It’s Always Sunny in Silicon Valley

Date: 23-12-2011
Source: Businessweek

The Valley’s techies live in a bubble of prosperity. Optimism has its advantages, but some worry the region may lose touch with the rest of the world

Every so often, the best parties come to represent moments in time. Think of Truman Capote’s Black and White Ball in 1966, the celeb-studded Liberty Island launch of Tina Brown’s ill-fated Talk magazine in 1999, and private equity maven Stephen A. Schwarzman’s 60th birthday bash in 2007, which featured Rod Stewart. Sean Parker’s bacchanal for the streaming music service Spotify on Sept. 22 in San Francisco may well join the ranks of these epic affairs.

The Facebook billionaire—portrayed by Justin Timberlake as a swaggering lush in The Social Network—turned an abandoned warehouse in the city’s Potrero District into a couch-filled pleasure palace. Waiters served piles of lobster, sushi, and roast pig, while journalists each were presented their own $300 bottles of DeLeón Tequila. As Mark Zuckerberg, Apple (AAPL) designer Jony Ive, author Danielle Steel, and other guests mingled, acts including Snoop Dogg, Jane’s Addiction, and the Killers—flown in on private jets—performed for the well-lubricated crowd. “All the recording artists here might not have shown up if they knew I was a nerd,” said an exuberant Parker from the stage.

In Silicon Valley, all the Sturm und Drang of 2011 seemed as relevant as the Cricket World Cup. High unemployment? Crippling debt? Not in Silicon Valley, where the fog burns off by noon and it’s an article of faith that talented, hard-working techies can change the world and reap unimaginable wealth in the process. “We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” says Google (GOOG) Chairman Eric Schmidt. “And what a world it is: Companies can’t hire people fast enough. Young people can work hard and make a fortune. Homes hold their value. Occupy Wall Street isn’t really something that comes up in daily discussion, because their issues are not our daily reality.”

It was never clearer than in 2011 that Silicon Valley exists in an alternate reality—a bubble of prosperity. Restaurants are booked, freeways are packed, and companies are flush with cash. The prosperity bubble isn’t just a state of mind: Times are as good as they’ve been in recent memory. The region gets 40 percent of the country’s venture capital haul, up from 31 percent a decade ago, according to the National Venture Capital Assn. And the U.S. Bureau of Labor Statistics recently reported that growth of the area’s job market led the nation, jumping 3.2 percent, triple the national rate. Even real estate, a cesspool of despair in the rest of the country, is humming along. It’s next to impossible to get a table on a weekend night at the Rosewood in Menlo Park, a watering hole for Sand Hill Road’s technology financiers where the olive-oil-poached steelhead goes for $36. The closest we got to “Occupy: Cupertino” was the line outside Apple stores in October for the iPhone 4S.

It’s tempting to view this latest Golden Age with skepticism, a boom as fleeting and disappointing as the one in the late 1990s, before the dot-com crash. But the strengths underlying the Valley’s optimism appear more solid this time around. Google, Facebook, and Twitter each have hundreds of millions of users around the world and, at least in the first two cases, solid revenues. Valley companies that went public this year, such as LinkedIn (LNKD) and Pandora Media (P), have actual profits, and Zynga’s (ZNGA) initial public offering on Dec. 16—though shares fell slightly in early trading—was the exclamation mark at the end of a thunderous sentence. The offering added yet another Valley billionaire to the regional club: founder Mark Pincus, whose net worth now hovers around $1.3 billion. Even blue chips such as Cisco (CSCO) and Intel (INTC), punished by the stock market for missing big market shifts, are notching record revenue. Doomsday isn’t a pending threat here, it’s office art: Photos of mushroom clouds adorn the lobby of fast-rising venture capital firm Andreessen Horowitz. (Bloomberg LP, which owns Bloomberg Businessweek, is an investor in Andreessen Horowitz.)

Turbulence in the rest of the world may actually be helping Silicon Valley, as wealthy Russians and Chinese send their kids to school here and compete to park their riches in the region’s most promising startups. “There’s always the sense that the storms are happening in other people’s worlds,” says Paul Saffo, a futurist and veteran Valley watcher. “Nobody stops buying smartphones just because they are having an insurrection.”

The downside of the prosperity bubble is that Silicon Valley could be falling out of touch with the rest of the world. That danger was well illustrated this year by a startup called Color Labs, which was lavishly funded with $41 million from investors such as Sequoia Capital and Bain Capital even before it even had a product with actual users. That’s enough to fund research into the next wave of clean energy or advanced artificial intelligence. Instead, in March the company released an iPhone application that let users share photos with strangers in close proximity. Upon its introduction, the app met with a wave of scorn—in part because hardly anyone wants to do that, in part because people are fatigued with the Valley’s relentless social networking gimmicks.

Yet an outfit like Color Labs can whiff badly and live to fight another day. The company did not even appear particularly humbled. Among the biggest signs of change at Color over the ensuing eight months were the rotating decorations in the part of its Palo Alto office visible from the sidewalk. At first, patches of AstroTurf lined the floor, creating faux gardens where employees could sit, drink coffee, and ponder. Then the room morphed into a yoga studio where barefoot instructors limbered up dozens of employees at a time. Now it seems to be evolving into a communal work space. The startup hasn’t been completely lax. It introduced an app that lets users broadcast iPhone videos live to their Facebook friends. “Companies like Color are being given a second, third, or fourth shot at the game because it’s a big game,” says Bill Nguyen, Color’s chief executive officer. “The prizes are pretty darn huge. There are fundamental changes happening in information because of Facebook and mobile devices.”

Some in Silicon Valley are alarmed by what they see as the reluctance of the technology establishment to take on big problems. Peter Thiel and Max Levchin, two prominent entrepreneurs who created PayPal (EBAY), have in the past year started retailing the notion that serious innovation has stagnated and that talented technologists should be doing meaningful, even epic, engineering, the way an earlier generation went to the moon. Their book on the topic, The Blueprint, will be out in March. Roger McNamee, a longtime venture capitalist and managing director at private equity firm Elevation Partners, also wonders if Silicon Valley techies have grown insular. “Too many startups make products for people like them, which is predictable but not interesting,” he says.

Still, the Valley’s overwhelming bias toward optimism remains one of its greatest assets. John Seely Brown, former director of the famed Xerox PARC R&D lab, believes we are undergoing what he calls a “Cambrian moment” of technology change that is making it exponentially easier to build companies, rent supercomputers, and get access to sophisticated scientific tools. With those tools at the disposal of entrepreneurs and researchers, he says, the future is blindingly bright. “So it’s stunning to see how cynical everybody else is,” he says. “They are looking at the world through a rearview mirror, trying to preserve the past as opposed to seizing the moment and moving forward with greater imagination.”

Perhaps Silicon Valley has earned those private rock concerts and $300 bottles of tequila. It’s the one place where progress marches forward even amid the utter dysfunction and gridlock of governments in California and Washington, D.C. The challenge for techies in this exceptional, sometimes magical environment will be to eschew narcissism and to peer outside the prosperity bubble and understand with humility how they can help. “If you can’t empathize with others,” John Seely Brown says, “it’s very hard to solve their problems.”

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