BUSINESSWEEK ONLINE : JULY 17, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY

The Dark Side of the Valley
In techdom's win-at-all-costs culture, hardball tactics and dirty tricks are just part of doing business

Oracle Corp. (ORCL) CEO Larry Ellison was mentor and friend to Marc Benioff during his 13-year career at Oracle. So last summer, when Benioff left to launch a Web service for corporate salespeople called Salesforce.com, it was only natural that Ellison would try to support the effort with a $2 million investment and that Benioff would reciprocate with a seat on the startup's board. What might not seem so natural was that Oracle soon began working on a competing service itself.

But clearly, this would be the conclusion of someone not living in Silicon Valley. In that land of honey and stock options, some say such cutthroat practices are becoming standard operating procedure. Ellison declined comment, but according to Benioff, he harbors ''no hard feelings'' toward Ellison, although he did ask him to resign his seat on the board. ''Larry just thought it was a business he wanted to be in, and I understand that,'' says the young chief executive. ''We are still friends.''

With friends like that, it's also no wonder that Benioff--and many Valley execs--expressed little surprise over Ellison's recent admission that he had hired detectives to snoop on supporters of Microsoft Corp. (MSFT) and even rummage through their garbage. After all, shrugs Benioff, ''They were the enemy.''

Sure, Silicon Valley has sunshine, jobs, and lots of money. You can skateboard on your break, or take your dogs and parrots to work. But the same hypercompetitive petri dish that spawned the technological creativity and innovation behind the New Economy has produced a win-at-all-cost mentality with increasingly dark implications for the Valleyite's professional and personal life. Now, a backlash against that mentality--from companies who would rather not locate there to burnt-out executives anxious to flee the Valley--is growing. ''There should be a backlash,'' says high-tech guru Geoffrey Moore. ''Even most people involved in it have to throw up at some point.''

Fueling both the good, and the bad side of Silicon Valley's culture, of course, is a heady mix of ambition, competitiveness, money--and greed. Mix that with a frat-boy mentality that encourages the chest-thumping that makes everyone totally absorbed in comparisons of the size of his house, his car, and his stock portfolio. ''Silicon Valley culture is a male adolescent culture with all that it implies,'' says Jeffrey Pfeffer, a professor of organizational behavior at the Stanford University Business School. ''It's all about excess.''

In this pressure cooker, there are long hours and plenty of job-hopping. ''There's always room to pour more of yourself into your career,'' says Cory Smith, a 35-year-old who quit his general manager's job at multimedia company StarMedia Network Inc. (STRM) last month. ''I've never had an opportunity to add those other things to my life that create a balance.'' Says Stephen Goldbart, a clinical psychologist who runs the Money, Meaning and Choices Institute in San Francisco: ''Work becomes their family. They lose track of everything else.''

GLEEFUL COMBAT. In Silicon Valley, companies throttle and plot against each other--with remorseless glee. In May, a Santa Clara County judge found Broadcom Corp. (BRCM) used job interviews to try to get Intel Corp. (INTC) employees to divulge trade secrets. Under the judge's order, Broadcom must set up a training program to ensure that employees recruited from rivals do not disclose private information of those competitors. The ruling sent a shiver through high techdom, because such tactics are common.

And as for the genteel world of non-compete clauses and keeping a measured distance from a rivals' employees--forget it. In the Valley, and tech in general, employees are bought and sold like commodities. If you have trouble with the competition, simply raid its talent. Just last fall, German software maker SAP (SAP) sued Siebel Systems Inc. (SEBL) after more than a dozen executives jumped ship for its Silicon Valley rival. SAP dropped the suit two months ago after reaching an undisclosed settlement. Three years ago, Oracle was struggling to keep pace with a new type of database from rival Informix Corp. (IFMX). In a matter of weeks, Oracle hired most of the engineering team that created that database. Oracle denied the charges, claiming the employees left because they were unhappy.

Reputation isn't the only thing slipping in Silicon Valley. Quality of life is taking a hit. Highways in and out of the valley fall into gridlock with the smallest of fender-benders. The median Bay Area home price right now? It's $370,000, up 25% from just a year ago, according to a June report from DataQuick Information Systems. It's gotten so bad that San Francisco politicos are considering building subsidized housing for teachers because a teacher's salary is no longer enough to rent a decent apartment in the area. Managers at staid industrial companies like Procter & Gamble Co. (PG) are quick to point out the scary cost of living to young employees who may be lured by the distant whiff of Silicon Valley fortunes. ''At least most people here can afford to buy a house,'' says Dan Gerbus, a middle manager for information technology at Cincinnati-based P&G.

It's enough to make the Valley's most valued import, smart people, think twice before heading west. Jason Krantz, 27, graduated from Harvard Business School last month and thought he would move his Internet startup, Infinata Inc., to Silicon Valley. He thought again. Employee retention, he thought, would be a big problem. His office in quiet Arlington, Mass., may not be in the center of Net culture, but he won't have to worry about intellectual property doing a turnstile through the front door. ''If you're going to build a sustainable business, you really need the knowledge to stay in your company,'' says Krantz.

It's also enough to make some companies think twice about putting all their resources in the Valley. ''The startups just suck people out of your company,'' says Christopher Klaus, founder of Internet Security Systems Inc. in Atlanta. Klaus says ISS has very little turnover, 1% to 2% annually. Turnover in the Valley averages roughly 25%, according to Stanford's Pfeffer.

The blame, critics say, falls on a money-crazed culture that has worsened with the Internet gold rush. Winning in Silicon Valley is winning big. Some estimates claim that 5,000 millionaires were created every month in Silicon Valley last year. Says Craig Conway, CEO of PeopleSoft Inc. (PSFT) and a former executive at Oracle: ''I think the opportunity to make so much money so quickly is taking its toll.''

As the dot-com meltdown of the last two months worsens, the hypercompetition is going to get a lot feistier. ''When times get tough, people are going to get a lot, lot more anxious,'' says Pfeffer.

CLOSING WINDOW. But the highly combustible combo of Internet money and high-tech machismo in Silicon Valley is gradually making the piranha tank at the aquarium look like a peaceful ecosystem. ''This business feels like it's run by 28-year-olds--it certainly acts that way. People in other cultures think we're way out of balance, and I agree,'' says Moore, author of high-tech marketing guide Crossing the Chasm. ''Silicon Valley has gotten out of whack.'' Older executives carp about young people who received too much too fast without paying dues. ''Young people can't seem to see a reason why they shouldn't be the CEO by the time they're 30,'' says Jim Gingery, a marketing executive at Shop2gether.com. ''In our rush for resources, we've created arrogant young resources.''

The window for youthful hubris is closing. In the last two months, most dot-com stocks have lost at least half their value. Some people, like Cory Smith, got lucky. He sold his company last year and no longer has to worry about working. He found the other side of his rainbow, at least financially. For others, with the stock market increasingly ignoring startups, the wealth-creation engine in Silicon Valley may be running out of gas. If the thousands still chasing that rainbow are denied their chance, it could get downright ugly.

By Jim Kerstetter, with Peter Burrows in San Mateo, Calif., Jay Greene in Seattle, Geoff Smith in Boston, and Michelle Conlin in New York

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