The Phenomenon of the Silicon Valley
4 August 2016
Who remembers the story of two young graduates of Stanford, Hewlett and Packard working in their garage with green doors,… located behind the building at 367 Addison Avenue in Palo Alto and experimenting to create new revolutionary inventions which were later successfully used by the Walt Disney corporation?
And who remembers that in order for the sound oscillator to be used for commercial purposes they had to borrow money from Fred Terman ($562 to be exact at the times of economic depression), who was the dean of engineering faculties at Stanford, and who excelled at finding the right people, liking them together and at networking? He was the one who in 1951 made an unbelievable decision to set up an industrial park which was beyond the scope of imagination of what the university should be dealing with at that time.
Who looks back on the decision from 1912 after the “Titanic” disaster which forced to introduce regular radio communication in navigation? This became an opportunity to develop radio communication for the port city of San Francisco and the nearby Palo Alto. Already at that time Palo Alto became a vibrant hub in this field. Numerous radio and radio communication games fan clubs sprang up. This is the basis of today’s mobility revolution.
In his book Geography of the Genius Eric Weiner has described the historical context of the rise of the Silicon Valley. He presents this kind of unique “genius loci” in the history of humankind from Athens to the Silicon Valley.
Does anybody still look into the obvious reason of its existence, the key to unlocking the innovative power of the Silicon Valley, which is the financing of audacious and risky ideas through risk capital funds? It was possible on such a massive scale when in 1978 the restrictions for pension funds were dramatically lowered in the USA, allowing at the same time to carry out investments linked to a higher risk. Simultaneously, security measures were introduced to ensure the safety of pensioners’ savings in the longer perspective. The administration employees’ and teachers’ funds, which had already been strong in California, became even stronger due to the courage of undertaking new investments. During the time of Clinton’s administration taxes were lowered and regulations were lessened for the whole online sector in the scope of the so called “permissionless innovation”. Long term and free investments of the private capital pension funds paved the way (and are still doing it today) for the competitive advantage of the Silicon Valley.
It takes 33 minutes when the traffic is slow to get from San Francisco to Palo Alto. The highway is wide, four lanes on each side. It is a little bit run down. Along the highway you can see hills covered with a dense forest which were hidden under a fog, as if under a blanket during our ride. This is a typical view for the San Francisco Bay. During our trip behind the clouds you could see more clouds rushing past great speed. This place has some kind of magic.
The magic of the place: around Stanford
The whole phenomenon of the Silicon Valley actually lies in the magic of this place.
The houses are rather low, the centre is full of cafés, restaurants and shops with vintage clothing. There is a lot of green: dozens of trees and bushes in different shades of color. You can find restaurants serving all kind of cuisines.
Already during the first meeting we had a discussion about the buzzword describing the sense and significance of the Silicon Valley. A PROTOPIA which is a combination of “utopia” (the perfect place) with the words “process” and “progress”. Everything which happens here is carried out in a process of cooperation of all partners, combined with competiveness and in a sequence from an idea to a prototype, through a pilot project, till the stage of implementation. It is an innovative process which brings progress i.e. change for the better. Every element of production in the Silicon Valley, from the usefulness of the solutions to the design, is oriented to improve the quality life.
At the heart of the Silicon Valley is the Stanford University. The alleys led us to different departments and to a beautiful church in the style of a Mexican Romanticism. There are places to conduct research and learn, to rest and contemplate. Leland Stanford started out as a salesman of explosives in the time of the gold rush in California, then he became a railroad tycoon and finally the state governor. The railroad between the East and the West Coast of America was like the Internet network in those times, linking what seemed to be impossible to join. The gold ore changed into the gold of communication in California and remains so till this very day. After his son’s death, Stanford founded a university and bought large plots of land for it. Most of the companies which come to the Silicon Valley lease land from the university. If the company has innovative goals, it does not pay much. An ice cream maker will pay much more for land to open up a store.
The Stanford University ranks third in the world due to its scientific and innovative achievements.
The university is the key. When the famous Burton H. Lee tells about the differences between Europe and its approach to innovation and the Silicon Valley, he stresses a couple of things. First of all, the university and the companies are the heart of the innovation in Palo Alto. The government administration and regulatory framework rests in the background. They are in the background helping and not intruding. In Europe it is the university which remains isolated in the background. It tends to isolate itself. As Burton Lee said, scientists kill innovation because they do not want an innovative approach, they have a “scientific obsession of science” and want research for the sake of research. In the USA, research conducted in the Boston Economic Development Area in the Silicon Valley is for the future users. It has a practical dimension, although this might not always be clearly visible at the beginning of the research process. Cooperation and exchange with business is the everyday of innovation. Students are also the source of innovation. They set up start-ups already during their studies, try a hand at working in companies and together with companies. In the last years the graduates of Stanford have established 11 thousand companies. They excel at science and business.
The university is created through life and not by law.
Here, nobody gets upset about failing in business. Failures are a lesson to learn and not a reason for banks or other businesses to turn their back at the alleged losers, as it often happens in Europe. You work for yourself but also in a team. There is a culture of cooperation and openness and business is based on the intellectual capital. In Europe business and science are subject to someone’s command. It is the “I” that counts. What counts in the Silicon Valley is a common impulse, the team of teams is the key. Burton Lee talks about the “I” model which is juxtaposed with the “T” model. The creation of such a model means a great change in the education, opening it up to cooperation and not just to competitiveness.
Finally, in Stanford I hear that in Europe we are as usually behind with the “Industry 4.0 ”. Because that is not the heart of the matter! The Industry 4.0 is supposed to be the effect and not the driving force. If it supposed to be the end result, what can be the driving force behind the change which is already marking the horizon of a global, economic revolution? In the Silicon Valley it is said that the Artificial Intelligence (AI) will bring the wind of change. What is more, all the consequences of introducing learning machines and new, autonomous robots. You feel it at every corner of the Silicon Valley: the IT is becoming the NOW, in this very moment.
The Silicon Valley is magical. It is an intersection of talents, ideas, funds and reveling in the technology and its endless possibilities. The community of 25% of inhabitants of California, 25% of Americans and 50% of foreigners creates a unique culture of competitiveness and cooperation. Not everybody with an idea wins. Yet, it is the game that counts and so everyone is betting on innovation. The Silicon Valley people are, what may sound like a paradox, “rationally enchanted”.
The most important companies of the world
Perhaps that is why all the most important world companies are here. This inconspicuous-looking town hosts the giants of innovation in pleasant, low buildings which do not disrupt the harmony of the space. They co-exist with nature, as there are many types of redwoods. Those pine trees are absolutely breathtaking. You can find big and small companies, start-ups from all over the world which flock here to find inspiration and business success. There are many European companies, such as Ericsson which started to operate in the Silicon Valley, just at the time when the Stanford University launched the Industrial Park in 1951. Others include Sky Venture, Orange and Deutsche Telecom. These are all companies which want to have an imprint on the digital revolution. You pass the laboratory of Philips and Dell. Right around the corner there is Tata Consultancy and a few blocks away even Volkswagen.
Obviously, you can find Samsung with its innovative power and the tough business rules of the game. Young Sohn, one of the key leaders of the company, speaks of innovation as a power which arises from the orientation towards the needs of us, the users. We want to be in a good health, be safe, to be able to communicate and we want good entertainment, such are the driving forces of demand. New inventions and ideas come to life as if we had ordered them. The area of demand on a massive scale in the nearest years will be healthcare. We are aging: there will be 1.2 billion people over 60 living on Earth in 2050. 70% of deaths are caused by chronic diseases, and at the same time we value health and high quality of life more and more.
That is why the mobile devices which allow to measure the sugar level, blood pressure and other vital signs and to send them in real time to the doctor, open up new perspectives of a quick intervention and prevention. Thus, the comfort of patients will also increase. Individual, personalized approach of doctors toward the patients, better adjusted therapies are at our advantage and mean a giant reduction of costs for the healthcare. Not to mention sensors which allow to asses the whole genetic sequence, to get to know the various genetic causes of diseases. There will also be extremely precise treatment and prevention of diseases at an early stage available.
We were given an amazing presentation at Apple. The company is looking for new opportunities of growth which will meet the clear expectations of users. In two or three months Apple will reach a breaking record — sale of over billion of iPhones. The competition is wide awake, as the Indians are launching a smartphone which costs $3.70. The advantage of the new device is that it is like a full computer which you carry around in your pocket. This allows for new services. Apple is betting on health.
Three offers are ready. The first one is for hospitals where the devices allow to monitor the state of the patient, offer better nursing care (registers of the test results, medications taken), explanations about what is the essence of the disease (amazing imagery) so that the patients can take active part in the treatment process. As for patients with chronic diseases, this will mean that for example parents will be able to see what is happening to their children with diabetes. Knowledge and a sense of security allow the chronically ill children and adults to fully participate in normal life and break the barriers of exclusion caused by the illness. For elderly people such devices (also in the form of elements of clothing) could monitor the state of health but also alert about various needs. With the growing disabilities of the elderly people in our aging society, the caretaker, family or robot will be able to see what is needed to be taken care of first. All of these devices together offer a chance to collect data ( in accordance with the rules of privacy protection) on the course of illnesses. Once this data has been anonymized and processed, it will become a part of critical database which supports diagnostic screening and therapy.
Every company from the Silicon Valley has its own specific strategy. And all of these strategies are based on innovation. This means that they are future-oriented and open to new trends.
Among these trends are those connected to cyberspace, where Symantec is active. They also include logistics of mass produced products sold online, which is what eBay and of course Amazon is doing. There is the importance of fully understanding of what the Big Data is about and data processing, making out what is the problem of trust and what we should be protecting (privacy), how to relate to the problem of ownership of data. This is what Intel is doing by conducting in depth analysis of the topic as Genevieve Bell shared with us. Finally, there is also the approach to change as the new status quo in the digital world, as Cisco presents it. From the point of view of the company this means investing, developing solutions, developing cooperation with all the possible partners, creating partnerships, and if necessary buying other companies. Only then will you be able to support your competitive advantage which is linked to keeping up with changes and setting new paths. There is also the mission of protecting the client and the user by giving them the possibility of checking the suggestions and rankings (what are the best hotels, educational opportunities, food) in the big Google search engine when using the local search engines, the development of which is creatively support by Yelp.
The new trend talked about by everyone, which is actually the most important one and will change our reality, is the Artificial Intelligence. Some people are afraid of robots because of the Frankeinstein-like theories and the possible loss of employment on a large scale. Others illustrate how the process of production will change and how safe our lives will become. The key to handle these changes is to understand that we are dealing with learning machines which can process information and make decisions faster than the human brains. What is more, on the one hand they are under the control of algorithms, which operate them (in other words people), and on the other hand they are becoming autonomous by analyzing the whole data environment independently. It is not just about self-driving cars which we will be driving and will be driven by in the nearest future. The heart of the matter is the presence of AI in our life and whether we create an environment for cooperation between humans and robots.
That is why companies are looking for different ways of communicating man with robots. Human voice recognition, reacting to the content of orders and suggestions, mutual interactions — these are the new applications important for Amazon (ECHO), Google and Apple. The representatives of these companies speak of all these issues with a certain distance, as if protecting the most secret developments of the company.
However, probably the best technical conditions for developing the Internet of Things (connected to the future of AI) have been created in a European company i.e. Deutsche Telekom operating in the Silicon Valley. The so called Software Defined Networks (SDN) come to life linking things communicating information about processes with fast-paced processed data in adequately equipped and interconnected centers and together with data stored in the cloud. These are first versions of wholly integrated software of key importance for the 4.0 economy.
As Europeans we often wonder how far we are from taking the leap into the digital economy 4.0, and here in Deutsche Telecom you can see that the technology is ready. One thing is missing, the super fast 5G Internet. Nevertheless, Nokia is working on this in the Silicon Valley and the work is highly advanced. Facebook is looking for a different way to make the network accessible anywhere in the world, in such places as Africa and Latin America where there are areas of lack of mobile connection. Google is investing in the supersatellite and quasi-satellite solutions, not to mention the famous Loon project by Google.
Uber is also introducing a revolution. They are not just a new concept and competition for traditional models of taxi services. There are myths and stereotypes about Uber drivers not having insurance, lacking of licenses and the workers’ rights and business regulations not being respected. Today Uber operates in hundreds cities in the world and has agreements with municipal authorities of 70 countries. It respects the legal provisions of a given country. The time of drive is shortened by about 30%, it is cheaper and more effective also because the company uses new technologies. Uber transports more people, using almost twice less cars, which decreases pollution and increases air quality in the cities. Generally speaking, it is a part of the future Smart Cities solutions in the area linked to the public transport. It is a preview of the sharing economy which entails borrowing cars or driving the Uber cars and of other such companies.
Time for the next generations for whom ownership will be less important and access to services and goods will be everything. This kind change of attitude of the users has been a driving force of the development of Internet in many areas.
Is the Virtual Reality only a fad and another marketing gimmick to get us interested in digital potential or a real invention of key importance? There are numerous new devices in the Silicon Valley produced in this field. The most advanced are probably Facebook’s Oculus which allow to fully participate in the world of virtual reality. This will change the model of computer games and the way narration is steered in films. When a dinosaur was coming at me I cried out and when he went over me I cringed in fear. Such is the power of impact. However, in the case of the “augmented reality” we perceive the world as it is only in the 360 degrees format, which brings new sensations. This will be highly useful just like the similar devices by Nokia or Microsoft describing the image seen in a three dimensional way i.e. the additional elements of the super reality, allowing a visualization needed in the creative, production and educational processes. One might ask when will this come to life? The answer is that it is coming fast.
Space for youth, space for the young
The magic of the Silicon Valley is not just the magic of the valley and the charm of youth connected to Stanford.
This is also the space and organization of work in companies. Once we enter the AT&T we see the freedom of office space, the desks set in a very diverse manner, slightly chaotic, and a fully personalized space. The lab rooms are close to the social space of the kitchen. This is not just the space for chats, snacks and coffee but brainstorming of people who come across each other by chance. The July graduates of Stanford are already presenting their projects which they have started while studying. They are doing it right next to old telephones which allows to compare the old and the new AT&T.
Not all companies in the new technologies sector has such a history as the AT&T. At the campus of the immense but young Google even the bikes have the company color scheme. There is a lot free space in the buildings, armchairs, coffee machines every 50 meters, pretty paintings on the walls and in the big conference room the possibility to see Google maps in an amazing focus. We had fun looking for the cat of our friend in his house in the Netherlands. Although at the same time, we had this thought at the back of our heads about the dangers linked to such a full-scale observation of the world and the people. Fortunately, in the recent years there has been more understanding about privacy protection and clear regulations have been introduced, also for Google in Europe.
Visitors (even if they come from the field) are not shown the most important laboratories. You talk about general challenges. Nevertheless, we also discussed in detail the plans to support education, the development of micro-multinational companies and obviously the prototypes of a Google car. People from Google say that after the super ergonomic buildings were opened for use, the space between the buildings began to fill up. People paved out paths, dreamed restaurants, coffee houses and folded chairs into life. Such an organization of space is focused work and relaxation friendly, depending on the needs. This kind of space meets all kinds of needs. I did not feel that it is to enslave the employee, as some commentators suggest.
Facebook campus looks quite differently. Just as Facebook created a virtual network of social communities, the space in the Facebook company is a real area of a social community. In fact, it is a VILLAGE. Sidewalks, small stores, free ice cream, free restaurants, a workshop with wood enabling to work on your manual skills, an old phone booth with shelves to leave books, encouraging reading and sharing. Trees and bushes and constant movement in the alleys. It is not clear whether someone walking towards you with an open laptop is working or resting. There is a notice attached at the bike racks are informing to put on a bike helmet, but not to protect the head as the law says but your brain. You can see what counts in this space: the human being, the community, pleasure, quality of life and the head in the sense of the brain which is needed to do creative work. Could we say it is a blatant way of creating a feeling of community also among the employees?
I prefer the Facebook village than the Ford factory or a traditional office with a hierarchical space.
The start-ups environment fits perfectly with this concept. Such dynamic innovations would not be possible in the Silicon Valley, nor anywhere else without start-ups. They gather the youngest talents, and thanks to the support of the accelerators they speed up the generation of new ideas and allow access to the risk capital funds. Even though only one idea in ten will succeed, it is still the ecosystem of start-ups which is the catalyst of great changes. Big companies are too slow and structurally immune to change. It is less costly to contract a start-up and the effects will come faster. Furthermore, start-ups bring in the dynamics of innovation arising from the audacity to think, a network of contacts between the business and the world of science. Furthermore, their ecosystem matches the local culture and orientation towards the quality of life.
Start-ups from all over Europe flock to the Silicon Valley. A brilliant Polish IT specialist tells me that in Europe he would need ten years to gain the knowledge he got in Palo Alto. Young talents come to learn and stay or go back home. When we talked to brilliant young people from the “German Accelerator”, I understood that this is a model of action to be followed: to have your national spot in this international melting pot of the Silicon Valley, draw in young people, teach them what the Silicon Valley is about, free their energy and ideas, and open up possibilities to be active back home. I have a dream of a “Polish Accelerator in the Silicon Valley”. Does it take very long to come from an idea to practice ? If we did it in the spirit of the innovative spirit of the Silicon Valley, it could work. If you find, meet and match the suitable partners for such a venture.
What you find further beyond
In the distance of 300 kilometers from the Silicon Valley other miracles of California can be found. We drive along the land which has been snatched away from the dry land of Sierra Nevada. Today this area is covered with immense orange and olive tree groves and some vineyards. Water is transferred to each tree, the green is juicy and vivid. This beauty is the fruit of work of many generations.
Does the presence of the oldest living world organism General Sherman, who is over 2200 years old, in the Redwood National Park inspire us, inhabitants of the modern, digital world? We look with amazement at the gigantesque and friendly sequoias in the Giant Forest. It smells of all the different kinds of pines and redwoods. Crowds come to see this place. They want to touch the astounding tree bark and the tree trunk. They want to look up and feel the magic of the Spirit of the World. These giants are a mixture of power and gentleness, maybe that is why they are so fascinating.
Not far away there is the Yosemite Park with the wonderful Half Dome mountain. It is a giant, granite mountain of 2000 meters, shaped like a dome, as if nature cut it in half. It is incredible when you approach it from the side of the Mirror Lake which is filled with water only in spring. An amazing view spreads before our eyes at dusk, just before the sun sets from the Glacier Point. We watch the great mountain surrounded by other mountain ranges bathed in the setting sun. The immensity of beauty worth the Spirit of the World.
You cross the first and the second park in a car or a special bus. Distances amount to 70-80 kilometers. Nevertheless, it is a peaceful place where you also feel the American explorer spirit. There are even bears and visitors are warned not to leave any unpacked food in the car not to tempt them. I saw a roe deer, a fox, not to mention the ubiquitous squirrels.
In the back of the mind you think about the history of Indians and the Spirit of the World which is a part of the history of these trees, forests, valleys and mountains. Once you leave the park in the evening and look for a place to stay for the night in a motel and to eat in a diner than it is time to submerge into the American countryside. We enter a bar where the ambience is shaped by the farmers, the Mexicans, it is full of color and the sounds of rock music sung by a wonderful sixty year old woman accompanied by her a man of her age on a guitar. The burgers served here are so big that no European is able to eat them. Poverty, serenity and private life, along with faith that Trump speaks their language and for them.
Both the America of a amazing nature, and America of small towns is in the same state of California (the fifth biggest economy in the world) as the Silicon Valley. Perhaps one is possible because of the other?
What will doubtful Europe do?
Is the reality of California and the Silicon Valley full of nature and the highest class technology leading us and the whole world to the multidimensional “D” (digital) crisis? This crisis can be described as: digitalization (excessive digitalization, virtually of everything), demonetization (exchanging our data into a currency), dematerialization (old products are disappearing, we use one multifunctional device), domination (supremacy of giants) and disengagement of intermediaries (intermediaries of many services are disappearing but also the responsibility is becoming more blurred) and disruption (a wave of creative change which will make some succeed and some fail). We discussed those challenges with passion and clarity at Orange. In order for the digital revolution to develop, it is important not only to notice all the new chances but also to understand the dangers. Only than will it possible to respond to dangers and shape the opportunities arising from the great digital breakthrough more reasonably.
The study visit which allowed us, a group of members of the European Parliament, to see the achievements of the Silicon Valley and talk about its plans naturally led us to make comparisons. Where is the Silicon Valley? Where is Europe?
Europe should not aim at replicating the Silicon Valley, as this cannot be done because of this magic “genius loci”.
Yet, Europe can learn a lot from the experiences of the Silicon Valley. Europe has a giant potential for a digital leap. Quite a good European plan exists in this field, the concept of a Digital Single Market. All that needs to be done is to break the barriers and edges of fragmentation between the European states. Divisions need to be eliminated. A modern ecosystem of innovation needs to be developed. The role of universities and scientific centers is of key importance in such an ecosystem. Universities must live a real life and not according to the laws set by the bureaucratic administration. It is them who together with business and economy must create a spark for European innovation (not only for the given countries as their potential is too small), although of curse the innovation might be happening in the regional centers. Trust in the possibility of cooperating with all the partners in such an ecosystem is essential. You also need to be open to those who lose. Only who never try fail should be the motto of the new European business approach. You cannot boost the European economy with an innovative force and spirit without caring for start-ups and providing access to risk capital financing.
To sum up, there are lessons to be learned from the phenomenon of the Silicon Valley. And then you should do, as they say, your own thing. But do it well.