High-tech evolution: A victim of Apple Syndrome?

In more and more areas where digital technology has been introduced there
seems to be little room left for further dramatic improvement. That is perhaps
most evident in the chronic decline in the number of interesting new products
and technologies.

The high technology industry appears to have fallen into a state of decline,
similar to that experienced in pop and rock music in the 1980s and 1990s. From a
flood of creative rock and popular music tunes produced in the 1960s and '70s,
it seems the number of memorable sound tracks produced in the last 20 years can
be recorded on a single CD-ROM.

The same is true in terms of innovation in Silicon Valley. Exciting new
breakthrough products and technologies are few and far between these days. In
past years there was often not enough time to keep up with the seemingly endless
stream of product advances. Comdex is a classic example. The show was the launch
platform for thousands of new products each year, in the early and mid-1990s. In
the last two years, only a hand full of products worth writing about and which
had not been introduced in months prior to the show, were shown at Comdex.

In the years ahead, today's state-of-the-art technology, of course, will
continue to spread to a broader and broader segment of the world population and
turn more and more of these technological marvels into everyday commodities like
PCs and cell phones are today. And while each product sector will become more
refined, faster, more integrated, or smaller, there are no products on the
horizon that will change our lives in the way the personal computer, cell phone,
digital camera, the Internet and everything else digital available have today.

Valley in economic shock

During the past 40 years, Silicon Valley has never failed to come up with an
answer to the question, "What will they come up with next?" New
technology breakthroughs have been following one after the other in an amazing
display of human ingenuity. At least three or four times in the past 25 years,
as the local industry struggled through technology slumps, Silicon Valley has
been given up for dead by local experts. Each time they were dead wrong and the
Valley lived to see another explosion in global demand for its latest
technologies and products.

But Silicon Valley today is not the same. The fall of the dot.com revolution
and the fall-out that have helped to topple major industry sectors, including
networking, telecommunications, and semiconductors, have devastated much of the
Silicon Valley technology infrastructure.

Silicon Valley has been hurt by the current slump in ways and to a degree as
never seen before. In past boom-and-bust cycles, there was always a next
semiconductor, disk drive or personal computer boom right around the corner. The
downturn never lasted more than 18 months. And by the 12th month into a slump,
the signs of a new boom would become clearly visible, such as the growing
popularity of email and the Web in 1996 and 1997, sparking the biggest - and
probably the last big - boom in Silicon Valley.

Unlike past booms driven by new product types that have grown in to large
market segments today, the incredible expansion of the 1997-2000 era was fueled
mostly by wishful thinking, unworkable business plans and a greedy investment
community that was willing to fund almost anything that involved the Internet.

Today, nearly half of Silicon Valley has been wiped off the map, leaving
entire business parks modern-day ghost towns. Close to 40 million square feet of
commercial space is sitting vacant. More than 100,00 high-tech jobs have been
lost in the past 18 months and companies like HP, JDS and others are still
laying off masses of people in an effort to have a chance at a turnaround when
the economy starts to recover.

The economic crisis in the Valley has ripped apart its eco-system in which,
engineers get together over lunch, a drink or dinner and decide to quit their
jobs and start up a new company. Most of the valley's engineering community
basked in unimaginable wealth for a brief period in 1999 and 2000 as stock
options of even low-level managers became worth millions, if not tens of
millions of dollars. And because everyone was predicting the boom to last a
generation, many over-committed themselves financially. After their fortunes
were wiped out almost overnight, the engineers were left holding the bag filled
with expensive home loans, cars, income tax liabilities and other financial
bills that have driven thousands into bankruptcy.

The current downturn started on November 2, 2000 when America's political
system failed to produce a new president. The American society was literally put
into a 3-month "holding" pattern. And when President Bush finally took
the oath of office, the economy was on a downhill slide that continues even
today.

The September 11 events drove a killer-stake through what was already a
recession-troubled economy. To this date, companies are so uncertain of the
economy's future, they dare not spend beyond bare minimum levels. With the US
economy back into heavy deficit spending, and a president focused more on
fighting terrorism than economic demise, the US government's abilities to pull
the country, and with it the rest of the global economy, out of the post-911
doldrums is increasingly compounded.

The biggest factor holding back a high-tech recovery, however, is that even
20 months into the downturn, there still is no sign of any new driving high-tech
product type or technology that will spark a new high-tech boom. Windows XP is
not going to turn the tech sectors around, and neither is a 3GHz microprocessor.
Cellular phones with integrated PDA and video capability are not likely to
become a hit anytime soon and more and more consumers are getting tired of
paying $50+ monthly cellular phone bills.

In the mean time, chances for entrepreneurs to strike it rich in Silicon
Valley are more and more limited due to fundamental changes in the industry
infrastructure. Many technology sectors are becoming commodity markets in which,
only a handful of giant global consumer electronics and IT enterprises do most
of the manufacturing and selling. Many aspiring technology companies will just
fall victim to the Apple Syndrome: consumers vote with their pocket books, not
their brains.

And venture capital is becoming scarce for the first time in more than 30
years. VC spending levels are less than half of what they were two years ago.
And the poor performance of the stock market is causing the VC pool to continue
to dry up.