Intellectual capital drives Silicon Valley growth
Saturday, May 8, 1999
By Liz Garone
LIKE AN EMPIRE, Silicon Valley is growing fast and without regard for city, state or national borders. It has outposts as far away as India, and as near as Pleasanton. More than a million employees work for its industries in the Bay Area, producing such unimagineable wealth that some of its most common workers are millionaires.
Yet, its greatest wealth, the idea, has no price tag, say some high-tech observers -- giving rise to the notion that Silicon Valley is more state of mind than state. What its 8,975 high-tech companies produce in terms of hardware and software are nothing compared with what its atmosphere produces in terms of ideas.
It is that churning atmosphere, say the observers, that makes Silicon Valley a magnet for idea people from around the world.
Keith Teare found the pull of Silicon Valley irresistible as he dreamed high-tech dreams in his native England. His best idea was to make the Internet easier for ordinary people to use. His best move, he says, was getting out of England and into the Valley.
"I knew I had to be here," he said. "If I was still in London, I guarantee it wouldn't work. It could only work here."
As a result, Teare launched and is now CEO of Centraal Corp., which is San Carlos' first major high-tech company.
Silicon Valley has taken on something of a mythical status outside the United States, according to Teare. For foreigners, the name is often synonymous with the Bay Area, despite the proliferation of Valley wannabes in various parts of the world.
A part of Iowa, for instance, is now dubbed Silicon Valley, and New York has its own Silicon Alley. Mutations have surfaced as far away as India, where locals refer to high-tech Bangalore as Silicon Plateau.
To most of the world, though, Silicon Valley symbolizes a 'can-do' attitude that exists somewhere on the West Coast near San Francisco and San Jose, said Teare.
Silicon Valley originally was a valley -- Santa Clara Valley. It began as an electronics manufacturing center in 1938, in a rented Palo Alto garage where Bill Hewlett and David Packard invented the audio-oscillator.
As their high-technology endeavors subsequently triumphed, like-minded thinkers, tinkerers and entrepreneurs flocked to the region like the gold-seeking 49ers of a century before.
More than 30 years passed, however, before the term Silicon Valley was coined by journalist Don Hoeffler to describe the proliferation of semiconductor companies -- which used silicon in vast quantities -- in Santa Clara Valley.
After another 30 years, Silicon Valley now has 1.2 million workers and covers 1,500 square miles -- much of it outside Santa Clara Valley. The economic base of Silicon Valley also has changed, from its early years when manufacturing, such as the semiconductor industry, supplied much of the area's wealth. Now, the manufacturing mostly is done overseas, and the high-tech thinking and creating mostly is done here -- posing a difficulty for those who try to put a dollar sign on what the Valley does.
"How can you calculate intellectual wealth?" questioned one Bay Area economist.
One measure is the attraction of investment dollars to ideas. Last year, 786 Silicon Valley start-ups received a record $4.55 billion in venture capital.
Profits are another way to define Valley worth. Santa Clara-based Intel Corp., the Valley's biggest money-maker last year, boasted a $6.07 billion profit, and the 10 most profitable Valley tech firms together earned nearly $14 billion.
Competition for building space also is a gauge. In 1998, commercial vacancy rates in Santa Clara County averaged 6 percent, compared to a high of 23 percent in 1990. According to the experts, that's a key reason that the hottest Internet start-ups began popping up outside Santa Clara Valley, even jumping the Bay when necessary, leaving behind the Valley's main artery, Highway 101.
The Valley's Bay Area boundaries, if that's what you can call them, now stretch as far north as Novato, south to Scotts Valley and Gilroy and east to Livermore.
Trying to map the Valley is no easy task -- but that hasn't stopped anyone from trying.
Joint Venture: Silicon Valley Network, a nonprofit organization based in San Jose, came up with a definition based on where high-tech companies have formed clusters.
Joint Venture's view of the Valley is Santa Clara County and adjacent parts of San Mateo, Alameda and Santa Cruz counties, including Menlo Park, Atherton, Redwood City, San Carlos, Belmont, San Mateo, Foster City, East Palo Alto, Fremont, Union City, Newark and Scotts Valley.
"I don't think the original boundaries of the Valley are necessarily hard and fast," said Ruben Barrales, Joint Venture's president and CEO. "Like most things in high-tech and the Valley, the boundaries are pretty fluid."
Barrales attributes much of San Mateo County's success in securing big names like Oracle, Inktomi, Siebel Systems and Electronic Arts to the presence of San Francisco International Airport -- and easy access.
"If you want to tap into the multimedia explosion in San Francisco along with the traditional technology base in Santa Clara County," he said, "then the Peninsula's the obvious meeting place for both."
For Oracle, with 15,000 employees in the Bay Area alone and in constant need of new recruits with highly-specialized skills, moving north from Menlo Park to Redwood Shores meant a larger recruiting pool, according to Randy Smith, vice president of real estate and facilities and development.
Ten years ago, a quarter of the employees were commuting from San Francisco, said Smith. Now, they are spread throughout the Bay Area.
"Although traffic is an issue, in the mid-Peninsula we're still accessible from a lot of different areas, from the city, from the East Bay and from the South Bay," he said.
Valley development doesn't stop in San Mateo County.
In San Francisco, Multimedia Gulch has won over a good chunk of multimedia heavyweights, including Sega, Macromedia and Dolby Labs. The area's increasing popularity caused vacancy rates there to drop to less than 5 percent in 1998, according to the CAC Group based in San Francisco.
In Marin County, Autodesk Inc., a San Rafael computer software manufacturer, employs 1,100 people at its headquarters, and data processor Fair Isaac is building a downtown office park expected to employ 1,300 people, also in San Rafael.
Move over, garlic
While the Valley's northern boundary has been in flux for quite some time, the southern boundary has been relatively clear -- until recently.
Last month, San Jose's largest employer, Cisco Systems Inc., announced plans to build an approximately 400-acre, $1billion campus 14 miles south of San Jose in Coyote Valley with room for as many as 20,000 employees.
And, it won't be long before Gilroy and Hollister become extensions of Silicon Valley, according to Gray Brechin, a historical geographer at UC Berkeley. By Joint Venture's definition, Gilroy is already on the map.
"What probably will happen is that the southern barrier will be breached," said Brechin. "This will then throw the whole valley wide open for further development."
For many in Gilroy, that time has already come.
"I think the day of Gilroy being the stepchild of (Santa Clara) county is over," said Bill Lindsteadt, executive director of Gilroy Economic Development Corp. One-third of Gilroy's work force is commuting between 30 and 60 miles, according to Lindsteadt. There's only one direction they're going, he said, and that's north.
Lindsteadt said he isn't worried about losing the city's garlic capital of the world status -- but instead expects high-tech to grow alongside it.
Joint Venture's definition stretches northeast to Fremont, Newark and Union City but stops short of Pleasanton and Livermore, home to software developer giant PeopleSoft and a number of other high-tech firms.
Officials at PeopleSoft aren't worried about being excluded.
"We feel pretty strongly that if Pleasanton's not considered a part of the Valley already, it will be pretty soon," said Bill Cox, a company spokesman.
Cox said employees often refer to the whole Tri-Valley area as "Silicon Valley Extended."
Many of PeopleSoft's 2,000 Bay Area employees commute from San Francisco, according to Cox. The drive, still considered a reverse commute, is an easy 40 minutes, he said. BART drops passengers off right across the street from the company's main entrance.
In addition to PeopleSoft, tech companies Documentum, Vanstar and Remedy call Pleasanton home.
"There's a lot of land out here," said Cox. "And it's growing really, really rapidly. There are three new buildings outside of my window that are going up right now. And across the freeway there are three or four more."
A state of mind
For some, any boundaries placed on the Valley are meaningless.
"At the end of the day, Silicon Valley is not really a geographical term," said Matthew Stubbs, vice president of the western region for Regus Business Centres Corp., which runs 220 business centers in 40 countries. "It is a term used to describe intellectual capital. Where the people are is by definition Silicon Valley."
Regus recently opened centers in Redwood City and San Jose and will open 70 more in the United States in the next year, including 12 in the Bay Area.
Even map makers have trouble describing the Valley in purely geographic terms.
Today, Silicon Valley is defined more by the technology and entrepreneurial mindset it cultivates than by its 50-mile-long strip of geography, said Jill Amen, the publisher and CEO of Novatis, which designs Valley maps.
But some are beginning to wonder if the Valley can sustain itself with increasing traffic along Highway 101 and sky-high housing prices that only top-tier, high-tech executives can afford.
"It's kind of a pressure cooker," said Ted Gibson, chief economist for California's Department of Finance. "It's gonna blow one of these days."
Gibson believes that the Valley can sustain itself only so long.
"How long will people put up with two-hour commutes each way?" he asked. "Where do people like the grocery store check-out person live if the high-tech industries are forcing prices through the roof?"
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