And even though millions of businesses and consumers continued to buy the shrink-wrapped boxes of Microsoft start-up disks, a new era was about to dawn in software too. It was going to be one where the software was free, and where advertising brought in the revenue. Where the word processing programs and spreadsheets and everything else lived in the cloud, downloadable at a click of a button. Where desktop PCs and closet-sized server rooms gave way to enormous, energy-gobbling server farms processing terabyte upon terabyte of data. Where new companies using these models would disrupt the software money machine that Bill Gates and Steve Ballmer had presided over for two decades, derailing its business far more than any antitrust action ever could.
THE GATES COMPUTER SCIENCE BUILDING
Forty years since his fateful tour of duty at Shockley Semiconductor, Jim Gibbons was taking his victory lap. He’d remained at Stanford his entire career, rising through the faculty ranks to become Dean of Engineering. Taking on the job as the tsunami of PC-era wealth washed over the Valley, Gibbons became a champion rainmaker, raising money for his school from every generation of engineering alumni from Hewlett and Packard on down, and persuading a number of people who’d never darkened the door of a Stanford classroom to give money as well.
One of those was Harvard dropout Bill Gates, who gave $6 million toward a sleek new computer science building that was dedicated on a windy and rainy Tuesday in early 1996, just as Gibbons prepared to retire from his post. (Paul Allen had wanted to contribute, too, but the hypercompetitive Gates would have none of it. “Name your own damn building,” he told his onetime business partner.) The gift was a rounding error for the mogul, but it reflected his worries that his company was lagging behind the high-tech curve, and stronger connections with Stanford computer science might be a good insurance policy. The Valley’s great nemesis now had his name on a building inhabited by Unix adherents and open-source devotees who believed that closed, proprietary systems limited innovation and advanced a particular agenda. Now that the Reagan-era Pentagon no longer loomed as an enemy, Microsoft served as Exhibit Number One.25
The irony of the moment wasn’t lost on Gibbons. “Here is my prediction,” the dean declared at the dedication ceremony. “Within the next eighteen months something will happen here, and there will be some place, some office, some corner, where people will point and say, ‘Yeah, that’s where they worked on the (blank) in 1996 and 1997.’ And you will know it was a big deal. You will read about it.” Neither Gibbons nor Gates could have imagined how spot-on that prediction proved to be, and that the kids who’d dislodge Microsoft from the top of the high-tech heap would come out of a building with Gates’s name etched over the door.26
* * *
—
In a computer science department full of big brains and big egos, Sergey Brin and Larry Page stood out for their brilliance, their confidence in their ideas, and their inseparability. Brin, who arrived at Stanford as a graduate student in 1993, was the gregarious Russia-born son of a mathematics professor and a NASA scientist, who had emigrated with his parents at the age of six. On his ninth birthday, his parents gave him a Commodore 64; by the end of middle school, he was writing programs on a friend’s Macintosh. He graduated from college at age nineteen. Page was a professor’s kid as well, quieter and equally intense, who showed up on campus two years later to work under Terry Winograd. “His intelligence quotient lies four standard deviations from the mean abilities of a regular person,” remarked software engineer Ellen Ullman of Page, “at the far, far right end of the bell curve.”27
Yet the story of the two co-founders of Google isn’t simply about smarts, or the Valley’s remarkable ability to incubate technical entrepreneurs. It is part of the continuing saga of federal research money flowing into the Valley. For federal research dollars underwrote the costs of graduate research, and the money that supported much of Brin and Page’s work at Stanford came from a key element of the Clinton-era NII: the Digital Libraries Project, a joint effort by the powerful troika of DARPA, NSF, and NASA that started up in early 1994.
Despite the name, the program wasn’t about libraries at all, nor about the digitization of the books within, but about what came next: organizing the cornucopia of Internet content created when a world of paper went paperless. It was a question bedeviling information science ever since Vannevar Bush had come up with the idea of the memex in the closing days of World War II, but one made far more urgent by the Internet’s commercialization. Even before the advent of the Mosaic browser, so much information was cascading around the online world that it had “come to resemble an enormous used book store,” reported Science, and more was being added by the day. Yahoo!’s surfers didn’t even crack the surface of it. The TCP/IP protocols could only do so much; a content-saturated Internet needed more. The answer came in the form of $24 million sent to six powerhouse academic computer science departments during the middle years of the 1990s.28
Stanford was one of them, augmenting its grant with support from Xerox PARC, HP, and tech-community influencer and tech publishing impresario Tim O’Reilly. The researchers’ task: spend the next four years to build the search technologies needed for this single, integrated virtual library. A dozen internet search engines existed by 1994, and more were coming online by the minute, but the Internet already was growing at a rate that outpaced what the existing algorithms could process. They indexed URLs, not entire site contents, and they weren’t terribly accurate as a result. The Digital Libraries’ task was Web search like never imagined: more powerful, smarter, using machine learning.
Brin and Page were two of the first to move into the William H. Gates Computer Science Building, where in their shared third-floor office space they began work on the technology that one day would shove Microsoft’s Sun King off his software throne. Their contribution to the Digital Libraries endeavor was originally going to be Page’s dissertation: a system for tracing Web links backward, to determine relevance and credibility of websites by the number of other sources that had linked to them.
Page’s original inspiration for this kind of peer validation came from academia—the scholarly papers cited the most often tended to be the most important in the field—but his circle of links also called to mind the ecosystem of the Valley. Those most connected were the most powerful; credibility and reputation came from knowing others in the network. The project was an upside-down Yahoo!, powered by software code rather than human surfers, and it solved the Internet’s biggest problem: finding reliable and accurate information, and ranking the most valuable and strongly validated data first.
The system also departed from early Yahoo! in that its human creators were not making any value judgments. Instead, they were designing an algorithm to do it for them in an unsentimental, ostensibly apolitical way. The portal also had a spare and uncluttered interface, a striking contrast to the commercial search portals plastered with banner ads. Design simplicity was an obsession Brin and Page had picked up from their Stanford academic advisors, but it also reflected the fact that they weren’t trying to make money. They were interested in Web search as a uniquely gnarly mathematical challenge; their aim was to follow in the footsteps of their academic parents, to become another John McCarthy or Terry Winograd. Yet by the time the two started collaborating, the Digital Libraries Project had already borne one innovative commercial search engine, Lycos, out of Carnegie Mellon. Before very long, it would have another.29
THE ENGINE
While the dot-com stocks soared and antitrust battles brewed, Brin and Page stayed in graduate school, refining their algorithm and preparing for brilliant academic careers. But it was getting harder for denizens of the Gates Building to resist the siren’s call of the 1990s gold rush, and less than two years after they’d gotten started, they let Stanford’s Office of Technology Licensing in on their secret. The university began to field offers for the technology from other search companies. But no one was biting, or at least offer
ing enough to make it worth dropping out of school. Yahoo! and Excite and all the other dot-com darlings were focused on adding more and more features to keep visitors sticking to their portals and looking at their banner ads. A really good search bar would take users elsewhere; why invest in one? The two students kept waiting.
As a new school year began in the fall of 1998, the pair decided to launch the company themselves. Page’s dorm room became the first offices of Google, Inc. Soon, one dorm room wasn’t enough, and the chaos spilled out into Brin’s pad next door. They had to buy a terabyte of memory—which then cost a cool $15,000—and put it on their credit cards. Bootstrapping on a graduate school stipend would only get a company so far, but luckily the two won over a key angel investor: Sun Microsystems’ Andy Bechtolsheim, who only had to hear thirty minutes of their pitch before he wrote a $100,000 check on the spot.
Bechtolsheim’s investment was like a flare sent up into the Palo Alto sky, alerting Silicon Valley’s tight network that the Next Big Thing was in town. Their last great hope, Netscape, was floundering. Amazon chugged away up in Seattle, but it hadn’t translated a high stock price into actual profit. Yahoo! and the other search portals were choking with garish ads. Here came Google’s cool expanse of white, a visual oasis to the user. Its search algorithm, honed over four years of academic testing, was a leap forward in the state of the art.
With seed money in hand, Brin and Page moved operations out of the dorm and into their friend Susan Wojcicki’s nearby garage by the start of 1999. (Wojcicki was another child of academics; the professors’ kids were taking over the world.) They snagged Ram Shriram, a former Netscaper now at Amazon, as an advisor; Shriram persuaded his boss Jeff Bezos to make a personal investment too. Wilson Sonsini became Google’s counsel. Very soon the search company had outgrown the garage and moved into more grown-up digs on University Avenue in Palo Alto. They now had six employees. Down the hall was Peter Thiel’s equally tiny Confinity, soon to be renamed PayPal.
In June 1999 came a stunning deal: Brin and Page scored a cool $25 million in venture funding, split evenly between two of the Valley’s heaviest dot-com hitters, Kleiner Perkins’s John Doerr and Sequoia’s Michael Moritz. Bezos had advised them where to go for the money, and with confidence that bordered on arrogance, the two graduate students had pitted the VCs against one another in a bidding war. The gamble paid off brilliantly. Now they helmed an operation valued at $100 million, and they each had retained 15 percent ownership. Brin and Page were no longer the sweet and goofy guys throwing spitballs on the third floor; they had the swagger of future masters of the universe.30
Still, it was hard to leave academia behind. As news of Google’s funding spread, Terry Winograd got an e-mail from the administrator who assigned space in the Gates Building, wondering if the two entrepreneurs would be dropping out, thus freeing up their cubicles (few things in Silicon Valley are more precious than Stanford office space). Yes, we’ll be leaving, Page reluctantly confessed to his advisor. It still took them a year to fully move out. Brin never took his student home page off Stanford’s servers; twenty years later, it remained live, listing his academic papers, his recent teaching, and a simple note at the top: “Currently I am at Google.”31
Google’s growth spiked at an eye-popping pace, with 3.5 million searches per day in September 1999, and 6 million by the end of the year. Nurtured and funded by seasoned Silicon Valley hands, the young company echoed the Apple II in its clean lines and the sophisticated architecture of its product. It carried on the legacy of HP and Intel in its belief that engineering came first. It sounded a now-classic Valley message of rebelling against authority, of thinking different. Giant computer companies roamed the earth and the Valley was saturated with Wall Street money, but Brin and Page promised a return to simpler and more idealistic times.
Microsoft’s overreach and comeuppance seemed further validation that Silicon Valley had it right all along: promote the small, the entrepreneurial, the agile and collaborative. Don’t get big, don’t close yourself in, and, as Google’s widely touted corporate motto put it, “don’t be evil.” This mythos—the story that the Valley had told to itself again and again since the start of the 1960s, and then broadcast to the world ever since the days of Don Hoefler—overlooked the inconvenient reality that every start-up company in the region’s history eventually did one of two things. Most often, it went out of business. More rarely, it found success—and success meant bigness. Start-ups either grew large on their own, or they became absorbed by other large companies. HP and Intel and Apple started tiny and became giant; so did Sun and Microsoft.
Even as they grew large, these companies stubbornly continued to think of themselves as scrappy outsiders. That was Microsoft’s great vulnerability; still run and controlled by the people who had been there from nearly the beginning, the company still thought of itself as a start-up, not as a big multinational corporation. As hard it was to believe, though, bigness was inescapable, and every successful start-up had the potential to become another Big Brother. Silicon Valley’s next two decades made that clearer than ever.
Arrivals
PALO ALTO, 2000
Chamath Palihapitiya came to San Francisco because he was tired of checking all the boxes. Born in Sri Lanka, he’d emigrated to Canada as a young child and spent the next two decades dutifully meeting parental expectations. Brainy and awkward, he’d graduated high school at sixteen and headed straight into the prestigious electrical engineering program at the University of Waterloo. From there came a job in investment banking and the safety of an ample salary far beyond what this son of a financially struggling immigrant family had ever dreamed he’d earn.
Yet he was restless. The work he was doing—derivatives trading—appealed to his appetite for risk, but he itched for freedom from the corporate grind. “I was basically living my parents’ life,” he lamented. It was 1999, and the dot-com boom was white-hot. And there he was, marooned in the snows of Toronto, gazing from afar as college friends moved to California and joined the party. He printed out a slew of résumés and mailed them west.
Most of the places he applied took a pass, but he ended up with two offers—one at eBay, and another at Winamp, maker of an audio player software that allowed users to download and play music files on their computers. Stock-rich eBay was tempting, but Winamp had buzz. Plus, the company’s offices were in a hip neighborhood of San Francisco, thus avoiding a grinding commute to eBay’s bland precincts forty miles down the freeway in San Jose. So, to the further consternation of his parents, the Sri Lankan Canadian plunged into the world of online music.1
It turned out that he had joined the leading edge of a new, even more disruptive, phase of the software revolution. “The music industry should be afraid—very afraid,” Billboard magazine had warned soon after Winamp’s software came on the market in 1997. Beefed-up Internet infrastructure and the replacement of slow dial-up modems with cable broadband—one big consequence of the mid-1990s telecom reforms—now made it feasible for fans to swap and share megabytes of music and video with ease.
By the time Palihapitiya came on board a couple of years later, every music geek knew about Winamp, jokingly familiar with the nonsensical sound clip that would play upon launch—a rich baritone declaring, “Winamp, it really whips the llama’s ass.” And online music’s niche market was blowing up to massive proportions thanks to Napster, a peer-to-peer music-sharing network created by a teenager in his Los Angeles bedroom. Ripping and sharing music files wasn’t exactly legal, but the technology had far outpaced the ability of copyright law to keep up, and tech-savvy young people flocked to the service. “Napster is like a candy store for a music fan,” wrote The Wall Street Journal’s tastemaking tech columnist Walt Mossberg.2
As users happily swapped free music files by the thousands, leaving record stores desolate and music-industry executives steaming, the larger tech companies began to sniff around for a piece of the online m
usic action. A few months after Palihapitiya joined the company, Winamp hit the jackpot, getting acquired by America Online for a deal worth close to $100 million. Six months after that, in January 2000, AOL bought media giant Time Warner in a jaw-dropping $165 billion deal that was a harbinger of the information society to come—one where tech companies became powerful platforms for news delivery and social interaction.3
The AOL-Time Warner octopus now encompassed everything from the instant-messaging services used by teenagers to the newsmagazines read by their parents to the granddaddy of all cable-news networks, CNN. Now, instead of working for a scrappy start-up, Chamath Palihapitiya, the risk-seeking migrant with start-up fever, was working for one of the world’s largest media companies.
But perhaps it was a lucky break. For within months of the AOL-Time Warner deal, the dot-com fever broke and Wall Street and venture investment abruptly stopped flowing into San Francisco’s feverish start-up scene. Without cash, all kinds of young companies—online delivery services, search engines, enterprise software companies—bit the dust. AOL’s stock price tumbled along with the rest, and the merger with Time Warner rapidly turned toxic. People were getting fired left and right, and Palihapitiya knew he couldn’t be one of them: leaving AOL would mean losing his visa. Things might have been bleak in San Francisco, but he was going to stay.
CHAPTER 23
The Internet Is You
At the dawn of Silicon Valley’s second century, the glory years shuddered to an abrupt halt. After peaking at over 5,000 for a few glorious days in March 2000, the NASDAQ composite plummeted below 2,000 one year later. The Dow Jones Internet index was one-fifth of what it had been the year before. “We never built models to anticipate something of this magnitude,” confessed Cisco’s John Chambers. Companies that had raised tens of millions in venture capital had burned through it all and couldn’t raise another dollar. The market had gone cold, investors were holding their money close, and the last thing you wanted to be was a young company with dot-com at the end of your name.1
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