Before we start I would like to introduce myself. My name is Aamer Khan, I am a naturalized american, so I was born in Karachi Pakistan and came to the United States in 1991. I am a Foreign Service Officer, in other words a US Diplomat. I am very new to diplomacy, this is a second career after spending many years being an engineer. I have worked in various companies large and small. Some of the big ones you might know are IBM, HP, FedEx while others you might not know including ones that I started. I was fortunate to be in Silicon Valley through the boom years till 2002. My company was bought out eventually by IBM and I ended up working in IBM for many years after that. I am an expert at software development and technology specifically to do with software engineering. And now I work in Guayaquil at the US consulate…. Not as an engineer but as a diplomat…. So I am definitely outside my comfort zone… however today’s topic is something I have first hand experience with i.e. Innovation, Technology and Silicon Valley…
Before I go any further … lets talk about what we are going to do today. I want to start with a little bit of history to set some context for you. Give you an idea of how things started what happened. Along the way we will look at the people and companies and the related technologies which caused the creation of these companies. As we move on we will start looking at the reasons why things happened the way they did. Why does Silicon Valley exist in this part of California? What are the ingredients needed to create it? However my objective in this is to impress upon you a few key ideas…. The folklore and ideals woven into the American culture and how entrepreneurship is at the heart of it….. We will also take a detour into the technology, talk about what might be coming and how it will change life for us.Finally we will look at how and what sustains entrepreneurship in the United States. Columna Vertebral
So where is Silicon Valley?California….Northern California…..San Francisco Bay Area…..South Bay…. mostly …. Many companies have sprouted around the original area and have spread all over the San Francisco Bay area.Sunny, mild, beautiful, ….. Universities….
The story begins in Stanford California, Fredrick Terman returns from Harvard University after running the Radio Research Laboratory in Boston Mass. Educated in Stanford University and MIT. An Electrical Engineer, He was handpicked to lead the team to find a solution to jam Nazi radars in mainland Europe. He is known as the “father of Silicon Valley” as Dean of Engineering at Stanford he sets up the Electronics Research Lab for “basic” research focused on Microwaves and Electronics. The beginning of Silicon Valley was not base on profits and commercial products it started due to the pressures of war. Particularly the cold war. The his objective was to foster creativity and technology so the United States could engage the Soviet threat. Until this point Stanford and this area was a relative backwater as compared to Boston/Cambridge where the bulk of the research funding was given. During WWII Office of Scientific Research and Development gave out $450M in R&D funds to various universities, 117M MIT, 83M Caltech, Harvard and Colombia 30M, Stanford got $50K. First big contract for Stanford was from the Office of Naval Research. By 1950 Stanford becomes the MIT of the West. But he had bigger plans…..
Cold war is an electronic war need the best minds in this technology to be motivated and funded to create the necessary technology to counter the soviet threat.
Primary type of research is on Microwave tubes, focused on the Electronic Intelligence and Electronic Warfare.Many of the downstream companies are all focused on providing what the military needs….Not much venture capital fund, bulk of the initial funding is typically from a military contract which floats the new company.
So with Military providing the research money Stanford faculty and students are able to create a pipeline that creates new companies. Frederick Terman using the land belonging to Stanford convinces the trustees to setup the first Technology Centric industrial Park. Terman sets new rules:Graduate students encouraged to start companies…Professors encouraged to consult at companies…Terman and Profs take seats on boards..Technology and IP transfer is easy…Academic-Military network used to fund companies by finding military contracts.The park today covers 700 acres, some of the first companies to move in. This was an important step in many ways, two most important were that it provided a mechanism to create a concentration of technology companies around a hotbed of innovation and contract funding. It was also close to the source of many of the people who were needed to work in the park. ….. But this was still the Microwave Valley… Silicon Technology was not yet in the mix nor in anybody’s plan yet.
New companies move to the Microwave Valley… the most important is Shockley Transistors. William Shockley….. Co-inventor of the transistorStarted the “original” semi-conductor company in Silicon Valley called Shockley Semiconductor… Terrible manager… …. Also known to believe in Eugenics … considered his later work on genetic theory more important than the invention of the transistor.Fairchild Semiconductor…Traitorous 8.. Quit a dysfunctional Shockley Semiconductor for Fairchild. Gordon Moore, Robert Noyce – EugineKleiner They are funded by Fairchild Camera….- KEY POINT: Notice these companies are really funded by other companies. Fairchild is Camera and Instruments company already a USG contractor. Similarly Shockley is a subsidiary of Beckman Instruments. No significant VC activity.
Until the advent of the integrated circuit each discrete component had to be put on a circuit board individually to create a usable solution. Integrated Circuits changed the situation dramatically!Componentization created the ability to build complex solutions not like an artisan one circuit at a time but by assembling many integrated circuits into a working machineMinaturization allowed the amount of “logic” to be placed into the IC to double ever 18 months. Moore’s Law. Mass production resulted in the cost of the products built on this technology to drop dramatically year over year. This continues to this date.
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The first chips made by Kilby and Noyce had only about 10 or 12 circuits on them. The ability to manufacture them at large scale with a high density of circuits is still very far away.Not only this, the only customer who can afford these is really the government. Or other companies making equipment for the government.
Commercial computers, only available to large corporations. Pre-Microprocessor, pre-mass availability of cheap Ics.
One of the most important companies which took the semiconductor technology to commercial uses was Intel. Two products stand out the IK Dynamic RAM chip and the I4004 microprocessor. The main reason these are important is that they were commercially very successful and resulted in a drop in prices along with
Slowly all the pieces which make the micro-computer possible are coming. Cheap ICs, Storage, CRT screens, Keyboard. Note that it takes a few more years to get to successful micro-computer. The first computers are hobby computers which are only interesting to Computer enthusiasts.Clubs like the Home Brew computer club founded by Wozniak are where these are built and played with. Some are launched commercially but no real success.However one company finally broke through…..
Slowly all the pieces which make the micro-computer possible are coming. Cheap ICs, Storage, CRT screens, Keyboard. Note that it takes a few more years to get to successful micro-computer. The first computers are hobby computers which are only interesting to Computer enthusiasts.Clubs like the Home Brew computer club founded by Wozniak are where these are built and played with. Some are launched commercially but no real success.However one company finally broke through…..Culture and Apple…. Created the aura of ‘cool’ in relation to technology, innovation and creativity….
The Apple II became a massive success because it had a killer application. The spreadsheet was a tool which could reduce 20 hours of work to 10 minutes. Average business users could easily learn it. The impact to the average small to medium sized business was tremendous. Until now to use a program like this they needed to buy shared time on very expensive computers or use a large number of man hours.This was where the Software revolution started. The computer did not belong to the geeks in the backroom or the very powerful companies, it was now available to anyone. Note that Computers could be built because IC technology became available. It was easy to build new functionality as sophisticated as a computer using the components available. Now software would allow a much more
IBM typical product cycles were 4 years. The Apple II success along with other competitors like Comodore etc. they started a new effort to go to market with a personal computer to compete with the new competitors from Silicon Valley.Story about Digital Research Inc. Gary Kindell out flying his airplane.Licensing agreements allowed MS to keep full and complete licensing of MS DOS while they gave full rights of PC DOS to IBM.IBM BIOS and Bootloader on their hardware was copyrighted but the overall system could easily be copied using off the shelf components and rewriting the BIOS without infringing copyrights.
The Silicon Valley flourished due to the extensive network of partners that Microsoft and Intel generated. Unlike Apple which was OS and Hardware vendor, here the software platform and the hardware platform were decoupled. The Wintel partnership made MS and Intel massive companies while also creating a huge network of very successful partners. Today MS has 640K partners many of them mom and pop shops reselling software but the interesting number is with a net revenue of $537B dollars.
In the next ten years an explosion of companies occurs driven by a demand for the micro computer and applications for micro computers a few Killer Aplications emerge:Spreadsheet-Word Processor – Desktop Publishing Relational Database – originally an IBM invention marketed by Sybase, Ingres, Oracle, and ofcourse IBM Presentation software also eventually becomes a killer applicationBut many other companies emerge which serve the high end server markets like Sun Microsystems, Silicon GraphicsOthers are the nascent networking companies, like Cisco, Linksys etc. which we will talk about shortly. .. But before we continue the technology discussion we have to discuss another phenomenon which is extremely important to understand this explosion of companies.But how did this happen? Was it just the technology evolution?
A core skill within VC is the ability to identify novel technologies that have the potential to generate high commercial returns at an early stage. By definition, VCs also take a role in managing entrepreneurial companies at an early stage, thus adding skills as well as capital, thereby differentiating VC from buy-out private equity, which typically invest in companies with proven revenue, and thereby potentially realizing much higher rates of returns. Inherent in realizing abnormally high rates of returns is the risk of losing all of one's investment in a given startup company.An early West Coast venture capital company was Draper and Johnson Investment Company, formed in 1962Venrock was founded in 1969 by Laurance S. Rockefeller, the fourth of John D. Rockefeller's six children as a way to allow other Rockefeller children to develop exposure to venture capital investments1972EgeneKliner one of the traitourous 8 and and Tom Perkins an HP Exec founded Kliener Perkins Caufild and Meyers (AOL, Amazon, Compaq, Google, Sun Microsystems, Netscape….)Don Valentine also from Faichild Semiconductor fougnded Sequoia capital. (Apple, Atari, LSI Logic, Oracle, Google, Electronic Arts)Not until 1978 after the success of some of the early ventures did VC financing really pickup, in 1978 VCs raised $750M. So how did the VC phenomenon emerge? Tax breaks, deregulation…. Tremendous opportunity…1980s was huge decade for VC funding by the end of the decade 650 VC firms operating.
The US govt. evaluates the communications needs and identifies a problem. A severe shortage of advanced computers and the ability to link these up so that remote researchers can get access to these. Note that another theory is that it was designed to survive a nuclear attack. Key Difference of ARPANET was that it was a packet switched network as opposed to a circuit switched. The idea being that the message could be broken up into packets and reconstructed at the other end. Thus allowing the packets to travel independently and even when certain routing nodes failed the messages would reach the other side.By 1973 Arpanet has 2000 users. By 1980 Arpanet has 430,000 users.
So slowly but surely by 1995 the killer applications appear. Email was already available but with Hotmail it becomes ubiqtuous, Netscape is soon overtaken by Internet Explorer, Yahoo is the portal, Excite, Yahoo, and various other vendors launch Search engines, and Google comes on line.This time the VC community is ready and has funds that will reach a climax well beyond what was reached in the 80s. This time it is a much more diverse set of companies. Not just software and hardware, there are booksellers, retailers, networking companies, equipment manufacturers, service providers, and many new business models like eBay which have not been seen before. The bubble did burst…. I am not going to continue on to Mobile Applications and Social Networks…. I think you see he basic concept….
In every step… from Integrated Circiuts to Computers to Software to the Internet we have seen “COMPRESSION” i.e. the effort, investment, and time required to go to market was compressed. Much more new capability could be delivered with less investment and higher speed….This is the trend… every time the cost of development of the new capability goes down…we see a new wave…. So from IC to Computer Systems… to Operating Systems.. to Applications which solved big problems… to an integrated network …. Where a new set of killer applications caused yet another massive wave…. Are we slowing down…. The numbers do suggest this….
Silicon Valley remains the top location in the world for Venture Capital. It is four times larger in volume than the second strongest area the Boston Metro area.
Cloud computing enables organizations to obtain a flexible, secure, and cost-effective IT infrastructure, in much the same way that national electric grids enable homes and organizations to plug into a centrally managed, efficient, and cost-effective energy source.
Without capital without the fluidity of capital it is impossible to build a nationwide grid quickly. Organic growth for the Internet would have been slow and painful without the venture capital and investment banks to concentrate capital it would take tens of years longer to get the internet to this stage where we see it today.Regulations and controls on a nascent industry stunt growth… restrict innovation, make it harder for new entrants to make progress or compete with entrenched competition.Skilled labor and institutions which produce skilled people, who can contribute in startups or create new ones. Some figures:An estimated 6,900 MIT alumni companies with worldwide sales of approximately $164 billion are located in Massachusetts alone and represent 26 percent of the sales of all Massachusetts companies.4,100 MIT alumni-founded firms are based in California, and generate an estimated $134 billion in worldwide sales.And that is just MIT.Intellectual property rights… because without these the small company is always vulnerable. Not being able to protect your idea or your innovation from a large competitor with capital is always a risk. Finally and yes very importantly… you need to believe…Reality Distortion field!!Without the belief false or real.. That you can succeed you are not going to attempt it. So the legends of Bill Gates, Nelson Rockefeller, and Steve Jobs are critical… to get the next one to step up and take a chance.
Silicon Valley History (Aamer Khan - sept 2013)
Innovation, Technology, and
U.S. CONSULATE ECUADOR
Who Am I?
US Diplomat – Foreign Service Officer (2011-Now)
Engineer, Technologist & Entrepreneur (1993-2011)
Worked at: IBM, Rational Software, Hewlett Packard, and a few
Owned and Run: Silicon Valley Startups (1996-2002)
Patents on software development processes, tools, and
Expertise: Software Programming, Internet & Information
Technology, Designing Software Development Tools, Managing
Software Development Teams…. &now representing the United
States as a diplomat
Our agenda today
A brief history of Silicon Valley….
A look at the people, the companies, the universities, that created it.
A discussion on why it exists, what are the ingredients that make it
The folklore… how the entrepreneurial spirit of Silicon Valley is
woven into the culture…. the self belief…. the competitive core…
of the people in the valley… and its connection to the American
The Technology what are the technologies we have seen emerge
and what is emerging now…. and why are they important.
And finally we want to look at what sustains American
I am an Engineer not a historian.
The story can be told with many different perspectives….
This is just one possible perspective.
I will not mention many things that you might consider an
important part of the story….
Customer = Military
Problem = Penetrating and disabling the USSR radar
Signals Intelligence – to understand the USSR radar systems
Jammers – to disable the USSR radar systems
Stealth – to reduce radar footprints of US aircraft
Microwave power tubes
High power, broad frequency range, and high speed
Semiconductors…. mid 1950s
Integrated Circuits…. on Silicon
Jack Kilby – Texas Instruments first patent for
an integrated circuit made on Germanium –
Robert Noyce – Fairchild Semiconductor six
months later made on Silicon – 1959
Low cost with increasing volume
Printing Press : Books = IC Fabrication : Circuits
Customer still the Government……. 1960s
Aerospace Program is key motivator:
Apollo Program – Guidance Computer
Intercontinental Ballistic Missiles – Guidance Computer
1966 – 2632 computers in the U.S. of which 1967 work for
the Defense Department.
1968 – 37% of the total integrated circuit market is for US
1961 - IBM has 81% share of world computer market
But …. things are about to change
Microprocessor & Memory…. late 1960s
July 18, 1968
1927 - 1990
I4004 - Microprocessor
San Jose Research
IBM Floppy Disk
First Successful Microcomputer
Steve Jobs – 1955 - 2011
Steve Wozniak – 1950 -
Why did Apple succeed?
Killer Application -- Electronic Spreadsheet
• Boot loader
• Disk Drives
• File System
• File Managers
IBM & Microsoft
IBM PC – 1981
Off the shelf parts
PC DOS 1.0
Time to market
IBM PC Clones
1958 SBIC Act : Gov’t match private investment 3:1
1978 - Capital Gains Slashed – 49.5% to 28%
1979 - Employee Retirement Income Security Act
- Pension funds can invest in VC funds
The Golden Rule
He who has the gold makes the rules.
While all this was going on….
1969 – ARPANET inaugurated with four nodes –
UCLA, Stanford Research Institute, and UC Santa
Barbara, University of Utah.
ARPANET to The Internet
1983 – TCP/IP running on
Unix BSD 4.2 Debut’s on
1985 – Arpanet officially
renamed “The Internet’
1986 - Internet Engineering
1990 – “hypertext” introduced
by Tim Berners-Lee CERN
Needs killer applications….
Killer Applications for the Internet
Browser – HTTP and Hypertext – in1993 Early version of
Mosaic – NCSA University of Illinois Urbana Champaign
Web Servers with Content – in 1993 only 50 WWW
servers known to exist.
Search Engine – in 1990 search engine Archie exists but
not much to search.
Email – Most popular application on the Internet
Yet again… the valley is on fire
1997/8 – Search Engine
1995 – Search Engine
1994 – Netscape Navigator
Internet Information Server
1996 – Free Email
1995 – Portal, Email &
So what is next?
IC – Microcomputers
Microcomputers – Application
Computers + Networks
+Software = Internet
Ready to use Infrastructure:
Elastic Computation Power
Low entry cost.
What sustains Silicon Valley?
Availability, concentration, and fluidity of Capital.
Business friendly regulatory environment.
Availability of skilled and innovative workers.
Universities, research & development institutions.
Intellectual property rights.
The legend, the dream, the belief that ….Yes You Can!
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