It's philosophy time. If you're looking for comments on the latest smartphone, you can safely skip this post.
One of the nice side effects of doing a job search in Silicon Valley is that you get to step back and take a broader view of the industry. A friend calls being laid off the "modern sabbatical," because this is the only opportunity most of us have for multi-month time off from work.
It's not really a sabbatical, of course. Unless you're supremely self-confident, it's a time of uncertainty. And instead of going on vacation you spend most of your days networking; having breakfast and lunch and coffee with all your old co-workers and other contacts. (Speaking of coffee shops, the drinking chocolate thing from Starbucks is obscenely expensive but tastes really good.)
In addition to the exotic drinks, the networking itself is very interesting because you get to hear what everyone else is working on. You get a glimpse of the big picture, and that's what I want to talk about tonight.
To work in Silicon Valley today is to be suspended between euphoria and despair.
The euphoria comes from all the cool opportunities that are unfolding around us. The despair comes from the fear that it's all going to dry up and blow away in the next ten years.
Let's talk about the euphoria first. The number of interesting, potentially useful business ideas floating around in the Valley right now is remarkable. As I went around brainstorming with friends, it seemed like every other person had a cool new idea or was talking with someone who had a promising project. Unlike the bubble years, a lot of these ideas seem (to me, at least) to be much more grounded in reality, and to have a better chance of making money.
The success of Google and Yahoo has put a vibrant economic engine at the center of Silicon Valley, and the competition between them and Microsoft is creating a strong market for new startups. In the late 1990s, the VCs loved funding networking startups because if they were any good, Cisco would buy them before they even went public. It feels like the same thing is happening today with Internet startups, except this time there are several companies competing to do the buying.
And then there's Apple, which is reaching a scale where it can make significant investments in…something. I don't know what. I personally think it's going to be the next great consumer electronics company, but we'll see. What I'm pretty sure of is that if you give Steve Jobs this much money and momentum, he's not going to sit back on his haunches and be satisfied.
The overall feeling you get is one of imminence, that great things are in the process of happening, even if you can't always see exactly what they are. The tech industry is so complex, and technologies are changing so quickly, that I don't think it's possible for any one person to understand where it's all going. But it feels like something big is just over the horizon, something that'll reset a lot of expectations and create a lot of new opportunities.
Perhaps we're all just breathing our own exhaust fumes, but the glimpses of that something that I got during my search seem a lot more genuine, a lot more practical, than they did during the bubble. It's an exciting time to be in Silicon Valley.
Then there's the despair. In two words, China and India.
I don't know anyone in Silicon Valley who dislikes Chinese or Indian people as a group (a lot of us are Chinese and/or Indian). But there's a widespread fear of the salary levels in China and India. I saw this first-hand at PalmSource, when we acquired a Chinese company that makes Linux software. Their engineers were…pretty darned good. Not as experienced on average as engineers in Silicon Valley, but bright and competent and very energetic. Nice people. And very happy to work for one tenth the price of an American engineer.
That's right, for the same price as a single engineer in Bay Area, you can hire ten of them in Nanjing, China.
Now, salary levels are rising in China, so the gap will narrow. I wouldn't be surprised if it has already changed to maybe eight to one. But even if it went to five to one, there's no way the average engineer in Silicon Valley can be five times as productive as the average engineer in China. No freaking way, folks. Not possible.
Today, there's still a skills and experience gap between the US and China in software. Most software managers over there don't know how to organize and manage major development projects, or how to do quality control; and their user interface work is pathetic. But that can all be learned. If you look out a decade or so, the trends are wonderful for people in China and India, and I'm honestly very happy for them. They deserve a chance to make better lives for themselves. But those same trends are very scary for Silicon Valley.
One way for today's tech companies to deal with this is to co-opt the emerging economies, to move work to the low-cost countries and get those cost advantages for themselves. There are some great examples of companies that have already done this. One is Logitech.
Did you say Logitech? They make…what, mice and keyboards? Most of Silicon Valley ignores them because their markets aren't sexy and they don't publicize themselves a lot. But when I look at Logitech, here's what I see: A company owned by the Swiss and headquartered in Silicon Valley (two of the highest-cost places on Earth) that makes $50 commodity hardware and sells it at a very nice profit.
Almost no one in Silicon Valley knows how to do that. In fact, the conventional wisdom is that it's impossible. And yet Logitech grows steadily, year after year.
One of their secrets is that they got into China long ago, years before it was fashionable. They don't outsource manufacturing to China, they have their own manufacturing located there. This lets Logitech go head to head with companies that want to fight them on price.
Another example is Nokia. The image of Nokia phones is that they're high-end and kind of ritzy, but when I was studying the mobile industry at Palm, I was surprised to see how much of Nokia's volume came at the low end of their product lines. Like Wal-Mart does in retailing, Nokia leverages its huge global manufacturing volumes to make phones cheaper than anyone else. It's the sales leader and also the low-cost producer, at least among the name brands.
So there's hope that Silicon Valley's tech companies, and their senior management, may survive by embracing the cost advantages of operating in China and India. But that's little comfort to engineers being told that their jobs are moving to Bangalore. And it doesn't help the small startups that don't have the scale to work across continents.
So here we remain, suspended between the euphoria of today and a deep-seated fear of the future.
What do we do about it?
My usual rule when facing any long-term challenge is that you need to change the rules. If a competitor's targeting the place where you're standing, move someplace else. If your economic model is becoming obsolete, find a new model. In the case of people living and working in Silicon Valley, I think the opportunity is to embrace and consciously accelerate the rate of change.
No tech company in the "developed" world, let alone Silicon Valley, is going to win an engineering cost battle. But if we can find ways to create new uses for technology, new businesses and new solutions, faster than anyone else, then I think Silicon Valley and places like it can survive and prosper. What sort of new businesses? I'll give you one example. The big Internet companies are in the process of trying to restructure the advertising and content distribution industries. Instead of slowing that process down and protecting the old established firms, the US and local governments ought to get out of the way and let Darwin operate. If the old established companies can't even compete with Google, what chance is there that they could compete with the low-cost tech empires being built in Asia? (By the way, that's one reason why I'm so pissed off at San Jose for not inviting Google to bid on installing WiFi throughout the city.)
I'm going to discuss some other business opportunities in future posts.
The overall theme I'm suggesting is to make change happen so quickly that cost isn't the basis for competitive advantage in technology. Instead, flexibility and adaptability is. The Valley can't be the cheapest, but perhaps the people in it can be the most nimble and creative. I think that's the best chance for survival.
There are problems with this vision. In a world that's going virtual, how does any geographic region create a specialization of any sort? I think a lot of the answer is culture. I've seen the reluctance of tech companies in many parts of the world to embrace radically new ideas until they're proven. To survive, Silicon Valley and the rest of the current tech industry needs to turn that on its head and consciously encourage radical experimentation. We're doing fairly well at that in software, but are miserably bad at it in hardware.
When Chris Dunphy and I were working together at Palm, we sometimes talked about the idea of the "Singularity." That's the point in the future at which technological change happens so fast that the world is altered in fundamental ways we can't anticipate today. I think the concept was best explained by Vernor Vinge, in an essay you can read here. Professor Vinge believes that if you extrapolate from today's trends, the Singularity (it's always capitalized) is a lot closer than you think.
The idea of the Singularity has been screwing up science fiction authors for about a decade now, because they have trouble extrapolating what the world will be like in 50 years, let alone 500. But in the rest of the world the idea doesn't have much traction. There's a lot of millennialist rhetoric associated with the idea that feels overblown (humans being transcended, etc), and some very prominent people see the Singularity as a grave threat. Maybe the whole thing's just a bunch of nerdy intellectual wankery. There's a pretty good pro and con discussion in Wikipedia here (and I guarantee you won't find that entry in the Encyclopedia Brittanica).
Chris and I used to joke to each other that the real mission of Palm was to make the Singularity happen sooner, by giving people as much computing power in their pockets as possible. We were wise enough not to tell anyone else, because we would have been viewed as kooks.
But maybe we had it wrong. I'm starting to believe that the right thing for Silicon Valley may be to consciously embrace the Singularity. Bring on the chaos, baby! The faster we can make the world change, the greater the chance we'll be able to pay our mortgages.