A Change in the Weather - The Silicon Valley Experiences the End of the Internet Boom
by Chris Kelly

The bartenders and waiters may have seen it more clearly than anyone. Sonya worked at a trendy restaurant in San Francisco's tech-heavy South of Market (SoMa) district, and she remembers the IPO parties that closed off the upstairs bar, sometimes twice a week. One intoxicated twentysomething after another would take a glass of champagne or wine from her tray, lean toward her confidentially, and say with a faint slurring of words, "I just became a millionaire." But then the parties slowed to perhaps one a month, and eventually they stopped altogether. In a few months, the restaurant itself had shut down—bought by entrepreneurs who went bankrupt almost as soon as the deal closed.

From behind the counter of a less glitzy bar a few blocks north, Erica saw a similar pattern—as she put it, "fewer apple martinis, and more domestic beers." And among the smaller crowds of customers, an increasing number announced that they were there to drown their sorrows after being laid off.

Personal stories like these, along with television and newspaper profiles (now depressingly familiar) of once-upwardly mobile couples in which both partners have been out of work for months, combine to depict the human face of a recession in the Silicon Valley and surrounding San Francisco area. Other high-tech enclaves around the country seem to have been hit just as hard. In previous downturns, as the United States shifted away from a manufacturing-based economy, we shook our heads at the sad stories of "company towns" where the closing of a steel mill or automobile assembly plant had decimated the employment prospects of thousands of workers in a single stroke.

But this time around, the entire tech sector is the company, and high-priced urban locales like San Francisco are no less vulnerable than Allentown, PA, or Flint, MI, were a decade or two ago. And if in a bygone time we looked down our noses at relatively uneducated ex-factory workers, faulting them for not going to college and basing their livelihoods on their wits rather than their muscles or sheer stamina... well, who do we blame now? Sure, we can say that it's just a short-lived (if particularly vicious) winter before a better economic climate returns, but don't you get the nagging feeling that out-of-work prospectors may have sat around after the Gold Rush, saying to themselves, "Yeah, I'm just waiting for the mining sector to pick up again"?

The sudden dumping of thousands of skilled employees into the high-tech job market has sharply affected hiring practices in the Bay Area. Many recruiting agencies (or headhunters, if you prefer) have drastically cut back on staff or gone out of business altogether, as few companies feel the need—or ability—to pay sizable commissions when they can have up to 200 resumes from qualified applicants overnight from a single posting on HotJobs.com, Monster.com, or DICE.com.

And the interview process often becomes more daunting as prospective employers, knowing they hold the only plate of cheese at a convention of mice, have fewer qualms about making interviewees race through ever-longer mazes of tests and qualifications. Jeff, a QA engineer in the peninsula south of San Francisco, recalls helping to quiz applicants for an opening in his department, and the internal nitpicking sessions that followed: "Everyone's background just blew me away—any one of them could have done the job. And yet I'd hear the programmers afterward saying, 'Well, he doesn't know the kernel,' and I'd think, hey, I don't know the kernel. And then I realized... if I didn't already work here, I couldn't get hired."

But if all this seems irrational to those who had become accustomed to the high-tech boom, it's entirely plausible to argue that common sense has simply returned to an arena where it had been absent for too long. Mike, the founder of an Internet company who had the good fortune to sell it just before the bubble began to burst, says, "It was the worst time to be a real entrepreneur," adding that it is hard to focus on "creating a great company and satisfying customers when all anyone cares about is whipping up their valuation."

Mike wishes he could claim to have been prescient about the severe crash of the Internet economy, but the fact is, all he knew is that he had seen enough. He could have sought a second round of venture-capital financing for his business instead of selling it, and he says, "If I had been proud of my company, I would have." But competing in a get-rich-quick marketplace had become so surreal that he says, "It wasn't something that I respected, or something that I enjoyed… it just felt like a big scam." His sources of funding were, as he puts it, "responding to bad ideas" as well as good ones. And he didn't want to be part of a business world that had become so indiscriminate about what really mattered.

In fairness, it was hard for anyone to keep perspective during those giddy days. As in 1849, there was a sense that if you stuck a shovel into the ground (or cyberspace) anywhere, you'd strike gold. Certainly everyone else seemed to be. And if joining the crowd meant cutting a few corners or selling a string of buzzwords instead of a real business idea, well, that was a temptation not everyone could fight off.

After all, it wasn't just individual crackpots or obvious hucksters who fell in line behind questionable business ideas like "paying people to surf the Web"—firms such as Cybergold were backed by substantial venture-capital funding, and the city of Oakland treated it as a genuine civic event when the company moved to a downtown office building. (Cybergold's closing last August received much less fanfare.) Technology seemed to be developing so quickly that no possibility seemed implausible. The recent crash of Enron shows how the sense of being on the cutting edge of capitalism, combined with the lure of immense wealth, can blind even the most skilled business minds to what their conscience might be telling them.

Looking back on his experience, Mike says, "I believe we've done long-term damage to entrepreneurship and innovation. People can't forget the mentality and atmosphere" of doing whatever made the most money in the short term, while neglecting the fundamental contributions that would make a company successful in the long run. It's a hangover-like feeling, mixed with uncertainty about the future, that much of the San Francisco/Silicon Valley area shares.

As for now? Mike's taking a break from the standard business world, looking into education and the possibility of starting a charter school. Jeff's company needs additional funding, and he's crossing his fingers that they can find something in a tough capital market. The waitress at the diner up the street, who left to become a tech writer two years ago, is back serving tables. Like many others, they probably find themselves looking back occasionally on a strange dream, a fever that has subsided, a turbulent storm that tore through our lives and—now that it has passed—seems just a bit unreal.

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