A History of Silicon Valley

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These are excerpts from and updates to Piero Scaruffi's book
"A History of Silicon Valley"

(Copyright © 2018 Piero Scaruffi)

The Selfies (2011-18)

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The Boom of all Booms 2014-17

The long predicted decline and fall of Silicon Valley was nowhere to be seen. In 2016 Palo Alto boasted more billionaires than most cities in the world, despite being a small town by comparison with the other billionaire hubs of the world. But the most impressive data about the money flowing into the Bay Area were about the traditionally less developed towns. For example, Emeryville, a tiny artificial village of only 10,000 people lying next to Oakland, the city with the highest murder rate in California and ranked by Forbes the third most dangerous city in the whole USA, raised more than half a billion dollars in venture funding in just three years from 2014 to 2017, way more than big cities like Dallas. It was home to countless biotech startups (Zymergen, Bolt Threads, Cariboo, etc) as well as to Pixar. The larger but much poorer town of Hayward, not exactly a startup hub, raised almost the same amount of money for startups such as Arcus Bioscience, MicuRx, Primus Power, Alphabet Energy, etc. Pleasanton, a city of 80,000 east of Hayward, raised more money than Philadelphia or Miami for startups such as 10X Genomics and Fulcrum Bioenergy. Fremont, also on the east bay but closer to Silicon Valley, mostly famous for greentech’s most notorious failure, Solyndra, was now home to Tesla’s factory as well as to Royole and Lam Research, and its startups (such as DiscoverX) raked up more money than Houston (population 2.3 million).

According to AngelList, in 2017 Palo Alto was home to more than 2,300 of the Bay Area's 32,000 startups, and, according to Fortune's 2016 Unicorn List, 7 out of the 174 unicorns of the world were based in tiny Palo Alto. Only Beijing (20 million people, 800 times more people than Palo Alto) and San Francisco (20 times more people) had more (21 and 34 unicorns, respectively).

In 2017 it was hard to believe that 17 years earlier the Nasdaq had collapsed, wiping out dozens of Internet-based service. In 2017 Silicon Valley venture capitalists put 37% of their funding in Internet companies; second was the health-care field (29%), which doubled from 2016. Silicon Valley was less and less about silicon: investment in electronic firms had declined from a 25% share in 2002 to merely 4% in 2017. It was more and more about the Internet and software. This era truly saw the revenge of the dotcom.

In August 2018 Apple became the first company in the world to be worth $1 trillion (thanks mostly to a booming stock market). This was an impressive feat, but perhaps more impressive was that the second company to achieve that feat was Amazon, not Alphabet/Google: Amazon passed Alphabet to become the second most valued company in the world despite the fact that Amazon's revenues were one tenth of Apple's. Amazon had started humbly as a way to shop for books online; then it introduced a new way to read them (the Kindle e-book reader); and then a new way to publish them (CreateSpace, originally a South Carolina company called BookSurge that Amazon acquired in 2005); and then a new way to deploy applications on the Internet (Amazon Web Services); and then a new way to get deliveries (Amazon Prime); and then a new way to talk to devices (Alexa). Meanwhile Amazon also built the most automated warehouse in the world and opened the first pilot cashier-less Go stores, almost fully automated. And in 2017 Amazon acquired Whole Foods Market (originally a Texas-based organic grocery store founded in 1980) and its 400 physical stores. No Silicon Valley company could match the metamorphoses of Amazon.

In theory, the Bay Area was as cosmopolitan as no other place in the world. According to the 2018 Silicon Valley Index, 38% of Silicon Valley residents were foreign-born. These immigrants also accounted for the majority of science, technology, engineering and mathematical (STEM) jobs: 66% of computer jobs, 61% of engineering jobs, 45% of life science jobs, and 42% of financial services jobs. However, despite the huge valuations, no Silicon Valley company ranked with the ten largest companies by revenue, and the great proposed mergers of the era always involved firms not based in Silicon Valley: for example, in 2017 the attempted takeover by AT&T (Dallas) of Time Warner (New York), and the attempted takeover by Broadcom (now based in Singapore) of Qualcomm (San Diego).

By the end of the decade, the bubble was still inflating but there were multiple signs of fatigue. A new president of the USA (Donald Trump, engulfed in multiple scandals) favored manufacturing and farming over the high-tech industry; and several Silicon Valley companies got implicated in his dubious election (Facebook being the main vehicle of "fake news" used by his foreign supporters, and Twitter being the main vehicle for his personal propaganda).

Meanwhile, the demise in 2016 of Theranos (whose CEO Elizabeth Holmes was charged with fraud) dented the confidence in the success stories of Silicon Valley, and the resignations in 2017 of Uber's founder and CEO Travis Kalanick exposed a culture of sexism and bullying. In 2019 while WeWork (now mostly owned by Japanese investor Softbank) was struggling to survive after a disastrous IPO, its founder Adam Neumann cashed about $1 billion dollars in compensation. These and other scandals exposed the unethical underside of Silicon Valley's startup ecosystem. The Theranos swindle was more than about the evaporation of a $9 billion unicorn: it revealed the role of unscrupulous attorneys, who de facto intimidated employees with threats of litigation so that for years nobody dared speak up even if everybody knew that Theranos was cheating.

The self-driving technology came under closer scrutiny after Tesla and Uber self-driving cars caused fatal accidents. Google was investing a lot in Artificial Intelligence, but the field was over-hyped, and Google had to defend itself in the European Union, where its practices regarding privacy were not popular.

Google was also facing a new rival. Google and Amazon had coexisted peacefully for 20 years as Internet users searched products with Google's search engine and then purchased products from Amazon's stores. By 2019, however, shoppers were increasingly bypassing google.com and searching for their products directly in amazon.com. This was an indirect attack on Google's main source of revenues: advertising. Advertisers started following the searches, and Amazon's revenues from digital advertising increased rapidly. Then the offerings of the two companies began to look less like complements and more like competitors. Amazon's live streaming video platform Twitch (acquired in 2014) wasn't meant as an alternative to YouTube, but it was beginning to erode YouTube's domination in online video content. Google's "intelligent" voice assistant Assistant (released in 2016) and its voice-activated speaker Google Home represented the real challenge to Amazon's Alexa (released in 2014), and its video-activated speaker Echo. Google Cloud, introduced in 2008, two years after Amazon's cloud-computing service, was becoming a serious threat to the market of Amazon Web Services (that combined EC2, S3 and many other cloud services). And in May 2019 Google entered the ecommerce business as an Amazon-like middleman with a new feature of its search engine that allowed users to click on an ad and make a purchase. This feature merged Google Shopping with Google Express. Google had introduced Froogle in 2002 and renamed Google Product Search and then renamed it Google Shopping in 2012, but it was originally a price comparison service based on product data posted on the websites of vendors, and monetized using the search engine's AdWords platform. The Express service for delivery of goods had been introduced in 2013 in the San Francisco Bay Area.

Apple was still the most valued company in the world, but its fortunes relied on just one product line, the iPhone. Intel was widely perceived as having lost the race with the competitors in the low-end of the semiconductor market (the one that was growing exponentially because of smartphones) and, in fact, was no longer the most valued semiconductor firm in the world. A trade war with China was looming. China was still banning Google, Facebook, Twitter and many other Bay Area-based companies, while China's rising stars (Alibaba, Baidu and Tencent) were free to operate in the USA.

More than half of the top US companies were founded by immigrants or children of immigrants, but Trump severely restricted immigration, especially of engineers and scientists, a deadly blow to the high-tech industry and to Silicon Valley in particular.

Real estate was still booming across the Bay Area, but many signals hinted at trouble ahead. And, still, despite all the turmoil and looming "trade war" with China, US start-ups raised $55 billion in venture capital in the first half of 2019, the most since 2000 (according to CB Insights). The top performer was again the Bay Area, but followed by New York, which had passed Boston; and then Los Angeles, another California city; and then Seattle, also on the West Coast; and #9 was also a California city, San Diego, just before the much bigger Chicago.

click here for the other sections of the chapter "The Selfies (2011-16)"
(Copyright © 2016 Piero Scaruffi)

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