Creative Destruction

The term “Silicon Valley” was coined by technology writer Don Hoefler in 1971. Ever since, people have been trying to explain exactly what Silicon Valley is and what makes it tick. Outsiders regard it as an ethnographic curiosity, populated by tribes that practice strange rituals (all-nighters, IPOs, Comdex), communicate in techno-talk and business-babble, and possess a dazzling ability to conjure vast wealth out of thin air.

For the first half of the century, the Santa Clara Valley was a patchwork of orchards, a “Valley of the Heart’s Delight.” It was not until World War II that the ingredients that made Silicon Valley came together. Central to its formation was Stanford engineering professor Frederick Terman, who encouraged bright students such as William Hewlett and David Packard (yes, they actually started H-P in a garage) to stay in the Bay Area and start companies, rather than seek their fortunes on the East Coast. In the late 1950s, with the growth of the semiconductor industry, Silicon Valley took off, and the farms’ days were numbered. Valley researchers and inventors created the microprocessor, computer mouse, graphical user interface and Ethernet in the 1960s and 1970s, all brought to market by a new generation of computer companies in the 1980s, including Apple, Sun and SGI. After a downturn caused by the statewide recession in the early 1990s, the good times returned with a vengeance, thanks to software, Internet and e-commerce companies.

Something distinguishes the valley from other high-tech areas in the world, but no one quite knows what that is. Everyone has an opinion, though. AnnaLee Saxenian’s 1994 study of the region, “Regional Advantage: Culture and Competition in Silicon Valley and Route 128,” argues that Silicon Valley’s flexible organization and local culture--which encourages risk-taking, innovation and mobility among engineers--set it apart from other high-tech regions. A cab driver once confided to me that “immigrants like us make the valley work.” (I didn’t have the heart to tell him I was born in California, but his theory appears not to have fallen on deaf ears: Saxenian’s next book is on immigrant engineers.) But even Terman couldn’t create new Silicon Valleys in New Jersey, Texas or Korea, despite the encouragement and support of local business and government.

One thing that sets Silicon Valley apart from the rest of the world is a collective obsession with not just cutting-edge but bleeding-edge technology. There was a time when that obsession was its own reward, when a great invention mattered more than a great IPO and nowhere was it stronger than at Xerox’s Palo Alto Research Center (PARC), the subject of Michael Hiltzik’s “Dealers of Lightning.” PARC in the 1970s was an incubator of many of the technologies that now define personal computing as well as a vision of a world in which computers would be cheap, portable, widely available and easy to use. This seemed audacious in the days of expensive mainframes and programmer priesthoods but has now transformed the world. “Dealers of Lightning” chronicles those inventions and their uneven commercial development. Historians have long wondered why Xerox developed the key technologies of the modern computer age only to let others capitalize on them. Hiltzik, a Times staff writer and winner of the 1999 Pulitzer Prize for beat reporting, points out that the company hit two commercial grand slams with laser printing, which brought in enough money to pay for PARC’s more arcane research, and Ethernet, which became the de facto standard platform for networking. But faced with a global economic crisis, expiration of its basic patents in xerography and the entry of IBM and Japanese companies into its market, the company in the 1970s was too busy fighting for its survival to invest the billions necessary to develop personal computers. Further, PARC’s Computer Science Laboratory director, Bob Taylor, and his staff, which included such titans of computing as Alan Kay, Bob Metcalfe and Alvy Ray Smith, weren’t very interested in product development.

Though it didn’t prevent Xerox from “fumbling the future,” as the book by Douglas K. Smith and Robert C. Alexander put it, Taylor demonstrated a remarkable knack for attracting good people and encouraging high-concept research. At the Advanced Research Projects Agency, or ARPA, in the 1960s, he had supported early work in computer graphics, networking and the ARPANET; his group at PARC fundamentally changed the direction of computer science and personal computing. For all Taylor’s flaws--Hiltzik paints a portrait of an arrogant, paternalistic, bullying fighter who alienated some as effectively as he inspired others--he emerges as the modern equivalent of a Medici patron, stubborn but brilliantly tasteful, possibly the most important figure in the history of modern computing.

Few of PARC’s notables have achieved the vast riches that the valley now showers on the brilliant twentysomethings who fill the pages of David Kaplan’s “The Silicon Boys and Their Valley of Dreams.” The book’s chronicle of the careers, personalities, spending habits and expensive hobbies of the valley’s leading men (there are virtually no women in the book, other than ex-wives and girlfriends) reads at times like a collaboration between Edward Gibbon and Robin Leach. Unlikely, yes, but Kaplan has actually written the funniest, most entertaining book on Silicon Valley. It is full of hilarious zingers: the mercurial and paranoid William Shockley, the Nobel Prize-winning co-inventor of the transistor and founder of Shockley Semiconductor, is described as “Dilbert’s boss on crystal meth,” and when Barbara Ellison is told that her ex-husband Larry, the flamboyant, profligate, raffish and mediagenic founder and CEO of Oracle, plans to remarry, she quips “I’m a good ex-wife. Why does Larry need more of them?”

*

Despite its flip tone, the book bears ill tidings: Silicon Valley is being weakened by easy money, the glare of publicity and the cult of CEO celebrity. The valley used to be about turning science into new products and building companies: Now hype is more important than innovation, an “acquisition play” more appealing to entrepreneurs and investors than long-term growth. It’s no coincidence that Ellison and deal maker John Doerr, Silicon Valley’s venture capitalist answer to Michael Ovitz, are at the book’s center. In Kaplan’s moral order, their rise marks the overthrow of such technological geniuses as Gordon Moore and such idealists as Steve Wozniak by celebrity entrepreneurs and deal-makers.

Given how much fun it is to read, it almost seems churlish to point out that “The Silicon Boys” doesn’t explain as much about the valley as first appears. Its description of the workings of venture capital is a minor masterpiece of reporting, but the energy spent chronicling the spending habits and misbehaviors of the rich is misspent. All gold rushes encourage ridiculous excess. The fact that the valley’s elite favor ostrich salami and truffle pa^te doesn’t tell us any more about the future of e-commerce than an analysis of the buying habits of Texas oil barons in the 1970s or junk-bond dealers in the 1980s would tell us about those earlier booms. Consumption doesn’t set apart the rich from the rest of us. It takes a special, mildly scary kind of genius to make millions--or billions. What that genius is never quite becomes clear in “The Silicon Boys.”

What lies hidden in Kaplan’s story of the valley is revealed in Michael Lewis’ “The New New Thing.” Lewis, the author of 1989’s “Liar’s Poker: Rising Through the Wreckage of Wall Street,” is America’s poet laureate of capital. No one writes more fluently about the art of making money, and Jim Clark, founder of Silicon Graphics, Netscape, Healtheon and My CFO, is Lewis’ ideal subject. One of the most unexpected things about “The New New Thing” is that much of the action takes place not in the valley but on Clark’s giant yacht, Hyperion (named for one of the Titans in Greek mythology). This might sound merely like a tactic to heighten the book’s “inside story” quality--Lewis was the only writer to sail with Clark on Hyperion’s maiden voyage across the Atlantic--but it’s not. For Clark, as for so many in Silicon Valley, the lines between work and play, creation and recreation are blurred beyond recognition; consequently the qualities that drive a person to seek out the “new new thing”--the radically new technology or business that affects conventional business about as subtly as the asteroid that killed the dinosaurs--may be seen most clearly not in the laboratory or boardroom but at sea. The Hyperion is a stage for displays of Clark’s restlessness, disciplined but strong temper, impatience and ruthlessly short attention span--as well as his tremendous intellect and powers of concentration. Crew members hold stock in Clark’s companies, though several are fired or have quit by the book’s end. The boat itself is the largest yacht in the world and a marvel of technology: Its huge mast is made of carbon fiber, and a bank of SGI workstations gathers information about every aspect of the boat. Those computers also let Clark monitor the performance of his world-class captain and even give him the power to sail Hyperion from his office. The technology upends the normal shipboard balance of power, taking power away from the crew and putting it firmly in Clark’s hands. At the end of Hyperion’s maiden voyage, Clark, safely anchored in a tropical harbor, is dreaming of an even bigger boat.

In short, Hyperion is a miniature Silicon Valley. The hours are long, the work intense but well-rewarded, the technology cutting-edge, the creativity white-hot and destructive, the overall attitude one of perpetual restlessness--and Clark controls it all. The boat also figures prominently in “The New New Thing” because Clark took Netscape public, thus sparking the Internet revolution and rage for e-commerce stock, so he could raise the money to build it. This claim, along with Lewis’ description of his brief yet critical role in the Microsoft antitrust trial--government lawyers were emboldened to action by a couple of meetings with Clark--gives Lewis’ account of Clark’s career a Zelig-like quality. Maybe it really is Jim Clark’s world, acquired and changed in a fit of absentmindedness, but I’m not entirely convinced. Clark is remarkable for having founded three multibillion-dollar companies (so far), but most technological and financial revolutions are collective affairs. But this is less a flaw in the book than proof of how close Lewis is to his subject, and on balance “The New New Thing” is the better for that closeness. Lewis brilliantly describes Clark’s intensity and passion, his genius for technology and leadership and his impatience with convention. He also faithfully chronicles Clark’s ruthlessness, willingness to exact revenge on opponents and ability to casually upset people’s lives. The fact that these last qualities are described in almost complimentary terms reflects a Silicon Valley sensibility that they’re laudable. Indeed, after the recent arrest of a prominent valley executive on charges of soliciting a minor, one local paper ran an article suggesting that maybe, just maybe, ego, arrogance and testosterone-fueled self-confidence have a dark side. The ancient Greeks knew this. They called it hubris.

*

Pride comes before the fall, and these books all raise the question: Is Silicon Valley losing its edge? They certainly describe significant changes in the valley’s culture over the last decades. The disdainful attitude Xerox PARC’s Computer Science Lab had in the 1970s for actual products now seems of another age. The pure researcher’s contempt for application has given way to a sense that, as Steven Jobs put it, “real geniuses ship.” The commercial benefits of such an attitude are obvious. On the other hand, engineers in rival valley companies used to share expert knowledge and specialized equipment, balancing institutional competition with personal cooperation. Such openness seems harder to sustain today, when ideas--not actual products, just concepts or “pure possibilities”--can be worth millions.

Success has created other problems. Fast money may or may not encourage deal-making over real company-building, but it has definitely put the squeeze on the valley’s middle and working classes. For every new millionaire shopping at Draeger’s, there are dozens of professional families struggling to afford two-bedroom $500,000 homes and many more working-class families crowded out of the bottom of the market. Indeed, high real estate prices, along with overcrowding and traffic, are eroding the area’s quality of life and its ability to attract new talent. Endless innovation and competition also carry high social costs. The “creative destruction” hailed decades ago by Harvard economist Joseph Alois Schumpeter wreaks havoc on marriages and psyches: Silicon Valley’s divorce rate is one of the highest in the nation. Finally, as sociologist Karen Hossfeld’s studies of immigrant workers reveal, those employed on assembly lines or doing piecework out of their homes live in a valley devoid of the promise of eventual riches.

Such disparities are troubling in a place where secretaries made wealthy by stock options are more prominent in local lore than Cadillac-driving welfare mothers. One reason the region has attracted vast investments of energy and desire is that it promises to reward everyone’s hard work and risk-taking, regardless of rank or background. Other power centers, such as Washington and Wall Street, require you to adopt the insider’s ways to succeed; in Silicon Valley you get ahead by destroying the old order in a game that is supposed to be ruthless but fundamentally just. (Indeed, the pace of change leaves insiders with little else to be loyal to but the “imagined community” of the valley, to use Benedict Anderson’s phrase.) Silicon Valley has remade itself several times already, and it may yet morph into a center of high finance and information management. But if it loses the ability to attract people fascinated with technology and willing to make great sacrifices in the belief that they’ll be treated fairly, it will cease to be the valley of the heart’s--and mind’s--delight.