First in a Trilogy of Op-eds
The year 2000 is most remembered by The Dot Com Bust. It was a Silicon Valley phenomenon but also, in my opinion, an event that permanently transformed the Silicon Valley culture, for the worse.
It took an entire decade of the 90s for the Dot Com Bubble to form and eventually burst. Prior to the 90s, the Silicon Valley story, — as I lived it, — was pretty linear. “Silicon” is purified, melted, and cooled to form an ingot, in turn sliced into “wafers”. Predesigned semiconductor circuits (based on solid-state physics which supplanted vacuum tube technology) are then “fabricated” in a grid pattern on the wafer surface, later cut into “dice” to be packaged into “chips” which are then mounted onto boards to be inserted in digital devices like computers and analogue devices like amplifiers and sensors of all kinds.
So the Silicon Valley started in the 50s with the semiconductor industry, — a capital intensive, technologically advanced field requiring many sub-industries to closely collaborate (which is why no other location has thus far supplanted the ecosystem of the Silicon Valley, — with Stanford University as the incubator, vendors up the street, suppliers down the street, competitors across the street, and money nearby). Further, most of these sub industries require highly skilled labor and high levels of precision (which is why to date, China has not become self sufficient in semiconductors, notwithstanding its ability to build planes and warships).
From the 50s to the 70s, the Silicon Valley was all about the semiconductor industry, depicted by this genealogy chart. Over time, “chip” manufacturers increasingly specialized: Intel is the leader in computer processor chips, Micron is the leader in memory chips, National Semiconductor (now part of Texas Instrument) was the leader in analogue chips, etc. Then there are manufacturers of Field Programmable Gate Array chips like Xilinx and Altera, manufacturers of communication chips like Broadcom, manufacturers of graphics chips like Nvidia, etc.
As previously mentioned, there are many sub-industries in support of the making of “chips”. Upstream are “capital equipment” manufacturers of process control and yield management systems like Applied Materials, Lam Research, KLA, Concurrent Design, etc. Downstream are “Outsourced Assembly and Test” companies like Solectron and JBIL (these low-skilled, labor- intensive sub industries were outsourced first to Taiwan/S.E. Asia, then China in the late 80s).
An important part of this vast ecosystem is the Sandhill Road venture capital industry, led by names like Kleiner Perkins, Mayfield, Sequoia, etc. VCs raise money from a network of limited partners made up of wealthy individuals and institutions, invest in startups and nurture them to “exit” (typically via acquisition or Initial Public Offering), and in this process realize extraordinary returns not obtainable from other types of investments. Prior to the Dot Com Bubble in the 90s, getting VC funding was very difficult. Once funded, it typically took 10 years of demonstrating consistent growth in sales, profit, and management depth before a startup was being “packaged” for IPO.
Introduction of the PC (Apple I in 1976 and IBM PC in 1981) was seminal for the growth path of the Silicon Valley. Almost overnight, there was an explosion of companies which manufactured PCs (Tandem, HP, Wyse, Apple, Pyramid), workstations (Sun Micro, Silicon Graphics, Apollo) and game consoles (Atari and Activision). Storage companies like Seagate, Quantum and SanDisk, and software developers like Oracle, Sybase, Adobe and Intuit appeared on the scene as well. Rohm (switch builder), CISCO (router builder) and Bay Networks (hub builder) started to lay the foundation of what was to become commercialized Internet (which ultimately turned every desktop into a node of a vast global network). And as graphics capabilities matured, Computer Aided Design (and Manufacturing) software companies like Autodesk and Cadence appeared (which further improved the efficiency of designing semiconductor circuits). A myriad of technologies were present in the 1980s Silicon Valley, making it an extremely vibrant and energetic place. Job candidates and headhunters had to learn something new every day, just to keep up with all the new companies and industries that popped up overnight. The Silicon Valley was truly a place to “have fun and get rich at the same time”.
Then came the 90s, when the Internet came of age. By now the physical backbone (routers, switches, fiber cable networks etc.) had been built. All we needed was content on the World Wide Web and imaginative ways of exploring/exploiting it. AOL, Yahoo, CompuServe, Ask Jeeves, Netscape, ICQ, Webvan were early-stage “platform” companies founded in the 90s to do that. Then there were service providers like Worldcom and Global Crossing. Most important of all, of course, was the founding of Amazon (replacing brick and mortar retail with e-tailing) in 1994. Taken together, what made the 90s the “Dot Com Boom” was the fact that VCs stopped holding startups to rigid revenue and profit growth requirements. All it took was “eye balls” captured to obtain funding. The self explanatory term “vapor-ware” was born. Many cases of “cooking the books” appeared, in line with the “Greed is Good” culture in the Reagan years (that started a debt-fueled economy which progressively worsened up to the present). Departing from Silicon Valley culture up to that point which was Spartan-like, the 90s was an undisciplined decade of excess and speculation, — by definition the making of a bubble that inevitably would burst down the line.
The Bubble burst spectacularly in 2000. Today, 22 years later, we have a generation with no first hand knowledge of that event. The vast majority of those who do have that knowledge view it as history, overridden by “recoveries” since. I strongly disagree. I view the 2000 Dot Com Bust as a Foreshock (the precursor to a much larger earthquake yet to come), and all “recoveries” in between (including revitalization of the Silicon Valley “animal spirit” via the “PayPal Mafia”) as progressively BIGGER bubbles to paper over the previous one (there was the 2008 global credit crisis which was a bigger bubble burst than the Dot Com Bust), made possible by rampant “money printing” by the Federal Reserve.
By now, the “Silicon Valley” has shifted its center of gravity to San Francisco (a much more inspiring place for software development, which doesn’t require vast amount of space for plants and equipment). But the Silicon Valley story continues. Keep your eyes peeled for the next chapter: Dot Com Bust 2.0.
