Is Silicon Valley doomed?

February 14, 2010

Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation has just released their 2010 Index of Silicon Valley and the results are not so rosy. In fact, the report concluded that Silicon Valley faces a steep climb out of the current economic downturn and this contradicts the perception that the Valley is a place that can continually reinvent itself.

Just how serious is the rut that Silicon Valley is in? The Wall Street Journal quoted Emmett Carson, the CEO of the Silicon Valley Community Foundation, as saying that Silicon Valley has become complacent, placing its economic engine at risk; while Russell Hancock, the chief executive of Joint Venture, was quoted as saying that the Valley is still not back on its feet yet and he isn’t so sure it will be able to get back up this time around.

Is Silicon Valley doomed Is Silicon Valley doomed?
So why is Silicon Valley in so much trouble? Some of the following highlights from the study’s findings are illuminating:

  • Foreign Talent – Silicon Valley is increasingly dependent on foreign talent, especially for filling scientific and engineering positions. However, the policies implemented after 9/11 and during the current economic downturn along with the rise of other countries such as India and China along will slow the flow of talent to the Valley.
  • Investment Capital and Venture Capital – The funding community is facing major structural changes and the federal government has increasingly become a major investor in both innovation and research. However, Silicon Valley is not attracting significant amounts of federal funding while venture capitalists have not been realizing significant returns for the past decade.
  • California’s Inept Government – The continued political dysfunction and budget crisis in Sacramento directly impacts Silicon Valley’s ability to keep pace with other regions of the world while education spending by both the state and federal government is declining. 
  • Shrinking Job Market – From November 2008 to November 2009, employment in Santa Clara and San Mateo Counties dropped by 6.1% while nationally, it dropped by only 3.8%. Moreover, the unemployment rate in Silicon Valley is more than 11% compared with about 10% nationally. In fact, the lost of some 90,000 jobs has brought employment back to 2005 levels while the so-called “green” economy accounted for only 12,000 jobs in the region.
  • Real Estate Market – Once a major headache for residents and new transplants alike, housing affordability for first-time homebuyers is actually improving now while average rents have declined by 6% from 2008 – the first drop since 2005. Meanwhile, office vacancy rates have reached their highest level since 1998 and are up 33% in 2009 over 2008.

Many of the above problems that beset Silicon Valley are not unique to just one region of the country. In fact, these are some of the same problems that the USA faces as a whole. In other words, as Silicon Valley competes with (and potentially looses out to) Bangalore and Dalian for talent, investment and jobs, the USA competes with India and China for talent, investment and jobs.

As the study noted, now is no time for complacency and while Silicon Valley has enjoyed many advantages and successes in the past, success in the future is not guaranteed unless its residents continue to think beyond the box, reorganize themselves and forge new collaborations in order to continue competing globally – important lessons for all.


Comments

5 Responses to “Is Silicon Valley doomed?”

  1. No way on February 21st, 2010 9:18 pm

    I don’t think so. Silicon Vally has tremendous human creativity they may be down for now but once the economy turns around, they will bounce back. Only there companies can change the noun to verb like googling (searching), Xerox (photo copying). etc.

  2. Silion Valley donw? on February 21st, 2010 9:21 pm

    I agree with the previous commenter. Valley is never down, still there is so much innovation is going on, it is very difficult for other countries to mimic Silicon Valley. It is a human experiment created by not the government but the people.

    -Paul

  3. Sean on February 22nd, 2010 9:48 am

    This blog is absolutely right, it is end of chapter for silicon valley… u will witness that within a year or so!

  4. rakesh on February 25th, 2010 4:29 am

    I don’t completely agree with this article. Though the political and economical conditions may be besetting the Silicon Valley, but the talent is far from disappointing the valley. The federal government has been consistently investing humungous amounts of capital into the scientific research and innovation at the Silicon Valley, and its contemporary approaches undermine its belief in getting other industries out of the economic downturn. Post 9/11 security and vigilance has not stopped genuine foreign talent entering the Silicon Valley, in fact major successful outing from the Silicon Valley have come after the turn of the millennium and there always has been an outside US talent and support connected with those appraisals. The Silicon Valley has seen downturns over the years and has always bounced back. This time around too the Valley will come on top of the crisis in probably next year or so.

    Rakesh
    Business Analyst @ tatvasoft

  5. Software development company in India on June 29th, 2011 4:03 am

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