Get to know Silicon Valley
“History of Silicon Valley: Why do they call it Silicon Valley?” by Past To Future. All right reserved. Retrieved from: https://www.youtube.com/watch?v=M4VP7TuZjt8
What is unicorn and black swan?
The unicorn is a mythical creature that is rare and noble. Lee (2013), an American venture capitalist, classifies startups with valuations over $1 billion in private and public markets and calls these companies unicorns. Between 2003 and 2013, only 0.07% of U.S. startups specializing in computer software were valued at least $1 billion. These companies were so rare under the circumstances that finding one was as difficult as finding a mythical unicorn.
Until the 19th century and the discovery of the mutant black swan, people thought all swans were white, which turned their common sense and experience on its head. The black swan is a synonym for an unusual or unexpected event. Often, the potential probability of these black swans is “mispriced”, as if they were undervalued stocks (Foden, 2007). 9/11 and the rise of Google are classic examples.
Silicon Valley’s reputation for unicorns and black swans implies extraordinary strength and room for growth as a place but also unpredictable risks of all kinds. Regardless, the successes that Silicon Valley continues to demonstrate are worthy of consideration. Therefore, this article will discuss the political, social, and economic ideas that have shaped the culture of Silicon Valley today.
The U.S. government’s management of Silicon Valley is loose, and Silicon Valley is formed under the influence of market forces. Silicon Valley was developed without prior ambitious government planning, vision, financial investment, and administration, but that does not mean the U.S. government did nothing about Silicon Valley. The government has mobilized entrepreneurs and protected their legal rights by creating an institutional and cultural climate for entrepreneurship and innovation. A series of institutional innovations, such as a stock option system with intangible assets participating in the distribution, sophisticated intermediary services, and an open labor market, provided a reliable institutional guarantee for entrepreneurial innovation (Saxenian, 1989).
In 1950, the U.S. government became the largest client of Stanford Research. From the end of World War II until the late 1970s, the U.S. government created the ideal economic conditions for technological innovation and commercialization to flourish in Silicon Valley. The U.S. Department of Commerce went to learn about hot foreign markets to make it possible for the Economic Mission Office to provide U.S. startups and more established companies with direct access to growth regions (Golomb, 2014). The U.S. government relaxes entrepreneurial policies, clarifies property rights, allows technology equity, creates fair conditions for companies to go public, perfects public services, and an open and competitive market environment. Thus, the development of Silicon Valley has a suitable external environment in this political context.
The social ideas of Silicon Valley culture have a sense of synergy between competition and cooperation. Silicon Valley companies have formed an extensive network of social relationships. This network of trust and close cooperation between companies has enabled extensive cooperation and information sharing. It has allowed knowledge and information about technological innovation to spread rapidly throughout the region, facilitating companies’ adaptation to today’s rapidly changing technologies and markets. The “network of practice” of similar occupational groups in Silicon Valley means that people engaged in the same or similar work are connected through professional associations or informal groups. Even though the people in a practice network are not all from the same company or employer, they share the same practices, often encounter the same issues, and mutual exchange knowledge and skills within the industry, which is less resistant to the transfer of new ideas in this case (Qi, 2013).
However, inter-firm social networks do not eliminate competition but rather intensify it. Firms strive to bring new technologies or products to market before their competitors to capture a larger market share and a higher market position. Intense competition promotes learning and cooperation. “Firms collaborate with competitors and complementaries, and the boundaries between complementary and competitor can become blurred” (Schilling, 2020, p.25).
For example, today, Apple and Google compete on almost everything they make, Apple Maps VS Google Maps, Google Drive VS iCloud. Even while there is such extensive competition, Google and Apple still collaborate, with Google paying Apple about $800 to $12 billion a year to ensure it is the default search engine for Safari. With access to over 1 billion Apple devices, this deal has helped Google dominate the search market, accounting for 90-95% of U.S. search engine queries. The partnership also provides Apple up to a fifth of global revenue (Tammana, 2021). Hence, the Silicon Valley paradox is that competition requires constant innovation, which in turn requires inter-firm cooperation, and cooperation is a calculated business decision. It is in this network of both competitive and cooperative relationships that Silicon Valley has become more competitive.
Industry clusters are the forces that drive Silicon Valley’s economy. A cluster is a geographic concentration of interrelated companies and institutions in a given field, including a range of interrelated industries and other entities important to competition, such as suppliers of components, machinery, and specialized infrastructure (Porter, 1998). The two primary forms of clusters are spontaneous and policy-driven clusters (Huang et al., 2012). Spontaneous clusters result from the spontaneous co-existence of crucial factors, such as the benchmark of high-tech clusters, Silicon Valley, which is the base of industrialization. Centered on Stanford University, the valley stretches along a 30-mile corridor from San Francisco to San Jose and is home to more than 7,000 software and electronics companies (Dearlove, 2001). Policy-driven clusters are triggered by government commitment to planning the creation of clusters as a response to an industrial crisis or as a deliberate decision to nurture a sector (Huang et al., 2012). For instance, the Chinese government has invested heavily in completing supporting infrastructure in order to attract quality companies to establish high-tech industrial development zones (Wang et al., 2022).
In contrast to policy-driven cluster initiatives, which are often more focused on public interest and regional development, spontaneous clusters support the needs of specific business groups and aim to stimulate entrepreneurship. The Silicon Valley campus development model has become a model for high-tech industrial development studied and emulated by countries. Thus, Silicon Valley was not made by plan or by rigid institutions. Its economic ideas came more from the spontaneous role of the market and its emphasis on creativity and innovation.
In conclusion, the culture of Silicon Valley has always been based on the idea of innovation. The U.S. innovation model is characterized by many small and medium-sized emerging technology companies in various industries driving innovation at all levels of society, working together and competing. A complex “industrial agglomeration map” is formed through a close collaboration of technological innovation, an entrepreneurial talent pooling mechanism, a cultural atmosphere that encourages entrepreneurship, and a well-developed service system. Also, Silicon Valley is influenced by its geographic location and climate, business environment, and legal environment. The key is that these elements are not simply combined but can easily flow freely and reinforce each other, constantly giving rise to new products, ideas, and businesses, which is why Silicon Valley cannot be replicated.
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Golomb, V. M. (2014, July 4). The Government Once Built Silicon Valley. TechCrunch. https://techcrunch.com/2014/07/04/the-government-once-built-silicon-valley/
Foden, G. (2007, May 12). Stuck in Mediocristan. The Guardian. https://www.theguardian.com/books/2007/may/12/society
Huang, K. F., Yu, C. M. J., & Seetoo, D. H. (2012). Firm innovation in policy-driven parks and spontaneous clusters: the smaller firm the better? The Journal of Technology Transfer, 37(5), 715–731. https://doi.org/10.1007/s10961-012-9248-9
Lee, A. (2013, November 2). Welcome To The Unicorn Club: Learning From Billion-Dollar Startups. TechCrunch. https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/amp/
Porter, M. E. (1998, November 1). Clusters and the New Economics of Competition. Harvard Business Review. https://hbr.org/1998/11/clusters-and-the-new-economics-of-competition
Qi, W. (2013). The analysis of network structure model and innovation network characteristics for industrial cluster: using complicated network perspective. Digital Information Research Foundation, 11(4), 277–284.
Saxenian, A. (1989). In search of power: the organization of business interests in Silicon Valley and Route 128. Economy and Society, 18(1), 25–70. https://doi.org/10.1080/03085148900000002
Schilling, M. A. (2020). Sources of Innovation. In Strategic Management of Technological Innovation (3st ed., pp. 15–39). McGraw-Hill Higher Education.
Tammana, A. (2021, February 10). Apple and Google Formed A Powerful Partnership — Now, It Could Crumble. TechTalkers. https://medium.com/techtalkers/apple-and-google-formed-a-powerful-partnership-now-it-could-crumble-14260d3eb09d
Wang, Z., Yang, Y., & Wei, Y. (2022). Has the Construction of National High-Tech Zones Promoted Regional Economic Growth?—Empirical Research from Prefecture-Level Cities in China. Sustainability, 14(10). https://doi.org/10.3390/su14106349