A History of Silicon Valley


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An abridged version of http://www.scaruffi.com/politics/sv.html

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A History of Silicon Valley

  1. 1. A History of Silicon Valley 1900-2010 The Greatest Creation of Wealth in History (a moral tale) being a presentation by piero scaruffi www.scaruffi.com adapted from a book by Arun Rao and piero scaruffi
  2. 2. Piero Scaruffi <ul><li>Cultural Historian </li></ul><ul><li>Cognitive Scientist </li></ul><ul><li>Blogger </li></ul><ul><li>Poet </li></ul><ul><li>www.scaruffi.com </li></ul>
  3. 3. Where are the pictures? <ul><li>This slide presentation omits the pictures to make it smaller and easier to download </li></ul><ul><li>Pictures of machines and buildings are here: </li></ul><ul><ul><li>A visual history of computing: http://www.scaruffi.com/monument/silicon/cm.html </li></ul></ul><ul><ul><li>A historical tour of Silicon Valley: http://www.scaruffi.com/politics/svtour.html </li></ul></ul><ul><li>If you have time and skills, use these pictures to create a more appealing version of this presentation and send it to me for approval </li></ul>
  4. 4. What the book is about… <ul><li>The book is a history of the high-tech industry in the San Francisco Bay Area (of which Silicon Valley is currently the most famous component) </li></ul>
  5. 5. How it all Started <ul><li>The navy and amateurs turned the Bay Area into a hotbed of radio engineering </li></ul><ul><li>The defense industry </li></ul><ul><li>Electrical power companies turn the Bay Area into a hotbed of electrical engineering </li></ul><ul><li>Nuclear engineering at UC Berkeley and birth of the “Big Science” concept </li></ul><ul><li>Frederick Terman at Stanford encourages students to start businesses instead of moving back to the East Coast </li></ul>
  6. 6. Society <ul><li>The Bay Area has a tradition of </li></ul><ul><ul><li>Environmental issues </li></ul></ul><ul><ul><li>Social issues </li></ul></ul><ul><ul><li>Utopian communities </li></ul></ul><ul><ul><li>Unconventional arts </li></ul></ul><ul><ul><li>A society that rewards the independent and the eccentric </li></ul></ul><ul><ul><li>Nightlife and organized crime in San Francisco </li></ul></ul><ul><ul><li>Orchards in the south bay </li></ul></ul><ul><ul><li>Military bases all over </li></ul></ul>
  7. 7. Meanwhile elsewhere… <ul><li>The automated office: </li></ul><ul><ul><li>typewriters (a field dominated by Remington Rand), </li></ul></ul><ul><ul><li>adding machines (a field dominated by Burroughs), </li></ul></ul><ul><ul><li>tabulating machines (a field dominated by IBM) </li></ul></ul><ul><ul><li>cash registers (a field dominated by NCR) </li></ul></ul><ul><li>Midwest and East Coast industries dominate office automation </li></ul>
  8. 8. World War II and Cold War <ul><li>Terman in charge of electronic warfare </li></ul><ul><li>Fred Terman's students: HP, Varian,… </li></ul><ul><li>Stanford Industrial Park (1951) </li></ul><ul><li>IBM’s West-Coast laboratory in San Jose (1952) </li></ul><ul><li>Main industry: Defense </li></ul>
  9. 9. Society <ul><li>The San Francisco Renaissance </li></ul><ul><li>The “beats” </li></ul><ul><li>Avantgarde music </li></ul><ul><li>Eastern philosophy </li></ul>
  10. 10. Meanwhile (computers) <ul><li>Main centers for research on electronic computing: Boston (Harvard and MIT), Philadelphia (Moore School of Electrical Engineering, BRL), New Jersey (Bell Labs, Princeton, RCA Labs), New York (Columbia and IBM) </li></ul><ul><li>The computer is invented by scientists interested in solving complex mathematical problems such as nonlinear differential equations </li></ul><ul><li>First practical application: warfare </li></ul><ul><li>First commercial computers: large office automation players (Remington Rand, IBM, NCR, Burroughs) </li></ul>
  11. 11. Meanwhile (semiconductors) <ul><li>AT&T’s transistor (1949) </li></ul><ul><li>The portable radio marks the birth of consumer electronics, a trend towards miniaturization and lower prices </li></ul>
  12. 12. Semiconductors in the Bay Area <ul><li>Shockley Semiconductor Laboratory (1956) </li></ul><ul><li>Fairchild Semiconductors (1957), the first venture-funded &quot;start-up&quot; company of the Bay Area: Robert Noyce, Gordon Moore, Jean Hoerni, Eugene Kleiner, etc </li></ul><ul><li>The semiconductor industry does not require huge capital investment </li></ul>
  13. 13. Integrated Circuits <ul><li>Exponential growth in chip density </li></ul><ul><ul><li>Frank Wanlass at General Microelectronics (1964): CMOS, i.e. low power consumption, low heat and high density (i.e. semiconductors into digital watches and pocket calculators) </li></ul></ul><ul><ul><li>Lee Boysel at Fairchild (1966): four-phase clocking technique to create very dense MOS circuits </li></ul></ul><ul><ul><li>Federico Faggin at Fairchild (1968): silicon-gated MOS transistors (faster, smaller and low energy) </li></ul></ul><ul><li>Gordon Moore’s law (1965): the processing power of computers will double every 12 (18) months </li></ul>
  14. 14. Integrated Circuits <ul><li>Fairchild spinoffs: Amelco (Jean Hoerni), Molectro (James Nall), General Microelectronics (Don Farina), Intersil (Jean Hoerni); AMD (Jerry Sanders ), etc </li></ul><ul><li>Texas Instruments, Motorola and RCA do not spawn a similar genealogical tree of spinoffs </li></ul><ul><li>A self-sustaining manufacturing community that mixes Darwinian competition/selection with symbiotic cooperation </li></ul><ul><li>The system exhibits a form of collective learning </li></ul>
  15. 15. Integrated Circuits <ul><li>Role of the government </li></ul><ul><ul><li>The military serves as both a munificent venture capitalist that did not expect a return (and not even co-ownership) and as an inexpensive testbed </li></ul></ul><ul><ul><li>NASA's Apollo mission to send a man to the Moon builds the Apollo Guidance Computer (1961-64), the first computer to use integrated circuits </li></ul></ul>
  16. 16. Society <ul><li>Free Speech Movement (1964) </li></ul><ul><li>First hippie festival (1965) </li></ul><ul><li>The &quot;Summer of Love&quot; (1966) </li></ul><ul><li>Black Panther Party (1966) </li></ul><ul><li>Monterey’s rock festival (1967) </li></ul><ul><li>Stewart Brand’s &quot;Whole Earth Catalog“ (1968) </li></ul><ul><li>The hippie phenomenon further increases immigration from other states </li></ul><ul><li>All these movements are hostile to technological progress </li></ul>
  17. 17. Dynamic Memory <ul><li>Advanced Memory Systems (1968), Intel (1968) and Four Phase (1969): semiconductor computer memories instead of magnetic core memories </li></ul><ul><li>Before the DRAM: the semiconductor firms make money by building custom-designed integrated circuits (small market but lucrative) </li></ul><ul><li>The DRAM: a commodity sold in large numbers at a low price </li></ul><ul><li>Constant downward pressure on prices </li></ul>
  18. 18. High-tech Creativity <ul><li>SRI </li></ul><ul><ul><li>Doug Engelbart’s NLS (1968): a graphical user interface and a hypertext system running on the first computer equipped with a mouse and connected to a remote computer </li></ul></ul><ul><ul><li>&quot;Shakey the Robot“ (1969) </li></ul></ul>
  19. 19. High-tech Creativity <ul><li>Xerox PARC (1970) : </li></ul><ul><ul><li>Alan Kay’s Dynabook and Smalltalk </li></ul></ul><ul><ul><li>Not faster computation but better interaction </li></ul></ul><ul><ul><li>Casual, informal and egalitarian workplace </li></ul></ul><ul><ul><li>The equivalent for a workplace of the alternative lifestyle preached by the hippies </li></ul></ul>
  20. 20. High-tech Creativity <ul><li>Computer games </li></ul><ul><ul><li>Nolan Bushnell’s &quot;Computer Space“ (1971): a free-standing terminal powered by a computer </li></ul></ul><ul><ul><li>Atari’s “Pong“ (1972) </li></ul></ul>
  21. 21. Life Sciences <ul><li>Stanford hires Carl Djerassi (1959), inventor of the birth-control pill </li></ul><ul><li>Alejandro Zaffaroni’s Alza (1968): biomedical industry </li></ul><ul><li>Cetus (1971), the first biotech company of the Bay Area </li></ul><ul><li>Paul Berg's team at Stanford synthesizes the first recombinant DNA molecule (1972) </li></ul><ul><li>Stanley Cohen (Stanford) and Herbert Boyer (UCSF) transfer DNA from one organism to another, creating the first recombinant DNA organism (1973) </li></ul>
  22. 22. Labor Fluidity <ul><li>California is blessed with an economy which mostly outperforms the rest of the USA </li></ul><ul><li>California is an employee's market and not an employer's market </li></ul><ul><li>California’s law code forbids any labor contract that limits what an employee can do after quitting </li></ul><ul><li>Silicon Valley engineers exhibit a preference for horizontal instead of vertical mobility, for hopping from job to job instead of following a career of promotion after promotion </li></ul><ul><li>Staying with the same company for more than a few years does not look &quot;good&quot; on a resume </li></ul>
  23. 23. Labor Fluidity <ul><li>Job turnover and no protection for trade secrets foster an endless flow of knowledge throughout the communityspread </li></ul><ul><li>Pervasive job mobility spreads knowledge quickly and efficiently </li></ul><ul><li>Rapid dissemination of knowledge within an industry across companies, as well as in cross-fertilization of ideas across research groups. </li></ul><ul><li>Status symbol of being an engineer like in no other region in the world (second to the status symbol of being an entrepreneur) </li></ul>
  24. 24. Meanwhile elsewhere… <ul><li>Arpanet (1969) </li></ul><ul><li>Unix (1971) </li></ul><ul><li>Remote Computing (1969) </li></ul><ul><li>The Unbundling (1969) </li></ul>
  25. 25. The Microprocessor <ul><li>Four Phase Systems’ AL1 (1970) </li></ul><ul><li>Intel’s 4404 (1971), as powerful as the ENIAC, but millions of times smaller and ten thousand times cheaper </li></ul><ul><li>Intel's motivation to make microprocessors: microprocessors helped sell more memory chips </li></ul><ul><li>Bill Pentz at California State University in Sacramento proves that a microprocessor can be used to build a computer (1972) </li></ul>
  26. 26. The Home Computer <ul><li>&quot;Radio Electronics&quot;, &quot;QST&quot; and &quot;Popular Electronics&quot; publicize the microprocessor among hobbyists </li></ul><ul><li>Kits by mail-order for hobbyists to build machines at home: Scelbi (1974), …, Altair 8800 (1974) </li></ul><ul><li>The microprocessor reaches a wider audience than its inventors intended to reach thanks to the magazines </li></ul><ul><li>The most creative and visionary users are not working in corporations but at home </li></ul><ul><li>The Homebrew Computer Club (1975) </li></ul>
  27. 27. The Home Computer <ul><li>IBM, the &quot;BUNCH“ and DEC had the know-how, the brains and the factories to produce desktop computers for the home market. They did not do it. </li></ul><ul><li>The market for home computers is largely created by a grassroots movement of hobbyists who work outside the big bureaucracies of corporations, academia and government. </li></ul><ul><li>They create their own community (via magazines, stores and clubs) </li></ul><ul><li>Another Bay Area community of counterculture </li></ul><ul><li>Journalists and store owners are the real visionaries </li></ul>
  28. 28. The Home Computer <ul><li>Obstacle to widespread diffusion: the home computer is expensive (because the Intel microprocessor is expensive) and pretty useless (because it has no software) </li></ul>
  29. 29. Venture Capitalists <ul><li>The center of mass for venture capital shifts from San Francisco towards Menlo Park </li></ul><ul><li>Kleiner-Perkins (1972), Sequoia Capital (1972), Mayfield Fund (1974), etc </li></ul>
  30. 30. The Microprocessor Wars <ul><li>Microprocessors drive sales of memories, and sales of memories fund improvements in microprocessors </li></ul><ul><li>AMD introduces the AMD8080, a reverse-engineered clone of the Intel 8080 (1975) </li></ul><ul><li>Zilog (1976) </li></ul>
  31. 31. Databases <ul><li>Leadership in database technology: IBM’s IMS </li></ul><ul><li>IBM's Almaden Research Center starts the “relational” database management system System R (1973) </li></ul><ul><li>Berkeley’s Ingres (1973) </li></ul>
  32. 32. The GUI <ul><li>Leadership in user interface: IBM’s form-driven 3270 terminal to connect to mainframes </li></ul><ul><li>Xerox PARC unveils the Alto, the first workstation with a mouse and a Graphical User Interface (1973) </li></ul>
  33. 33. The Apple Vision <ul><li>Apple I vision (1976): </li></ul><ul><ul><li>A computer without a programming language is an oxymoron </li></ul></ul><ul><ul><li>A real programming language requires DRAM </li></ul></ul><ul><ul><li>Enabling technology: the 4K DRAM, just introduced in 1974, much cheaper than the static RAM of the Altair </li></ul></ul><ul><ul><li>Roberts had basically just dressed up a microprocessor to create his Altair. Wozniak dresses up a memory chip to create the Apple I </li></ul></ul><ul><ul><li>Wozniak also writes the BASIC interpreter </li></ul></ul><ul><ul><li>Target user: the hobbyist </li></ul></ul>
  34. 34. The Apple Vision <ul><li>Apple II vision (1977): </li></ul><ul><ul><li>Fully assembled, with a monitor and a keyboard, requiring almost no technical expertise </li></ul></ul><ul><ul><li>The look and feel of a home appliance </li></ul></ul><ul><ul><li>The first affordable floppy-disk drive for personal computers, which replaces the cassette as the main data storage </li></ul></ul><ul><ul><li>Still no operating system </li></ul></ul>
  35. 35. A New Office Tool <ul><li>VisiCalc (1979), the first spreadsheet program for personal computers for the Apple II </li></ul><ul><li>Apple’s IPO (1980) raises a record $1.3 billion </li></ul><ul><li>Visicalc ported to the Tandy TRS-80, Commodore PET and the Atari 800, the first major application that is not tied to a computer </li></ul><ul><li>Lesson learned: the value of software </li></ul>
  36. 36. The Microprocessor Wars/ II <ul><li>Intel assigns the task of designing the 8086 (1978) to a software engineer </li></ul><ul><li>14 million microprocessors are sold in 1978 but only 200,000 personal computers are manufactured </li></ul>
  37. 37. Databases/ II <ul><li>Oracle (1977): an SQL relational database management system </li></ul><ul><li>Ingres (1979), an open-source variant of IBM's System R for DEC minicomputers running the Unix operating system </li></ul><ul><li>The relational database startups do not target the huge market of mainframe computers but the smaller market of minicomputers </li></ul><ul><li>Oracle rewrites its DBMS in C for Unix (1983) </li></ul>
  38. 38. Communications <ul><li>3Com (1979): Ethernet for personal computers </li></ul><ul><li>Ungermann-Bass (1979): Ethernet-based local-area networks </li></ul>
  39. 39. The GUI/II <ul><li>Exodus of brains from Xerox PARC towards Silicon Valley companies (1977) </li></ul><ul><li>Xerox 8010 Star Information System (1981) that integrates a mouse, a GUI, a laser printer, an Ethernet card, an object-oriented environment (Smalltalk) and word-processing and publishing software </li></ul>
  40. 40. BSD <ul><li>Unix ethics and philosophy a good match for the Bay Area’s utopian ideology </li></ul><ul><li>Berkeley Software Distribution (1977) spreads in universities </li></ul><ul><li>The world's most portable operating system </li></ul><ul><li>Onyx (1980), Apollo (1980), SUN (1981), Silicon Graphics (1982): a microcomputer running UNIX, a cheaper alternative to the PDP-11 </li></ul><ul><li>Santa Cruz Operation (1979), the first Unix consulting company </li></ul><ul><li>DARPA chooses Unix for the Arpanet (1980) </li></ul>
  41. 41. BSD <ul><li>A technology ignored by the big computer manufacturers and left in the hands of a community of eccentric independents </li></ul><ul><li>Counterculture dynamics that mirrors the dynamics of the computer hobbyists who have invented the personal computer </li></ul><ul><li>Universities serve as community aggregators more than magazines, clubs or stores </li></ul>
  42. 42. The Moral Tale <ul><li>Government funding (from the 1910s till the 1960s) accelerated innovation whereas large computer corporations in the 1970s de facto connived to stifle innovation </li></ul>
  43. 43. The Moral Tale <ul><li>The Visible Hand of Capital </li></ul><ul><ul><li>The amount of money available to venture capitalists greatly increases after the Apple IPO </li></ul></ul><ul><ul><li>For several years Kleiner-Perkins is able to pay a 40% return to the customers of its high-tech fund </li></ul></ul>
  44. 44. The Moral Tale <ul><li>The Invisible Hand of Government </li></ul><ul><ul><li>The US government reduces the capital gains tax rate (&quot;Revenue Act“, 1978) </li></ul></ul><ul><ul><li>The US government eases the rules on pension funds (1979) </li></ul></ul><ul><ul><li>Silicon Valley’s high-tech industry benefits from computer-based military projects: the B-2 stealth bomber, the Jstars surveillance system, the Global Positioning System (GPS), the Trident submarine and the Tomahawk cruise missile. </li></ul></ul>
  45. 45. Biotech <ul><li>Genentech (1976) to genetically engineer new pharmaceutical drugs </li></ul><ul><li>Applied Biosystems (1979) to build biotech instrumentation (protein sequencer, DNA synthesizer) </li></ul><ul><li>The US Supreme Court rules that biological materials (as in &quot;life forms&quot;) can be patented (1980) </li></ul><ul><li>Calgene (1980), Chiron (1981), … </li></ul><ul><li>Cetus’ IPO (1981) raises a record $108 million </li></ul>
  46. 46. Meanwhile elsewhere… <ul><li>The IBM PC (1981), a personal computer from off-the-shelf, widely available components based on the Intel 8088 microprocessor and running an operating system by Microsoft (derived from Unix) </li></ul><ul><li>The “open” model of the PC creates an industry of &quot;clones&quot; (Compaq, Olivetti) and an industry of independent software companies </li></ul><ul><li>Commodore 64 (1982) is sold in retail stores instead of electronics stores </li></ul><ul><li>Osborne 1 (1981), a portable computer designed by hardware engineer Lee Felsenstein of the Homebrew Computer Club </li></ul>
  47. 47. The Apple Vision/ II <ul><li>Apple (1982) is the first personal-computer company to pass the $1 billion mark in revenues </li></ul><ul><li>Apple’s model: a proprietary Apple operating system </li></ul><ul><li>Apple Lisa (1983), the first personal computer with the GUI pioneered by the Xerox Alto </li></ul><ul><li>Apple’s added value: it looks cool </li></ul>
  48. 48. Software <ul><li>S ales of personal computers skyrocket because they have become useful: Apple thanks to office programs (Visicalc, Context MBA) and the PC thanks to the DOS-compatible applications (Lotus 1-2-3, dBase ($700) </li></ul><ul><li>Activision (1979), Electronic Arts (1982): computer games </li></ul><ul><li>Autodesk (1981): CAD </li></ul><ul><li>Adobe (1982): desktop publishing </li></ul><ul><li>Symantec (1982), Borland (1983): tools for software developers </li></ul>
  49. 49. Software <ul><li>1950s-1970s: the hardware represents most of the cost of a computer </li></ul><ul><li>1980s: the falling prices of hardware components enables ever more sophisticated software applications and triggers a growing demand for them; and the need to run more sophisticated applications motivates the hardware industry to produce more powerful chips </li></ul>
  50. 50. Workstations <ul><li>Single-user graphic networked computer for engineering applications </li></ul><ul><li>Mostly based on the Motorola 68000 (not on Intel) and running Unix (not DOS) </li></ul><ul><li>Apollo (Boston): custom hardware and proprietary operating system </li></ul><ul><li>SUN (Stanford): Berkeley’s Unix running on standard off-the-shelf hardware components (the business model of the IBM PC) </li></ul><ul><li>The SUN culture is to the Microsoft culture what the counterculture is to the mainstream </li></ul>
  51. 51. Workstations <ul><li>Corporate networks of local networks </li></ul><ul><ul><li>Cisco’s commercial version of Stanford’s router (1986) </li></ul></ul>
  52. 52. Diversifying <ul><li>Fairchild, Intel, Zilog created a genealogical tree: each one improved over the invention of the predecessors </li></ul><ul><li>The inventions of Apple, Cisco, SUN and Oracle have little in common </li></ul><ul><li>Neither of them gives rise to a (significant) genealogical tree </li></ul><ul><li>No major company of the size of Intel emerges from any of these </li></ul><ul><li>Each of them creates a chain of suppliers </li></ul>
  53. 53. The Internet <ul><li>Just like the personal computer and the Unix, the Internet too was largely shaped by a community of eccentric independents </li></ul><ul><li>Decentralized model that involves the very users of the Internet to submit proposals for future directions </li></ul><ul><li>A government-mandated grass-roots movement </li></ul><ul><li>The consumer is the producer </li></ul><ul><li>E-mail itself is a user invention, never planned by the Arpanet's bureaucracy </li></ul>
  54. 54. The Internet <ul><li>The Arpanet as a project in progress, a concept that is more likely to be accepted in military projects than in commercial product development </li></ul><ul><li>The Arpanet changes mission over time, transforming from a military project to survive a nuclear attack into a system for interpersonal communication and knowledge sharing </li></ul><ul><li>The ethics of the Arpanet, just like the ethics of the Unix world and the ethics of the early personal-computer hobbyists, is not the brutal, heartless ethics of the corporate world nor the brutal, heartless ethics of Wall Street: it is the utopian ethics of the hippie communes transposed into a high-tech environment </li></ul>
  55. 55. Society <ul><li>Spiritual revival of the New Age </li></ul><ul><ul><li>Arguing for a return to a more natural way of life </li></ul></ul><ul><ul><li>Hostility towards science and rationalism </li></ul></ul><ul><ul><li>Luddites vs tecnophiles </li></ul></ul><ul><li>The gay community </li></ul>
  56. 56. Society <ul><li>Chinese and Indian executives run 13% of Silicon Valley's high-tech companies founded between 1980 and 1984 </li></ul><ul><li>Silicon Valley is both a place of great ethnic diversity and a place of high technological saturation </li></ul>
  57. 57. Society <ul><li>Chaotic creation and destruction of companies </li></ul><ul><li>High labor mobility </li></ul><ul><li>Anti-union spirit </li></ul><ul><li>The decentralized and anarchic personal-computer world is a good fit for the spirit of the Bay Area </li></ul>
  58. 58. Apple’s Vision/III <ul><li>Apple’s Macintosh (1984) </li></ul><ul><li>The hardware is a means to appealing software </li></ul><ul><li>Microsoft cannot match Apple’s GUI because it cannot tweak the hardware of the PC </li></ul><ul><li>However, Microsoft can invest more in marketing its office automation suite (Word, Excel, Powerpoint) </li></ul><ul><li>The futuristic Mac helps cement the community of Apple fans </li></ul><ul><li>But Apple’s closed architecture loses to the &quot;open architecture&quot; created by the IBM-Microsoft axis </li></ul>
  59. 59. The Semiconductor Wars <ul><li>Japanese firms introduce low-cost 256K DRAM chips (1984) and gain 70% of the market (1985) </li></ul><ul><li>Japan's share of the world's semiconductor market: 51% (1986) </li></ul><ul><li>First large-scale layoffs in Silicon Valley </li></ul><ul><li>What saved Intel is the microprocessor. The &quot;computer on a chip&quot; is too complex and required too big a manufacturing investment to be handled like a commodity </li></ul><ul><li>New corporate culture: a brutal philosophy of Darwinian competition (&quot;Only the paranoid survive&quot;) and iron discipline </li></ul>
  60. 60. Outsourcing the Fab <ul><li>1985: The government of Taiwan hires Morris Chang who promotes the outsourcing of semiconductor manufacturing by US companies to Taiwan </li></ul><ul><li>“ Fab-less&quot; semiconductor companies of Silicon Valley: Chips and Technologies, Xilinx, Cirrus Logic, Adaptec… </li></ul><ul><li>Whenever a Silicon Valley manufacturer outsources a project to a Taiwanese fab, it directly improves the Taiwanese plant both by injecting capital and by the project's new requirements and therefore does a favor to its own competitors who can use the same factory </li></ul>
  61. 61. SUN’s Vision <ul><li>SUN erodes DEC's supremacy in the academia and then in the engineering market </li></ul><ul><li>The DEC generation believed that a company needed to personally make the key components </li></ul><ul><li>The SUN generation believes that key components ought to be delegated to specialty shops </li></ul><ul><li>In-house development is unlikely to match &quot;best of breed&quot; quality across the board by specialized shops </li></ul><ul><li>The pace of innovation rewards SUN over DEC </li></ul><ul><li>This model creates a secondary economy in Silicon Valley of large hyperspecialized companies that don’t become household </li></ul>
  62. 62. The Peacetime Dividend <ul><li>End of the Cold War: Silicon Valley does not depend anymore on the military industry </li></ul><ul><li>Building chips is a high-risk business: huge capital investment, very short lifespan of the product, price wars </li></ul><ul><li>The reward: the survivors dominate the most important industry of the era </li></ul><ul><li>The semiconductor industry creates a culture of risk that spreads to the software industry </li></ul>
  63. 63. The Peacetime Dividend <ul><li>The culture of risk is a whole infrastructure designed to promote, assist and reward risk-takers in new technologies (laboratories, plants, offices, corporate lawyers, marketing agencies, venture capitalists, universities, immigrants) </li></ul><ul><li>The main change: need to generate a profit as quickly as possible (the great investor of the 1950s and 1960s, the military, thought long-term, with no interest in return on investment) </li></ul><ul><li>The venture-capital firms create a ghost industry (focused on making money) that evolves in parallel to the technological one </li></ul>
  64. 64. The Peacetime Dividend <ul><li>The short-term approach helps communicate effectively with the market. </li></ul><ul><li>The Silicon Valley start-up is both &quot;visionary&quot; AND grounded in the reality of technological feasibility and of market readiness </li></ul><ul><li>The Darwinian system of small start-ups as a whole is more likely to find a solution to a problem than a large bureaucratic company </li></ul><ul><li>Progress is incremental, but rapid </li></ul>
  65. 65. The Peacetime Dividend <ul><li>Europe and East Coast: the goal is a lifetime career in a large, safe company </li></ul><ul><li>Silicon Valley: a company's life expectancy is low </li></ul><ul><li>The goal is to change jobs hoping to hit the jackpot </li></ul><ul><li>Silicon Valley's dream is a linear progression from engineer in a start-up to founder of a start-up to investor in a start-up </li></ul><ul><li>This dream encourages people to take chances working for a start-up, to take chances creating start-ups, and to take chances investing in start-ups </li></ul>
  66. 66. The Peacetime Dividend <ul><li>The leaders of Apple, Oracle, Intel and SUN acquire semi-god status </li></ul><ul><li>They fight epic battles (e.g. against Microsoft) </li></ul><ul><li>Their charisma replaces the charisma of the engineers who had truly invented their technologies (Faggin, Wozniak, Bechtolsheim…) </li></ul><ul><li>The trend shifts from inventing a product to starting a company </li></ul>
  67. 67. Geopolitical Implications <ul><li>Historical shift in political and economic power from the old industrial and financial capitals of the Northeast and Midwest towards a new pole of industry and finance based on the West Coast </li></ul><ul><li>The biggest competitor of California is Japan, not Western Europe </li></ul><ul><li>The old &quot;Atlantic&quot; economy is being replaced by a new &quot;Pacific&quot; economy </li></ul>
  68. 68. Meanwhile elsewhere… <ul><li>1991: The US government enacts the “High-Performance Computing and Communication Act” </li></ul><ul><li>1993: Mosaic (funded by the “High-Performance Computing and Communication Act”), later renamed Netscape in Silicon Valley </li></ul><ul><li>1994: WebCrawler (search engine) </li></ul><ul><li>1995: The US government blesses the commercial use of the Internet </li></ul>
  69. 69. The Dot Coms <ul><li>The importance of Netscape’s browser: </li></ul><ul><ul><li>Free for ordinary users </li></ul></ul><ul><ul><li>Illiterate computer uses can browse the Web the same way that a pro does </li></ul></ul><ul><ul><li>The non-intuitive cluster of digital information that has accrued on the Internet becomes intelligible to ordinary people </li></ul></ul><ul><ul><li>More and more people are motivated to add content to the Web </li></ul></ul>
  70. 70. The Dot Coms <ul><li>The importance of Netscape’s browser: </li></ul><ul><ul><li>The personal computer boom of the 1980s has placed a computer in millions of households and the browser turns them into the audience of the Web </li></ul></ul><ul><ul><li>The computer monopolies are forced to adopt open standards for the Web </li></ul></ul>
  71. 71. The Dot Coms <ul><li>Netscape IPO (1995) </li></ul><ul><li>Yahoo (1995) </li></ul><ul><li>Excite. AltaVista (1995), Hotbot (1996), Google (1998) </li></ul><ul><li>Java (1995) </li></ul><ul><li>WebLogic (1995), Apache (1996) </li></ul><ul><li>Craigslist (1995) </li></ul><ul><li>HotMail (1996) </li></ul><ul><li>GeoCities (1995) </li></ul><ul><li>eBay (1995) </li></ul><ul><li>Netflix (1997) </li></ul>
  72. 72. Hotmail’s Lesson <ul><li>Founded by hardware engineers: a user’s idea, not a technological idea; a sturdy no-nonsense &quot;product“ </li></ul><ul><li>Advertising as a source of revenues </li></ul><ul><li>Internet startups offer free services because their real product is the user base </li></ul><ul><li>The boom of the Web is not a consequence of the Internet but of the boom in advertising: cable television revenues stage an 82% growth rate in 1994-95 just when the Web is maturing </li></ul>
  73. 73. Connecting the World <ul><li>Beneficiaries of the age of networking: Cisco, 3Com and Bay Networks </li></ul><ul><li>Fiber-optic boom </li></ul><ul><li>Overcapacity dramatically lowers the cost of broadcasting information, thereby increasing the motivation to broadcast information </li></ul><ul><li>The fiber-optic rush creates on the Internet the equivalent of the freeway system created by the US government in the 1950s </li></ul><ul><li>The vast fiber-optic infrastructure connects the USA to India too, thus accelerating the process of outsourcing IT jobs to India </li></ul>
  74. 74. Meanwhile elsewhere… <ul><li>Finland: the smart phone </li></ul><ul><li>East Coast: Human Genome Project (1992) </li></ul>
  75. 75. The Nasdaq Crash <ul><li>Between 1998 and 1999 venture-capital investments in Silicon Valley firms increases more than 90% </li></ul><ul><li>The Internet and Y2K booms generate a bubble that bursts in 2000 </li></ul>
  76. 76. The Nasdaq Crash <ul><li>Silicon Valley before the bust: </li></ul><ul><ul><li>Personal computers: HP and Apple dwarfed by IBM, Compaq, Dell and Japanese </li></ul></ul><ul><ul><li>Videogame consoles: Japan rules </li></ul></ul><ul><ul><li>Semiconductors: The Far East rules </li></ul></ul><ul><ul><li>Mobile phones: Europe rules </li></ul></ul><ul><ul><li>Chips for mobile devices: ARM rules </li></ul></ul><ul><ul><li>Software: Microsoft and SAP dwarf Oracle </li></ul></ul><ul><ul><li>Dotcoms: No profits </li></ul></ul>
  77. 77. Beyond the Crash <ul><li>HP acquires Compaq (1999): DEC downgraded to just up a small division within a Silicon Valley company (HP) </li></ul><ul><li>Paypal (2000) </li></ul><ul><li>Apple iPod (2001) </li></ul><ul><li>Yahoo and Google de-facto turn the Web into an advertising tool which incidentally also contains information </li></ul>
  78. 78. You Are a Gadget <ul><li>Wikipedia (2003) </li></ul><ul><li>Intel Centrino makes Wi-Fi a household name (2003) </li></ul><ul><li>Facebook (2004) </li></ul><ul><li>YouTube (2005) </li></ul><ul><li>Twitter (2006) </li></ul><ul><li>Kindle (2007) </li></ul><ul><li>Zynga (2007) </li></ul><ul><li>Apple iPhone (2007) and Google Android (2007) </li></ul>
  79. 79. The Age of Uploading <ul><li>Wikipedia </li></ul><ul><li>Blogs </li></ul><ul><li>P2P tools </li></ul><ul><li>social networking sites </li></ul><ul><li>YouTube </li></ul><ul><li>Flickr </li></ul><ul><li>Digital cameras and camcorders </li></ul><ul><li>Smartphones </li></ul>
  80. 80. The Demise of the Computer <ul><li>The smartphone (a computer that also does voice) </li></ul><ul><li>Cloud computing (an invisible, omnipotent, virtual computer) </li></ul><ul><li>Applications are written for social networks (Facebook apps) and smartphones (iPhone apps), not for an operating system </li></ul>
  81. 81. The Gift Economy <ul><li>The audience “gifts” content to the companies that make money out of it </li></ul><ul><li>The companies are small but handle a huge amount of content </li></ul><ul><li>The companies make money as advertising platforms </li></ul><ul><li>The audience receives a free service but also provides a free service </li></ul>
  82. 82. The Great Internet Wars <ul><li>Google vs Microsoft: Microsoft owns the operating system but Google owns the search engine (Internet traffic) </li></ul><ul><li>Google vs Facebook: vying to become the premier advertising platform </li></ul><ul><li>Apple vs Google: proprietary or open smartphones </li></ul>
  83. 83. The Empire <ul><li>The Bay Area is the largest high-tech center in the world (2006) </li></ul><ul><li>HP passes Dell in worldwide PC shipments (2006) </li></ul><ul><li>Google's revenues pass IBM's software revenues (2009) </li></ul><ul><li>Oracle passes SAP (2009) </li></ul><ul><li>Facebook grows by about one million users a day (2009) </li></ul><ul><li>Apple's market capitalization passes Microsoft's (2010) and becomes #1 in the world (2011) </li></ul><ul><li>The Bay Area has won more Nobel prizes than any country except USA, Britain and Germany </li></ul>
  84. 84. Biotech <ul><li>The world's first Synthetic Biology department at the Lawrence Berkeley Lab (2006) </li></ul><ul><li>UCSF Institute for Human Genetics (2005) </li></ul><ul><li>The Bay Area boasts about 700 biomedical companies (2007) </li></ul><ul><li>Bubble of Personal Genomics startups </li></ul>
  85. 85. Greentech <ul><li>Solyndra (2005) </li></ul><ul><li>The Tesla roadster (2006) </li></ul>
  86. 86. Conclusions <ul><li>In the book: </li></ul>