Silicon Valley and the Changing Centers of IT Innovation
For over 30 years Silicon Valley has dominated the technology industry and is home to some of the largest companies in the world. The importance of the San Francisco Bay area is difficult to overstate. In 2015, the region produced 20% of all patents in the US and had a GDP higher than that of 45 US states, according to Bloomberg. Today, however, Silicon Valley is facing numerous challenges – such as housing prices and COVID 19 – making the region’s supremacy over the IT innovation industry far more uncertain.
So, What Really Changed?
Since the 1970s, the Bay Area has been a hotspot for at first semiconductors, later personal computers, and today for software development giants like Alphabet Inc. and Apple, as well as for venture capital firms which provided the initial financing for these companies. Being physically close together was a key ingredient in Silicon Valley’s recipe for success. Perhaps ironically, while working to create systems allowing for near instantaneous global communications, business leaders in the valley still heavily relied on personal relationships and contacts. Many large technology companies in the area also utilize impressive campuses. Where their employees work together to foster their creative energy.
The model these companies use has undoubtedly been successful. But the concentration of technology companies in this one area may not be entirely sustainable. For one thing, the dominance of large technology companies in the region makes it difficult for small startups. If these smaller companies get onto the radar of the bigger ones, they could be forced out of the market. Although, this dynamic has also created fertile ground for startups whose exit strategy is to be acquired by IT mega corporations.
The New Threat
As has been discussed on OpenEyes News, wildfires have run rampant throughout California, especially near the Bay Area. As global climate worsens, the threat of massive wildfires is expected to increase. At some point, companies may be hesitant to have their headquarters in such a vulnerable region.
Possibly the biggest threat to Silicon Valley as it exists now is housing. Housing prices throughout California – and the Bay Area in particular – are soaring. According to Business Insider, the median monthly rent for a one bedroom apartment in San Francisco in 2019 was $3,600, about three times the national median. The enormous cost of living makes it more difficult for companies to attract workers to the area.
The changes brought on by the global coronavirus pandemic could also change the dynamics of Silicon Valley. The economic downturn brought on by the pandemic has hit some tech companies hard. Thousands of employees have been laid off by companies like Airbnb, Uber, Lyft, Lime and Bird, according to the Observer. In a survey of 123 company heads done by the Bay Area Council. A majority said they believed it would take a year or more to recover from the pandemic, according to NBC Bay Area. Former tech workers who’ve lost their jobs are unlikely to remain in such an expensive region while they don’t have a source of income. The region could be permanently altered. If talent is driven from the area because of the lack of opportunities and high housing costs.
The Pandemic Shift
The work from home dynamic which has become commonplace. Since the beginning of the pandemic could also challenge Silicon Valley’s close, in-person model. Now that remote work infrastructure has been established. Many experts believe it could be a mainstay in corporate spheres. The Bay Area Council survey found 90% of business leaders are planning on keeping some form of WFH policies. With the possibility of working remotely, it would not be surprising if employees want to avoid the price tag of the Bay Area while still working for the companies that operate there.
Clearly Silicon Valley tech giants are going to be fine. But this specific region acting as an unparalleled hub of innovation may not last forever. Some argue that the region is resilient. Innovation survived the dot-com bubble in the 1990s and the 2008 financial crash. Others point to other cities that have emerged as major tech hubs such as Boston, Seattle, Washington D.C. and Austin in the US. As well as Tel Aviv, Toronto, Berlin, Bangalore, and Vadodara internationally. It is also possible that no one region will play the same role Silicon Valley has. Can a model that relies on geographic closeness even survive an era where maintaining distance is paramount?
To sum up!
Most likely Silicon Valley will continue to be a vital presence in IT innovation for at least the foreseeable future. However, the rise of other cities as homes to technology operations demonstrates a growth in centers of IT talent. OpenEyes reflects this changing dynamic in some ways with its headquarters in Washington DC, USA and Vadodara, India. As the centers of IT innovation expand, OpenEyes encourages our clients and partners to stay flexible and be prepared to respond to these changes. While the future of a regional hub of technological innovation may not be certain, the importance of being able to adapt to a changing world is.