Monday, April 11, 2005

Silicon Valley Resurrection

Peter Cochrane in his column for Valley Lessons visits the new shoots of innovation that are starting to bud in Silicon Valley. Cochrane proposes that the traditional way of working in the valley and traditional IT innovation has been lost, unwittingly exported as immigrant engineers went back home away from the last bust with valley knowhow and networking skills. This may be true and there are challenges to the valley from India, China and Taiwan.

Peter's argument has some merits, with the exception of RFID and wireless-orientated applications the enterprise software market is not the ever expanding pie it once was. Slow growth and long buying cycles will mean that growth is likely to come from consolidation rather than innovation. Unless someone comes up with an application that has as much an impact on business life as the mobile phone, the market for enterprise applications is going to be very slow in penetrating small and medium-sized enterprises.

Many successful wireless applications such as RIM Blackberry devices are likely to have their wings crimped by compliance related issues requiring tracebility of emails and back-up.

Web services have the potential to be a bright spot, the biggest issue is that outside of the United States you cannot patent a business process like Amazon's 'One-Click', so the idea can be copied in the high-growth markets of Asia.

However, I think that the picture is brighter than Peter suspects.

Peter thinks that VCs are and will be too cautious, and that they will not have so much money to invest. OK consider this, the Western world's population are getting older, pension funds and investors are having to turn to devices like hedge funds and exotic markets to invest all their money. This was one of the factors that inflated the technology investment boom in the first place. At the present time VCs in Silicon Valley are sitting on some 25 billion USD in uninvested funds due to be handed back by venture capitalists to their investors in the next year to 18 months. If the funds are handed back the VCs have to also refund their two per cent annual management fee, that equates to some three billion USD in lost fees. VCs have a powerful reason to bank on the valley again.

Secondly, although the Silicon Valley engine is run by an army of programmers and engineers, what makes it special is the dreamers like Trip Hawkins and Steve Jobs. In the same way that China, Korea and Japan have become hot beds for mobile services due to the nature of their ideogram-based languages being much more expressive in a small screen area, so Western culture offers opportunities with its more individual-based approach and world view.

Thirdly, much as I hate to agree Bill Gates, there is a lot of challenges out there that will provide opportunities for businesses. In the same way that a rapidly expanding Internet in the 1990s, created a need for Yahoo! directory and search, so the mass of, still images, audio, multimedia content, video, IP television and languages create new challenges to be met.