Pictures of a Gone City

Tech and the Dark Side of Prosperity in the San Francisco Bay Area

PM Press

Contents

Tech City

Beyond the Myth of Immaculate Innovation

THE SAN FRANCISCO BAY AREA IS THE TECH CAPITAL OF THE WORLD. SILICON VALLEY has long been acknowledged as the most important global center of electronics, and with the arrival of the internet it became the leading force in information technology; in the twenty-first century it quickly grabbed the lead in social media, smartphones, management software, and, most recently, artificial intelligence. The Bay Area has more giant tech corporations, more web portals, more IT start-ups, more venture capital, and a more complex tech ecosystem than anyplace else on earth. As the most thorough study of the region's tech economy concludes, "San Francisco won the information age lottery, becoming the world center of that technological revolution." Or as the Financial Times recently put it: "In the last few years, Silicon Valley has strengthened its case as the new center of economic gravity in the United States."

The presence of such a powerful pole of technology and economic force in the midst of the Bay Area colors deeply the social life of the region. One has to confront the tech elephant in the room right from the start. That task begins with simple acknowledgment of the massive size and impact of the industry, and the way Silicon Valley has swallowed its urban host as the tech economy spreads throughout the larger metropolis. It is equally vital to understand how the tech sector operates and what lies behind its astounding success. To do that, it is necessary to cut through a thicket of just-so stories about innovation and entrepreneurship, or where all the wondrous new electronic things come from.

The chapter begins with the noted innovation capacity of the Bay Area and all the things it has produced in recent years, then moves to the world of start-ups that garners so much attention from commentators who repeatedly buff up the triumphant tale of the region as the promised land of entrepreneurship. Beneath the legendary land of feisty little firms lies a deeper channel of capital investment flowing freely into the tech sector, and outside the frame of the story yawns a landscape of monstrously large tech corporations spanning the globe. But that is not all. All those companies and capitalists rest on a solid foundation supported by three pillars: the tech industry's regional cluster in which the whole is greater than the sum of the parts; the social edifice of scientific and technological advance over many years; and the labor of thousands of skilled workers and millions more people working for peanuts.

The Tech Millennium

For the last generation, Silicon Valley has been the acknowledged leader in technical innovation for the United States and in the world. It led the Bay Area past New York in number of patents in the 1990s and now doubles the Big Apple's figure, with about one-sixth of all patents in U.S. cities. No other big city is close (fig. 1.1). The bay region's innovation capacity extends to many other sectors, as well, such as medicine and retail. What comes out of this torrent of new ideas is, first of all, a flood of New Things, devices that have changed personal lives, forms of communication, ways of doing business, the face of modern finance, and much more. And behind that is all the apparatus of the internet, including the software and coding that drives the applications on everything from phones to supercomputers. While it does not all issue from the Bay Area, the new Millennium of information technology rests to a surprising degree on the things imagined, designed, and created in this one spot on the map.

Millions, even billions, of people's lives are touched every day by the products spewing forth from the Bay Area. Start with the smartphone in your pocket, the fruit of Apple and the design genius of Steve Jobs. Whatever phone you own, it is almost surely running on either Apple's iOS or Google's Android operating system and it has likely become a focal point of life if you are under fifty. You may use that phone to talk in the old-fashioned way but might just as well do a visual chat via WhatsApp (Facebook) or FaceTime (Apple). You will likely send your friends many texts a day but just as likely open a social media app to share photos or videos via Facebook, Instagram (acquired by Facebook), YouTube (Google), or Snapchat (in LA but started by Stanford grads). You will also likely pick up tweets (Twitter) from your favorite news feed or politician. And how about the nasty commentary you just laughed at on Reddit, the useful health tip you found on Pinterest, or the blog post you read on Tumblr (Yahoo)?

At the office, at home, or in a cafe, you surely work on a personal computer of some kind, whether desktop, laptop, or tablet. All of these use the click and menu system invented at Xerox Parc and perfected by Apple for its Mac line, guided by a mouse, trackpad, or touch screen, similarly innovated in Silicon Valley. As you work, you will plunge into the World Wide Web using a search engine like Google, Yahoo, or Ask on a web browser, such as Chrome (Google) or Safari (Apple) and, along the way, put a question to the largest online encyclopedia, Wikipedia. Your email will likely be housed on Gmail (Google) or Yahoo, and if you have your own website, the url (address) was probably issued through GoDaddy.

Your work product will very likely end up as a pdf file using Adobe software, be printed on an HP printer, or carried in your pocket on a flash drive by SanDisk. As personal and physical storage diminish, your files of all kinds will simply go into the cloud for storage and sharing with coworkers via Dropbox, Google Drive or Box. Your employer has undoubted contracted for cloud services with one of the big providers, such as Salesforce.com or NetSuite/Oracle (both of which claim to have come up with the cloud idea first). Similarly, all your personal data — messages, photos, music, videos, and more — are likely to be stored in the cloud via Apple, Facebook, or Google, so that you can move seamlessly between devices and places in your daily circuit.

On your way home, you may have an iPod or other MP3 player plugged into your ears, or your music may be streamed over your smartphone via Pandora or SoundCloud — though those former industry leaders have been outflanked by Apple, Sweden's Spotify, Sirius Radio, and other rivals. At home in the evening, you can stream a movie on Netflix or Hulu or watch your favorite TV recorded on TiVo. Netflix and YouTube may have even created the TV shows, films, and musical performances you enjoy. Should there be an earthquake or hurricane, you should receive an alert on your devices from your local police or fire department via Nixle.

The movie animations and special effects were probably created at Pixar or Industrial Light & Magic studios, founded by Steve Jobs and George Lucas. If you are a gamer, there are games to play, like Madden NFL from Electronic Arts, using graphics processing from Nvidia, the leader in virtual reality simulations. When you're on the run, there are also gaming apps for your phone by Zynga, Openfeint and Kabam, or you can pursue online gaming via Twitch (Amazon). Or if you are into the latest in virtual reality, put on a headset from Oculus Rift (Facebook).

If you feel like some exercise, you can go walking or jogging while monitoring your fitness with a Fitbit device or Apple Watch. If you're going to a party, you may have been invited through Eventbrite. If you are heading out on the town, you will probably check out bar and restaurant reviews on Yelp or get tickets for a show or ballgame through StubHub. If you need directions, refer to a Google or Apple map and get there by hailing a ride through Uber or Lyft. Today that ride will have a driver, but soon there will be self-driving vehicles guided by technologies from Waymo, Embark, or Starsky Electronics — using lidar sensors by Cruise or Velodyne.

If you are planning a business trip or vacation, you will quite likely seek out a short-term apartment or home rental on Airbnb. At home, work, the ballgame, or almost anywhere, you can order food through the app of a bevy of firms with names like Munchery, DoorDash, Grubhub, UberEats, and Caviar. Or if you need a contractor, cleaner, or repair services, dial up Task Rabbit (IKEA) to find someone nearby. And, finally, you can pay for any of these using PayPal, Square, or ApplePay.

If you're a boss, you can hire through online listings such as Glassdoor and Craigslist, and to seek out contractors for special projects you can go through the massive hiring exchange at Odesk. You could well pay your employees with software from Oracle, track your customers with the help of Salesforce.com, and take payments through Stripe. For optimizing the performance of your distributed networks, you will want the help of Riverbed Technology. If you need to parse big data on customers and competitors, you could turn to Palantir, Quantcast, Boomerang, or Cloudera, using the Hadoop number-crunching platform. Your professional workers are very likely listed on LinkedIn (Microsoft) and use it to seek out the expertise of colleagues — including advice about seeking a better job!

If you like buying and selling through online exchanges, then you will certainly have used the marketplace giants, eBay and Craigslist. If you are rich enough, you will enjoy driving in your snazzy Tesla electric car. If you have the wealth to be an investor, you can buy stocks through Schwab, buy a mutual fund from BlackRock, or invest in a customized fund from Franklin-Templeton. If you need a loan, you can turn to the online bank Lending Club. Or if you are launching a new project, you might try crowdfunding through Indiegogo, Gigawatt, or a dozen others. When taxes come due, a good option is for online tax calculation and submission is Intuit.

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The brave new world of goods and services delivered by the Bay Area's High Tech complex is impressive, but this cascade of innovations is more than a flurry of shooting stars across the consumer sky. It is a galaxy of commodities held together by the gravitational force of the internet, pivoting on Silicon Valley. The invention of World Wide Web transformed the internet into the basic integument of the electronic life, especially once Google's revolutionary search engine unlocked the infinite possibilities of the web. In the 1990s, the Bay Area became the center of the newly networked world, and no place was better positioned to take advantage of the internet: more wiring, more websites and more web users than anywhere else, on top of the fact that it produced more of the brains of the system in terms of switches, servers, and software.

All the devices of the networked life run on integrated circuits first developed at pioneer Silicon Valley companies, and most CPUs are still made by Intel, AMD, or Cypress Semiconductor. The routers and switches carrying all the traffic on the internet were developed companies like Cisco Systems, Juniper Networks, or Hewlett-Packard. Key switches that link devices through to the cloud are made by Arista and Brocade. The cloud itself is composed of hundreds of server farms, each housing thousands of computer servers; Google and Apple are two of the four biggest operators of server farms and builders of servers. Chip production is still done with the aid of equipment provided by Applied Materials. And many of these systems are protected by Silicon Valley companies such as Quantum backups and Symantec antivirus.

It is hard to overstate the way the internet has transformed modern life in the twenty-first century and, at the same time, the web came to be focused on the Bay Area. Today local companies' web portals dominate the World Wide Web, with seven of the world's top ten sites. Similarly, Bay Area firms occupy nine of the top ten positions in social networking in the United States (and most countries outside of China and India).

Top Ten Web Portals in the World, 2017

1. Google

2. YouTube

3. Facebook

4. Baidu

5. Wikipedia

6. Yahoo

7. Reddit

8. Google India

9. QQ

10. Twitter

Top Ten Social Networking Sites in the United States, 2017

1. Facebook

2. YouTube

3. Twitter

4. Reddit

5. Pinterest

6. Instagram

7. Tumblr (NYC)

8. LinkedIn

9. Yahoo Answers

10. Yelp

The impact of Bay Area tech firms and their hardware, software, and networks is felt far and wide. As of 2016, Apple had sold over 700 million iPhones (indeed, more people owned mobile phones than had toilets). Google handled 3.5 billion searches per day and YouTube showed its videos to 128 million monthly unique users. LinkedIn claimed over 400 million members and Twitter over 300 million active users, with Instagram running neck and neck with its elder cousin. eBay had 160 million registered users and Netflix has passed 100 million subscribers. By 2017, Facebook had over 2 billion active users around the world and its WhatsApp subsidiary was handling the chats of over a billion people.

The New New Thing

The phenomenon of tech start-ups is an essential part of the aura of electronics and the internet in the contemporary business world, and nowhere more so than in the Bay Area. If you haven't launched a start-up, you don't count as one of tech's true champions. The masters of the electronics universe are forever in search of the newest New Thing. Some start as whimsy, some with hopes to change the world, and others as practical spinoffs from research, but in the end all of them are there to make money. Tech is a thoroughly commercial enterprise.

The mythology of the plucky tech entrepreneur has diffused around the world, becoming a key element in the capitalist dream world of today. It combines the technical brilliance to dream up a new idea, the business acumen to see a viable opportunity, and the chutzpah to set out on your own. Joseph Schumpeter made the figure of the entrepreneur a staple of economic ideology, but the electronic age has turned his idea into a kind of modern Miracle Play. The tech industry has added a new twist to the old myth: Silicon Valley ethics demand that good entrepreneurs fail before they succeed, burnishing the image of the intrepid explorer on the frontiers of progress. While success is prized above all, learning by failure is part of the well-tempered entrepreneurial CV.

The Bay Area is acknowledged as the world's hotspot for tech start-ups (fig. 1.2). Start-ups are, indeed, a big part of the process of innovation in the tech sector. They are a compact way of giving a new idea life by immediately wrapping it in a business package and setting it loose on the market. Many good business ideas fail to be recognized within large corporations because of bureaucratic defenses of existing priorities. But good innovations can be fragile; they are like viruses, bare bits of code that cannot long survive on their own and need the warm embrace of a living cell to reproduce. The start-up is the germ cell of a viable tech company.

But if the point is ultimately moneymaking, the new companies will need outside finance to survive. To get a new company up and running requires huge infusions of cash, whether from venture capitalists, angel investors, crowdsourcing, bank loans, private equity firms, pension funds, or insurance companies. It may be possible to start small, but very soon the infant company will require more capital to make new hires, rent more space, and expand computing power. There will be new injections of cash and still greater borrowing, even as revenues grow, and then more again to keep on rising — or stave off creditors. In short, start-ups are less like nimble birds taking wing than 747s lumbering down the runway with thousands of gallons of jet fuel aboard, trying to gain lift-off speed.

Like experiments in flight, launching start-ups is inherently risky. Some schemes never get off the ground, others fail for lack of a substantial market, and others achieve instant popularity but have a hard time making their services pay. The fate of a start-up depends, in contemporary lingo, on the "burn rate" at which they eat up capital and their ability to generate a "gross revenue" stream. Profits are mostly imaginary for several years, in almost every case. Because of this, tech companies and other start-ups are thrown immediately into the arms of financiers and locked in a mad dance with the world of finance.

A key asset of the Bay Area is its capacity to finance start-ups. No other place in the country or across the world has such abundant funds of this kind or as large a number of venture firms. The volume of venture investment today is impressive, amounting to tens of billions of dollars, with the Bay Area holding 40 percent of the nation's venture capital pool (fig. 1.3). Venture capitalists such as Vinod Khosla, John Doerr, and Marc Andreessen are legendary figures in the Silicon Valley. Why are they here? Because this is where the action is: like-minded investors, new ideas swirling in the air, and a bevy of eager entrepreneurs.