Skip to Content

Stanford GSB News

 

Silicon Valley Is Maturing, Not Declining

April 2005

STANFORD GRADUATE SCHOOL OF BUSINESS—Asked whether the technology industry in 2005 is a land of opportunity or a battleground for survival, two of the most prominent figures in Silicon Valley came down resoundingly on the side of opportunity when they spoke at the High Tech Conference at the Stanford Graduate School of Business April 6.

But they qualified their optimistic remarks with a few caveats during the annual conference, sponsored by MBA students at the School.

Students entering the high-tech workforce today will find a multitude of world-changing opportunities in disciplines from biotechnology to personalized software. But if they want a realistic sense of what to expect, they would be wise to look beyond the boom-and-bust cycle of the past 10 years. That was the warning echoed by Jonathan Schwartz, president of Sun Microsystems Inc., and Ray Lane, the former president of Oracle Corp., who now serves as a partner in the venture capital firm Kleiner Perkins Caufield & Byers.

Schwartz and Lane, who both delivered keynotes at the conference, described technology in the year 2005 as a maturing industry that cannot be expected to produce fundamental innovations forever. Nonetheless, they said it has a long period of continuous innovation ahead of it that will continue to create jobs and better products and services.

The forecast was bad news for those holding a romantic notion of Silicon Valley as a perpetual inventor of out-of-the-box gizmos, but good news for those seeking job security and challenging work. The term fundamental innovation refers to dramatic breakthroughs like the personal computer or the Internet, said Lane, while continuous innovation is the process all maturing industries reach when they focus more on refining existing products than inventing new ones. He defined fundamental innovation as the work of the first two engineers who discovered they could communicate via email. Continuous innovation is the ongoing process to perfect email so, for example, it is free of spam, he said.

"All technology goes through three relatively distinct phases: customize, standardize, and utilize," said Schwartz. He argued that while most big inventions come during customization, it is the utilization phase that ultimately is the most revolutionary, since broad utilization helps drive down prices and makes technology available to the masses. When electricity was first discovered, for example, it was customized to the needs of a handful of wealthy individuals. Later, when it came to be utilized on a broad scale, the world changed.

Lane echoed Schwartz's remarks, arguing that instead of looking for the next big thing, more companies in Silicon Valley need to consider how they can better serve their customers by improving current offerings.

"Continuous innovation tends to be much more about customers," he said. "We're notorious in Silicon Valley for ignoring customer needs. The heritage has always been, 'Invent it, and they will come.' But that will have to evolve to asking customers, 'What do you need?'"

That new attitude, Lane said, is a backlash from the late 1990s, when all sorts of Internet and software companies were able to sell products backed only by flimsy promises. "The belief then was that technology would make you younger and better looking," he joked. "That is not the case today."

Neither Schwartz nor Lane was suggesting that there are no more high-tech products still to be invented. In fact, Lane stressed that in the long view of Silicon Valley history, the downturn that started in 2000 now looks more like a blip than a devastating bust. While total venture investing in new technology has declined to around $20 billion in the year 2004 from almost $95 billion in 2000, it is still much greater than the $4.4 billion invested in 1994, Lane noted. Much of that $20 billion invested last year is chasing the next big thing.

But, said Lane, it is impossible to predict the timing of the new breakthroughs of the magnitude of the consumer Internet, which fueled several years of hyper-growth in Silicon Valley.

"We're still innovating," explained Lane. "That will never be over. But you have to have a different perspective. If your view of the high-tech industry is what you saw from 1995 to 2000, then you will be in deep trouble.

"That's not the way it was during the first 25 years of my career, and I doubt the next 25 years will work that way either."

—Andrea Orr