Silicon Valley woes

The fabled startup hub is slowing down as remote work becomes more prevalent, house prices keep rising and startups get gobbled up.

South Africa has Silicon Valley Cape Town and Israel has Silicon Wadi. Countless other “silicon hills” or “silicon stretches” are trying to attain California’s Silicon Valley status. At the same time, the famed area south of San Francisco, CA, is facing a number of problems that are eroding  its position as the world’s leader in innovation, reports Parisian business daily Les Échos.

 

For one thing, preeminent companies such as Uber and Airbnb are having trouble finding a viable economic model. The stock market is wary of financing companies with shaky profitability; for example, Snapchat’s market capitalization represents only 3.7% of Facebook’s.

 

Also, Silicon Valley grew up on a model of “clustering” between thriving university research campuses (Stanford, Berkeley) and major companies (Hewlett-Packard, Apple). But in an era of remote work and virtualization, collaborative teams can span the globe, making clustering less important.

 

Silicon Valley is not as big a job creation machine as it used to be. In May 2015, it still created about 100,000 jobs a year, but that number has now fallen to roughly 40,000.

 

It’s getting more and more difficult for new companies to emerge, mainly because new offshoots are being gobbled up by the giants. For example, Facebook recently purchased three promising startups that will never have the chance to grow into major players: WhatsApp, Instagram and Oculus VR.

 

Companies that resist buyouts get “competed” away; for example, Snapchat refused Facebook’s purchase offer in 2013 only to find the key functionalities of its app integrated into Facebook within six months. A temple of liberalism at the outset, Silicon Valley is becoming a haven for oligopolies, says Les Échos.

 

Cost of living is another major hurdle. Silicon Valley is pricing itself out of existence. Housing prices are rising so fast that even the fabled golden salaries of the Valley can’t keep up. This is mainly a problem for new, less qualified employees, who simply can’t afford to come to the Valley to find work.