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BUT BEFORE YOU bust out in a schadenfreude grin—or
weep over your festering Yahoo stocks—check out the Web-connected WozCam.
Chances are good that you’ll catch a glimpse of the Valley’s prodigal son
Steve Wozniak. Yes, he’s baaack, sitting on furniture grabbed at
cheaper-than-IKEA prices from failed dot-coms, banging on a G4 titanium
laptop bulging with e-mailed résumés to his new company Wheels of Zeus
(check the acronym). Twenty-five years ago Woz cofounded Apple Computer in
a garage. Now, of all times, he’s back on the start-up trail, ready for a
new revolution.
Woz’s return symbolizes
what insiders already know: Silicon Valley is not only not dead, it’s
already on the way back. In the aftermath of history’s biggest and
giddiest boom-and-bust, the tech industry is entering the early stages of
yet another cycle of innovation. “It’s a great time to start a new
company,” says Heidi Roizen of Mobius Venture Capital. Jim Breyer, a
partner at VC firm Accel, concurs. “This is exactly what was happening in
the early 1990s [before the Internet exploded].”
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In a sense, the impending rebound got its start as soon as
the dot-com failures began releasing their employees. While many of the
M.B.A. gold diggers high-tailed it back to Old Economy-ville, the people
who matter in Silicon Valley—the geeks—weren’t going anywhere. Back on
their own, many of them (with an occasional recharging in Tahoe or Maui)
immediately began doing what they do best—making high-tech magic. “It’s
like the city is burning, and the partisans are forced to take to the
hills,” says Jay Tannenbaum, a former Shockwave executive. “After hiding
in the bushes, they use those little tin ‘cricket-clicker’ doodads to find
each other and regroup.”
Click-click.
Click.
They meet in Starbucks and in Web-based dot-bomb alumni groups.
They hang out in each other’s houses. They give ad hoc demos of new
projects. They present cool ideas at semiformal gatherings like Code Con,
an ultrageeky show-and-tell held at San Francisco’s DNA Lounge last month.
And sooner or later, they figure out how their brilliant new ideas might
actually find their way into the marketplace.
Weirdly, one of the things that will help distinguish the next wave
of start-ups—and make them more likely to last than the Webvans and
eToys—is the difficulty they face in raising cash. ”[During the boom]
capitalization came too easy—now the filtering effect is back in,” says
Sky Dayton, founder of Earthlink (good), eCompanies (whoops) and now a new
venture called Boingo (high hopes). Putting it another way is Mike
Edelhart, a former VC who’s COO of a digital-publishing start-up called
Zinio: “For two years really crappy companies got funded. It’s impossible
to get a crappy company funded now.” |
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Cognizant of the high bar, geeks with big ideas are now nurturing ideas on
the Orson Welles principle of nothing served before its time. “You can
stay under the radar longer,” says Bill Gross, an entrepreneur known as a
serial offender during the boom days. “There are not the expectations that
you build a company in three months.” That’s why Graham Spencer, who was
chief technical officer of crashed-and-burned Excite, has been spending
the last year quietly cooking up a new venture with colleague Joe Kraus.
“This time we’re keeping it small,” Spencer, 30, says of his yet-unnamed
company, which has something to do with Web services (if he told us more
the radar would pick him up). He and Kraus work from their respective Palo
Alto, Calif., homes, meeting a few times a week at their virtual office,
California Pizza Kitchen.
Another example
is Onedoto (pronounced like 1.0), a tiny group led by Valley interface
king Steve Capps and a friend who worked with him on Apple’s Newton team.
With seed money tight, they’re plowing ahead with schemes to make mobile
tech easier to use, stocking up on patents in anticipation of the day the
company will spring into action. .gif)
 Join us on Wednesday, March 20, at noon E.T. for a live
discussion with Senior Editor Steven Levy on the rebirth of Silicon
Valley.
When that time comes,
Onedoto will find that VCs are more than eager to listen. But don’t expect
a repeat of the ’90s—the next revolution in Silicon Valley won’t feature
idiotic Super Bowl commercials and billion-dollar ventures based on
FedExing pet food. Post-bubble Silicon Valley tries hard to avoid the
harebrained excesses that led to dot-bomb disasters. “We’re still doing
deals, but now they’re well thought through,” says Accel’s Breyer. For
instance, Accel recently took a month’s worth of technical and marketing
analysis before funding a wireless play called Woodside Networks. “Two
years ago we would have done it in a week,” says Breyer. (Woz was an
exception; due to his rep, Mobius fast-tracked him after a PowerPoint
pitch.) |
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“The bubble
years were like the last days of the Roman Empire—business practices were
totally weird and dysfunctional,” says Greg Galanos of Mobius. Now he
won’t consider companies without viable business plans, working prototypes
and a sense of commitment instead of a delusional exit plan. These
concepts may be too much for some pampered dot-comies to process. “There
may be a lost generation of bubble entrepreneurs who won’t be able to
adjust to realistic valuations and practices,” says Galanos.
In many ways, the new Silicon Valley is a lot like
the old Silicon Valley before the madness hit. The smart VCs, in fact, are
looking back and realizing that some of the most successful companies—like
Microsoft and Cisco—began not in palmy times but in bust cycles. “I’ve
seen this before,” says Steve Jurvetson, managing director of Draper
Fisher Jurvetson. “So when we saw the bust coming, we immediately went to
work. We funded Phosister [photoic integrated circuits], Nantero
[nanotechnology], Luminos [health care] and Blue Falcon Networks
[peer-to-peer networking].”
Post-bubble
start-ups also enjoy benefits that weren’t available during the boom: lots
of smart people willing to work for reasonable salaries (no
fresh-off-the-campus prima donnas demanding stock options and unlimited
Frappacinos). “We had a festival of greed here, and it was kind of
sickening,” says Andy Hertzfeld, a veteran wizard who’s provided
mind-blowing software for Apple and a host of start-ups. “Now it’s much
more pleasant to walk down University Avenue [in Palo Alto].”
Meanwhile, the traditional pillars of the Valley are
rejiggering their misbegotten dot-com-related initiatives or celebrating
their resolve in not trying to hop on the bandwagon prematurely. Many are
jumping at the first chance in years to pick off A-list talent at
down-to-earth rates. When the hot but revenue-resistant start-up Eazel
went belly up, Apple Computer not only snatched its veteran software guru
Bud Tribble but grabbed a handful of its best engineers, too. |
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Like pings over
the Net, random factoids and stats are trickling in that suggest the
Valley is on the rise after scraping bottom. In the fourth quarter of
2001, VC investments went up for the first time in months. Temp agencies
saw an upswing in employment calls. Post-September 11, the government
announced a 15 percent increase in information-technology spending. There
was even one successful IPO, PayPal; despite the company’s regulatory
problems and a patent battle, it closed a few bucks over its offering
price. But that’s only setting the stage for a more substantial comeback.
In the next few months and years, if the momentum continues, we’ll see a
tsunami of new ideas that will invigorate the region.
If you think about it, labeling the current Valley as a bust
is almost as wacky as believing all the hype of the boom. While the
valuation of high-tech firms went to hallucinatory levels, the benefits
people enjoyed from the Internet itself were quite real. Recently a
sweeping Department of Commerce study called “A Nation Online” painted a
portrait of an amazingly connected coun-try. More than half of all
Americans—143 million—were on the Net as of last September. Every month 2
million new users log on. A decade ago such numbers would have been
inconceivable.
Obviously, the ubiquity of
the Internet provides a platform to instantly propel new ideas into the
marketplace—just as the previous boom in personal computers set the stage
for the Net, and the microchip revolution sparked PCs. Historically,
however, each transition was preceded by a downturn. “It’s all happened
before,” says economist Doug Henton. “The habitat is so rich in smart
people they simply readjust themselves to the next opportunity.”
Henton is coauthor of a white paper called “Next
Silicon Valley: Riding the Waves of Innovation” that breaks down local
history in “hype cycles” tied to tech breakthroughs. Now that the Internet
hype cycle has swan-dived, it’s time for some new eruptions. In the short
term, the hottest sector is wireless (particularly wi-fi, the unregulated
frequency that allows for wireless Nets in homes, offices and coffee
shops). Companies like Boingo, which attempts to broaden its use to
consumers, are already rushing to market, and about 20 start-ups are
competing to produce “wireless mesh networks” to make wi-fi work as
seamlessly as the Internet. Then there’s Woz’s start-up; though product
plans are under wraps, we do know it involves merging wireless with
low-cost GPS to enable people to find things—and other people. (“It’s
actually kind of obvious,” says Woz. Maybe to him.) |
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Another busy area is distributed file-sharing (essentially, making
Napster-like peer-to-peer systems legal and profitable). No fewer than
five new companies have gotten funding to set the standard in this space,
and that doesn’t include countless not-for-profit schemes. And then there
are Web services, subscription-based applications that utilize the
Internet as a de facto operating system. A sign of their inevitability:
3,000 independent developers turned out last month to see Bill Gates
introduce the tools to create software for Microsoft’s .NET
platform.
Expect the truly big bangs,
however, from exotic technologies that are just emerging from the research
lab. Prescient propeller-heads are buzzing about bio-informatics, the use
of computers to exploit massive new amounts of genetic information. “It’s
a combination of pretty hard-core technology with the promise of some big
payoffs in things like drugs and genomics,” says Tim O’Reilly, whose
eponymous company recently sponsored a conference on the subject. The
field is rich with opportunities for those who pioneer things like DNA
measurement chips and genetic data mining. Since the demands of
bioinformatics push the limits of current computation, there’s a potential
ripple effect that could kick in as more powerful machines and innovative
data-handling techniques find their way into the mainstream. |
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Silicon
Valley |
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March
25 issue |
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| Other
far-thinkers are focusing on nanotechnology, the science of creating
atomic-scale devices to do our work for us. Some of the first start-ups
include Nantero, which makes “carbon nanotube flash memory,” and Alien
Technology, which uses “fluidic self-assembly” to make microscopic
semiconductors. (These might sound like a mouthful, but remember how weird
“random access memory” once struck you?)
It’s impossible to know just when these new technologies will kick in,
changing our lives and enriching their founders. And maybe the biggest
changes will come from some technology that right now is quietly cooking
in someone’s lab—or garage. In any case, the greatest news of all in
Silicon Valley is that the buzz no longer focuses on making billions, but
in producing innovation. The traffic jams on 101 may not be as dense as
they were in 1999, and the Nasdaq might continue to be anemic for some
time—but the geeks have all their synapses firing, the best sign of
copacetic times ahead. Buoyed by our still-increasing reliance on tech,
and fortified by the lessons of history, a newly focused—and newly
responsible—Silicon Valley is gearing up to wire us (and wireless us) more
than ever. So welcome to Revenge of the Nerds, The Sequel.
Click.
Click-click.
With reporting by Brad Stone in Silicon Valley
© 2002 Newsweek,
Inc.
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The Film of
Tomorrow
