* * *
—
Yet fatter balance sheets did not mean that the Valley’s gray clouds had dispersed. The shifts toward higher-priced hardware and infrastructure also shifted up the costs of founding a company. “There were days where $10 million would take a company from start-up to an initial public offering,” said MIPS CEO Bob Miller. “Today the average is $40 million to $50 million.” The field winnowed; scrappy little start-ups were harder to find.35
The chipmakers were large and prosperous, but even they weren’t getting what they wanted anymore. Going against the recommendations of a government semiconductor advisory committee that included Valley luminaries such as Jim Gibbons (the assistant professor long ago detailed to Shockley Semiconductor was now Stanford’s dean of engineering), the Bush White House announced at the end of 1989 that Sematech funding wouldn’t increase in the future. More government consortia also weren’t going to happen. The money “is not now available, and it is unlikely ever to be available,” Bush’s science advisor told Congress flatly. Back in the Valley, high-tech power players felt that the new president just didn’t get it.36
Another, bigger jolt came only a few months later. Bob Noyce died suddenly in Austin in June 1990, felled by a heart attack at the age of 62. Sematech no longer had its dynamic chief executive. The bereaved Valley crowd lost one of their technological pioneers and their most reliable liaison to Washington’s power brokers. His death signaled a generational change, the end of an era when Valley leaders had been men much like Bob Noyce: crew-cut engineers in shirtsleeves who were children of the Depression, molded by the Cold War, makers of tangible things like chips and computer terminals.37
As if to underscore the passage of the founding generation, the Cold War had come to an end. The defense programs that had buoyed the bumpy times in the 1980s now faced massive cutbacks, turning California’s economy upside down. Lockheed’s Sunnyvale plant cut more than one-fifth of its workforce as the company struggled to find non-defense customers. Overall, California lost 60,000 aerospace jobs by 1991. Time, an ever-reliable gauge of the zeitgeist, rolled out a cover story referring to the Valley as “Gloomy Gulch.”38
Draw back from the defense-cut disruption and the Microsoft onslaught, however, and the bummed-out prognostications didn’t seem quite as on point. Sun and its generational brethren were growing, and they were again making things. These weren’t just computers and floppy disks of software, but networking infrastructure: equipment of metal and molded plastic that enabled computers to talk to one another, to share information, to increase their computing power exponentially.
PRELUDE TO A GOLD RUSH
Another thing happened on the way to the 1990s. Silicon Valley decisively lapped Route 128 both in the number of firms and in the number of tech jobs. By the time of the first Bush Administration, the Valley had twice as many companies with sales of $5 million or more. It had three times as many people working in tech. The two regions had developed largely in tandem for the first several decades of the high-tech age, propelled by their respective research universities and by the river of government funding that went disproportionately to the two regions. MIT remained a colossus in the world of academic computer science, and the rest of Boston’s research labs couldn’t be beat, but when graduates decided to head into the private sector, they usually hightailed it to California.
For Silicon Valley had changed, and Boston hadn’t. Minicomputers remained the beating heart of its business; defense contracting mattered even more. The biggest venture funds, the most experienced operators, the most ambitious MBAs: they all were out West. Boston didn’t have enough raw material for its next electronic generation, and some of the greatest Route 128 success stories had fallen far and fast by the time the 1980s drew to a close. Ken Olsen infamously missed the boat on microcomputers, and as the PC market ascended in 1983, Digital had nearly gone out of business. Retrenching and rising again, it found itself in a near-death spiral between 1989 and 1991, cutting over ten thousand jobs and having to slash billions from its operating budget. Olsen had hung on as the company’s president throughout, but by 1991 had to give up and turn over the day-to-day management of his company to someone else.39
Wang, too, had fallen hard and fast, out of step with the rise of the business PC market and never moving swiftly enough to catch up with the rise of workstations. When in 1986 An Wang at last relinquished control of the company he had started thirty-five years earlier in a North End storefront, he turned over the reins to his son. Keeping things in the family turned out to be a terrible business decision, and the patriarch had to ease his heir out a few years later. Wang’s beloved company filed for bankruptcy in 1992.40
* * *
—
As Boston receded, the tech world’s energy decisively shifted to the West Coast. Silicon Valley was no longer just a place in Northern California. It was the command and control center of a network whose influence spread across the globe, center of a vast supply chain that stretched from Chinese fab plants to Israeli research laboratories to its rainy Pacific Coast competitor and doppelgänger, Seattle.
The 1980s might have been rocky, but boom and bust was the nature of the tech business. Other regions might be sunk by recession and technological obsolescence, but the Valley had its specialized ecosystem, its VCs and lawyers and real estate men and research labs. It had Fred Terman’s Stanford, its steeples of excellence spiking higher than ever. That meant that the region’s near-constant state of precarity was also a perpetual state of renewal, with a new cadre of technologists rising up to quickly take the place of the old.
David Morgenthaler had been reading these tea leaves for some time. Although he had long held out the hope that robotics and AI might revive the manufacturing economy of the Midwest, he realized soon after hitting the Apple mother lode that “California was going to be the big winner.” He was already closer to seventy than sixty, but he decided that he’d move his venture business to the Bay Area as soon as he could find someone to help him manage it. That someone, fortuitously, was his son Gary, who had found great success as an operator and investor in a range of tech and biotech companies. Cleveland’s Morgenthaler Ventures moved to Palo Alto in 1989. Exactly forty years after his first visit, David Morgenthaler finally got off that train.41
ACT FOUR
CHANGE THE WORLD
Never get high on your own supply.
CHRISTOPHER WALLACE (THE NOTORIOUS B.I.G.), 19971
Arrivals
STANFORD, 1990
“Shoe.” That was the only English word Jerry Yang knew when he arrived in California in 1978. Barely ten years old, he and his younger brother had landed in San Jose with their widowed mother, a college professor who had first fled mainland China, then Taiwan, in search of political freedom and economic opportunity for her two boys.1
The Yang family’s journey had become an increasingly common one by the late 1970s. Barely more than a decade after the Hart-Celler Act tore down the quota system that had restricted Asian immigration for so long, the U.S. Asian-American population swelled to three million. Arriving in an era when middle-class housing and jobs were shifting from city to suburb, and Rust Belt to Sunbelt, a disproportionate number of the new arrivals gravitated to the suburban sprawl of the Pacific West—places like San Jose. The city had less than 15,000 residents of Asian descent in 1970. In 1990, it had more than ten times that number, far outpacing the overall growth of the city’s population.2
Immigrants had been getting the job done for some time in Silicon Valley, from European-born refugees like Andy Grove and Charles Simonyi to the Asian-American and Latina women who assembled microchips in fab plant clean rooms. But the wave of immigration that began in the 1970s had a scale and impact that the Valley had never seen.
From San Mateo to Sunnyvale to Fremont, bedroom suburbs whose populations had been nearly entirely white now became dynamic and diverse communities of
high-achieving, highly educated immigrants from India, China, Hong Kong, and Taiwan. They started newspapers, opened businesses, built houses of worship and schools and arts centers. They followed family members, college classmates, co-workers, creating communities of ethnic diversity rarely seen before in the United States. And they worked in—and became founders of—technology companies. By 1990, foreign-born engineers made up 35 percent of the Valley’s engineering workforce. The numbers spiked higher still after the 1990 creation of the H-1B visa program, which allowed technical workers a path to permanent residency.3
This demographic earthquake had transformed the Valley by the time Jerry Yang became a teenager. The shy immigrant kid had transformed as well. He excelled at everything, vaulting from remedial to advanced English, acing math tests and winning tennis championships. He was high school valedictorian and student body president. He took so many advanced-placement classes that he completed the equivalent of his freshman year before he graduated. By the time college application season rolled around, he had his pick of where he wanted to go, and scholarships to boot.
Yang chose Stanford, even though the offer wasn’t a full ride and he’d have to work part-time to pay for it. But it was close to home, and it was Stanford. He hadn’t been a computer nut in high school, really, although he and his brother enjoyed playing games on their home Apple II. But life at the academic center of the Silicon Valley universe quickly turned him on to “real computer stuff,” as he put it, so much so that he completed an electrical engineering B.S. and a master’s degree in four years flat, sailing straight into Stanford’s PhD program by age twenty-two. Yang was so much younger than the rest of the graduate students that they gave him the nickname “Doogie,” after the hit television show about a teenage doctor.4
Jerry Yang was a standout, but he wasn’t alone. The schools of the South Bay—and the classrooms of Stanford—now filled with all-American kids like him. They were high-achieving children of high-achieving immigrant parents, citizens of the world and of MTV-era America, who’d grown up with Apples in their bedrooms and Ataris in their living rooms. And they all were coming of age at a moment and in a place when the technology industry was about to blast their generation off into the economic stratosphere.
The rocket that took them there was the Internet.
CHAPTER 19
Information Means Empowerment
The racket woke up all the neighbors on Balderstone Drive. It was 6:00 a.m. on a weekday morning in May 1990 when the San Jose detectives raided the ranch house in this quiet corner of suburbia, hot on the trail of high-tech thievery. Their target: an eighteen-year-old college freshman who ran a BBS named “the Billionaire Boys Club” out of his bedroom, and who possessed such prodigious hacking talents that he’d built his own IBM clone, fully outfitted with copyrighted software. “He’s a pretty clever kid,” the officer who led the raid admitted. However, he might be committing federal crimes. The agents didn’t arrest the teenager that day, but they did something nearly as devastating: they confiscated his computer and the towers of shoeboxes that contained his floppy disks.1
The maestro of the Billionaire Boys Club wasn’t alone. Hackers were stealing software code from the big computer companies and long-distance dialing instructions from the phone companies, trading them online and mailing them to other programmers. It was phone phreaking 2.0, the latest iteration of the kind of pranks that computer titans like Jobs and Woz and Gates used to do to show off their programming smarts. But now the kids in suburban bedrooms had ways to connect with others, over the blooming network of message boards riding on the backbone of dial-up networking services. Now all of corporate America ran on chips and bits and bytes of electronic data, and it had millions to lose if information landed in outsiders’ hands. And now the companies founded by Jobs and Woz and Gates were big businesses, too, whose closed-off, proprietary software systems represented an establishment that hackers deeply mistrusted.
The raid in San Jose was only one of fourteen that happened that day across the country, as a total of 150 agents fanned out in a high-profile sweep that the Secret Service’s Arizona field office—which led the sting—dubbed “Operation Sun Devil.” By day’s end, the feds had made three arrests, seized forty-two computers and more than 23,000 floppy disks, and attracted a wave of publicity for a war they had been waging stealthily ever since Congress had passed a stringent computer crime law in 1986.2
Prosecutors were adamant that bold measures needed to be taken. “It is possible to transmit computer information for an illegal purpose in the blink of an eye,” asserted U.S. Attorney Stephen McNamee as the raid made the front page of The New York Times that June. Advocates for computer freedom and civil liberties were equally sure that the raids violated the Constitution. “The Fourth Amendment provides strict limits on rummaging through people’s property,” cried San Jose’s unapologetically liberal Congressman Don Edwards.3
Silicon Valley’s “information wants to be free” crowd was incensed too. In the years after leaving Lotus Software, Mitch Kapor had found his next chapter online, at the WELL. There, Kapor had started to post extensively on the issues he cared most about: software design, privacy, and free speech. Operation Sun Devil suddenly made him realize how vulnerable any chat room could be to government snoops. “This could have been me,” he realized.4
Flush with many millions from selling his Lotus stock, Kapor established a legal defense fund for the accused hackers and began raising money among his friends. One contributor was fellow WELL denizen John Perry Barlow, for whom the raid had prompted flashbacks to the 1960s and a government that was “a thing of monolithic and evil efficiency.” By summer’s end, Kapor, Barlow, and several other tech-industry insiders went even further, establishing a new group to fight government threats to the free flow of computerized information, and to establish some new rules for a medium that defied so many of the old ones. They named it the Electronic Frontier Foundation. Upside magazine, a short-lived but influential chronicler of the dot-com boom, later called the EFF “the ACLU of the infobahn.”5
The tech world had always found frontier metaphors irresistible, and the growth of the online world had Silicon Valley throwing them around with abandon. “Like the Old West,” InfoWorld columnist Rachel Parker cheerfully explained to her readers announcing the EFF’s formation, “the electronic frontier is uncharted territory—no one can stake any claims to it, and boundaries are rare.” Illegal hacks were unfortunate, but unavoidable. “Corporate databases are something akin to Wells Fargo ponies running valued goods across the new territory. Someone, somewhere is bound to shoot at the riders.” Barlow also talked about the cyberworld in terms steeped in plenty of John Wayne myth and very little Native American history. “It is vast, unmapped, culturally and legally ambiguous, verbally terse . . . hard to get around in, and up for grabs.”6
Operation Sun Devil faded into the desert sunset. But the questions it raised about the laws of cyberspace became ever more urgent. For the same May that the feds made that predawn raid on a San Jose subdivision, a British computer scientist named Tim Berners-Lee began to circulate a modest proposal to adapt Ted Nelson’s thirty-year-old notion of “hypertext” to organize the sprawling surge of information on the Internet. He called it the World Wide Web.7
INTERNETTING
The Internet was more than thirty years old by the start of the 1990s, and it still had the academic and proudly noncommercial spirit it started with in 1969. The sharp push toward deregulation of communications and information industries during the Carter and Reagan years had turned dial-up networking into a sharp-elbowed marketplace. Prodigy and CompuServe had user bases in the millions, Usenet groups and BBSs sprouted by the hundreds, but they all mainly connected over telephone wires, just as time-sharing companies had done for decades. Even the Valley-insider group on the WELL relied on dial-up networks.
The reach and user base of the Internet, however, was expanding
significantly. In the mid-1980s, to the great delight of academic computer scientists who had bemoaned the ARPANET’s slow rate of growth under Defense Department supervision, the National Science Foundation took over the network and renamed it the NSFNET. Along with the name change came a renewed focus on serving academic researchers and on wiring as many campuses as possible, as DARPA’s push to compete with the Japanese on supercomputers had yielded fruit, and now the feds had five brand-new supercomputer centers in need of high-speed and high-capacity network connections. NSFNET did the job. One serendipitous offshoot: because of the expanded number of universities in the network, thousands of college students now had Internet access in their dorm rooms, fueling the growth of online communities among a tech-savvy younger generation.8
Along with chat-room-dwelling collegians, the NSF opened up the Internet to private-sector companies too—but only if they adhered to the agency’s “acceptable use policy” and used the network for communication only, and not for commercial transactions. Despite these strictures, business eagerly jumped onto the Internet backbone as soon as it could. The network was faster than anything else out there, and it could handle large amounts of data that the phone lines couldn’t. By 1990, for-profit carriers were on their way to linking more than three thousand business customers into the network. The twenty largest computer companies delivered hardware, software, and consulting services over its wires. Networking conferences that previously had been the domain of only the most die-hard computer science types now teemed with men and women in business suits as well.9
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