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Tech Will Eat Itself: Boom! Bust! Boom? Drink this Kool-Aid to remember the wacky and possibly circular history of Silicon Valley high tech in the last 20 years.
Blinded by Science: Silicon Valley has a reputation as the home of the cutting-edge scientific innovatiors. But what have they done for us lately?


Tech Will Eat Itself

Boom! Bust! Boom? Drink this Kool-Aid to remember the wacky and possibly circular history of Silicon Valley high tech in the last 20 years.

By Matt Reed

In Silicon Valley, 1985 was not so much "the year," as "the year after." The year after Apple unveiled the Macintosh, for instance, and the year after William Gibson published Neuromancer, the futuristic novel that foresaw cyberspace, imagining it as a "consensual hallucination experienced daily by billions of legitimate operators."

It was also 10 years too early. In 1985, Hewlett-Packard, Apple and Silicon Graphics were around, and the buzz centered on the personal computer. Nobody could predict that eBay, Google, Yahoo and, for a time, Netscape would become giants of the valley's tech scene. Only a handful of people around the globe had given any thought to what would develop into the Internet.

By 1995, Netscape was, for those who were just figuring out how to log on, the preferred browser. And Netscape's IPO offering in August of that year sparked a five-year startup and stock market frenzy that spread from the valley to Wall Street and captured investors from Middle America along the way. It was another form of consensual hallucination, a "dotcon" bubble that reminded journalist John Cassidy of the Dutch tulip craze of the 17th century. But it was also, as one venture capitalist told journalist Michael Lewis, "the greatest legal creation of wealth in the history of the planet."

The valley saw its share of lavish parties, twentysomething millionaires, paper billionaires, nimble business models, speculative employees that jumped from one startup to another and dotcoms that burned through tens of millions of dollars of venture capital funding for ideas like selling pet food and groceries online.

Only a small percentage of these companies, founded on little more than an idea—and often a really, really stupid one—survived through their first three years. Many were abandoned for the next big thing. The Onion would later eulogize this approach to business famously in 2001 with a story about Egraters.com, a bankrupt dotcom that was nonetheless proud to have "briefly changed the way people buy cheese graters."

"There was a sense of tremendous potential in this new medium," says Meredith Taylor, president of the Tech Museum of Innovation in San Jose. "It seemed pretty much open-ended how long the growth would continue, and it was made up of a community of people who believed they were in the midst of an Industrial Revolution."

The Kool-Aid Runs Out

By 2000, though, many investors were left holding the bag. Netscape was no longer listed on the stock market. And thousands of tech workers were looking for work, logging on to websites like startupfailures.com and fuckedcompany.com to lament their newfound plight.

"[In the 1990s], we kind of all started to drink the same Kool-Aid," says Kamran Elahian, an engineer by training who has turned himself into what he calls a serial entrepreneur. "Each person was following the other person. A lot of the principles that the valley was based on—innovation, establishing value—creating revenues, creating profits—were forgotten. A lot of things rode on the hype of the Internet to get a high valuation on Wall Street."

In a way, Elahian's story is the story of Silicon Valley. Born in Iran, he immigrated to the United States in 1971, earning degrees in computer science, mathematics and engineering at the University of Utah. He designed software for Hewlett-Packard, then founded a company, then another, and then another. Since 1981, he has started 10 companies in the valley, failing at some, but always moving forward.

"My third company was a major failure," Elahian says. "The biggest mistake was that I believed my own PR. I became too arrogant."

And Back to Boom

But picking right back up again after bombing out is part of what makes the valley strong, says the Tech Museum's Taylor. And in 2005, the boom and bust cycle looks as if it is coming back around: venture capitalists are funding more startups and people are still buzzing over Google's successful IPO of last August.

"The potential of the Internet is still being discovered. But now we have a better idea of how consumers use it," Taylor says. "The old economy taught us that fundamentals matter. A company has to make money. It has to have sustainable growth. The new economy taught us that a company could grow too fast."

One way of looking at the Internet boom of the 1990s was that it was merely the latest revolution to hit the valley. Other new technologies surrounding integrated circuits and telecommunications also left their mark here, Taylor says.

So here's what we've learned: no more frenzies, no more Dutch tulips, no more arrogance, no more IPOs before their time. But innovation will continue here, and the bronze plaque in front of the Palo Alto garage that says "Birthplace of Silicon Valley," where Hewlett-Packard was founded in 1939, remains. Now, the valley looks to biotech and nanotech to see what will come of the next 20 years. They are the reasons that the valley can expect to continue, as Gibson wrote in Neuromancer, "remembering tomorrow."

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From the March 9-15, 2005 issue of Metro, Silicon Valley's Weekly Newspaper.

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