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Summary:

Silicon Valley is the hub of the technology industry, but is its status on the wane due to the high cost of living and a more mobile work force enabled by broadband and a changing culture?

Silicon Valley is the hub of the technology industry, but is its status on the wane due to the high cost of living and a more mobile work force? Sure there are days when I’m tempted to live where the action is instead of Austin, but an Economist article showing the migration of workers from California helped remind me why I stay put.

It’s expensive to live and work in the Valley. Businesses have to pay higher salaries (check out the latest numbers from Glassdoor out today showing those salary averages in the tech industry), and also deal with onerous government regulations that benefit workers and the social good, but come with a cost. It’s also expensive for employees living there in terms of high housing costs, high income taxes and a variety of other expenses.

The Economist today published an article and fancy maps showing the migration away from the Valley. But while it blames high taxation, I think there’s another trend at work here — broadband. Dr. Mohit Kaushal, director of health care for the FCC’s Broadband Strategy Initiative, put it very succinctly earlier this year when he told me that broadband has the ability to eliminate temporal and geographic boundaries. And that is giving people a freedom to pursue their jobs, especially those of us in technology, in areas of the country where that may have been impossible a decade ago.

Our society will take a while to catch up (as will our infrastructure), but for those who have fast connections and the type of profession and company culture to embrace remote working in a wide scale, they can be part of a distributed workforce. This isn’t about outsourcing to India; it’s about having the level of geographic freedom once reserved for consultants and perhaps freelancers. So while there’s a meme in the tech press pitting New York against Silicon Valley, the real meme may well be pitting the Valley against anywhere else.

Right now, there’s capital, big companies and inertia keeping a huge number of startups, employees and businesses in Silicon Valley, but for how long? The economics are the same — or perhaps marginally worse for California businesses lately — but the technology has changed. Has it changed enough, or will the Valley continue to draw in the lion’s share of technology talent?

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  1. “Onerous” regulations…you forget that not having regulations also has costs. Strange cognitive omission there, but one often seen.

    True, Silicon Valley is built out, and that creates problems, but CA has many unique advantages, including climate and intellectual culture/institutions (UC Berkeley, Stanford).

    Also, Texas taxes will rise as population grows. It’s inevitable. Another problem is when you look at things like what Texas has just done with its school curricula, it’s not exactly conducive to truth and science. Not so good for the next generation….

    1. Len, it’s true a lack of regulation has costs, often those that disproportionately affect those who can least afford it. And the article is not supposed to be a Pro-Texas screed, it’s rather a genuine question about how much a more mobile workforce and higher costs will affect Silicon Valley.

  2. The maps in the Economist are a little misleading. True, there may be an exodus (of sorts) from Santa Clara county, but look at the Forbes maps for the massive inflows into San Francisco and San Mateo counties (which mainly seem to be from the northeast.) My theory based on no research whatsoever but on personal observation… the phenomena here is age recycling. Young people from the northeast (Ivy Leagues?) move into San Francisco and go crazy. They grow up, move to the South Bay and maybe eventually leave.

    What does this mean for the Valley? Constant inflow of young, educated and risk-taking people. So no, the Valley won’t lose its place as the tech center of the universe.

    1. Stacey Higginbotham Ron Wednesday, June 16, 2010

      That’s a good point, although not all businesses are created by the young :)

      1. How many forty-year olds want to go back to living like a college student? smiles

  3. High cost and onerous regulations! Who wouldn’t want to run away from Silicon Valley? There is only one problem though. It is not happening. This is really the same rant people have in 80s, 90s, 2000s, 2010, … Nevertheless people keep coming and keep doing business here.

    You should really check out the work of Richard Florida. He says in a globalized world, against conventional wisdom, people find even stronger desire to congregate.

    People will always whine about high prices. It doesn’t matter. They will pay whatever it takes because they enjoy doing exciting things here. There is really nothing new in this story.

    1. By the way I’m preparing to welcome my colleague next week. He is moving from the low cost Eastern Europe to high cost San Francisco bay area. We’re happy to have him here.

      1. By the way I’m preparing to welcome my colleague next week

        Wai, one data point is meaningless (no offense to your emotional joy of having your colleague joining you from Eastern Europe by moving to S.F.).

        You are right that there will always be an allure to geographic locations that are centers of gravity, but be careful not to fall into the trap that many New York City goers (who are in the financial services business) fall into who believe that NYC is the center of the world. Copernicus taught us a long time ago that this is not true, no place on Earth is really the center of the world contrary to popular belief.

        Here’s the irony: the Cloud is the new Silicon Valley, and thus Stacey is directionally correct that Silicon Valley geographically becomes less relevant than it used to (see Om Malk’s recent interview with Brad Feld)! Fret not Master Tung, its totally understandable that you (like many) suffer from confirmation bias [see Nassim Taleb Black Swan] and the effects of framing issue [see Kahneman and Tversky].

      2. Definitely my example is only an anecdote. But it does go against Stacey’s theory. Why do our company want to increase its expense if we can just use technology to connect to him, just like what we have been doing for a few years?

        Perhaps a better indicator is the H1B quota statistics. It sells out each year almost as fast as the iPhone. If location doesn’t matter, why go through the considerable financial, legal and cultural hassle to bring a worker and their family here? Why not just have them work in an overseas office. It certainly would have cost less for both party.

        Thanks for calling me Master Tung. This certainly boost my credential :-) Although I’m aware that it is still fairly close to 0. Instead of paying attention to my confirmation bias, I urge you to study Richard Florida’s spiky world thesis. It is not my anecdote but research that shows that the “creative class” in more concentrated than ever in today’s world. It is easy to make an intuitive claim that technolog has flattened the world, “the cloud is the new Silicon Valley”. It is lot more difficult to see what it is not happening and to understand how human really collaborate the best.

  4. Scott Wharton Wednesday, June 16, 2010

    I just moved here from the DC area a few years back to start a company and live in Silicon Valley. After spending two years here, my answer to this question is: “no way”. The most innovative people are companies are here and that competitive advantage is getting bigger – not smaller.

    That does not mean that this is good for everyone or that all workers will want to remain here. But just like manufacturing moved abroad and then outsourced engineering, the key entrepreneurial talent will choose to stay here – even if we are hiring more people in other places and making our workforce more distributed.

    At Vidtel, even though we are a small company, our engineering is done largely outside the US and we have a bunch of distributed workers in different states that can only work with new technologies – broadband and the tools (like video conferencing which our company provides to small businesses) support. But no way I would trade a distributed workforce for having our headquarters anywhere but The Valley.

    Scott Wharton
    CEO
    Vidtel, Inc.

  5. I think the article is glossing over the fact that many highly educated and cultured people want to be near other highly educated people. There is a price to be near the epicenter.
    There are analog in other areas: London is one of the most expensive city in the world, although it has waxed and waned over the last few hundred years, it is STILL a financial center of the first order due to the same rules that’ll keep Silicon Valley relevant…

  6. My Locator ® Wednesday, June 16, 2010

    Tech startup innovation is overrated. We have enough startups to work with and dont need anymore. Cheap competitive overseas labor is always in demand.

    1. That’s right, overseas cheap labor invented all the latest innovation like Facebook, twitter, Foursquare, etc. Oh wait, no they did not, and this is a poor attempt at trolling…

      1. @Milton

        Skype was started by dudes when they were living in Estonia. Linus Torvalds spearheaded Linux in Finland and now resides in Portland, Oregon. Ruby was spearheaded by Matz in Japan. Ruby on Rails was spearheaded by DHH when he was in Copenhagen (later he joined 37Signals in Chicago not San Francisco / Silicon Valley). MySpace is headquartered out of Beverly Hills, CA. Silicon Valley VC Tim Draper stated a few years ago:

        “I believe that entrepreneurship is not regional anymore” … “Anyone with an Internet connection and a cell phone can start a globally successful business.” [1]

        Who is the troll now? Mirror mirror on thy wall … oh how you suffer from confirmation bias, bless your heart. Sorry to burst your dreamy bubble, but the Cloud is going to change the world ever more, and people everywhere will have more opportunities to disrupt the world from their apartments and homes! “The next big tech hub, according to venture capitalist Tim Draper, is an apartment.” [1]

        [1] http://www.cnet.com/4520-13653_1-6794290-1.html

    2. No question that Asia seems to be the factory whilst the Valley is still the R&D Lab. Odd that this has not changed in 40 years. Apparently economics can’t change culture…

      1. Stacey Higginbotham CloudCEO Thursday, June 17, 2010

        But the question here isn’t about the economics, it’s about the technological changes that make it easier to work from anywhere. The economics have been there for a while. Will technological changes lead to cultural changes and push folks further out?

      2. Stacey, technology change? I heard it all before. Network is nothing new. Nor is the term telecommunting. 10 years ago I have an always on 700k or maybe 1.5M DSL. I was telecommunting part time. 10 years later I’m embarassed to say I have 3M DSL now, pretty lame by Moore law standard. I’m actually spending less time telecommuting today.

        It is tempting to say technology enabled something new today. But let’s not lose the perspective that network has actually existed for a long time. In fact I predict this same conversation will repeat 10 years after.

  7. M. Edward (Ed) Borasky Wednesday, June 16, 2010

    What’s really going to kill Silicon Valley is not taxes or the high cost of living. It’s the arrogant attitude of people there like Paul Graham, who think it’s impossible to start a tech company anywhere else, and make starting a tech business a kind of gladiatorial combat.

  8. Wish I have 1 share of Google for every time I’ve heard this story over the last 25 years….

  9. M. Edward (Ed) Borasky Thursday, June 17, 2010

    “But the question here isn’t about the economics, it’s about the technological changes that make it easier to work from anywhere. The economics have been there for a while. Will technological changes lead to cultural changes and push folks further out?”

    I used to live and work in the Washington, DC area. I left in 1985 and moved to the Portland, Oregon area. Back then, it was a cliché to say that people inside the Beltway lived in a world of their own, with no conception whatever how the rest of the world, or even the rest of the USA, lived and worked.

    It only took me a few weeks in Oregon to realize that this opinion was correct – they are totally clueless in Washington. I’m sure the same is true in New Delhi and Beijing, Paris, London, Athens and even Salem, Oregon and Baton Rouge, Louisiana. And the same is true of Silicon Valley, Seattle, Los Angeles and my beloved Portland.

    I think some Silicon Valley people – and I’ll name some names: Paul Graham, Eric Schmidt, Mark Zuckerberg and Steve Jobs – are clueless. I can (but won’t) name a few Portlanders I think are clueless as well. Washington DC’s list is perhaps much longer, but it’s a simple “fact of life” – people in positions of power don’t get the corrective feedback they need to have a clue until there’s a Deepwater Horizon scale disaster.

    1. Hi Ed,

      Great points about how many people inhale their own exhaust and believe their location is a centroid of importance. Psychologically it seems that particularly people who are insecure seek out this type of confirmation (the confirmation bias that I aforementioned). A lot of this is about self image and a great many people are desperate to cling to their self image and define themselves based largely on location. A guy like Paul Graham, as you have noted, is a case in point because he can only handle living in Silicon Valley or Cambridge (note: several of his essays are well written and so we have to be careful not to throw the Graham baby out with the Graham bathwater). But, I think you’ve made a logic error with Steve Jobs. Why? Because he’s clearly someone who understands people. How is it that Steve comes across to you as a Silicon Valley snob? Has he said or professed or lectured this meme (the way Graham has)? For a guy who brought Apple back from the dead and is helping to lead the digital frontier of smart phones and tablets is profound (you don’t sell tens of millions of iPhones, 2 million iPads in two months, and laptops galore if you don’t understand people both common and sophisticated). Anyway, its hard to argue with Tim Draper and Brad Feld (the recent Brad Feld interview by Om Malik posted here on this site was excellent) with regard to entrepreneurship being less and less regional than it used to be. This isn’t to say that there geographical clusters of creative people as Master Tung has noted but Stacey’s questions and points of this post are not at all unreasonable. The Cloud is going to change the world even more so and its going to liberate people ever more of historical geographic clustering requirements. Sun Microsystems used to have an advertising meme in the 1990s asserting “The Network Is The Computer”. An apropos meme for the 2010 and beyond: The Cloud is the new Silicon Valley!

      1. Why pick on Paul Graham? He is actually a really humorous guy. At any rate he is just talking about how he likes to do things. If you don’t get Y-Combinator money then there are plenty of other VCs all over the world.

        Funny how this discussion goes. Just 3 weeks ago, in a meeting room in San Francisco, 3 people metioned in this post has gathered. It was a panel discussion in the Google I/O conference. There was Paul Graham, Brad Feld, and ME, Master Tung. Nobody have realized this session was graced by Master Tung’s presence, for I was keeping a low profile, sitting quietly among audience. There isn’t even anything memorable came out of the discussion. This is just one more irrelevant data point to justify my confirmation bias. Location matters.

      2. @Eddie,

        Believe me Eddie, I WANT this to be true, I want a world where no matter where you are, you have the same chance to succeed. I just think the ODDS are worse.
        You cited earlier that great companies are built in Estonia, LA, and wherever. and you ar right. But you are also stating the EXCEPTION.
        Bottomline, I think you can succeed anywhere, is just that your odds goes up a notch if you live in the Valley. and in this world where every scrap of advantage helps, that is why smart people will continue to flock to the valley to gain that advantage….

  10. M. Edward (Ed) Borasky Thursday, June 17, 2010

    “A guy like Paul Graham, as you have noted, is a case in point because he can only handle living in Silicon Valley or Cambridge (note: several of his essays are well written and so we have to be careful not to throw the Graham baby out with the Graham bathwater).”

    At one time, Graham said the only two places a business could start were Cambridge and Silicon Valley. But when he and his wife were expecting a child, he then stated Silicon Valley was the only place.

    I’ve got a lot of problems with Graham, which I covered in http://meb.tw/bjAeWp. What it all boils down to, though, is that he has a model of how to start up a business that worked for him, and he only knows how to reproduce that model.

    An impressive number of companies have come from Y Combinator, but I’m not sure how many of them will be lasting forces on the Internet in the same sense as Google, Microsoft, or even Facebook and Twitter. It’s hard to imagine Xobni, Dropbox or even Reddit becoming “household words” in that sense. They don’t have anything difficult to duplicate.

    “But, I think you’ve made a logic error with Steve Jobs. Why? Because he’s clearly someone who understands people.”

    Jobs is an autocrat and has taken credit for Apple’s rebirth, but the fact is that thousands of Apple employees have contributed to their current success. Apple understands people, not Steve Jobs.

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