Silicon Valley's Continuing Allure June 2015
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Silicon Valley refers to the southern part of the San Francisco Bay Area in Northern California. Although several of the largest high-tech companies in the world and myriad promising tech start-ups have headquarters in Silicon Valley, many innovative companies operate from locations across essentially the entire Bay Area. In addition to its geographically specific definition, the term Silicon Valley often sees use to describe the US high-technology industry as a whole. Despite efforts by many countries and other regions (including a number of areas in the United States) to establish themselves as innovation centers, Silicon Valley has retained its prominence as a world-class innovation ecosystem for decades, successfully adapting to changing technologies, economics, and policies whenever necessary.
Silicon Valley's ecosystem will serve as the foundation for the next wave of innovation.
In January 2015, the Silicon Valley Competitiveness and Innovation Project—a collaboration between the Silicon Valley Leadership Group (San Jose, California) and the Silicon Valley Community Foundation (Mountain View, California)—released a new report. Developed and prepared by Collaborative Economics (San Mateo, California), the report plots the "Evolution of Silicon Valley" by referring to five waves of areas that companies in the region have focused on: defense (1950s–1978), integrated circuits (1979–1986), personal computers (1987–1996), internet (1997–2005), and social media (2006–2013). Each of these waves has contributed elements that have helped shape Silicon Valley's current ecosystem. The depth and continuing vitality and dynamism of Silicon Valley's ecosystem will serve as the foundation for the next wave of innovation.
Given the strength of the Silicon Valley ecosystem and the resulting innovative power, Silicon Valley's becoming a popular location for what I call "Silicon Valley innovation outposts" (SV-IOs)—offices that international companies create in the region to identify emerging trends, interact with innovation leaders, create new business models, develop new products, and design new services—is not surprising. Companies that establish SV-IOs stand to reap a wide range of benefits:
Close-up monitoring of a dynamic start-up scene. Every year, growing numbers of start-ups in a range of technology and industry areas emerge in Silicon Valley (the quarterly "Venture Capital Survey" by the San Jose Mercury News provides detailed accounts of investor and start-up activity in the region). SV-IOs can help companies gain insights about new technology and business trends in Silicon Valley and even identify potential acquisition candidates or collaboration partners.
A culture that fosters experimentation. As companies grow in size, their willingness to engage in experimentation can decline; however, cultural influences can have an effect on a company's level of risk aversion. Strong acceptance and tolerance of failure—of both companies and technologies—is one of the key characteristics of Silicon Valley. Being a part of the region's ecosystem gives large companies an opportunity to gain a better appreciation of risk and greater acceptance of a "failure culture."
Design of new business models. Although many people believe that Silicon Valley companies focus primarily on inventing and developing new technologies, many companies in the region are actually similarly—if not more—focused on founding new companies and testing new business models. Technologists and inventors exist in essentially every region in the world, but Silicon Valley, unlike many other regions, provides a variety of elements crucial to launching new businesses and experimenting with novel business models. Such elements include a wealth of sources of risk capital and a large talent pool capable of providing employees who can aid in creating new products, developing markets, and scaling operations to achieve success at the global level.
Transition from big science to technology commercialization. Silicon Valley enjoys proximity to many world-class universities—most prominently, Stanford University (Stanford, California) and the University of California, Berkeley (Berkeley, California)—research institutes, and large tech companies that are working on fundamental science and social problems. Because of its unique culture and diverse ecosystem, Silicon Valley probably has more of the ingredients necessary to achieve success in tackling these problems than many—if not all—other regions do. And SV-IOs will have a front-row seat to monitor and study how business solutions and paths for technology commercialization enable viable, long-term approaches for addressing these problems.
A deep and dense ecosystem that facilitates partnering. Because Silicon Valley leveraged key resources and talent from each of the earlier phases of its evolution, the region's ecosystem continues to grow and gain depth and breadth of technological and business experience. SV-IOs can benefit from access to an increasing variety of potential partners for future business ventures. Likewise, companies that are looking to expand into foreign markets will be better able to find like-minded partners as growing numbers of foreign companies establish outposts in Silicon Valley.
World-class software talent and expertise. Marc Andreessen, cofounder of Netscape (AOL; New York, New York) and venture-capital firm Andreessen Horowitz (Menlo Park, California), argues that "we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy" ("Why Software Is Eating The World," Wall Street Journal, 20 August 2011; online). Disputing the premise or the conclusion of Andreessen's argument is difficult, because software has increasingly become a key innovation factor and a major driver of the economies of the United States and other nations. Silicon Valley has long had world-class programmers and software engineers. Software upgrades now provide hardware with increasing agility and flexibility. For example, numerous types of hardware quickly gain new and improved capabilities when users download new versions of their underlying software. Such software downloads are available for hardware as diverse as electric vehicles from Tesla Motors (Palo Alto, California) and sophisticated jet engines from General Electric (Fairfield, Connecticut).
Unmatched availability of risk capital for new ventures. According to data in the Silicon Valley Competitiveness and Innovation Project's report, in 2014, very early-stage funding in Silicon Valley had reached $3.10 billion by November. In comparison, very early-stage funding in New York (the region that raised the second-largest amount of such funding) had reached only $1.22 billion in the same period. Silicon Valley has been the center of venture capital for years, and 2014 saw investors in the region provide $20 billion in venture capital. The amount of risk capital available in Silicon Valley has also resulted in an influx of start-ups from overseas, as early-stage firms come to the region to find the funding or the amount of funding they cannot find in their home markets. This inflow of innovative start-ups provides SV-IOs with a growing list of attractive potential investments and partners.