From Bang to Net

How Arno Penzias, who won the Nobel Prize for confirming the universe started with a Big Bang, turned his back on pure science and became an investment banker for Silicon Valley

So AT&T bought a computer company, NCR. And it proceeded to lose $6.8 billion through NCR. AT&T bought makers of other technologies it had helped pioneer, then abandoned them. And AT&T turned those firms into money losers, too. In an effort to adapt to competition, AT&T hired market research firms to help it divine profitable areas of technology. One such firm convinced AT&T to abandon the development of the cellular telephone -- the potential market was too small, researchers said.

By 1989, it had become untenable to maintain Bell Labs as a lofty font of human knowledge. It had to become an integral part of the new AT&T, painful as it might be for the scientists who worked there. As director of research for Bell Labs, Arno Penzias realized that the days of the old Bell Labs had to come to an end. He had two choices: He could quit, and leave the job of tearing down pure science at the Labs to someone else. Or, he could do it himself.

Arno Penzias, now a Silicon Valley investment banker, sits on a couch in his spacious, yet simply appointed, San Francisco apartment, and endeavors to describe the moment he turned away from his former tribe. During the description, he is interrupted by a phone call -- his venture capitalist employers, perhaps -- and the caller urges him to join a conference call that had been previously scheduled for that morning.

But the caller can wait.
"Hello? Yeah, hi Vic. OK, I'm gonna, I'm gonna be back on the line in what, two, three minutes?" Penzias says, pacing toward the center of the living room. There's a pause, and in a quieter tone he adds: "OK. I'll get right down. I'll get right down there. OK. Bye."

Penzias will keep the conference call waiting another 10 or 15 minutes. First, he must explain -- possibly rationalize -- the moment when, a decade ago, he came to be seen by some of his contemporaries as Judas to the cause of science.

Since retiring from Bell Labs, Penzias has devoted his time to the role of investment adviser to New Enterprise Associates, a Menlo Park venture capital firm. Now, to the Silicon Valley crowd, he's a financial and technological wizard who peers into the future of electronic networks, and hence the future of the world. From his condominium in San Francisco he flies to technology conferences around the world, giving keynote addresses about the future of society and technology. He writes popular books on corporate management and technology.

Arno Penzias is at the center of the action. Again.
In the current research zeitgeist, the Right Stuff doesn't belong to the generation of scientists who put man in space: It belongs to the Bill Gateses of the world, who've turned those scientists' discoveries into gold.

This trend is certainly not the fault of the Bell Labs Penzias directed: America's post-Sputnik enthusiasm for scientific curiosity was bound to wane someday. But representing, as it does, the staining of America's premier research lab, the tale of Bell Labs and Arno Penzias is seen by many as the hallmark of an age.

At first reluctantly, then with the same kind of verve that made him a titan of science during the 1960s and 1970s, Penzias implemented during the '80s and '90s a systematic dismantling of the pure, long-term scientific research that Bell Labs had been famous for.

As Penzias tells it, this was the result of an anguished decision in which he sacrificed some pure science, so that the rest of research at Bell Labs might survive following the forced divestiture of the Bell Telephone system in 1982. He made a decision not unlike that of a general who cedes a division so that his army might prevail. Through the mid-1980s, Penzias explains, he struggled with top management at AT&T, hoping to promote the Labs to his superiors in other AT&T units as a source of useful, profitable inventions, while maintaining morale inside the Labs by preserving the ethic of pure scientific excellence.

The basic idea Penzias came up with was to forge greater connections between business and marketing personnel and the scientists and engineers at the Labs, while eliminating the more esoteric research -- that is, the research that won Nobel Prizes, but didn't make much money. Emphasis was switched from physical sciences to programming.

The problem was, the middle managers in the business divisions knew little about how the Labs worked. And, it seemed, the scientists knew even less about the business they were ostensibly in.

"What happened was, for the next six or seven years after I was hired in 1982, I used my body as a shock absorber between the forces of economics and this thing I was supposed to protect. People would describe me as 'Arno -- the guy who has saved research. He has kept it the same.'

"And then one day I finally had an epiphany. I went into some senior manager's office. He was not the most gifted of the AT&T executives, but he was, he was -- he's since left. But I went into his office, and I realized. I said, 'God,' " Penzias describes, the last word cracking into a whispered epithet. "The thing was, he was totally a marketing guy, and at this point, I felt it would snap, finally. His idea was, he could play with any part of the company because he was putting things together. He thought of this as a -- he was a deal guy. And I said, 'You know what?' And at that point, I actually almost got sick, and I said, 'What am I going to do? Am I going to quit?' I said, 'This is impossible. I can't protect things anymore. I can't protect things from this guy.' Not that he was evil or stupid, but he thought differently. And I ran out of cushion.

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