Andrew is my quintessential Web friend: He knows everybody, reads everything, works 14-hour days and is determined to make his million off the Internet. (He probably will.) I recently ran into him at a South Park microbrew-and-brie affair. I had heard that he had left his job as an “evangelist” at NetObjects and was in the process of financing his own start-up.
I asked him what his new company was going to do. “E-commerce,” he replied.
“Yes, but what kind of e-commerce?” I asked.
“I can’t tell you,” he said carefully, “unless you come down to my office and sign an NDA.”
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The technology industry doesn’t just build chips and Web sites; it manufactures secrets. And the magic piece of paper that transforms ordinary information into hot secrets is the nondisclosure agreement (or NDA).
Silicon Valley’s favorite legal document tries to erect fortresses around ideas, information and data. Here, NDAs are ubiquitous: You sign an NDA for your employer when you take a new job. You sign an NDA when you meet with a potential partner or investor or client. The visitor badge you wear when visiting most high-tech companies has a catch-all NDA on the back. And, as I learned, you may even have to sign an NDA just to learn what your friend does for a living.
Yet people in Silicon Valley haven’t stopped talking to each other. And though NDAs are proliferating at every turn, their real purpose is often a cipher. Everyone, it seems, has something they want to protect; but few people believe that NDAs are really taken seriously. Instead they are seen, as my friend Andrew puts it, as a “necessary evil.”
“The thing that I’m most worried about is our idea for our company being put in the hands of competitors. All that takes is word of mouth,” Andrew tells me. “Of course if I hand somebody a digital document it’s much worse — and I don’t do that now, I number all my documents and try to print them on paper you can’t photocopy; I give them to investors and make them read while I’m there watching them. But paranoia aside, ideas travel much faster than a piece of paper, and if I just give someone good ideas, they then could say, ‘Hmmm, those are good ideas. My brother works at Microsoft and I should tell him …’ And then I’m history. Buh-bye.”
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The NDA is not a modern invention. Intellectual property expert Pamela Samuelson, a law professor at the University of California at Berkeley, tracks them back at least as far as the Middle Ages — when Venetian glass guilds would kill glassblowers who took their secrets off the city islands. Still, though NDAs are used today in many industries, only in the technology business have they become a part of everyday life for such a broad population.
Says Rob Merges, co-director of the Center for Law and Technology at UC-Berkeley, “I think that more people are carrying them around, and there’s probably more pieces of paper with the title NDA on them in drawers all over the Valley … and so in that very limited sense, yes, use is on the rise.”
Yet while the piles of paper mount ever higher, he adds, there has been no increase in the number of lawsuits. Perhaps that means that everyone is honoring the agreements they sign; or perhaps it means that no one is actually enforcing them.
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Nondisclosure agreements fall into the legal category of trade secrets documents. Along with their siblings the “noncompete” clauses (which prevent former employees from taking jobs with competitors) and the “assignment of work product” clauses (in which employees sign away their rights to everything they create while employed), they make up a portion of the fortress that is intellectual property law. If you sign an NDA for a meeting, you are legally bound not to reveal what you have seen or heard in that meeting to anyone. If you violate the agreement, you can be sued.
But it doesn’t mean that you will be sued. Certainly, there is a body of case law addressing broken NDAs in formal relationships: partnerships that ended in outright theft, employees who broke the noncompete sections of their trade secret agreements — the clear-cut cases.
These days, though, NDAs are being used in more casual encounters — in conversations over lunch, in press meetings, during product previews or preliminary partnership talks. Yet these more informal NDAs haven’t sparked a wave of lawsuits. In fact, several Silicon Valley lawyers say they’ve never seen a case in which Mr. X claimed that Ms. Y stole his idea during a preliminary meeting, or filched a business plan that was revealed over a martini.
However, just because there have been no lawsuits doesn’t mean that there haven’t been any conflicts. Information sometimes does mysteriously make its way from one company to a competitor. That threat is enough to ratchet up the industry’s level of paranoia — and its addiction to the NDA.
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“All ______’s confidential ideas, designs, data, or other information disclosed to ______ shall be held in strictest confidence. Designation by ______ shall be conclusive but not required as to ‘confidential.’”
This, in its entirety, is Matthew Butterick’s NDA for social occasions: a legal document printed on the back of a business card that the president of design house Atomic Vision brings along when he goes out.
“I feel like I keep constantly running into people who can’t tell me things because I’m not under NDA. So I figured I’d be prepared, right?” he explains. “It’s like spontaneous sex. You want to be ready for this kind of thing.”
He’s only partly serious. Butterick’s cards also trivialize the NDA: They are so simple that they make a mockery of the pages of clauses that constitute most NDAs. Mostly, the cards have been used as party favors, he says, but they do reflect a certain frustration within the Web community.
Many Web veterans feel that NDAs are out of control in their industry — that the culture of protection has become a culture of unnecessary paranoia and documentation. And the more NDAs that you sign, the less weight each one seems to carry. You hear the same thing from CEOs, lawyers and people in the trenches: NDAs are a joke. They’re meaningless.
“I think that they’re totally pernicious — these are about nothing more than trying to control what people say to each other,” says Michael Wolff, author of “Burn Rate,” citing the blanket NDAs on the back of visitor badges as the most evil. “These NDAs have spread from specific instances to a whole range of speculative notions — what might you say, what might be thought. The issue is not nondisclosure anymore, it’s not protection: it’s ownership.”
Some critics feel that NDAs are being used unnecessarily in hopes of creating an air of importance. Everyone likes a secret, and the close-lipped nature of companies like Transmeta or Interval Research has piqued the curiosity of countless techies. Other companies are hoping to adopt that mystique via NDAs, and those who sign NDAs are supposed to feel like privileged insiders. (Embodying this idea, the Red Herring has organized a conference about technology trends called “NDA”: No NDAs will be signed, and it’s doubtful that secrets will be revealed, but just the name NDA is intended to inflate the conference-goers’ sense of privilege.)
“A lot of new-media companies are trying to be the next big thing. I think a lot of us are using NDAs to say, ‘We’re so great we can’t let you talk about us’ — as if secrecy will build a bigger buzz,” says Molly Ditmore, who has signed around 10 NDAs during her time at Circumstance Design. “A lot of start-ups are founded by people with no business knowledge. They begin throwing around NDAs without knowing what the NDA is doing for, or against, them.”
But though many people downplay the importance of an NDA when it’s handed to them, they frequently do an about-face when they are on the other side of the table: If they’re trying to protect their own company, damn straight they are going to have those legal papers at the ready.
“Today, a lot people subscribe to the concept of ‘information wants to be free,’” says Pamela Samuelson — but they have a paradoxical response when it comes to their own data, she adds: They think, “Information is swirling around so freely, that I’ve gotta make sure I’m not the guy who goes out of business because all my secrets are getting spilled by all the people who come in and look at my stuff.”
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LikeMinds was having an “early adopter” event in San Francisco — an informational meeting intended to convince Web developers to use its collaborative filtering software. It was a marketing event that glossed over details of the software and instead focused on how successfully Web sites were already using LikeMinds’ software. Yet the 50 people who came to that meeting had to sign NDAs.
According to LikeMinds vice president of marketing Linda Della, the NDA was used because the company was previewing a client’s upcoming Web site. The NDA was a formality, she says: “I think that people understood that that’s the code of operation — every industry has its own quirks. And in this industry, people sign NDAs.”
But few people at the event could tell what the secret was or why they had had to sign the NDA. Certainly no one was getting access to secret code, and many were irritated that they had to sign a legal document just to get walked through Web sites that they had already seen.
NDAs are usually vague: They rarely specify just what part of, say, a two-hour meeting or conversation makes the agreement so vital.
David Coursey, a veteran computer industry journalist, guesses he has signed nearly 1,000 NDAs during the course of his reporting. Most, he says, are inappropriate or improperly worded; usually, what’s being protected by the NDA is hardly unknown stuff. In meetings covered by NDAs he often asks the person, “‘What we’re talking about today, you’ll tell me when you get into the secret stuff, right?’ Most conversations that are covered by NDAs are 90 percent public stuff and 10 percent secret stuff. And you’re just supposed to guess. So I try to ask people.”
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In her book “Regional Advantage,” Berkeley professor AnnaLee Saxenian maps out the theory that Silicon Valley’s success was built on the fluidity of information and relationships between companies — that a lack of secrecy forged the invaluable partnerships and alliances of the West Coast technology industry. Community plus competition, in this case, equaled unparalleled growth.
Silicon Valley, in other words, was built on schmooze. So how did a conversation-stopper like the NDA become so popular there? Perhaps because NDAs don’t so much prevent conversation as provide a layer of protective paper — a safety net of signatures that allows potential partners to have power lunches and executives to go jogging together in the morning while still feeling comfortable that they’re protecting their secrets. In a litigious industry, why take your chances with friendship when you can have a piece of paper that gives you the right to sue, if?
But if everyone is going to talk anyway — and the majority of people interviewed for this article say that they don’t really bother to honor the documents — then what is the point of an NDA? It’s a “just in case” — a way, perhaps, for a paranoid, secretive industry to justify its chit-chat.
Some have described the social interactions of the industry as a “dance,” a two-step of conversational guesswork as people try to read each others’ intentions. If those intentions are serious, the dance will proceed under NDA.
As Merges, of Berkeley’s Center for Law and Technology, puts it: “It’s a kind of parity — I’ll show you my NDA if you show me yours. It’s a scenario that is in many cases true — people in a start-up will walk around with one in your pocket, because you never know who you are going to meet. Lawyers are telling them it’s a magic piece of paper that protects them from an evil spell.”
Of course, there are those who categorically resist that spell — such as “Burn Rate” author Wolff, who says that his refusal to sign an NDA has often stalled, but never stopped, a deal. “I think that in the end it is hard to have a free exchange of ideas and points of view and feelings if we’ve overlaid all of our relationships with nondisclosure agreements,” Wolff says.
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Writer and analyst Regina Joseph was trying to shop Blender, the CD-ROM magazine she co-founded, around the New York publishing scene. Versed in the ways of the tech industry, she had an NDA at the ready. It proved useless: The very first publisher she talked to immediately parroted her plan back to Joseph’s current employer, despite signing a promise of secrecy. And it only got worse from there.
Joseph remembers: “I had one magazine executive tell me, as I was pitching him a magazine idea for a digitally delivered project, ‘I’m not going to sign an NDA, there’s no way I’m going to sign an NDA … For you to even think that an NDA is valuable is ludicrous. Ideas are in the ether — I can pluck ideas out of the air. All you’re presenting to me is an idea, and there is nothing that protects ideas.’”
In the technology industry, NDAs were originally designed to safeguard engineering innovations: code, chip designs, hardware specifications and so on. The media industry, on the other hand, rarely uses NDAs. The Web is a hybrid industry that has put the distinct businesses of engineering, editorial and design into one blender called “new media.” No longer is the marketplace based on just computer products: It’s also based on information and ideas, words and pictures.
And so “new-media developers” in the middle are finding that the NDA does not have one universal meaning anymore. Online editors find themselves signing NDAs that were written to protect code from being stolen; software developers find that the media industry doesn’t necessarily take the documents seriously.
“People on the East Coast are less compelled to observe the rigors of the NDA than on the West Coast. In Silicon Valley, the relationships and associations are very much colored by the incredibly secretive atmosphere and environment of developing software engines and code,” Joseph says. “But the East Coast media world sees innovation as a much more abstract notion — innovation is just a great idea and a great execution; whereas in Silicon Valley a company can be broken on the innovation of a chip set or
the structure of a processor.”
But a Web site, unlike a chip set, can be easily and quickly duplicated. This, perhaps, is why the Web industry is riddled with NDAs: A Web site can go from concept to execution in mere months, and a good idea can potentially be worth a fortune if you’re the first one to it. The sheer acceleration of time and competition means that a few weeks of secrecy can give you that much more of an edge. Ideas, in this nascent industry, are money.
Yet as that New York publisher pointed out, ideas can be in anyone’s brain — making the legal recourse of an NDA difficult. Despite that signed piece of paper, how can you prove that someone stole your idea?
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For most people in the technology industry, the NDA that actually counts — and that leads to the most lawsuits — is the one between employee and employer. Many trade secrets have been lost when former employees take a company’s plans to a competitor. The Uniform Trade Secrets Act, which has been adopted by 40 states, outlaws such behavior. Past suits have set a variety of restrictive precedents: Not only are you not allowed to take documents, Rolodexes, code or marketing plans from company to company, but what’s in your head does not, unfortunately, belong to you.
And the laws keep tightening. Judges in recent years have created the “inevitable disclosure” doctrine, which makes the case that even if employees don’t want to give up trade secrets, and have no intent of doing so, they inevitably will fall back on knowledge gained under previous employment. These cases are increasing: DoubleClick, for example, last year sued two executives who were planning to leave and start their own competitive online ad network, and won. AMD sued employees who left for Hyundai Electronics — despite the fact that the employees hadn’t signed NDAs or noncompete clauses — just because they knew AMD’s secret processes. Again, AMD won. More and more departing employees are being told by courts that they have to take “time out” before starting a competing job, so that their knowledge loses its value.
The ramifications are ambiguous: If a company relies on its secrets for success, then any departing employee who knows those secrets is a threat. But for the essential employee, the legal threats are making it more and more difficult to leave a job and be able to stay in the same industry. The contents of your brain are too crucial for your employer to let go.
The “inevitable disclosure” doctrine alone
could have a negative growth effect on the industry, says Diane Savage, an intellectual property lawyer with Cooley Godward in Silicon Valley. “There’s been a lot of concern among employees that, because this is a very fluid area and people do move from employer to employer, inevitable disclosure could be used to clamp down on the mobility that employees have always had.”
In California, however, noncompete clauses — which put an outright ban on an employee taking a job with a competing company — are illegal, which make it more difficult to prosecute a departing employee (though employees can still be prosecuted for revealing trade secrets). And Silicon Valley observers like Merges think that the scarcity of qualified engineers, in particular, has made Silicon Valley companies reluctant to create strict NDA environments lest they scare off laid-back young employees. Few companies, he says, want to project an uptight, buttoned-up image.
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In another industry, perhaps, NDAs would be a crippling bureaucratic burden, and nothing would ever get done. In Silicon Valley, executives paint them instead as part of a streamlined way of doing business.
Philippe Kahn, founder of Borland and Starfish, says, “In the middle of a very litigious and unnecessarily complex legal environment … deals and agreements get made extremely fast [in Silicon Valley] because everyone works with law firms who know the key players and their ethics, and are able to make things happen very fast. I believe that one of the secrets of Silicon Valley’s success is its ability to make extremely complex legal matters happen fast because ‘everyone has done it before and everyone knows everyone else around the table.’”
The paradox, of course, is that even though everyone knows each other already, they still want their NDAs — even though that signed piece of paper, in the end, offers no guarantees. It’s a circular argument: If you don’t trust the person across the table, odds are that you won’t tell them your secrets, even with legal documents to back you up. So the NDA ends up being used mostly between two people who already have faith in each other anyway.
“Basically, I only talk to people that I have to, and that I trust explicitly,” says my friend Andrew, as he embarks on his start-up. “Even with the signing of NDAs, the information flow is liquid — not molten lava, perhaps, but a jet stream. And that’s a bummer.”
The address for Transmeta — a mysterious, supersecretive Silicon Valley start-up rumored to be working on a revolutionary new chip — is 3940 Freedom Circle in Santa Clara. But according to my 7-year-old map of San Jose, Freedom Circle does not exist.
That, in itself, did not alarm me. Yesterday’s maps are always out-of-date in the Valley. It’s not unusual for high-tech business parks to spring up, fully formed, between one morning and the next — especially here, practically under the shadow of Intel headquarters. If Silicon Valley had a ground zero, this would be it.
But my suspicions grew after I arrived at the doors of Transmeta, a one-story, low-slung stucco-roofed office building with impenetrably dark floor-to-ceiling windows. The trees dotting the parking lot looked much older than my dogeared map. Had the building been constructed around the trees? Or had these trees been shipped in, fully grown — a minor detail of state-of-the-art landscaping practice? I’d seen it happen before.
As I wandered around the Transmeta building sizing up the trees, I reflected that I was acting just a bit paranoid. But with good reason, I reassured myself, as I glanced over my shoulder, half-expecting to see Thomas Pynchon lurking about. Think about it: The very name Transmeta — a combination of Latin and Greek words that together could mean “above the beyond” or “across the next level ” — connotes a meaninglessness so vast it might be profound. Or maybe not.
Once upon a time, only a Pynchon would have dared such silliness. And only a Pynchon could have conjured up the Transmeta scenario: A start-up company backed in part by Microsoft co-founder Paul Allen attracts international attention by hiring one of the most famous programmers in the world — free-software hero Linus Torvalds, creator of the Linux operating system. Then it refuses to say a single word about what he or the rest of the company is cooking up behind closed doors.
The story of Transmeta is laced with the kind of satirical geek humor that was once safely confined between the covers of novels by Pynchon or Neal Stephenson but is now irresistibly infecting the real-life operating system of Silicon Valley. The Web page for Transmeta says only: “This web page is not here yet.” If you peek at the source code for the page, hoping for illumination, you’re informed, “There are no secret messages in the source code to this Web page.” In a particularly Pynchonesque stroke of ironic bravado, Transmeta even paid good money two years ago to a San Mateo consultant for the construction of a “corporate identity package.” Apparently it’s not easy, in the late ’90s, to be a cipher. Even secrecy needs a branding campaign.
So what is Transmeta — a company that makes the words “low profile” seem brassily exhibitionist — up to? The consensus is that the hardware engineers and software programmers at Transmeta are “top-notch” and “incredibly bright.” “They’ve got an unbelievably dense crop of talent,” says EE Times technology columnist Alexander Wolfe. But no one seems to know what all these brilliant minds are doing. All roads to Transmeta lead straight to zipped lips sealed by nondisclosure agreements.
“They have been incredibly secretive,” says Nathan Brookwood, chief chip analyst for Dataquest. “They’re not talking, haven’t been talking, and they’ve been at it for over a year, almost two years. You’d think they would have something by now.”
“I’ve known [Transmeta CEO and founder] Dave Ditzel for 15 years,” says independent chip designer John Wharton, “and I still don’t have the foggiest notion what they are doing. I’ve asked Dave, and he just smiles and says, come on down, sign an NDA and I’ll tell you.”
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Despite the fact that hardly anybody who hasn’t signed an NDA can say an intelligent word about Transmeta, many technology watchers on the Net believe the company is up to “something wonderful” — something that will change the computing world.
After all, Transmeta hired Linus Torvalds. Torvalds is the epitome of programming “cool.” Therefore, Transmeta is cool.
“For a start-up, Transmeta has unusually high popularity,” says Unix consultant Tim Berger. “This is partly due to Linus’ popularity and his
freely available operating system. Linux rules. I think the general perception is that something different is brewing at Transmeta, something far more interesting than the average start-up,” says Berger. “This perception is probably a reality.”
Linux rules because to millions of geeks it represents an alternative to the Windows way of doing things, the Bill Gates stranglehold over the computing world. Transmeta is basking in Torvalds’ reflected grandeur — and not wholly without reason. Many Transmeta programmers are active on Linux-related mailing lists and newsgroups. Transmeta has even taken over the job of hosting the Web site where updates of the core source code of Linux — the kernel — are made available for download. Torvalds has also made it abundantly clear that he wouldn’t have accepted the job at Transmeta if he hadn’t been guaranteed the right to continue working on Linux.
Some Linux devotees hope, then, that somehow Transmeta might be able to do for hardware what Linux is doing for software. Together, Transmeta and Torvalds could free the world from the “Wintel duopoly” — the domination of the entire computing industry by Microsoft and Intel.
No wonder then, that a shock went through the Linux community when the news spread across the Net on April 1 that Microsoft had bought Transmeta. Sure, most readers quickly realized the prank was an April Fool’s joke, but the underlying anxiety still rang true. What was Torvalds doing in the cruel world of Silicon Valley, where dreams are bought and sold every day via stock swaps, and the goal of many a start-up is simply to become successful enough to be bought by Microsoft?
After all, Allen, co-founder of Microsoft, is a major investor in Transmeta. One worried Linux fan even theorized a “nightmare scenario” in which Transmeta is actually controlled by Allen, and Gates had asked his old high school buddy to make Torvalds “an offer he can’t refuse.”
Sounds crazy, huh? Torvalds seemed to think so.
“Where do people find these rumors?” he posted to Usenet. “Paul Allen is a stockholder, and he just happens to be one of the ones you find when you do a search for [Transmeta] on the Net. But ‘controlled by’? Not even close.”
Most likely there is no nefarious, Redmond-hatched plan to neutralize Torvalds’ threat to Microsoftian world domination by locking him up in a hush-hush start-up thousands of miles from his native Finland.
There are certainly plenty of reasons why a company working on a dramatically new chip might covet Torvalds’ expertise. As chip designer Wharton observes, it’s increasingly impossible to separate the worlds of hardware and software. Plugging into the Linux community could give any new hardware product a leg up on its competitors.
At the very least, Transmeta has reaped massive publicity benefits simply by hiring Torvalds. Michael Learmonth, a reporter for the San Jose Metro who wrote a major feature on Torvalds a year ago, recalls that Transmeta executives seemed very “excited” at the prospect of a cover story on Torvalds. But after much deliberation, they would only allow the following information to be released about Linus’ role at Transmeta: “Linus Torvalds works for Transmeta. Transmeta is a corporation located in Santa Clara.”
“It seemed to me that they were trying to generate a little bit of heat just because they had a big name in Linus Torvalds,” says Learmonth. “They knew that it was getting notice.”
And notice carries market value — regardless of what Transmeta’s business turns out to be. Suppose Transmeta does announce a new product, and then immediately decides to go public and offer stock for sale. The scene is straight out of a wacky Silicon Valley novel: A horde of free-software fanatics rushes to buy the stock, making Transmeta employees and investors instant millions.
If the story of Transmeta proves anything, it is that fiction and reality are merging fast out there on Freedom Circle.
Or are they? We won’t know for sure anytime soon. In an e-mail message, Transmeta CEO Ditzel predicted that Transmeta wouldn’t announce a product for at least a year, and told me that “your readership might find our product plans a bit mundane.” He noted that “we had a major change in direction a few months ago, and that has slowed us down a bit.”
Slowed us down from what? Ditzel wouldn’t say anything more.
Ditzel has a stellar reputation in the chip business. Formerly the director of Sun’s Sparc Laboratories, two decades ago he was one of the earliest proponents of the RISC architecture for chip design — a major breakthrough in computing. To this day, the Sparc workstation is one of the few alternatives to the Wintel duopoly — leading some Transmeta observers to wonder if he’s plotting another major chip breakthrough.
By their own admission, as evidenced by job postings to Usenet newsgroups, Transmeta is a “fabless semiconductor corporation” that plans one day to ship “a revolutionary new product.” “Fabless” means that Transmeta doesn’t have a fabricating plant — it just designs chips. Allen’s Wired World site adds another nibblet of information: Transmeta is supposedly working on “Alternative VLSI engines for multimedia PCs.” This, however, like Transmeta’s own name, is so vague a description as to be useless. VLSI (“very large scale integration”) refers to chips with thousands of electronic components — in other words, just about any chip on the market. And any new PC is a multimedia PC.
EE Times columnist Wolfe says that Transmeta has had several changes of direction: “Initially, industry scuttlebutt had them doing a PowerPC clone. Then it was a Java processor. Now, they may be planning a media chip which can tie into network-computing environments.”
There is some hard evidence that Transmeta is working on chip designs for graphics processing. Transmeta is a member of VESA, the Video Electronics Standards Association, as well as AGP-IF, the Accelerated Graphics Port Implementers Forum. Then there’s a reference at the Elpin Systems Web site suggesting that Transmeta “makes things that go faster.” Elpin’s president, Larry Coffey, refused comment, citing an NDA, but Elpin’s main business is manufacturing test equipment for graphics hardware.
Both Brookwood of Dataquest and Wharton believe that Transmeta must be working on a chip that is in some way compatible with the “x86 architecture” that is at the heart of all IBM-compatible PCs. As Brookwood notes, this is a $23 billion-a-year market, 80 percent of which is controlled by Transmeta’s neighbor, Intel.
“Just as Willie Sutton robbed banks because that was where the money was, x86 is where the money is, ” says Brookwood.
The available evidence, then, suggests that Transmeta is working on some kind of superfast video processing chip that will plug into IBM-compatible PCs.
One senses Pynchon suddenly becoming bored. A chip that provides speedy video processing isn’t exactly “revolutionary,” nor is it the kind of breakthrough that will galvanize millions. Why the elaborate secrecy?
Of course, all this could be clever disinformation meant to distract avid Web surfers from Transmeta’s secret plan to turn Silicon Valley on its head and topple Intel by pioneering a dramatically new chip architecture. Wharton himself, an Intel veteran, has dreamed of such a breakthrough. The key, says Wharton, would be devising some kind of superfast new chip that would allow for dramatic performance gains with new programs, but at the same time be able to run all your old Windows “x86″ programs.
“The sort of thing I would do if I was in Dave’s shoes would be to design a processor that can run existing x86 programs somehow, though perhaps suboptimally,” says Wharton, “and then have a native mode where it runs the program with balls-to-the-walls optimum performance. These two designs aren’t incompatible.”
Such an approach might explain the hiring of Torvalds. Suppose you created a new ultrafast graphics chip, Wharton surmises, “and you were able to use the Linux community to port Unix operating systems and compilers to this new architecture. Instantly you would have access to the entire body of Unix software that is out there. If you are throwing a new chip out on the market, it would make immense strategic sense to involve the Linux community in your efforts.”
Even more intriguingly, Wharton suggests that the approach he outlines would mean that the very name Transmeta would actually be “perfectly reasonable.”
“What are the qualities of this approach to processor design?” asks Wharton. “You start with a meta architecture that’s at a meta level compared to the programs that you are trying to run and then you take your existing programs and translate them into the existing meta architecture on the fly.”
I asked Dave Ditzel what the name Transmeta signified.
“The name Transmeta has no particular meaning,” answered Ditzel. “When you register a company, you need a name that isn’t in use. It’s surprisingly hard to find one. We just took prefixes and suffixes and combined them until we got a name that was unique.”
Oh well. Never mind. Of course, if I were running in paranoid mode, wouldn’t I expect Ditzel to say exactly that? We’ll just have to wait and see.
But for how long? Transmeta was founded in late 1995. It received upward of $12 million in capital in 1997. Michael Learmonth, the San Jose Metro reporter, recalls that a Transmeta executive suggested they were on the verge of a major announcement — almost a year ago. Three years is a long time for a start-up in Silicon Valley to go without bringing a product to market. As Dataquest analyst Brookwood notes, “The last company that was this secretive was MicroUnity [which promised a breakthrough "media processor chip"]. And they spent an enormous amount of money and produced nothing.”
But Wolfe disagrees with the hypothesis that Transmeta’s delays to market signify trouble.
“I think they’re proceeding with the deliberate caution that befits a company intent on being a player for the long haul,” says Wolfe. “Dave Ditzel won’t let his company crash and burn the way MicroUnity did. Indeed, that’s precisely the reason Transmeta’s game plan has shifted so many times … Ditzel’s sort of like a surfer, trying to catch just the right technology wave and ride it for all its worth.”
“If I was handicapping, I’d bet on Transmeta,” says Wolfe. “I expect them to succeed because they realize that incremental progress — taking one small step forward at a time — pays off much more handsomely than the promise of ‘revolution.’”
Except that, as least as proven by its job postings, Transmeta is promising revolution. And Linux geeks all over the world are praying for it. They’d do well to ask themselves the same question I asked in Transmeta’s parking lot. Are those trees for real?
Step inside the vast new Fry’s Electronics superstore in Sunnyvale, Calif., and you enter an enormous warehouse, bizarrely decorated to look like a museum, stacked to the rafters with a mind-bogglingly huge inventory of consumer electronics and staffed by some of most loathed salespeople in the world. You’re also walking into the latest incarnation of a Silicon Valley legend.
Fry’s five local stores have such a firm place in Valley mythology that tourists visit them by the busload. An entire Yahoo category is now devoted to Web sites that satirize the chain. It’s even been immortalized in fiction.
When Daniel Underwood, the bug-checking hero of Douglas Coupland’s Silicon Valley novel “Microserfs,” needs to buy a strip of EPROM memory, he heads, of course, to his local Fry’s. Once there, Daniel and his friends marvel at “the pyramids of Hostess products, the miles of computing magazines, the cascade of nerdiana lifestyle accessories: telecom wiring supplies, clips, pornography, razors, Doritos, chemicals for etching boards.” Then Daniel runs into a boy who’s the spitting image of his dead brother and freaks out in the aisle.
As locals will tell you, stuff like that happens at Fry’s all the time.
Soon, people across the country may have the chance to experience their own moments of Fry’s-style weirdness. A U.S. News and World Report article last year heralded the Fry’s retail model as “the future of computer retailing.” And in the last few years the company has expanded beyond its Valley home into Southern California and, more recently, Texas and Arizona.
The chain certainly seems to be doing well. According to Computer Retail Week, Fry’s, with just 16 stores, was last year the 13th largest retailer of computer merchandise in the United States, outselling considerably bigger chains like Radio Shack and PC Warehouse. Forbes estimated that Fry’s grossed an average of $85 million per store last year, “among the highest in the industry.” By comparison, the 272 Best Buy stores only averaged $28 million per store.
What’s made Fry’s such a phenomenon isn’t just the kookiness of some of its customers and the way its inventory makes it a technophile nirvana. On a deeper level, Fry’s is flouting one of the most basic rules of retailing — the one that says you should treat your customers nicely or they’ll take their business elsewhere. That raises a tough question for the company’s future: As Fry’s tries to extend its reach beyond its Silicon Valley birthplace and across the United States, can its blend of superstore selection, low prices and benign (or malign) neglect of shoppers retain its appeal?
Looking for a provisional answer, I recently visited the company’s new Sunnyvale store.
You notice the most obvious element of the Fry’s formula before you even enter the store: Each outlet is decorated according to a unique theme. While other Fry’s stores are designed to look like a Mayan temple, a Wild Western saloon or a UFO crash site, in Sunnyvale the standard superstore frontage is interrupted by a portico with a giant metallic “pulse” tracking across it. The theme here, it turns out, is “The History of Electronics and of Silicon Valley.”
Inside, another huge wave undulates around the perimeter walls of the vast interior. Near an enormous bank of checkouts, blown-up vintage photos of engineer celebrities from the Valley’s early days loom over you. And among the acres of PCs, hard drives, CDs, magazines, telescopes, junk food and pharmaceuticals that make up the eclectic, engineer-friendly inventory, pyramidal glass cases display iconic examples of vintage electronic machinery (a transistor! an early Apple!) invented by the people the store presumes are heroes to its customers.
The design, though, is strictly a veneer. Wandering the vast aisles, you can’t miss that you’re in an enormous supermarket. Stacks of discounted software beckon at the end of every aisle. Eye-level shelves are filled with high-profit items, often from cheap but little-known brands. The Fry’s strategy, it seems, boils down to its own version of “pile ‘em high, sell ‘em low.”
But just by walking into the store I got an immediate taste of another, less commonplace, but apparently no less essential aspect of Fry’s’ retail strategy. I entered with a backpack on my shoulder; this quickly triggered the approach of a polite man who spoke little English but made it clear he suspected I might be a criminal. He pointed me to another guard who offered to take the bag off me but offered no tag, number or peg in return. He planned, it seemed, to store my unmarked bag under an exposed podium right by the exit. With so many criminals like me about? No way! I took the bag back to my car.
On my second attempt, I made it inside. I even met several sales assistants who offered both help and advice. It says a lot about Fry’s reputation that this came as a surprise.
“It’s a nightmare,” Valley-born novelist Sylvia Brownrigg had told me before I went. She tried to buy a new computer at the Palo Alto Fry’s a couple of months ago and came out shaking: “It’s great if you know what you want, otherwise you feel underinformed, ignorant and lost.”
She’s not alone. According to many customers and observers who fault Fry’s staffing practices and service standards, the store’s “pile ‘em high, sell ‘em low” formula has a third element: “Treat ‘em rough.”
Is this how Fry’s would describe their strategy? It’s hard to tell. Another basic rule of conventional retailing the firm flouts is the one that says a store should carefully tend its public image and its relations with the media.
Fry’s is an almost pathologically private company. It won’t tell you how it’s doing or what its plans are, and it won’t discuss with anyone the secrets of its success. Fry’s press liaison, Sonya, won’t even give out her last name. For a profile of the company last November (headline: “The customer is always right? Not at Fry’s”), two reporters from Forbes magazine staked out the lobby of Fry’s San Jose headquarters for two days, waiting to talk to John Fry, the company president and brother of two of its four co-founders. All they got out of him when they finally spied him was a single word: “Hi.”
But if Fry’s owners don’t want to talk about their retail style, their customers sure do. Bad experiences at Fry’s, coupled with the company’s habit of not responding to complaints, have spawned a host of horror stories about the firm. And those tales have roosted across that great repository of resentment and revenge, the Internet.
Dave Schultheis began his “Experiences at Fry’s Electronics” page in the summer of 1996 after a couple of hugely frustrating visits to Fry’s. Ever since, people have been sending him Fry’s stories, fair and foul (but mostly foul). The site now runs to 10 long pages of them. “I’m approximately 11 months behind on posting messages that people have sent me,” he says — there are too many to keep up.
At the end of last year, Steve Thomas, a Fry’s customer in Los Angeles, came across Schultheis’ site and “was inspired” to create a Fry’s bulletin board. He’d had some “interesting” experiences with Fry’s, and figured that “there had to be others that shared the same views. Apparently I was right.”
Both sites are full of tales of false arrests, ignorant staff with no command of the English language and complaints about advertising campaigns that seem to employ bait-and-switch tactics. You can find similar reports in newsgroups of the alt.consumer.experiences variety and a host of other former customers’ joke and complaint pages.
And the horror stories are not just anecdotal. Most of Fry’s Silicon Valley stores have “unsatisfactory” records with the Santa Clara Better Business Bureau for not responding to complaints — although they do appear to resolve complaints reported to the Santa Clara County district attorney.
Thomas’ site also gets posts from Fry’s staff. They sometimes paint a picture of a virtual police state, where the non-unionized staff is under as much suspicion as the customers, and where anyone who gets any good at their job gets out.
To be fair, a recent visit by Computer Retail Week’s Secret Shopper to the Fry’s in Fountain Valley, Calif., gave the store a rare four stars and a very positive write-up. And Fry’s may have reason to be paranoid, since staff theft is typically a more costly problem for retailers than customer theft (as customers who post to the Fry’s Experiences forum point out when they complain about the store’s infantilizing examine-your-receipt-before-you-leave policy).
Also in Fry’s defense, it’s worth noting that the entire electronics retail industry has a bad reputation for customer service. After shopping in six other major computer retail stores, PC World journalists recently concluded that “in most cases, we knew far more than the staff did about the computers they were selling.”
Still, despite its adoption of the wildly misleading — or hopelessly optimistic — slogan “Home of fast, friendly, courteous service,” Fry’s has a way to go before it becomes one of the industry’s less egregious offenders.
The marvel is that Fry’s’ generally sullen treatment of its staff and customers doesn’t seem to have harmed its business at all. From the “they had me again” flavor of the typical outraged posting at Thomas’ forum, you get the sense that these outraged people are regular customers. “In fact, I went to Fry’s two days ago for some memory,” says Thomas.
There’s a straightforward explanation for this: price. As “Experiences at Fry’s” host Schultheis puts it: “The simple answer is that the aggressive pricing policies at Fry’s have a strong effect on people; they want to save money and they are willing to put up with some of the stupid things Fry’s does in order to save money.”
But if price is the main reason people persist in shopping at Fry’s, the company should be worried. Fortune’s Winter 1998 “where to shop” PC buyers guide found that direct sellers like Dell and Gateway 2000 average 10 to 20 percent cheaper than the electronic retail chains.
Responding to this trend, other retailers have improved their service. Radio Shack, for example, says it now aims to spend an hour with each customer who purchases a new computer. But if Fry’s is attempting similar improvements — as, perhaps, my experience at the new Sunnyvale Fry’s suggests — they’re certainly not announcing it to the world. And they have a long way to go.
Perhaps the biggest competition that low-price, low-service stores like Fry’s face is from online retailing. The Department of Commerce report “The Emerging Digital Economy,” released April 18, cited huge growth last year in online transactions by businesses and consumers. Dell, for example, saw Internet sales increase in 1997 from less than $1 million per day in January to up to $6 million per day in December.
In response to the online threat, competitors like CompUSA have opened up their own online sales channels. But Fry’s, unsurprisingly, is following its own course. Having won a notorious fight with Frenchy Frys, a Seattle retailer of french fry vending machines, for the frys.com domain, it has since sat on the name.
Fry’s won’t, of course, reveal why, or what its online plans are. According to the mysterious Sonya, the official line is that the site is “in development.” In the meantime, people searching for information about where or how to find a Fry’s store find sites like Schultheis’ instead.
Does Fry’s just know something its competitors don’t? Although it is impossible to verify, Fry’s doesn’t seem to be changing its strategy as it expands. Phoenix customer Martin Maxwell says, “I went there for the price. I will NEVER go back there for the service! Even a couple of their floor employees agreed with me … they agree that the customer is not first.”
But the new stores seem to be doing well. Fry’s is one of the biggest outlets for Mixman Technologies, a young and growing Bay Area music software company. Eric Almgren, Mixman’s CEO, says, “From what we hear, the new stores are doing gangbusters and the feeling is very positive.”
“The thing about Fry’s is that it’s a giant toy store for computer geeks,” says Thomas, the Fry’s bulletin-board operator. Maybe Fry’s success, beyond the low-price strategy, relies on something the company has no control over: the spread of the technophile culture that helped spawn it in the first place.
When U.S. News and World Report predicted that the Fry’s model was the future of electronics retailing, it saw a future that was increasingly “computercentric,” where shoppers would be highly techno-literate and demand far more technological choice than they have been offered in the past. It saw the “civilians who descend on Fry’s” on weekends in Silicon Valley as an entirely separate species from the “technical staff” who populate the store during the week. But in suggesting that Fry’s weekend crowds represent an expansion of the store’s reach beyond the geek ghetto,
U.S. News may have gotten the story wrong.
Ask Jan English-Lueck, an anthropologist at San Jose State who has made the people of Silicon Valley her object of study. She’ll tell you that the “civilians” who go to Fry’s on weekends are the same people who were there during the week — only this time they are bringing their families. “It’s a family theme park,” she says. The engineer mother can buy some software, Dad the research scientist can get his new telescope and the kids can try out new games.
English-Lueck also identifies a key reason why Fry’s does well in the Valley but might not fare so well elsewhere. It isn’t so much that Fry’s customers love the place, she says, but instead that they take a “pride in their dislike” of it: “Glorying in its awfulness,” they rather like the idea Fry’s “could only happen in a place where you bring your own expertise.”
That’s a quintessential Silicon Valley attitude. But it’s not a good omen for a store that has ambitions to expand into Middle America. It suggests that Fry’s strategy will work only where there’s a critical mass of people similar to those who inhabit Silicon Valley — people who are proud of their expertise and don’t expect to be helped.
It seems that Fry’s owners are aware of this themselves. When they expanded, they bought only six stores of the 17 that made up Tandy’s Incredible Universe chain — all in markets (like Phoenix and Dallas) with strong and expanding high-tech sectors.
But the Fry’s recipe is unlikely to succeed in standard-issue malls nationwide. And in a way, that’s too bad. For all its bullying, its paranoia and the frustrations it causes its customers and staff, Fry’s is a store of distinct character and individuality. It’s perversely wonderful to see a company succeed while brazenly dismissing conventional marketing wisdom.
Why should Fry’s have to talk to people about what it does, or care what anyone says about it? And if customers like it, as large enough numbers of people clearly seem to, what’s wrong with their being hooked on a shopping experience that treats ‘em rough? Perhaps they just find it refreshingly different to have a relationship with a retailer that has a little bit of S&M about it.
Susan Bruce is looking for work. That’s the “downside” to being an independent contractor, she says. But she doesn’t sound too alarmed: Looking for work is part of the lone-wolf professional path she has chosen and loves. Although she has more than 30 years’ experience as a technical writer, editor and project manager, she’s never worked at a single job longer than “two years and seven months.” She stresses the number with evident satisfaction.
Bruce lives in Hayward, Calif., on the outskirts of Silicon Valley, where independent contracting is a widespread and prized way of life. Though she has worked for “psychopaths” and as a lowly temp, she says she wouldn’t trade in her lifestyle for the security of a staff job.
She’s not alone. In the Valley, the contractor, that proud freelancer who swears allegiance to no one, is a cherished archetype — and an icon of a future where everyone is free to work as they please.
But today, the rules are changing, and independent contractors, stuck on unstable ground between the age-old forces of labor and capital, are caught in a squeeze. Recent court decisions aimed at improving the lot of high-tech employees have made companies gun-shy about hiring contractors.
Independent contractors are the vital cogs in the machine of the virtual corporation, where every relationship is a temporary reaction to the needs of the moment. Yet even in Silicon Valley, which boasts an unemployment rate of 3 percent and is in the middle of a boom that just won’t stop, these freelancers have become highly vulnerable. If they are not yet an endangered species of labor, they are certainly on the run.
Lately, Susan Bruce has started facing unexpected obstacles: Potential employers are requiring multiple interviews, both over the phone and in person. They’re conducting background checks to make sure that she has workman’s comp and health insurance. She’s even been forced to list herself with a recruitment agency — a step that many independent contractors consider tantamount to vassalage. But without working through an agency, she says, most companies won’t even consider her now.
“It’s because of the Microsoft lawsuit,” says Bruce, referring to a controversial court decision handed down last October. In that hugely influential ruling, the U.S. Court of Appeals for the 9th Circuit reversed a district court and concluded that Microsoft had illegally denied access to stock options and other benefits to a group of independent contractors.
The court based its decision on the assumption that these independent contractors were independent in name only. In doing so, it built on an earlier Internal Revenue Service finding that Microsoft owed payroll taxes on its independent contractors.
“Large corporations have increasingly adopted the practice of hiring temporary employees or independent contractors as a means of avoiding payment of employee benefits, and thereby increasing their profits,” reads the majority opinion, written by Justice Stephen Reinhardt. “This practice has understandably led to a number of problems, legal and otherwise.”
Labor activists immediately hailed the decision as a victory for the so-called “contingent work force” — the burgeoning group of workers who have no permanent job, thanks to constant corporate downsizing, outsourcing and subcontracting. But many independent contractors see the decision as a direct blow against their livelihood. And the short-term result of the ruling has been the opposite of what was intended: Instead of taking responsibility for their independent contractors and treating them as permanent employees, corporations are taking pains to avoid hiring independent contractors directly in the first place. Susan Bruce, for instance, was forced to list herself with an agency, because the corporation she had been working with wanted assurance that someone else would take responsibility for her benefits and insurance.
“Companies watch this sort of thing with great nervousness,” says Jeanne DeVoto, a freelance computer consultant in Silicon Valley. “It means that either you have to go through massive hoops to get a contract, or you can’t get a contract at all and are required to go through an agency, which will take typically 10 to 35 percent of your fee.”
“The upshot of all this is that it makes the freelancer’s life considerably more difficult, and tends to put us in a position in which either our fees get siphoned off to agencies or we can’t get contract work at all and must become corporate employees, with all the disadvantages that entails,” says DeVoto. “It’s an enormous pain in the butt when you’re trying to do business as an individual, basically.”
It’s not just an annoyance for the contractors but a burden on the companies, too. Corporations who hire independent contractors through recruitment agencies tend to pay the agency a premium. Bruce says that one company she had been contracting with agreed to pay this extra amount because a particular manager liked her work. But that manager is now gone, and “I doubt that they would hire me again,” she says.
Although the 9th Circuit ruling was specifically aimed at Microsoft, no place has felt its impact more keenly than Silicon Valley. By most estimates, Silicon Valley corporations rely on independent contractors and other forms of “temporary” labor more heavily than companies in any other U.S. region. In the home of the virtual corporation, everything, ideally, is contracted out — marketing, manufacturing, distribution — and everyone is an independent contractor. Flexibility is king.
Whether purely independent, or through agencies, independent contractors and other forms of temporary workers perform a vast range of jobs that range from the menial to the highly technical. Anything is for hire on a short-term basis — systems administrators, programmers, technical writers, graphic design specialists, marketing whizzes.
The classic image of the temp in popular culture is the fresh-out-of-college English major trudging from low-paying receptionist job to low-paying file clerk job with no benefits and no hope of career advancement. But in Silicon Valley, more than 350 temp agencies can deliver C++ programmers and Japanese translators. Manpower Inc., the nation’s largest temp agency, has a technical services department that is growing at 40 percent a year, and the bulk of that growth is centered on Silicon Valley.
Together, temps, independent contractors and other varieties of part-time workers make up the contingent work force. Today, contends Christopher Benner, a labor activist and UC-Berkeley doctoral student, some 27 to 40 percent of workers in Silicon Valley can be considered contingent.
Benner sees that as a problem, since contingent workers are more vulnerable in an economic downturn than permanent staffers. As the high-tech economy relies more on contingent workers, he says, inevitable “blips” in the economic cycle can become increasingly painful.
But Benner’s argument lumps temporary workers in with independent contractors. He admits this is problematic, and it’s hotly disputed by contractors themselves. Temps and independent contractors are distinctly different species. Just because you don’t have a staff job doesn’t automatically mean you are being exploited.
Technically, independent contractors, even if they work through an agency, are self-employed. They generally negotiate their own contract with their ultimate employer, set their own hours and work as they please. Temp workers are employed by a temp agency, typically for whatever rate the temp agency has worked out with the employer beforehand. Temp workers work when and where they are told to.
Psychologically, temps tend to be permanently unsatisfied, whereas independent contractors are more content with the flux of their work lives — they luxuriate in the freedom to spend more time with their children or to work at home.
But ultimately, the crucial dividing line is financial.
“The real difference is the hourly rate,” says Andreas Ramos, a successful technical writer who lives in Palo Alto and prides himself on refusing jobs requiring a commute of more than 15 minutes. “Is it 10 dollars or 50?”
“We have totally different agendas,” says Ramos, boasting that he recently turned down an $80,000-a-year staff job because it didn’t pay enough. “Temps want job training, health care. Those aren’t issues for us. We have different needs, different economic realities, different social classes.”
Ramos is the chairman of the local tech writers committee of the National Writer’s Union, but he is far from a labor activist. He’s unworried that traditional labor sees the rise of the contingent worker as proof that management has the working-class back up against the wall.
“I have huge amounts of job security,” says Ramos. “Job security is about being able to find a job.”
The situations of contractors like Ramos, Bruce and DeVoto illustrate how difficult it is to make sense of our economy’s growing reliance on contingent workers. At Microsoft, the evidence seemed to suggest that, yes, the company was exploiting its relationship with independent contractors: Microsoft’s contractors worked on the Microsoft campus, had no other employer and worked at the company for years at a time. The company had the benefit of a permanent work force without any of the corresponding responsibilities. And it was by no means an exception. Such practices have been standard at Silicon Valley corporations for years.
But if this is exploitation, many contractors are content with it.
“The increasing use of temporary workers without benefits reflects business realities,” says Jeffrey Wohl, a lawyer who specializes in labor law at the San Francisco law firm Orrick, Herrington & Sutcliffe, “including both the need of business to reduce labor costs and the willingness of workers to accept part-time or temporary assignments.”
That willingness is not just the willingness of dupes. When the San Jose Mercury News ran a special four-day series on temporary workers in Silicon Valley in February, the majority of online responses in the Mercury News’ conferencing area came from happy independent contractors. They thrived on their insecurity. And they found it infuriating that legal decisions ostensibly aimed at helping them end up doing exactly the opposite.
“It’s hard to see who benefited from the Microsoft case,” says Susan Bruce. Certainly not independent contractors who want to stay independent. And definitely not temp workers, whose status hasn’t been touched. In fact, the main beneficiary of the ruling, ironically, has turned out to be temp agencies, who have seen their rosters swell with independent contractors frozen out of jobs.
“Independent contractors are losing control,” says labor activist Benner. “That’s not what we wanted. We wanted Microsoft to take responsibility for its workers. We’re not happy that that responsibility is going to the temp agency.”
The final disposition of the Microsoft case is unclear. A full appeals court is reviewing the decision, and some legal analysts suggest it may be reversed. Others say the case will go all the way to the U.S. Supreme Court. But as the aftereffects of the decision work their way through the economy, one thing is clear: Independent contractors, the lone wolves of the virtual corporation, buy their freedom at a price. And any change in the ecosystem can have a devastating effect on them.
For many, that might be all right. Independent contractors pride themselves on taking responsibility for their own working conditions. Ramos believes that independent contractors, who spend their lives honing their skills and looking for work, are best prepared for any negative circumstance. Armed only with their “skill set,” they wake up every morning ready for whatever the market has to offer.
But what if the market, prodded by new court decisions or the next big economic downturn, just says no? Maybe flexibility will find some way to survive and triumph. Or maybe the Silicon Valley independent contractor, far from being the next wave in the evolution of labor, will slink off into the sunset, a victim of changing times.
