What does the future hold, for Silicon Valley?
Over the course of the last two decades, Silicon Valley has staked its claim to be one of, if not the largest centres of global innovation. The Bay Area is called home by nearly 8,000 tech scale-ups, with these including some of the world’s largest companies such as Facebook, Google and Microsoft. However, due to societal and business-related changes in recent times, it appears as though Silicon Valley may be forced to enter a new era in which the growth of companies residing here is slower, more sustainable and this will likely mean less profitability for these companies.
According to Maelle Gavet, the CEO of Techstars, contemporary consumers are beginning to hold all brands to higher ethical standards and expectations (such as engaging in corporate social responsibility and paying their taxes fully and fairly, for example).
This has meant that the goals that are needed to be met by companies in Silicon Valley are slowly changing. The previously accepted business strategies utilised by big tech companies are not as sustainable as they once were and will no longer guarantee success, and failure to reach the newer, higher standards could have hugely detrimental consequences for some of these companies in the coming years. While the dawning of this new era may eventually spell the end of the road for some companies, it will have an opposite effect on others, who will be able to rise and thrive.
As was alluded to earlier, Big Tech companies are the subject of public scrutiny far more now than ever before. This has been attributed to the suggestion that flaws in some of the business models these companies have employed for the last twenty years have started to be exposed, with these including issues with transparency and keeping their promises to consumers.
Is the Silicon Valley bubble at risk of bursting?
The suggestion that these companies are now being placed under more of a microscope in terms of their actions is backed up by various research projects into the matter. For example, during the 2020 United States Presidential election, a survey conducted by Pew Research found that 73% of American adults stated that they were “not very confident” or “not at all confident” that companies such as Facebook and Twitter would be able to prevent people from misusing their platforms to influence the results of the election.
Additionally, in separate research conducted by GQR in 2020, it was found that a whopping 85% of Americans agreed that Big Tech companies have too much power and need reforming. This is a damning indictment of these organisations, and has led many to ask the main question of this article: Is the Silicon Valley bubble at risk of bursting?
What’s the answer?
In short, the answer to this question is no. Well, at least not in the immediate future. However, there is certainly an argument to be made that the Bay Area’s sheer dominance and power is showing susceptibility to waning if changes aren’t made. Whilst we have already covered the issues regarding companies adhering to newer ethical standards, there has also been the emerging trend of tech start-ups starting to leave Silicon Valley for pastures new. According to Mind the Bridge’s 2021 report titled “Tech Scaleup Silicon Valley”, there are a multitude of reasons as to why tech companies are choosing to move elsewhere, including, but not limited to, extremely high rent, intense competition for hiring, overreaching state regulation and high taxation on personal income.
The report claims that many of these companies are moving to newer tech hubs that appear to be on the rise such as New York, Boston, and the recently emerging Miami. This points to something of an exodus from the Bay Area, which has only furthered questions on whether Silicon Valley is losing its edge, whilst there has also been speculation on whether there may a “new” Silicon Valley at some point.
However, despite the fact that there is an ostensible increase in the number of companies that are taking their business away from California, there is no current evidence to suggest that Silicon Valley will have any major domestic rivals anytime soon. This is largely because there isn’t one single hub that the companies are collectively moving to; instead, they are scattered across the United States. Therefore, none of the growing areas can pose a serious challenge whilst all the big tech players stay where they are.
Although several areas are emerging as potentially successful tech hubs, Mind the Bridge’s report helped put into perspective the sheer task on the hands of these hubs to come anywhere close to matching Silicon Valley in various factors, including number of scale-ups, amount of funding, scale-up density, and number of super scalers. On all four metrics, Silicon Valley came out on top spot. However, when we look at the figures behind that placing, even “top spot” feels like something of an understatement.
In terms of number of scaleups, Silicon Valley currently hosts a total of 7,894 scaleups. As the graphic below (Figure 1) shows, this is way more than any of their tech hub counterparts. Specifically, there are 2.3 times more scaleups in Silicon Valley than in New York, 4.6 times more than in Los Angeles, 6.8 times more than in Austin, 8 times more than in Boston/Cambridge, and 11 times more than Seattle and Chicago. Two other emerging hubs in Atlanta (22 times less) and Miami (40 times less) have been deemed by Mind the Bridge to be yet to reach a size that is even remotely comparable to that of Silicon Valley.
Figure 1 – Comparison of Silicon Valley to other US Tech Scaleup Ecosystems
It’s the same case when looking at funding amount. As Figure 1 shows, investments in Silicon Valley currently stand at $501.3 billion, which is almost 5 times more than in New York, with each of the other hubs chosen to be compared paling in comparison to the Bay Area for this factor. This is hardly surprising, given that the capital raised in Silicon Valley is greater than that of entire countries like China and India, or even continents like Europe.
With regards to scaleup density, Silicon Valley boasts approximately 160 scaleups for every 100,000 inhabitants, a figure that is only remotely comparable to the roughly 130 scaleups for every 100,000 inhabitants in Boston/Cambridge and the just under a 100 scaleups for every 100,000 inhabitants in Seattle. The sheer volume of scaleups in Silicon Valley is without a doubt one of the main reasons as to why the Bay Area can dwarf any of its competing tech scaleup ecosystems, as this increases the likelihood of the region topping the charts for each of the factors of comparison between themselves and these ecosystems.
Finally, when it comes to how many super scalers (tech scaleups who have raised over $1 billion in capital since their inception), Silicon Valley hosts a staggering 59 such companies. This figure appears even more impressive when it is put alongside the number of super scalers in the competing tech ecosystems – the closest competitors are Los Angeles and New York, with 6 and 4 super scalers respectively. In fact, each of the other regions put together only host a total of 16, which is 72.9% less than in the Bay Area. Needless to say, it is much harder for these areas to compete whilst the top dogs continue to reside in what is clearly still the global epicentre of innovation.
From the figures discussed above, we can see that it is going to be extremely hard for anywhere to compete with Silicon Valley in the immediate future. When you add the fact that the pandemic had very little impact on the area in terms of funding and number of scaleups, it would appear that the Bay Area will continue to remain untouchable for some time to come when it comes to the tech world. However, despite the abundantly clear disparity between Silicon Valley and its competing tech scaleup ecosystems, the last three years has seen a significant rate of growth in various factors in these hubs, perhaps suggesting that caution is needed in the longer term for Big Tech and other huge companies who reside in the Valley.
According to Mind the Bridge’s report, factors such business regulation, tax incentives and industry specialisations are becoming more appealing in these other hubs, allowing them to increase their overall attractiveness and fostering their growth.
To conclude, reports suggesting that the Silicon Valley bubble is beginning to burst have been dismissed in Mind the Bridge’s report, which states that these claims are “relatively exaggerated”. Therefore, the Bay Area will retain its place atop the tech world for the time being, but times are slowly changing, and the big tech companies will need to adapt with the changes as they come, unless they want to find themselves in a difficult situation in several years.
Whilst these changes are admittedly allowing other hubs to begin growing exponentially and thrive, much more is needed to usurp the current no.1. All in all, it seems extremely unlikely that any other region will be able to realistically stake a claim as the “next Silicon Valley” anytime soon.
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