of the first integrated circuits. The ARPA (another US 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 today. 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” than to microprocessors.

The biggest of all myths must be dismissed at the onset: we must recognize that Silicon Valley invented very little. Computers were not invented in Silicon Valley. Robots were not invented here either. Silicon Valley did not invent the transistor, the integrated circuit, the personal computer, the Internet, the World-Wide Web, the browser, the search engine, social networking, nor the smart phone. Neither biotech nor greentech are from 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 about 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 US 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 at a European multinational. Every time one of us had an 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.” A case in which we could work on something new just did not exist. Silicon Valley, instead, amplified the passion of the US 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 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, the Bay Area’s 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, which was more educated, wealthy and cosmopolitan. I think the answer is the same one as the answer 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 had a strong base here, including massive research programs at the local universities, but never made it big: robotics, laser, virtual reality, etc.  Hence I also chronicle those less exciting fields.

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. “Be creative when you are not yet rich, and support creativity when you get rich:” that could be the motto of Silicon Valley’s 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 startups. 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 US society, and here may find its most sublime expression.

Therefore a major theme is that Silicon Valley was a sociological and economic experiment before it was a technological and financial 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).


(Copyright © 2014 Piero Scaruffi)

Table of Contents | Timeline of Silicon Valley | A photographic tour
History pages | Editor | Correspondence