Director, US-Asia Technology Management Center
Executive Director, Center for Integrated Systems
Stanford University
The history of Stanford and Silicon Valley can be divided into three stages. The first stage began with the founding of the University (1891) and lasted until the end of World War II. Although spin-off companies from Stanford research began to appear by early in the decade of 1910, the primary contribution of Stanford University to the region at this time was to attract a community of highly educated people. A small but thriving economy of businesses grew to support the people associated with the University. Neighborhood names from that time, such as "Professorville" (in Palo Alto), reflect the porous borders between "town and gown." The region was for the most part still comprised of small communities and farms, but the vicinity around Stanford soon acquired the characteristics of a university town: local residents came to display sophisticated tastes in arts and entertainment and a concern for social issues (e.g. quality of schools, careful land development) that are more typical of larger urban settings. The area thus acquired one of the essential prerequisites for the clustering of new ventures: it became a place to live that was attractive and stimulating to educated, innovative people.
A milestone of this stage in the development of Silicon Valley was of course the founding of Hewlett-Packard in 1938. More than the University as an institution, it was the personal investment of funds in the venture by Professor Frederick Terman, combined with his persuasiveness in convincing the young entrepreneurs to locate their company near Stanford, that led to this success. The garage in which Hewlett-Packard Corporation was born is located in the city of Palo Alto, not on the Stanford University campus.
The second stage in the history of Stanford and Silicon Valley extends from the first major wave of high-tech industrial development in the region in the 1950's until the mid or late 1970's. At this stage, the University played several important roles. First and foremost, Stanford was a source of graduates who had the talents and knowledge demanded by the new electronics and aerospace industries. Access to that labor pool was probably the major motivation of companies from "back East," such as General Electric, Lockheed, and Link Aviation, as well as home-grown entities such as Hewlett-Packard and Varian, who located R&D facilities or even divisional headquarters in the Silicon Valley area. Stanford was also an important but not unique source of technologies and knowledge that led to new products and businesses in those growing industries. U.S. government research funds flowed into Stanford and also into other academic and corporate research facilities in the region. Furthermore, while education and research are universal university functions, Stanford also played a nontraditional role as the landlord of the Stanford Industrial Park, which offered cheap rents as well as proximity to the University to its tenant companies.
Nevertheless, except for its landlord activities, Stanford was primarily driven by the goal of being a world-class university rather than by a desire to create a particular industry cluster or even a strong regional economy. Professor Terman, by then Dean of Engineering and subsequently Provost of the University, in accordance with his famous "steeples of excellence" principle, led the search for outstanding young professors in emerging areas of specialization. Focus was on finding budding superstars who would have a major impact on the world of academia as well as on business. Conversely, many companies in The Valley around this time were created by entrepreneurs who had graduated from MIT or other institutions. Proximity to Stanford was a factor in their choice of location, but so was the availability of investment funding, managers with experience in those industries, and potential customers-resources that had developed outside of the University.
The third stage in the history of Stanford and Silicon Valley is characterized by the explosive economic growth associated with the Information Technology Revolution. This stage began in the mid 1970's with the rise of the computer chip industry. The growth in the Silicon Valley economy during this time can be seen in statistics such as the median home sales price in Palo Alto, which from $33,900 in 1970 rose to $957,500 in 2000. Although this can be considered one stage in the growth of The Valley, it has seen a number of economic booms (and busts). Each cycle has centered on a technology business that is somehow related to the focus of the previous cycle. Wafer manufacturing gave way to the chip industry (e.g. Intel), which led to the computer systems and network equipment industries (e.g. Sun Microsystems and Cisco Systems). From there, The Valley experienced a boom in software industries (e.g. Oracle). Following the downturn of the early 1990's, expertise in the software industry may have led to Internet businesses (e.g. Netscape) and on to electronic commerce (Ariba, CommerceOne). The Valley is currently watching for the next big wave.
As attested by those cycles, Silicon Valley is continually refining its capabilities as the birthplace of new industries. In this process, individuals play the primary roles. Lessons from failures have played a major role in helping the investors, entrepreneurs, and supporting professionals acquire a high level of skill in early identification of the next big wave of success. The institutional roles are supporting ones. Local governments provide a positive environment for new business creation. Besides traditional tax incentives, etc., local governments through various mechanisms have facilitated the cross-sector information exchange that is necessary for a start-up company to find and have access to the diverse resources needed for growth as well as for business formation. Existing firms play critical supporting roles by offering potential markets and business partnerships to start-up companies. Of course, they sometimes buy start-up firms then it is in their interests to do so.
For its supporting roles, Stanford continues to be a source of top quality talent, new technologies, and creative business ideas. University seminars, public conferences, and informal meetings also serve as important venues for meetings between the individuals who are involved in the creation of new businesses. Although Stanford does not need to provide physical incubation facilities (due to the rich availability of such facilities in The Valley), the role of the University as a meeting place is critical. As an education and research institution, Stanford has developed formal curricula with focus on entrepreneurship and other resources to facilitate company formation by those individuals at the University who so desire. And, the University has promoted best practices by tightening its policies on conflict of interest and its management of the University's intellectual property.
It is worth noting that, during this third stage, university-industry relations at Stanford (and elsewhere in the United States) have undergone a transformation of scale and sophistication, but this phenomenon is not tied to regional economic concerns or entrepreneurial goals. One of the most important changes was the appearance of industry-funded university research centers. Such centers are an outgrowth of "industry affiliate programs," but they play a substantive role in supporting exploratory research. One such example is the Center for Integrated Systems. CIS represents a different paradigm of knowledge transfer than the traditional sequential hand-off of university research results to corporate development divisions. Organizations such as CIS focus on real-time two-way knowledge sharing between experts and R&D executives of member companies on the one hand and Stanford faculty and Ph.D. candidates on the other. The chief benefits have been (a) the development of a rich exploratory research base, for which it is not economically feasible for companies to pay full cost, and (b) enhanced awareness among faculty of emerging needs in industry that will help their students get great jobs. Start-up companies, however, are largely irrelevant to this relationship. They have neither the financial resources to sponsor long term research at Stanford (e.g. four years for a Ph.D. student) nor the incentive to do so (needing to devote all of their energy to product planning, marketing, and other business development activities.
My contention that Stanford's role is a supporting one is in order to make it clear that the University does not plan specific new businesses or technology booms. Individuals have made the decisions that have gone into creating new companies and helping them to grow. When students or professors come up with a business plan and pitch it to investors, they are actually acting within the industry/business sector; this is not an academic activity. Stanford's institutional contributions to The Valley are similar to those of existing large firms and local governments: environment creation, facilitation of information exchange and access to expert resources, and educational preparation of entrepreneurs. (Outside the University, many Silicon Valley entrepreneurs have learned a lot while by working in large firms). Nevertheless, this supporting role represents one of the pillars on which Silicon Valley success has been achieved. The challenge for Japan is to build a support structure that will enable individuals to achieve similar success within a different social and cultural context.
