A History of Silicon Valley

A History of Silicon Valley 1900-2010 The Greatest Creation of Wealth in History

(a moral tale)

being a presentation by piero scaruffiwww.scaruffi.com

adapted from a book by Arun Rao and piero scaruffi

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Piero Scaruffi

• Cultural Historian• Cognitive Scientist• Blogger• Poet• www.scaruffi.com

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Where are the pictures?

• This slide presentation omits the pictures to make it smaller and easier to download

• Pictures of machines and buildings are here:– A visual history of computing:

http://www.scaruffi.com/monument/silicon/cm.html– A historical tour of Silicon Valley:

http://www.scaruffi.com/politics/svtour.html• 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

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What the book is about…

• 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)

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How it all Started

• The navy and amateurs turned the Bay Area into a hotbed of radio engineering

• The defense industry• Electrical power companies turn the Bay Area into a

hotbed of electrical engineering• Nuclear engineering at UC Berkeley and birth of the

“Big Science” concept• Frederick Terman at Stanford encourages students to

start businesses instead of moving back to the East Coast

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Society• The Bay Area has a tradition of

– Environmental issues– Social issues– Utopian communities– Unconventional arts– A society that rewards the independent and the

eccentric– Nightlife and organized crime in San Francisco– Orchards in the south bay– Military bases all over

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Meanwhile elsewhere…

• The automated office: – typewriters (a field dominated by Remington

Rand), – adding machines (a field dominated by

Burroughs), – tabulating machines (a field dominated by IBM) – cash registers (a field dominated by NCR)

• Midwest and East Coast industries dominate office automation

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World War II and Cold War

• Terman in charge of electronic warfare • Fred Terman's students: HP, Varian,…• Stanford Industrial Park (1951) • IBM’s West-Coast laboratory in San Jose (1952)• Main industry: Defense

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Society

• The San Francisco Renaissance• The “beats”• Avantgarde music• Eastern philosophy

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Meanwhile (computers)• 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)

• The computer is invented by scientists interested in solving complex mathematical problems such as nonlinear differential equations

• First practical application: warfare• First commercial computers: large office automation

players (Remington Rand, IBM, NCR, Burroughs)

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Meanwhile (semiconductors)

• AT&T’s transistor (1949)• The portable radio marks the birth of consumer

electronics, a trend towards miniaturization and lower prices

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Semiconductors in the Bay Area

• Shockley Semiconductor Laboratory (1956)• Fairchild Semiconductors (1957), the first venture-

funded "start-up" company of the Bay Area: Robert Noyce, Gordon Moore, Jean Hoerni, Eugene Kleiner, etc

• The semiconductor industry does not require huge capital investment

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Integrated Circuits

• Exponential growth in chip density – 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)

– Lee Boysel at Fairchild (1966): four-phase clocking technique to create very dense MOS circuits

– Federico Faggin at Fairchild (1968): silicon-gated MOS transistors (faster, smaller and low energy)

• Gordon Moore’s law (1965): the processing power of computers will double every 12 (18) months

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Integrated Circuits

• Fairchild spinoffs: Amelco (Jean Hoerni), Molectro (James Nall), General Microelectronics (Don Farina), Intersil (Jean Hoerni); AMD (Jerry Sanders ), etc

• Texas Instruments, Motorola and RCA do not spawn a similar genealogical tree of spinoffs

• A self-sustaining manufacturing community that mixes Darwinian competition/selection with symbiotic cooperation

• The system exhibits a form of collective learning

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Integrated Circuits

• Role of the government– 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

– 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

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Society• Free Speech Movement (1964)• First hippie festival (1965)• The "Summer of Love" (1966)• Black Panther Party (1966)• Monterey’s rock festival (1967)• Stewart Brand’s "Whole Earth Catalog“ (1968)• The hippie phenomenon further increases

immigration from other states • All these movements are hostile to technological

progress

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Dynamic Memory

• Advanced Memory Systems (1968), Intel (1968) and Four Phase (1969): semiconductor computer memories instead of magnetic core memories

• Before the DRAM: the semiconductor firms make money by building custom-designed integrated circuits (small market but lucrative)

• The DRAM: a commodity sold in large numbers at a low price

• Constant downward pressure on prices

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High-tech Creativity

• SRI– 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

– "Shakey the Robot“ (1969)

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High-tech Creativity

• Xerox PARC (1970) :– Alan Kay’s Dynabook and Smalltalk– Not faster computation but better interaction– Casual, informal and egalitarian workplace– The equivalent for a workplace of the alternative

lifestyle preached by the hippies

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High-tech Creativity

• Computer games– Nolan Bushnell’s "Computer Space“ (1971): a

free-standing terminal powered by a computer – Atari’s “Pong“ (1972)

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Life Sciences

• Stanford hires Carl Djerassi (1959), inventor of the birth-control pill

• Alejandro Zaffaroni’s Alza (1968): biomedical industry• Cetus (1971), the first biotech company of the Bay

Area • Paul Berg's team at Stanford synthesizes the first

recombinant DNA molecule (1972)• Stanley Cohen (Stanford) and Herbert Boyer (UCSF)

transfer DNA from one organism to another, creating the first recombinant DNA organism (1973)

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Labor Fluidity

• California is blessed with an economy which mostly outperforms the rest of the USA

• California is an employee's market and not an employer's market

• California’s law code forbids any labor contract that limits what an employee can do after quitting

• 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

• Staying with the same company for more than a few years does not look "good" on a resume

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Labor Fluidity

• Job turnover and no protection for trade secrets foster an endless flow of knowledge throughout the community\spread

• Pervasive job mobility spreads knowledge quickly and efficiently

• Rapid dissemination of knowledge within an industry across companies, as well as in cross-fertilization of ideas across research groups.

• Status symbol of being an engineer like in no other region in the world (second to the status symbol of being an entrepreneur)

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Meanwhile elsewhere…

• Arpanet (1969)• Unix (1971)• Remote Computing (1969)• The Unbundling (1969)

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The Microprocessor

• Four Phase Systems’ AL1 (1970) • Intel’s 4404 (1971), as powerful as the ENIAC, but

millions of times smaller and ten thousand times cheaper

• Intel's motivation to make microprocessors: microprocessors helped sell more memory chips

• Bill Pentz at California State University in Sacramento proves that a microprocessor can be used to build a computer (1972)

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The Home Computer

• "Radio Electronics", "QST" and "Popular Electronics" publicize the microprocessor among hobbyists

• Kits by mail-order for hobbyists to build machines at home: Scelbi (1974), …, Altair 8800 (1974)

• The microprocessor reaches a wider audience than its inventors intended to reach thanks to the magazines

• The most creative and visionary users are not working in corporations but at home

• The Homebrew Computer Club (1975)

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The Home Computer

• IBM, the "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.

• 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.

• They create their own community (via magazines, stores and clubs)

• Another Bay Area community of counterculture• Journalists and store owners are the real visionaries

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The Home Computer

• Obstacle to widespread diffusion: the home computer is expensive (because the Intel microprocessor is expensive) and pretty useless (because it has no software)

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Venture Capitalists

• The center of mass for venture capital shifts from San Francisco towards Menlo Park

• Kleiner-Perkins (1972), Sequoia Capital (1972), Mayfield Fund (1974), etc

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The Microprocessor Wars

• Microprocessors drive sales of memories, and sales of memories fund improvements in microprocessors

• AMD introduces the AMD8080, a reverse-engineered clone of the Intel 8080 (1975)

• Zilog (1976)

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Databases

• Leadership in database technology: IBM’s IMS• IBM's Almaden Research Center starts the

“relational” database management system System R (1973)

• Berkeley’s Ingres (1973)

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The GUI

• Leadership in user interface: IBM’s form-driven 3270 terminal to connect to mainframes

• Xerox PARC unveils the Alto, the first workstation with a mouse and a Graphical User Interface (1973)

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The Apple Vision

• Apple I vision (1976): – A computer without a programming language is an

oxymoron – A real programming language requires DRAM – Enabling technology: the 4K DRAM, just introduced in

1974, much cheaper than the static RAM of the Altair– Roberts had basically just dressed up a

microprocessor to create his Altair. Wozniak dresses up a memory chip to create the Apple I

– Wozniak also writes the BASIC interpreter – Target user: the hobbyist

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The Apple Vision

• Apple II vision (1977): – Fully assembled, with a monitor and a keyboard,

requiring almost no technical expertise– The look and feel of a home appliance– The first affordable floppy-disk drive for personal

computers, which replaces the cassette as the main data storage

– Still no operating system

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A New Office Tool

• VisiCalc (1979), the first spreadsheet program for personal computers for the Apple II

• Apple’s IPO (1980) raises a record $1.3 billion• Visicalc ported to the Tandy TRS-80, Commodore

PET and the Atari 800, the first major application that is not tied to a computer

• Lesson learned: the value of software

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The Microprocessor Wars/ II

• Intel assigns the task of designing the 8086 (1978) to a software engineer

• 14 million microprocessors are sold in 1978 but only 200,000 personal computers are manufactured

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Databases/ II

• Oracle (1977): an SQL relational database management system

• Ingres (1979), an open-source variant of IBM's System R for DEC minicomputers running the Unix operating system

• The relational database startups do not target the huge market of mainframe computers but the smaller market of minicomputers

• Oracle rewrites its DBMS in C for Unix (1983)

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Communications

• 3Com (1979): Ethernet for personal computers• Ungermann-Bass (1979): Ethernet-based local-area

networks

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The GUI/II

• Exodus of brains from Xerox PARC towards Silicon Valley companies (1977)

• 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

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BSD

• Unix ethics and philosophy a good match for the Bay Area’s utopian ideology

• Berkeley Software Distribution (1977) spreads in universities

• The world's most portable operating system• Onyx (1980), Apollo (1980), SUN (1981), Silicon

Graphics (1982): a microcomputer running UNIX, a cheaper alternative to the PDP-11

• Santa Cruz Operation (1979), the first Unix consulting company

• DARPA chooses Unix for the Arpanet (1980)

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BSD

• A technology ignored by the big computer manufacturers and left in the hands of a community of eccentric independents

• Counterculture dynamics that mirrors the dynamics of the computer hobbyists who have invented the personal computer

• Universities serve as community aggregators more than magazines, clubs or stores

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The Moral Tale

• Government funding (from the 1910s till the 1960s) accelerated innovation whereas large computer corporations in the 1970s de facto connived to stifle innovation

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The Moral Tale

• The Visible Hand of Capital– The amount of money available to venture

capitalists greatly increases after the Apple IPO– For several years Kleiner-Perkins is able to pay a

40% return to the customers of its high-tech fund

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The Moral Tale

• The Invisible Hand of Government– The US government reduces the capital gains tax

rate ("Revenue Act“, 1978)– The US government eases the rules on pension

funds (1979)– 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.

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Biotech

• Genentech (1976) to genetically engineer new pharmaceutical drugs

• Applied Biosystems (1979) to build biotech instrumentation (protein sequencer, DNA synthesizer)

• The US Supreme Court rules that biological materials (as in "life forms") can be patented (1980)

• Calgene (1980), Chiron (1981), …• Cetus’ IPO (1981) raises a record $108 million

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Meanwhile elsewhere…

• 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)

• The “open” model of the PC creates an industry of "clones" (Compaq, Olivetti) and an industry of independent software companies

• Commodore 64 (1982) is sold in retail stores instead of electronics stores

• Osborne 1 (1981), a portable computer designed by hardware engineer Lee Felsenstein of the Homebrew Computer Club

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The Apple Vision/ II

• Apple (1982) is the first personal-computer company to pass the $1 billion mark in revenues

• Apple’s model: a proprietary Apple operating system • Apple Lisa (1983), the first personal computer with

the GUI pioneered by the Xerox Alto• Apple’s added value: it looks cool

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Software

• Sales 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)

• Activision (1979), Electronic Arts (1982): computer games

• Autodesk (1981): CAD• Adobe (1982): desktop publishing• Symantec (1982), Borland (1983): tools for software

developers

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Software

• 1950s-1970s: the hardware represents most of the cost of a computer

• 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

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Workstations

• Single-user graphic networked computer for engineering applications

• Mostly based on the Motorola 68000 (not on Intel) and running Unix (not DOS)

• Apollo (Boston): custom hardware and proprietary operating system

• SUN (Stanford): Berkeley’s Unix running on standard off-the-shelf hardware components (the business model of the IBM PC)

• The SUN culture is to the Microsoft culture what the counterculture is to the mainstream

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Workstations

• Corporate networks of local networks– Cisco’s commercial version of Stanford’s router

(1986)

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Diversifying

• Fairchild, Intel, Zilog created a genealogical tree: each one improved over the invention of the predecessors

• The inventions of Apple, Cisco, SUN and Oracle have little in common

• Neither of them gives rise to a (significant) genealogical tree

• No major company of the size of Intel emerges from any of these

• Each of them creates a chain of suppliers

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The Internet

• Just like the personal computer and the Unix, the Internet too was largely shaped by a community of eccentric independents

• Decentralized model that involves the very users of the Internet to submit proposals for future directions

• A government-mandated grass-roots movement• The consumer is the producer• E-mail itself is a user invention, never planned by the

Arpanet's bureaucracy

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The Internet

• The Arpanet as a project in progress, a concept that is more likely to be accepted in military projects than in commercial product development

• 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

• 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

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Society

• Spiritual revival of the New Age– Arguing for a return to a more natural way of life– Hostility towards science and rationalism– Luddites vs tecnophiles

• The gay community

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Society

• Chinese and Indian executives run 13% of Silicon Valley's high-tech companies founded between 1980 and 1984

• Silicon Valley is both a place of great ethnic diversity and a place of high technological saturation

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Society

• Chaotic creation and destruction of companies• High labor mobility• Anti-union spirit• The decentralized and anarchic personal-computer

world is a good fit for the spirit of the Bay Area

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Apple’s Vision/III

• Apple’s Macintosh (1984) • The hardware is a means to appealing software• Microsoft cannot match Apple’s GUI because it

cannot tweak the hardware of the PC • However, Microsoft can invest more in marketing its

office automation suite (Word, Excel, Powerpoint)• The futuristic Mac helps cement the community of

Apple fans• But Apple’s closed architecture loses to the "open

architecture" created by the IBM-Microsoft axis

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The Semiconductor Wars

• Japanese firms introduce low-cost 256K DRAM chips (1984) and gain 70% of the market (1985)

• Japan's share of the world's semiconductor market: 51% (1986)

• First large-scale layoffs in Silicon Valley• What saved Intel is the microprocessor. The "computer

on a chip" is too complex and required too big a manufacturing investment to be handled like a commodity

• New corporate culture: a brutal philosophy of Darwinian competition ("Only the paranoid survive") and iron discipline

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Outsourcing the Fab

• 1985: The government of Taiwan hires Morris Chang who promotes the outsourcing of semiconductor manufacturing by US companies to Taiwan

• “Fab-less" semiconductor companies of Silicon Valley: Chips and Technologies, Xilinx, Cirrus Logic, Adaptec…

• 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

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SUN’s Vision

• SUN erodes DEC's supremacy in the academia and then in the engineering market

• The DEC generation believed that a company needed to personally make the key components

• The SUN generation believes that key components ought to be delegated to specialty shops

• In-house development is unlikely to match "best of breed" quality across the board by specialized shops

• The pace of innovation rewards SUN over DEC• This model creates a secondary economy in Silicon

Valley of large hyperspecialized companies that don’t become household

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The Peacetime Dividend

• End of the Cold War: Silicon Valley does not depend anymore on the military industry

• Building chips is a high-risk business: huge capital investment, very short lifespan of the product, price wars

• The reward: the survivors dominate the most important industry of the era

• The semiconductor industry creates a culture of risk that spreads to the software industry

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The Peacetime Dividend

• 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)

• 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)

• The venture-capital firms create a ghost industry (focused on making money) that evolves in parallel to the technological one

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The Peacetime Dividend

• The short-term approach helps communicate effectively with the market.

• The Silicon Valley start-up is both "visionary" AND grounded in the reality of technological feasibility and of market readiness

• 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

• Progress is incremental, but rapid

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The Peacetime Dividend

• Europe and East Coast: the goal is a lifetime career in a large, safe company

• Silicon Valley: a company's life expectancy is low• The goal is to change jobs hoping to hit the jackpot• 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

• 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

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The Peacetime Dividend

• The leaders of Apple, Oracle, Intel and SUN acquire semi-god status

• They fight epic battles (e.g. against Microsoft) • Their charisma replaces the charisma of the

engineers who had truly invented their technologies (Faggin, Wozniak, Bechtolsheim…)

• The trend shifts from inventing a product to starting a company

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Geopolitical Implications

• 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

• The biggest competitor of California is Japan, not Western Europe

• The old "Atlantic" economy is being replaced by a new "Pacific" economy

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Meanwhile elsewhere…

• 1991: The US government enacts the “High-Performance Computing and Communication Act”

• 1993: Mosaic (funded by the “High-Performance Computing and Communication Act”), later renamed Netscape in Silicon Valley

• 1994: WebCrawler (search engine)• 1995: The US government blesses the commercial

use of the Internet

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The Dot Coms

• The importance of Netscape’s browser:– Free for ordinary users– Illiterate computer uses can browse the Web the

same way that a pro does– The non-intuitive cluster of digital information that

has accrued on the Internet becomes intelligible to ordinary people

– More and more people are motivated to add content to the Web

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The Dot Coms

• The importance of Netscape’s browser:– 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

– The computer monopolies are forced to adopt open standards for the Web

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The Dot Coms

• Netscape IPO (1995)• Yahoo (1995)• Excite. AltaVista (1995), Hotbot (1996), Google (1998)• Java (1995)• WebLogic (1995), Apache (1996)• Craigslist (1995)• HotMail (1996)• GeoCities (1995)• eBay (1995)• Netflix (1997)

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Hotmail’s Lesson

• Founded by hardware engineers: a user’s idea, not a technological idea; a sturdy no-nonsense "product“

• Advertising as a source of revenues• Internet startups offer free services because their real

product is the user base• 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

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Connecting the World

• Beneficiaries of the age of networking: Cisco, 3Com and Bay Networks

• Fiber-optic boom• Overcapacity dramatically lowers the cost of

broadcasting information, thereby increasing the motivation to broadcast information

• The fiber-optic rush creates on the Internet the equivalent of the freeway system created by the US government in the 1950s

• The vast fiber-optic infrastructure connects the USA to India too, thus accelerating the process of outsourcing IT jobs to India

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Meanwhile elsewhere…

• Finland: the smart phone• East Coast: Human Genome Project (1992)

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The Nasdaq Crash

• Between 1998 and 1999 venture-capital investments in Silicon Valley firms increases more than 90%

• The Internet and Y2K booms generate a bubble that bursts in 2000

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The Nasdaq Crash

• Silicon Valley before the bust:– Personal computers: HP and Apple dwarfed by

IBM, Compaq, Dell and Japanese– Videogame consoles: Japan rules– Semiconductors: The Far East rules– Mobile phones: Europe rules– Chips for mobile devices: ARM rules– Software: Microsoft and SAP dwarf Oracle– Dotcoms: No profits

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Beyond the Crash

• HP acquires Compaq (1999): DEC downgraded to just up a small division within a Silicon Valley company (HP)

• Paypal (2000)• Apple iPod (2001)• Yahoo and Google de-facto turn the Web into an

advertising tool which incidentally also contains information

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You Are a Gadget

• Wikipedia (2003)• Intel Centrino makes Wi-Fi a household name (2003)• Facebook (2004)• YouTube (2005)• Twitter (2006)• Kindle (2007)• Zynga (2007)• Apple iPhone (2007) and Google Android (2007)

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The Age of Uploading

• Wikipedia• Blogs• P2P tools• social networking sites • YouTube• Flickr • Digital cameras and camcorders• Smartphones

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The Demise of the Computer

• The smartphone (a computer that also does voice)

• Cloud computing (an invisible, omnipotent, virtual computer)

• Applications are written for social networks (Facebook apps) and smartphones (iPhone apps), not for an operating system

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The Gift Economy

• The audience “gifts” content to the companies that make money out of it

• The companies are small but handle a huge amount of content

• The companies make money as advertising platforms

• The audience receives a free service but also provides a free service

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The Great Internet Wars

• Google vs Microsoft: Microsoft owns the operating system but Google owns the search engine (Internet traffic)

• Google vs Facebook: vying to become the premier advertising platform

• Apple vs Google: proprietary or open smartphones

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The Empire

• The Bay Area is the largest high-tech center in the world (2006)

• HP passes Dell in worldwide PC shipments (2006)• Google's revenues pass IBM's software revenues (2009)• Oracle passes SAP (2009)• Facebook grows by about one million users a day (2009)• Apple's market capitalization passes Microsoft's (2010)

and becomes #1 in the world (2011)• The Bay Area has won more Nobel prizes than any

country except USA, Britain and Germany

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Biotech

• The world's first Synthetic Biology department at the Lawrence Berkeley Lab (2006)

• UCSF Institute for Human Genetics (2005)• The Bay Area boasts about 700 biomedical

companies (2007)• Bubble of Personal Genomics startups

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Greentech

• Solyndra (2005)• The Tesla roadster (2006)

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Conclusions

• In the book: