Newsletter February 2012

Why Silicon Valley?

In his now famous book "Outliers", Malcolm Gladwell sought to account for the hidden factors that can sometimes contribute to high levels of success. A prime example is the small borough of Roseto, where heart disease was almost non-existent during the mid-20th century. We soon learn that the smallest details can come together to create a unique environment where all manner of wondrous things are possible. Indeed, we know of certain places which have stood out as important centres of progress, a breeding ground for the harbingers of innovation. Florence during the renaissance, with its entrepreneurial energy, ambition and technology, attracted the likes of Giotto, Dante, Michelangelo, Brunelleschi, Petrarch, Da Vinci and others besides. In the modern era, we have Silicon Valley, counting Apple, Google, Intel, Adobe, Yahoo and Facebook among its disciples. Indeed, tech companies have become to Silicon Valley what major religions are to Jerusalem. Advancing the Gladwellian model of success therefore, can we identify the unique factors which account for Silicon Valley?

Interestingly, before the tech companies took over, the valley was mainly populated with fruit orchards and was known to locals as the "Valley of Heart's Delights", a particularly apt name even now – especially if you happen to be a Facebook employee. But not content with this, Don Hoefler rebranded it "Silicon Valley" in 1971, the same year Intel created the world's first microprocessor. Hewlett however retraced the birth of Silicon Valley back to an even earlier date, when Lee De Forest carried out pioneering work on radio, television, radar, tape recorders and computers there in 1920. But Forest's research was partly financed by Stanford. The University was founded in 1884 by Leland Stanford who reportedly wanted to duplicate Harvard in California, spending a monumental $15.5 million in pursuit of his dream. Over the next 100 years, Stanford's alumni would include 17 Nobel Prize laureates and the founders of Hewlett Packard, Cisco, Nvidia, Yahoo!, Google, Logitech and many, many more. Suffice to say, Stanford has been instrumental in encouraging its students to flourish so close to home.

But does Silicon Valley still deserve its status as a top breeding ground? Well, during a time of recession, companies added 42,000 jobs to the area last year and attracted about one third of all venture capitalism in the US. It also filed 13,000 patents, representing 12% of the entire nation, and oversaw 12 IPOs, up from 1 in 2009. This is all according to the Silicon Valley Index 2012, a survey published last week. But it's not all good news according to the Index's author. "You could look at this and say Silicon Valley is a place where people come and pursue their dreams," Russell Hancock said, referring to the statistics on economic growth. "But we don't think that there is a ladder in place… The people who come to the Silicon Valley are in the first place a highly elite set." Indeed, start-up companies have been effectively priced out of the area. Silicon Valley is becoming less 'renaissance Florence' and more Mount Olympus.

But does it even matter? Isn't Silicon Valley a slightly redundant idea in the modern era? Generation X have grown up and are taking their talent wherever they please. India's tech industry is booming and more and more companies are popping up all over Europe. And then of course there's East London's own (typically self-deprecating) answer to the Valley, Silicon Roundabout. With cheaper rents, more and more start-ups are choosing Old Street over Palo Alto. Indeed, Google recently announced that it was renting a seven-storey building near Old Street as "a launch pad for new London-based start-ups and developers". The government has also promised to invest £400 million in the area. But London is not just attracted fledgling start-ups – Skype and Spotify call it home here as well.

But let's not get carried away – Silicon Valley is still the capital of tech. However, more and more companies are choosing to complete their Herculean tasks elsewhere before choosing to move in with the gods. For now, California remains the final destination.


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