The coronavirus pandemic has reopened the discussion on a very well-known and very old issue among those involved in the technology industry in the United States: the future of Silicon Valley and, for the most pessimistic, its end. Silicon Valley, home to some of the largest tech companies and thousands of startups, has long been the most innovative region in the world, capable of generating tremendous wealth and attracting the most talented people. In recent months, however, experts and commentators have written that its innovation model is in danger, threatened in part by the pandemic, which has emptied offices and pushed many workers to move elsewhere, and in part by some longer-term phenomena. . Other analysts are less skeptical, and believe that Silicon Valley will not only emerge from the pandemic unscathed, but also strengthened.
Silicon Valley is the name given to a large area roughly corresponding to the southern part of the San Francisco Bay Region, California. The term was originally used for the two counties of Santa Clara and San Mateo but, as the industry expands throughout the region, it now encompasses a much larger area, including the city of San Francisco. Furthermore, Silicon Valley is an expression often used as a synecdoche of the great American tech industry, even if not all the major companies are located in California: Amazon and Microsoft, for example, are based in Seattle, Washington.
In recent months, two closely linked events have prompted many observers to talk about the future of Silicon Valley. In the aftermath of the pandemic, employees of technology companies started working from home, and many of them revised their work arrangements. Twitter intends to become a “widespread company,” according to CEO Jack Dorsey, and will not ask employees to return to the office even after the pandemic is over. Google will allow employees to stay at home until at least the summer of 2021, and for the aftermath, management is considering introducing a “flexible work week”: three days of work in the office and two days from home.
Many engineers and computer scientists, according to the American media but also according to statistical surveys, have taken advantage of this opportunity to move out of California: Silicon Valley is indeed one of the richest regions in the world, but also one of the most expensive (as he wrote Bloomberg, the median rent for a one-bedroom apartment in San Francisco before the pandemic was $ 3,700 a month). Increasingly severe fires, such as those that have hit the state in recent months, have contributed to a deterioration in the quality of life. Texas, which is a thousand kilometers away from California but where the cost of living is lower and taxes generally lower, took advantage of this, and where a sort of alternative Silicon Valley has been developing for some time.
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The second recent phenomenon, in fact, is that some companies of a certain importance have begun to move their headquarters outside of Silicon Valley. Recently Palantir, an artificial intelligence company, Oracle, which deals with cloud computing, and Hewlett Packard Enterprise (HPE), a company born from Hewlett-Packard, the first startup in Silicon Valley, did it. . Again, Texas benefited from the move: all three companies moved to Austin, the state capital. Elon Musk, Tesla's CEO and one of the most important figures in the American tech sector, has also moved to Texas a few weeks ago (for now it's a personal move, but Musk said he would like to move his companies too, sooner or later. ).
These phenomena are viewed with concern because, according to experts, the strength of Silicon Valley lies in being the most important “creative cluster” in the world, that is, in being the place where all people with a certain type of knowledge and of experience, from investors to entrepreneurs to programmers. According to experts, this physical proximity, even if it has some drawbacks, is capable of giving a lot of added value in terms of innovation and productivity.
As historian Margaret O'Mara wrote in a series of opinion articles in the New York Times, the most important figures in Silicon Valley have always had physical proximity among their values. Venture capitalists, ie investors, usually use the “20 minute rule”, according to which no funding is given to startups that have their headquarters further than 20 minutes by car from their offices. Steve Jobs, when he was CEO of Pixar in the 2000s, proposed building a new campus with bathrooms all in the same area as the huge building, so as to facilitate casual encounters (the idea was shelved). The various campuses of Google, Facebook and Apple have been designed with the same purpose in mind: to keep employees as much as possible in the office thanks to benefits and attractions (restaurants, sports fields, and so on) and to encourage casual exchanges. This philosophy is ancient in Silicon Valley, and dates back to the famous Xerox PARC, a campus active in the 1970s, where some of the most important technological inventions of the twentieth century were made.
The fear is that if physical proximity begins to fail, the creativity, innovation and concentration of talent that have made Silicon Valley's fortune may also fail.
The arguments of the crisis
The pessimists note that some worrying phenomena precede the pandemic, and therefore could continue even after. For example, the first year in over a decade that more people left California than there have been was 2019, not 2020. Also in 2019, a poll by the San Jose Mercury News, a local newspaper, dates back to. 46 percent of San Francisco Bay residents would be willing to relocate within a few years. The latest quarterly study by PitchBook and NVCA Venture Monitor, two consulting firms, found that California's venture capital investment rate is falling slightly, although it remains the highest in the world. And during the pandemic, some famous tech companies, primarily Uber and Airbnb, were forced to lay off thousands of employees.
In addition, in the last couple of years, a series of serious scandals, such as the failure of the WeWork stock exchange, have damaged the confidence of investors, who are much more cautious in providing loans.
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The development model of Silicon Valley would also be threatened by politics, especially in the United States and Europe, which is increasingly determined to reduce the great entrepreneurial freedom that has allowed Silicon Valley companies to become very rich and in some cases to transform themselves into monopolies, facing few responsibilities and poor regulation. The American and European authorities have opened several investigations, and are contemplating structural and very heavy reforms, such as the elimination or rewriting of Section 230 of the Communications Decency Act, the American law that protects internet platforms from editorial responsibility. In general, public opinion towards the technology industry has changed a lot in recent years: a survey cited by the Harvard Business Review shows, for example, how, for 80 percent of Americans, large American tech companies have “Too much power”.
Arguments against the crisis
According to other observers, concerns about the Silicon Valley crisis may be exaggerated. First of all, as Laura Bliss noted in Bloomberg, we are talking about engineers and companies who have been fleeing Silicon Valley for nearly three decades, and so far the talents who have left have always been replaced by new ones. Even the relocation of companies must be scaled down, both because HPE, Oracle and Palantir are small companies after all compared to Apple and Google (which do not intend to relocate and indeed have built huge campuses), and because at least for the last two there could be reasons not only cheap for the move to Texas: As Axios wrote, both Oracle CEO (Larry Ellison) and Palantir CEO (Peter Thiel) are strong supporters of Donald Trump, and have complained about California's excessively leftist culture.
Historian Margaret O'Mara in the New York Times listed two other reasons why Silicon Valley “is forever”. The first is money: even though the Californian technology sector has suffered numerous crises, the companies involved have always managed to overcome them thanks to their very prosperous finances. The wealth created during each period of prosperity has always surpassed that destroyed in crises. As the Economist noted, in this year of alleged crisis, even companies that appeared in difficulty have made investments and acquisitions: Uber, among others, in May bought the delivery company Postmates for 2.65 billion dollars and made investments in other companies, including Lime. The decision may not have pleased the 6,000 employees fired by Uber this year, but from a mere economic point of view it is a sign of vitality. Airbnb, which seemed to be in a deep crisis at the beginning of the year, made a very successful stock exchange listing in December.
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O'Mara also cites a deeper reason to be optimistic: so far in the United States no other region has managed to recreate the same conditions that allowed Silicon Valley to be born in the second half of the twentieth century, such as massive public investment. in research and development that were the basis of the first startups, including Hewlett Packard. Texas is trying, trying to transform the University of Texas into the equivalent of Stanford and Berkeley, the two Californian universities that have trained the best American engineers, but so far with incomparable results. Similar conditions, if anything, could be reproduced in China, O'Mara argues, and with her many American entrepreneurs who admire the Chinese model of innovation.
Susan Wachter, a finance professor interviewed by Bloomberg in August, also believes that the latest changes within Silicon Valley may turn into a sign of vitality. The relocation of engineers and contractors has resulted in some lowering of the cost of living (rents in San Francisco were 7 percent cheaper in August than before the pandemic), which could allow a new generation of talent to move to the area. .
