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i-Technology Viewpoint: Silicon Valley Recovering Slowly

Seemingly Glacial Pace Illustrates a Changing World

There are a few key things to remember.

First, San Francisco likes to compare itself with Paris, or say, Florence. It ignores San Jose and Santa Clara County. Its blueblood natives pride themselves on tolerance and philanthropy, and they don't know the difference between a memory chip and a guy named Chip out at the club.

Second, Santa Clara County, home of the original Silicon Valley, is often slammed as being a culturally deficient workaholics' paradise that cares less about philanthropy than it does about how the latest chips will "enable" their business models and provide their well-deserved multimillions.

Meanwhile, over in Oakland, Berkeley, and the rest of the East Bay, chips grow on peoples' shoulders as the fastest-growing region of the Bay Area continues to get little respect, yet provides the last conceivably affordable housing in the region and has a true cultural and economic diversity not seen in its two domineering brethren.

Yet these three areas hold together well enough to form the San Francisco Bay Area, a region cooled by the Pacific Ocean and tempered by a mosaic of homegrown U.S. and international cultures, and a deceptively intense daily pace that simply does not allow for serious regional grudges to take root. Hey man, it’s cool, no problem. Be yourself, man, but dude, that was my parking space!

This reporter has lived throughout the Bay Area off and on for the past 25 years. I love it, as do most people who live here. Great weather, great food, an underrated sports environment, and an area that continues to be among the most creative—and competitive—technology-driven regions in the world.

But yes, the Bay Area can seem insufferable. Self-satisfied and smug, on the bleeding edge of political correctness, and a place that has fueled individualistic narcissism since the days of the Gold Rush of 1849.

So maybe there aren’t many tears being shed for us these days. But the severity of the economic doldrums of the past five years cannot be overstated, at least when compared to previous Bay Area economic slumps. This was hardly a little dip, a little soft patch, a little recession. Eyes rolled when the 2000-2001 national recession was declared over in 2002, as our beloved technology industry was still in freefall that year.

The fall continued, and continued, like a nightmarish roller coaster with an undetermined, and perhaps unlimited drop after that nice initial climb. Official unemployment rates never told the story, as most out-of-work engineers and marketeers in the Bay Area simply became underemployed consultants, contractors, or eternal job seekers who refused to file for benefits.

In a state that encourages 100% interest-only housing loans, and with real-estate taxes tightly capped from the days of Proposition 13 in 1976, it still seems as if the equity train can be ridden forever. Living off of one’s home equity has become the latest lifestyle choice, like buying a hot tub in the 70s, getting that Bimmer in the 80s, or putting in a great wine cellar in the 90s.

Over the past five years, marketing budgets got zeroed out, engineering got outsourced and offshored, and business after business went out of business when caught in the vice of declining revenues and long-term lease agreements for office space they’d never use. I’ve seen documents relating to several major business failures, and all contained leases for as much as 500,000 square feet of office space (at premium prices) that had as much chance of being fulfilled as the promise of cheap nuclear power. Basements full of hundreds of computers, phones, desks, and chairs now worth less than the plastic contained in them  became a common, iconic image.

The good news is that some of the worst commutes in this traffic-strangled region improved dramatically. One could now sail at virtually any speed past empty glass houses, chatting on one’s cellphone about…what? Certainly not business, because there wasn’t any.

And the doldrums persist. A report in the May 29 issue of the San Francisco Chronicle, headlined “Painful Recovery,” brings some statistics to bear on a problem that has simply not gone away.

The story, written by Tom Abate, shows average Class A Bay Area office rents continuing to drop, reaching a current $24.18 per square foot per month. This compares to close to $60 in early 2001, dropping quickly in 2002, but continuing to drift slowly downward to the present day. Vacancy rates have dipped slightly from a year ago, but still stand at almost 19%, compared to about 3% in 2000.

Payrolls in metropolitan San Jose dipped by 20%, or more than 200,000 jobs. (San Francisco lost about half that amount, and the East Bay declined only slightly.) But remember, these are official government statistics. They don’t count all the outsourced payrolls that actually provided jobs to the region, and they cannot reflect the psychological effect on a region that has been used to double-digit growth on a regular basis for decades. Hotel room and occupancy rates have recovered from their lows of two years ago, but still stand well below their peak.

Downtown San Jose. Will This Be The New Detroit?

Trade shows can be a good arbiter of how things are going in the industry. Well, Comdex has died and is probably not going to be resurrected. Although not held in the Bay Area, about 40% of its attendees and exhibitors came from here in its glory days. Major events such as Sun’s JavaOne, held at the Moscone Center, seem to have lost their edge. (We’ll find out in a couple of weeks when the show returns for its 10th year.) MacWorld Expo seems to be back, albeit fueled more by iPod enthusiasm than any sharp increase in personal computer marketshare by Apple.

Company-produced events such as the Intel Developer’s Forum, and annual customer events by Oracle and RSA, have strong enough attendance these days, although they don’t seem to be on the sort of dramatic growth curve one routinely saw at industry events for a 15-year period from 1985 to 2000.

And I saw recent enthusiasm at a major wireless event and a more recent PalmSource developer’s conference, both in San Jose. But both at San Jose hotels, with crowds in the 1,000-attendee range. The days of drawing 40,000 people to the San Jose Convention Center for Internet World, and paying $40 to park your car in this underserved transit corridor are gone, gone.

San Jose will become the new Detroit, in Oracle CEO Larry Ellison’s memorable comparison in a Chronicle interview awhile back, if it doesn’t somehow figure out how to deal with a more global economy, business consolidation, and a more reasonable assessment of its strengths and weaknesses. San Francisco’s bluebloods don’t miss the dot-com era, as all these assuming young hotshots were driving what’s left of the “working class” out of The City (as it likes to call itself). And Oakland, whose Mayor is feisty former Governor Jerry Brown, continues to be the unsung center of an unsung region.

But, specific parochial viewpoints aside, the entire region has in fact suffered from a decline that does not show signs of a true, imminent recovery. Abate’s story quoted an academic as referring to the recent regional downturn as “massive” and noting that 80% of the job losses will probably not return. Ever. Ever?

The story also profiled what may be the typical new growth company in the region, a company involved in GPS systems that is showing a 20% revenue growth per year but is hiring “in the single digit range…(and) whenever possible…at other locations outside the Bay Area.”

To be sure, there are still several very large companies out here, making profits. Cisco, HP, Oracle, Intel, and even Sun come to mind. Yahoo and Google and eBay are all newcomers to the superstar scene.

Hundreds of smaller companies continue to churn out great products and great ideas. Intense, passionate, even fanatic communities continue to thrive, whether dedicated to Java, open source, search, or plain old silicon horsepower enhancement.

But the reality is that that Silicon Valley and the San Francisco Bay Area have been knocked off their perch—some would say high-horse—in the world of technology. The idea of outsourcing ever more aspects of the business to India or China are not popular here. Nor are H1B visas.

Web developers make half of what they made five years ago. Stock options went under more water than a coral reef and ESOPs disappeared like the coin in that creepy magician’s hand. The irony is that most people are working harder than ever to make less and less. There’s no such thing as a debate over restricting workweek hours or guaranteeing jobs for technology employees. Here, your career lives or dies solely on your abilities and wits. There is little room for complainers, order takers, or cruise-control work ethics. Here, as they say, “it’s about” opportunity, insane creativity, and new paradigms.

Silicon Valley and the Bay Area were saved in the mid-80s slump by the emergence of the personal computer (with a grudging thanks to IBM and Microsoft, two not-Bay-Area companies), and then in the mid-90s by the Worldwide Web (with a big thanks to Switzerland and the local heroes at Netscape).

Surely something will come along soon to refire the area’s creative and engineering cauldrons, something for which the Bay Area’s unique combination of talent and climate is better suited than anywhere else on the planet. There are simply too many experienced, manically driven people here to keep the good times from returning, full force. Right?

More Stories By Roger Strukhoff

Roger Strukhoff (@IoT2040) is Executive Director of the Tau Institute for Global ICT Research, with offices in Illinois and Manila. He is Conference Chair of @CloudExpo & @ThingsExpo, and Editor of SYS-CON Media's CloudComputing BigData & IoT Journals. He holds a BA from Knox College & conducted MBA studies at CSU-East Bay.

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