Yet, in its celebration of the free market, the individual entrepreneur, and the miracles of a wholly new economy, the Silicon Valley mythos left out some of the most interesting, unprecedented, and quintessentially American things about the modern tech industry. For these entrepreneurs were not lone cowboys, but very talented people whose success was made possible by the work of many other people, networks, and institutions. Those included the big-government programs that political leaders of both parties critiqued so forcefully, and that many tech leaders viewed with suspicion if not downright hostility. From the Bomb to the moon shot to the backbone of the Internet and beyond, public spending fueled an explosion of scientific and technical discovery, providing the foundation for generations of start-ups to come.
To declare that Silicon Valley owes its existence to government, however, is as much of a false binary as declaring that it is the purest expression of free markets in action. It is neither a big-government story nor a free-market one: it’s both.
As we’ll see in these pages, as important as the fact that the U.S. government invested in tech is how that money flowed—indirectly, competitively, in ways that gave the men and women of the tech world remarkable freedom to define what the future might look like, to push the boundaries of the technologically possible, and to make money in the process. Academic scientists, not politicians and bureaucrats, spurred the funding for and shaped the design of more-powerful computers, breakthroughs in artificial intelligence, and the Internet—a marvelous communication network of many nodes but no single command center.
Government largesse extended beyond the military-industrial complex, too. Deregulation and tech-friendly tax policies, lobbied for and especially benefiting computer hardware and software companies and their investors, helped the Valley grow large; ongoing public investments in research and education trained and subsidized the next generation of high-tech innovators. All the while, an increasing political distaste for grand government schemes and centralized planning kept political and military leaders largely out of the industry’s way. Despite the millions in federal investment coursing through its veins, the region’s tech cluster was allowed to grow organically, over time, largely off the political radar screen.
This freedom had unanticipated consequences. From the mainframe era forward, national politicians used a remarkably light hand in regulating the data-gathering behaviors of an industry whose technologies they only vaguely understood, but whose hockey-stick growth boosted the domestic economy. When the government-built Internet finally opened up to commercial activity at the start of the 1990s, both Democratic and Republican politicians agreed that regulation should be minimal, with companies largely policing themselves when it came to things like user privacy. All this ultimately permitted a marvelous explosion of content and connectivity on social media and other platforms, but the people designing the rules of the Internet didn’t reckon with the ways that bad actors could exploit the system. The people building those tools had little inkling of how powerful, and exploitable, their creations would become.
Another twist on a seemingly familiar story: the high-tech revolution is the result of collective effort as well as individual brilliance, and many non-technologists played critical roles. Success came thanks to a vibrant and diverse cast of thousands, not just the marquee players who became the subjects of bestselling biographies and Hollywood films. Some were brilliant engineers; others were virtuoso marketers, lawyers, operators, and financiers. Many became rich; many more did not. Operating far away from the centers of political and financial power in a pleasant and sleepy corner of Northern California, they created an entrepreneurial Galapagos, home to new species of companies, distinctive strains of company culture, and tolerance for a certain amount of weirdness. It was a place filled with smart people who had mostly come from somewhere else—other ends of the country, other sides of the globe—and who had a willingness to leave the familiar behind and jump into the unknown. “All the losers came here,” a tech veteran once told me in wonderment, “and by some miracle they pulled it off.”8
The geographic and psychic separation between the Valley and the hubs of finance and government—not to mention the ivied halls of East Coast academia—was both its great advantage and its Achilles heel. Innovation blossomed within a small, tightly networked community where friendship and trust increased people’s willingness to take professional risks and tolerate professional failures. Yet the Valley’s tight circle, born in an era when the worlds of engineering and finance were all-white and all-male, programmed in sharp gender and racial imbalances—and narrowed the industry’s field of vision about the products it should make and the customers it could serve.
Myopia extended further. The Valley’s engineering-dominated culture rewarded singular, near-maniacal focus on building great products and growing markets, and as a consequence often paid little attention to the rest of the world. Why care too much about the way government institutions or old-line industries worked, when your purpose was to disrupt them in favor of something far better? Why care about history when you were building the future?
But there, again, revolutionary reality departs from revolutionary myth. For all its determination to push away the gatekeepers, dismantle ossified power structures, and think differently, the “new economy” of tech was deeply intertwined with the old.
Venture capital came from Rockefellers and Whitneys and union pension funds. Microprocessors powered Detroit autos and Pittsburgh steel. Amid 1970s stagflation and 1980s deindustrialization, when all of America was looking for a more hopeful economic narrative, old-line media and old-line politicians championed technology companies and turned their leaders into celebrities. The whole enterprise rested on a foundation of massive government investment during and after World War II, from space-age defense contracts to university research grants to public schools and roads and tax regimes. Silicon Valley hasn’t been a sideshow to the main thrust of modern American history. It has been right at the center, all along.
The Valley’s tale is one of entrepreneurship and government, new and old economies, far-thinking engineers and the many non-technical thousands who made their innovation possible. Even though every other industrialized nation has tried in some form to mimic its entrepreneurial alchemy, even though its companies have spread their connective tissue and disruptive power across the globe, it is an only-in-America story. And it is one born of a particularly lucky place and time: the West Coast of the United States in that remarkable quarter century after the end of the Second World War, where grand opportunities could await a young person with technical inclinations, the right connections, and a sense of adventure.
ACT ONE
START UP
We all grew up together, really, and it all turned out very well.
FRED TERMAN1
Arrivals
PALO ALTO, 1949
The sunshine hit his face as soon as he stepped off the train. Born in South Carolina, raised in Florida, and living amid the snowdrifts of Erie, Pennsylvania, David Morgenthaler missed this kind of warm and welcoming climate. It was January 1949. Tall and loose-limbed, with traces of the South in his speech and the restless energy of the North in his manner, Morgenthaler was thirty years old and already had a remarkable résumé. He had graduated from MIT at age twenty-one, turned down a job offer from GE at the age of twenty-two, and had wartime command of 300 soldiers by the age of twenty-four. The young officer built airstrips in North Africa for Allied bombers, became the Army’s Chief Technical Officer in the Eastern Mediterranean, and was preparing to ship out to the Pacific when the United States dropped an atomic bomb on Hiroshima, one day after his twenty-sixth birthday.
Returning to civilian life, Morgenthaler joined an up-and-coming engineering firm in the busy industrial city of Erie. Now, he had moved on to a second entrepreneurial company, a maker of superheated steam boilers for electrical power generation, and his bosses had sent him
out West to give a series of lectures on their cutting-edge products.
You have to think of it like a horse race, Morgenthaler would explain. That’s how the high-tech game worked. The horse was the technology. The race was the market. The entrepreneur was the jockey. And the fourth and last ingredient was the owner and trainer—the high-tech investor. You could have the best jockey, but if he rode a slow horse, then you wouldn’t win. Same thing if you had a fast horse, but a terrible jockey. Great technology without good people running the shop wouldn’t get very far. And the race had to have good stakes. Riding a fast horse to a win at the county fair wouldn’t reap many rewards, but the Kentucky Derby was another matter indeed. So it went with the market. There needed to be customers, and growth, not saturation.
This stop on the speaking tour: Stanford University’s campus nestled against the coastal foothills thirty miles south of San Francisco. “What a lovely place to get a job,” Morgenthaler thought. But when he started asking around, his hopes deflated. “We’d love to have you,” his local contacts told him, “but we can’t afford you.” Palo Alto was a place for farmers and ranchers, or for people who were already rich. The war had made the region a hive of activity, but peacetime had returned it to rural sleepiness. Nearly everything happening in the electronics business was three thousand miles distant; local electronics companies were still small. Their finances were often unsteady. Plus, it was so far away from everything. A long-distance phone call to family back East would have cost 5 percent of his monthly salary.
Palo Alto didn’t seem to have horse, race, jockey, or owner. David Morgenthaler reluctantly returned to the snows of Erie.1
NEW YORK, 1956
Before she got on the subway for her interview at IBM, Ann Hardy looked up the word “computer” in her college dictionary. She didn’t find an entry. No matter. She wanted an interesting job, and work in computing sounded like it might be the ticket.
Cheerful, confident, and technically minded, the twenty-three-year-old Hardy had always hoped to be a scientist. She had been frustrated at every turn. First came her early years in Chicago’s North Shore suburbs, in a family that deeply disapproved of female professional ambition. When she won admission to Stanford, her mother forbade her to attend. So she consoled herself by enrolling in Pomona, another California college where she could find sunshine, distance from family, and a major in science.
There, once again, authority figures got in the way. “Women can’t major in chemistry,” the chair of Pomona’s department told Hardy flatly. Similar turndowns came from elsewhere in the hard sciences. The resourceful freshman looked further. She found her future at the edge of campus, in the university field house. Phys ed: an academic program, chaired by a woman, whose premed degree requirements included all the math and science classes a geek could desire.
After graduating in 1955, Hardy headed east to New York City and to Columbia University’s graduate program in physical therapy. Within weeks came further disappointment. Doctors knew better than physical therapists, explained the professor to a lecture hall full of quietly attentive students. It would be unwise to disagree with a physician’s diagnosis, publicly or privately. That did it. Hardy knew that she would not last long in a position that wouldn’t let her speak her mind. Getting an MBA might help, but those programs didn’t accept women. She dropped out of graduate school and began a furious round of professional networking. Surely someone knew someone who might help her find something exciting, perhaps even exceptional. At last: a man she knew from Chicago now worked as a computer programmer at IBM. They needed lots of programmers, he told her. No prior experience needed. All you had to do was pass an aptitude test.
IBM was well on its way to controlling 75 percent of the computer market on the day Ann Hardy walked through its front doors. Its plate-glass windows shone brightly around the clock, framing a clean, fluorescent-lit roomful of what newly installed CEO Thomas J. Watson Jr. called “well-dressed technicians” busily programming the newest IBM model. Young women got the most visible seats in the house. If passing businessmen saw the women working the computers, Hardy remembered the IBM brass telling her, the machines “will look simple and men will buy them.”
All those undergraduate classes in the phys ed department paid off. IBM was a company whose success depended on a strong understanding of their customers, and it sought out premed types who, as Hardy put it, “cared about people” along with having a scientific background.
Hardy passed the aptitude test with flying colors and proceeded to hammer through IBM’s six-week training program, emerging as one of the top three graduates in a cohort of fifty. While men with comparably high scores got offered jobs in sales, all she got offered was a spot as a “Systems Service Girl,” a winsome assistant who’d help new customers learn how to work their machines. No, thank you. She’d stick to being a computer programmer. Downstairs she went, to the gleaming lobby showroom.2
PALO ALTO, 1957
One year later and three thousand miles to the west, another bright and ambitious young person started a new job, too. Burton J. McMurtry was just about the same age as Ann Hardy, old enough to remember depression and war, entering young adulthood in the prosperity and anxiety of the Cold War 1950s. The second son of a modestly middle-class Houston family, McMurtry set his sights early on going to college across town at tuition-free Rice University. There still wasn’t much money around to pay for college living expenses, so he spent several summers out in the oilfields, where a young man could earn more than $1,000 a season.
The hard, physical work was completely different from anything they taught in school. Throughout the sun-blasted, 100-degree days, he learned how to handle a six-foot-long pipe wrench while high up on a refinery platform. His roustabout coworkers had little formal education, but they understood how to solve problems. “You learned a lot,” he remembered, “about how to do things in a practical way.”3
After graduating with an engineering degree from Rice in 1956, McMurtry landed in Schenectady, New York, as a summer intern at General Electric’s microwave laboratory. He was hooked. Microwave technology was an “electronic war baby”—a tool that came into its own during World War II, its R&D fueled almost totally by military contracts. A decade later, it was turning into a big business. Those frequency radio waves had many applications, from beaming wireless television signals to cooking potatoes to generating vast amounts of energy through particle acceleration.
If Burt McMurtry wanted to get into the microwave business, his GE supervisors told him, he needed to head to Northern California. Stanford had the best graduate training in the field. Nearly every big electronics firm in the country was opening up microwave labs nearby. Applying there was a pretty simple matter back then, particularly for a sharp young man with the right references. In those days, the school accepted about half of the undergraduates who applied; for a Rice graduate with good connections, admission would be a breeze.
Since David Morgenthaler’s 1949 visit, Stanford’s engineering program had more than doubled in size. An added bonus for a newly married man with a baby on the way: Stanford had a cooperative program with local companies that allowed grad students to work full-time while earning their degree, all tuition free.4
It was just a matter of tracking down one of those jobs, and McMurtry found it with New York–based Sylvania, which had just expanded its microwave laboratory operations in Mountain View just to be close to Stanford’s faculty expertise and talent pool. Not even a recruiting visit during an especially cold and rainy February day dampened his excitement at the prospect of going to Stanford and working in microelectronics. Six months later, the twenty-three-year-old and his wife, Deedee, were packing up their car and driving out West.5
* * *
—
Burt McMurtry and his bride joined a mass migration of some five million people who came to California in the 1950s, an exodus that included some of the best eng
ineers in the country making their way to the twenty-square-mile patch of South Bay countryside. Most were just like him. They were in their twenties and early thirties, nearly all white and male. Many hailed from small towns and cities of the Midwest and Southwest rather than the metropolises of the East. Some were veterans who had picked up engineering skills while working on battleships and radar stations during the Korean War. They were Silent Generation squares who sported sharp crew cuts and neatly pressed shirts and slacks. They lacked pedigree, prep school ties, or Ivy League diplomas. Instead, they had energy, mobility, and engineering degrees—a most valuable currency in a Cold War world propelled by technology.
No single thing is responsible for the economic phenomenon that later became famous as “Silicon Valley.” It came from a perfect storm of luck and circumstance, geopolitics and macroeconomics, talent and leadership, and young men in search of the sunshine. Many of these drivers of transformation were budding when David Morgenthaler made his 1949 visit. By the time the McMurtrys rolled into town in 1957, they were in full blossom.
For one big thing had changed in those eight years. The U.S. government got into the electronics business and became, in a sense, the Valley’s first, and perhaps its greatest, venture capitalist.
CHAPTER 1
Endless Frontier
Palo Alto, California, in the mid-1950s was a tidy railroad village, filled with wood-frame Victorians, low-slung bungalows, and prim storefronts. Freshly built subdivisions of ranch houses fanned out from the city center, their winding roads dotted with scrawny, newly planted trees. Yet this was no ordinary suburb. Letters to the editor debated the merits of Mozart, classical records outsold rock-and-roll, and “appallingly brainy” high schoolers regularly scored in the “genius” level of IQ tests. At a time when only 7 percent of American adults had completed four years of college, more than a third of Palo Alto men had college degrees. Even more remarkably, so did 20 percent of the women. Unfortunately, all the educational firepower didn’t bring much in terms of nightlife. “You couldn’t pay me to live here,” said one young bachelor to a visiting reporter. “Night falls,” the correspondent noted, “with a deep yawn over much of this city.”1
The Code Page 2