How Did Silicon Valley Happen? And Could It Happen Again?

Where will it be?
Dec. 2 2013 11:12 AM

The Do-Over

Silicon Valley hatched from a unique mix of historical and cultural forces. Could it happen again?

ARPANET IMP
UCLA's Interface Message Processor (IMP), seen here in storage. UCLA professor Leonard Kleinrock and his team used the IMP to send the first message over a proto-Internet to Stanford on Oct. 29, 1969.

Photo by Fred Prouser/Reuters

This is the first article in a special Slate series, “The Next Silicon Valley.”

David Auerbach David Auerbach

David Auerbach is a writer and software engineer based in New York. His website is http://davidauerba.ch.

Tech pundits love to place bets on where the “next Silicon Valley” might be. But to make a decent wager, first you have to consider the origins of the original. Given that life is chaotic and chance always plays a big role, I don’t think one can identify a sufficient cause for Silicon Valley. But I can cautiously discuss four necessary factors that might make another fount of innovation possible.

Factor No. 1: Easy Research Money

Advertisement

The history of Silicon Valley goes back far before the dawn of the personal computer in the late 1970s. It even goes back before the big semiconductor firms of the 1950s and their significant partnerships with Stanford. Silicon Valley today is almost exclusively consumer-focused, but for decades it was primarily industrially and militarily focused, and much of the work was speculative or highly specialized.

Obscure 19th-century abstract mathematics and geometry had unexpectedly paid off in Einstein’s relativity theory and then in nuclear weapons in the 1940s. So by the advent of the Cold War, the powers that be worried that anything could potentially be weaponized. The Cold War created such an atmosphere of paranoia that the U.S. government eagerly threw money at academic and technological projects of uncertain utility. Most famously, the Defense Department’s Advanced Research Projects Agency—created in response to the Soviet Sputnik launch in 1958—gave us ARPANET (beginning in 1969 or thereabouts), the robust packet-switching network that 20 years later, with some political assistance from Al Gore, became the Internet.

Two regions in particular enjoyed an influx of government money: Silicon Valley and Massachusetts’ Route 128. Both had existing technology bases, large-scale military investment, and top-class research universities (Stanford and Berkeley near Silicon Valley, MIT and Harvard near Route 128). And both yielded a tremendous amount of mid-century startups and larger firms: Hewlett-Packard, Fairchild Semiconductor, Varian Associates, and Xerox PARC in Silicon Valley, Honeywell, Raytheon, Digital Equipment Corporation, Wang, and BBN on Route 128. Government money served as a buffer against failure, while the cash flow into top engineering universities (Stanford and MIT chief among them) allowed for rapid research improvements in semiconductors and their applications in computers, radios, phones, and televisions. For the consumer, this work didn’t visibly explode until the PC revolution of the 1980s. Apple Computer could never have gotten started without work that was originally funded and intended for the military-industrial complex.

Factor No. 2: Easy Startup Money

Silicon Valley overtook Route 128 in terms of both profits and innovation in the 1980s, largely because the firms of Route 128 remained too attached to the basic research paradigm. Companies like Digital (DEC), Sun, and Symbolics methodically generated new systems (including Digital’s legendary PDP-11 minicomputer, Wang’s pioneering word processors, the LOGO programming language, and the interactive-fiction Colossal Cave text adventure). But they didn’t recombine into smaller, more agile startups that could yield more consumer-oriented products. When I interviewed at DEC in 1997, the place felt distinctly middle-aged. I met very smart engineers who had been working on a single piece of Unix for 20 years—making elegant technological advancements, but doing little that would expand their market. They were happy, but consumer “innovation” in the Silicon Valley sense was not a priority. It was little surprise that DEC was subsequently purchased and pretty much liquidated by Texas PC maker Compaq—the son slaying the father. Many of the other famed research labs of the 1970s and 1980s, from Bell Labs to BBN, fell into similar patterns. BBN had won the initial contract for the “outlandish” ARPANET proposal in 1969 and had figuratively broken the ground of the Internet, yet they were wholly absent when it came time to cash in on the foundation they had built.

Whereas in Silicon Valley, beginning sometime in the mid 1970s and exploding in the 1980s, a new breed of commercial consumer firms began to supplement and surpass the industrial firms. A company like Apple, founded in 1976, could get started far more easily because there was a looser and more enthusiastic model of investment, as well as a longstanding computer hobbyist scene far larger than that of Route 128. Steve Jobs and Steve Wozniak came out of the distinctly amateur hobbyist scene—not academia or business. They were able to migrate into the corporate and technological world while bringing hobbyists with them as both customers and employees. Plus, time was on their side: Technology had reached a point at which its applications overflowed into the consumer market.

As the government had been, venture capitalists needed to be willing to fund companies in a very speculative and hands-off manner, leaving the founders with ownership and control of the companies. (Legendary company Fairchild Semiconductor flopped as soon as the founders foolishly sold their controlling interest to investors.) The VCs also needed to accept that most of them would not prove profitable. In the words of analysts Martin Kenney and Urs von Burg, “What is important is the decision to fund businesses that have no clear and significant profitability.”* This encourages bubbles of various shapes and sizes, of which we’ve seen at least two since the 1990s. But a decade later, people remember the undervaluation of Amazon, Google, and eBay more than they remember the overvaluation of Pets.com, 1-800-Flowers, and pretty much everyone else. You have to fund a lot of sperm just to get one or two to the egg.

  Slate Plus
Slate Archives
Nov. 26 2014 12:36 PM Slate Voice: “If It Happened There,” Thanksgiving Edition Josh Keating reads his piece on America’s annual festival pilgrimage.