Imagine: How Creativity Works (25 page)

While Route 128 was undergoing a postwar boom, the San Jose region remained heavily agricultural; the main local industry was small-scale food-processing plants. This is why it was so surprising when, in 1956, William Shockley, the eccentric co-inventor of the transistor, established the Shockley Transistor Corporation in a small town called Mountain View. (Shockley had tried to start a transistor company in the Route 128 region, but the large Boston firms weren’t interested in his product.) Because Shockley couldn’t convince any of his former colleagues from Bell Labs to join his new venture — nobody wanted to move to a farming town in California — he ended up recruiting grad students from Caltech and Stanford. Unfortunately, Shockley turned out to be a terrible manager, and in 1957, eight of his researchers left the company. This group of refugee engineers — they called themselves the Traitorous Eight — founded the Fairchild Semiconductor Company in a San Jose garage. They sold their very first batch of transistors to IBM, and by 1963, they had sales of more than $130 million a year. A few years later, two of these engineers — Robert Noyce and Gordon Moore — left Fairchild to start their own microchip company. They called it Intel.
(A third member of the Traitorous Eight went on to form the venture-capital giant Kleiner Perkins (now KPCB), which was an early investor in many of the most successful tech companies, including Amazon, AOL, Compaq, EA, Genentech, Google, Netscape, and Sun Microsystems.)

By the early 1980s, Silicon Valley was home to dozens of success stories like Intel, including Apple Computer, Cisco, Oracle, and Sun Microsystems. In fact, these young start-ups were so successful that by 1985, Silicon Valley had nearly twice as many people working in high-tech as the Route 128 area. In the years since, the West Coast advantage has only grown: Internet companies like Netscape, Google, Netfl ix, and Facebook have all emerged from the suburbs around San Jose. (Although Facebook was founded in a Harvard dorm room in February of 2004, Mark Zuckerberg moved the company to Palo Alto that summer. He said he wanted to be close to the action.) And the original tech stalwarts of the Boston area — those massive companies like Digital Equipment Corporation and Wang Laboratories — have all gone out of business. In fewer than fifty years, the walnut farms of San Jose have become the technology center of the world.

The astonishing success of Silicon Valley raises an interesting question: What happened to Route 128? As Vivek Wadhwa, a business professor at Duke, notes: “If you were betting on an area to dominate [the tech sector] in 1975, you’d have been wise to bet on Route 128. It had a giant head start over everywhere else.” The region had several elite research universities, such as MIT and Harvard, and a long list of successful technology firms. These companies had big contracts with the Defense Department and controlled the market for microchips and electronic hardware.

And yet, this head start wasn’t enough: after a few decades of domination, the Boston high-tech sector began to fall apart. This decline was primarily rooted in the inability of Route 128 companies to keep pace with the innovations of the San Jose region. AnnaLee Saxenian, a professor of city planning at UC-Berkeley, compares the postwar performance of these two regions in her insightful book Regional Advantage. She argues that by the mid-1970s, the Boston area was already “several years behind the curve . . . set by California companies. They couldn’t compete with the new designs and products coming out of Silicon Valley.”

What caused this innovation gap? The downfall of the Boston tech sector was caused by the very same features that, at least initially, had seemed like such advantages. As Saxenian notes, the Route 128 area had been defined for decades by the presence of a few large firms. (At one point, Digital Equipment Corporation alone employed more than a hundred and twenty thousand people.) These companies were so large, in fact, that they were mostly self-sufficient. Digital Equipment Corporation didn’t make just minicomputers — it also made the microchips in its computers, and it designed the software that ran on those microchips. (Gordon Bell, the vice president in charge of research at Digital, described the company as “a large entity that operates as an island in the regional economy.”) As a result, the Boston firms took secrecy very seriously — a scientist at Digital wasn’t allowed to talk about his work with a scientist at Wang or share notes with someone at Lotus. These companies strictly enforced noncompete clauses and nondisclosure agreements; former employees couldn’t work for competitors, and scientists weren’t allowed to publish articles in peer-reviewed journals. This meant that at the Route 128 companies, information tended to flow vertically, as ideas and innovations were transferred within the firms.

While this vertical system made it easier for Route 128 companies to protect their intellectual property, it also made them far less innovative. This is because the creativity of an urban area depends upon its ability to encourage the free fl ow of information — we need that knowledge spillover — as all those people in the same Zip Code exchange ideas and work together. But this didn’t happen around Route 128. Although the Boston area had a density of talent, the talent couldn’t interact — each firm was a private island. The end result was a stifling of innovation.

The vertical culture of the Boston tech sector existed in stark contrast to the horizontal interactions of Silicon Valley. Because the California firms were small and fledgling, they often had to collaborate on projects and share engineers. This led to the formation of cross-cutting relationships, so that it wasn’t uncommon for a scientist at Cisco to be friends with someone at Oracle, or for a cofounder of Intel to offer management advice to a young executive at Apple. (We saw earlier how these horizontal interactions can trigger moments of insight.) These networks often led to high employee turnover as people jumped from project to project: in the 1980s, the average tenure at a Silicon Valley company was less than two years. (It also helped that noncompete clauses were almost never enforced in California, thus freeing engineers and executives to quickly reenter the job market and work for competitors.) This meant that the industrial system of the San Jose area wasn’t organized around individual firms. Instead, the region was defined by its professional networks, by groups of engineers trading knowledge with one another. Tom Wolfe, in a 1983 profile of Robert Noyce, described the informal “schmoozing” that defined Silicon Valley:

Every year there was some place, the Wagon Wheel, Chez Yvonne, Rickey’s, the Roundhouse, where members of this esoteric fraternity, the young men and women of the semiconductor industry, would head after work to have a drink and gossip and brag and trade war stories about phase jitters, phantom circuits, bubble memories, pulse trains, bounceless contacts, burst modes, leapfrog tests, p-n junctions, sleeping-sickness modes, slow-death episodes, RAMs, NAKs, MOSes, PCMs, PROMs, PROM blowers, PROM burners, PROM blasters, and teramagnitudes, meaning multiples of a million millions.

These casual exchanges — the errant conversations that take place in coffee houses and bars — are an essential engine of innovation. While Jane Jacobs might have frowned upon the sprawl of these California suburbs, the engineers have managed to create their own version of Greenwich Village. They don’t bump into one another on the crowded sidewalk or gossip on the stoop of a brownstone. Instead, they meet over beers at the Wagon Wheel, or trade secrets at the Roundhouse. It’s not the ballet of Hudson Street, but it’s still a dance, and it’s the dance that matters.

The Homebrew Computer Club is a perfect example of the type of socializing that defines Silicon Valley. Founded in the spring of 1975 in a Menlo Park garage, the club began when a few “microcomputer enthusiasts” placed the following invitation on bulletin boards throughout Silicon Valley: Are you building your own computer? If so, you might like to come to a gathering of people with like-minded interests. Exchange information, swap ideas, help work on a project, whatever. Before long, the club outgrew the garage and was moved to an auditorium in the Stanford physics department. Although the meetings were informal, they typically followed the same basic structure. The session would begin with a mapping period that allowed people to shout out questions, speculate on rumors, and share their future plans. Then came a presentation featuring a club member discussing a recent invention. Finally, there was the random-access session, in which everyone wandered around the auditorium, networking with strangers.

This engineering club played an important role in the development of Silicon Valley. According to Steve Wozniak, a cofounder of Apple, the first computers built by the company weren’t designed to be profitable consumer products; they were built to show off at the Homebrew Club: “The machines were meant to bring down [to the club] and put on the table,” Wozniak wrote in his memoir iWoz. “I wanted to impress people. Look at this, it uses very few chips. It’s got a video screen. You can type stuff on it. Personal computer keyboards and video screens were not well established then. Schematics of the Apple I were passed around freely, and I’d even go over to people’s houses and help them build their own.”

The club was defined by these friendly collaborations, by the horizontal interactions of engineers meeting in their spare time. As Wozniak continued to develop the Apple I, he incorporated feedback from other members. They’d tell him about upcoming microprocessors and help troubleshoot his circuit board. They’d give him advice on working with floppy-disk drives and offer suggestions on negotiating with suppliers. According to Wozniak, the innovations of the first Apple computers depended entirely on this Homebrew culture: “Today it’s pretty obvious that if you’re going to build a billion-dollar product, you have to keep it secret while it’s in development because a million people will try to steal it,” he says. “If we’d been intent on starting a company and selling our product, we’d probably have sat down and said, ‘Well, we have to choose the right microprocessor, the right number of characters on the screen,’ etc. All these decisions were being made by other companies, and our computer would have wound up being like theirs — a big square box with switches and lights, no video terminal built in . . . It would have probably been a big failure.”

But Wozniak’s machines were different. Instead of designing a machine like those of the Route 128 firms, he transformed the advice of his diverse social network into an inexpensive computer, just a twenty-dollar microprocessor shackled to 256 K of memory. It was still a limited device, but it represented an important breakthrough in usability. And then, in the spring of 1976, Wozniak started talking to another member of the Homebrew Club. This engineer was convinced that the Apple kit could be the foundation for a new kind of computer firm, one that would sell its products directly to consumers. Wozniak, however, wasn’t interested: he had a solid job at Hewlett-Packard and didn’t want to become an entrepreneur. But this pushy engineer refused to take no for an answer. After a few weeks, Wozniak was “worn down” by his arguments. And so, on April 1, 1976, Apple Computer was founded by Steve Wozniak and his friend from the club. His name was Steve Jobs.

4.

It’s four in the afternoon and Yossi Vardi is still in his pajamas. We’re meeting at his house, located in the Tel Aviv suburbs on a quiet street near the university. It’s the day after a national holiday, and it’s clear that Vardi has been out late. He apologizes for the yawns and sprawls across his couch, resting his hands on his rotund belly. He looks like he could fall asleep again at any moment.

I’m here to talk to Vardi about the Israeli technology boom, which is unfolding largely in the suburbs of Tel Aviv. The place feels like Silicon Valley must have felt in the late 1970s, overstuffed with young entrepreneurs toting business plans. On the outskirts of the city, the tomato farms and olive groves are quickly being transformed into generic office parks. Consider the statistics: in 2008, Israel attracted nearly $2 billion in venture-capital (VC) funding; that is, investments made in small companies with high growth potential. (VC funding is widely regarded as one of the best measures of innovation; money chases good ideas.) This means that a country of seven million people attracted as much funding as France and Germany combined. It means that Israel — a tiny sliver of land on the Mediterranean, about the same size as Vermont — has nearly three times the amount of VC funding per capita as the United States and thirty times the average of Western Europe.

But Israel was not always a tech center dense with successful start-ups. In the 1990s, the country was best known for military hardware and agricultural products; it built advanced radar systems and exported avocados. “There was very little civilian tech investment,” Vardi says. “Nobody talked about Israeli software or microchips or batteries. They talked about drip irrigation.” And yet, by 2009, Israel had more companies listed on NASDAQ than Canada. Eric Schmidt, the CEO of Google, has said that Israel is the second-best place in the world for entrepreneurs, after the United States. Steve Ballmer, the CEO of Microsoft, has declared that “Microsoft is an Israeli company as much as an American company,” since much of its most important R & D now takes place in Tel Aviv. (The Kinect, for instance, was largely designed by Israeli engineers.) In the last decade, Israel has produced more successful high-tech start-ups than Japan, India, Korea, and the United Kingdom.

Yossi Vardi is at the center of this boom. He has helped fund more than seventy technology companies in Israel and has taken twelve of them public. (Sergey Brin, the cofounder of Google, once said: “If there is an Internet bubble in Israel, then Vardi is the bubble.” ) Although Vardi has been a fixture in Israeli politics since the mid-1970s, his involvement in the tech sector began in November of 1996, when Vardi and his oldest son, Arik, launched ICQ, the first online chat program for Windows users. “This was all my son’s idea,” Vardi says. “I barely even knew what the Internet was.” Nevertheless, Vardi saw the potential in live chat and decided to fund the start-up. “So we release this program in November, and it starts to spread right away,” he remembers. “After a few months we had a hundred thousand members. And I thought that was amazing. Here was this brand-new tool, with a hundred thousand people using it! But then it just kept on going. By July [1997], we had one million users. September, two million. December, six million. I’d never seen anything like this. And it wouldn’t stop. When we got bigger than the AOL chat program, AOL bought us.” The price tag was more than $400 million.