Monday, August 17, 2009
Notes on Silicon Valley
As promised, here are some morsels of gossip from Silicon Valley, on themes ranging from unemployment and innovation to the essential point that San Francisco is not, repeat not, considered part of Silicon Valley. You'll also find a nutty cosmological tangent somewhere in the middle.
Late last month I found myself driving south from Palo Alto, California, through San Jose and beyond. There I saw the unmistakable landmarks of Silicon Valley. There were large buildings labeled Yahoo!, Microsoft, Oracle, Cisco, Intel, and so forth. I had already seen buildings at Stanford named after Hewlett, Packard, and Gates. I didn't see Apple, Google, or some of the other major pillars located elsewhere in the valley, but I knew they were there.
I also saw some large, unmarked buildings. For some reason it didn't cross my mind until several days later, when I was chatting with one of the "fun cousins" from California at a reunion of my family in Idaho -- pardon the geographical leaps -- that most of those unmarked buildings are empty. (Cousin Ross lives in Santa Cruz and works in Silicon Valley, but don't get the idea that he's some sort of geek. He used to have his own shop in Santa Cruz, where he sold surfboards and skateboards.)
While still in Palo Alto -- apologies for the temporal jumps, too -- I managed to have a good conversation about Silicon Valley with someone who studies it for a living. As I recently mentioned, MFCC's brother Russell Hancock "plies his PhD in economics as President and CEO of Joint Venture: Silicon Valley Network, a 'neutral forum' and think tank which studies Silicon Valley in economic, demographic, and other terms, and labors in some interesting ways to be a catalyst for change." He speaks of his work with enthusiasm.
I wasn't taking any written notes during the conversation, so I'm working partly from memory here and partly from Joint Venture's 2009 Index of Silicon Valley, a printed copy of which is mere inches from my keyboard at this moment, and which is also available on the Web -- hence the link. Direct quotations are from the report, unless otherwise noted.
Until the last quarter of 2008 Silicon Valley had weathered the global financial crisis "better than the rest of the nation," but unemployment spiked upward last November. In the same quarter the commercial property market fell "precipitously."
Russ reported that unemployment is now over 10 percent in Silicon Valley, but innovation is still alive and well there. Apparently, it's more common than before to see a handful of partners form their own small company to pursue a good idea, and keep the company very small. They outsource and hire contract work as necessary, but try to avoid actually hiring employees as much and as long as possible. This seems quite rational to me. Hiring an employee is a major investment and, one way or another, can be a long-term commitment. In unstable economic and regulatory times (think health care reform), it's impossible to know what the costs will be down the road of having an employee -- or, for that matter, dismissing an employee.
Initial Public Offerings (IPOs) are down sharply in Silicon Valley, dropping from 27 in 2007 to 2 in 2008. There is a similar trend nationally and internationally. No doubt this reluctance or inability to grow is related in one way or another to broader economic troubles, but the timing may be wrong for connecting it to an unstable regulatory environment, unless companies are acting with even greater foresight than I suspect.
The current growth sector there is green technology. (Russ spoke of this with some excitement.) According to the report,
[Pardon the interruption, but how's that again? We're installing solar systems now? I can see how that would be labor-intensive. And think of the theological implications! I'm seeing Russ again tomorrow. Perhaps I can ask him the following questions: Do they haul in materials, use what they find on site, or create them ex nihilo? Are there new quantum advances in space travel of which I have not heard? Is the installation time for a single planet really six days? And are they using the same criteria to classify planets that got Pluto demoted to non-planet a few years ago? There, that was fun. Back to the quotation now . . .]
I find all this interesting, both on its own merits and because I live on the Wasatch Front, which aspires to earn the title "Silicon Slopes."
This I found surprising. It is well known that Silicon Valley attracts a lot of venture capital, but the graph I found in the Index, showing the percentage of all US venture capital investment which lands in Silicon Valley, shocked me. Had 1995's value, between 17 and 18 percent, been the high over the past 14 years, I would not have been surprised. But it's the low. Since 2002 the number has been 25 percent or higher, including 28 percent for 2007 and 29 percent for 2009. Small wonder that, as Russ put it, "The only place that's not trying to become Silicon Valley is Silicon Valley." Remember, we're talking about just two counties, plus a few more cities, in an entire national economy.
In answer to another question, he said, no, San Francisco itself is definitely not considered part of Silicon Valley, but is "a different world."
This is just a sampling of the conversation and of the economic, political, demographic, and sociological information I found in Joint Venture's Index. The Index itself is just one part of the organization's much broader mission, which encompasses transportation, climate, disaster preparedness -- "I can see the San Andreas Fault from my house" would be the Palin/Fey-ism -- wireless broadband, economic development, and even cell phone coverage.
I'll say this for my in-laws: at family gatherings, when we're not enjoying professional-quality musical performances, the conversation tends to be intelligent and substantive.
Copyright 2009 by David Rodeback.