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By Cathy Newman
A small earthquake hit Palo Alto my second day in town. The bedside lamp vibrated, nothing more, but it was a reminder that the San Andreas Fault snakes down this part of California.
Several days later Jim Calzia, a geologist with the U.S. Geological Survey, drove me out to see the San Andreas, which translates on the landscape as a flow green trough. The Big One is predicted sometime in the next 30 years, Calzia said. It could be a 7 in magnitude: utterly catastrophic.
"So why do people still live here?" I asked. Calzia barely suppressed a grin.
"How lucky do you feel?" he said.
Silicon Valley thrives on risk. Ever since 1933 when Frederick Terman, a professor of engineering at Stanford University, mentored two undergraduates named Bill Hewlett and Dave Packard, the Valley has been about placing bets on people, ideas, and inventions. Terman's protégés would go on to found Hewlett-Packard, the Valley's pioneer high-tech company.
Since then Silicon Valley has attracted the best and brightest from all over the world. It has as intellectual capital two great universities: Stanford and the University of California at Berkeley. It is home base to a who's who of technology and the incubator for hundreds of graduates seeking to emulate Hewlett and Packard. It was here that Pong, the first video game, went from dream to reality, as well as the ink-jet printer, the video recorder, the mouse, the personal computer, and much else we take for granted in the information age. The expertise of Silicon Valley has, in no small measure, wired the world.
At its high-flying peak in 2000, 43 of Forbes magazine's 400 richest Americans lived here. Their wealth added up to an estimated 184 billion dollars, and if you believed the hype, 60 new millionaires were minted each day. Dot-com fever fueled the jackpot economy; secretaries cashed in options and drove off in Porsches.
But in the opening months of 2001 the headlines wept financial woe. The Nasdaq, the technology-heavy stock index, had plunged more than 50 percent from its high a year earlier. Dot-coms foundered and sank. Even solid companies like Cisco, Intel, and Hewlett-Packard hoisted warning flags of workforce cuts and lower earnings. To add insult to injury, a power crisis had erupted in California. Blackouts stunned the state. You could build the fastest, smallest, most powerful computer, plug it in, and nothing happened.
Still the mood in the Valley registered optimistic, as if the water supply were fluoridated with Prozac. "We call it techno-optimism," said Jan English-Lueck, a professor of anthropology at San Jose State. "There's an addiction to opportunity, and if you don't see it that way, why are you even here?"
Silicon Valley is not a piece of official geography but a nickname for a 1,500-square-mile (3,900-square-kilometer) piece of northern California that runs from the outskirts of San Francisco south through Santa Clara County. It is an extended suburb of flat monotony, except for the expensive green idyll of residential areas such as Portola Valley and the grandeur of Stanford. Silicon Valley is an interior geography, a terrain made visible by grace of fluorescent and halogen light, connected by concrete tentacles of freeway.
"What would you show someone who came to visit Silicon Valley?" Chuck Darrah, a professor of anthropology, and his colleagues at San Jose State asked in a study of Valley families. "Yosemite, Monterey Aquarium, and Lake Tahoe," they'd respond. "Yes, but they aren't in Silicon Valley," Darrah would point out.
There is the weather, which for much of the year consists of unbroken blue sky and moderate temperatures. The relaxed lifestyle has made khakis and a shirt the business uniform of choice. The live-and-let-live mind-set means anything goes. You are free to dye your hair blue, be openly gay, bare your navel ring at work, start a multimillion-dollar company. No one bats an eyelash.
Two years ago Marcia Babiak was a math teacher in northern Illinois, until a trip to California for a teacher's conference changed her life. "Driving from the airport, I saw Candlestick Park, the Pacific Ocean, and fell in love with the place," she said. "Three weeks later I moved here."
Now she teaches at Mountain View High School. "I'm never going back," she burbled. "I love the place, I love the school, I love the kids."
"What don't you like here?" I asked.
"The living expense," she replied. She makes $48,000 a year, but after paying $1,150 a month for an apartment smaller than her classroom and everything else a 28-year-old requires, she has no savings.
"What do you like about living here?"
"The freedom to be who I am."
"Think Florence with numbers," Morton Grosser, a consulting scientist based in Palo Alto, had said by way of explaining Silicon Valley. Instead of painters and sculptors, the Valley has geeks and nerds, and they are as passionate about circuitry as Michelangelo was about marble.
A computer whiz said he built an Altair 8800, one of the first do-it-yourself computer kits, because "it was cool and I wanted one."
Les Vadasz, an executive vice president at Intel, said that for an engineer the excitement is the project. "You know that what you are working on is ahead of the curve, ahead of everyone else. It's a sport. A game."
In his living room overlooking San Francisco Bay, Roger O'Neill showed me a metal box the size of a hatbox. O'Neill, a biochemist, is vice president of research and development at a small company called Guava Technologies. The box, he explained, is a type of flow cytometer. Simply put, it peeks inside a cell to see what's going on: to discern how, for example, a cell is reacting to a certain antibiotic. The instrument is not new, but because of the technology this particular model is one-twentieth the size of its competitors and more affordable, he said.
Explain the kick, I asked. He walked me over to a shelf over the mantle. "My grandfather and father built model trains," he said. He showed me a locomotive and cars. The detailing was exquisite—from the planks on the siding of the boxcars to the wheel spokes on the locomotive, and it was all made by hand. "This was something they did purely for the joy of creating," he said. "It's not necessarily designing something from scratch that thrills me. For me the thrill comes from innovating within a basic design and making something beautifully that performs its purpose."
Silicon Valley speak has its roots in the language of business and engineering. You maximize your child's skill set, and if he plays in three different basketball leagues (as some do), there is value added in that his teammates' parents may turn out to be CEOs of companies you might be interested in. Vacation is downtime, but hardly anyone leaves a cell phone or handheld at home.
VCs are venture capitalists, the financiers of Silicon Valley. They round up the capital—from pension funds, wealthy individuals, and universities—needed to underwrite a fledgling company. Last year venture capitalists in the Valley invested an estimated 17 billion dollars in new companies, known as start-ups.
Why not go to a banker? I asked Morton Grosser. Grosser is a start-up investor and technology adviser to many VC firms, including Kleiner Perkins Caufield & Byers, one of the biggest, so we meet for lunch at a Menlo Park café called the Left Bank for a lesson in Venture Capitalism 101.
"Bankers are to the right of Herbert Hoover," he explained. "Most of those guys have never risked a toothbrush. Take five 27-year-old graduate students with a great idea. They're going to get on their knees in front of the president of a bank? They're going to have collateral?"
VCs, who take a cut of the company and a seat on the board as their pay, couldn't care less about collateral. They lay out money for what a conservative institution would regard as unacceptable risk.
"I went to Paris, on invitation of the government," Grosser said. "They wanted to know how to have a Silicon Valley in France. So you have a glass of red wine with the bankers and hear them grumble: 'Kids these days don't know how to work. These kids don't know anything. So what do you do to create a Silicon Valley?' the bankers finally ask.
"It's simple, I tell them. You have to have a good technical education, financial training, and you have to have worked for a real company. Many VCs in Silicon Valley have started their own companies by the time they are 38.
"And, you have to be willing to listen to a group of twenty something-year-olds."
His eyes danced. "They go pale. 'You don't understand. It's not so easy,' they sputter. And greed plays a part," he said. "They want a Silicon Valley too. But they are so traditional, they can't do what needs to be done."
He was talking about cultural arteriosclerosis, an Old World hierarchy that stifles the freewheeling entrepreneurial spirit that fuels Silicon Valley. The kind of spirit that prompted Bill Hewlett to answer the phone and listen to a 12-year-old named Steve Jobs who had called to ask for some parts for a piece of electronics he was building. Hewlett later hired Jobs, who would go on to found Apple Computers.
"Great cities are born because of the discovery of gold or oil or because of geography and the location of a port," Grosser said. "The natural resource here is brains."
Despite the intellectual firepower of the Valley, I kept feeling a nagging sense of something not quite right, a subterranean rumble of something I couldn't put words to.
Maybe it was the dozens of Mercedes and BMWs in the student parking lot of Palo Alto High School, knowing the principal drives a 1991 gray Nissan truck. Or hearing one too many stories about the guy with a Mercedes and four-bedroom home who crybabied because he hadn't cashed in on the dot-com boom like his zillionaire buddies. Perhaps it was the 25-year-old who worked at Yahoo! who, when I expressed the hope my 15-year-old son would always know his way around a library, told me with faint disdain I should stop treating books like fetishes.
Maybe it was standing under the trees at the Drop-In Center run by the Urban Ministry in downtown Palo Alto, where homeless men and women turn up each morning for a cup of coffee directly opposite Stanford University and the high-end stores in the Stanford Shopping Center.
Besides providing a list of resources ("Where to take a shower," "Where to get medical help"), volunteers hand out 20 bus tickets each day, first come, first served.
"The bus tickets are very important to these men," Sergio Samame, a caseworker, explained, as a line formed under the shade of a metal overhang.
"Why?" I asked.
"They have nowhere to sleep. So they ride the bus all night."
Gentlemen, ladies. Attention please. Palm Pilots in hand? Business cards in reach? Ready? Set? We are going to network.
Rule number one. Opportunity surrounds you.
A meal with friends? Heads up. Case the room. Isn't that Steve Jobs at the next table? Your daughter's school play? Why not? CEOs have daughters too.
Visit the University Café in Palo Alto, Buck's in Woodside, or Il Fornaio in San Jose. Look around. See the two guys at that table? The kid who looks like a high school sophomore is hoping to do a start-up. The older guy is a venture capitalist. They are cutting a deal. The group of twenty somethings in the corner drawing on a legal pad? They are devising a business plan. Your turn. Pull out your cell phone. Establish that you too are a player.
"There was a fellow from France working here," recalls Chuck Darrah, the anthropology professor at San Jose State. "He said that in France you would never talk about work in a social context. You'd never ask people what they do. It just isn't done. When this guy got promoted, he invited all the people who worked for him to a barbecue in his backyard."
Mon dieu! Midway through the party every-one had their business cards out. The host was appalled. Failure! He wanted to run around and grab every card and fling them into the fire. He paused. The light clicked on. It's normal! That's what everyone does here!
"Everyone," Darrah said, "is perpetually on the make."
In Silicon Valley money is, with few exceptions, not inherited. It is earned, either by invention of a brilliant idea or, sometimes, by the clever marketing of a mediocre one.
"When people make money, the first thing they want is a really nice house," said Paul Conrado, a high-end contractor based in Saratoga. His job is to build them those really nice houses. "Ego builds some of these homes," he said, as we took off to see his work. "I have 12 houses going at the moment. The lowest is going to cost a million and a half, the highest is over four million, and that's not including the cost of the land. Eleven clients are paying cash."
"We're also building a thousand-square-foot (93-square-meter) barn costing $400,000," he added, casually.
Marble floors? A herd of horses?
"No, just two horses," he said. "It's a high-tech barn with automatic watering troughs; things like that cost a lot."
The centerpiece of a Conrado house is a vineyard. "In high-end houses, having a vineyard is like having a Mercedes in the driveway," he said. "You look out of your window at your vines while you drink wine from your own backyard."
We pulled up to a 9,000-square-foot (836-square-meter) Mediterranean style home he'd built on a lot at the edge of Palo Alto just before it lifts into the foothills. The owner walked me through the house, which had a 12-seat movie theater and 1,200-bottle wine cellar. In the backyard a custom-built stream tumbled down a series of rocks to end in a pond, home to koi and a turtle—a nice vista for the guesthouse, which had a wood beam ceiling and its own kitchen.
As we pulled out of the driveway, the conversation drifted to the subject of big money and bigger money. Conrado mentioned one client worth 500 million dollars. "I can understand what 5 million dollars is," Conrado said. "I have a hard time understanding 500 million dollars. Of course, now that his options have dropped in value, he's only worth 30 million."
Had he been envious?
"It took me a long time not to go home and say: What's my problem? How come I didn't rise to that level? Then I realized money can't buy your way out of most of life's miseries. In this area your home is very important to you. That is probably why we build so many homes that feel like stages. People want to make a statement; their home is how they do it."
Celita Singh would be happy if she could find a home, any home, to rent, but for now she, her husband, and their three children will have to get by in a room in the Boccardo Reception Center, a shelter for the homeless in San Jose.
The Singhs are not poor. Mrs. Singh, who grew up in Trinidad, is a registered nurse who works in a nursing home. Mr. Singh works on contract for Hewlett-Packard. Between them, they have an income of $105,000.
But $105,000 a year isn't house-buying money in Silicon Valley, and the Singhs have the black mark of an eviction notice against them because of their noisy children. "You can throw money after scarce apartments all you want, but with an eviction you're not getting anything," said Maury Kendall of the Emergency Housing Consortium. So the Singhs are part of a new trend in homelessness. "It's no longer hobos and bums. It's working people—moms and dads impacted by the economic boom."
It is also a quirk of geography compounded by economics. The math is simple. The median apartment rental price is $1,600. There is a 5 percent vacancy rate in Silicon Valley. Rentals are at a premium; landlords rule.
"Why should a landlord have to contend with pets or kids when there are plenty of renters without such liabilities?" Kendall asked rhetorically. "We are reaping the harvest of years of poor planning. There is no affordable housing because it doesn't exist."
Yet, there was optimism from Mrs. Singh. "I see this as the land of opportunity," she effused, showing me their small room with pale yellow walls, tired gray carpet, and two double beds. She was feeding the baby, while three-year-old Josiah tugged at her shirt and five-year-old John bounced on the bed.
"I tell you why I came to America," she said. "In my country it's so limited. I love America. Land of opportunity. All will work out." She lay back on the bed and laughed.
Some don't even have the luxury of a heated room with access to a bath. "We have clients who come through the door who live in garages," Toni Wallace said. "They pay $500 to $600 a month for a garage with no toilet. Sometimes the space isn't insulated, let alone heated." Wallace is director of a social services center in East Palo Alto, the predominantly Hispanic and African-American city separated by a highway from its more affluent neighbor, Palo Alto.
Were things getting better?
"No," she replied. As electric bills soared, things were getting worse.
"It used to be you could go home at the end of the day and feel you helped someone. Now you just don't know," Wallace said.
"What do you do then?" I asked.
"We fall down, and we get back up."
The dot-com market had been in free fall, and at 550 Montgomery Street in San Francisco's financial district you could pick through two floors of computer equipment and office furnishings from a defunct company called Stockpower.com to be auctioned the next day. Lee Harris, a businessman, looked at computers. He'd bought desks and cabinets at previous auctions, where, for example, a $60,000 server had sold for $5,000. "The buyers were jumping up and down," he said. "It's top quality stuff. Herman Miller chairs and office partitions that they practically pay you to take away." His eyes lit up. "There's a Mac!" he said, and left to inspect lot #1143 Apple Power Mac G3 with 4GB HDD.
Another dot-com ship had sunk. The flotsam and jetsam would go to the highest bidder. By late summer the Industry Standard, a magazine covering the Internet world, listed 139,643 dot-com layoffs since December 1999, then went belly-up itself.
What went wrong? "A lot of start-up companies should never have been funded," Karae Lisle said. She's a business consultant in Menlo Park and den mother to a support group for CEOs of companies in trouble. "The venture capitalists threw money at companies like they were slot machines. Pets.com? Like you're going to shove a 30-pound (13-kilogram) bag of dog food through the mail slot to me? What were they thinking?"
Standard business principles evaporated. "Every one of these kids was right out of business school," Lisle continued. "If someone gave you a pair of cleats, a bat, and a glove, and you only played catch with your dad and never dropped a ball, what makes you think you can play the World Series?"
"Do you know, Dave, your company is valued at 20 times Goodyear?" Curtis Heinz, a San Francisco stock trader, told a friend whose dot-com had skyrocketed.
"So who needs tires?" his friend replied.
Reports of the demise of Silicon Valley were premature. The patient wasn't moribund, merely temporarily indisposed.
"Every time Silicon Valley goes through a cycle, people say it's doomed," said AnnaLee Saxenian, a Berkeley professor of regional planning. "In 1980 I myself argued that housing and labor were too expensive, roads too crowded, that growth would shift elsewhere. Later they said it again, with the rise of technological Japan. But there are real companies here. It would be hard to argue that the Internet won't be an arena for business. It's a question of who survives. Silicon Valley is not the traditional model. There are social intangibles. It's not just dollars and cents."
In Silicon Valley the bust was not failure; it was part of the learning curve. "It's okay to fail nobly," explained Tom Melcher, who is in the middle of a start-up. "It's one of the bedrock things that make this place different. In the East, if you fail, you're a pariah. Not here."
Melcher's company, called There, involves the creation of an elaborate, sophisticated cyberspace playground, and it is, he knows, very high risk.
Lee Hwang left a well-paying job in Atlanta because she wanted a change. She found it at There. Her brother-in-law is the chief technology officer for the company, and she had been hired to keep Cokes in the refrigerator and answer the phone. "I sold off everything I had and came here to work a 12-hour day," she said, as we sat in the kitchen of the warehouse building that houses There in Menlo Park. "I have friends in Atlanta who think I'm crazy. Even if it tanks, it's an adventure. The coolness factor is high. I don't want to reach the end of my life and have any regrets."
Hwang, at least, could live with her sister and brother-in-law. At the building where There is taking shape, a handful of employees were living in their offices and sleeping on futons. "It's weird rolling out of bed and going to work," confessed Matt Murakami, a 24-year-old artist. Murakami had moved from Orange County and, after a month's stay with relatives, decided to move into his cubicle. He was working late nights, anyway, and couldn't see paying $1,500 a month in rent. "I've put my life on hold till the IPO [initial public offering]," he said.
"If it weren't for the skylight in the building, I wouldn't know if it was night or day."
One morning the newspaper carries a story about a partner at a venture capital firm. She has two cell phones—a Nokia 6100 and a Nokia 8860—and two handheld computers—a Palm Vx and a Handspring Visor Edge—not to mention a BlackBerry RIM 957 e-mail device. At home the lineup is three computers (one in the kitchen), four printers, and a fax. "The only time when I turn everything off is on a plane. Some may think that this is a character flaw, but I prefer to be 'always connected,'" she is quoted as saying.
Wired, perhaps. But connected?
"I must leave," a woman at Stanford said, drawing the interview to a close. "I have an appointment with my psychiatrist." She moved from the Midwest and is mourning the loss of not just a three-story house with 20 acres (8 hectares) but also deep and true friends. "There is no time here for deep connections. There are no deep conversations and relationships," she said. Distress shadowed her face. "I don't have the words to express how I feel. I have to pay someone to talk about these things."
"I have a patient who begins by saying 'Everything is fine, but I feel like a machine,'" said Kenneth Seeman, a psychiatrist in Palo Alto. "You are dealing with professions ori-ented toward technology. Many here are more comfortable with machines than people. They hide behind that."
The genius of Silicon Valley helped wire the world. Its enterprise could get you an airline ticket, a refrigerator, or stock quote at the click of a mouse. But the social fabric seemed to be unraveling. Though the Valley's per capita income increased 36 percent during the 1990s (the national increase was 17 percent), by the year 2000 a household at the bottom 20 percent of the distribution scale had less income than in 1993. The rising tide hadn't lifted all boats.
"We're like a specialized athlete. We just do innovation and invention," Jim Koch explains. Koch is director of the Center for Science, Technology and Society at Santa Clara University. He spoke about his recent report that examined the social capital—the community connectedness—of 40 different communities across the U.S. Although Silicon Valley ranked high in interracial trust and diversity of friendships, it landed near the bottom in civic engagement, charitable giving, volunteering, and civic leadership—and in sense of community as well.
There are reasons for this, Koch explained, and they have to do, in part, with a business ethos that eschews commitment. "The culture says you don't stay in one place very long. You jump from job to job.
"I think we feel lonelier and more isolated," he said. "I think life as a free agent is not what it's cracked up to be."
Chinese New Year was approaching, and at the Lion Plaza mall on Tully Road—one of those faux California-mission confections of aqua and terra-cotta concrete—you could find Johnny Au selling plants. "For good fortune," Au said, explaining the tradition. "Buy these pussy willows for silver," he pulled a branch from a bucket. "And this tree," he indicated a 15-year-old bonsai with yellow flowers, "for gold."
A New Year in all cultures is a chance to look back to the past and ahead to the future. Silicon Valley could look back to a wild ride in which start-ups flared and fizzled. But Silicon Valley prefers to look forward. The Valley is about ideas and invention, but it is also about money—which happens to be one of the things people wish for you on the Chinese New Year.
I had driven to Redwood City, the not-quite-as-chic town north of Atherton, to talk to George J. Leonard, a professor of humanities and Asian studies at San Francisco State University. We sat in his teahouse, a sanctuary really, in back of his modest home while Leonard poured green tea into thimble-like cups. As the fragrance of tea filled the room, we admired the translucent glaze of a celadon bowl and an earthenware pot in the shape of a lotus leaf.
Silicon Valley sits on the edge of the future. Perhaps it even is the future. Yet, so many were being left behind. The contrasts were as unsettling as the earthquake zone that helps define its geography. To keep my balance, I needed an anchor, a steady handhold. Leonard offered one, using as a framework the teachings of Confucius.
"Confucius says, 'Of course, you want to be rich and famous,'" Leonard said. "'It's natural. Wealth and fame are what every man desires.'" But Confucius understood there is a moral decision too, and sooner or later an accounting begins.
"'The question,' Confucius said, 'is what are you willing to trade for it?'"