Posted on 06/19/2003 8:04:02 PM PDT by technochick99
The Smith family--yep, like Jayson Blair, I'm making this up--lives in Redwood City, 20 miles south of San Francisco and on the northern edge of what is known as Silicon Valley. The head of the household, John, works as a software coder at Sun Microsystems. He's a good coder but not a superstar on the level of Sun's cofounder, the legendary Bill Joy. John Smith makes $95,000 a year, which sounds plentiful to most Americans. In truth, it doesn't go too far in Silicon Valley, where the cost of a modest 1,900-square-foot house with three bedrooms and one and a half baths crowded onto an 8,000-square-foot lot is--hold your breath!--$786,000. But that's the house where John, his wife, Rosa, and their two children live.
Rosa met John at Sun, back in the early 1990s. She was a newly minted English major writing brochure copy for $38,000 a year; John was making $80,000. After marrying, John and Rosa's combined income was $118,000, plus bonuses. With one child on the way, that was a pretty good sum.
Even better financial conditions lay ahead for the Smiths. After Sun's stock started on its rocket ride during the late 1990s, John's options were worth $360,000. Wisely, in 1999 he and Rosa decided to exercise and sell half their options, using the aftertax $142,000 of their capital gains proceeds as a down payment on their first home in Redwood City. They purchased it for $420,000, which left a mortgage of $278,000. With John's $80,000 base salary (not counting bonuses that averaged $40,000 a year--an amount equivalent to the salary of Rosa, who had quit her job upon learning she was pregnant again), monthly payments were a snap.
Good times rolled for John and Rosa Smith. A second child arrived, and so did job opportunities for John. He weighed offers from software giant Oracle, as well as from three dot-coms--two of which were backed by brand-name venturecapital firms and looked like sure bets to do an IPO and make their early employees rich. This was a heady experience. John decided to stay put because Sun kicked up his base salary to $95,000. John's boss at Sun also granted John more options, a six-week sabbatical and more flex time. Now that was a package!
John felt like a master of the universe! Every employer inSilicon Valley wanted him. He was calling his own shots. The money was pouring in. The Smiths were almost millionaires--on paper, anyway. It was time to trade up to an executive-style house. Time to apply to a private golf club. Time to think about private schooling for their oldest daughter, Kirstin, now 5.
Slide Down the Matterhorn
Sun's stock peaked at $65 in September 2000--six months after the Nasdaq stock composite index peaked at 5031--and the Smith family's paper worth climbed to more than $1 million. John felt like a million bucks. When Sun's stock sagged to $40 in November, he wasn't too worried. The Smiths were in good shape. John's weighted average option strike price at Sun was, after all, $22. The Smith family's paper net worth might not have been $1 million anymore, but it was easily three-quarters of that, counting their home. Thus buoyed, John flew his family (business class) to Italy, where they enjoyed their six-week sabbatical, and spent $45,000.
But Sun's stock kept falling. And falling. It fell so fast that John and Rosa felt paralyzed and missed the opportunity to exercise their options and sell. When Sun's stock fell below John's weighted average strike price of $22 in early 2001, John realized that his Sun paper wealth had vanished. Another type of compensation also vanished later that year--John's bonus. Sun suspended bonuses in 2001, and again in 2002. By then, the company's stock price was hovering around $3.
The Smiths were lucky in two respects. They had their home. And John still had his job, with its $95,000 income. But now this income had to support the entire Smith family concern. Out of the $95,000 had to come the money for taxes, food, clothing, the monthly mortgage, insurance, preschool payments and vacations. Reluctantly, the Smiths put Kirstin in public school. The closest the Smiths came to Italy in 2002--and again in 2003--was a wet slide down the Matterhorn ride at Disneyland. The Toyota Sienna minivan that propelled the Smiths to Disneyland was paid for, but it had 107,000 miles on it and smelled like sour milk.
At work, John no longer feels like a master of the universe. He feels lucky to have his job. He suddenly feels like a commodity, and he doesn't like that feeling one bit. During the last three years, thousands of software jobs like John's have migrated to Bangalore, India. John is so worried about his job that he doesn't take the flex time promised to him. He doesn't sleep well. After two hours of coding at work, the trapezius muscles connecting his neck to his shoulders feel as hard as cast iron. He would like to go for a sauna and a massage, but the $95 that costs would blow the Smith's weekly budget.
The Smiths have dropped out of the upper middle class. Should we feel sorry for them? To be a middle-middle-class American in the early 21st century is to occupy the 99.99 percentile of human existence, in terms of nutrition, wealth and ease. But the Smiths don't feel that way. For a few years in the late 1990s the Smiths had tasted something better. They were upper middle class, or at least close enough to feel like it. They miss that. They are frustrated. They want back in.
Millions of American families are just like the Smiths. Politicians, take heed. The Smiths will decide the election of 2004.
Although this sort of scenario sounds like Recent News, it's been going on in the awl bidness for a LONG time. My uncle Don (rest his soul) spent most of his adult life working for Gulf Oil. Then one day in the 70's, he noticed two things - 1., he could retire at that moment on tenure - and 2., consultants to Gulf Oil made far more money that people on staff at his level.
So he "retired" and was immediately "hired" as a consultant to --- Gulf Oil. OK, there was a 6-month gap, which he had pre-planned as a vacation. But during the last 5 years of his productive career, he was a consultant to Gulf and made far more for less work than he ever had as a VP Exploration.
Of course, he was WORTH what Gulf paid him because he had a knack for getting things done ahead of schedule and a sixth sense for knowing the best way to find a reserve and extract it. He was spooky that way.
Michael
He was also worth what Gulf paid him because they no longer had to worry about paying payroll taxes, unemployment insurance, and any number of other administrative costs related to their own employees.
Forget it. Hillary is a big fan of Indian outsourcers, she was instrumental in bring Tata Consultancy to New York.
Most of the Next Gen powerplays that will obsolete companies like Accelrys are being developed in R&D facilities in the US. Companies like Accelrys are pretty weak sauce technologically, and won't remain competitive long. Yes, a lot of software development is shipped overseas, but most of that is low-rent software development. Most of the really fancy stuff is done solely in the US.
As a general note on outsourcing software, I think it is relatively clear that it is mostly a fad. Most of the companies that I know have done it (and I've done it myself as well) have been totally underwhelmed by the value proposition in practice. There are a lot of companies in Silicon Valley who would no longer seriously consider outsourcing software development because they tried it and it didn't work. It is difficult to justify the investment when all is said and done -- most of the big outsourcing ventures by major companies is a political move in some of their major growing markets i.e. greasing the politicians of the local governments.
Yeah, spending at least 4.5% of one's entire paper wealth on one vacation strikes me as a wee bit extravagant, too.
MM
MM
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.