The signs may be subtle, but people are talking: a rise in suit sightings at the Menlo Park Starbucks, more customers for local restaurants, an upswing in rush-hour traffic, tempered optimism among business execs. And then, of course, the impending Google IPO, looming over everything. Is Silicon Valley poised for a comeback? If so, what companies show promise? Brad Stone joined us for a Live Talk on the latest buzz on Friday, May 14, at noon ET. Stone fields questions about Silicon Valley or his recent NEWSWEEK story on Intel CEO Craig Barrett. Read the transcript below.
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Brad Stone was named NEWSWEEK Silicon Valley Correspondent in September 1998 and now writes for the Science & Technology section of the magazine. He’s covered the rise, fall and subsequent rebirth of the high-tech economy, as well as general business stories and news from northern California. Prior to that, Stone served as a general assignment reporter for NEWSWEEK and covered a wide range of subjects. He wrote about Mark McGwire’s history-making home run chase during the summer of 1998, the jury deliberations in the Timothy McVeigh trial, and has profiled authors such as Kurt Vonnegut and Louise Erdrich.
In March 2003, Simon & Schuster published his first book, “Gearheads: The Turbulent Rise of Robotic Sports,” on the chaotic world of robot contests, and the passionate artists, hobbyists and engineers who participate in them. The San Francisco Chronicle included "Gearheads" in its list of the best books of 2003. In May 2003, the book was honored with inclusion on the prestigious BookSense 76 list. Stone graduated from Columbia University in 1993. He’s originally from Cleveland, Ohio, and now lives in San Francisco with his wife, attorney Jennifer Granick.
Brad Stone: Hi, I’m Brad Stone, Newsweek’s Silicon Valley Correspondent. In the past few weeks I’ve written about Google’s IPO, the national debate over outsourcing and Intel’s CEO Craig Barrett. I’m here to answer questions and chat about any of those issues or others relevant to Silion Valley or the national economy in general. So, fire away!
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San Francisco, CA: Brad: There seems to be a significant increase in venture-funded start-ups, especially in the biotech, pharmaceutical and information-security areas. What are the key areas where you see most Sand Hill Road venture capitalists investing, and is it in Silicon Valley or outside, for the most part? Does this look similar to the boom investing period of 1995-99?
Brad Stone: This is a question my editors always ask me: what’s the next new thing? You’ve mentioned three already—biotech, pharmaceuticals and information-security companies. Other areas of growth are wireless, voice over IP—allowing you to make phone calls over the Internet—and nanotechnology, the science of building technology at microscopic sizes. There are some similarities I see to the boom period. Several almost identical social networking companies were recently funded; these sites, like Friendster, let you make connections to your friends and business associates. There is no known business model and yet money is pouring into the space. On the other hand, over all, there are fewer investors, since many large companies have gotten out of the venture capital game. So there isn’t as much hype as there was in '95-'99, and the valuations (how much the new companies are worth) are lower. As for where this investment is taking place, many of these new companies have two or more offices at birth. One is here in the states (often in Silicon Valley) and others are abroad, often in India, where labor is cheaper. Locating an office overseas is now common practice for start-ups and entrepreneurs who believe if you don’t do it, you are losing a valuable competitive advantage.
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Seattle, WA: In the '80s and '90s, we saw companies like Intel, Microsoft, and Cisco take off, as their technology became industry standard. Are there three up and coming companies that you see doing the same thing over the next 15 years?
Brad Stone: Good question. It seems to me that most companies in new, growing industries look back to the ‘80s and ‘90s and actually see a dark picture. Although standardized components like Intel chips and Microsoft operating systems helped the PC industry thrive, Microsoft and Intel took home most of the spoils. The PC makers, like Hewlett Packard, Dell and Gateway, lost most of their distinctiveness (beyond marketing slogans) and began competing to see who could cut the most costs out of their manufacturing systems. So in the mobile-device market, for instance, the phone companies and device manufacturers are all trying to hang on to their own proprietary technologies. That has led to a very fractured marketplace (and why it is impossible for one developer to make a software program that works on every different phone). At this point, it's difficult to see any evidence of an Intel-Microsoft-Cisco dynamic blossoming for the next wave of technology growth.
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Winthrop, MA: What do see in Sun Microsystems future?
Brad Stone: Winthrop, I don't regularly cover Sun Microsystems, but I'll take a shot at this. Sun seems to currently sit on the losing team in a major battle in the software industry right now. There is a Battle Royale brewing: between the forces of proprietary software (software whose code is private, closed to the public, and can be modified only by its maker) and open-source software (software whose code is open to the public and can be modified and improved by thousands of programmers around the world.) Microsoft and Sun are on the first side with their operating systems, Windows and Solaris, respectively. The most prominent example of open-source software is the free Linux operating system. Hardware makers like IBM are furiously pushing it, hoping that if you make the operating system free, all the revenues will flow to the hardware. The latter team—the Linux team—seems to have major momentum right now. The much more popular Microsoft’s Windows isn’t paying the price as much as Sun’s Solaris. Sun just settled a patent dispute with Microsoft and got a payment of $2 billion dollars. The longtime enemies finally realized they were now on the same team. But Sun still has to figure out a way to get on the right side of history. Its revenues have been declining for a few years and it has taken only a few, tentative steps toward embracing Linux. We'll see if they can right the ship.
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Vancouver, Canada: What is Andy Grove up to these days?
Brad Stone: I actually talked to Andy Grove for my Craig Barrett profile earlier this month and was able to discern a few things about how he's spending his time. He's still Intel's chairman and will be for the next year, and he seems to spend much of his time performing those duties; overseeing the company's financial reporting process, helping Craig Barrett guide overall strategy, and conducting board meetings. Beyond that, I know he continues to be a very active and somewhat invisible hand in helping Silicon Valley start-ups. He likes to meet with many new entrepreneurs and was recalling to me, in fact, when he met the Google founders very early on, in their first office across from a movie theater in Palo Alto. I would guess that next May, when Craig Barrett leaves the CEO spot and becomes chairman, Andy Grove will become chairman emeritus and will continue to play an active role at Intel.
Brad Stone: Innovation! I’m always amazed, living and working here, at the number of creative ambitious people and their drive to turn new ideas into reality. I’m doing lots of work around wireless devices right now and the question is: how can you do things like answer e-mail or surf the Web over a tiny phone that fits into your pocket? It seems like an intractable problem. But sure enough, there are many innovators working on it. One company I visited recently was developing a speech-recognition engine that works on phones; so you can control the phone with voice commands. Another company I’m talking to projects the image of a keyboard onto a flat surface, and then perceives what keys you're touching. It's very cool.
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Arlington, TX: I graduated from college three weeks shy of 9/11/01 with a B.S. in software engineering, and I have yet had the opportunity to establish any experience. What is the best course of action for me to take that would improve my chances of breaking into the field?
Brad Stone: I’m sorry to hear that. I’m not a career counselor by any means, but perhaps you should try to hook up with a company on a contract basis, do some part-time work for them, learn their business and see if you can catch on with them full time? Good luck.
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San Francisco, CA: I've heard that even top-notch computer engineers are still having trouble finding work in Silicon Valley. Is this true? When do you think these companies will be hiring again (assuming they don't outsource to India instead)?
Brad Stone: This question is somewhat along the same lines. I do think there are some reasons for optimism here in the Bay Area. Cisco announced yesterday that they are going to add 1,000 new jobs here in San Jose because the technology economy is looking brighter. And it seems to me that many employees of major companies in Silicon Valley are now priming their resumes, thinking that the time is right to make that long postponed job switch. So I expect to lots of turnover and job openings over the next year or so. Don't lose faith.
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Los Altos, CA: Is it a real "revenue growth" recovery or is it simply profitability through cost cutting?
Brad Stone: A year ago, I would have said that profits were achieved through cost cutting and increased productivity—new technologies allowed employees to do more with less. Today I think we are seeing some real revenue growth. It's a mixture.
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Bellingham, WA: 1. As “We the People” begin to face the reality of the financial bankruptcy of the United States treasury (and most of the 50 state treasuries), what will the dampening effect be on the rising tide of worldwide demand for products and services provided by United States's (and other nation's) entrepreneurs?
2. As the reality of the U.S.’s moral bankruptcy—a damn-the-torpedoes/go-it-alone invasion of Iraq, general arrogance of our president, the expressed "our-treatment-of-prisoners-isn't-as-bad-as-theirs" attitude toward Islamists, promises to “do something” (e.g. cure AIDS in Africa) followed by little or no money, etc.—continues to invade the consciousness of the world’s consumers, what will be the dampening effect on the opportunity to sell “Silicon Valley” goods and services to the rest of the world?
Brad Stone: Wow, great rant. I'm not sure I can answer it. I don't see much evidence, however, that America's increasing unpopularity around the globe affects the attractiveness of our exports. I guess it's a new brand of worldwide hypocricy. "Damn America! ... Hey, do you want to go see that new Vin Diesel movie?
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Atlanta, GA: Any thoughts on what are the top 10 with most promise?
Brad Stone: The Top 10... what? Prospects in the Cleveland Indians farm system? That's the only possible version of this question I'd be qualified to answer, truth be told. Number one: Grady Sizemore.
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New York, NY: As a veteran of two high-tech IPOs, I wonder if the people rushing to buy into trhe Google IPO aren't just asking for heartache and sorrow. Am I wrong?
Brad Stone: The unusual Dutch auction system that Google is using for its IPO was designed to limit the number of investors who could buy and sell the stock very quickly, making a quick profit but also driving the first day share price up into the stratosphere. So arguably, bidding on Google's IPO should be cheaper, with less "heartache and sorrow" for individual investors. But since it's such an untested formula, it's hard to predict how it will really play out. I will say that if you buy Google shares you are making a long term, multiyear bet on the company and its management team. So far, they have shown themselves to be worthy of that bet via the accelerating growth of the company.
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Union, NJ: I was just reading about Wi-Max technology. Is that going to be the next big thing? And if not, what is?
Brad Stone: Wi-Max is a version of Wireless broadband Internet access (like WiFi), but it supposedly works at distances up to 30 miles (in other words, you can be 30 miles away from the base station and can still surf the Web on your laptop.) The currently popular Wi-Fi, on the other hand, works only in the confines of a coffee shop or your house. That said, I am only repeating the hype of companies like Intel, which is heavily promoting the new standard. There are some skeptics who say Wi-Max doesn't work as well as promised. We'll see next year; Intel will start producing laptops with built in Wi-Max technology.
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New York, NY: Are there any private Silicon Valley start-ups that you have your eye on now that might soon go public?
Brad Stone: Google. Salesforce.com. They have both declared their intentions to issue shares to the public. Other than those two, I'm not tracking any others.
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Santa Monica, CA: Has Google had a big impact on the way Silicon Valley does business? Is it any different from the big players that came before?
Brad Stone: Google is the startup heard 'round the world. Almost all of the major players in the Internet have been affected and are modifying their business plans to compete. Microsoft has begun to devote great resources to build a comparable search engine. Yahoo has made a series of acquisitions over the past two years to better fend off Google's incursion into its territory. Then there's Amazon, which has a little more quietly focused on beefing up its own search engine. Upon rereading your question though, do you mean something more intangible? The Google founders are very vocal about "doing no evil" and conducting business in a more high-minded way. I don't think that has had much effect on the rest of Silicon Valley or the technology community.
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Orinda, CA: If you were to pick the next Silicon Valley (i.e., hotbed of new and successful start-ups), where would it be? I'm guessing that many of the entrepreneurs and engineers of the late 90s can't afford to live in Silicon Valley anymore—where are they going?
Brad Stone: I would look outside the U.S. for the next Silicon Valley. Bangalore or Hyderabad in India. Beijing, China. America ranks very low in science education and the production of new engineering graduates; it seems inevitable that we will ultimately cede our technology leadership.
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Akron, OH: What chance to do some of the Midwestern cities, such as Cleveland, have of getting the next generation of high-tech companies? Will Silicon Valley stay the hub of the industry?
Brad Stone: Hmmm. I'm not sure what's cooking, technologywise, out there in my hometown. The chances of Cleveland riding the next tech wave are, no doubt, somewhat small. But thanks for the question, dad!
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New York, NY: Brad, what's going on with real estate in Silicon Valley? Are prices going up again? Is the market still crazy?
Brad Stone: The real estate market here is still schizophrenic. Housing prices continue to climb to unbelievable levels. On the other hand, office rates and home rental prices are dropping. There are tons of office vacancies down in the Valley and here in San Francisco. You'd think we'd start converting empty offices to home lofts ... Maybe rising interest rates will finally pop the housing bubble.
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Brad Stone: Thanks for all your interesting questions! This is always enjoyable. Cheers, Brad
