The Code
Page 33
HOW GRAY WAS MY VALLEY
Part of the loss of faith had to do with a realization that, when it came to old-economy woes like pollution and labor costs, the Valley’s golden new economy was not all that exceptional after all. Ever since HP started making oscillators and Ampex began crafting magnetic tape, factories had stretched along Highway 101 from San Jose to San Mateo. Tens of thousands of employees (disproportionately female, Asian, and Latina) worked the assembly lines and fabrication plants during the semiconductor boom years, far outnumbering the white, male, professional workers who were the faces the tech industry presented to the world.
This hidden Silicon Valley had quite literally spilled over into the public consciousness earlier in the 1980s, when news broke that highly toxic chemicals had seeped into well water underneath Fairchild Semiconductor’s fabrication plant near the working-class Los Paseos neighborhood of San Jose. Residents had already started noticing alarming spikes in miscarriages, stillbirths, and health problems in both infants and adults; now they believed they had found their culprit. High-tech boosters in the Valley had been praising the “clean” and “smokeless” virtues of their industry ever since Fred Terman first cooked up Stanford Industrial Park. Toxic groundwater did not fit the Silicon Valley narrative.
This was a shoe that had been waiting to drop for a while. From the chemical baths that produced microchips to the toxic metals embedded inside every piece of computer equipment, Silicon Valley had been in the business of particularly dirty manufacturing since the start. Compounding the danger to human health was the fact that this manufacturing boomtown had been built on farmland where water and sewer infrastructure had been built cheaply and quickly—if it had been built in the first place. Pollution wasn’t just a problem for working-class neighborhoods like Los Paseos, where drinking water reservoirs had been dug alarmingly close to Fairchild’s leaky holding tanks. In tonier subdivisions tucked away behind research parks and corporate campuses, tens of thousands of homes relied on private wells for their drinking water. Shallow and unregulated, these were even more susceptible to toxins leaking in, and not being caught in time.4
As poisons seeped further, the Valley’s problems became impossible even for Ronald Reagan’s regulation-averse Environmental Protection Agency to ignore. “It has become obvious,” concluded EPA regional chief Judith Ayres, “that the absence of smokestacks does not mean the absence of environmental problems.” The events shook the faith of local officials. “There was no doubt in my mind that this was a clean industry,” lamented San Jose Mayor Janet Hayes. But the growing revelations set off by the Los Paseos leak upended her assumptions. “We now know we are in the midst of a chemical revolution.” The EPA eventually designated twenty-three places in the Valley as exceptionally polluted Superfund sites, including a cluster of sites in the bucolic Stanford Research Park—the development that had set an international standard for “no smokestacks” manufacturing since the 1950s. A new, lucrative specialty cropped up in the Valley commercial real estate development business: environmental remediation.5
Bruised by bad PR and chafing under newly strict environmental codes in towns like Palo Alto, tech companies began looking around for other places to manufacture their products. Some chose a local escape hatch, simply moving a few miles east to the cheap flatlands across the Bay, territory that already was recognizably industrial, its water and soil long sullied by oil refineries and salt ponds, auto assemblies and chemical processing plants. In some of these East Bay plants, robots did an increasing share of the work, like they did in Steve Jobs’s high-priced Mac factory in Fremont. Where sharp-eyed human oversight and fine motor skills were needed, companies increasingly found they could cut costs by sending factories overseas.6
Now American tech brands expanded beyond Singapore and Taiwan to southern China and India, where economic liberalization and privatization were just starting to create huge new opportunities for foreign companies. The plants themselves were usually owned and operated by an eager and sometimes mercenary cadre of subcontractors, putting the physical work of high-tech production at an even further remove from the Bay Area sunshine. (A later generation of Apple customers saw this economic geography etched on the back of every iPhone or iPad: “Designed in California by Apple, Assembled in China.”)
Back in the Valley, the low-paid assembly line workers of the electronics industry that remained could no longer afford to live remotely close to where they worked. Labor organizers upped their efforts to unionize plants from California to Massachusetts and continued to find a stony wall of opposition. “The high-tech industry has working conditions and sensibilities that are sophisticated enough so that unionization is not an issue,” scoffed one executive. “Unions exist only because the management mistreated their workers,” Jimmy Treybig added. “People want to feel they’re citizens of the company.” Labor leaders would have none of it. Tech companies were pretending their blue-collar employees didn’t even exist, protested labor organizer Rand Wilson. “It’s not all it’s cracked up to be. Many of these places are high-tech sweatshops.” 7
But voices like Wilson’s were hard to hear over the groan of John Arrillaga’s bulldozers, flattening aging fab plants to make way for tidily remediated office parks and corporate campuses. With Asian labor markets beckoning, it had become much easier to move the dirty business of high-tech manufacturing far away and out of sight.
Globalization of production allowed the mythos of a clean, white-collar high-tech world to stay alive and gain velocity. With every new silicon-chip-festooned magazine cover, it seemed like the world went crazier for high-tech research parks. Everywhere from Perth to Peoria still wanted to create a Silicon Something of their own. In their pursuit of an industry that promised white-collar jobs and abundant tax revenues, mayors and governors willfully ignored the tradeoffs that the original Valley had made as it became an industrial powerhouse. “Cities everywhere want to be home to companies with nonpolluting factories and campus-like offices,” dutifully reported U.S. News & World Report, as if Los Paseos had never happened. “I don’t think you’ll find that there will be any pollution,” Texas Governor Mark White declared as he announced yet another new high-tech facility, except from “the Japanese cars they drive to and from work to do it.”8
WHAT’S NEXT
Appearances had been deceiving in the Valley business world too. 1984 had been a spectacular year for Apple and its charismatic co-founder. January had started with the grand-slam of the Super Bowl ad, followed by the main event of the Mac release itself. Through the spring, demand for the new computer exceeded supply. Steve Jobs had engineered his specially built Mac factory in Fremont to produce a million units a year—and he predicted that it would soon run at full capacity. It was, he proclaimed again and again, “insanely great!”9
The Mac was conquering a new market too: higher education. “These students are the knowledge workers of tomorrow,” Jobs told InfoWorld. Students were smack in the middle of Arnold Mitchell’s “achievers” psychographic; placing Macs on their desks at age nineteen would always associate the brand with their fondly remembered college days. (It also broadened the gender profile; college students were the only target market for the Mac that included women as well as men.) The purpose was to “get a generation growing” whose first loyalty was to Apple products, crowed Dan’l Lewin, the young marketing executive Floyd Kvamme assigned to the project. Lewin’s hyperkinetic product marketing persuaded a number of achiever-filled elite universities to join a new “Apple University Consortium,” receiving deliveries of tens of thousands of cut-priced Macs.10
Then, as Valley journalists Michael Swaine and Paul Freiberger later put it, “Apple ran out of zealots.” After a surge of early sales, the numbers for the Mac never met Jobs’s stratospheric public projections. Early reviews of the new Apple praised its ease of use—at last, a thinking machine that didn’t require a 100-page user manual and five hours of setup in order to u
se it—but knowledgeable computer users were quick to point out its limitations, particularly in business. The first Mac didn’t have a hard disk drive. The graphical interface and built-in programs ate up most of its built-in memory, leaving little room for new software and storage. Because it was so sleek, it lacked plugs for peripheral equipment like printers. Bill Gates and Microsoft had worked closely with the Macintosh team since 1981 to develop a suite of software for the Mac, but the closed world that Jobs had created for his cherished new computer made it difficult for other developers to build software to run on its platform. The “1984” ad had made history—and Chiat/Day’s reputation—but the same could not be said for its subject. Mused Regis McKenna, “The ad was more successful than the Mac itself.”11
In the spring of 1985, Apple posted its first quarterly loss. By summer, it laid off 1,200 employees—over 20 percent of the entire company. By the end of September, the stock price had tumbled from a 1983 high of $62 per share to less than $17. In the mind of the board and John Sculley, the main source of all of Apple’s woes was the mercurial, messianic, and megalomaniacal Steve Jobs. In one of the most celebrated firings in American business history, Sculley took away Jobs’s operational authority and moved him into the ceremonial—and powerless—role of chairman. Four months later, Jobs sold all his Apple stock (except one, deeply symbolic share) and quit.
For a breathlessly watching business press, the showdown between Jobs and Sculley had reverberations far beyond Cupertino. The suit-and-tied Organization Man from the East had beat out the long-haired entrepreneurial visionary from the Golden State. Bold promises of being “insanely great” couldn’t overcome the relentless metric of quarterly earnings. The personal-computer business was now big business, and quirky genius wouldn’t cut it anymore.
In the post-firing postmortems, the qualities that had rocketed Jobs to business-world superstardom now became his greatest liabilities. “The very characteristics that lead entrepreneurs to start companies—independence innovation, and commitment to ideas—are the same ones that can cause their demise as managers,” offered one business management expert. Wall Street immediately signaled its approval: Apple stock jumped up by a dollar as soon as Jobs left the building. But Silicon Valley veterans weren’t so sure. “Where is Apple’s inspiration going to come from?” asked Nolan Bushnell. “Is Apple going to have all the romance of a new brand of Pepsi?”12
Stunned and vengeful, Jobs wasted little time in making bold moves that kept him in the headlines. Dumping in $7 million earned from his stock sale, he started a new company: NeXT Computer. Coolly informing Sculley and the Apple board that he wasn’t going alone, he pulled in some of the top people from the Macintosh pirate crew as well as some favorites from the Regis McKenna universe. No more messing around with boring business machines. Jobs wanted to go after those college students—and their professors too. Sun Microsystems, founded in 1982 and roaringly profitable ever since, had taken a huge bite out of the Boston-dominated minicomputer business by marketing high-powered “workstations” offering both minicomputer power and the user-friendly features of a PC—all at an attractive price for business and academic use. Blending the Sun concept with sophisticated design and fresh software, Jobs called the NeXT “the scholar’s workstation.”
Once again, Jobs talked a big game. The new device would be “10 to 20 times more powerful than what we have today,” he promised. Design and product marketing continued to be his obsession, and he commissioned a logo for NeXT even before he had designed the computer itself—paying top dollar to hire Paul Rand, legendary designer of corporate logos including, most notably, the blocky blue letters of IBM.13
From the earliest days of the Apple II, Jobs’s evangelism about computers as engines for creative learning had won him admiration across the educational spectrum, even if not every teacher and educational expert bought into his bullish take. The roaring success of the Mac on campus strengthened Jobs’s conviction that education was the next great frontier. The NeXT team courted universities’ IT directors assiduously. “They just kept on going out and asking people what they wanted,” said one. “We’re fairly jaded and cynical, but these folks really did a good job.”14
While the thirty-one-year-old resisted outside investment at first—he’d been beholden to the venture capitalists since the first days of Apple, and now he finally had the riches to shake them off—his pursuit of perfection had a staggering burn rate. “The honeymoon is over,” he told his staff in the spring of 1986, only six months into NeXT’s existence. To develop a product that met sky-high expectations, and ship it quickly, Steve Jobs needed a new infusion of cash.15
He got it from H. Ross Perot.
Relentless, fast-talking, and spectacularly good at sales, Ross Perot was a five-foot-six-inch business legend with a force of personality that rivaled that of Jobs. Perot had been successful at nearly everything he’d done in life: president-for-life of his U.S. Naval Academy class, a record-shattering sales career at IBM, and then the billion-dollar company he founded in Dallas in 1962, Electronic Data Systems, or EDS. Perot was “utterly self-assured,” a later observer wrote, “the sort of person who walks into someone else’s house and turns on the lights.”16
With EDS in the early 1960s, Perot had pioneered a new and highly lucrative business model of selling software and consulting and IT services for mainframe computers. His early business success came chiefly from multimillion-dollar contracts to build and manage databases for the giant, newly created federal health insurance programs, Medicare and Medicaid. By the early 1970s, EDS processed more than 90 percent of the Medicare claims in the nation. The bounty of big-government business made this small-government conservative extraordinarily rich. Although Perot styled himself as a self-made man, the ultimate expression of free enterprise at work, one sardonic critic observed that he was in fact “America’s first welfare billionaire.”17
While the silicon boys of Fairchild Semiconductor wore shirtsleeves and the computer guys of Digital looked like graduate students after an all-night coding session, Perot’s EDS battalions looked like IBM in miniature, with a dash of Texas ROTC thrown in. Everyone wore ties, sharp suits, and close-cropped hair. Employees had to sign ironclad non-compete agreements. Their stock options evaporated if they ever left the company. Later, Perot became so enraptured by a slim management how-to titled Leadership Secrets of Attila the Hun that he blurbed the paperback edition and bought 700 copies to distribute at company meetings.18
By the time he encountered Steve Jobs, the tenacious Texan was looking for a defining next act. In 1985, he had sold EDS to General Motors in a deal that netted him an enormous amount of money, but that had left him a very square peg in the round holes of GM’s organizational hierarchy. Used to being in charge and being listened to, Perot couldn’t resist loudly giving advice to GM head Roger Smith about how he could improve operations. After about a year of this yammering, an exasperated Smith forced Perot out.
Not too long after, Perot happened to catch a public-television documentary that featured a rapt profile of Jobs and NeXT. Here was another visionary, a maverick, someone who believed in pursuing bigger and higher ideas. And he needed money. Perot picked up the phone, and a few weeks and $20 million later, the squarest-of-the-squares computer billionaire had revived Jobs’s considerable ambitions and secured a 16 percent stake in the company.
It was one of the tech world’s most unlikely partnerships. Here was the spit-and-polish mainframe-era mogul teaming up with the once barefoot-and-bearded evangelist of California cool. Yet the egalitarian conceit behind Jobs’s vision appealed to Perot’s durable populism. “With these electronic tools,” the Texan enthused, “you can bring the very finest ‘courseware’ by the very finest professors to even the smallest liberal arts school with no endowment.” Jobs was similarly complimentary toward his new investor. “Even though I’ve never lived in Texas and he’s never lived in Silicon Valley, it’s become
clear we’ve had similar experiences.”19
One of those common experiences, of course, was getting ungracefully kicked out of your own company after butting heads with its top executives. It was possible that the high-octane combination of Perot and Jobs would be too volatile a mix. “If a guy like Roger Smith can’t take Perot on his board,” mused Wall Street analyst Richard Shaffer, “I don’t see how Steve can.” Esther Dyson, who was steadily building Ben Rosen’s newsletter and conference business into a tech-forecasting empire, had a more optimistic take. “Perot brings to the party a lot of wisdom and a lot of real-world thinking,” she said. “I think they’re a good match.”20
But the glories that Jobs and Perot predicted for NeXT never came to be. The company never made a profit, and it burned through every cent that the Texan had invested in it. And Perot and Jobs weren’t all that compatible after all. The former Navy man keenly understood how lucrative government contracts could be, and he tried to persuade his new protégé to go aggressively after federal business. Jobs was uninterested. When Perot’s people tried to chase after a lucrative contract with the National Security Agency, Jobs put his foot down. He wasn’t going to let his company go into the spy business. An exasperated Perot immediately picked up the phone to call the young mogul, but he couldn’t get a response. “On any given day I call the White House and get through to the President,” Perot steamed to Dan’l Lewin. “I’m in business with you, so why can’t I talk to Steve?” At the next board meeting, Perot stepped down from his seat. Lewin soon left the company as well.21
Jobs’s grandest ambitions to become the workstation in every classroom fell far short. He pivoted into business markets, and then made a last-gasp flail into selling software. The Valley’s original wunderkind remained as compelling a storyteller as ever, and the NeXT machines were certainly beautiful, but they were never as intuitive to use as the friendly little Mac. “Steve’s trouble was that he tried to do another Apple,” observed a colleague. “He is like a person who goes from marriage to marriage trying to get the same relationship.”22