Pretenders to Silicon Valley’s Throne

No one would ever accuse Silicon Valley’s denizens of false humility, but the tone of a recent booklet by its local historical association stretched the limits of self-esteem.

The cover was adorned by Michelangelo’s fresco of God passing the divine spark of life to Adam, and the text was no more modest.

“The technology of Silicon Valley has impacted the world more than any other occurrence since the Renaissance,” it began.

That may seem conceited, but modesty is a lot to expect from a region that has spawned more imitators than the Renaissance master himself.

There is Silicon Glen in Scotland, Silicon Fen in England and Silicon Wadi in Israel. In the United States, there is Silicon Alley in New York, Silicon Dominion in Virginia and Silicon Forest in Portland, Ore., to name just a few.

Southern California showed greater originality, but still belied its Silicon envy, when it recently proclaimed itself the Digital Coast.

Many of these upstarts are having a fair share of success. Israel has become a software development hotbed, and Austin, Texas, is overrun with high-tech millionaires. But as Los Angeles moves to join these ranks, it is worth noting that while many places can boast discreet elements of Silicon Valley’s success like pieces of a jigsaw puzzle, none has ever completed the picture.

“Simply having the ingredients of Silicon Valley doesn’t mean you have its regional dynamism,” said AnnaLee Saxenian, a UC Berkeley professor who has spent years studying the valley’s attributes. “This notion that you can grow the next Silicon Valley by putting together a science park, venture capital and a university has been roundly disproven.”

It is easy to see why so many keep trying. The statistics in a recent economic report on Silicon Valley--named by a local trade writer in reference to the silvery metal on which integrated circuits are etched--are enough to induce altitude sickness:

* The region has created 200,000 jobs since 1992.

* Its average wage of $46,000 a year is 50% higher than the national figure.

* In 1997 alone, venture capital spending was up 54%, about 3,500 companies were born, and housing starts hit a 10-year high.

No wonder, then, that economists and officials from other cities, states and countries flock to Silicon Valley hoping to decode its elusive DNA. Several members of the Swedish Parliament recently spent a week visiting Silicon Valley’s touchstones: the sandstone corridors of Stanford University, the leafy venture capital complexes along Menlo Park’s Sand Hill Road, and the sprawling corporate campus of Hewlett-Packard Co. (Sweden’s competitor is dubbed Kiselsta, or Silicon City.)

To be fair, most Silicon Valley wannabes don’t have delusions of eclipsing the original. They merely want a piece of the Information Age economy. But even building a small-scale model of this unparalleled economic engine along the San Francisco Bay is exceptionally tricky.

Other places may have premier universities, but only Stanford seems to turn out almost as many companies as graduates. Others may have budding venture capital bases, but none can match Sand Hill Road’s volume of nearly $1 billion in funding every quarter. That’s not even to consider the rest of the region’s business infrastructure, which includes thousands of technology-oriented law firms, headhunters and public relations and marketing agencies.

And those are merely the most obvious ingredients. The intangibles are far more difficult to replicate. They include a culture that rewards risk and forgives failure, a liquid talent pool that coalesces around anything with stock options, and an entrepreneurial intensity that keeps everyone from top executives to lowly programmers looking for the Next Big Thing.

Most wannabes are still looking for their First Big Thing.

Consider Scotland, a country that has had remarkable success building a high-tech economy out of the ruins of its once-proud shipbuilding, coal and steel industries.

The country is home to major plants for IBM, Compaq and other computer giants. It manufactures more than 40% of the brand-name personal computers sold in Europe. Electronics overtook whiskey as the country’s top export in the early 1980s.

But for all its success attracting outside companies, Scotland has had little luck spawning its own, admits Irene Merry, vice president of Locate in Scotland, the country’s official booster in Silicon Valley.

Part of the problem is that top-notch universities, entree to the European market and generous tax incentives haven’t been enough to overcome a cultural tradition that prizes the steady job over the risky start-up.

For a long time, Merry said, saying that you wanted to start your own company in Scotland was only slightly less shocking than “saying you wanted to become a drug dealer.”

Surveys of schoolchildren in the early 1990s confirmed this entrepreneurial reluctance, prompting the Scottish government to undertake what it calls the “Business Birth Rate Initiative.” As part of the program, elementary schools stress the honor of starting a company. In high school, students are required to spend a year developing a model business.

Scotland also has tried to attract more highly skilled jobs. It scored one notable coup last year when Cadence Design Systems, which manufactures integrated circuit design tools, pledged to build a center for 1,800 microprocessor designers.

Can Scotland become a nation of entrepreneurs? Some Silicon Valley veterans are skeptical, to put it politely.

“I don’t think Scotland has a snowball’s chance in hell,” said Stewart Alsop, a computer columnist and venture capitalist in Menlo Park. “It was a feudal society. Rent the movie ‘Braveheart.’ ”

Alsop’s opinion isn’t as outrageous as it sounds. In fact, it is grounded in the history of Silicon Valley itself, a region that owes much of its spontaneous culture to its founding by a generation of risk-takers who left behind friends and families to build a new empire on a blank slate.

If the formula is to be repeated, Alsop says, it will probably be in a place where risk is embedded in the culture.

“Look at Israel,” Alsop said. “They founded a country in a hostile land where they had to put up walls to defend themselves.”

Indeed, Israel may come closest to matching many of Silicon Valley’s most elusive attributes. Israelis prize education, revere entrepreneurs, cater to the American market, and developed technological prowess through major government spending on defense.

The country boasts more than 1,000 high-tech start-ups, and trails only the United States and Canada in new listings on the Nasdaq stock market over the last five years. A recent survey of U.S. venture capital firms by the research firm Venture One found that Israel is their prime overseas target.

But perhaps most important, Israeli high-tech companies are uniquely in tune with the Silicon Valley spirit.

“I was expecting this huge cultural difference the first time I went over there,” said Deborah Triant, who heads the U.S. subsidiary of Check Point Software, an Israeli company. “But the programmers wore T-shirts and sandals, drank Coke all day, came in at strange hours and ordered Domino’s pizza. I felt immediately at home.”

Silly as it sounds, that may help explain why Israel has become a high-tech hothouse.

Even within the United States, cultural differences count. In her book “Regional Advantage,” Saxenian attributed the decline of Massachusetts’ Route 128 technology corridor to an insular, traditionalist corporate culture that strangled innovation and cooperation.

While Massachusetts companies prized corporate sovereignty, Silicon Valley created “a network of firms that combined and recombined quite flexibly,” Saxenian said.

New technologies and business practices spread quickly in the valley, enabling companies to stay on top of new markets--such as that of the PC--that steamrollered Digital Equipment Corp., Data General, Wang Laboratories and other firms along Route 128.

So although Massachusetts is still gurgling with some entrepreneurial activity, Saxenian believes that the real rivals to Silicon Valley are cropping up in unfettered places such as Utah and Texas.

The United States has become overrun with Silicon Valley aspirants. Some, like Research Triangle Park in North Carolina and Silicon Desert (that’s Phoenix) have succeeded in adding thousands of high-tech jobs.

Others, including at least half a dozen self-proclaimed Silicon Prairies (Nebraska and Illinois among them), a few Silicon Snowbanks (including Minneapolis), and one Silicon Swamp (on the Florida Gulf coast), seem a little desperate for attention.

So far, only one domestic rival has managed to make Silicon Valley a little nervous: Austin, home of a vast semiconductor base, the tech-friendly University of Texas and powerhouse Dell Computer Corp.

“Every time I go to Silicon Valley,” founder Michael Dell said last year, “I thank God we are based in Texas.”

Austin does have some advantages over Silicon Valley, including home prices still within reach of average families, freeways that aren’t in a perpetual state of gridlock, and a labor pool that isn’t constantly shifting from one company to the next like desert sands.

It was Austin’s success at cherry-picking Silicon Valley companies and talent during the early ‘90s that led to the creation of Joint Venture: Silicon Valley, an organization designed to shore up the valley’s quality of life.

But that outflow has slowed to a trickle in recent years, largely due to an Internet boom that has spawned a new generation of Silicon Valley companies such as Yahoo and Netscape, reaffirming the region’s lead in the Information Age.

And when it comes to the real fuel of a high-tech economy--money--Silicon Valley clobbers Austin and everyone in sight. Last year, 29% of all the venture capital money available nationwide was pumped into start-ups in Silicon Valley. The $3.6-billion windfall was more than went to Southern California, Texas and New York combined.

It wasn’t always this sunny in Silicon Valley. In 1991, amid a national recession, a headline that now seems impossible appeared on the front page of this newspaper: “Dream of Striking It Rich Fading in Silicon Valley.”

Just within the last week, a surprisingly downbeat earning forecast from chip maker Intel threw the valley’s leading companies into a swoon (although nobody expects the despondency to last long).

Earlier, in the 1980s, the region’s semiconductor industry seemed on the verge of surrender to Asia’s well-oiled economic machine.

But Silicon Valley companies built many of their biggest plants in Asian countries that otherwise are just struggling to keep pace. Malaysia’s vaunted plans to build a “Multimedia Super Corridor” appear to be losing steam amid the region’s currency crisis.

Japan and South Korea, masters of electronics manufacturing, haven’t made much headway in the personal computer business and are struggling mightily with innovation. Japan’s NEC and South Korea’s Samsung both had to buy into American PC companies (Packard Bell and AST Research, respectively) just to get toeholds in the all-important U.S. market.

Taiwan, perhaps the most entrepreneurial of the Asian tigers, continues to percolate. But Acer, a giant computer maker founded by local businessman Stan Shih, has seen its share of the market slide.

The country was long content to follow a strategy of not being first, but being “fast followers,” said Kenneth Kraemer, a UC Irvine business professor and expert on Asian high-tech sectors. But now Taiwan, too, is trying to make its companies more innovative by pushing them to develop software for traditional Chinese businesses such as coin laundries, bicycle shops and restaurants, Kraemer said. Silicon Valley isn’t fretting over that market.

If there is any promising sign for would-be entrepreneurs outside the valley, it is that the Internet is reducing the importance of geography in the high-tech world, said Esther Dyson, a Silicon Valley veteran who in recent years has helped entrepreneurs in EasternEurope find funding and markets for their ideas.

“I just funded a company based in Prague that’s doing Java development tools,” Dyson said. “I don’t think they’re under any big disadvantage. You can create a presence over the Internet.”

Still, she said, “it can’t replace going out to lunch in Silicon Valley. And at some point you’re going to have to travel there.”

Indeed, every valley veteran can recall a defining Silicon Valley moment, and most tend to revolve around the unmistakable buzz of the place.

For Stewart Alsop, that moment came on his first morning in the valley 15 years ago. After covering the high-tech industry as a reporter in Boston for years, Alsop had moved to Silicon Valley to take a new job as editor of the widely read trade magazine Infoworld.

“I stayed at the Holiday Inn in Palo Alto,” he said. “I went down to have breakfast in the morning, and as I was eating I began listening to the conversations at all of the tables around me. Every single person was talking about computers. That never happened in Boston.”

Meanwhile, the list of Silicon Valley wannabes continues to proliferate. There is a Web site that tracks them all, www.tbtf.com/siliconia.html. At last count, there were more than 40.

Ironically, the original never really set out to become the dominant force in the high-tech world. It was a land of apricot orchards in 1939, when Frederick Terman, dean of Stanford’s engineering school, persuaded his ex-students William Hewlett and David Packard to found an electronics company in a tiny, Palo Alto garage.

Over the next five decades, Silicon Valley would unfurl in an organic way, in contrast to the artificial, government-driven development schemes deployed by today’s imitators.

Fairchild Semiconductor begat Intel, Hewlett-Packard begat Apple Computer, and so on, until Silicon Valley reached a critical mass of wealth and talent, triggering a chain reaction that continues today.

Unlike the legions of wannabes, Silicon Valley has all the ingredients, splayed out over a sunny strip of land between the Santa Cruz Mountains and the southwestern tip of the San Francisco Bay.

And unlike all the pretenders, Silicon Valley did it without really trying.

Monday in Business’ Cutting Edge: Can Southern California spawn the next Silicon Valley?

* SILICON SOUTH: A high tech industry is booming as Guadalajara pursues ambitious growth. D1