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The State of Silicon Valley
There is a difference between true technological progress and an investment bubble.

April 9, 2011
Also published on Quora

President Obama will soon arrive in Palo Alto, California to hold a town hall meeting at the headquarters of Facebook, Inc. He'll also hold at least one high-priced ($35,800.00 per plate) fundraiser in a nearby city.

It's tempting to think that the trip represents Washington's interest—or at least the President's interest—in working with technology companies to improve government and the country as a whole. Yet despite the high-sounding rhetoric that has come from the White House in the past, and high-sounding rhetoric that will assuredly continue well into the future, it's clear that Washington has even higher priorities than understanding technology—such as the 2012 election.

There's no way to know in advance what will be said at the gathering, but it's easy to guess what won't. President Obama has consistently expressed his desire to appeal to the moderate, independent voter by ignoring the harsher parts of reality, and in so doing he has consistently validated one extremist viewpoint after another. It is in this context that he will join Mark Zuckerberg and Cheryl Sandberg on stage, where it will be hard to imagine that Silicon Valley is anything but a thriving success, constantly propelling the United States to the bleeding edge of technology through social networks developed by young geniuses.

If only it were that simple. The United States is indeed on the bleeding edge of technology relative to most other developed countries, but the reason for that is mostly due to the Valley of generations past. Today, the state of Silicon Valley is, in a word, lost.

There are a few truly notable exceptions. Since 1998 when Steve Jobs returned as CEO, Apple has defied expectations year after year, rocketing to a level of prominence beyond most corporate executives' wildest dreams. Apple is now a pillar of innovation, more or less protected from market forces by consistently strong leadership, an enormous sum of cash and a sterling reputation. Intel, too, has been producing reliable microchips for decades without fail, and has managed not to get too sidetracked by media fads, technological red herrings, and (completely deserved) anti-trust litigation.

The rest of the Valley can be separated into large companies that are household names (Google, LinkedIn, Yahoo, Twitter, Hewlett-Packard, etc.), everyone else—and Facebook. Simply put, Facebook merits its own category because it is the one company that just about all of the other companies, from one-person startups to massive corporations, are trying to emulate. Even Google has tied its company-wide bonus to its as-yet-non-existent social media product, clearly designed to compete with Facebook.

At this point a disclaimer is necessary. It is essentially impossible to comment in an informed manner on the current state of the Valley without saying something about Facebook, and yet as I have been reminded time and again, I am unfit for such commentary given my personal history with the company and its now world-famous founder. (Trademark issues stemming from this history were settled in May, 2009, but aggressive as ever, Facebook re-opened litigation not too long ago.) My critics are correct in that my perception is colored by my experience, but that does not necessarily make my perception wrong.

Facebook has captured the minds of millions of people, including many of Silicon Valley's elite, and even evidently the President. (It would not be unreasonable to think that he attributes part of the success he enjoyed in the 2008 election to his close connection to, and heavy use of, Facebook.) The private company, which now has an astounding nominal market capitalization of close to (or above) $70 billion, has touched off a lively debate as to whether or not the entire Valley is in the midst of a dot-com-era style bubble. It's a question that is difficult if not impossible to answer in medias res, but that has nonetheless done an excellent job distracting just about everyone from the more important question of whether or not Silicon Valley is producing anything of value in the first place. This distraction is most unfortunate, because the answer is overwhelmingly "no."

Facebook strives to be a digital representation of each user's social network, and Facebook Emulation Syndrome has therefore yielded an astonishing number of (mostly failed) social networking web sites in its wake. Those who believe that there is nothing wrong with the status quo in the Valley are quick to point out that social networks do have some clear value, however unquantifiable, in helping to re-establish forgotten social relationships, and even assisting repressed peoples in overthrowing repressive governmental regimes. These points are certainly true. Yet they ignore a great deal of complexity that exists beneath the surface of on-line friend requests.

The results of the Facebook's dominance are evident in a variety of realms, and they are not all so positive. Sharing information on the internet has become second nature to most individuals under the age of 30, not because it is clearly always in one's best interest to share, but because of the subtle but powerful pressure to share data exerted by Facebook and sites like it. The words "friend," "like," "graph" and "social" have been depleted of meaning by the site (which is attempting to register roughly ten registered trademarks on at least one of them). While it has been used to open some societies, it has been used just as frequently, if not more so, to effectively spy on people in others (such as ours), which runs counter to the kind of freedom generally associated with openness. Countless members have joined Facebook hoping to promote themselves, only to become instantly lost in a sea of noise with no purpose but to promote Facebook. The company's logo is frequently present in television commercials and home pages, and yet its presence offers no clear benefit other than evidence of a "social strategy" in place, and a general affirmation of George Orwell's prescience.

The Valley has deluged the world with an avalanche of "social," "mobile" and "local" initiatives, and where have they gotten us? GDP has not increased. The standard of living has not improved. Companies don't sell or hire any more than they used to. Workers have certainly not become more efficient (probably less, actually). Are we better able to do anything of consequence?

As it so happens, the answer to the last question is "yes," so long as we define a term with itself by involving the word "social." We can now, for example, share photographs in a stunning variety of ways. Thanks to billions of dollars of venture capital funding that have been showered at one point or another upon Picasa, Facebook ($2.34 billion), Flickr, Instagram ($7.5 million), picplz ($5 million), and most recently, Color Labs ($41 million), we now have more ways to share photos than any human being could reasonably know what to do with. In fact, reviews of the Color Labs mobile application suggest that in fact no human being can figure out what to do with the product, period.

Meanwhile, the world is concerned about other things. The United States presently faces three major crises: energy, health care, and rapidly rising income inequality. Over the past ten years, the Valley's contributions to these crises have amounted to no measurable impact on the first and second; and making the third worse.

The deification of Mark Zuckerberg as Facebook's CEO is one of the most unfortunate aspects of the site's success. It is no surprise that a paper fortune excites venture capitalists, who are after all in business to make money at practically any cost. Yet a common VC refrain, finding "the next Mark Zuckerberg," should be the objective of no one. Zuckerberg's philosophy of radical openness is as half-baked as philosophies come, and as such makes no business sense. The next Zuckerberg can be found at any college cafeteria, discussing the world without having ever lived in it. Only recently have analysts, such as Forrester Research's Sucharita Mulpuru (recently quoted in The Wall Street Journal), figured this out. Yet some still insist that Mark is a genius whose moral transgressions are excused by his wealth, his movie stardom, and now, by his relationship with the President of the United States. I will always counter this view because it is wrong on all counts.

Indeed, the President seems determined to prioritize Facebook's corporate interests above all others. His Securities and Exchange Commission is now seriously considering an outright endorsement of Facebook's bubbly valuation (and future bubbly valuations of all kinds of companies, too) by raising the shareholder threshold for public reporting. Oddly, this would discourage transparency (also known as "openness") in favor of a higher likelihood of precipitous market collapse.

The President should have better things to do, and better people to spend his time with. Aside from our three ongoing wars, energy, health care, and income inequality are not going to disappear tomorrow, and neither Facebook nor Mark Zuckerberg will make them disappear any faster. These issues won't even fade within in the next decade. That Silicon Valley has been largely spinning its wheels by allowing Facebook to turn the world into one giant gossip chamber means that there aren't any breakthroughs waiting in reserve, either.

In other words, bubble or not, the opportunity cost of Facebook Emulation Syndrome has been enormous—several multiples at least of whatever the company is supposedly worth. Had investors done their job properly, the Valley could have at least made a dent in one of the Three Problems by now.

Or it could have improved government itself. In the year 2011, the Patent and Trademark Office does not have the ability to list all of the intellectual property belonging to a single company on-line, and processes patent customer number update requests only by Excel spreadsheet "sent on a diskette" to Virginia via First Class Mail. The more progressive Department of the Treasury does allow banks and money transmitters to report fraud on-line—but only using Microsoft Internet Explorer 6.0 on Windows XP, to facilitate the downloading of Adobe Acrobat PDF forms, which must then be re-uploaded; Firefox, Safari, Chrome, Opera, and all web browsers created post-2007 are unsupported. The General Services Administration uses so-called secure database systems to manage multi-billion dollar government contracts that were "designed" to not have passwords associated with user accounts, and which features encryption so old it violates federal law concerning data security standards. The Internal Revenue Service still uses mainframes; direct on-line tax filing is a pipe dream despite having worked in Scandinavia for years.

Silicon Valley can do far better than repeating the same expensive tricks with social networks and photo sharing again and again. Even if the President is too busy mingling with the undeservedly wealthy, the rest of society demands it. At the current rate, the "change we can believe in" will be the few coins we have left over once we're done paying for $5 gasoline and an ever-increasing monthly health care premium. That's not the change I voted for.

Aaron Greenspan is the CEO of Think Computer Corporation and author of Authoritas: One Student's Harvard Admissions and the Founding of the Facebook Era. He is the creator of the FaceCash mobile payment system, ThinkLink business management system, and PlainSite legal transparency project.

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