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Letter From the Front Ground
zero and thrilled to be there. The tech world is imploding. So why is
everyone in Silicon Valley so darned By DAVID BEERS - Vancouver Sun |
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The Montreal Canadiens were in Silicon Valley on Monday to play the San
Jose Sharks. Up in the last row of the arena a baby-faced guy wrapped in the Maple Leaf flag dared to cheer lustily for the hapless Habs, down two zip in the second period. ``I tink dis iz our turn to score now, eh?'' he mugged, his wickedly fake Quebecois accent giving him away as the Ontario-born Anglophone he is. The young man's circle of American friends, some of whom also happen to be his employees, laughed mightily. Even as its hockey team drove to victory, Silicon Valley's economy skidded ever deeper into its wild-ride losing streak. ``Stock markets plummet,'' screamed the banner headline of the San Jose Mercury News the morning after the game, March 13. High-tech investors, it said, were now engulfed by a ``wave of fear.'' If so, you'd never have known it by the giggling antics of the young man wearing the Canadian flag, a young man who at age 26 is CEO and president of a Silicon Valley engineering firm called Nuvation that does tens of millions of dollars worth of high-tech business, a young man with the impossibly ironic name of Michael Worry. Sure, Michael Worry knew the tech-heavy Nasdaq stock exchange was in free fall, having lost more than $4.5 trillion in value in the past year. He knew the Internet boom wasn't tech's only bust; even the major computer chip maker, Intel, was laying off employees by the thousands in the Valley. Michael Worry wasn't worried. ``I really love this place,'' he said. ``Great technology. Great market.'' His firm, according to the back of his card, provides ``Innovative Engineering Services for the Embedded World,'' and this includes ``FPGA, ASIC, Board Design, Firmware, Device Drivers ...'' Translation: He's a highly versatile techie who was happy to feed off the dot-com frenzy while it lasted, but will switch his diet to fit a changing smorgasbord of opportunity. ``There are more patents filed here than in the whole rest of the United States combined,'' says Worry. So why worry? In Michael Worry I recognized the optimism that fuels this place. I grew up here while the Valley of Heart's Delight, as people called it 40 years ago, turned into Silicon Valley. I watched an ancient notion of how wealth might be created (sun, soil, vast orchards of sweet blossoming fruit trees) give way to high tech's ever promising permutations. I saw the Cold War weapons biz beget the chip biz, the personal computer biz, the software-design biz, the Internet biz and every other ``new new thing'' along the way. These days, the mantra in Valley is no longer ``dot-com.'' It is ``wireless.'' It is all about getting the world's machines and people to work in concert via radio signals and laser beams. Silicon Valleyites prefer not to dwell on the dot.com debris at their backs. They are optimistic that billions of dollars are to be made in the coming permutation that is wireless. Or maybe it will be a different way of applying the Web's power to business. Or maybe something else. Whatever it is, Silicon Valley fully expects to be at the centre of yet another global economic bonanza. *** After receiving his notice and severance package along with a fifth of the staff at iDrive.com, one software programmer went straight to the kitchen, opened a glass-front refrigerator filled with complimentary drinks, and screamed, `I'm going to drink free soda until I puke!''' As reported in the latest issue of San Francisco magazine, this note is accompanied by the following indicators of where things are headed: - Internet layoffs during the past year: roughly 51,000. - Time usually allowed to pack up desk after getting pink slip: 60 minutes or less - Typical severance package; $0 to two weeks pay (plus an occasional Aeron chair or laptop) - Unusually generous severance package: two months' salary (BabyCenter.com) - Dot-coms that advertised during Super Bowl XXXIV: 17 - Dot-coms that advertised during Super Bowl XXXV: 3 - Resumes posted on job-search site Monster.com on a single day in January: 36,646 - Increase in business during the past few months for one law firm that handles bankruptcy cases: 15% From another source, a friend involved in a well-visited content site on the Web, I gleaned one more indicator. In less than six months, he confided, advertising revenues had dropped 90 per cent. He was hoping maybe a movie star would help keep them afloat. *** ``No, you don't want to be called a dot-commer. Dot-commer has a negative connotation now. It means you tried to sell people on an idea that didn't fly.'' Katie Peterson, who is telling me this, remembers when it was a wonderful thing to be a dot-commer, or even better, an Internet Executive. But those were the days when Katie Peterson was not only an Internet Executive, she was a self-made multi-millionaire. Those were the days, all right -- about 180 days all told. And then it was over and she was deposited,abruptly, firmly, back on earth. Back in the mid-1990s Peterson got an idea for making money via the Web. Through her childrens' play group she met Guy Kawasaki, one of Apple's early lions, who helped her raise $2 million through his company Garage.com. She built a company called WebOrder, whose services, including the encryption of credit card transactions, help small firms do on-line business cheaply and efficiently. On March 23, 2000 she sold WebOrder for $23 million to a company called Netopia. Peterson's share amounted to about $5 million, the bulk of it in Netopia stock. She also was savvy enough to get a little under a million of that in cash, up front. ``It was so much fun feeling you're worth $5 million, she recalls. You're never in a bad mood. You can drive around and you have a clear head. You don't have that thought in the back of your mind that you have to make it.'' ``Of course, we never really had enough time to get used to the idea we were rich.'' No they didn't, because exactly one week after the sale of WebOrder, the bottom dropped out of the dot-com economy. Peterson's stock was restricted, and she couldn't move it fast enough to stay ahead of the meltdown. Over the next six months Netopia slid from 90 to 50 to 20 and downward. Today the stock sits at 5, up from a low of 3. When they still thought they were mega-rich, Peterson and her husband, who both love golf and tennis, spent a big chunk of the Netopia cash on a membership to the toniest country club in their area. She splurged on a couple of Missoni dresses early on, but the Netopia stock dive erased any immediate dream of a mega-mansion, given the Bay Area's insane real estate market. For now she and her husband, a successful eye surgeon, are staying put and waiting to see if their stock comes back, a hope that sorely tests the optimism that Silicon Valley demands of them. The source of Katie Peterson's frustration runs deeper than mere material longing. Some of it is a sense of destiny snatched away. Her great grandfather invented the crescent wrench and made a fortune. On the other side of the family, her mother worked her way through law school and became head of the Internal Revenue Service under George Bush. Katie Peterson received her MBA from Milton Friedman's famous braintrust, the University of Chicago. And her avid reading of Ayn Rand's libertarian philosophy has convinced her that the greatest good she can do for society is to create wealth by building her own company. But Katie Peterson is a reminder that, as with the sunshine here, there can be a rarified quality to psychic agony in Silicon Valley. For all she has accomplished, all she does possess, she sometimes feels like a failure. ``I wanted to build a real company, like my great grandfather. And I wanted to make everyone who worked with me rich. That's the worst part. I still feel badly about it.'' The reason that WebOrder's sale did not make some of her team rich is that they were rewarded with stock options rather than, like Peterson, any actual cash. At the time the options seemed golden. Netopia was trading around $50 and climbing; their options required them to pay a fixed price of $32 a share as soon as restrictions were lifted. When that moment arrived, however, Netopia was selling well below $32, and so the WebOrder crew found themselves, in Silicon Valley parlance, ``underwater.'' Today they are very far underwater, $27 dollars a share underwater. Do not imagine that any of this has shaken Katie Peterson's basic faith in entrepreneurial capitalism as practiced in Silicon Valley. `Nobody I know is leaving the Valley. I certainly have no plans to leave'', she says. She says she is simply ``sitting out'' this year as she ponders what company she might next launch. ``Being the pain-in-the-butt competitor I am, she says with a laugh, I won't stop until I get what I need to consider myself a success.'' She is looking into the whole wireless thing. On other sunny patios all over Silicon Valley and up the San Francisco Peninsula you will likely find hundreds, perhaps thousands of similar dot-commers who've come up short, whose stock options lie fathoms deep, who are recovering from the shock of having their last millions evaporate and are pondering how to make their next ones. In this part of the world, it can seem as if there is a dot-com millionaire, real or virtual, in every family. Did I mention that Katie Peterson is my sister-in-law? *** ``The bubble we've been through was probably the biggest economic bubble in the history of the world,'' says Reid Dennis, founder of Institutional Venture Partners, one of the famed high-tech venture capital firms at 3000 Sand Hill Road in Menlo Park. The white haired, bow-tie wearing Dennis, who takes some pride in declaring himself ``the oldest living venture capital practitioner on the West Coast,'' has seen a lot of ups and downs in the market since he made his first investment in 1952. But when this bubble burst more damage was done to more people than ever before, he says, ``because there is so much broader ownership of stocks now.'' Reid is putting the finishing touches on raising his latest $350-million venture capital fund and he owns six airplanes. In short, he's good at what he does. He never really understood why people would shop for groceries on-line when he enjoyed the visual, tactile, tomato-squeezing experience of grocery shopping. Some e-commerce ideas struck him as crazy, but the young true-believers in his firm kept saying the Web would spawn a new breed of consumer who didn't like to squeeze tomatoes, or browse bookstores, or chat with a travel agent. They would be too busy. Too busy making money in the roaring economy bestowed upon us by the Internet. Now Dennis, punching away at his calculator, notes that the Nasdaq has lost a record-setting 62 per cent of its value from its previous high. The biggest losers of all, he figures, will be the charities who've seen billions in potential donations disappear. For example: If my wife and I had died last March, we would have left $50 million. Not any more. Dennis shakes his head, letting his eyes wander over an office bustling with more than 40 employees, its walls lined pictures of old San Francisco, including panoramic photos of San Francisco after the 1906 earthquake. ``This,'' he says, ``has hurt an enormous amount of people.'' Sara Miles, who lives in San Francisco's Mission District, shakes her head, too, at the damage done by the dot-com earthquake, though she measures it differently. Her neighbourhood has long been the cheap, lively Latin barrio, which is why Miles lives here. She has covered wars in Central America and is author of a smart new book about Silicon Valley and the Democratic Party called How to Hack A Party Line. She was appalled to see rent-controlled apartment buildings around her fall under the wrecking ball to make way for dot-commer housing -- live/work lofts selling for $650,000 a unit. She is further appalled to see those lofts now standing empty, laid bare by the receding dot-com tide. Dot-com companies gentrified office spaces, too, muscling out neighborhood fixtures including a dance studio, an immigrant-rights centre, and a church-run English class. ``The people I worry about,'' Miles offers dryly, ``are all the new restaurant owners who are now losing tons of business. In this part of the world, no working white person has cooked for the last five years. Now they'll have to.'' So that's what you get from people like Reid Dennis and Sara Miles, old sages and left-leaning bohemians. Such fretting from the fringes will not, cannot dull the hegemonic optimism of Silicon Valley. Want another taste of it? Meet Handol Kim, Canada's Consul and Trade Commissioner in Silicon Valley. He grew up in Burnaby and, after postings in Ottawa and Taipei, landed here the mouth of the dot-com rout. No matter. His job is to put Canadians with ideas together with Silicon Valley money. He cautions that Canadians don't tend to think big enough. Too often they only want to dominate, say, the Canadian market, when they really should be gunning for the world. The plummeting Nasdaq and dot-com collapses Kim prefers to read as just another cycle of the sort that visits Silicon Valley with the inevitablility of El Nino. The layoffs of thousands at Intel, Nortel and Cisco, he says, are the kind of ``spring cleaning'' that lots of companies will do before the cycle turns upward next fall. Look then for a good rebound led by communications. The wireless thing is inevitable, Kim says. Carriers have already committed huge funds to buying licenses they have to amortize over many years out. In other words, there's no turning back. And you'd be a rube to give up on the Internet as an economic driver. ``Traffic on the Net is still doubling every six months,'' Kim declares. True, the dot-com craze was a lot about inventing e-commerce ``click-and-order'' competitors to established brick-and-mortar retailers, and that clearly hasn't worked. But that doesn't mean the brick and mortar retailers can't benefit by insinuating the Internet into every facet of their business, from customer service to inventory tracking to parts procurement. That's about making proven outlets more efficient, more profitable. ``Silicon Valley'', states Kim, ``is already way ahead of the rest of the world integrating the Web into everyday life.'' By the way, he loves living here, loves everything about it. That's why he is quitting the Canadian foreign service to join Coradiant, a private company here that manages Web sites for corporations. Kim looks the way so many gung ho Valleyites look these days, his shrewd, lively eyes staring out of a face smooth and clean and imperturbable. A face like that of Michael Worry, the guy wearing the Canadian flag at the Shark-Habs game. Worry, who you'll recall runs a multimillion-dollar engineering firm, tried to buy a beer between periods and the vendor asked for his ID. He found that pretty funny. As I listened to Worry's story, I again looked down at his business card, still in my hand. ``Optical Networks, Internet Infrastructure, Wireless / Handhelds, Digital Video / Multimedia, Security / Crypto, Military / Aerospace, Consumer Devices ...'' We can do anything, the little scrap of paper seemed to say, which probably made it the kind of card that drums up a lot of business in Silicon Valley. We can do anything. That's what hockey, Silicon Valley-style, was saying to me, too, this night when I drank it in for the first time. A row of transplanted palm trees, spotlit against the balmy, black March sky had guided me to the doors of the Shark tank. Inside blared the theme from Spielberg's movie Jaws, interspersed with AC/DC metal riffs and Bon Jovi squeals. The Sharks' Russian goalie, Evgeni Nabakov, turned away shots as if the Cold War never happened and Silicon Valley didn't win it. And body-checked players kept slamming against boards painted with cryptic ads like Infineon -- Never Stop Thinking. We can do anything. Some 17,500 people were there in the Shark Tank's stands cheering madly on the night the stock market told them they really should be home worrying over the family finances. And then, over the loudspeakers came the voice of Stompin' Tom Connors. He was twanging away sentimentally, and utterly absurdly, about The Good Old Hockey Game. As if anything could still be both good, and old. David Beers is author of Blue Sky Dream, a memoir of growing up in Silicon Valley, and is a regular contributor to the Sun. |