May 18, 2018 at 19:48Uncontrollability of Progress. The history of the birth of Silicon Valley (1950-1970)
In the 50s and 70s of the twentieth century, Stanford University was a major point of attraction for talents, technology, and large military orders. Applied laboratories and an industrial park formed its innovative ecosystem.
By the end of the 60s, the centralized management of innovations carried out by large corporations and the state began to give way.
A new generation of technology entrepreneurs and managers is entering the historical arena. Through his efforts, the Stanford University ecosystem is growing rapidly, turning into a fundamentally different ecosystem, called the “Silicon Valley”.
Map of the Valley. 1981 year.
Scientific and technological progress is influenced by factors that are difficult to predict. This is its own logic of scientific and technological development, and market conditions, and private initiative, and "His Majesty Chance."
The same can be said about innovative ecosystems. Innovative ecosystems are created by people who have a clear vision of ecosystem functioning. However, over time, ecosystems begin to develop on their own, ignoring the plans of their own creators.
A good confirmation of this thesis is the history of the Novosibirsk Academgorodok in the USSR . However, it is most vividly illustrated by the history of the most famous innovative ecosystem - Silicon Valley.
Summary:
The father of Silicon Valley is called Fredrick Terman, who for many years held various leadership positions at Stanford University. Terman focused on the targeted development of Stanford University as an innovative ecosystem.
Terman actively involved academic scientists in work on applied projects, and also actively searched for customers, mainly among the military departments and firms of the US military-industrial complex.
Under his leadership, the Stanford Industrial Park was created, where organizations such as NASA, Lockheed and IBM could create laboratories and pilot production of new high-tech products together with Stanford. The main technological focus in the 1950s and 1960s was radio tracking and jamming systems for the needs of the Cold War.
However, since the 1960s, the field of semiconductor electronics has received an almost unchallenged prospect of growth. Semiconductor microelectronics rose to its feet and gained strength without the influence of Terman and his associates, and the share of military orders in their products, although substantial, was constantly decreasing.
In the production of semiconductor microelectronics, new forms of financing business projects and managing them are being created. First, the creation of relatively autonomous subsidiaries of large firms such as Fairchild or Texas Instruments, and somewhat later, starting in the 1970s, the creation of fully independent companies financed by business angels and venture funds.
New values of technological entrepreneurship, community and trust network develop independently. Since the late 1970s, the new ecosystem, called Silicon Valley, has grown independently on the site of the previous ecosystem at Stanford University and outgrew it in quantitative and qualitative terms.
During the Second World War, Fredrik Terman, a graduate of Stanford University, led a project at Harvard to create "electronic weapons": devices that interfere with enemy radars. The use of such devices has dramatically reduced the losses of the US Air Force during the bombing of Germany and Japan.
Fredrick Terman of
Stanford University during the war years had relatively few military orders. The leaders then were - MIT, Harvard, Princeton and others.
Terman’s connections made it possible to attract many leading scientists and engineers, and then talented students to Stanford by 1950, making Stanford a “MIT on the West Coast.” The main research tricks were chosen: radar and electronics.
The Korean War brought huge military orders to Stanford. In addition to the “fundamental” research laboratory in the field of Electronics Laboratory (Electronics Research Laboratory), a huge arms laboratory for applied electronics (Applied Electronics Laboratory) was created, serving the military order. The main goal is the development of systems that can disable powerful air defense systems of the USSR and allied countries.
Electronics Research Laboratory. 1951 year.
In addition, the US military feared a surprise attack by the USSR. Therefore, the task was to constantly monitor Soviet aviation and the navy.
In 1955, when Terman became rector, two laboratories: fundamental and applied, were combined into a common Systems Engineering Lab. There they worked on scientific and technical tasks commissioned by various American intelligence agencies and military departments. In addition, prototypes of radar and radio jamming systems were created there based on new research.
Terman created the conditions for the convergence of science and production. In 1951, he created the so-called Stanford Industrial Park, which in subsequent years housed the production of large technology firms (often working on military orders), such as Varian Associates, General Electric, Hewlett Packard, Kodak, Lockhead, IBM, Xerox.
Varian Associates is a tube electronics manufacturer. The first resident of the Industrial Park. 1951 year.
Terman strongly supported the idea of creating new laboratories and companies in the park. As Terman himself recalled, “I encouraged our new, young scientists to go outside and get to know the local industry with those people in it who did interesting and creative things. I also helped industrialists to know the university, get acquainted with what is happening at Stanford ... " (Tajnai, 1985)
Terman encouraged the emergence of new firms, helping to attract resources and funding.
For example, in 1957, the oil company Kern County Land contacted Terman and expressed a desire to invest in the creation of a company manufacturing military electronics. Terman connected them with the director of the laboratory of electronic devices, Watkins, who, in his opinion, could be held as the head of production. Watkins and his colleague Johnson, with financial assistance from Kern County Land, created Watkins-Johnson, one of the most financially successful Stanford firms of the 60s. (Kenney, 2000)
New divisions of existing firms sprang up in the industrial park. So, in 1956, Terman convinced W. Shockley, the inventor of the transistor, to return to his hometown of Palo Alto and create the Shockley Transistor Laboratory (owned by Beckman Instruments), in which he would produce his 4-layer diodes.
“The atmosphere of growth was contagious; Terman continued to convince his graduates to start their own enterprises, and scientists and teachers continued to take part in them through consulting, investment, and the founding of their own companies. ” (Tajnai, 1985)
William Shockley, the inventor of the transistor.
This atmosphere began to attract not only scientists and engineers, but also enterprising people and financiers from the East Coast. Although in the 1950s and 1960s there were no generally accepted financing schemes for new technological enterprises, progressively minded financiers were looking for new ways of investing and lending.
Direct investments of large technology firms in production on the territory of the industrial park, as well as individual experimental investments in new firms, solved the issue of financing new ecosystem industrial enterprises in the 50s and 60s.
In the 50s and 60s of the twentieth century, Stanford University with its laboratories and industrial park was not close to what is now called Silicon Valley.
Major investments and orders were related to the US military complex. With rare exceptions, either the state or large concerns producing military equipment served as their source. Until the 70s of the twentieth century, most research laboratories and technology firms existed and developed thanks to a military order, especially for ultra-sophisticated devices that could effectively damage Soviet military facilities and anti-aircraft and anti-missile defense systems.
According to Steve Blank, who reviewedthe history of the Valley in the Cold War era, the main achievements of Stanford and its associated laboratories and enterprises of the 50s and 60s were not transistors or processors, but a U2 reconnaissance aircraft.
The U2
Blank reconnaissance aircraft claims that the connection between the Stanford ecosystem and the military customer was built through Terman’s personal connections. So he sees his strategy:
The described strategy, provided flexibility in working with military customers, as well as external incentives for the development of technologies, involved more and more highly qualified specialists in it.
“I like most of all helping to build something new, taking a poorly formulated undertaking and making of it what it could become” - F. Terman
During the period of the 50s and 60s, such important properties for Silicon Valley as orientation to a wide market and ease of attracting foreign investment were poorly represented.
On the other hand, already in the 50s and 60s, the orientation of Stanford scientists began to appear on the application of scientific knowledge in practice, the creation of new enterprises and firms. An atmosphere of cooperation and trust, uncharacteristic for the East coast of the USA in the mid-20th century, appeared.
Thus, it can be argued that in the 50s and 60s, Terman created the ecosystem of Stanford University. Its atmosphere attracted a fairly large number of talented, creative and courageous people who were ready to try to embody new ideas in the field of science, technology, business, finance.
The military order, often formed thanks to the connections of Terman, dominated throughout the 50s and 60s. However, since 1961, the total volume of the military order almost did not grow. From this moment on, the creation of a fundamentally new ecosystem began to pass from the hands of a narrow group of Terman and his entourage to the hands of a larger group of private investors and entrepreneurs aimed at developing the civil technology market. (Blank)
During the late 1950s - 1960s, the semiconductor microelectronics industry gained rapid growth. It produced high-tech products: transistors, diodes, microchips, which served as "building blocks" for computers and automation systems, both military and civilian.
A transistor, a semiconductor triode is a radio-electronic component of semiconductor material, usually with three leads, capable of controlling a significant current in the output circuit from a small input signal, which allows it to be used to amplify, generate, commute and convert electrical signals (wiki)
As noted earlier, in 1956, William Shockley, one of the founders of the transistor and Nobel laureate, created his own laboratory in Palo Alto. “Shockley started a rumor that he decided to create the most advanced transistors in the industry ... and that he was looking for the best and brightest young scientists to help him change the world <...>. Thanks to his scientific reputation, “his appeal to young talented scientists was answered in the form of a storm of resumes, from which he selected eight young people with extraordinary - as history will show - talents, including two with world-class potential ... Shockley had a special gift in reading resumes and biographies references ”(Malone, 2015). However, his character and leadership style, primarily the lack of trust in the work of employees, the impediment to their creative endeavors, were so unacceptable to his talented employees, that they fled from him. One of the most interesting ideas that went against Shockley's ideas was the idea of using more common silicon, instead of more expensive germanium, as a semiconductor transistor.
The Treacherous Eight of the founders of Fairchild Semiconductors
One of the employees, Eugene Kleiner, “took on the task of finding a company that wants to hire the whole team.” He contacted his father's friend, who works for the investment firm Hayden, Stone & Company in New York. They became interested in “a new member of the company, ambitious enough to achieve fame: Arthur Rock” (Malone, 2015). Hayden, Stone & Company “saw this as an opportunity to try out the new investment model that they developed: Hayden, Stone & Company in this model was not a direct investor, it would be an intermediary between corporate investors and this new team” (Malone, 2015), which unexpectedly offered to create their own company. East Coast inventor and billionaire Sherman Fairchild has agreed to invest in a new company called Fairchild Semiconductors, in the summer of 1957, provided that he can fully redeem it within 3 years in case of its successful functioning. (Berlin, 2001) Furchild took advantage of the repurchase right already in 1959 after a successful transaction for the supply of transistors for IBM.
Fairchild Semiconductors, with the direct participation of people from the Shockley laboratory, primarily R. Neuss, who served as director of science, became the leader in this new industry from 1959 to 1965. “The number of transistors produced by American firms has grown 275 times between 1957 and 1965.” (Berlin, 2001)
One of Fairchild's workshops in the 1960s
Fairchild Semiconductor had a number of strong competitors, such as Motorola and Texas Instruments. These corporations in the mid-50s and early 60s were also actively interested in the capabilities of semiconductors and opened their own units that were engaged in research and development in this area.
The transistor market was wide and not limited to military orders. “A two-level semiconductor market has emerged: on the one hand, these are tried and tested products, available at very low prices, produced in very large volumes and with a small added cost (margin). These devices were commonly used in the entertainment market, for example, as parts of radios, and were sold for less than a cent. On the other hand, there were devices, newer and more technically advanced, which were produced in small batches and sold with a higher specific profit (profits). These devices were used for military applications and in the growing computer market. ” (Berlin, 2001)
This meant that manufacturers, including Fairchild, had to be both a mass producer and a large-scale research organization. (Berlin, 2001)
R&D (research and development ) departments of companies needed to constantly, in a highly competitive environment, design new types of semiconductor devices.
At Fairchild Semiconductors, important changes have also taken place in the understanding of the company's products, key to modern high technology. It turned out that the company creates not just devices, but specialized high-tech products, including detailed technical descriptions and instructions, as well as technical support for Fairchild specialists.
So in the 60s looked "landing page"
The customers of the products were manufacturers of radio equipment, computers, various military companies, and the end users were engineers who create end devices using transistors. “The company provided customers with unrivaled technical support, for example, providing detailed technical manuals for each product that were so popular that Fairchild Semiconductor even highlighted them when advertising their products. In 1964, Fairchild Semiconductors changed the industry-standard <...> product-based marketing structure to a market-based structure. That is, instead of diode and transistor sales managers, Fairchild now had separate consumer electronics market managers and military equipment market managers. ” (Berlin, 2001)
During the 60s and 70s, around 65 companies producing microchips were created in the Palo Alto area. The most famous of them, Intel, was organized by immigrants from the laboratory of Shockley and Fairchild, R. Neuss and G. Moore.
By the beginning of the 70s, a financing scheme had been found that made it possible to combine new startup companies and financial resources, which formed the basis of the venture capitalism institution and made it possible to attract private capital from outside. Its essence is to provide new technology firms with capital in exchange for its shares in order to receive super-profits from the subsequent sale of shares of this company (on a stock exchange or another company).
Pioneers in the new model include A. Rock, T. Davis, who created the first successful venture capital fund in California in 1961. However, this phenomenon was rather isolated - to other financiers it seemed very risky. According to the memoirs of A. Rok, other venture funds began to open only in the interval 1968 - 1970, when the Rok and Davis fund showed super-profits after they sold their stake in Scientific Data Systems to Xerox for almost $ 1 billion. (Gupta, 2000)
Scientific Data Systems' Sigma 7 Computer
Venture capitalism has developed quite slowly. The total amount of venture capital investments in the Valley became comparable in order with the sums of defense orders only in the 80s.
Over the period of 20 years, the so-called Silicon Valley has grown. It began to include, in addition to the old Stanford University Ecosystem, powered by military and state orders, also a completely new post-industrial ecosystem based on technology entrepreneurship and private investment. The new ecosystem has grown not only in qualitative, but also in quantitative terms. Offices and research centers of new companies began to appear not only in Stanford University and its environs, but also throughout the entire area of the San Francisco Peninsula between San Mateo and San Jose (the distance between these settlements is about 45 km).
During the Second World War, the success of many scientific mega-projects, such as nuclear, generated a belief in the controllability and predictability of scientific and technological progress.
However, the post-war experience of both Silicon Valley in the United States and, for example, the Novosibirsk Academgorodok in the USSR, shows that technological and organizational development cannot be directly controlled over a long time period.
Technologically, in Silicon Valley, it all started with a military order, jammers and spy planes, but then completely unplanned moved to the field of predominantly civilian microelectronics and automation, and after the 80s completely into the field of software.
Organizationally, it all started with large applied laboratories and contacts with military customers from managers like Terman. However, then the initiative, both in the search for customers and investors, and in the organization of development and business as a whole, passed into the hands of technological entrepreneurs.
Development management has become decentralized and the future uncertain.
Berlin Leslie R. Robert Noyce and Fairchild Semiconductor, 1957-1968 [Journal] // Business History Review. - Boston: The President and Fellows of Harvard College, 2001 .-- 1: Vol. 75.
Blank S. The Secret History of Silicon Valley [Online]. - steveblank.com/secret-history .
Gupta Udayan Done Deals: Venture Capitalists Tell Their Stories [Book]. - [sl]: Harvard Business Review Press, 2000.
Kenney Martin Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region [Book]. - [sl]: Stanford Business Books, 2000. - p. 304.
Metcalfe S. The Economic Foundations of Technology Policy: Equilibrium and Evolutionary Perspectives [Book Section] // Handbook of the Economics of Innovation and Technological Change / book auth. P. Stoneman. - Oxford: Blackwell Publishers, 1995.
Tajnai Carolyn E. Fred Terman, the Father of Silicon Valley [Journal] // IEEE Design & Test of Computers. - 1985 .-- 2: Vol. 2.
Malone Mark The Intel. How Robert Noyce, Gordon Moore and Andy Grove created the most influential company in the world [Book]. - Moscow: Eksmo, 2015 .-- p. 528.
By the end of the 60s, the centralized management of innovations carried out by large corporations and the state began to give way.
A new generation of technology entrepreneurs and managers is entering the historical arena. Through his efforts, the Stanford University ecosystem is growing rapidly, turning into a fundamentally different ecosystem, called the “Silicon Valley”.
Map of the Valley. 1981 year.
Scientific and technological progress is influenced by factors that are difficult to predict. This is its own logic of scientific and technological development, and market conditions, and private initiative, and "His Majesty Chance."
The same can be said about innovative ecosystems. Innovative ecosystems are created by people who have a clear vision of ecosystem functioning. However, over time, ecosystems begin to develop on their own, ignoring the plans of their own creators.
A good confirmation of this thesis is the history of the Novosibirsk Academgorodok in the USSR . However, it is most vividly illustrated by the history of the most famous innovative ecosystem - Silicon Valley.
Summary:
The father of Silicon Valley is called Fredrick Terman, who for many years held various leadership positions at Stanford University. Terman focused on the targeted development of Stanford University as an innovative ecosystem.
Terman actively involved academic scientists in work on applied projects, and also actively searched for customers, mainly among the military departments and firms of the US military-industrial complex.
Under his leadership, the Stanford Industrial Park was created, where organizations such as NASA, Lockheed and IBM could create laboratories and pilot production of new high-tech products together with Stanford. The main technological focus in the 1950s and 1960s was radio tracking and jamming systems for the needs of the Cold War.
However, since the 1960s, the field of semiconductor electronics has received an almost unchallenged prospect of growth. Semiconductor microelectronics rose to its feet and gained strength without the influence of Terman and his associates, and the share of military orders in their products, although substantial, was constantly decreasing.
In the production of semiconductor microelectronics, new forms of financing business projects and managing them are being created. First, the creation of relatively autonomous subsidiaries of large firms such as Fairchild or Texas Instruments, and somewhat later, starting in the 1970s, the creation of fully independent companies financed by business angels and venture funds.
New values of technological entrepreneurship, community and trust network develop independently. Since the late 1970s, the new ecosystem, called Silicon Valley, has grown independently on the site of the previous ecosystem at Stanford University and outgrew it in quantitative and qualitative terms.
MIT on the West Coast
During the Second World War, Fredrik Terman, a graduate of Stanford University, led a project at Harvard to create "electronic weapons": devices that interfere with enemy radars. The use of such devices has dramatically reduced the losses of the US Air Force during the bombing of Germany and Japan.
Fredrick Terman of
Stanford University during the war years had relatively few military orders. The leaders then were - MIT, Harvard, Princeton and others.
Terman’s connections made it possible to attract many leading scientists and engineers, and then talented students to Stanford by 1950, making Stanford a “MIT on the West Coast.” The main research tricks were chosen: radar and electronics.
The Korean War brought huge military orders to Stanford. In addition to the “fundamental” research laboratory in the field of Electronics Laboratory (Electronics Research Laboratory), a huge arms laboratory for applied electronics (Applied Electronics Laboratory) was created, serving the military order. The main goal is the development of systems that can disable powerful air defense systems of the USSR and allied countries.
Electronics Research Laboratory. 1951 year.
In addition, the US military feared a surprise attack by the USSR. Therefore, the task was to constantly monitor Soviet aviation and the navy.
In 1955, when Terman became rector, two laboratories: fundamental and applied, were combined into a common Systems Engineering Lab. There they worked on scientific and technical tasks commissioned by various American intelligence agencies and military departments. In addition, prototypes of radar and radio jamming systems were created there based on new research.
Industrial park
Terman created the conditions for the convergence of science and production. In 1951, he created the so-called Stanford Industrial Park, which in subsequent years housed the production of large technology firms (often working on military orders), such as Varian Associates, General Electric, Hewlett Packard, Kodak, Lockhead, IBM, Xerox.
Varian Associates is a tube electronics manufacturer. The first resident of the Industrial Park. 1951 year.
Terman strongly supported the idea of creating new laboratories and companies in the park. As Terman himself recalled, “I encouraged our new, young scientists to go outside and get to know the local industry with those people in it who did interesting and creative things. I also helped industrialists to know the university, get acquainted with what is happening at Stanford ... " (Tajnai, 1985)
Terman encouraged the emergence of new firms, helping to attract resources and funding.
For example, in 1957, the oil company Kern County Land contacted Terman and expressed a desire to invest in the creation of a company manufacturing military electronics. Terman connected them with the director of the laboratory of electronic devices, Watkins, who, in his opinion, could be held as the head of production. Watkins and his colleague Johnson, with financial assistance from Kern County Land, created Watkins-Johnson, one of the most financially successful Stanford firms of the 60s. (Kenney, 2000)
New divisions of existing firms sprang up in the industrial park. So, in 1956, Terman convinced W. Shockley, the inventor of the transistor, to return to his hometown of Palo Alto and create the Shockley Transistor Laboratory (owned by Beckman Instruments), in which he would produce his 4-layer diodes.
“The atmosphere of growth was contagious; Terman continued to convince his graduates to start their own enterprises, and scientists and teachers continued to take part in them through consulting, investment, and the founding of their own companies. ” (Tajnai, 1985)
William Shockley, the inventor of the transistor.
This atmosphere began to attract not only scientists and engineers, but also enterprising people and financiers from the East Coast. Although in the 1950s and 1960s there were no generally accepted financing schemes for new technological enterprises, progressively minded financiers were looking for new ways of investing and lending.
Direct investments of large technology firms in production on the territory of the industrial park, as well as individual experimental investments in new firms, solved the issue of financing new ecosystem industrial enterprises in the 50s and 60s.
The ecosystem of Stanford University 50s - 60s
In the 50s and 60s of the twentieth century, Stanford University with its laboratories and industrial park was not close to what is now called Silicon Valley.
Major investments and orders were related to the US military complex. With rare exceptions, either the state or large concerns producing military equipment served as their source. Until the 70s of the twentieth century, most research laboratories and technology firms existed and developed thanks to a military order, especially for ultra-sophisticated devices that could effectively damage Soviet military facilities and anti-aircraft and anti-missile defense systems.
According to Steve Blank, who reviewedthe history of the Valley in the Cold War era, the main achievements of Stanford and its associated laboratories and enterprises of the 50s and 60s were not transistors or processors, but a U2 reconnaissance aircraft.
The U2
Blank reconnaissance aircraft claims that the connection between the Stanford ecosystem and the military customer was built through Terman’s personal connections. So he sees his strategy:
- Be present in all possible military councils in order to build a network of ties.
- Keep in touch with all military customers. Create military prototypes of devices of interest to Stanford.
- If potential customers like the prototype, convince a student or other research assistant to organize the production.
- Persuade university staff to occupy seats on the board of directors of new firms so that they can better know about the industry and acquire business competencies.
- Provide space for offices and industries in the industrial park to make sure everyone is next to each other.
The described strategy, provided flexibility in working with military customers, as well as external incentives for the development of technologies, involved more and more highly qualified specialists in it.
“I like most of all helping to build something new, taking a poorly formulated undertaking and making of it what it could become” - F. Terman
During the period of the 50s and 60s, such important properties for Silicon Valley as orientation to a wide market and ease of attracting foreign investment were poorly represented.
On the other hand, already in the 50s and 60s, the orientation of Stanford scientists began to appear on the application of scientific knowledge in practice, the creation of new enterprises and firms. An atmosphere of cooperation and trust, uncharacteristic for the East coast of the USA in the mid-20th century, appeared.
Thus, it can be argued that in the 50s and 60s, Terman created the ecosystem of Stanford University. Its atmosphere attracted a fairly large number of talented, creative and courageous people who were ready to try to embody new ideas in the field of science, technology, business, finance.
Transistor and Silicon Valley
The military order, often formed thanks to the connections of Terman, dominated throughout the 50s and 60s. However, since 1961, the total volume of the military order almost did not grow. From this moment on, the creation of a fundamentally new ecosystem began to pass from the hands of a narrow group of Terman and his entourage to the hands of a larger group of private investors and entrepreneurs aimed at developing the civil technology market. (Blank)
During the late 1950s - 1960s, the semiconductor microelectronics industry gained rapid growth. It produced high-tech products: transistors, diodes, microchips, which served as "building blocks" for computers and automation systems, both military and civilian.
A transistor, a semiconductor triode is a radio-electronic component of semiconductor material, usually with three leads, capable of controlling a significant current in the output circuit from a small input signal, which allows it to be used to amplify, generate, commute and convert electrical signals (wiki)
As noted earlier, in 1956, William Shockley, one of the founders of the transistor and Nobel laureate, created his own laboratory in Palo Alto. “Shockley started a rumor that he decided to create the most advanced transistors in the industry ... and that he was looking for the best and brightest young scientists to help him change the world <...>. Thanks to his scientific reputation, “his appeal to young talented scientists was answered in the form of a storm of resumes, from which he selected eight young people with extraordinary - as history will show - talents, including two with world-class potential ... Shockley had a special gift in reading resumes and biographies references ”(Malone, 2015). However, his character and leadership style, primarily the lack of trust in the work of employees, the impediment to their creative endeavors, were so unacceptable to his talented employees, that they fled from him. One of the most interesting ideas that went against Shockley's ideas was the idea of using more common silicon, instead of more expensive germanium, as a semiconductor transistor.
The Treacherous Eight of the founders of Fairchild Semiconductors
One of the employees, Eugene Kleiner, “took on the task of finding a company that wants to hire the whole team.” He contacted his father's friend, who works for the investment firm Hayden, Stone & Company in New York. They became interested in “a new member of the company, ambitious enough to achieve fame: Arthur Rock” (Malone, 2015). Hayden, Stone & Company “saw this as an opportunity to try out the new investment model that they developed: Hayden, Stone & Company in this model was not a direct investor, it would be an intermediary between corporate investors and this new team” (Malone, 2015), which unexpectedly offered to create their own company. East Coast inventor and billionaire Sherman Fairchild has agreed to invest in a new company called Fairchild Semiconductors, in the summer of 1957, provided that he can fully redeem it within 3 years in case of its successful functioning. (Berlin, 2001) Furchild took advantage of the repurchase right already in 1959 after a successful transaction for the supply of transistors for IBM.
Fairchild Semiconductors, with the direct participation of people from the Shockley laboratory, primarily R. Neuss, who served as director of science, became the leader in this new industry from 1959 to 1965. “The number of transistors produced by American firms has grown 275 times between 1957 and 1965.” (Berlin, 2001)
One of Fairchild's workshops in the 1960s
Fairchild Semiconductor had a number of strong competitors, such as Motorola and Texas Instruments. These corporations in the mid-50s and early 60s were also actively interested in the capabilities of semiconductors and opened their own units that were engaged in research and development in this area.
The transistor market was wide and not limited to military orders. “A two-level semiconductor market has emerged: on the one hand, these are tried and tested products, available at very low prices, produced in very large volumes and with a small added cost (margin). These devices were commonly used in the entertainment market, for example, as parts of radios, and were sold for less than a cent. On the other hand, there were devices, newer and more technically advanced, which were produced in small batches and sold with a higher specific profit (profits). These devices were used for military applications and in the growing computer market. ” (Berlin, 2001)
This meant that manufacturers, including Fairchild, had to be both a mass producer and a large-scale research organization. (Berlin, 2001)
R&D (research and development ) departments of companies needed to constantly, in a highly competitive environment, design new types of semiconductor devices.
At Fairchild Semiconductors, important changes have also taken place in the understanding of the company's products, key to modern high technology. It turned out that the company creates not just devices, but specialized high-tech products, including detailed technical descriptions and instructions, as well as technical support for Fairchild specialists.
So in the 60s looked "landing page"
The customers of the products were manufacturers of radio equipment, computers, various military companies, and the end users were engineers who create end devices using transistors. “The company provided customers with unrivaled technical support, for example, providing detailed technical manuals for each product that were so popular that Fairchild Semiconductor even highlighted them when advertising their products. In 1964, Fairchild Semiconductors changed the industry-standard <...> product-based marketing structure to a market-based structure. That is, instead of diode and transistor sales managers, Fairchild now had separate consumer electronics market managers and military equipment market managers. ” (Berlin, 2001)
During the 60s and 70s, around 65 companies producing microchips were created in the Palo Alto area. The most famous of them, Intel, was organized by immigrants from the laboratory of Shockley and Fairchild, R. Neuss and G. Moore.
Venture
By the beginning of the 70s, a financing scheme had been found that made it possible to combine new startup companies and financial resources, which formed the basis of the venture capitalism institution and made it possible to attract private capital from outside. Its essence is to provide new technology firms with capital in exchange for its shares in order to receive super-profits from the subsequent sale of shares of this company (on a stock exchange or another company).
Pioneers in the new model include A. Rock, T. Davis, who created the first successful venture capital fund in California in 1961. However, this phenomenon was rather isolated - to other financiers it seemed very risky. According to the memoirs of A. Rok, other venture funds began to open only in the interval 1968 - 1970, when the Rok and Davis fund showed super-profits after they sold their stake in Scientific Data Systems to Xerox for almost $ 1 billion. (Gupta, 2000)
Scientific Data Systems' Sigma 7 Computer
Venture capitalism has developed quite slowly. The total amount of venture capital investments in the Valley became comparable in order with the sums of defense orders only in the 80s.
Over the period of 20 years, the so-called Silicon Valley has grown. It began to include, in addition to the old Stanford University Ecosystem, powered by military and state orders, also a completely new post-industrial ecosystem based on technology entrepreneurship and private investment. The new ecosystem has grown not only in qualitative, but also in quantitative terms. Offices and research centers of new companies began to appear not only in Stanford University and its environs, but also throughout the entire area of the San Francisco Peninsula between San Mateo and San Jose (the distance between these settlements is about 45 km).
Summary
During the Second World War, the success of many scientific mega-projects, such as nuclear, generated a belief in the controllability and predictability of scientific and technological progress.
However, the post-war experience of both Silicon Valley in the United States and, for example, the Novosibirsk Academgorodok in the USSR, shows that technological and organizational development cannot be directly controlled over a long time period.
Technologically, in Silicon Valley, it all started with a military order, jammers and spy planes, but then completely unplanned moved to the field of predominantly civilian microelectronics and automation, and after the 80s completely into the field of software.
Organizationally, it all started with large applied laboratories and contacts with military customers from managers like Terman. However, then the initiative, both in the search for customers and investors, and in the organization of development and business as a whole, passed into the hands of technological entrepreneurs.
Development management has become decentralized and the future uncertain.
Literature
Berlin Leslie R. Robert Noyce and Fairchild Semiconductor, 1957-1968 [Journal] // Business History Review. - Boston: The President and Fellows of Harvard College, 2001 .-- 1: Vol. 75.
Blank S. The Secret History of Silicon Valley [Online]. - steveblank.com/secret-history .
Gupta Udayan Done Deals: Venture Capitalists Tell Their Stories [Book]. - [sl]: Harvard Business Review Press, 2000.
Kenney Martin Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region [Book]. - [sl]: Stanford Business Books, 2000. - p. 304.
Metcalfe S. The Economic Foundations of Technology Policy: Equilibrium and Evolutionary Perspectives [Book Section] // Handbook of the Economics of Innovation and Technological Change / book auth. P. Stoneman. - Oxford: Blackwell Publishers, 1995.
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