CHAPTER 1

The Silicon Valley Habitat

CHONG-MOON LEE, WILLIAM F. MILLER,MARGUERITE GONG HANCOCK,AND HENRY S. ROWEN

Silicon Valley has many stories—true tales of brilliant (and often lucky)entrepreneurs turned billionaires, epics of the rise (and sometimes fall) ofnew companies. On January 1, 1939, two classmates at Stanford Universitylaunched from a one-car garage in Palo Alto an electronic measuring devicecompany. Six decades later their company, Hewlett-Packard, led the Valleyin revenues, with $47.1 billion in 1999. In April 1994, another pair ofStanford students worked during their spare time to build "Yet Another HierarchicalOfficious Oracle." Today their firm is called simply Yahoo! and isthe first and leading web search engine, with a market capitalization of $70billion.

These now legendary examples are only two episodes in Silicon Valley's riseduring the last half of the twentieth century. Indeed, for every significant advancementin information technology, a company born and grown in SiliconValley is a leader: integrated circuits (National Semiconductor, Intel, AdvancedMicro Devices), personal computers (Apple), workstations (HP, SunMicrosystems), 3D graphics (Silicon Graphics), database software (Oracle),and network computing (3Com, Cisco Systems). And, in the recent Internetboom, the Valley's preeminence has only been extended. Think of Netscape,Excite@Home, and eBay. This, then, is the Valley's strength: despite risingcosts in land and labor, increasing global competition, and periodic downturnsin the business environment, Silicon Valley has sustained its leading edge inwave after wave of information technologies by consistently fostering entrepreneurship.

Benchmarks summarize the Valley's current position. During the 1990s,the portion of the Valley's workforce in R&D-related jobs hovered around 10percent, a full 2 ½ times the national average. In 1999, overall value added peremployee in the Valley reached $115,000, compared to the U.S. average of$78,000. That year, the region's number of initial public offerings (IPOs)surged to a record of 72. Also in 1999, the Valley attracted $13 billion in venturecapital, a full third of the U.S. total (Joint Venture: Silicon Valley 2000).In contrast, other regions, though armed with strong intellectual or capitalassets, have not (yet) been as prolific or as enduring (DeVol 1999). Pressingquestions face the would-be Silicon Valleys popping up all over the globe. Inthe United States, for example, why has the information technology industrynever flourished in Pittsburgh, despite the presence of Carnegie Mellon,which possesses one of the foremost American computer science departments(Collaborative Economics 1999)? How can Cambridge, England, wherethe electron was discovered, the atom split, and the first successful digitalcomputer built, achieve its entrepreneurial aspirations (Garnsey and Smith1998)?

Virtually every government seems to want to create its own Silicon Valley–likeregion. Their easiest step is to adopt the word "Silicon"—hence "Bog"(Ireland), "Glen" (Scotland), "Fen" (England), "Beach" (Vietnam), "Wadi" (Israel),and scores of others. But taking on a name, and perhaps establishingsome business incubators or building a few semiconductor firms, PC factories,or software houses, is not enough.

How does Silicon Valley work? Why here and not somewhere else? Althoughmany accounts chronicle the story of Silicon Valley through the livesof important entrepreneurs or companies, these are insufficient to answer thecompelling questions of how and why the Valley works. This book argues thatthe Valley's sustaining edge arises from factors that go beyond any individualor single company. Rather, the Silicon Valley edge stems from an...