How home prices helped kill the first tech boom
The late 1990s was a wild time in Silicon Valley. The NASDAQ was soaring, and seemingly anyone could start a company, stick a .com at the end of its name, put together an IPO and retire a millionaire. The great boom ultimately took on a speculative character that led to wasted investments and the collapse of many poorly-grounded operations. But it was rooted in a surge of not-unrealistic optimism about the potential of the internet to change the world of business.
Among the striking features of the era, one of the most startling is this: the rate of high-tech entrepreneurship in Silicon Valley seems to have been below the national average from 1996 to 2000, according to a recent analysis of business creation during the tech boom. And from the late 1990s to the early 2000s — after the bust — Silicon Valley’s rate of high-tech entrepreneurship actually increased. How can this be? How is it that during the first great boom of the internet era, Silicon Valley was less of a hotbed for new firm formation than the country as a whole?
Economists Robert Fairlie and Aaron Chatterji suggest that the answer lies in the extremely tight labor market conditions that prevailed at the time. The tech boom was remarkably good for Silicon Valley workers. Average earnings rose by nearly 40% from 1997 to 2000 — more than twice as fast as the increase for the country as a whole. Non-salary compensation also soared, thanks to the popularity of stock options and the skyrocketing value of equity in tech firms. These generous pay increases made it unattractive for workers to leave established companies to strike out on their own. Entrepreneurship fell because life on salary was too lucrative to risk self-employment.
Why was pay so high? Rising productivity was a big reason, as were expectations (some more reasonable than others) of high and rising profitability across the tech sector. But these factors could just as easily have driven an increase in new firm formation and employment as a rise in salaries. Silicon Valley experienced more of the latter than the former because workers were scarce. During the late 1990s, the unemployment rate across Silicon Valley dropped well under 3%, eventually sinking to nearly half the national level. There was essentially no surplus labor in the whole of the region. Firms therefore had to bargain hard to hire qualified workers, and this meant giving up a substantial share of firm surplus in the form of salary, benefits, and profit-sharing. That, in turn, made it more attractive to be a worker than an entrepreneur.
And this brings us to the crux of the matter: why was the Silicon Valley labour market so tight? If the unemployment rate was so much lower than it was elsewhere in the country, and if compensation was rising so much more rapidly than elsewhere in the country, why weren’t people pouring into Silicon Valley from elsewhere in the country? More remarkably, why were people moving in the opposite direction?
If you can believe it, Silicon Valley’s main metropolitan centers were losing residents to other parts of the country during the Dot Com boom. From 1998 to 1999, for instance, San Francisco and San Mateo counties each lost a net of about 10,000 residents to other parts of the country. Santa Clara County, the heart of the Valley, lost a net of 30,000 residents. For the decade as a whole, the losses were even more substantial; roughly 176,000 more residents of Santa Clara county moved out than moved in during the 1990s. The Silicon Valley labor market was tight because even as wages were soaring, residents were decamping for other locations.
These departures weren’t simply workers without the skills to benefit from the rise of Dot Coms. The tech industry was flourishing around the country. The problem wasn’t an absolute shortage of talent. The problem was that the talent couldn’t be attracted to the heart of the boom.
Can sleeping giant Skype reinvent itself?
– Eric Auchard is a Reuters columnist. The opinions expressed are his own –
Do once-hot Internet start-ups who miss a date with destiny ever truly get a second chance? History says no, even for once-great names like Netscape, AOL and MySpace.
Skype hopes to be the exception. On Tuesday, a group led by top Internet financiers in Silicon Valley and Europe agreed to pay eBay $1.9 billion in cash for a 65 percent stake in the one-time web calling sensation.
The deal values Skype at a face-saving $2.75 billion, well above the $1.7 billion at which it has been valued on the ecommerce giant’s books. Ebay also stands to keep a 35 per cent stake in the company.
But that overlooks the humiliating $1.4 billion eBay has written off on the original deal. Four years ago, eBay promised to pay up to $4.3 billion for Skype, but it later scaled back the total payout. All told, it makes Skype one of the biggest value destroyers of any Internet merger since the last days of the dot.com era.
EBay’s justification for the Skype deal in 2005 was how its chat and calling services could serve as an online customer service platform connecting consumers directly into eBay merchants. That never happened.
Instead, product innovation slowed and business setbacks, such as a corporate ban on Skype’s network-hogging software inside companies, were allowed to fester, rather than becoming new business opportunities.
WHAT “AXE” DOES THIS GUY HAVE TO GRIND WITH SKYPE…DON’T KNOCK PHENOMENAL SUCCESS..SKYPE’s A BEAUTIFUL THING!!!!
WHATS MORE IS THE PHONE COMPANIES HAVE HAD YEARS OF
“RIP OFF” RATES…SKYPE SIMPLY VERIFIED THEIR EXCESSES!!
HP has to look beyond cost cuts soon
– Eric Auchard is a Reuters columnist. The opinions expressed are his own —
The stock price seems to be the only thing growing at Hewlett-Packard, the world’s largest computer company. HP shares have risen 75 percent this year, despite few signs of a revival in technology spending.
The company, best known as a supplier of computer printers, has suffered a 19 percent drop in sales of hardware and ink supplies. In good times, this produced the bulk of HP’s profits, but it’s the financial engineering under Mark Hurd, the company’s chairman and chief executive, that seems to be the main driver now.
So far, he has cut 16,000 of the planned 25,000 redundancies. It has taken roughly $3 billion in restructuring charges. This has masked underlying sales and profit weakness in its personal and corporate computer divisions.
Excluding the impact of the acquisition of computer services company EDS nearly a year ago, the company’s remaining businesses declined nearly 20 percent during the fiscal third quarter ending in July.
Hurd remains vague about when the recession may hit bottom.
“We’re encouraged by the stability that we’re beginning to see in the market but not yet at a point that we’re ready to call it a turn,” Hurd told investors on a conference call following HP’s quarterly report.
For a company who’s motto is ‘Invent” I don’t see any Inventions going on worthy of note, only acquisitions. HPQ and Mark Herd are just a HERD of sheep quietly being led off the cliff they have created themselves. “INVENT” NOT !!! Heck, I have an invention for them that would sell at least a $$$Billion… Yet they do not let Outside Inventions in because their R&D didn’t think it up first ??? HP and Mark Please Note, Sometimes you have to think OUTSIDE your box and Let Inventions in from the outside. The problem with current R&D departments is they are a closed loop Old Boys and Girls Club. Yes it is possible those of us toiling out here in our GARAGES ( where HP began) do have INVENTions worthy of note.
We lose when graduates are told to hit the road
John Chen has served as chairman, chief executive officer and president of Sybase, Inc. since 1998. All views are his own.
As I watched the news showing President Obama reaching out to University of Notre Dame graduates eager to shake his hand, I was impressed by the coalition of colors and nationalities in the faces all round the President that says much good about the United States. I also wondered who, among those shaking President Obama’s hand, will be told by an immigration official next week, ”Congratulations, graduate. Now hit the road, leave the U.S., go home!”
When that happens, if it hasn’t already happened to thousands of graduates across the country, the U.S. will be the loser.
The fact is that at commencement time, foreign science and engineering graduates from U.S. universities are itching to stay in America, especially at this time, and put their energy into the most valuable work. This would eventually help us recover economically and go on to thrive as an innovative world trading powerhouse.
Instead, they’ll be told we don’t want their intelligence and their problem-solving skills, or their innovative or entrepreneurial abilities. They’re told to just go back to where they came from — go back to India, to China, to Brazil, to Russia, and to all the other places that we compete with for wealth around the world.
These aren’t queue-jumping immigrants, or illegals trying to outwit border guards. They’re professionals, some with doctorates or masters’ degrees, who observe the rules. U.S. companies want to employ them. Unfortunately, they get lumped in with the general, anti-immigrant bias that cycles through Congress at times like these. and mocks the legal immigration system.
These foreign talent wanted to utilized our H1-B program that allows U.S. companies to hire a limited number of highly skilled foreign workers for the short-term or as a first step to a green card or permanent residence. Every April 1, U.S. corporations—from financial to high-tech firms—file petitions to hire these individuals under the H1-B terms.
Hi,
This is my idea of the big picture. It isn’t pretty so bear with me.
The collapse in the US financial markets has reduced consumer demand in the US economy.
If demand is falling in the economy – the only ways a company can make money is pick up a government contract or downsize expensive labor.
If your company gets a TARP/Stimulus package “shovel ready” contract. You shouldn’t have to be fired unless you are genuinely incompetent and are considered a liability to the company.
If your company can’t get one of these TARP/Stimulus contracts, well then it has to cut costs. The only way to do that right now is replace some of the highly paid folks by cheaper H1B imports.
Now if a million or so people get fired in this kind of replacement scheme – that is just not a significant economic fraction of the country. There will be no additional decline in demand on account of that. Even after you get fired – you are still going to keep using microsoft windows, cisco servers, HP printers etc…
So that is just the economic bottom line.
The other thing is that if you block the import of cheap labor, you will cause a precipitous decline in the profitability of private corporations in the US. This means that in order to prevent your companies from going under the government is going to have to have give out more stimulus and more TARP like recovery packages.
That is more ‘socialist’ policymaking that is unlikely to fly either domestically in the US or internationally either. The world simply cannot support any more debt in the US. Keep that up and you will simply see a flight of capital from the US and that in turn will cause a soviet style collapse.
Let me put it another way. This decline in productivity in the US workforce is not new. President GWB faced it in his time, and he dealt with it by creating circumstances that he felt promoted growth but even he had to take a loan from the federal reserve and that has led to this crazy large deficit. President Obama had to take over where President Bush left off and he is only adding to the deficit right now. If the US withdraws from Iraq or Afghanistan, this is going to add another burden in the form of returning soldiers who will have to be retrenched. Given the number of private soldiers that are in this war, this is going to cost money which is going to add to the deficit.
Bluntly speaking the US is tapped out in terms of the loans it can give itself. Any more and the house of cards will likely fall down.
So – sorry – I realize a lot of you all are in pain – but if you interfere with the flow of foreign technical labor into the US, you will most likely cause far more economic problems than you will be able solve.
I feel the government understands this and while it will lend a kind ear to the voices of disgruntled citizens, it is unlikely to actually do anything that is potentially economically suicidal.
You’re simply going to have to suck it up.
Your best bet at this point will be to try and piggy back on defense industrial contracts. Those are open to citizens only. National labs are being asked to rapidly hire people for Stimulus related R&D and no foreigners can apply there. This should be your first choice. It may involve taking a pay cut right now but atleast after a few years you’re a permanent government employee and they can’t fire you. For every 100,000 they pay you, they spend 400,000 in security screening at some of these places, so its way expensive to fire you.
Alternatively you could try exporting your skills to foreign countries. But this is potentially problematic for two reasons, firstly most of you guys don’t know any language besides English. You’re smart and you can learn so its probably okay – but it is a hurdle you will have to cross. Actually places like India need a lot of mid level people and if you adjusted against PPP your salary in India (or China) is way higher than your salary in the US. Secondly, the moment you talk about going to work somewhere else you have to get past the state department and the Dept. of Commerce’s export regulations. There is some totally bizarre stuff about “deemed exports” that has to be cleared. It is possible but it is a huge pain to navigate and they love to throw you in jail if you make any mistakes on that front. All in all, this is a profitable but difficult transition, I can’t say it should be your first choice.
In the interest of disclosure, I am an H1B married to a US citizen, so I do feel the pain at both ends. I get harassed by the DoS idiots who think that just because I have a PhD and the wrong skin color I am some kind of crazy person and my spouse feels every little pinch due to the economy. We get hit by both sides. Oddly enough there are way more people like us than you’d think.
It is a stinking situation and I wish it could be different.
It doesn’t look very good right now nor do I see it getting much better – best of luck to you guys.
There is a sea of misery we have to wade through here.
I do not see the sense in high property tax as a deterrent to speculation. Only a speculation tax can affect speculation, otherwise, the rest of homeowners would be subsidizing speculative activities. My complain with property tax is that it is too high, and gets annual increases even though home prices are falling. A person is required to individually sue for adjustment and bear the burden to prove that home value is less, which of course requires new appraisals and also money wasted on legal fees. The price fluctuations are widespread, not individual, so across the board adjustments would be appropriate. The property owners are being victimized by the greed of local government in the present system.