How a Century of Entrepreneurial Innovation Created Silicon Valley
The entrepreneurial, technology-driven roots of today’s Silicon Valley sprouted long before Google’s algorithms, Apple’s two Steves, Fairchild’s chipmeisters, or the egalitarian management innovations of Hewlett and Packard. Eager emissaries from less prosperous regions of the nation and foreign governments striving to the replicate the tech economy back home are often surprised to learn that Silicon Valley did not happen overnight.
Portents of the future can be traced to the area around the Stanford University campus in the late 1900s when early work in radio communications led to a succession of new technologically-based business ventures. Each wave of innovation built on the skills and experience of prior decades but launched a radically new product or service that changed the world in ways that even their inventors could not have predicted.
This brief history of a century of entrepreneurial innovation describes electronic hardware developments that turned into sustainable businesses.
The economy of New England was founded on textiles, Detroit on automobiles, and Pittsburg on steel. Silicon Valley has thrived by inventing a significant new industry about every 10 years since the 1930s. Although the companies and specific products have changed, every one of the areas shown in the figure below continues to contribute in some measure today.
Not all of the ideas were conceived in the area, but the energy and determination with which they were pursued delivered success in the marketplace. In this presentation just one iconic company is chosen to characterize each decade but in every case there were dozens of other successful enterprises and many failures, all of which contributed toward building the network of suppliers and infrastructure that supported the next generation.
In the Beginning: Federal Telegraph Corporation
In 1908, the San Francisco Examiner reported that “Cyril Elwell, a graduate of Stanford University and last year instructor there in electricity, to-day demonstrated that . . . he is able to carry on conversations a distance of almost a mile without wires.”¹ This required two assistants to carry the transmitter, antenna, and batteries, but it is Palo Alto’s oldest documented “mobile” phone call. The next year, Elwell founded the Federal Telegraph Company (FTC) that designed and installed the US Navy’s first global scale radio communications system. In 1910, Lee de Forest, inventor of the triode vacuum tube, tested his first electronic amplifier and oscillator circuits in the company lab at the corner of Channing and Emerson. (California Historical Landmark №836)
Startup financing from Stanford faculty members, including President David Starr Jordan, may have constituted the Valley’s first hi-tech venture capital deal. In another harbinger of things to come, FTC spun off Magnavox, the inventor of the moving-coil loudspeaker that went on to become a household name in television and audio electronics.
1930s — Radio Communications Era: Litton Engineering Laboratories
FTC bred other startups and trained engineers and technicians for a growing industry cluster around San Carlos, California, manufacturing radio transmitting and receiving vacuum tubes in the late 1920s and ’30s. Charles Litton, the company’s former chief engineer, developed a glassblowing lathe that enabled mass production of vacuum tubes. After adoption by all major producers, including GE, RCA, and Westinghouse, Litton Engineering Laboratories grew steadily until early World War II when the founder exclaimed, “I woke up one day, and out of the clear blue sky . . . found myself the sole owner of a million-and-a-half-dollar concern.”² He sold the vacuum tube business to a conglomerate in 1953 that later emerged as a major defense contractor under the name Litton Industries.
Litton remained close to his alma mater, Stanford University. In 1936 at the request of electrical engineering professor Frederick Terman, he helped create a tube research lab and donated $1,000 to fund an assistant position. According to Terman “This $1,000 was what ultimately financed David Packard to come back to Stanford,”³ where he collaborated with William Hewlett in 1939 to found the iconic electronic instrument company, Hewlett-Packard, at 367 Addison Street, Palo Alto. (California Historical Landmark №976)
1940s — Defense Systems Era: Varian Associates
Pilot Sigurd Varian asked his engineer brother Russell to build a device that would allow him to “see” airplanes at night.⁴ Ground-based radar was already operating in England but the bulky magnets used to generate microwave frequencies prohibited airborne applications. After Stanford invested $100 and the use of laboratory space, Russell Varian worked with Professor William Hansen to produce the first working klystron in 1937. Units built by Sperry Gyroscope and installed in fighter aircraft helped the Royal Air Force win the Battle of Britain in 1940.
After the war, Varian Associates became the first tenant of the Stanford Industrial Park. Together with the university’s Electronics Research Lab (ERL) and numerous startups, Varian contracted with the US military to develop Cold War-era defense systems based on microwave expertise, including communications equipment and electronic countermeasures. Other applications for the technology emerged, from domestic microwave ovens and medical diagnostics to the atom-smashing Stanford Linear Accelerator Center (SLAC).
1950s — Magnetic Storage Era: International Business Machines
With backing from singer Bing Crosby, Ampex Corporation of Redwood City introduced magnetic tape recording to Silicon Valley for professional audio applications in 1948. In 1956, a team led by Reynold Johnson in IBM’s San Jose Laboratory created “RAMAC,” the world’s first disk drive. RAMAC weighed about a ton and could store about 4 MB of data on fifty 24-inch rigid disks coated with magnetic material.
Fast, low-cost, random access to data, which RAMAC introduced, revolutionized the computer industry. IBM expanded to a city-size disk-drive campus in south San Jose and by 1990 over 125 vendors had entered the business, many of them in Silicon Valley. Just three, Seagate Technology, Toshiba, and Western Digital, survive today. Storage density has increased from 2,000 bits per sq. in. to over 1 trillion bits per sq. in. by 2015 and prices have dropped correspondingly from $10,000 to fractions of a cent per megabyte.⁵
1960s — Semiconductor Era: Fairchild Semiconductor
Co-inventor of the transistor William Shockley brought silicon from Bell Labs in New Jersey to his Mountain View startup Shockley Semiconductor Laboratory in 1956. His paranoid management style eventually drove eight young scientists to leave Shockley and found their own company just down the street at 844 Charleston Road, Palo Alto. (California Historical Landmark №1000)
Their financial backing from Fairchild Camera & Instrument of New York — they named their company Fairchild Semiconductor Corporation — included employee ownership of company stock, an unusual perk for those times that established a pattern for future entrepreneurs. This group’s timing was impeccable. One month after opening the doors in 1957, the USSR launched Sputnik creating a demand for advanced silicon transistors in US aerospace systems. Fairchild Semiconductor became an overnight financial and technical success.
Over the next decade, Fairchild employees developed numerous important products and technologies for the growing microelectronics industry. Three co-founders contributed ideas that continue to resonate today. Jean Hoerni invented the planar process that transformed transistor manufacturing from hand-crafting to a low-cost, high-volume process. Robert Noyce adapted it to permit the production of multiple transistors on a single chip — the integrated circuit or microchip. Gordon Moore’s insight that the number of devices that could be squeezed onto a sliver of silicon would grow exponentially with time established a self-fulfilling prophecy, called Moore’s Law. Today chips holding more than 10 billion transistors power our mobile and interconnected world. Recounting the extraordinary rise of Fairchild and the more than 120 spin-off companies competing for business, in 1971 journalist Don Hoefler used the nickname “Silicon Valley” for the first time in print.⁶ The name stuck.
An exodus of talent, a turbulent economy, and friction with the East Coast owners decimated the company’s fortunes. Fairchild continued in business, but never regained its early prominence, until being swallowed by National Semiconductor, one of its progeny, in 1987.
1970s — Personal Computing Era: Apple Computer
The 1971 introduction of a microprocessor by the most feted and successful Fairchild spin-off, Intel Corporation, together with the availability of floppy disk-drive storage units from Shugart Associates, launched a personal-computing systems industry in the early 1970s. Hobbyist computers were quickly followed by machines for home, school, and business that grew in capability with each new generation of chips. As users became more diverse, local entrepreneurs created software packages for new and varied applications that in turn stimulated demand for ever more powerful microprocessors and larger disk drives.
Hundreds of vendors in the US and overseas jumped into the market. Popular models from Silicon Valley included Cromemco and IMSAI business machines and home computers from Atari and Commodore. None compared to the Apple II and Macintosh in terms of their long term influence. The combination of Steve Wozniak’s design skills and Steve Jobs’s marketing skills established the company as a leader in the field. Its initial public stock offering was the largest ever for a technology company. Apple lost market share after the introduction of the IBM PC in 1981 but retained a loyal following with its focus on the user experience through close integration of software and hardware.
Creation and development of the home video game console (essentially a specialized personal computer) business in the Valley followed a similar trajectory. Pioneered by Atari and others through booms and busts, sales of software titles have grown to exceed the movie industry in worldwide revenue.
1980s — Network Era: Xerox PARC
Xerox Corporation established the Palo Alto Research Center (PARC) to develop technologies in support of its vision of the Office of the Future. Unveiled as a research project in 1973, the Xerox Alto computer system incorporated concepts such as a mouse, removable data storage, and a graphical user interface — ideas that are taken for granted today. Alto was not produced commercially but Apple incorporated many of its ideas into the design of its Lisa and Macintosh computers.
Early computer users wishing to share information copied data onto a magnetic disk or tape and physically carried it to another machine. Xerox pioneered the Ethernet networking system, conceived by researcher Robert Metcalfe, to interconnect all Alto machines in a building and enable email and electronic file sharing. Other companies were developing alternative network solutions but Ethernet offered a practical, cost-effective design for typical office environments that found wide acceptance. Metcalfe co-founded 3Com Corporation in 1979 to commercialize Ethernet.
1990s — Internet Era: Cisco Systems
Early networks connected similar machines within a building. The internet interconnects networks of networks supporting computers of all types across the globe. It grew out of the ARPANET, a military project that linked US research communities. SRI International, Menlo Park, California, was one of the first nodes on the ARPANET and pioneered fundamental hardware, software, and wireless technologies later employed on the internet.
Connecting networks to each other requires special purpose computers called gateways or routers. Cisco Systems, founded by Leonard Bosack and Sandy Lerner of Stanford University, emerged from the University Artificial Intelligence Lab and soon dominated the router business. Analysts claim that approximately “85% of total Internet traffic today travels across Cisco’s systems.”⁷
2000s — Mobile Platform Era: Apple Inc.
Personal digital assistants such as the PalmPilot from Palm Computing and smartphones from spin-out Handspring, both founded by Jeff Hawkins and Donna Dubinsky, pioneered many of the features associated with connected mobile computing platforms today. The companies are now defunct, but their work lives on in hardware and software offerings from Apple and Google.
Dropping the word “Computer” from its name emphasized the refocus of Apple Inc. on all things mobile. Beginning with the iPod in 2001 and progressing through the iPhone and iPad to the iWatch, Apple distilled the best of the past into products that define the look and feel of modern mobile devices and created the “world’s most valuable company” in the process. Although Apple is the most profitable vendor, more than “80% of devices sold world-wide are based on Google’s Android operating system.”⁸
2010s — Era To Be Advised
How the future will select the most important companies and hardware drivers of the current era is not yet apparent. Agritech products for smart farms, nodes for the Internet of Things, and autonomous vehicles from driverless cars to drones are impacting all segments of society. Whichever candidate wins, Silicon Valley entrepreneurs are striving to ensure that they have a foothold in the business.
This blog is part of the Exponential Center at the Computer History Museum.
¹ “Successful test of wireless phone” San Francisco Examiner (August 30, 1908)
² Morgan, Jane. Electronics in the West. National Press Books (1967) p. 96
³ Gillmor, C. Stewart. Fred Terman at Stanford. Stanford University Press (2004) p. 156
⁴ Morgan, Jane. Electronics in the West. National Press Books (1967) p. 113
⁵ The Storage Engine Computer History Museum online exhibit (2015)
⁶ Hoefler, Don. “Silicon Valley USA” Electronic News (January 11, 1971) p. 1
⁷ Rogers, Adam. “Cisco Dominates Communications Equipment” Market Realist (September 18, 2015)
⁸ Woods, Viveca. Gartner Press Release, Egham, UK (November 18, 2015)
About the Exponential Center
The Exponential Center at the Computer History Museum is capturing the legacy — and advancing the future — of entrepreneurship and innovation in Silicon Valley and around the world. The center explores the people, companies, and communities that are transforming the human experience through technology innovation, economic value creation, and social impact. The center’s work focuses on five integrated initiatives: collections and exhibitions, research and insights, education, events, and thought leadership.
Originally published at www.computerhistory.org.