The Code

by Margaret O'Mara

  UC Chancellor Clark Kerr was determined to match or exceed the Ivy League in research excellence, although he gently disdained the raw entrepreneurialism of Fred Terman. “The individual faculty member is a genuine entrepreneur; the real producer of the intellectual product,” he observed. “Out of the free action of each the public gets the best product as business competes with business and mind with mind.” Although Kerr’s desire to preserve and celebrate the ivory tower might have muted the ability of Berkeley’s faculty and students to capitalize on their inventions (and helps explain why the East Bay did not become a high-tech hub), the broad-based commitment to public education provided the state with an abundant, highly educated talent pool.30

  There also was a dash of serendipity at work when it came to the Valley’s California location. For example, the state’s civil code prohibited enforcement of non-compete clauses in employment contracts, a prohibition that didn’t have a thing to do with the intellectual property or trade secrets of the electronics industry, but instead came into being in 1870, as the state’s early lawmakers attempted to reconcile the chaotic jumble of legal regimes—Spanish, Mexican, Anglo-American—that had ruled the state. But the result of this provision helped facilitate the job-hopping that became a hallmark of the Valley’s tech community.

  If an engineer left his job and jumped to a direct competitor, his old employer couldn’t do anything about it, even though the employee’s tacit knowledge could be a tech company’s most valuable asset. Massachusetts, in contrast, enforced these clauses. As did Washington, Oregon, Illinois, Texas, New York, New Jersey, and more. Every other place in America that had a tech sector practiced enforcement of non-competes; but California did not. As non-compete clauses grew along with the technology industry, and spread to other sectors as well, the freedom to move kept the Valley filled with funny little companies, and kept knowledge spilling over from one technical generation to another.31

  * * *

  —

  It would still be two decades more before the Valley decisively pulled out ahead of Boston, but the ingredients were there early. Boston may have had MIT and Harvard and leading companies of the postwar electronics world, but it didn’t have that cheap land and abundant infrastructure and local people willing to capitalize upon it to such an unfettered degree. New York and Philadelphia may have had the capital and the big electronics makers and some of the universities as well, but these places didn’t have the relentless focus on nurturing start-ups. Nowhere else but the Valley had the entrepreneurial and opportunistic Stanford, the thrusting bulldozers and hustling law firms, and the young money men opening up shop along Sand Hill Road. Nowhere else had the people. The California Gold Rush had been over for a century, but the Golden State remained a destination for the adventurous young from elsewhere, arriving with little to lose and an appetite for reinvention.

  Arrivals

  NEW YORK HARBOR, 1965

  The bill we sign today is not a revolutionary bill,” President Lyndon B. Johnson said. “It does not affect the lives of millions. It will not reshape the structure of our daily lives, or really add importantly to either our wealth or power.” The toned-down rhetoric wasn’t what usually came out of these kinds of presidential bill-signings—particularly one staged in the grand setting of Liberty Island, the backdrop of the Manhattan skyline gleaming in the crisp autumn air. But Johnson was signing into law a sweeping reform of the nation’s immigration system, one that swept aside quotas that had been in place since the anxious, nativist days of the early 1920s, and opened the door to new streams of migration from all over the world.1

  Now, immigration law would prioritize special skills and connections to family who already lived in the United States. Gone were laws that had excluded Asian immigrants for so long; gone, too, were the limits on new arrivals from Latin America and Africa. Instead of restricting entry by country of origin, the new system would operate on “the principle that values and rewards each man on the basis of his merit as a man,” said the President. Here was the next, necessary step in America’s commitment to civil rights and racial equity, correcting “a cruel and enduring wrong in the conduct of the American Nation.”

  For the bill’s opponents, the loudest of whom were Johnson’s fellow Southern Democrats, immigration reform was a dangerous opening of the floodgates. What would happen to the nation’s heritage, its citizens’ connection to their Enlightenment roots? “I don’t know of any contributions that Ethiopia has made to the making of America,” huffed North Carolina’s Sam Ervin. The special-skills provision was “just sanctimonious propaganda,” he said, allowing immigrants to come by the tens of thousands “to compete with Americans for available jobs.”2

  In the end, the effects of the bill signed that day in New York Harbor went far beyond what Johnson or Ervin imagined. The new waves of immigration that followed in its wake brought new ethnic, racial, and religious diversity and redefined who and what was “American.” Immigration from India was three times what the Johnson Administration had predicted. Nearly six million new immigrants came to the U.S. from Asia between 1966 and 1993 alone.

  Few places in America were more transformed—and economically and intellectually invigorated—by these new arrivals than the hubs of the technology industry: Boston, Texas, Seattle, and, especially, Silicon Valley. Skills requirements were not “sanctimonious propaganda” in the world of high tech; immigrants from Taiwan and Hong Kong, then China, India, and the former Soviet Union became the engineering backbone of hundreds of start-ups and large tech companies. Many of them ended up founding companies themselves. In the 1980s, immigrants from India and China were at the helm of nearly one-fourth of Silicon Valley companies. By the Internet era, the number of immigrant founders in the Valley stood at 40 percent. Nationwide, more than 25 percent of high-tech companies had a foreign-born founder.3

  The new wave included people just as critical to the scaling-up of the tech phenomenon, even though their faces never appeared on the covers of Fortune or Forbes: assembly-line workers from Mexico and Southeast Asia, who soldered the semiconductors, built the desktops, and fabricated the routers. By the end of the 1980s, over half of Silicon Valley’s blue-collar workforce was Latino or Asian.4

  “We can all believe that the lamp of this old grand lady is brighter today,” concluded Johnson that long-ago October, “and the golden door that she guards gleams more brilliantly in the light of an increased liberty for the people from all the countries of the globe.” Little did he know what he had started.

  CHAPTER 6

  Boom and Bust

  Dave, do you mind if I ask you a question?” With blinking red eye and the calm voice of a newscaster, thus spake the supercomputer at the heart of Stanley Kubrick’s fearsome parable of AI run amok, 2001: A Space Odyssey. Opening in early April 1968, the film was unlike anything moviegoers had seen before: a visual spectacular of precisely modeled spaceships and trippy psychedelics, with a nonlinear plot, plodding pace, and few recognizable actors. The closest thing the film had to a star was the omniscient and ominous HAL 9000, who seized control of a deep-space mission from its human astronauts.

  2001 was a box-office dud at first, but word of mouth among the college crowd turned it into a phenomenon. Other pop culture landmarks cascaded out in 1968 as well: the Beatles’ White Album, the Broadway musical Hair, and Joan Didion’s lyrical and searing portrait of countercultural San Francisco, Slouching Towards Bethlehem. It was a year of fractured politics, of rage against the war machine, of slain heroes and violence on the streets, of trust shattered and authority questioned. At the Summer Olympics in Mexico City, San Jose State University athletes and track medalists Tommie Smith and John Carlos raised their fists in a Black Power salute on the podium, becoming one of the most enduring images of the decade.

  Forty miles down the road from Didion’s out-of-their-mind hippies in the Haight, and next door to the student activists of San Jose State, the elec
tronics makers of the Santa Clara Valley could have been living in another universe. To be sure, that year’s political wildfires swept through Stanford’s campus and up into the hills where poets and activists and early back-to-the-landers were living in creaky old farmhouses and tumbledown cottages. Some of these freethinkers soon would start disrupting the business of high technology just as they were disrupting everything else. But not quite yet.

  From California to Massachusetts and all points in between, the tech industry of 1968 remained the domain of the squares. It was a business of mainframes and minis, of specialized engineering and specialized investing, of selling to enterprises rather than to consumers. If you took a poll up and down the Valley’s tilt-ups, you’d find plenty of people planning to vote for Nixon that fall. You’d also find plenty who planned not to vote at all.

  American society might be fracturing, but the technology industry happily surged forward. The reason was money. Vietnam-era pressures had slowed the surge of research money coming from the Pentagon; the Apollo program soon would wind down. No matter. Wall Street was bullish for all things electronic. In addition to the public markets, technology companies now had a growing base of private-sector customers, new product niches, expanding overseas markets, new investment pools. The boom years turned out to be relatively brief, but they left a long shadow.

  THE GO-GO YEARS

  Wall Street’s tech boom started in the summer of 1966, when Digital held its first public offering. The mini maker’s 350,000 shares of common stock, offered at $22 a pop, sold out almost immediately. Ken Olsen instantly became a multimillionaire. High net worth didn’t markedly change the company’s low-key business culture, however. Olsen’s biggest splurge after the Digital IPO was to buy a second canoe .1

  Another Boston-based pacesetter was Wang Laboratories, which had its IPO in the late summer of 1967, exactly a year after Digital’s debut. “I had a banker call me and ask for 100,000 shares,” said one broker. “He said he had no idea what the company did but he heard it was wonderful.” Wang’s valuation the day before the IPO was $1 million; the day after, it was $70 million. After realizing what her 100 shares of the company now were worth, the CEO’s secretary shouted, “I’m rich! I’m rich!”2

  It was only the start. Certainly, the 1950s had minted high-tech millionaires like Hewlett and Packard, and the early years of the 1960s had seen an excited uptick in the value of what analysts called “space-age stocks.” But the second half of the decade saw a dizzying explosion of electronic companies’ ability to earn prodigious amounts of cash. Everyone wanted a piece of the action. As Silicon Valley journalist and entrepreneur Adam Osborne later observed, “In the late 1960s, all you had to do was walk into the middle of Wall Street and shout ‘Minicomputer!’ Or ‘Software!’ and you would be buried up to your neck in money.”3

  It wasn’t just stock pickers who drove the boom. The general corporate prosperity of the middle of the 1960s created new investment pools and expanded the ranks of venture capitalists. David Morgenthaler, who had made that brief, yearning visit to Palo Alto two decades before, was a case in point. By 1968, Morgenthaler had achieved success in business that he couldn’t have imagined as a girl-chasing teenager in Depression-wracked South Carolina. The company presidency he’d taken just after the Sputnik launch proved to be a stepping stone to an even larger job, as the company he led morphed into a multinational conglomerate. He’d earned enough to retire many times over, or at least to take his foot off the gas.

  Morgenthaler couldn’t stop thinking about Palo Alto, however. Cleveland, his adopted home, was a place where richly rewarding corporate careers could be made. But its days of entrepreneurial glory were at least five decades gone by then. The town had become a place where you worked for someone else, and “I was sort of tired of having a boss.” The future, he sensed, lay in the small electronics companies popping up in California and in Boston. They were commercializing, growing, pushing out new markets even as the space race slowed and defense spending declined. He wanted in. At the age of forty-eight, David Morgenthaler went into business as a venture capitalist, seeding his first fund entirely with his own money.

  He was quite different from the Valley VCs, older and a little more cautious. “I wanted to be at the edge of the new,” he explained, but “I didn’t want to be so new that you had too high a risk of failure.” Yet he knew how to spot good technology and good talent, as his previous job had involved acquiring one small firm after another—fifty-seven in all. And in temperament and outlook, the Clevelander had much in common with the Californians. He was a businessman with the expertise of an MIT engineer and the excitement of a boy building a science project. He liked to be hands-on, opinionated, and ready to replace management if necessary. He was a people person: gregarious, curious, a connector. Although he would remain in Cleveland for another decade-plus, he began to bind himself closer to the people and products and next-generation ambitions of California.4

  Plenty of ambition was now on display out West. Buoyed by the bull market, tech’s money men and start-up pioneers got inspired to start up once more. In the span of one year, a host of Valley firms were born that would set the pace for the region for decades to come. Arthur Rock and Tommy Davis went their separate ways. Davis started a new VC firm, the Mayfield Fund, with Stanford computer science professor William Miller. George Quist left Bank of America’s SBIC and joined another young San Francisco money man, William Hambrecht, to start a new breed of boutique investment bank, specializing in high-tech start-ups. And Bob Noyce and Gordon Moore departed Fairchild Semiconductor and its micromanaging investors to found a completely venture-financed company that didn’t have to pay fealty to an East Coast boss. They called it Intel.

  * * *

  —

  As the new tech companies surged, the free world tried enviously to emulate America’s new-economy example. Emblematic of the nation’s envied position was a somewhat unlikely volume that climbed European bestseller lists in 1967. Titled Le Défi Américain (The American Challenge), it was neither grand romance nor spy novel, but a book about the technological and economic supremacy of the United States—and Europe’s failure to keep up. Written by prominent journalist and publisher Jean-Jacques Servan-Schreiber (who was so famous in France that, like Brigitte Bardot, he was known simply by his initials, JJSS), the book argued that Europe needed to become more like America by investing heavily in scientific research and development and adapting American management and marketing techniques. The message hit a nerve; Le Défi Américain sold over a million copies in Europe and ultimately was translated into fifteen languages.5

  Servan-Schreiber’s climb up the bestseller list was not an isolated incident. The book tapped into a growing worry on both sides of the Atlantic in the late 1960s that the United States had become so economically unassailable that an emerging “technological gap” was draining away Europe’s talent, weakening its institutions, and potentially endangering fragile international alliances. The same year, European ministers convened to discuss the possibility of a “technological ‘Marshall Plan,’” and the Johnson Administration had established an interagency committee to assess how the U.S. might apply its technological might to rectify this imbalance. “Unless we’re careful, our concept of the Atlantic partnership can be eroded by the fear and concern about the power of American capital and technology,” Vice President Hubert Humphrey remarked in an article that appeared on the front page of The New York Times. Defense Secretary Robert McNamara noted more astringently that Europeans’ “complaint is that we are so surpassing them in industrial development that we will eventually create a technological imperialism.” American innovation was riding high, and the world was scrambling to catch up.6

  TURN OUT THE LIGHTS

  How quickly things changed. As the 1960s ended and the ’70s began, Le Défi Américain remained on the bestseller lists, but the challenge was quite different. A newly energized Europe had b
ig, government-subsidized projects around data processing and computer networking well underway. Japan was becoming an economic powerhouse and a technological rival, rising to “the American challenge” not by imitating the United States but by developing different, more agile ways to produce and sell its manufactured goods. Elsewhere in East Asia, ambitious nation-states like Singapore lured American manufacturing operations with trade incentives, cheap skilled labor, and sparkling new industrial parks.

  The nation’s international economic position shifted. By 1971, Nixon Commerce Secretary Maurice Stans was warning Congress that the United States might have its first trade deficit since 1893. Wall Street’s bull run came to a shuddering halt. University graduates that year entered into a weak job market and were bewildered by what they found. “Before, the kids who dropped out, at least they had a choice,” one member of the University of Chicago Class of ’71 lamented to a reporter. “Now it’s got no meaning ’cause it looks like you had no choice. Like you dropped out because you couldn’t get a job.”7