Optimism Takes Ride on Boston’s High-Tech Route : Recovery: The East Coast’s answer to the Silicon Valley is banking on its pool of talent and academic environment. The area’s slump is seen as cyclical.
The cloud of recession hangs heavily over the lush, wooded suburbs of Boston that hug Route 128, home to the largest concentration of high-technology businesses outside Silicon Valley.
For several years now, the major local computer manufacturers have been in a steep decline, and the regional economy shows few signs of recovering from a virtual free-fall.
Yet for companies like Unifi Communications, a start-up software firm in Billerica near Boston, the slump represents an opportunity. When it was time to move to bigger quarters, Unifi was able to negotiate nearly a year of free rent and other incentives in a real estate market glutted with excess capacity.
When it was time to hire new employees, Unifi found plenty of qualified people willing to work for salaries that wouldn’t have been competitive in pre-recession days. Company President Bob Pokress says he never considered locating anywhere else, and he remains very bullish on Boston as a high-tech center.
“Nature clears out the deadwood, and it grows back stronger than before,” declares Pokress. “All the pieces are here. There’s a tremendous pool of talented people, there are some very strong venture capital funds, and people like to live in this area.”
Many of those involved in the technology industry in the area known as Route 128--which circles Boston and helps tie together the wealthy suburban towns and older industrial cities of eastern Massachusetts--are similarly optimistic about the future. There is a wealth of local expertise in high-growth fields such as digital communications, image processing, parallel computing, complex software and medical technology--much of it emanating from the Massachusetts Institute of Technology and other universities.
There is a solid network of technology-oriented professionals in law, finance, accounting, import-export and other crucial services. Start-up companies continue to emerge, and firms such as Wellfleet, Banyan Systems and Pictel show some promise of growing into major industry players.
Still, it will take an awful lot of small software and communications companies to make up for the shrinkage of computer hardware giants such as Wang Laboratories, Data General, Prime Computer and Digital Equipment. And though experts say the region is likely to remain an important high-tech center, it remains to be seen whether high-tech industry will ever again be the locomotive for regional economic growth, as it was through much of the 1970s and 1980s.
“The growth here came from a small number of minicomputer companies that grew very large,” says Anna Lee Saxenian, a professor of regional planning at UC Berkeley who is spending the year at MIT researching differences between Route 128 and Silicon Valley.
The rate of new company formation around Boston is much lower than in Silicon Valley, she says, and the newer enterprises promise to create only a modest number of jobs.
“When you look at employment growth in software, I don’t see it having a major impact,” she says. “With such a radical drop-off in manufacturing, software softens the blow, but I don’t see it pulling the regional economy out of recession.”
Just a few years ago, when then-Gov. Michael S. Dukakis was running for President on the strength of the technology-driven “Massachusetts Miracle,” it would have seemed absurd to question the long-term viability of Route 128 as a high-tech hub.
Digital Equipment, by far the largest local technology firm, was enjoying spectacular growth. Wang, Data General and Prime were encountering some difficulties, but they appeared to be temporary corrections in the storybook rise of these pioneering computer firms.
Defense contractors such as Raytheon--crucial contributors to the development of the local technology industry--were still enjoying the fruits of the Reagan-era military build-up. And Cambridge-based MIT, perhaps the singlemost important pillar of Route 128, seemed well entrenched as the most prestigious technical university in the world.
But beneath the surface, visible only to a surprisingly small number of prescient people, a fundamental change was taking place in the computer world. Personal computers, previously regarded as convenient tools that were nonetheless unsuited to most mainstream computing tasks, were becoming far more powerful and were being connected with one another via local area networks.
Corporate computer managers suddenly found that PCs and desktop engineering workstations, based on standardized hardware and software, offered greater flexibility and efficiency than big, centralized minicomputers and their networks of “dumb” terminals.
Thus Wang, which pioneered the minicomputer-based word processing system, went into a tailspin from which it may never recover and has cut about 12,000 jobs. Data General, a spinoff of Digital Equipment that was long admired for its superior computer designs, also hit the skids. It is now making a modest comeback by focusing on systems that use industry-standard software--though with one-third fewer employees than the 15,000 it had as recently as 1988.
Digital Equipment, though much bigger and more robust than the others, has also been struggling and last year had the first layoffs in its history. The company is still scrambling to find a sound personal computer strategy, and this week it will begin marketing PCs built by Intel Corp.
The decline of the minicomputer business, along with the collapse of an over-inflated real estate market and a severe state budget crisis, helped contribute to a severe regional recession. Meanwhile, some of the emerging industries that were supposed to pick up the slack never lived up to their potential.
“Sometimes you get on the wrong side of technology,” observes Jonathan Allen, director of the Research Laboratory of Electronics at MIT. “People thought artificial intelligence was a wonderful thing. This (area of Cambridge) was going to be ‘AI Alley.’ ” But artificial intelligence has evolved away from the specialized systems that were once thought to be necessary and has become a more generic type of computer application, leaving dedicated AI companies without much of a business.
Similarly, biotechnology has not mushroomed rapidly into the multibillion-dollar industry that many had expected. And in the meantime, with the notable exception of Cambridge-based software giant Lotus Development Corp., the personal computer boom has largely bypassed Route 128.
Through most of the last decade, in fact, while Silicon Valley continued to boom on the strength of personal computer hardware and software and new types of semiconductors and high-powered workstations, Route 128 remained heavily dependent on minicomputers.
“Of all the start-ups in the 1980s, how many have passed $100 million in sales?” asks Saxenian. “I can think of only three, and in the same period there were probably a couple of dozen in Silicon Valley.”
And it is new companies in emerging industries--rather than a resurgence of the old minicomputer firms--that are the key to Route 128’s future.
Saxenian says the perception that Route 128 and Silicon Valley have enjoyed a similar pattern of development is actually inaccurate. While major research universities and defense technology spending were a key factor in the growth of both regions, she says, the underlying economic and cultural dynamics have always been very different.
Route 128 enterprises, located in a region with centuries of history as an industrial center, tend to be much more traditional and stable, she and others say. The frequent job-hopping that is so characteristic of Silicon Valley--and that some believe leads to healthy cross-fertilization of ideas--is not so widely accepted in Boston.
Financing for start-ups along Route 128 tends to come from traditional venture capital firms and financial institutions, while Silicon Valley now benefits from a network of investors who have made their first fortune and want to contribute both money and expertise to new ventures.
“They are two very different climates,” says Joe DiNucci, a senior vice president at Silicon Valley-based Mips Computer Systems who previously spent 18 years with Digital Equipment. “Route 128 is more traditional, slower to respond, more conservative. The Silicon Valley mind set is more open, more aggressive, more responsive to change. Here (in Silicon Valley) there’s a preoccupation with the present and the future. There it’s more balanced with a respect for the past.”
Still, DiNucci and others believe that Route 128 will remain an important center of technology because it has a hard-to-build infrastructure of service and support businesses and because it is home to a large number of talented people who simply don’t want to go elsewhere.
“The concentration of expertise here is comparable to Silicon Valley,” says Stephen E. Coit, a partner in the Waltham, Mass., office of the venture capital firm Merrill Pickard Anderson & Eyre. “We’ve bottomed out, and now it’s starting to pick up. We’re swamped with proposals right now.”
David Lampe, a journalist who is currently at work on his second book about the Route 128 economy, says that when you take the long view, the present problems are just a cyclical blip.
“This region has always been one of the most innovative and entrepreneurial. That’s why MIT was founded here,” he says. “This was a lousy place to farm, so there was shipbuilding, woodworking, fishing, ironworks--the first factory in the country was in Waltham.”
“There are a lot of ideas in this region,” he says. “There’s the defense community, a colossal academic health community, all kinds of speciality shops, high-tech lawyers, venture capitalists, people who generate ideas and people who bring them to market.”
This network of trained professionals, combined with MIT’s continued strength in disciplines such as imaging, signal processing and parallel computing, should be able to support the development of a new generation of technology companies focused on advanced software, communications and biomedical technologies, local observers say.
Coit and others point to Wellfleet and Banyan Systems, which make data communications products that link computer networks with one another, as examples of fast-growing companies that are well-positioned for the long term. Pictel, a producer of image compression systems used for video teleconferencing, is also cited as a firm capitalizing on home-grown expertise.
Pokress, who founded Unifi Communications after leaving GTE Laboratories, one of several local telecommunications research institutions, points out that even Silicon Valley has had its downturns, only to come back stronger than before.
“No area is immune to economic cycles,” he says. “But there’s a tremendous pool of talented people who enjoy living in New England, and it will come back stronger than before.”
