Tech is going through a season of change.

The valley is in a slump. There are startup closing up shops or laying off employees. Some of the giants have never pulled back in this way before. Tech is known for its boom and busts. What happens when there is a downturn? What time will it last? How will technology be changed? Margaret O'Mara is the author of The Code: Silicon Valley and The Remaking of America. The transcript has been edited to make it clearer.

The history of tech counterculture, how companies change in a downturn, and the time Apple was run by aPepsi executive are some of the key insights from the Pod.

The CHIPS Act could change technology again.

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Joe Weisenthal is the first person.

I'm Joe Weisenthal, and I'm the host of the Odd LotsPodcast.

Tracy Alloway spoke.

And I'm Tracy Alloway.

The man is Joe

Tracy, you know, I don't know what's going on right now with the broader...

Tracy spoke.

(Laughs)... I'll let you finish.

The man is Joe

Well there's so many different ways that sentence could have gone.

Tracy spoke.

So we could start every episode with, I don't know what's going on with...

The man is Joe

Anyway. I don't know what's going on right now with the broader American economy, but I do sense that the tech industry, Silicon Valley, is in a real downturn.

Tracy spoke.

It seems so. I shouldn't laugh because obviously for a lot of people this is very, very serious. We've had a number of tech companies coming out and saying that they're going to be firing literally thousands of people in this downturn. And what's kind of remarkable about it is this is something a lot of people were kind of expecting. You know, these are all growth companies. They tend to do very, very well during periods of low interest rates. Once rates start going up, we see the pressures sort of added on, and then we see these cyclical downturns.

The man is Joe

Right. And you know, the story of the 2010s with tech is that it was really the first industry to come sort of roaring out of the gate after the financial crisis. Meanwhile the broader US economy never had a great recovery in that decade. But tech was absolutely booming. And so there is this flip. The other thing is like, when I think of Silicon Valley or tech, you know, I have certain ideas of like what a boom looks like and all these like amazing perks and free dry cleaning and free steak dinners if you stay at the office and free...

Tracy spoke.

Free bean bags.

Joe: 1:45.

Yeah. Free bean bags, all of it. I don't have a great intuitive sense about what a downturn looks like at a Silicon Valley.

Tracy spoke.

Right. And I think it's never really been promoted as part of Silicon Valley. It's always, you know, come to this place, create a startup out of your garage or whatever, and become a billionaire and enjoy all this money and all these perks. But as we just mentioned, it is a cyclical industry. There are as many downturns as there are upturns. And yet they don't get as much attention.

The man is Joe

Definitely, it's a boom-bust industry. And I've talked about many times, my first memory of markets was during the dotcom bubble, and then there was the bust and we sort of forgot about tech for a while and all these companies, but they kept plugging away. But yeah, I don't know really what happens to this industry in a downturn. And I think it's an interesting question. I don't know when it'll rebound, but right now we are definitely in one.

Tracy said that it was Affirmative.

Yeah. So we have really the perfect person to talk to us about previous downturns.

The man is Joe.

That is correct. We met this person recently. We were at the Berkeley Forum. We spoke to her there. We had to talk to her again because she was very knowledgeable about this question. Margaret O'Mara is going to speak with us. She is a professor of American History at the University of Washington and the author of the book " The Code: Silicon Valley and The Remaking of America". To talk about the history of the valley, the history of tech, and all the changes it has undergone. Margaret, thank you so much for being a part of the show.

Margaret O'Mara spoke.

It's great to be here. Thanks for having me.

Joe said that it was 3:23.

Yeah. We had to, after chatting with you recently out in San Francisco, we had to have you on the show. So, you know, we do have this idea of what these firms do in the the boom times. And it sounds pretty great. Sounds pretty fun. Makes everyone want to flock to San Francisco or the Valley and be part of this world. But we don't really talk about the other side as much. Instead, we sort of forget about it. But obviously for every boom, there must be a bust.


Yeah. What goes up must come down , which was actually—  I was reminded, it was a theme song of one of the many commercials of, which was maybe the emblematic bomb story of the last big notable downtown during tech, which was the dotcom boom. And then the dotcom bust. This is a cyclical industry — grows fast, grows hot, and then there's a cooling period.

Tracy said that it was 03:23.

So I mentioned interest rates in the intro, but, you know, I don't think it just boils down to that. Can you maybe talk about what is the common thread in terms of sparking busts in tech? Like what is it that tends to set these things off, sets the industry into contraction?

Margaret spoke.

It's true. There are some things that are very specific to the industry and there are macroeconomic conditions that are sparking it as well. They always work together. There is a big market runup and a lot of excitement about companies that are doing something new and a new class of products.

Some businesses that are not as strong are being supported by the general enthusiasm in the market. The Space Age stocks were kind of the first generation of Silicon Valley companies that were attached to defense electronics and NASA. You have low interest rates that encourage people to invest in the stock market. Tech is a good bet. This is a long boom for the big platform companies of big tech.

The man is Joe

You kind of need this confluence of story and macro. You need the investor enthusiasm. Low rates probably help in some way, but there also has to be like a thing that people get excited about for, because low rates itself aren’t enough. We were joking about the bean bags and the perks, but has that always been part of the booms? How long have they been sitting on bean bags out there?


They've been sitting for a while. The bean bag went back to the 70s. The idea of a different kind of corporate culture is one that goes back a long way.

You can start with Hewlett and Packard and the famous HP Way if you walk around. We took the jacket off. This was in the 50's. Hewlett Packard was started in a garage in 1939. It is a publicly traded company. It's a huge success.

Hewlett and Packard worked against the Organization Man paradigm. Taking the culture of the engineering lab and transferring it into a corporation is one way to create a culture where management and the rank and file engineers are all on the same side.

This was the high point of private sector unionization. Dave Packard was against unions a lot. If you can't get along with a company, something is wrong. Employees of all rank should have a stake in the company and be rewarded with stock options. It wasn't the same model. That kind trickles through. A lot of HP veterans go on to start venture firms, start other companies, and bring the laid back California culture with them.


Can you give us some examples of what companies tend to do during an industry downturn? Like is there a typical playbook that stands out to you with your decades of historic knowledge? Or does it tend to vary by firm and and firm culture? So, for instance, I could see, you know, if your business starts coming under pressure, there's obviously an incentive to cut back on spending, maybe start to trim your workforce and lay people off. But there might also be some companies that are especially aggressive and decide, we're going to try to ride this out as much as we can and just use this as an opportunity to take market share.

Margaret: 10:00.

It depends on the financial situation you're in. If you're an early stage company, I suggest that you look at the ultimate example of a company that benefited from a downturn, like the dotcom bust. It was late in the cycle of hype for all these dotcom companies.

They secured a seed round of 25 million, split evenly between Kleiner and Sequoia, which these big firms don't do deals together, but everyone wanted in. All of the other companies went out of business because they had this capital. You need people and you always need people. They were able to get engineers for less than they'd have to pay.

Also, the talent was available. There was more oxygen in the labor market. I think this is before cloud computing. You had to purchase a piece of hardware and server blades to power your search engine. They were also able to do that. They were the type of capital expenditures that gave them a lot more runway and a lot more time to not have to make a profit.

When we talk about Silicon Valley, we usually think about the big consumer facing platforms. Ordinary people are talking to the ones that interest them. There are a lot of Silicon Valleys. Different parts of the industry are included. Semiconductor companies were still hiring even after the dotcom bust. There were people doing the basics. The internet was still in its early stages. There were a lot of important use cases that had been proven in the early days of the internet that there was still a lot of work to be done. The platforms that went out of business were the ones that got the most attention.

Joe: 12:11.

What about just in terms of, so layoffs and other restructuring, do the bean bags go away? Do the ties come on? Like is there a sort of, I don't know, un-liberalization of culture in a downturn where it's like, okay, we we have to get serious here?

Margaret: 12:14.

I wouldn't say the ties come back on. There have been times when the ties come back on, you know, I think the most standout example is Apple. If you go back to the eighties, the mid-80s Apple, when it's growing fast, John Scully is brought in from Pepsi as the guy in the suit.

Joe: 12:14.

So that's a great example. Because we all have this perception of Steve Jobs and then they bring in a Pepsi executive to run it.

Margaret spoke.

It's true. A guy sells sugar water. Lots of people were upset about that. Steve Jobs was fired by the board after the Macintosh came out in 1984 with a splash. The Super Bowl ad, and the Mac being the game-changing device, are things we all remember. The story doesn't mention that it had a big splash but was flatlined a bit.

The first giant hit that Apple had was not an Apple II. IBM got into the computer business. Anyone who was around in the 1980's might remember those Charlie Chaplin ads. They were eating a meal. After the suits are brought in, Jobs is fired, and then Apple has a very bad decade after that. It goes to the right after that. I think that the suits have been subsumed by that one. I think you're asking for more conservatism in terms of spending. The tail that always wags this Valley dog is a venture capital fund. The VCs are doing something. They are hunting something. What do they spend their money on? What amount of money do they need to spend? The first thing they do is pick the winners or the potential winners. In a downturn, there will be a lot less tolerance for splashy parties with ice sculptures for sure.

Tracy is talking.

It's easy to criticize a lot of tech companies for expanding too much during the boom, but his point was this is what investors were asking of. It was all about gaining market share. It's not until things start to pull back that the pressure on companies to either spend money or make money starts to diminish.

Margaret: 15 minutes ago.

That is correct. Many of these VCs were once operators. Where do VC's come from? Some of them have a background in banking, but others were part of the core team of companies that were successful.

The Silicon Valley style venture capital model that starts in the sixties is a high tech venture capital model with expertise. The culture and cultural values that are imported are very growth focused. Since the early years of the Semiconductor industry, moving fast and breaking things has been a Silicon Valley motto.

In order to get a piece of the market, you had to move fast and be lean and ready to pivot at any time. The focus has been on growth.

That was an entirely different business than the one in Silicon Valley, which was software-dominant rather than hardware-dominant. I think founders get a lot of heat but someone gave them the money to do it.

Joe said that it was 13:21.

So I think it was like the day we met in San Francisco several weeks ago, or maybe the day after, it was just like the complete implosion of FTX.  And the reason I ask is, you know, one of the other things that's sort of like crumbling here, and again, I don't know how cyclical it is, but you know, I associate Silicon Valley with this cult of the individual, the individual founder in particular. So the SBF cult, obviously the Steve Jobs cult, maybe the Mark Zuckerberg cult at some point, the Elon Musk cult. Who started that? Where did that come from? 

Margaret spoke.

That has a lot of roots. As a nation born of revolution, I think this extends beyond and before the valley itself. The so-called self made man was mythologized. The heroes since the 19th century have been individual geniuses, whether it be Thomas Edison or anyone else. Whether it's a John Wayne-style cowboy or a great inventor, the real story is that you have an amazing individual with good timing, connections, and a whole team behind them.

The secret of Silicon Valley is its amazing network of people, whether it be Jobs or Musk or anyone else. They're all people that you know of, great talent, lucky, and have a team.

Jobs and Apple are examples. It was founded in a garage like many a computer startup at that time. Many men were doing what they were doing. Some of them built better machines. None of the others had Steve Jobs. Not Steve Jobs, in his own capacity to do all this himself, but the fact that he realized while he's still walking around barefoot with his beard that he needed to hire the very best marketing person in the valley. The very best venture capitalist was what he needed. He needed an operator who could take them from a garage to a real company. That's what he did. All those people made Apple into what it is today and allowed jobs to tell the story of the company.

Tracy spoke.

So I have a slightly different crypto-related question, but since you brought up personal computing, and this is something that stands out in your book, this idea that Silicon Valley time and time again kind of frames these new technologies as some sort of revolution. So the personal computer was going to revolutionize our work lives. The dotcom boom was going to revolutionize access to information. Crypto was going to be this big new financial system. And yet with every boom, as we've been discussing, there does tend to be a bust and a lot of disappointment. Can the tech sector, can Silicon Valley maintain this ‘revolutionary’ narrative or this ‘revolutionary’ idea if people are sort of becoming more experienced with booms and bust? Or maybe it's just me getting older, but it feels like we've gone through a number of these disappointments at this time.

Margaret: 20 minutes.

We have done that. The rate of technological growth and development of computer hardware and software is extraordinary.

The hype and the amount of capital that's been infused to make that come to be has made the newest generation of revolutionaries answer a problem. They're fixing the errors of a past generation, whether it be, Steve Jobs or Bill Gates, as these new style CEOs rising up like Phoenix's out of the ashes of stagflation in the seventies were pretty unpopular.

Something very, very different is promising to change the world and give you power. These are new types of business enterprise that are appealing to a lot of people, including politicians and baby boomers who are looking for self-actualization in the things they buy and now have the income to buy it.

Sam Bankman-Freed was not only, you know, part of his rapid ascent, but he was also part of it.

There's a lot of criticism of the people who used to be viewed more negatively than they are today. There were a lot of people that seemed like hustlers, you know, to the outside observer, and SBF was a great example of that. He was philanthropic, altruistic, and a lot of blue chip investors and leading VCs bought into his company.

Joe said that it was 23:02.

Tracy asked, "Okay you see these booms and busts over the time, and there's the tech lash and everything?" It's like the revolutions don't work. Over time, you become cynical. It's another theme of Silicon Valley that people think downturns are the last boom.

Margaret: 23:03.

Vietnam is unpopular because of its location.

Thousands of people were laid off. The local press said that was it. It was enjoyable. We're moving on.

In the 70s, VCs were not able to raise funds. There was nothing to spend it on. Licensing their technology to Japanese companies was a desperate measure they regretted 10 years later. California was thrown into a mini recession in the early 90's because of the end of the Cold War and the PC market was so hot that there was no next one.

You have the commercial internet after a few years. It's very easy to say it's all over when something new comes out of the ashes. I think it's important that we show some contrast between then and now while we're making these historical comparisons. The scale is larger now that we have. It is more significant. The scale of everything is much larger. The way in which these companies are affecting every aspect of our lives and the global economy is much different than it was during the dotcom bust.

Tracy spoke.

Another thing that's happening now, and you know, we've obviously been focused on the retrenchment of venture capital and private investment, but one thing that's happening now is you have a lot of government investment coming on stream, and you have things like the Chips Act, which basically aims billions if not trillions of dollars at ramping up US chip making capacity and other vital technology capacity and things like that. How much does that help. Can the government money basically come in and fill the hole left by retrenching venture capital?

Margaret spoke.

It can, that's right. Government money is a critical part of the Silicon Valley story and has been for a long time, independent of the commercial boom and bust cycle.

Military spending is what makes Silicon Valley what it is. You think of free market capitalism when you think of the valley. Defense spending created a mass of small electronics R&D in the Valley.

The people on the ground, including the administrators, helped make that happen.

Let's look at the space program as an example. We discuss how we need another shot. It's easy to say that it's all free market when the government comes in.

The Valley has a blend of public and private that is very American. You have a lot of electronic spending in the valley in the 60's. The Soviets beat the US in 1957 and got the first satellite into space. The Eisenhower administration is in a bad spot. It isn't good. The missile gap that gets Washington in a panic is caused by reports that the Soviets are out pacing the US in missile production. Money begins to flow. Kennedy came into office and said that the moon would be reached by the end of the 1960s. There's an intense demand for very small, light, fast electronics, which is what the valley is known for. This is the beginning of the Semiconductor industry. Integrated circuits are being built. They're selling to the space agency.

These are small defense contractors. They are competing for this business. There is an incentive to develop and produce a new product that doesn't have a commercial market. As a funder of research, the government puts a thumb on the scale. It drives all of this activity up and down the chain.

The net-net of all that space spending for the Semiconductor industry is that they went from being able to build $2,000 and upward integrated circuits that nobody could afford to being unable to build anything at all. They can turn a production into a commodity product by scaling it. That is what I believe the potential for government spending is. Silicon Valley is entering a different age and there are new flows, not just for chip research and development, but also green energy as well.

Joe: 30:24.

You anticipated my next question. And Tracy, mentioned the CHIPS Act, and then there's the Inflation Reduction Act, which is gonna channel a lot of money to Green Tech. But the common thread of both of those, is part of the reason we seem to be doing Green Tech is obviously concerns over climate, but there's also a national security impulse even embedded in the Inflation Reduction Act, moving the battery supply chain away from China, moving it to the US —  this idea that there's some sort of like global competition about energy tech and energy security for obvious reasons. And the thing I'm curious about is how does it work in Silicon Valley when you have this sort of hardnosed geopolitical security, Defense investment driving the show? How does that interact with sort of like hippie California capitalism

Margaret spoke.

You wouldn't think that these two things are related, but they are. There is a national security aspect to high tech spending and the competition that the US had with the Soviet Union in the 50's and 60's.

The defense budget has been the only part of the discretionary budget that the US has been able to count on. The kind of research funder that doesn't have its budget questioned every cycle is why DARPA has an outsized role in fueling innovation in the valley.

It makes sense that way. The allowance for the great deal of spending that needs to happen to move the needle is created by the fact that this is a defense move. The defense culture and the hippie culture have a weird juxtaposition. Part of the reason it's able to do that is due to the indirect nature of the spending.

This time it's going back to the American habit of not liking big government and not wanting to appear to have big government. Spending for economic development in particular, through indirect means, whether it be in the early 19th century awarding private entities, the contracts to build canals and infrastructure, or the transcontinental railroads, right? It was in the late 1960s that a lot of the kids at Berkeley and Stanford realized that. That was one of the reasons why they were protesting. The military had taken control of technology and was using it for things they didn't approve.

Tracy said that it was 33:11.

So just on this theme, the intermingling of free market entrepreneurship and government spending, which is definitely a theme that that stands out in your book, and you emphasize this point a lot, but in, in a downturn where venture capital is potentially retrenching and the government is ramping up its spending, is there a possibility that more traditional businesses become bigger or more powerful compared to, you know, the traditional Silicon Valley tech startup because they have access to maybe deeper pockets or because maybe they have closer relationships with the US government? Is that a possibility that we start to see a sort of shift in power, I guess?

Margaret spoke.


Tracy spoke about 36:00.

I mean, Tesla, like Tesla versus a traditional car maker would be the obvious example of this, right?

Margaret: 35:03.

It's possible. There are some things that are against that. If the purpose of government spending is to encourage and grow new markets and new technologies and to kind of bring, bring new technologies online that are now just good ideas or really expensive and impractical ideas, it's new firms and new entrants that need to do that.

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This is the reason why companies like National Semiconductor get the edge on Apollo program business. When Robert McNamara was Secretary of Defense for Kennedy and the Johnson administration's McNamara became the face of the space program, it was because of this. He came in from Ford, he was the president of Ford, and he was part of a group of people who were efficient. He wanted to get away from single source contracting and bring more oxygen into the system so that it could drive down costs. This opportunity was created by that. One of the things that the Chips Act and the Inflation Reduction Act are trying to solve is the intense geographic concentration of tech on the two coasts. We have new spending that is focused on building tech focused economies in places that do not have them. Is it possible to put chip plants in Ohio?

There is a deliberate economic development strategy. Some of this was seen in the early Cold War as well. The southern states and Sunbelt states that also have some powerful senators, like Richard Russell of Georgia, have defense facilities that were important to the economy.

The Biden administration is pushing a geographic strategy. There is a lot of local leadership and regions that have been left behind in many ways, particularly formally industrial regions that are trying to build out their infrastructure. I'm interested to see if that does anything to disrupt the geographic pattern that's so concentrated.

Joe: 38:49.

Margaret O'Mara, thanks a lot for coming on Odd Lots. We were glad to have this discussion.

Margaret was talking.

It was enjoyable. I would like to thank you for having me.

Margaret, thank you. That was really good.

Joe said that it was 38:14.

Tracy. I really like talking to Margaret. You know, one thing that is very useful with the historical perspective is this time it's different or this time it's really over. That's like a pervasive view that it's not just now, it's not just post dotcom, that from the very beginning people always think, ‘oh, that was it, that was the last boom bust.’ But one day, there will be another boom.

Tracy said that it was 39:35.

Well, I agree with that. I do wonder whether or not, like people's experiences tend to be tempered by the disappointments of the last downturn, but maybe not, because I mean, here we are in 2022 and all of crypto is falling apart. People have been comparing that to the dotcom boom for ages. So clearly memories of the dotcom era eventually fade.

Joe said, " 38:56."

 That was like 20 years ago.

Tracy said that it would last for 3 minutes.

It feels like only yesterday. But also her example of whether or not it starts to affect culture with the the Pepsi CEO that was brought in.

Joe said, "39 minutes."

I forgot all about that.

Tracy said, "39 minutes ago."

That was pretty funny.

Joe said, "39 minutes."

Yeah. And just, you know, again, like what the saving, I don't know if it's the saving grace or you know, where would you be bullish right now? You'd probably be bullish on the areas that could sell something to the US government, something that might have like a defense capacity, something that might have an energy capacity, something that might have a semiconductor capacity, etc. So there will be new markets, but maybe the exciting things are not going to be as consumer oriented as we got from the boom in the 2010s.

Tracy said, "399:46."

Right. It kind of reminds me of that markets mantra, ‘Don't fight the Fed.’ Don't fight the US government when it's pouring trillions of dollars of money into particular industries... 

Joe said, "Forty-one."

Don't fight the Pentagon. Don't fight the DOE loan office. Don’t fight Jigar Shah. 

Tracy said, "Forty-three."

There we go. Yeah. Don't fight the military industrial complex. That is good life advice. Shall we leave it there? 

Joe said, "40:09."

Leave it there.

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