What Drives Silicon Valley

http://en.wikipedia.org/wiki/Silicon_Valley#History

The San Francisco Bay Area had long been a major site of U.S. Navy work, as well as the site of the Navy's large research airfield at Moffett Field. A number of technology firms had set up shop in the area around Moffett to serve the Navy. When the Navy moved most of its West Coast operations to San Diego, NASA took over portions of Moffett for aeronautics research. Many of the original companies stayed, while new ones moved in. The immediate area was soon filled with aerospace firms.

However, there was almost no civilian "high-tech" industry in the area. Although there were a number of excellent schools in the area, graduating students almost always moved east or south (that is, to Los Angeles County) to find work. This was particularly annoying to Frederick Terman, a professor at Stanford University. He decided that a vast area of unused Stanford land was perfect for real estate development, and set up a program to encourage students to stay in the area by enabling them to easily find venture capital. One of the major success stories of the program was that it convinced two students to stay in the area, William Hewlett and David Packard. In 1939, they founded Hewlett-Packard, which would go on to be one of the first "high tech" firms in the area that was not directly related to NASA or the U.S. Navy.

In 1951 the program was again expanded with the creation of the Stanford Industrial Park (later Stanford Research Park), a series of small industrial buildings that were rented out at very low costs to technical companies. Its first tenant was Varian Associates, founded by alumni in the 1930s to build military radar components. Today this sort of office space is commonplace and referred to as a technology incubator, but at the time it was practically unknown. In 1954, the Honors Cooperative Program, today known as the co-op, was established to allow full-time employees of the companies to pursue graduate degrees from the University on a part-time basis. The initial companies signed five-year agreements in which they would pay double the tuition for each student in order to cover the costs. By the mid-1950s the infrastructure for what would later allow the creation of "The Valley" was in a nascent stage due to Terman's efforts.

It was in this atmosphere that a former Californian decided to move to the area. William Shockley had quit Bell Labs in 1953 in a disagreement over the way the transistor had been presented to the public which, due to patent concerns, led to his name being sidelined in favor of his co-inventors, John Bardeen and Walter Houser Brattain. After divorcing his wife, he returned to the California Institute of Technology where he had received his Bachelor of Science degree, but in 1956 moved to Mountain View, California to create the Shockley Semiconductor Laboratory as part of Beckman Instruments and to live closer to his aging mother.

There he intended to supersede the transistor with a new three-element design (today known as the Shockley diode) that he felt would take over the market, but the design was considerably more difficult to build than the "simple" transistor. As the project encountered unexpected difficulties, Shockley became increasingly paranoid. He demanded lie detector tests on the staff, posted their salaries publicly, and generally annoyed everyone. The straw that broke the camel's back occurred when he flew into a rage when a secretary cut her finger, an event he claimed was an intended attack on himself. When it was later demonstrated the cut was from a broken thumbtack the damage was already done, and in 1957 eight of the talented engineers he had brought to the West Coast left and formed Fairchild Semiconductor.

Over the next few years this pattern would repeat itself several times, as engineers lost control of their own startups to outside management, and then left to form new companies. AMD, Signetics, National Semiconductor, and Intel all started as offshoots from Fairchild, or alternatively as offshoots of other offshoots.

By the early 1970s there were many semiconductor companies in the area, computer firms using their devices, and programming and service companies serving both. Industrial space was plentiful and housing was still inexpensive. The growth was fueled by the emergence of the venture capital industry on Sand Hill Road, beginning with Kleiner Perkins in 1972; the availability of venture capital exploded after the successful $1.3 billion IPO of Apple Computer in December 1980.

The Valley also significantly influenced computer operating systems, software, and user interfaces. Using money from NASA and the U.S. Air Force, Doug Engelbart invented the mouse and the graphical user interface in the mid-1960s while at Stanford Research Institute (now SRI International). When Engelbart's Augmentation Research Center went into decline due to personal conflicts and the loss of government funding, Xerox picked up many of Engelbart's best researchers. In turn, in the 1970s and 1980s, Xerox's Palo Alto Research Center (PARC) played a pivotal role in object-oriented programming, graphical user interfaces (GUIs), Ethernet, PostScript, and laser printers. Hewlett-Packard is credited with inventing the ink jet printer, while Ampex (in Redwood City) is credited with inventing the video cassette recorder.

The diaspora of Xerox inventions led directly to 3Com and Adobe Systems, and indirectly to Cisco, Apple Computer and Microsoft. Apple's Macintosh GUI was largely a result of Steve Jobs' visit to PARC and the subsequent hiring of key personnel. Microsoft's Windows GUI is also based on PARC's work, if less directly. Cisco's impetus stemmed from the need to route a variety of protocols over Stanford's campus Ethernet. While Xerox itself had marketed equipment using these technologies yet seemed incapable of more fully capitalizing on them, they were too important to not flourish elsewhere.

There are contradictions in the Valley's successes as well. As David Naguib Pellow and Lisa Sun-Hee Park claim in one of their recent works about the area:

"While typically lauded as the engine of the high-tech global economy and a generator of wealth for millions, Silicon Valley is also home to some of the most toxic industries in the nation, and perhaps the world. Next to the nuclear industry, the production of electronics and computer components contaminates the air, land, water, and human bodies with a nearly unrivaled intensity.



"The Valley is also a site of extreme social inequality. It is home to more millionaires per capita than anywhere else in the United States, yet the area has also experienced some of the greatest declines in wages for working-class residents of any city in the nation. Homes are bought and sold for millions of dollars each day, yet thousands of fully employed residents live in homeless shelters in San Jose, the self-proclaimed 'Capital of Silicon Valley.' Silicon Valley also leads the nation in the numbers of temporary workers per capita and in workforce gender inequities. Moreover, the region has an entirely non-unionized workforce and is as racially segregated as the most big urban centers."



Although semiconductors are still a major component of the area's economy, Silicon Valley has been most famous in recent years for innovations in software and Internet services. The Valley is generally considered to have been the center of the dot-com bubble which started in the mid-1990s and collapsed after the NASDAQ stock market began to decline dramatically in April of 2000. During the bubble era, real estate prices reached unprecedented levels (for a brief time, Sand Hill Road had the most expensive commercial real estate in the world) and the booming economy resulted in severe traffic congestion.

Even after the dot-com crash, Silicon Valley continues to maintain its status as one of the top research and development centers in the world. A 2006 Wall Street Journal story found that 13 of the 20 most inventive towns in America were in California, and 10 of those were in Silicon Valley.[2] San Jose led the list with 3,867 utility patents filed in 2005, and number two was Sunnyvale, at 1,881 utility patents.