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BOSTON'S ROUTE 128: COMPLEMENTING SILICON VALLEY

Boston is booming. Ask anyone who has tried to find office space in the greater Boston area lately. Vacancy rates hover around 4%, and the rate in Cambridge, home to many high-tech startups, is less than 1%. "We had been doing a lot of our expansion in Boston," says Mitchell Kertzman, president and CEO of Sybase Inc., a Silicon Valley software company. "But now Boston's getting pretty jammed up itself."

This boom is different than the "Massachusetts Miracle" of the 1980s. While that expansion rode the coattails of computers pouring out of companies such as Digital Equipment, Data General, Wang, and Apollo, Boston's current resurgence is driven by software, telecommunications, medical technology, and financial services. Having suffered a sharp decline in the early 1990s, Boston's technology companies seem to have found ways to complement Silicon Valley rather than compete head-to-head.

That's not to say there aren't plenty of healthy bicoastal rivalries. IBM's Lotus Development Corp., based in Cambridge, is holding its own in groupware vs. Netscape and Microsoft. EMC Corp. in Hopkinton, Mass., is the world leader in computer data storage products. And Open Market Inc., another Cambridge company, is successfully competing against Microsoft and Netscape in selling software for electronic commerce.

Still, the failure of computer companies in the Boston area to tap into the PC revolution early on, coupled with a body blow delivered by the recession of 1990-91, left the area's technology sector gasping for breath while Silicon Valley gathered steam. Today, say economists, venture capitalists, and technology executives, Boston's strength lies in fields like Internet software and biotechnology, which are fueled by the concentration of talent flowing out of MIT, Harvard, and the area's seven other major universities.

"I think there's a fairly simple explanation" for why Silicon Valley is ascendant, says Bill Kaiser, a partner at Greylock Venture Partners, a Boston-based venture capital firm that has roughly one-third of its portfolio invested each in Silicon Valley companies, in Boston-area ventures, and in companies located elsewhere around the country. "In the '70s and early '80s, the computer architectures driving the industry were developed by people like Digital, Prime, and Data General. With the overwhelming dominance of the PC, however, the center of heat and light for the PC is Intel as the microprocessor provider and Microsoft as the operating system provider. That results in all of the planets revolving around those two suns."

Kaiser says Boston's more conservative approach to building companies is not a bad thing, however. "The greatest governor now on Silicon Valley is the lack of an infinite talent pool. Pretty soon that will start to slow the growth," he predicts. "Atlanta has a lot going on. In Chicago there are lots of interesting companies getting started. Austin is hot. I think part of that is that not everyone wants to live in a quonset hut in Milpitas."

That view of Silicon Valley is echoed by John B. Landry, the former chief technology officer of Lotus and a senior consultant to IBM. "The Valley is a monoculture," Landry says. "I don't care about Larry Ellison's suits or his Japanese garden. I'll take Boston any day. People seem to have a better sense of what's important in living a life."

A key resource in the Boston area is MIT, as well as Harvard and several other universities that have developed technology expertise in specific areas: Boston University in photonics, for instance. MIT remains the leading institution for technology business creation. A study by MIT and the Bank of Boston released earlier this year -- the first national review of the economic impact of a research university -- found that MIT graduates and faculty had founded 4,000 companies, employing 1.1 million people and generating $232 billion in worldwide sales. If the companies founded by MIT alumni formed an independent nation, it would be the 24th-largest economy in the world, somewhere between South Africa and Thailand, the study said. Viewed another way, as of 1994 MIT-related companies employed a total of 733,000 people, or 1 out of every 170 jobs in the U.S. About 150 new MIT-related companies are founded each year, according to the study.

Interestingly, Silicon Valley is a leading destination for MIT-bred entrepreneurs. The five states with the highest numbers of MIT-related jobs are California (162,000), Massachusetts (125,000), Texas (84,000), New Jersey (34,000), and Pennsylvania (21,000).

Indeed, just because knowledge is being created in Boston, it won't necessarily be applied in Boston, says Douglas Henton, president of Collaborative Economics, a San Jose (Calif.)-based economic consulting and forecasting firm that is benchmarking the Boston area's innovation economy against that of Silicon Valley. The challenge for Boston is to bring the creation of that knowledge into commercialization. Henton won't discuss details of the study, which won't be finished until later this fall. But he points to some key indicators showing that the area's technology sector continues to prosper, though not as rapidly as Silicon Valley's. Massachusetts has the highest number of patent applications per capita of any, for instance. Massachusetts also is showing steady growth in the number of "gazelles," Henton's term for publicly held companies that double revenues every four years.

Still, Silicon Valley remains the leader and undisputed champion in nuturing technology startups into big companies whose products and business strategies are shaping the world. It's a shadow long enough to stretch all the way across the continent -- to Boston.

By Paul Judge in Boston


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