Published on June 29th, 2019 | by Steve Bakker0
Silicon Valley’s Fascinating History
June 29th, 2019 by Steve Bakker
Pop quiz: You arrive at the annual church picnic in your brand new Tesla. You park amidst a variety of gasoline, hybrid, and plug-in hybrid vehicles. Having the only pure electric vehicle at the event, you are soon surrounded by a crowd of gawkers, cooing and praising your beautiful automobile. A voice in the crowd inquires about the unique motor in your Tesla, and you provide an answer that has the crowd smiling and nodding their heads up and down. Sensing your mastery of all things Tesla, another onlooker asks why Tesla Motors is so closely linked with Silicon Valley.
The audience takes a collective breath, all eyes focus in your direction, and it dawns on you that none of them have yet read the piles of books nor viewed the many documentaries on the history of Silicon Valley. Or maybe they have, and just want to hear it again. You respond by saying that the history of Silicon Valley is lengthy, but if they’d like, you’d be happy to relay a few selected facts pertinent to the question. In fact, you promise them a story about how a personal family tragedy in the 19th century may well be the catalyst for the revolution that has taken place over the last 50+ years in and around Silicon Valley, and how SV became the ideal locus for the rebirth of the electric car.
Upon hearing your remark, the crowd immediately disperses, only to return a few minutes later toting containers of fried soy chicken, potato salad, lemonade, and other mission-critical picnic paraphernalia. You are requested to re-park your Tesla in the lone handicap spot at the front of the lot, which is strategically located adjacent to a large grassy area. Table cloths and blankets unfurl onto the turf as everyone takes a place in a semi-circle around the car (viewed from the air, the arrangement would have been reminiscent of the Tesla Logo). There are sounds of Tupperware lids opening, plastic utensils being shuffled around, caps being freed from beer bottles … then all is quiet as, once again, attention turns your way. You instruct the people in the crowd to set their Wayback machines for the year 1626. The picnickers oblige. You then recite from the following handy dandy abridged guide to SV history:
1626. Peter Minuit of the Dutch West Indian Company buys the island now known as Manhattan off the local natives. The event becomes a mile-marker for the civilization that will flourish on the East Coast of North America.
1850. With the eastern United States well established, enriched, and entrenched … the settlers, explorers, and misfits who had pushed west from there in pursuit of a fresh life claim statehood for the land at the far left edge of the continent known as California, a.k.a. The Land of Opportunity. The new state carves out a reputation as a place where, with an abundance of sunlight, coupled with a free-thinking philosophy, anything can happen.
1852. Native New Yorker and attorney Leland Stanford moves to California and makes a small fortune selling picks and shovels to gold miners. Stanford later risks that fortune in founding the Central Pacific Railroad. Over time, the now wealthy man purchases large blocks of undeveloped land around the Bay Area Peninsula town of Palo Alto and builds a country home. To the north lies the financial center of the West Coast, San Francisco. To the south lies the relatively undeveloped land of the Santa Clara Valley, so strewn with fruit orchards it has garnered the handle “Valley of the Heart’s Delight.”
1884. Stanford’s only son, Leland Jr., dies of typhoid fever at age 15. Heartbroken, the Stanfords choose to make the best of the loss of their child by founding a school that would be available to “all children of California.” The school, Stanford University, broke ground in 1885, and broke with eastern convention in 1889 when it opened its doors to non-denominational men and women at a period in history when most universities were male only, religious-based institutions. As the history page of Stanford.edu states: “The prediction of a New York newspaper that Stanford professors would ‘lecture in marble halls to empty benches’ was quickly disproved.” Stanford University, which promises an education in “practical knowledge,” attracts a variety of bright, talented students from around the world and goes on to gain fame, especially with its repeatedly innovative, highly diverse, world-renowned engineering department.
1939. A Stanford Electrical Engineering Professor named Frederick Terman begins to establish himself as an entrepreneur-friendly force when he encourages two alumni by the names of William Hewlett and David Packard to establish an electronics company in a Palo Alto garage. Terman goes on to play a key role in fostering close ties between Stanford students and the emerging technology industries in the area. The connections between the university and private enterprise are further strengthened in 1951 with the opening of what is now called Stanford Research Park, an industrial office park with long-term leasing priced to attract technology companies.
1947. Over on the East Coast, physicist William Shockley and two other scientists, while in the employ of Bell Laboratories, are credited with inventing a tiny and revolutionary device they call the transistor. The transistor, which is basically an electrical switch, replaces the functions of much larger, power-sucking, unreliable vacuum tubes. The invention opens the door to the miniaturization of electronics and changes the world forever. (Others say the transistor was given to us by space aliens landing at Roswell in the same year. Make up your own mind.)
1956. Shockley moves out west to Mountain View, California, to be closer to his mother (Shockley’s mother had graduated from Stanford and now lived in Palo Alto, 6 miles north of Mountain View). The well-known physicist starts Shockley Semiconductor Laboratory for the purpose of exploiting the commercial value of the transistor. Shockley’s name is enough to draw talent out from their ensconced positions in various companies around the country. Shockley puts together a “dream team” of scientific and engineering talent. Among the group are chemist Gordon Moore (who everybody’s heard of because of Moore’s Law) and transistor expert Robert Noyce (who almost nobody’s heard of unless you know the history of the microprocessor). In the meantime, Shockley wins the Nobel Prize for his work at Bell Labs, which kind of weirds him out, and he ceases to function properly in a business environment.
Shockley Labs goes to work developing the silicon transistor. Solid-state devices up to that point had been designed around the semi-conducting element germanium, which was proving unreliable for military use, the target market for transistors at the time. Germanium’s semiconductor neighbor on the periodic table of elements, silicon, promises to make a more environmentally stable transistor.
But six months into the project, a destabilizing Shockley suddenly pulls his team off the silicon transistor project to work on what Moore and Noyce deem a highly suspect endeavor. In a move reminiscent of the Caine Mutiny Trial — where the officers of the USS Caine, fed up with the insanity of Captain Queeg’s (Humphrey Bogart) “geometric logic,” try to report Queeg’s errant behavior to his superior officers, only to chicken out at the last minute — a group of eight Shockley employees follow through with a similar plan, calling out Shockley to the parent company Beckman Instruments. The employees’ efforts are rebuffed, however, as they learn that one Nobel Prize winner trumps a handful of mere PhDs. The event marks the beginning of the end of their careers at Shockley labs.
1957. In a serendipitous happenstance, a young Wall Street banker named Arthur Rock is forwarded a letter of California origination regarding a group of engineers and scientists looking to find work in the well-established electronics industry back east. In the end, Rock would meet with the “Traitorous eight,” as they would come to be labeled by Shockley, and find funding for them to start their own company. Rock would later coin the term “venture capital” to label what he had done. Other open-minded individuals catch the VC wave and form their own venture capital firms. Over time, they help provide funding for Genentech, Apple, Oracle, Cisco, Atari, AOL, Intel, and hundreds of others. The notion of venture capital takes seed and flourishes right along with the rapid advances in technology taking place in the Santa Clara Valley. The city of Menlo Park (3 miles north of Palo Alto) would become world headquarters for venture capital firms.
1957. After having thrown caution to the wind to join Shockley Labs in California, Noyce, Moore, and six other top engineers find themselves more and more frustrated over Shockley’s general behavior. Having failed to replace Shockley, the group looks toward other measures. One engineer, Eugene Kleiner, writes a letter to a friend of his father’s in New York. The letter expresses a wish to find backing for an enterprise that a group of Shockley engineers wish to start with respect to the further development of the silicon transistor.
The letter lands on the desk of Arthur Rock. Rock has an epiphany about what course the men should take and flies out west to meet with them in San Francisco. Rock suggests that, rather than looking for other jobs, the men should instead form their own company. (Author’s note: As you may have just noticed, the account of who first had the idea to start a company differs here. Accounts differ in other areas as well. It all depends on who is telling the story.)
The group is receptive to the idea of forming a company … but where would the money for such a venture come from? Arthur Rock knows that a traditional bank wouldn’t touch the concept with an 11-foot pole, so he promises the men he’ll find the needed funds elsewhere. It takes a while, but he locates the money. Rock is able to convince the founder and president of Fairchild Camera and Instrument (in New York) that investing in the development of the silicon transistor could be a rewarding proposition. The ‘Traitorous Eight’ depart Shockley Labs and commence work at newly formed Fairchild Semiconductor in Santa Clara; a division of Fairchild Camera and Instrument (Santa Clara is 15 miles south of Palo Alto).
1957. The Russians successfully launch Sputnik, the first man-made satellite. The US retorts by scrambling into the space race with the formation of NASA. The Air Force tasks IBM with building a navigational computer for a new bomber. IBM invites the 3-month-old Fairchild Semiconductor to come up with a heat tolerant semiconductor for the project … which meant the silicon transistor would have to be perfected. And fast. Small, agile Fairchild beats out the competition by delivering 100 silicon transistors to IBM sooner than the other entrant, mega-company Texas Instruments.
1959. Fairchild invents an ingenious method of placing multiple transistors on an etched slice of silicon, and the integrated circuit (IC) is born. Reliability goes up. Size goes down. NASA becomes the first major buyer of the IC for its rockets. The subsequent success of Fairchild attracts PhDs from all over the world. Numerous people join, then leave Fairchild to start their own companies in the Valley (termed Fairchildren). The venture capital business flourishes, making loans to promising companies with world-changing ideas. Suddenly, the Valley of the Heart’s Delight is less about fruit trees and more about high technology. The term Silicon Valley is spawned.
Working on the basis that the first of a product you make is very expensive, and that costs come down as production ramps up, thus engaging economies of scale, head of Fairchild Semiconductor Bob Noyce, slashes the price of its silicon transistors to $1 each, below the cost to manufacture the component. The price cut boosts sales, increases profits, stimulates widespread innovations across the industry, and the consumer electronics age is born. Fairchild Semiconductor becomes the cash cow among all of Fairchild Camera and Instrument divisions.
1968. Over time, Noyce gets frustrated that the parent company of Fairchild Electronics is not sufficiently rewarding his workforce for their effort (one reason for the Fairchildren). Noyce and Moore leave Fairchild to start a new venture totally under their control. They merge the words “integrated” and “electronics” to form a company called Intel. Venture capital flows in fast to the proven Noyce and Moore, and Intel is funded within two days. Over time, they build a non-hierarchical, technology-driven company that incentivizes employee with honey (stock options) over vinegar (FUD). There are no executive offices. Noyce works in a cubicle along with the other workers. Whereas in the future Elon Musk will characterize starting a new business as “Staring into the abyss while chewing glass,” Noyce states it as, “Walking the thin line next to the cliff of disaster.”
Intel starts out life manufacturing a new form of low-cost computer memory. In 1971, under pressure to fulfill a contract for an elaborate circuit, Intel engineers invent a way to squeeze all the functions of a computer’s central processing unit (CPU) onto a single board. Thus, the micro-processor is born, giving rise to an affordable personal computer. The first microprocessor, the “4004,” contains 2300 transistors. In the future, the count would number in the billions (Moore’s Law).
1970. Xerox Corporation of Rochester, NY, opens the Palo Alto Research Center (PARC) on the West Coast. PARC sets up shop at the Stanford Research Park and hires a bunch of young free-thinkers to invent the future. The upper-management-free environment is the first to render now familiar technology such as the mouse, the graphical user interface, the laser printer, Ethernet networking, the first personal computer, and more (who knows what they were smoking). Later in the decade, a product born of PARC research, a mouse-driven computer with a GUI named the “Alto,” is never mass produced.However, Harvard dropout and Microsoft CEO Bill Gates gets wind of the work being done at PARC and sometime later the mouse and the graphical user interface are introduced to the general public in a new computer operating system known as Microsoft Windows (1985).
1976. Two longhairs from Los Altos (5 miles south of Palo Alto) named Steve Jobs and Steve Wozniak invent a personal computer called the Apple 1. Wozniak is contractually obliged to offer the machine to his employers at Hewlett Packard. HP, thinking no one would desire a personal computer, passes. The two Steves start looking for funding to manufacture the next generation Apple II. Brick & motor banks just stare at the pair. Arthur Rock’s venture capital firm, not understanding what the strange-looking hippies were up to, declines to even take a meeting. Other VC firms take a pass as well. The boss of Steve Jobs at Atari, Nolan Bushnell, passes … but refers the pair to Don Valentine, a Fairchild executive turned venture capitalist.
Valentine recognizes what Jobs and Wozniak have done and brings in 32 year-old Mike Markkula (pictured below), an ex-Fairchild, ex-Intel marketing manager turned retired millionaire (stock options), turned helper of fledging high-tech companies. After meeting Jobs and Wozniak, Markkula comes out of retirement to turn venture capitalist, President, and CEO of Apple. Markkula invites the doubting-turned-doting Arthur Rock, as well as Don Valentine, onto the Board of Directors. The pair arrive with additional funding.Steve Jobs would later tour the Xerox PARC facility, and shortly afterwards, the Macintosh would be introduced to the world (1984).
The next few years. The seeds of new ideas, new technologies, new companies, and new sources of capital take root. An explosion of products are lapped up by consumers as fast as they are developed. Personal computers become ubiquitous. Killer software applications appear. The term “internet” becomes a household word, and its widespread use produces a quantum leap forward in the dissemination of information the likes of which had not been seen since the printing press and affordably priced books of the Renaissance.
1995. A South African immigrant by the name of Elon Musk enrolls at Stanford University to study physics. He drops out of school to create two highly successful Silicon Valley–based enterprises. Meanwhile, Martin Eberhard and Marc Tarpenning start an electric car company named after Nikola Tesla, and are later joined by Musk along with a thick slice of Silicon Valley knowhow to produce the first sustainable, mass produced EV. The rest, as they say, is history.
Normal time is restored. After a short silence, a picnicker pipes up, “I think some of these people were doing First Principles Reasoning.”
Another voice quips, “Risk was an element even in the earliest SV endeavors. And even Leland Stanford had his naysayers!”
Someone retorts, “Yeah, you can imagine what bravery it took to stare into the abyss of those ventures when history had yet to be written and the outcome was wholly uncertain.”
“Right”, says another. “And it took some extra-large plums for Noyce to reduce the price of those new generation transistors in hopes volume would restore profit margins!”
“Yes,” says still another. “Silicon Valley remains the place for new ideas … and the money to power them. SV keeps reinventing itself!”
“China doesn’t have a Silicon Valley, does it?,” sounds a meek voice. “NO!,” respond the other picnickers in unison.
“And what trips me out,” says another, “is how weird it is that the bulk of Leland Stanford’s fortune, garnered from further development of what was the cutting-edge transportation system of its time — the railroad — helped to set the stage to provide a boost for today’s most advanced transportation technology. Internet companies founded in SV such as Zip2 and PayPal funded the resurrection of the electric car.”
“Yeah,” the crowd collectively responds. “Weird.”
Their bellies full and their minds content, the picnickers thank you for the sermon and then take a nice long siesta in the warm California sunshine. You can imagine what they dreamt of.
- Article on Eugene Kleiner, including the famous letter which was forwarded to Arthur Rock
- Silicon Valley: American Experience
- Macneil Lehrer: The Dot-Com Boom & Bust (2006)
- Something Ventured – History of venture capital in SV
- Silicon Valley Historical Association five-part series
This article was originally published in July 2016. We’re republishing it today because it’s so good.