Thursday, November 12, 2015

Review: Regional Advantage: Culture and Competition in SIlicon Valley and Route 128

Silicon Valley detractors are fond of saying that in this day of easy internet collaboration, video conferencing, and telepresence robots, Silicon Valley's comparative advantage in software and design is over, and it's only a matter of time before cheap housing and infrastructure elsewhere makes Silicon Valley obsolete or less attractive as a place to start companies or scale them. What's common amongst people who make such statements is that they've rarely had a substantial career in Silicon Valley (e.g.., working at 3 or more different firms at varying stage of development under different management teams), and more importantly, a lack of interest or knowledge in the history of Silicon Valley and Massachusetts's Route 128.

Regional Advantage is a book well designed to alleviate most such ignorance. It covers the history of both regions stemming from World War 2 defense department funding and procurement, the rise of Route 128, which originally was much more developed than the area near Stanford, and the ultimate fall of Route 128 and rise of Silicon Valley. In the process it debunks the usual myths surrounding Silicon Valley, land use, and how "expensive housing, land, and high taxes" is unlikely to ever derail Silicon Valley.

In particular, one advantage that the author notes is that Silicon Valley has always been geographically constrained: housing prices started going up as early as the 1970s, and people have always complained about unaffordable housing. The flip side of this has been density. Within the same 20 mile radius, you could switch jobs between multiple companies that are competing with each other for talent as well as product traction. Engineers back then were switching jobs at least every 2-3 years (sounds familiar to most Silicon Valley engineers). This high rate of job-switching is a disadvantage for employers (who even back then had to deal with bidding wars and a workforce that could walk out the door any time), but was also a benefit as it circulated ideas and shared social network contacts that made informality, contracts, and handshake deals the norm rather than slow, ponderous official methods.

What's just as interesting are the ways that Route 128 failed: not only was land cheaper, the geographical sprawl enabled companies to hold on to employees longer. Furthermore, it was harder to get startup funding, or for employees to even notice them and want to join them. The preponderance of defense contracts that were easier to get also isolated the region from market competition, which led to longer design cycles and vertical integration.

If the story behind the book was: "Silicon Valley went on an upward trajectory and never looked back", the book wouldn't have been as interesting and would have been over in a few pages. What I really liked about the book was the study of Silicon Valley in the 1980s, during which it lost the memory business to Japan and other areas, yet went on to regain the dynamic economy that it hadn't lost today. It turned out that during that period of scaling up, Silicon Valley ignored its advantages, and tried to go for Route 128-style vertical integration, keeping secrets from other competitors, and the like. The result wasn't good, but the story of how the valley recovered is also worth reading.

What the book doesn't cover, however, is the modern era of how this story continues in software. Unlike manufacturing, software doesn't have standardized components, but depends much more on process. Companies like Google and Apple are much more secretive than the manufacturing equivalents of the days described in the book, though obviously the flow of people moving between companies do continue to circulate ideas. It would also be interesting to explore the migration of startups from Silicon Valley into San Francisco. The book could use an update along these lines, but I also expect the research required to do so would be much more intensive and difficult to get access to.

All in all, this book is a great antidote for the usual Silicon Valley detractor story, while also providing good ideas for how a region could attain similar advantages for itself. Given how long the book's been out, however, I suspect that its lessons are much harder to apply than it seems. Nevertheless, given how quickly San Francisco grew as a startup hub, I wouldn't consider it impossible. It's just that the usual detractor cry of "lower taxes, cheaper housing, and more land" isn't going to do it at all.
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