The Superball Economy--In the Silicon Valley compression only sets up the economic explosion.

Wall St Journal ^ | 3-3-03 | ANDY KESSLER

[SJackson]

PALO ALTO, Calif. -- 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.

[LS]

I agree there were a lot of companies that didn't have a business plan. But it was more than some on-line businesses folding. This also had to do with projected growth that was stymied because of lack of "last mile," the NAPSTER-related content legality issues, and a massive deflation that hit venture capital. I maintain that in ANY rapidly growing economy you will have about the same percentage of speculative ventures. We just saw them accumulated in one sector.

[SamAdams76]

Good points. We need to ask ourselves why U.S. companies would want to move operations offshore. I can think of five reasons right off the bat:

• Excessive government regulation
• An out of control legal system (i.e. petty lawsuits)
• High insurance costs
• Excessive corporate taxes
• Unions

We need to get the nanny government out of our hair and out of our businesses. That will take care of issue number one. We need to pass some serious tort reform that will reduce the amount of frivolous lawsuits, such as lawsuits against McDonalds because their hamburgers are high in fat. This will alleviate issue #2 and also address issue #3. We need to reduce taxes, that will take care of issue #4. Issue #5 is a tougher nut to crack, but it is evident that unions have long outlived their usefulness and those who belong to the labor unions (most of which are mobbed-up) have simply exchanged one oppressor for another.

[Willie Green]

I think this guy's right...

Nah, the guy is just wistfully dreaming of the "good old days".
He thinks he's playing with a superball when it's actually a paintball.
The doggone thing went splat when it hit, and anything of substance squirted over to Taiwan, Singapore, India and China.

[ggekko]

"That's an intriguing parallel- I think the future will be very interesting..."

The pessimism is so thick you can cut it with a knife. I believe that the technologies described in the article will catalyze the real Internet revolution.

It looks as if WI-FI will be hidden "force multiplier" that by solving the "last mile problem" will reinvigorate thet Tech sector.

[Always Right]

But back then they weren't forming in China, why would they form here when it's been decided that American labor costs too much and Indian programmers can do a better job being paid far less money?

You really think communist can beat capatilists in the game of capitalism??????? Sorry, but we will kick China's butt in the game of business. We may not have the cheap labor, but we know how to use it.

[Zathras]

I've been in Silicon Valley for 15 years so this is the 2nd downturn for me.
I am just starting to see an upturn but some SV companies will never recover.

[anymouse]

SV ping

[Cool Guy]

Thanks for the ping.

[AZLiberty]

We've been in effective deflation for the past 30 years. During that time, the power of technology -- especially, but not only information technology -- has reduced the price and improved the quality of practically everything. Only continued counter-deflationary (i.e., inflationary) fiscal and financial policies have prevent prices from actually going down. Some genius (Greenspan?) figured out that a minor amount of apparent inflation is actually good for the economy -- it prevents deflationary crises, increases consumer confidence, and prevents people from holding onto their money in anticipation of lower prices tomorrow.

The big improvements in the economy come when the counter-deflationary infusion takes the form of tax cuts, which give consumers money to spend and incentives to work.

That's my theory of the day. Have at it.

[LS]

You have it quite right. Computing power has increased productivity so fast that companies are still having trouble adjusting to it. 100% right on tax cuts.

[nickcarraway]

Cost of living? Please tell me what part of San Jose you're living in!

[skeeter]

Cost of living? Please tell me what part of San Jose you're living in!

I didn't mean the cost in real terms was the same; I meant the cost of living is the same, as in sky high - barely affordable!

[nickcarraway]

I didn't mean the cost in real terms was the same; I meant the cost of living is the same, as in sky high - barely affordable!

I would still think the cost of living was not so bad then, as it is now. The housing prices started to move up 20 to 25 years ago. Thank goodness for prop 13.

[muleskinner]

All,

A friend is going to be doing some work for Sun Microsystems. They're up to something very interesting. Could be big.
I'll try to squeeze him like the CIA is squeezing Kahlid.

[tortoise]

It looks as if WI-FI will be hidden "force multiplier" that by solving the "last mile problem" will reinvigorate thet Tech sector.

Absolutely. Fiber-and-wireless plays are primed to be huge. But you have to have both components; pure wireless sucks technically, and pure fiber is too damn expensive for the laterals. To harness both you have to put a wireless skin on a fiber skeleton, which means a company that can do both well and integrate them seamlessly. This company will NOT be one of the big telcos.

Another thing hot in the hopper is media/IP convergence. For real this time. Imagine every movie and TV show ever made on demand to your television when you want it. Not only does the network become your Tivo (and then some), it also becomes the worlds biggest video store, and at prices that are very competitive with existing cable and dish TV services. This requires the fiber/wireless hybrid networks mentioned above, but those are being deployed as we speak and the media convergence is being worked on in parallel with that.

These are what's hot technologically. On the hardware side, anybody that can make big wire speed L2/L3 Ethernet switches is a good bet as well. The comprehensive scalable L2/L3 feature set support is what will distinguish the winners from the losers here. Everyone sees this coming (ubiquitous metro and longhaul Ethernet supplanting everything else), but a lot of big companies like Cisco are scrambling to develop this capability and some smaller companies are definitely the front runners in this arena.

As for the general economic state of The Valley, the last couple years were rough, with very little capital flow. This year is looking quite good though. The VCs are opening the purse strings and looking to dump some serious money into core technologies and the next generation of rugged new startups. The buds of spring in Silicon Valley are starting to bloom, so fasten your seatbelt.

[ggekko]

"This company will NOT be one of the big telcos...."

The Baby Bells are dogmeat. Even their lawyers won't be able to save them this time.

"This requires the fiber/wireless hybrid networks mentioned above, but those are being deployed as we speak..."

Any examples that you would care to provide?

If the "last mile problem" can be solved convergent multi-media offerings will come on like a tsunami; it will drive a new cycle of capital spending.

[FITZ]

Also we need to drastically cut welfare spending and do something about taxes that make American labor so expensive that it can't compete. One reason Mexicans can get buy earning $4.50 a day and Chinese even less is they don't have to pay into an expensive Social Security tax or FICA etc and they have a much cheaper cost of living. Insurance is sky high because of lawyers and because doctors and hospitals have to make up for the for the free care given out to the uninsured.

[Dead Dog]

And there lies the problem, I would also add the junk products of public education. Eliminate any 3 of these, and we could "turn the corner".

[Citizen of the Savage Nation]

It looks as if WI-FI will be hidden "force multiplier" that by solving the "last mile problem" will reinvigorate thet Tech sector.

Yup. One computer in my household doesn't cut it anymore, so I just went down for a laptop just for lil ole me. Hook me up with a wireless router to go with that embedded 802.11b in the laptop, and I'm there.

Now, I love electronics but I hate cords. If a company comes out with a decent, affordable home entertainment system that is wireless, I'll be saying "I gotta get me some of that", but not until they do.

[RightOnTheLeftCoast]

Freepers might enjoy this graph-packed analysis of the recession, especially in the tech sectors.