Monday, June 2, 2008

Is SV past its peak?

While visiting London last week, I was asked, in effect, to speculate where will be the center of innovation after Silicon Valley.

My answer was that it was a silly question — Silicon Valley is a portfolio of industries, and so it would be more meaningful to talk about the region’s relative strength in each industry. Perhaps there would be a decline or a replacement, but the issue would come on an industry-by-industry basis.

In talking through my answer, I realized perhaps even more important is the relative importance of Silicon Valley’s industries to the grand scheme of things. Los Angeles was a world center (if not the center) of aerospace innovation for decades, but after the end of the space race (or perhaps end of the Cold War), the relative economic importance of the industry to the economy declined dramatically. Detroit has both declined in its importance in the global auto industry, and that industry has become commoditized and more diffuse over the past 40 years.

Silicon Valley put itself on the mark with information technologies in the postwar era Silicon Valley was named for semiconductors because of people like Robert Noyce and Gordon Moore and companies like Fairchild and Intel. In the 1970s and earlier 1980s, the region fueled in computer systems and software, until applications consolidated under Microsoft and (Apple notwithstanding) hardware commoditized elsewhere. In the 1990s, the Valley was the undisputed world hub of the dot-com era.

But IT as an industry is either in decline, or at least nearing a plateau. Meanwhile, Silicon Valley is participating but hardly dominant in the next round of growth industries.

The broader ICT sector includes mobile phones, which will continue to grow for another 10-20 years. SV is providing some of the software, services and chips for these phones, but in overall is not a major factor in these segments (unlike San Diego, Helsinki, Tokyo and Seoul).

The broader Bay Area is represented in biotech, as the 2nd or 3rd most important center in the US (behind Boston and vying with San Diego). Both as a business and to assuage their consciences, SV VCs are investing heavily in cleantech, some of which is here in the Valley.

So I suspect that in 20 years, the only area where SV will be leading the world is as a financial center for venture investment. There will be world-leading companies here, but no longer will people say that for a certain class of startup, the Valley is the only place to be.

The discussion also forced me to think about my own career, as an innovation researcher with considerable investment (and credibility) in industry-specific knowledge. Mobile phones will continue to grow but might not be enough to take me to retirement, particularly as the emphasis shifts from innovation to low cost production to expand adoption in the less-developed countries.

I had previously though about shifting to biotech. But it's had a good 30 year run, and right now the old model of drug discovery seems to be losing steam. Also, I haven’t had a biology class since high school. Perhaps more importantly, the process of science-based innovation is fundamentally different than the engineering-based industries that I’ve worked in and studied.

Nanotech is another possibility. The problem is, nanotech is not an industry — it’s a technology that will enable innovations across a broad range of industries, including automobiles, electronics and biotech. So as a business researcher, that makes it harder to acquire industry-specific knowledge where there isn’t a single focal industry.

Perhaps the best opportunity is clean technology, particularly around the issues of electricity production (solar, wind, nuclear), distribution and use (e.g. LED lighting). In a world where oil costs $100 (or $200 or $400) per barrel, shifting to more efficient and renewable energy sources will (barring major change) have economic importance for decades to come. Just in California, UC Davis, Berkeley, Stanford, UCSB, UCLA, Caltech and UCSD have initiatives in this area. At SJSU we even plan on offering an undergraduate green entrepreneurship elective (hopefully) in Spring 2009.

Heck, if flaming Friedmanite T.J. Rodgers is pursuing green power, it must be an unstoppable trend. As an added bonus, I get to go back to being an electrical engineer, which is certainly more plausible than large molecule drug discovery.

No comments: