- Home of the mighty micro -
Building on the hi-tech dreams of Stanford professors, the turn of the 1970s saw processor firms move in to put the Silicon into the Valley… and the rest is history
Not since the days when Detroit was named Motor City has one industry been led so dramatically by the activities of a single region as the IT industry by California's Silicon Valley. The small area between San Francisco and San Jose, which acquired its sobriquet in the early 1970s, is the epicentre of the computing world and has so enriched its home state that if it were an independent country it could be said to be the world's seventh-wealthiest.
Since processor plants first staked their claim 30 years ago, the Valley has seen the development of the PC, the growth of the internet and the dotcom revolution. Now its residents are working towards mobile communications and the miniaturisation of technology to bring the web to hand-held phones and devices. As well as developing most of the hardware and software we use today, the West Coast has also invented a corporate culture of its own which the outside world is keen to replicate. The seeds of the region's success were sown in the 1950s when Stanford University, facing financial crisis, leased parts of the college's 8,000-acre plot to computer firms. The goal was to create a hi-tech business park near a cooperative university, which could supply staff as well as research and development facilities.
Among the first tenants were General Electric, Varian and Lockheed, as well as a company formed in 1938 by two Stanford graduates, William Hewlett and David Packard. In the face of a brain-drain to the East Coast, the pair were encouraged to stay in California by their professor, Fred Terman, the man generally considered to be the father of Silicon Valley. A long-time Hewlett-Packard employee and now president of HP spin-off Agilent, Ned Barnholt explains the secret of the region's success: "One of the things that makes Silicon Valley unique is the intellectual capital, with schools such as Stanford, Santa Clara, San Jose State and Berkeley all graduating smart scientists, engineers and business people."
Indeed, around 1,000 companies in the Valley started life at either Stanford or Berkeley. Once the Stanford land began to attract tenants, Fred Terman played a trump card that was to determine the direction of the Valley throughout the 1970s and 1980s. He convinced the co-inventor of the tran-sistor, William Shockley, to set up a plant in his home town of Palo Alto. The establishment of Shockley Labs led to the birth of the semiconductor era, and soon Shockley employees were leaving to set up their own spin-off firms. By the turn of the 1970s, Intel and some 15 other processor companies had moved in and put the silicon into the valley.
That was the main industry until the 1980s, when Asian processor plants started to undercut the Californian concerns. In turn, they responded by diversifying into software applications, databases, and operating and networking systems. Ultimately, this led to the development of the internet, but Applied Materials chairman James Morgan says the Valley's overwhelming success could never have been achieved without the infrastructure laid down by the early semiconductor firms. "Silicon Valley was based around aerospace technology and that's how the semiconductor business was funded.
"Then, during the 1970s, the semi-conductor became the foundation for the PC, which then led to the emergence of the internet and diversified application technologies and software. People become focused on individual companies or dotcoms, but without Silicon Valley having built the infrastructure you wouldn't have the rest," he says.
The gold rush metaphor is a hackneyed view of the Valley boom, but there are similarities beyond the geographical. There are still plenty of people willing to swap big money for nuggets or ideas as well as venture capitalists seeking out the best ideas for software, hardware or dot-coms. About 20 per cent of the 7,000 or so firms that inhabit the Valley today have been funded by these venture capitalists. The other similarity is the thousands of people who have come from far afield to seek their fortune in California. Some 25 per cent of employees with science degrees do not have American citizen-ship, with Asians being the most common workers. "We get a lot of people from all over Asia because of the unique opportunities," says Donald Valentine, founder of Sequoia Capital.
"The man of a non-famous, non-landed family can go to a brilliant school, start up a company, get financed and do it his way. You can't do that anywhere else and that's the personality of Silicon Valley. It's hard to explain and probably even harder to understand," he says.
This cosmopolitan, classless culture means that reputations count for very little. A common consensus is that, in contrast to Europe, Asia and even other US states, failure doesn't carry a stigma. "In Silicon Valley you can start a company and fail and you don't have to leave town. The guys that started businesses and failed are much more valuable than the guys who start and succeed because those who fail are really upset about it. They are embarrassed," says Mr Valentine.
"People learn more from failure than success. When you succeed it's because you're omnipotent but when you fail you become introspective and ask yourself 'How did this happen? What did I do wrong?'. And second time and that second chance is crucial. In Germany or Japan, you'd have to commit suicide if you failed. The cultural aspect of restarting your life in a community in which you've failed makes it difficult. Here we love these people."
In fact, the business culture is so exceptional that some firms have trouble setting up outside the Bay Area. "We were able to establish a presence outside Silicon Valley, which many companies struggle with," says 3Com chairman, Eric Benhamou. "They start here but find that expanding into the Midwest, the east coast and south is very challenging."
This could be because other areas are not quite so techno-centric. Bruce Chizen, president of Adobe Systems, admits that, for better or worse, business and home life is 100 per cent hi-tech. "You can go into any home in the Valley and there will be multiple CPUs. In the rest of the world, advanced countries have caught up in terms of consuming the technology, but in terms of creating businesses around it, that's something unique to Silicon Valley.
"I don't think anything can match what the Valley has become. The money's here, the technology is here and it's all in one community."