It’s not quite a ghost town in Silicon Valley, but the two hottest brands whose signs I see on every building are “Available” and “To Lease.” Starbucks and Kinko’s are filled with laid-off programmers. Despair is in the air. So fasten your seat belts, it is about time for an upturn.
I’ve seen this bad movie six times now, industry recessions in 1982, ‘86, ‘90, ‘94, ‘98, and 2002, some worse than others. Silicon Valley creates its own recessions with oversupply of chips, too much performance, hyperactive venture capitalists, collapsing prices, and self-cannibalization. Fortunately, these same things set up the booms.
This drives economists crazy. “Normal” businesses see rising prices as a good thing and a precursor for profits. But technology thrives on lower prices. No company likes to see prices drop, but folks like Sony “design-in” these cheaper, more powerful chips and software to do things never before possible. A cell phone with a color screen, built-in digital camera and e-mail would have been the size of a brick and cost $1,000 two years ago. Maybe five would have been sold. Today, it’s $149 and will soon sell millions. When you see these things appear, just wait . . . then wait a little more . . . then boom.
Remember those Superballs when you were a kid? You throw one down in the street, the rubber compresses, and then the ball takes off five times as high in unknown directions. We are in the middle of that compression. As technology gets smaller, cheaper and faster, new applications open up to take advantage.
Think of the previous compressions. If you didn’t have cheap memory for laser printers in 1986, we wouldn’t have had the subsequent desktop publishing boom or Apple still in business today. Cheap modems in 1994 lowered the cost of dial-up and created a market for America Online and Netscape. The year 1998 saw cheap flash memory chips for millions of digital cell phones; cheaper Cisco routers made bandwidth available for dotcoms to exploit. So what has 2002 set up? Beats me. But there are plenty of rocks to look under.
Design is cheaper. If you look closely, Silicon Valley has very few manufacturers left. Chips are made in Taiwan, boards assembled in China or Thailand. We are now a Valley of designers. And there are lots of programmers and chip-heads and communications protocol folks walking the streets willing to work for much cheaper than three years ago. Office space is plentiful. Word has it there is space available for 50 cents per square foot per month, down from $12.
Bandwidth is cheaper. Global Crossing spent $12 billion on undersea fiber optics that someone is going to buy for $250 million. WorldCom and others have strung the U.S. with more fiber than in Frosted Mini-Wheats. And it won’t be just for phone calls. Find companies that use that cheap bandwidth, and you’ll find the boom.
Video is cheaper. Napster music sharing was child’s play compared to what is next. Hours of video can be captured, stored and shared with today’s cheap PCs and broadband lines. Jack Valenti, call your office.
Wireless data is cheaper. The Federal Communications Commission set aside frequencies for hospitals and microwave ovens that might interfere with phones or radar. This Industrial, Scientific and Medical block of spectrum is known as the junk band. While stupid telecom companies overbid for spectrum for third generation 3G cell phone devices, clever engineers figured out how to hop around the junk band — letting out-of-work programmers surf job listings at Starbucks. Intel is putting these radios in many of their chips.
Distributed computing is cheaper. Google uses 12,000 cheap PCs to log the Internet so you can look up your neighbor and figure out how much she makes. Even distributed programming is cheaper. Microsoft’s biggest problem is far-flung programmers creating operating systems like Linux at home in their pajamas. Bill Gates is reportedly all over the Valley asking for help to combat this “Open Source” nuisance.
About the only thing not cheap is capital. Venture capitalists are stingy, the IPO window is closed, and stocks are at four-year lows. Hmmm. Forget that last boom, it’s ancient history. Look for new products not possible or too expensive three years ago. Slam down your new Superballs and be ready.
Andy, I went back to get this article and forward again to my clients. I believe that we are at that point again, and the killer app is video. It's time for advanced TV's, and as component pricing comes down this year, the exponential explosion on ATV sales is on the horizon. After having declined by 30% in 2005, forecasts are for addl drop in 2006 of between 30-40%. At those price points, the boom will indeed boom. You know, last year I said that 10 yrs ago, in 1995, if anyone told you the consumer would pay $4000 for a tv, and one could buy a brand new DELL PC for $400, you would have told them they were nuts. HMMMM
Posted by: Ray Ozyjowski | January 13, 2006 at 08:41 AM