Piero Scaruffi - EXCERPTS FROM a History of Silicon Valley

8/10/2019 Piero Scaruffi - EXCERPTS FROM a History of Silicon Valley

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Excerpts from the bookA History of Silicon Valley2010 Piero Scaruffi

Culture and Society

ronically! San "rancisco #as still mo$in% in the opposite direction! a#ay from technolo%y andto#ards nature and humanity& n 'anuary 1()* a +Human ,e-n. #as held at the /olden /atePark! and the beach to#n of onterey hosted the first maor rock festi$al in 'une of that year&'ohn ion started the a%ic 3heatre in 1()*& n 1()4 Ste#art ,rand published the first +5holeEarth Catalo%!. a sort of alternati$e yello# pa%es that listed products tar%etin% the hippie lifestyleand featured articles on all sorts of counterculture topics& n 1()4 Chip ord founded the Ant "armto promote a$ant%arde architecture and desi%n&

3he ne#s media #ent berserk reportin% from San "rancisco about the bi6arre youthcounterculture& illions of youn% people around the #orld started imitatin% it& 3he #hole hippiephenomenon paralleled the ,ay Area7s flare in interest for computer science and the %ro#th ofthe ,ay Area7s semiconductor industry& ndian musician Ali Akbar 8han founded the Ali AkbarColle%e of usic in 1()* in ,erkeley to teach and spread ndian classical music! #hich #as

becomin% increasin%ly popular amon% rebellious youth like e$erythin% else from ndia and the "arEast&

At the same time! many ne# residential areas #ere bein% created bet#een San "rancisco andSan 'ose& 3he underpopulated ,ay Area fostered a different urban model than the onepopulari6ed by anhattan7s skyscrapers& 3here #as plenty of free space south of San "rancisco!and therefore no need for hi%h-rise buildin%s& Earth9uakes also helped shape the urbanen$ironment as an endless flo# of flat buildin%s #ith no particular center& 3he community layhori6ontally! reached by #alkin% instead of ele$ators& 3he main s9uare had disappeared& E$enain Street and ,road#ay :the t#o staples of urban topo%raphy in most ;S to#ns< #ere missin%:or fe# kne# #here they #ere! but in 1()* thenumber #as 1!@21& 3hat immi%ration la# started a brain drain of en%ineers and scientists fromEurope and especially the "ar East to#ards Silicon Valley that #ould ha$e far-reachin%conse9uences&

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2?& ot&com "ailures Startups that 5ent ,ust in the 3ech ,oom :1((1-20002-#eek market capitali6ation $alue hi%hF most trimmed expenses or laid off #orkers& t #as rare tosee an industry e$aporate as 9uickly and completely as 5eb stocks did& n 2000! CIIfn&com hadthe market data and research firm ,irinyi Associates calculate the market $alue of the 240 stocksin the ,loomber% ;S nternet ndex at their respecti$e >2-#eek hi%hs and their 2000 market

$alue& 3he combined market $alues of the 240 stocks had fallen to J1&1(@ trillion from J2&(?4trillion at their peak& 3he loss #as J1&*>> trillion&

Ho#e$er! not all failed companies are ob$iously fla#ed& ost had a plausible premise or %enuineinno$ation that ne$er 9uite met their customers7 pain points :and #illin%ness to pay

K 5eb$an&com! #hich tried to sell %roceries throu%h the nternetF it burned throu%h J@*>million in @ years! and #hich #as $alued at J1&2 billion at the top of the bubble before %oin% bust#ithin 12 months and layin% off 2!000 employees&

K e3oys&com! #hich racked up J2?* million of debt before %oin% bust in 2001&

K Pets&com! #hich in 1((( #ent from P= to li9uidation in 2)4 days and burned o$er J40million in #asteful ad$ertisin%&

K 3he earnin% Company! bou%ht by attel in 1((( for J@&> billionF sold for J2*&@ million in2000&

K /eoCities! purchased by LahooM for J@&) billion in 'anuary 1(((& LahooM closed /eoCitieson =ctober 2)! 200(&


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K ,roadcast&com! #hose o#ner ark Cuban sold to it Lahoo for J>&* billion in 1(((F it #aslater shut do#n&

5eb$an and Scalin% osses "ast

5eb$an&com #as based on a simple idea& ,usy people don7t like #aitin% in lines to buy %roceriesand they #ould rather buy them in an online store and ha$e them deli$ered home like

Ama6on&com& t #as a simple hypothesis that pro$ed to be unfounded G busy people #ouldn7t payenou%h to make such a business profitable! and the ser$ice #asn7t that con$enient& 5eb$an triedto sell %roceries throu%h the nternet and then deli$er them #ith its system of #arehouses and$ans& t burned throu%h J@*> million in @ years! and #as $alued at J1&2 billion at the top of thebubble before %oin% bust #ithin 12 months and layin% off 2!000 employees&

5eb$an first started in the San "rancisco market #ith an =akland distribution center& Ho#e$er!that location #as al#ays deeply unprofitable& Let the company chose to raise money and scale toother markets& ts +smart money. backers included ,enchmark Capital! Softbank! Se9uoia Capitaland! throu%h its Home/rocer ac9uisition! former Ietscape Communications CE= 'im ,arksdaleof 3he ,arksdale /roup& 3he ri%ht action #ould be to stay small and perfect a profitable model! or

shut do#n an experiment losin% small amounts of capital& nstead! the backers decided to %o bi%and lose money on a bi% scale! buildin% infrastructure for an unpro$en business model& +/et bi%fast. is a suicidal and sociopathic motto if a company is losin% %obs of money as a small $enture&

Let in a mere 14 months! 5eb$an raised J@*> million in an P=! expanded from the San"rancisco ,ay Area to ei%ht ;S cities! and built a %i%antic infrastructure from the %round up&5eb$an si%ned a J1 billion contract #ith ,echtel Corp& to build a strin% of hi%h-tech #arehouses#orth about J@0 million each& 5eb$an came to be #orth J1&2 billion :or about J@0 per share at itspeak

E$entually 5eb$an #ent bankrupt in 'uly 2001! puttin% 2!000 out of #ork! %i$in% stockholders#orthless paper! and lea$in% San "rancisco7s ne# ballpark #ith a 5eb$an cup holder at e$eryseat&

3he CE= /eor%e Shaheen! formerly head of Andersen Consultin%! had left before the bankruptcy

day #ith a steal& ;nder the terms of his +retirement packa%e!. Shaheen %ot >0 of his basesalary and tar%et bonus for the rest of his life! or about J@*>!000 annually& 3he payments #ouldcontinue to be sent to Shaheen7s #ife should he die before her& ;nfortunately! the company diedbefore either of them did&

e3oys&com and Poor Plannin%

e3oys&com had a similar model to 5eb$an&com& t #as founded in 1((* as a hassle-free


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alternati$e to cro#ded toy stores& e3oys #as a concept from dealab! the Pasadena! California!incubator that helped launch a %roup of publicly traded nternet firms includin% /o3o&com!CitySearch! IetNero! and 3ickets&com& =ther backers included Hi%hland Capital Partners andSe9uoia Capital Partners! e3oys launched its initial public offerin% ay 1(((! raisin% J1)) millionat a price of J20 per share& n =ctober 1(((! the stock hit a hi%h of J4?&2>! briefly %i$in% thecompany an J4 billion $aluation! more than its lar%est bricks-and-mortar competitor! 3oys +D. ;s&

e3oys sales soared from J*00!000 in 1((* to J1>0 million in 1(((& Let costs climbed e$en faster!pushin% the break-e$en point to J(00 million annually& urin% the holiday season of 1(((! e3oysdre# more customers than the 5eb sites of 3oys +D. ;s and Ama6on&com! accordin% to trafficfi%ures from 'upiter edia etrix& Ho#e$er! e3oys spent J220 million in ad$ertisin% to %enerateJ21> million in sales&

n ecember 2000! it became clear that holiday sales proections #ould not be met& Sales #ouldbe about half of #hat #as expected and reported an J4) million operatin% loss& n early 'anuary2001! the company closed t#o #arehouses and laid off *0 of its #orkers& 3he stock #ase$entually halted at ( cents per share and the company declared bankruptcy! #ith J2?* million ofdebt& e3oys closed in arch 2001! and 8, 3oys bou%ht its intellectual assets! includin% the #ebdomain name! for J@&? million :8, later #ent bankrupt too


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Ama6on&com helped Pets&com raised J42&> million in an P= in "ebruary 2000 before collapsin%nine months later& At its peak! the company had @20 employees! of #hich 2>0 #ere employed inthe #arehouses across the ;S& 3he Pets&com mana%ement stayed on to pro$ide an orderly #inddo#n of operations and li9uidation of assets& urin% this period! CE= 'ulie 5ain#ri%ht recei$edJ2@>!000 in se$erance on top of a J22>!000 +retention payment. #hile o$erseein% the closure&;nfortunately! her husband asked for a di$orce the same #eek the company filed for bankruptcy&

3he earnin% Company and ipstick on a Pi%

n 1((4 attel7s CE= 'ill ,arad #as under pressure to %o di%ital and increase re$enues fromelectronic toys! as most of attel7s sales came from hard %oods :plastic toys like ,arbie dolls of 8iii! a local classifieds site a$ailable innearly a do6en countries& "inally in 200> e,ay ac9uired Skype! the leadin% $oice-o$er-thenternet telephone company :besides Vona%e :the leadin% nternet listin% site for rental housin%in the ;S< and Shoppin%&com that same year& 3he company7s employees topped 10!000& ,y200*! e,ay ac9uired StubHub! the #orld7s lar%est online ticket marketplace! and expanded 8iiito 200 ;S cities& Also Paypal accounted for 4 of all e-commerce #orld#ide& A year later! 'ohnonahoe #as named President and CE= of e,ay nc&! succeedin% e% 5hitman& PayPal

opened its platform! PayPal ! becomin% the first maor %lobal payments company open to third-party de$elopment& n 200(! e,ay ackno#led%ed that Skype #as not critical to it and so sold thecompany to a %roup of in$estors! but retained a @0 stake& At year-end 200(! e,ays /V #asJ>*&2 billion! #ith o$er (0 million users& At the same time Paypal had a net total payment $alue ofJ*1&) billion #ith o$er 41 million users&

n 2010 e,ay relaunched its 8iii classifieds site as e,ayClassifieds&com! #ith some user andtechnolo%y enhancements! but Crai%slist #as still far ahead&

Crai%slist and Classified Ad Iet#orks

n 1((>! an en%ineer named Crai% Ie#mark be%an e-mailin% out a list of technolo%y e$ents andopportunities to friends and ac9uaintances& t had nternet obs! apartments! lectures! restaurantre$ie#s! and local e$ents& 3he list %re# from about ten people to 2?0! the maximum e-mail ceilin%on CCs! so Ie#mark mo$ed to a listser$& Ie#mark had to %i$e it a name& As he #as a formernet#ork en%ineer for , and Sch#ab! he #anted to call it +S"-e$ents&. 3his #as perfect for thenerd lackin% interpersonal skills! someone #ith a tou%h time connectin% and #ho #as much morecomfortable in e-mail than in person-to-person contact& ,ut a friend responded +3o hell #ith that!don7t make it fancy! ust keep it Crai%slist+ :#hat e$eryone #as callin% it


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%raphics! like an early nternet applicationF its minimalist desi%n #as ele%ant&

Ie#mark left his day ob in 1((( and incorporated the site! %i$in% a#ay 2> to a staffer! Phillip8no#lton& Ie#mark belie$ed that Crai%slist #as a community trust that belon%ed to e$eryone& fhe #ere to o#n the #hole thin%! he could de$elop a bi% e%o and %et +middle-a%ed cra6y&. He alsodecided a%ainst runnin% Crai%slist as a nonprofit! #hich #ould ha$e re9uired him to learn andfollo# too many rules :ironically! non-profits could be more complicated to run than for-profits!thanks to %o$ernment rules0 from 1((( to 200( :a drop of almostJ10 billion


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million a year& n 200(! Crai%slist7s lar%est cate%ory #as Ie# Lork apartments! #here it postedmore than half a million listin%s a month& 3here #as still no banner ad$ertisin%&

"rom 200) to 200(! the open social forum created contro$ersy& n 'uly 200>! the S" Chroniclecritici6ed Crai%slist for allo#in% irresponsible do% breeders to sell pit bulls in the ,ay Area& n

Au%ust 200* Atlanta7s mayor #rote to the company to lookin% into ads that may ha$e in$ol$edchild prostitution& n "ebruary 2004! a ichi%an #oman #as char%ed #ith usin% Crai%slist to hirea contract killer to murder a romantic ri$al in =ro$ille! California& n April 200(! ,oston policearrested a 2@-year old ,oston ;ni$ersity medical student! Philip arkoff! for robbin% andmurderin% a #oman #ho ad$ertised her massa%e ser$ices on Crai%slist in ,oston&

Let the site %re# and solidified its net#ork monopoly& ,y 200( it %ot more than @ billion pa%e$ie#s per month :10 million actual users a month

Crai%slist could be one of the most effecti$e businesses in the #orld! by any con$entional

measure :re$enues per employee! return on e9uity! profit mar%ins! etc&


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/oo%le7s Search and Contextual Ad ominance throu%h Iet#ork Effects

/oo%le7s core search technolo%y made it a natural monopoly! both for information search on thenternet and contextual ads& any of its other applications! like /mail! aps! ,ooks! and so on!reinforced that status& A natural monopoly existed #hen there #as %reat scope for economies ofscale to be exploited o$er a $ery lar%e ran%e of output :here search indexin% and 9ueries

bet#een all fi$e net#orks! and the mix tended to closely track search en%ine share :so as of 'uly2010! ComScore measured )) to /oo%le! 1* to Lahoo! and 11 to SI


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countries it didn7t dominate are China! 'apan! South 8orea! and Dussia


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nearly 1 million acti$e users! %ro#in% to more than 400 colle%e net#orks by year end& 3hecompany also raised J12&* million in $enture capital from Accel Partners :possibly the best$enture capital in$estment of that year! and maybe the decade! the ser$ice expanded to hi%h school net#orks and #ent to international schools!reachin% >&> million acti$e users by =ctober 200>& Seein% the company7s scary! $iral %ro#th! thefounders raised another J2*&> million from /reylock Partners! eritech Capital Partners! andother firms& n Au%ust 200)! nearly t#o and half years after its foundin%! "acebook finally openedto the #orld and expanded re%istration so anyone could oin& 3he company introduced a Ie#s"eed and ini-"eed ser$ice #ith additional pri$acy controls! and a share feature later in the year&

=ne ama6in% fact #as that "acebook destroyed competitors like ySpace and "riendster& =ne ofthe reasons #as that money #as ne$er Nuckerber%Qs top priorityF rather! he #anted the creati$econtrol to create a %reat product that #ould shape millions of people7s li$es& So in 200>! #hen3V Iet#orks considered buyin% "acebook for se$enty-fi$e million dollars! he turned themdo#n& 3he next year both LahooM and icrosoft offered much more& Nuckerber% turned them alldo#n a%ain& 3erry Semel! the former CE= of LahooM! tried to buy "acebook for a billion dollars in200) and reflected +7d ne$er met anyoneTfor%et his a%e! t#enty-t#o then or t#enty-six no#T7dne$er met anyone #ho #ould #alk a#ay from a billion dollars& ,ut he said! Qt7s not about theprice& 3his is my baby! and #ant to keep runnin% it! #ant to keep %ro#in% it&7. Semel couldn7t

belie$e it&

Nuckerber% dreamt of a platform! the Holy /rail& ,y arch 200*! "acebook reached 20 millionacti$e users and soon launched a "acebook Platform #ith )> de$eloper partners and o$er 4>applications& 3he platform strate%y #ould be key! as attractin% de$elopers creates anothernet#ork effect by makin% a platform more useful! attractin% more users! and so more de$eloperslookin% for an audience or customer %roup& Nyn%a :social %ames

reached o$er 100 million acti$e users :note that its user %ro#th doubled in less than a year


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n Au%ust 2004! "acebook launched "acebook Connect! a re$olutionary technolo%y to let userslo% on to company #ebsites usin% their "acebook lo%ins& 3his #ould make a "acebook account aform of personal on the 5eb :pri$acy settin%s included

oneti6ation! turnin% free users into profits! #as key for "acebookF it happened! but more slo#lythan expected& 3he potential #as $ast ima%ine if an ad$ertiser could ea$esdrop on e$ery phoneor e-mail con$ersation you7$e e$er had& 3hat #as similar to #hat all the #all posts! statusupdates! 2> Dandom 3hin%s! 9ui66es! and picture ta%%in% on "acebook in 2010 amounted to&3hey offered a semipublic #ay of exposin% thin%s people #ere interested in doin%! buyin%! andtryin%& Ho#e$er! traditional online ads on "acebook and other social-net#orkin% sites failed&,anner ads on "acebook sold for as little as 1> cents per 1!000 clicks :compared #ith! say! J4

per 1!000 clicks for an ad on a tar%eted ne#s portal such as Lahoo Auto0 millionF it #as a promisin% social net#ork startup headed by some talented ex-/oo%lers! notably Paul ,uchheit and ,ret 3aylor :#ho became "acebook7s C3=


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ore broadly! Nuckerber% ima%ined "acebook as e$entually becomin% a layer underneath almoste$ery electronic de$ice& A person could turn on her 3V and see f i$e of her "acebook friends #ere#atchin% +ad en!. and that her parents taped a P,S documentary +3he Shakers. for her& Shecould buy a Coach handba% #ith a sin%le click! usin% her "acebook credentials! and a select%roup of her friends #ould be notified and encoura%ed to look at simila ba%s& All her friends could$isit all the places she had $isited recently and $ice $ersa&

3he ultimate promise of "acebook #as that for many people it replaced rolodexes! cellphones! e-mail! messa%in%! and the annual Christmas card& Nuckerber% and his team had repeatedlyshunned profit and increasin%ly lar%er buyout offers& nstead they focused on desi%nin% a ser$icethat deli$ered more utility to its users& 5hen asked! +5hy don7t you sell the company. heresponded! + don7t really need the money& And any#ay! don7t think 7m e$er %oin% to ha$e anidea this %ood a%ain&. E$entually! as the thinker Piero Scaruffi pointed out! e$ery person in the#orld #ould ha$e access to the nternet and a "acebook account& 3heoretically! one could then+friend. the entire #orld and then send a messa%e to the entire #orld at a click of a button& 3his#as somethin% no %o$ernment or human bein% could do in human history! and it raised the9uestion 5hat #ould you say to the entire #orld

3he dark side of "acebook! like any ne# technolo%y! #as also apparent& n 'uly 2010! a security

researcher released a file containin% the names! profile addresses! and uni9ue identificationnumbers of more than 100 million "acebook users& 3he information #as collected $ia a publicdirectory "acebook made a$ailable that lists users #ho shared at least some of their profileinformation #ith e$eryone on the nternet& Althou%h the information in the file #as freely a$ailableonline throu%h search en%ines and "acebook7s o#n directory! the or%ani6ed list of names andidentification numbers in it could make it easier for others to compile users7 e-mail addresses!locations! or other data they ha$e made a$ailable& 3his #as a po#erful #eapon for abusi$e%o$ernments or ust mali%n marketers&

Lelp and Critical De$ie# Iet#orks

Lelp #as concei$ed in the summer of 200? after its t#o founders! Duss Simmons and 'eremyStoppelman! hun% out at an incubator started by ax e$chin :a Paypal co-founder


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a restaurant could keep one fa$orable re$ie#! marked +sponsor!. at the top of the list& 3hecompany still kept unfa$orable re$ie#s on the site! unless they #ere clearly fakes& "or example!the "ifth "loor restaurant in San "rancisco! #hich had one ichelin star! paid Lelp J@00 a monthfor such a sponsorship& ean#hile! "ifth "loor7s top t#o Lelp re$ie#s! includin% the sponsoredone! #ere hi%hly positi$e& ,ut three others of those in the top 10 #ere ne%ati$e& Some localpapers ha$e reported that Lelp sales representati$es had promised to mo$e or remo$e ne%ati$ere$ie#s for ad$ertisers& ;sers themsel$es ha$e disco$ered that re$ie#s ha$e disappeared& 3histarnished both the ser$ice and the business&

n "ebruary 200(! /oo%le had discussions to buy Lelp for more than J>00 million :not bad for acompany started #ith J@1 million in $enture fundin%


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of the computer market the traditional desktop computer #as on the #ay out& , pulled out ofthe market for desktop computers& 3here #as a clear trend to#ards a portable computin% de$ice!but the laptop per se did not truly represent a 9uantum leap for#ard! ust a #ay to stretch thepersonal-computer technolo%y to ser$e that trend&

At the same time sales! of smart phones #ere boomin% too! but there #as a lesson there too& n200? otorola introduced the mobile phone Da6r! an ele%ant-lookin% de$ice that by 'uly 200)had been bou%ht by o$er >0 million people! propellin% otorola to second position after Iokia&Let sales started droppin% dramatically in 200)& otorola learned the hard #ay an important ruleof the cell phone market phones #ent in and out of fashion $ery 9uickly& 3here #as room formore players! and Silicon Valley had lar%ely been on the sidelines until then&

3he positi$e note for the dotcoms #as that the 5eb #as spreadin% like a $irus all o$er the #orld&,y 200) /oo%le had indexed more than ei%ht billion pa%es! comin% from the 100 million #ebsitesre%istered on the 5eb& n arch 200)! the En%lish $ersion of 5ikipedia passed one millionarticles& 3he nternet #as bein% accessed by 1&2> billion people in the #orld& 3he dotcom bubblehad not been completely senseless one ust had to fi%ure out ho# to capitali6e on that massi$eaudience&

,y 200> LahooM! /oo%le! America =nine :A=< and SI :icrosoft7s Iet#ork< #ere the four

bi% nternet +portals!. #ith a combined audience of o$er one billion people& Ie$er in history hadsuch a lar%e audience existed& Ie$er in history had Silicon Valley companies controlled such alar%e audience :most of that billion used /oo%le and LahooMAu%ust 200? turned /oo%le7s founders! Ser%ey ,rin and arry Pa%e! into billionaires& n 200? ane$er more ambitious /oo%le launched a proect to di%iti6e all the books e$er printed&

n 200? /oo%le hired /erman-born natural-lan%ua%e expert "ran6-'osef =ch! #hose machine-

translation system at the ;ni$ersity of Southern California had been selected by ADPA& n 200>/oo%le introduced its o#n automatic-translation system to translate #ebpa%es #ritten in forei%nlan%ua%es& n =ctober 200? /oo%le ac9uired anish-born Australian-based ,erkeley alumnusars DasmussenQs company 5here2 and its mappin% soft#areF and in 200> /oo%le introduced/oo%le aps& apOuest! the pioneerin% 5eb-based mappin% ser$ice ac9uired by A= in 2000!lost to /oo%le aps because the latter allo#ed third-party de$elopers to add information to themap and use the map into their o#n soft#are& 3he time-consumin% process of scalin% a #ebapplication #as more easily done by +exploitin%. the nternet community of soft#are de$elopers&

uch #as bein% said of /oo%le7s ethics that allo#ed employees $ast freedom to be creati$e&


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platform& t #as used to refine the platform itself& "acebook and the likes simply adopted theconcept and transferred to it the sphere of pri$ate life&

"acebook7s sociolo%ical impact #as colossal& "or example! "acebook offered a +ike. button forpeople to applaud a friend7s statement or picture! but did not offer a +islike. button& "acebook#as creatin% a society in #hich it #as not only rude but physically impossible to be ne%ati$e& 3heprofile picture of the "acebook user #as supposed to be a smilin% face& 3he #hole "acebooksociety #as ust one bi% collecti$e smile& 3he 5eb7s libertarian society #as turnin% into a %lobalexercise in fakin% happiness& After all! the "rench historian Alexis de 3oc9ue$ille had #arned in14?0 :in his study +emocracy in America.< that absolute freedom #ould make people lonely anddesperate& n a sense! social net#orkin% uni$erses like "acebook #ere testin% the possibility ofintroducin% a metale$el of beha$ioral control to limit the absolute freedom enabled by the 5eb&

/oo%le! e,ay! "acebook and 3#itter shared one feature that made them such incredible successstories #as simplicity& nitially! they all had a humble! text-only +look and feel. in the a%e of%raphic desi%n! banners! chat rooms! etc& All that 3#itter had needed to chan%e the #orld #as1?0 characters&

"acebook7s =ri%inal ,uildin%

Lour ife =nline

n Io$ember 200> a %roup of former Paypal employees! all still in their t#enties! %ot to%ether tolaunch a ne# #ebsite! Lou3ube& 3he founders #ere Ste$e Chen :a 3ai#anese-born soft#areen%ineer!000 ne# $ideos #ere bein%

uploaded e$ery day! and more than 100 million $ideos #ere $ie#ed by users #orld#ide e$eryday& n =ctober /oo%le bou%ht Lou3ube for J1&)> billion&

Lou3ube did more than simply help people distribute their $ideos #orld#ide it ushered in the a%eof +streamin%. media& +Streamin%. means to #atch a $ideo or to listen to a recordin% in real timedirectly from its 5eb location as opposed to do#nloadin% it from the 5eb on one7s computer&Lou3ube7s $ideos #ere +streamed. to the bro#ser of the $ie#er& Lou3ube did not in$entstreamin%! but it demonstrated its po#er o$er cable tele$ision! mo$ie theaters! and any pre$iousform of broadcastin% $ideos to the masses&

ean#hile! the first truly successful social-net#orkin% site #as ySpace& t #as launched in 200@in os An%eles and purchased in 'uly 200> for J>40 million by Dupert urdoch7s Ie#s Corp& n

Asia the most successful of these sites #as still "riendster&

Another idea that matured in the 2000s #as nternet-based telephony& Skype #as founded inEurope in 200@ by Iiklas Nennstroem and 'anus "riis to market a system in$ented by 8a6aa7sfounders Ahti Heinla! Priit 8asesalu! and 'aan 3allinn& nternet users #ere no# able to make freephone calls to any other nternet user! as lon% as both parties had a microphone and aloudspeaker in their computer& 3he lesson learned in this case #as that telephony o$er thenternet #as a maor inno$ation for ordinary consumers! not companies! but ordinary consumerscould not afford suitable computers until the 2000s& Skype #as not char%in% anythin% for theser$ice! so! a%ain! the business model #as ust to become $ery popular all o$er the #orld&


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Lou3ube7s =ri%inal ,uildin%

E-commerce

3he net economy #as! ho#e$er! reco$erin% from the dotcom burst& "or example! Ama6on lost asta%%erin% J2&4 billion bet#een 1((> and 2001& ts first profit #as posted at the end of 2001! andit #as a mere J> million& ,ut in 200> it posted re$enues of J4&> billion and a hefty profit! placin% itinside the exclusi$e club of the +"ortune >00&. in 200) its re$enues #ould top J10&* billion& n200* sales #ould increase a stunnin% @?&> o$er the pre$ious year& e,ay7s re$enues for 200)reached J) billion& IetflixQs re$enues #ere up ?4 from the pre$ious year! ust short of one billiondollars! and it had almost six million subscribers&

i%ital Entertainment

A lesson #as creepin% underneath the massi$e amount of music do#nloaded both le%ally andille%ally from the nternet& n 200@ the file-sharin% system Dapidshare #as founded in /ermany!

the file-sharin% system 3orrentSpy #ent li$e in the ;S! and a ,it3orrent-based #ebsite named+3he Pirate ,ay. opened in S#eden& n 200> e%aupload #as founded in Hon% 8on%& n 200)ediafire #as founded in the ;S& 3hese #ebsites allo#ed people to upload the music that theyhad ripped from Cs! and allo#ed the entire nternet population to do#nload them for free& 3he+fraud. #as so extensi$e that in 200) the music industry in the ;S :represented by the DAA< fileda la#suit a%ainst Dussian-based nternet do#nload ser$ice All=fP@&com for J1&)> trillion&Ieedless to say! it pro$ed impossible to stop half a billion people from usin% free ser$ices that#ere so easy to use& usic do#nloadin% became a per$asi$e phenomenon&

Apple7s i3unes store! opened in April 200@! #as the le%al #ay to %o for those #ho #ere afraid ofthe la#! and by the end of 200) a hefty ?4 of Apple7s re$enues #as comin% from sales of theiPod! one of the most successful de$ices in history& i%ital $ideos came next! althou%h the sheersi6e of the $ideo files discoura%ed many from storin% them on their home computers&

3he lesson to be learned #as t#ofold& =ne lesson #as for the media company it #as $irtuallyimpossible to enforce copyri%hts on di%ital files& 3he other lesson #as for the consumer it #as#ishful thinkin% that one could di%iti6e a hu%e library of son%s and films because they re9uired

ust too much stora%e& A different system #as needed! namely streamin%&

3he phenomenon of music di%ital do#nload #as another premonition of an importanttransformation in computin%& "rom the $ie#point of the +do#nloader!. the #hole 5eb #asbecomin% ust one hu%e repository of music& ts %eo%raphical location #as irrele$ant& t #as in the+cloud. created by multiple distributed ser$ers around the #orld&

3he situation #as 9uite different in the field of books& n the late 1((0s! companies such asSoft,ook Press and Iu$oedia had pioneered the concept of the e-book reader& icrosoft and

Ama6on had introduced soft#are to read ebooks on personal computers :Ama6on simplypurchased the technolo%y in 200> from the "rench company obipocket that had introduced it in2000


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ust a soft#are application but a custom de$ice for readin% books& 3hat de$ice! conceptually adescendant of the Palm Pilot! #as the de$ice that tilted the balance to#ards the ebook&

Ser$in% the =ld Economy

Some sectors! like business soft#are and =racle! had little to learn from the dotcom re$olution& nthe 2000s =racle represented an old-fashioned business model! the one that tar%eted +brick andmortar. companies& Ho#e$er! the 5eb had not slo#ed do#n the %ro#th of soft#are demand bythe traditional companies that manufactured real products it had increased it& 3hey all needed tooffer online shops backed by the fastest and most reliable database ser$ers&

3he escalatin% transaction $olumes for e-business #ere %ood ne#s for =racle& =racle #as theundisputed leader in pro$idin% database mana%ement solutions! but these companies alsodemanded EDP systems and CD systems& =racle proceeded to ac9uire t#o ,ay Areacompanies that had been successful in those fields PeopleSoft :200?< and Siebel :200> the total re$enues of EDP soft#are #ere J2>&> billion! #ith SAP makin% J10&>billion and =racle J>&1 billion& =racle7s founder and CE=! arry Ellison! #as estimated to be#orth J14&* billion in 200?! one of the richest people in the #orld&

=racle7s Campus in 2010

Dobots and A$atars

Deco$erin% from the dotcom crash! Silicon Valley #as more a#ash into futuristic ideas than e$er&n 1((( Philip Dosedale had founded inden ab to de$elop $irtual-reality hard#are& n 200@inden ab launched +Second ife!. a $irtual #orld accessible $ia the nternet in #hich a usercould adopt a ne# identity and li$e a second life& n 200> Andre# I% at Stanford launched theS3AD :Stanford Artificial ntelli%ence Dobot< proect to build robots for home and office

automation by inte%ratin% decade-old research in se$eral different fields& n 200) early /oo%learchitect Scott Hassan founded 5illo# /ara%e to manufacturer robots for domestic use&

3he emphasis on $irtual #orlds had a positi$e effect on the ;S $ideo%ame industry& After losin%the leadership to 'apan in the mid-1(40s! the ;S reco$ered it in the 2000s because 'apanese$ideo%ames #ere not as +immersi$e. as the ones made by their ;S competitors& "or example!the simulation %ame +3he Sims!. created by SimCity7s creator 5ill 5ri%ht for axis in "ebruary2000! had become the best-sellin% PC %ame of all times #ithin t#o years of its release& 5ith theexception of Iintendo! #hich successfully introduced the 5ii home console in 200)! 'apanese%ame manufacturers #ere losin% market shares for the first time e$er& 3he 5ii populari6ed hand-held motion-sensiti$e controllers! #hich led to a ne# %eneration of $ideo%ame consoles controlledby %estures and spoken commands&

Ho#e$er! the next bi% thin% in $ideo%ames #as online $irtual #orlds in #hich users created+second-life. a$atars and interacted #ith each other& Hotelli 8ultakala :later renamed as HabboHotel


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3he 5eb #as only a decade old but hi%h-profile critics #ere already complainin% that it #asinade9uate& ,erners-ee in person had #ritten an article in 2001 explainin% the need for a+Semantic 5eb. in #hich a #ebpa%e #ould be able to declare the meanin% of its content& n 200?the first +5eb 2&0+ conference #as held in San "rancisco to promote the idea that the 5eb had tobecome an open platform for application de$elopment! #ith such de$elopment increasin%lydecentrali6ed and dele%ated to the users themsel$es& 3he term had ori%inally been coined in1((( by san "rancisco-based #riter arcy iIucci& n the be%innin% of the 5eb one could onlybe either a producer or a consumer of #ebpa%es& 3he user of a bro#ser #as a passi$e $ie#er of#ebpa%es& 5eb 2&0 aimed for +acti$e. $ie#ers of #ebpa%es& A 5eb 2&0 #ebpa%e is acollaborati$e effort in #hich the $ie#ers of the pa%e can modify it and can interact #ith eachother& 5ikipedia #as an example of a 5eb 2&0 applicationF and /oo%le7s search indirectly too!since it relied on a +pa%e rankin%. al%orithm that #as based on #hat #as linked by millions of#ebpa%es all o$er the #orld&

3he first #idely publici6ed example of 5eb 2&0 #as "lickr! a photo-sharin% ser$ice that allo#edusers to +ta%. photos :both their o#n and other people7s

the real $alue #as in sharin% photos across the community& Soon people started takin% picturesprecisely for the purpose of postin% them of "lickr! pictures that they #ould not other#ise ha$etaken&

LahooM #as the first maor dotcom to in$est in 5eb 2&0& t ac9uired "lickr in arch 200> andintroduced in 'une its o#n y 5eb ser$ice! #hich allo#ed #ebpa%e $ie#ers to ta% and sharebookmarks& 3hen in ecember it bou%ht the most popular #ebsite for social bookmarkin% andta%%in%! el&icio&us :ori%inally started by 5all Street financial analyst 'oshua Schachter in 200@

n a nutshell! the %oal #as simple to allo# the $ie#er to make chan%es to a #ebpa%e on abro#ser #ithout reloadin% the #hole pa%e& 3his! ob$iously! had been done before 'a$aScript!amon% other tools! had been a$ailable in Ietscape7s bro#ser since 1(()! and #eb-basedapplications #ere already per$asi$e durin% the first dotcom boom but most of them #ent out ofbusiness 9uickly& Ama6on allo#ed users to post re$ie#s of books since the $ery be%innin%&Ho#e$er! 5eb 2&0 had a more ambitious $ision that the 5eb could be $ie#ed as a platform forcreatin% applications! a platform that #ould e$entually replace the indi$idual computer&

,lo%%in% started to democrati6e too& att ullen#e% in San "rancisco introduced in 200@ a ne#

popular platform for people to create their o#n #ebsite or blo% 5ordpress& 3he reason it spreadlike #ildfire is that it #as maintained as +open source. by a %ro#in% community of $olunteers& n'une 200@ ark "letcher! already the founder of =IElist :ac9uired by LahooM in 2000


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,iotech

,iotechnolo%y #as becomin% mainstream and synthetic biolo%y #as the ne# frontier& 3he firstsynthetic biolo%y conference #as held at 3 in 200@& A year later! Codon e$ices #as the firstcompany to commerciali6e synthetic biolo%yF it #as founded by 3 Professor re# Endy& n200) 'ay 8easlin% inau%urated the #orld7s first synthetic biolo%y department at the a#rence,erkeley aboratory& ;CS" also became a maor center of biolo%ical research& n 200@Christopher Voi%t founded a lab to pro%ram cells like robots to perform complex tasks! and in200> ;CS" opened an nstitute for Human /enetics&

3he %oal of synthetic biolo%y #as not clear& Let the business behind it en$isioned the possibility ofbuildin% ne# li$in% species :initially ust bacteria< that #ould perform useful industrial or domesticfunctions& t #ould exist ust as electronics had led to de$ices that performed useful industrial anddomestic functions :the #ord +military. #as carefully omitted


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;C ,erkeley& Ali$isatos #as also the director :since 200(< of the a#rence ,erkeley aboratoryto manufacture printable thin-film +9uantum dot. photo$oltaic cells usin% a technolo%y de$elopedat the a#rence ,erkeley aboratory& 3his #as held to be the next %eneration of solar technolo%yflexible! lo#-cost! and hi%h-yield&

=ther solar research #as promisin% too& ichael Crommie! a scientist at the aterials Sciencesi$ision at the a#rence ,erkeley aboratory and a professor of physics at ;C ,erkeley! #as#orkin% on solar cells the si6e of a sin%le molecule& Canadian nanotechnolo%y specialists 3edSar%ent of the ;ni$ersity of 3oronto de$eloped a +9uantum film. capable of a li%ht-capturin%efficiency of (0! as opposed to 2> for the C=S ima%e sensors employed in di%ital cameras&n =ctober 200) he founded nVisa%e in enlo Park to make 9uantum film for camera phones&

/reentech

Skyrocketin% oil prices and concerns about climate chan%e opened a #hole ne# ran%e ofopportunities for an en$ironmentally friendly ener%y %eneration! nicknamed +%reentech. or+cleantech&. =f the traditional kinds of rene#able ener%y :#ind po#er! solar po#er! biomass!hydropo#er! biofuels< solar and biofuel emer%ed as the most promisin%& At the same time! the ;Sstarted in$estin% in fuel-cell companies in 200> #ith the %oal of fosterin% commercial fuel-cell

$ehicles by 2020& ,y 2004 it had spent J1 billion& California embarked on a proect to set up achain of stations to refuel hydro%en-dri$en $ehicles :despite the fact that the state had only 1*(fuel-cell $ehicles in ser$ice in 200* in SouthSan "rancisco to create alkanes :a constituent of %asoline< from su%ar by Har$ard Professor/eor%e Church and Chris Somer$ille! the director of ;C ,erkeley7s Ener%y ,iosciences nstituteFit #as financed by Vinod 8hosla and ,oston-based "la%ship Ventures&

Cars #ere another interestin% sector& After sellin% their e-book company Iu$oedia! in 200@artin Eberhard and arc 3arpennin% founded 3esla otors in Palo Alto to build electrical cars& n200) they introduced the 3esla Doadster! the first production automobile to use lithium-ion battery

cells& n 200? S;I7s co-founder Vinod 8hosla! #ho had oined $enture capital firm 8leiner PerkinsCaufield R ,yers! founded 8hosla Ventures to in$est in %reen-technolo%y companies& =ne yearlater another S;I co-founder! ,ill 'oy! replaced him at 8leiner Perkins Caufield R ,yers to in$estin %reen technolo%y&

Another le%endary +serial entrepreneur. of Silicon Valley! arc Porat of /o fame! turned tobuildin% materials for the +%reen. economy focused on reducin% ener%y consumption and carbonemission& Some startups included Serious aterials :2002< in Sunny$ale for eco-friendlymaterialsF CalStar Cement :200*


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di%ital art! pioneered by the likes of Camille ;tterback& n 200> the etterman i%ital Arts Centeropened in San "rancisco to house ucasfilm7s lab& 3he first Ner01 "esti$al for +art and technolo%yin the di%ital a%e. #as held in San 'ose in 200)! sponsored by San 'ose State ;ni$ersity7sCADE& Stephanie Syuco7s counterfeit sculptures! ee 5altonQs #eb happenin%s! and Amy,alkinQs ecolo%ical proects referenced the issues of the era& n 2000 "ecalface&com #aslaunched to support the alternati$e art scene :later also a physical %allery! the "ecal "ace ot/allery


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@@& 3he Sharks the iPhone! Cloud Computin%! ocation-based Ser$ices! Social /ames! RPersonal /enomics :200*-10 by ,art ecrem and /eoffrey Arone&

"acebook #as also comin% under attack because of its loose security policies& "urthermore!"acebook content #as exclusi$e to the "acebook #ebsite! and there #as a deliberate attempt by"acebook to isolate the "acebook user from the rest of the nternet #orld& 5hile dissatisfaction#as per$asi$e! the people #ho dared to take on "acebook #ere almost al#ays technolo%yenthusiasts based outside the ,ay Area& n 200? Chica%o-based de$eloper ichael Chisari!started Appleseed! the first open source social net#orkin% en%ine& n 200* ,el%ium-basedde$eloper aurent Eschenauer announced =neSocial5eb& 3his one #as based on PP! the

technolo%y behind nstant essa%in%& a$id 3osh and ,en 5erdmuller! t#o researchers at the;ni$ersity of Edinbur%h in ,ritain! founded El%% in 200?& 3he most hyped by the media of this%eneration of open-source social net#orks #as iaspora! de$eloped by four Ie# Lork ;ni$ersitystudents&

A "acebook Screenshot in 2010

3he ,ay Area /iants

3he other %iants of Silicon Valley #ere left scramblin% for an exit strate%y durin% these times of

uphea$al& n 2004! He#lett-Packard purchased 3exas-based %iant Electronic ata Systems:ES< in a shift to#ards ser$ices! and in 200( erox follo#ed suit by purchasin% AffiliatedComputer Ser$ices& HP also purchased Palm! no# a stru%%lin% smart-phone maker :April 2010 market share $ersus ell7s1)&@

Cloud computin% started to take hold e$en in corporate settin%s& n 200( Cisco partnered #ithassachusetts-based EC! the lar%est pro$ider of net#orked stora%e in the #orld! to found

Acadia and con$ert the old data-centers of the corporate #orld to cloud computin%& n the sameyear Cisco introduced its first line of ser$ers! the ;nified Computin% System& t competed directly#ith HP and , #hile uppin% the ante by inte%ratin% V#areQs $irtuali6ation soft#are :that no#allo#ed to mo$e applications from one ser$er to another at the click of a mouse


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tri%%ered a boom in chips for mobile de$ices& ronically! both ntel and A had exited thatmarket in 'une 200)& ntel had sold its AD-based technolo%y to ar$ell! and A had sold itsPS-based technolo%y to Da6a icroelectronics& n 2010 ntel reentered the market #ith both anin-house proect :ooresto#n< and the ac9uisition of /erman-based nfineon& AD chips #erealready po#erin% de$ices such as Sony tele$ision sets! the Ama6on e-reader 8indle! and hotelkeycard locks! and analysts foresa# a future in #hich thousands of small de$ices #ould need

AD chips to interact amon% themsel$es and to retrie$e information from the nternet& n 200(AD #as a J0&> billion corporation $ersus ntel7s J@> billion! but the trend #as to#ards AD7ssmall lo#-po#er chips& ntel took action in Io$ember 2010 for the first time it accepted tomanufacture someone else7s chips :San 'ose-based fab-less Achronix! a competitor of linx and

Altera in the hi%h-end acceleratin% chip market2 increase o$er the pre$ious year? million smartphones #ere sold in the first 9uarter of 2010! an increase of >) o$erthe pre$ious year&

ntel7s Head9uarters in 2010

Social /ames

Virtual #orld #ere boomin%& 3he audience for pioneerin% $irtual #orlds such as /aia =nline andHabbo had passed fi$e million monthly acti$e users& 3he next front #as the social net#ork&aunched in ay 2004 and only accessible as an application on "acebook! the $irtual #orldLoVille passed fi$e million monthly acti$e users in arch 200(& ,y allo#in% people to create+second-life. a$atars and interact #ith each other! LoVille de facto created a ne# concept a$irtual social net#ork #ithin the real social net#ork& 3he success of LoVille spa#ned a %enerationof bro#ser-based +social %ames. runnin% on "acebook& LoVille itself #as ac9uired in 'uly 2004 byNyn%a! founded in 'uly 200* in San "rancisco by serial entrepreneur ark Pincus& n 'une 200(

Nyn%a released "armVille! a shameless clone of the "acebook-based social %ame "arm 3o#nthat #as introduced by "lorida-based Slashkey a fe# months earlier& n 2010 "armVille hadbecome the most popular "acebook %ame! boastin% more than >0 million users& Nyn%a alsointroduced afia 5ars :200(

Competitors soon started retaliatin% by copyin% Nyn%a7s %ames too& 5hile Nyn%a kept churnin%out clones of popular %ames! the founder of "ree#ebs :no# renamed 5ebs


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stealth mode& =ni$e! #hich #ent li$e in 'une 2010! #as out to kill the $ideo%ame console bypro$idin% $ideo%ames on demand to any computer& 3he $ideo%ames #ere hosted on the +cloud.of the nternet instead of re9uirin% the user to purchase them on physical cassettes&

n 2010 the first blockbuster of iPhone $ideo%amin% took off& An%ry ,irds! de$eloped by "innish%ame de$eloper Do$io obile! founded in 200@ by three students from Helsinki ;ni$ersity of3echnolo%y :Iiklas Hed! 'arno Vake$ainen and 8im ikertbillion in the rest of the ,ay Area& 3he ,ay Area boasted the #orld7s hi%hest concentration of$enture capitalists& Silicon Valley7s share of $enture-capital in$estment in the ;S reached @*&>at the end of 200( :compared! for example! #ith Ie# Lork7s (&20 in a re%ion of about1(!000 s9uare kilometers! smaller than ,eli6e or Slo$enia& n 200) the ,ay Area recei$ed threeIobel pri6es out of nine one each to Stanford! ,erkeley! and ;CS"& n the last 20 years the#inners included Dichard 3aylor of Stanford ;ni$ersity :1((0

Andre# "ire of Stanford ;ni$ersity :200)

:founded in =ctober 200? by Anant A%ar#al< and Canesta :founded in April 1((( by Cyrus ,ami!Abbas Dafii! and Ia6im 8areemi4((< and elhi :1()1


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and communist #orlds :8anpur #as the ;S-affiliated one


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+common $ariant. strate%y #as bein% attacked by an increasin% number of scientists! thro#in%into disarray the #hole industry of personal %enomics&

ean#hile! life #as bein% made in the lab& Venter7s ne# $enture heralded the birth of syntheticbiolo%y as a business& n ay 2010 Hamilton Smith7s team at the Crai% Venter nstitute inaryland achie$ed another milestone in synthetic biolo%y by buildin% a bacterium7s IA fromscratch in the lab& He then transplanted it into the cell of a host bacterium of a different species!#here the artificial IA took control of the host cell and started replicatin%& 3he resultin% li$in%bein% beha$ed like the species made of synthetic IA& t #as the first time that a li$in% cell #asbein% re%ulated entirely by artificially manufactured IA& 3hey had ust mana%ed to repro%ram ali$in% bein%& 3hat li$in% bein%7s parent #as a computer& 3his e$ent opened the doors to anindustry that #ould desi%n custom bacteria on a computer and then build them in the lab&

E$entually! one could en$ision a day #hen indi$iduals #ould be able to pro%ram a li$in% or%anismon a handheld de$ice connected to the lab and order the li$in% or%anism on the fly& 3his $ision#as comin% possible because all the economic factors #ere con$er%in%& t #as becomin%increasin%ly easier to se9uence :+map.< the IA of an or%anism! a fact that resulted in e$erlar%er databases of %enomes of existin% or%anisms& t #as becomin% increasin%ly cheaper tosynthesi6e :+build.< IA molecules& ,oth processes #ere a lot faster than they used to be! due totheir rapid computeri6ation& 3he only tool that #as missin% for a broader a$ailability of life

synthesis #as a tool to edit the IA se9uences& 3he other tool that a #ary humankind #ouldha$e liked to see #as the e9ui$alent of the +undo. feature of computers& 3he media fren6y aroundthis e$ent resembled the media fren6y of the 1(>0s #hen computers #ere labeled as +electronicbrains. that #ould e$entually take o$er the #orld& Io# it #as bacteria #hich #ere bound to takeo$er the #orld& Venter7s next tar%et #as al%ae& ,acteria are sin%le-cell or%anisms& So are al%ae&

Al%ae can be used to make biofuels! because they can make carbon dioxide into fuels byphotosynthesis&

re# Endy at Stanford ;ni$ersity #as #orkin% on creatin% a catalo% of +biobricks. that syntheticbiolo%ists could use to create li$in% or%anisms& His model clearly mirrored the #ay the personal-computer industry %ot started! #ith hobbyists orderin% kits from catalo%s ad$ertised in ma%a6inesand then assemblin% the computer in their %ara%e&

Complete /enomics7 Head9uarters in 2010

/reentech

=n the %reentech front! in 2004 solar technolo%y accounted for almost ?0 of #orld#ide pri$atein$estments in %reentech! follo#ed by biofuels at 11& n the ;S! $enture capitalists in$ested a%rand total of J? billion into +%reen-tech. startups in 2004! #hich #as almost ?0 of allin$estments in hi%h-tech in the ;S& Solar-ener%y company Solyndra #as started in ay 200> in"remont :East ,ay< by Chris /ronet! formerly an executi$e at Applied aterials thatmanufactured e9uipment for the semiconductor industry& ,y 200( Solyndra had J420 million in

$enture fundin% and more than a billion dollars in product orders& n arch 200(! the epartmentof Ener%y helped Solyndra build a >00-me%a#att factory for cylindrical solar cells at the cost ofJ*@@ million& n 200* /oo%leQs founders established /oo%le&or%! the non-profit arm of /oo%le! tofund %reentech startups& n 2004 they in$ested in eSolar! a Pasadena-based manufacturer ofsolar thermal plants! and in AltaDock Ener%y! a Sausalito-based firm tappin% %eothermal ener%y&

Solar startups multiplied after President =bama7s blessin%& 3#in Creeks 3echnolo%ies! founded in2004 in San 'ose by $eterans of the semiconductor industry such as ndian-born Si$a Si$aramand Venkatesan uraliF and Co%enra Solar :ori%inally called Sky5atch Ener%y


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Vie# and funded by Vinod 8hosla&

ore interestin% #ere the many attempts at fundamentally chan%in% the #ay people beha$e& "orexample! in 2004 Simon Saba founded his o#n company in San 'ose to desi%n and manufacturea mass-market sport electric car& He en$isioned the Saba as a 3esla for ordinary families&

3he potential for linkin% infotech and %reentech did not %o unnoticed& /erman %iant SAP hadpioneered the field #ith soft#are to perform carbon accountin%! ener%y auditin%! safetymana%ement and resource plannin%! soon follo#ed by archri$al =racle& Anticipatin% le%islationabout climate chan%e :that #ould penali6e the emission of %reenhouse %ases

3he holy %rail of nuclear fusion! ho#e$er! #as +cold fusion!. i&e& fusion that does not re9uire thehi%h temperatures %enerated by such an expensi$e reactor& n arch 1(4( Stanley Pons! a

chemist at the ;ni$ersity of ;tah! and artin "leischmann from the ;ni$ersity of Southampton in,ritain had announced that they had achie$ed +cold fusion!. i&e& nuclear fusion at roomtemperature :about 20 de%rees Celsius


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Stanford to detect %ra$itational #a$es the aser nterferometer /ra$itational-5a$e =bser$atory:/=


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been founded by Shaykh Ham6a in 1(() in ,erkeley& 3he first ,ay Area uslim "ilm "esti$al hadbeen held in arch 200? in ,erkeley& 3he uslim population of the ,ay Area #as estimated at2>0!000 in 2004&

3he Anthropolo%y of the A%e of Self-a#areness

3he 2000s #ere the decade #hen Silicon Valley #as obsessed #ith itself& 3he 3ech useum ofnno$ation opened in 1((4 in San 'ose! and the Computer History useum opened in 200@ inountain Vie#& Silicon Valley had al#ays been a bit surprised of bein% a #orld-famousphenomenon& 3he Stanford Silicon Valley Archi$es reopened in 1((( at the /reen ibrary andbe%an amassin% donations of documents from companies and indi$iduals& As many of its ori%inalfounders #ere reachin% the a%e of the memoir! Silicon Valley #as becomin% a self-celebratoryphenomenon& n another act of self-celebration! in 200) 'ulie Ie#doll of LE %a$e acommission to sculptor 'im Pallas! #ho speciali6ed in ply#ood hitch-hikers& She #antedsculptures of six foundin% fathers of Silicon Valley :e"orest! He#lett! Packard! Shockley! 3ermanand Ioyce< to be dispatched around the ;S e9uipped #ith trackin% de$ices&

3his society saturated #ith hi%h-tech #as still humane& A fe# e$ents #ere emblematic of the anti-technolo%ical reaction that #as more per$asi$e than e$er despite the appearances& "irst #as the%ro#in% popularity of the outdoors& A store like DE! founded in 1(@4 in Seattle by a %roup ofmountaineers! became a con%lomerate due to its success in the ,ay Area! #here it maintainedei%ht locations& t speciali6ed in sportin% %oods! notably for hikin%! climbin%! and bikin%& 3he ,ay

Area had al#ays been obsessed #ith fitness :and the %ym had become ubi9uitous< but this #entbeyond fitness& Silicon Valley en%ineers used their spare time to train for the epic hikes ofLosemite and the Hi%h Sierra! as #ell as for marathons! bike races! and triathlons! no matter ho#unprepared they #ere&

3he +,urnin% an. festi$al had mo$ed to an isolated corner of the ,lack Dock desert in Ie$ada#here it had completely lost its +counterculture. status& t #as no# one of the most ad$ertised and

expensi$e e$ents of the year& ,ut it #as a futuristic! urban experiment& urin% abor ay#eekend in September! tens of thousands of people! mostly from the ,ay Area! set up a tent city!li$ed in it! and #ere stimulated to be creati$e and spontaneous& 3hen they simply +undid. it all!lea$in% no traces behind& ,urnin% an had become famous for its fantastical and participatory artinstallations :that #ere meant to be burned at the end of the festi$al< and for its pictures9uecostumes and body art of the cro#d& ,ut it #as becomin% more interestin% as a self-or%ani6edcommunity& ,urnin% an had ori%inally been studied as a semi-reli%ious ritual of purification andcommunion by the hi%h-tech %eneration! but no# it #as also studied as a city po#ered by solarener%y and motori6ed by biodiesel& t #as decorated #ith the arts instead of billboards! andcleaned by the citi6ens themsel$es& ,y comparison! the European e9ui$alent #as the +o$eParade!. #hich #as really ust a bi% party of music! alcohol! and dru%s&

And then there #as the end of the #orld& 3he cycles of the aya calendar end #ith the year

2012& 3his and other coincidences led to the formation of theories about some kind of impendin%apocalypse that became a fa$orite topic of discussion amon% en%ineers #ho had ne$er caredabout aya history :and! alas! probably didn7t really kno# #ho the aya #ere


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Printers nc& in Palo Alto closed& 8epler7s in enlo Park closed in 200> but #as sa$ed by a %rass-roots campai%n& n 200)! both Cody7s in ,erkeley and A Clean and 5ell i%hted Place inCupertino had to shut do#n& aybe it #as also a si%n that the di%ital %eneration demanded adifferent $ehicle than the traditional paper book&

3his society #as still $ery transient& n 1((2 unemployment in Silicon Valley had reached *&?& n2000 it had declined to 1&*& =ne year later it had increased to >&(& ,y 200* it #as do#na%ain& t #as not the same people #ho left and came& 3hose #ho left probably ne$er came back&t #as terribly difficult to resettle in the ,ay Area after one left it! both in terms of real estate :homeprices tended to skyrocket durin% a reco$ery due to a chronic shorta%e of housin%< and in termsof employment :easy for a recent immi%rant or fresh %raduate to take a risky ob! difficult forsomeone #ho already had a career some#here else "lickr only had nine employees!but they #ere mana%in% a repository of millions of pictures& 3hose pictures #ere taken around the#orld! edited! uploaded! documented and e$en or%ani6ed by millions of users& A ma%a6ine thatdecided to create a similar repository of pictures #ould ha$e to hire thousands of photo%raphers!tour %uides and editors& n 200> Skype only had 200 employees! but they #ere pro$idin%telephone ser$ice to more than >0 million re%istered users& Any telecom in the #orld that pro$ided

a comparable ser$ice employed tens of thousands of technicians! operators! accountants! etc&=ne of the fundamental disco$eries of the +net economy. had been that users of the 5eb aroundthe #orld are happy to contribute content for free to #ebsites #illin% to accept it&

3his phenomenon ob$iously displaced #orkers #ho used to be paid to create that $ery content&3his phenomenon #as not creatin% oblessness but merely unemployment it #as creatin% unpaid

obs& illions of people #orked :some of them for many hours a day< to create and uploadcontent to other people7s businesses :such as 5ikipedia! "acebook! 3#itter! "lickr and Lou3ube


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Companies had to churn out computers instead of type#riters! a process that in$ol$ed hirin%more :not fe#er< people& n fact! each #a$e of technolo%ical pro%ress typically created ne#opportunities for kno#led%e #orkers! and this class therefore expanded rapidly! creatin% more:not less< employment :and hi%her incomest #as an illusion that Lou3ube #as run by only a handful of employees& Lou3ube +employed.millions of +employees&. t ust so happened that (( of them #ere happy to #ork :pro$idecontent< for free& 3herefore there #as no need anymore to actually hire people to create content&Protectionists #ere complainin% that de$elopin% countries #ere +dumpin%. cheap products on the;S market that caused ;S companies to %o out of business& Protectionists #ere in$ei%hin%a%ainst +unfair trade&. ,ut the real enemy of employment #as free labor& Iothin% kills obs fasterand more permanently than free labor& 3hat is a form of competition that #as comin% from insidethe ;S society! an accidental by-product of technolo%ical pro%ress&

3his accidental by-product #as actually the dream of socialist utopians& 3he net economy hadcreated production tools that #ere a$ailable for free to e$erybody& 3hat #as precisely arx7sdefinition of socialism the collecti$e o#nership of the means of production& 3his accidental by-product #as also the dream of the hippie utopians of the San "rancisco ,ay Area& n the 1(*0sSte#art ,rand of the 5E had ima%ined precisely such a $irtual community of people en%a%edin the free production and exchan%e of kno#led%e %oods a community of people in$estin% theirtime and sharin% their content for free& 3he utopian society of arx and ,rand had materiali6edas a +%ift economy. :a term coined in 1(4> by e#is Hyde and applied to the net economy in1((4 by Dichard ,arbrook< in #hich a fe# businesses pro$ided the means of production to amass of millions of $olunteer amateur editors&

3he free labor of these many #orker ants allo#ed a $ery small number of 9ueens to %et

extremely rich #hile causin% millions of middle-class families to lose their income&

3he irony is that they #ere often the same people& 3he $ery person #ho uploads a picture! a textor a $ideo for free is the person #ho #ill :directly or indirectly< need to look for another :often lessremunerati$e< ob as a :direct or indirect< conse9uence of that act of free labor&

3he nternet had indeed democrati6ed society& E$erybody could no# start their o#n business& Atthe same time the nternet had increased the $alue of kno#led%e! another step in the pro%ress ofhuman ci$ili6ation from sur$i$al-based %oods to kno#led%e-based %oods& 3he problem #as thatthe nternet had also democrati6ed kno#led%e production e$erybody could no# pro$ide content!and they #ere #illin% to do it for free&

3he net economy #as! in fact! rapidly e$ol$in% to#ards an economy of one-man operations&

3here #ere no# 5eb-based tools a$ailable to build! run! and moneti6e a business that onlyre9uired limited technical skills and no more than a fe# days of #ork& =ne person alone couldcreate an assembly line entirely on the 5eb to produce a mass-market productBser$ice :in thesame cate%ory as Lou3ube! "lickr and Crai%slist


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n the a%e of smartphones and email there #as another $ictim physical proximity #as no lon%er anecessity for a startup& 3here #as no need to be based! say! in Palo Alto! #here the cost of li$in%#as so hi%h& 3he time had come for %eo%raphically distributed startups& "or example!Stack=$erflo# #as founded in 2004 by 'eff At#ood in ,erkeley and 'oel Spolsky in Ie# Lork!and employed people in different states&

3he traditional economy had tended to concentrate #ealth in the hands of a fe# lar%e companiesthat had run %iant empires of hundreds of thousands of employees around the #orld& 3he %ifteconomy #as rapidly concentratin% #ealth in the hands of a fe# indi$iduals #ho ran %iantempires of tens of millions of unpaid amateurs&

3#itter7s =ffices in 2010

3he Assembly ine odel of Startup "undin%

3he first boom of Silicon Valley7s $enture capital #orld took place in the mid-1(40s #hen lar%esemiconductor companies needed money to build +fabs. :short for +fabrication plants.by kids e$en youn%er than them&

3he mindset of both in$estors and founders #as $ery different from the mindset of in$estors andfounders of the 1(40s& 3he credentials of a founder #ere often based on popularity! not on aprofessional business plan& n fact! these ne# in$estors +hated. the 5all Street type of founder&3hey lo$ed! on the other hand! the +cool. kid& 3he successful founder #as someone #ho couldcreate +bu66. on the nternet about his or her idea! e$en if he or she had no clue ho# to moneti6ethat idea& t #as! in a sense! the psycholo%y of the hi%h school transplanted into the #orld offinance& 3he intellectual idealism of the early nternet #as bein% replaced by the subculture ofhi%h-school %an%s :albeit one that abhorred dru%s and $iolence


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3he ne# an%els! in turn! #ere not professionals educated by Stanford or Har$ard to the subtletiesof economics they #ere former +cool. kids& 3hey in$ested based on their instinct! tryin% to %uess#ho #ould become the next cool kid& 3o some extent the $enture capital business had al#aysbeen a statistical %ame you in$est in ten startups hopin% that ust one makes it bi%& ,ut it hadal#ays been backed by some :economic< science& t #as no# becomin% pure %amblin%& 3hepsycholo%y re9uired from an an%el in$estor #as more and more similar to the psycholo%y of the%ambler #ho spent the day in front of a slot machine in as Ve%as casinos& 3he inception of thisne# kind of $enture capitalism #as commonly taken to be 200>! #hen Paul /raham started LCombinator in ountain Vie# and incubated ei%ht seed-sta%e startups&

ast but not least! the early adopters too #ere of a different kind than for pre$ious %enerations ofproducts& 3he early adopter of an ntel product or of an =racle product #as a multinationalcorporation& 3he early adopter of an Apple %ad%et #as a professional #ith a %ood salary! andtypically a technolo%y-sa$$y one& Io# the early adopter of a #ebsite :say! a social net#orkin%platform< #as! instead! ust a kid himself& 3he early adopter #as not payin% anythin% to use the+product. :the social net#orkin% platform


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due to reckless bankin% speculation& 3he crisis #as mostly a 5all Street problem! but it dra%%eddo#n the entire economy& Ho#e$er! hi%h-tech companies in the ,ay Area did relati$ely #ell! mostof them reemer%in% after t#o years unscathed& 3he dotcom crash had been useful to teach themho# to trim costs 9uickly in the face of an economic do#nturn&

Silicon Valley had traditionally been indifferent to national and especially internationally e$ents&E$en the $arious #ars that the ;S fou%ht :5orld 5ar ! 5orld 5ar ! 8orea! Vietnam! the firstand second ra9i #ars! Af%hanistan< #ere percei$ed as distant echoes and! 9uite frankly! asbusiness opportunities& 3his happened despite the stron% anti-#ar sentiment of San "ranciscoand ,erkeley! yet another contradiction in the ideolo%ical dynamics of the ,ay Area& 3his #as truebecause of the relati$e isolation of California! but also because for a lon% time Silicon Valley7score business did not need anybody else& Silicon is the second most abundant chemical elementof the Earth7s crust after oxy%en&

3he entire industry of semiconductors had a colossal ad$anta%e o$er other industries its primaryelement #as cheap and #idely a$ailable& 3here #as no need for #ars in the /ulf 5ar and no #ildspikes in prices like for %old& Soft#are had an e$en smaller resource footprint a soft#areen%ineer ust needed t#o fin%ers to type on a keyboard& ;ntil the 1((0s! Silicon Valley sa# therest of the #orld either as a market or as an outsourcin% facility&

3he a%e of the cell phone! of the $ideo%ame! of the di%ital camera! and of the di%ital music player!instead! relied on another material! tantalum! #hich #as far less abundant& 3antalum #asobtained from coltan :columbite-tantalite< and one country held the lar%est reser$es of coltan theemocratic Depublic of Con%o& 3hat nation also held another record the bloodiest ci$il #ar since1((4& Deports started circulatin% that the ci$il #ar #as funded by the smu%%lin% of coltan to#ardsthe 5estern companies that needed it for their consumer electronics products& At the same timestories also appeared of the terrible #ork conditions in the Chinese factories of Shen6hen! #herehundreds of thousands of lo#-paid #orkers assembled electronic de$ices for ;S manufacturers:notably Apple0 of the #orld7s reser$es of lithium #ere based in ,oli$ia!#hich had ust elected a socialist president #ith an anti-;S a%enda& China had become the

bi%%est producer of +rare earths. :$ital to cell phones! laptops and %reentech< and pressure #asmountin% to reopen the Californian mines that used to dominate the #orld markets& 3he >0 milliontons of electronic #aste %enerated #orld#ide each year #ere mostly sent for disposal tode$elopin% countries #here $aluable metals #ere con$erted into scrap metal for resale at the costof human li$es and en$ironmental disasters&

At the same time California #as %oin% throu%h $ery turbulent financial times for the first time in itshistory& t had one of the hi%hest unemployment rates in the country! slo# %ro#th! and a chronicbud%et deficit& Silicon Valley had risen :from the 1(?0s to the 1((0s< in a state that #as boomin%&Io# it #as embedded in a state that #as failin%& Puttin% it all to%ether! Silicon Valley #as nolon%er insulated from %lobal politics as it had been for decades&

t #as not a coincidence that t#o of its most popular corporate executi$es! e% 5hitman of e,ay

and Carly "iorina of HP! entered the national political scene&

httpBB###&scaruffi&comBs$historyBs$Bchap10)&html

@?& Conclusions

by Piero Scaruffi


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3HESE ADE ECEDP3S "D= 3HE ,==8 A History of Silicon Valley

3he computer that dri$es a smart phone of 2010 is nearly a million times cheaper! a hundredthousand times smaller! and thousands of times more po#erful than a mainframe of the 1(*0s& nless than four decades the computin% po#er that one can buy #ith the same amount of moneyhas increased a billion times& 3he amount of data that one can store for J100 has also multipliedastronomically :one terabyte for J100 in 2010 $ersus 24 me%abytes for J11>!>00 on the ,1@01 odel 1 of 1()1! #here one tera is one million me%as


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comparable to the transistor or to the 5orld-5ide 5eb& 3hey #ere much better at incubatin%businesses than at in$entin% the technolo%y for those businesses&

on7t look at Silicon Valley to %uess #hat the next bi% thin% in hi%h-tech #ill be it is bein%in$ented some#here else& Silicon Valley #ill pick it up if it promises to re$olutioni6e the li$es ofordinary people&

3here are many places in the #orld #here much more sophisticated technolo%y is created! fromnuclear po#er plants to airplanes& ,ut personal computers! #eb ser$ices! and smart phones:and! in the near future! biotechnolo%y and %reentech< ha$e chan%ed our li$es in a more in$asi$eand per$asi$e manner& Someho# those are the technolo%ies in #hich Silicon Valley excels& t isnot about the complexity and sophistication of the technolo%y! but about the impact it #ill ha$e onhuman society& n a sense! Silicon Valley +lo$es. socially destabili6in% technolo%ies& Silicon Valleyhas a uni9ue :almost e$il< knack for understandin% the socially destabili6in% potential of anin$ention and then makin% lots of money out of it& 3hat7s! ultimately! #hat people mean #hen theytalk of Silicon Valley as a factory of inno$ation&

3here #as nothin% intrinsic in the Silicon Valley model that made it #ork for computers inparticular& 5hate$er it #as! that model #orked for hi%h-tech in %eneral& Silicon Valley representeda platform for perennial inno$ation that could be applied to other fields as #ell :such as biotech

and %reentech


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#orld& 3he one place that came close to replicatin% Silicon Valley #as Doute 124 near ,oston!#hich #as also the second most anti-establishment place in the nation&

Ho#e$er! the East Coast #as similar to Europe and dissimilar from Silicon Valley in anotherrespect $ertical instead of hori6ontal mobility& Europe and the East Coast encoura%ed employeesto think of a career #ithin a company! #hereas Silicon Valley encoura%ed employees to think ofs#itchin% obs all the time& n Europe there #as little moti$ation to hire someone from anothercompany! since one could not recycle that person7s skills le%ally! and it #as e$en ille%al to start ane# business based on #hat one learned at a company& Hence Europe created bi% companies#here people7s main moti$ation #as to %et promote to hi%her and hi%her positionsF and! typically!a#ay from en%ineerin%& 3his praxis had the double effect of +detrainin%. en%ineers :as they #ereshuffled around in search of better-soundin% titles! and typically landed non-technical positions0-2010-?0& Partners ,ill He#lett! a$e Packard! and "red 3erman at HP and Stanford :1(@0-1(*0>-*4-(4

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Piero Scaruffi - EXCERPTS FROM a History of Silicon Valley