Why replicating Silicon Valley is a fool’s game
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Back in 1971 journalist Don Hoefler was writing about the semi-conductor industry in northern California, and came up with the phrase Silicon Valley to describe it. Soon everyone was using the phrase as shorthand for the magical mix of innovation and venture capital that – thanks to the internet and other US government inventions – soon made the Santa Clara valley the centre of the world’s high-tech industry. In the process it also generated trillions of dollars of value. So before long everyone wanted a “Silicon Valley” all their own.

In the UK there is ‘Silicon Roundabout’– actually London’s Old Street Roundabout near which tech start-ups have congregated. In Scotland there is ‘Silicon Glen’– not actually a glen at all, but a reference to geographically dispersed Scottish high tech.

The idea of establishing new Silicon Valleys to repeat the innovative efforts of the digital disruptors of the past 30 years is starting to look dated and even nostalgic

New York City has ‘Silicon Alley’. In one of the more orchestrated efforts to develop a Silicon Valley lookalike, billionaire former Mayor Michael Bloomberg got universities to compete for the opportunity to house a new and improved version of the Valley in city property. When a joint venture between Cornell University and Israel’s Technion beat Stanford to the punch, Bloomberg declared: “New York City’s goal of becoming the global leader in technological innovation is now within sight.”

But by far the biggest government-driven effort to duplicate the Valley is Russia’s Skolkovo Innovation Center.  Dubbed “Russia’s answer to Silicon Valley” by the Financial Times, it was launched in 2012 with the promise of $4.2 billion in funding from the Russian state. The goal: to host 1,000 start-ups scattered across various different fields of science and technology. Six years on, its most newsworthy outcomes have been links to not one but two separate spy scandals.

As the Financial Times drily observed:

“Even in a country with an embedded entrepreneurial culture, it took decades for Silicon Valley to become a driving force for US innovation.”

What is it that made “the Valley” so special? In her classic book Regional Advantage: Culture and Competition in Silicon Valley and Route 128, academic AnnaLee Saxenian compared the culture that made the Santa Clara valley such a success with Route 128, its equivalent near Boston, Massachusetts.

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When Don Hoefler came up with his name for the nascent cluster of semi-conductor firms in northern California, the Boston area – with its uniquely powerful concentration of universities, including Harvard and MIT – already hosted a group of highly successful tech companies. In her book Saxenian describes “what differentiated California’s Silicon Valley from the tech industry outside Boston, which started out stronger than its West Coast rival but withered in the 1980s and 1990s.”

Back in the ‘70s and ‘80s, Route 128 was referred to as “America’s Technology Highway” because “there were a lot of very big, very successful technology companies — Wang, Data General, DEC, Prime Computer.” These companies have since become much less significant, and in some cases disappeared altogether. No-one talks about Route 128 as “America’s Technology Highway” any more.

As Saxenian sees it, they were tech companies with old-style corporate culture – they were “classic post-war American companies”, just like the car companies that in the mid-20th century dominated Detroit, “with vertical hierarchies and career ladders.”

It’s things that make New York City unlike Silicon Valley that are contributing to its maturing high-tech sector

The contrast with the Valley could hardly be more stark – “a story of ever-evolving networks, of workers who leap from startup to startup, of companies that fail and then recombine with other failures into big successes”, says Saxenian in a Harvard Business Review interview.

“What I learned was that being able to innovate very quickly, being able to be first to market with new products, being able to adapt to crises and to change quickly was much more of an enduring advantage for the region. The dynamism of Silicon Valley was rooted in a structure that was very decentralized and very flat and allowed for very rapid change.”

There was something else going on too. Together with technologies and a dynamic work culture, the Valley created venture capital — “the idea that people with good ideas can be funded to start businesses, they don’t have to have money from their family or from the state.” It’s striking that Fairchild Semiconductor, the firm that pioneered the silicon-based industry, is also regarded as the first company to benefit from “venture capital.”

Have contemporary government and private-sector “Silicon Valley” learned from this analysis – analysis that helped shape the Valley’s subsequent understanding of itself? New York City is the place to watch. In 2017, tech start-ups pulled in a total of $11.5 billion in investment. For comparison, in a bumper year for Silicon Valley, investments totalled $84.2 billion. 1

New York City is the place to watch. In 2017, tech start-ups pulled in a total of $11.5 billion in investment

In a fascinating review of the city’s start-up culture, Bloomberg news puts it like this: “New York Will Never Be Silicon Valley. And It’s Good With That.”

“The city is a long way from fulfilling the tired trope of becoming the “next Silicon Valley.” But New York techies like it that way…. Investors, founders and employees point to all the things that make New York one-of-a-kind as the reason tech is growing in America’s biggest city: the presence of other industries like finance, media and advertising, much more gender and racial diversity and the metropolis’s centuries-old status as a center of global commerce.”

In other words, it’s things that make New York City unlike Silicon Valley that are contributing to its maturing high-tech sector – including proximity to mature industries and to the mature financing offerings available from Wall Street.

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And the shape of things keeps changing.  In New York City there is a start-up backed by $250 million from iconic Silicon Valley VC firm Andreeson Horowitz. Disruptive art and healthcare platforms are located at the heart of their respective industries. The major tech players, including Google, Amazon, and Facebook, are all establishing major offices in America’s commercial capital.

The idea of establishing new Silicon Valleys to repeat the innovative efforts of the digital disruptors of the past 30 years is starting to look dated and even nostalgic. This is especially significant with Artificial Intelligence and the Internet of Things set to disrupt mature industries in almost every sector of the economy. Yet the lessons of Regional Advantage still need to be learned – not least as the tech giants are beginning to look increasingly like the vast, hierarchical, Route 128 companies of 1970s Boston.

FOOTNOTES
  1. For comparison, the figure for the UK of just under $4 billion was the highest in Europe.