S2E5: Dark Side: Silicon Valley is Dead

Every beginning has its end and so is the story of Silicon Valley. It was the government and emerging military race after the WW2 that attracted technology to California. The original myth includes Bell Laboratory and the invention of silicon-based transistors, active role of US Navy, research centres of NASA, invention of ARPANET, Palo Alto Research Center and the emerging ecosystem of public-private partnership that gave us modern processing and connectivity of Internet. Each wave of innovations delivered spectacular set of technologies that soon proliferated throughout the planet. Hardware at the beginning, followed by software, with global connectivity and artificial intelligence soon afterwards. The term Silicon Valley originally coined in the 70s’ turned into single biggest cluster of high-tech powered by the brains of 250k engineers and entrepreneurs. At its peak the region had the highest concentration of billionaires per capita and kept attracting nearly half of total US venture capital expenditure. And then dark clouds started to loom at the horizon.

Covid19 was one of game changers, where people realised that instead of spending most of the admittedly high salaries on real estate, they would be better of to move into cheaper places since work can be done remote. This led to an accelerated exodus of highly skilled workers what in return generated a pressure on the once lively and now half-abandoned cities. The vacancy rate in San Francisco has reached all-time high of 29% and keeps increasing.

Then came the adverse economic cycle that challenged the extreme valuations of high-tech companies. Due to combination of high inflation, darker economic outlook and high interest rates, giants like Amazon or Meta saw their stock price decline by half throughout 2022. And this triggered wave of layoffs with once highly respected startups like Karna, Chime or Stripe being forced to fire 10-30% of their workforce.

The doom and gloom feeling was further exacerbated by the fall of the symbolic financial institution - Silicon Valley Bank - with more than 200bn dollar assets on its books. The bank that used to be at the bleeding edge of funding technology bled out itself and had to be bailed out.

Then came disillusions of blockchain miracle and the regulatory backlash against crypto mavericks like Binance or Coinbase that further undermined the leading role of technology-driven innovation. Clearly Silicon Valley legend is no longer … or is it?

Human mesh prevails

Coming from Europe, first striking thing that you experience in Silicon Valley is the overall optimism and openness. Then you realise the perfect melting pot of nationalities, where everyone seems just to naturally fit and perfectly blend into the crowd. People that you meet, no matter if they are seasoned senior leaders of hyperscalers or greenhorn entrepreneurs at startups, are upbeat. Perhaps not in the naive “sky is the limit” way, but surely most people are still there lured by so-called MTP. Massive Transformative Purpose is the continuous quest to discover and name big problems we face and apply technology to solve them. Surely not everybody is there for terraforming Mars or finding the cure for cancer, but glass is always half-full and people are not shy of setting themselves bold targets. This is further amplified by the fact that people tend to fail fast and often switch jobs. That is result creates the “human mesh” so culture of openness as today you might be my fierce competitor but perhaps tomorrow we join forces and work for the same company. Hence, the unique network of brains works perfectly fine. Just like it was at the very beginning.

Focus on client and plan backwards

This seems to be the motto best codified by Amazon Web Services (AWS). You can feel the original spirit of Jeff Bezos, the founding father of Amazon, is very strong and at moments resembles a cult. At AWS every day is day 1 of company origin and strong sixteen leadership values are used consistently to recruit talent, develop people and make every decision. At the heart of it is the quest for client value so before getting excited by technology, we need to fully understand what is the market problem we are about to solve. Before the two-pizza-delivery-team kicks in, there is a refined and disciplined process to express the need, the business case, the critical success factors and way to approach it. And gone are brain-washing powerpoints since people have to express themeless in an exact six-pager memo. This obsession with client is one of the cornerstones of the Silicon Valley.

Transform yourself to transform others

When Satya Nadella took the helm of Microsoft in 2014 nobody predicted an easy ride. Despite respective growth of sales, the company was late with cloud and mobile, not deemed innovative and clinging to its traditional product base. First was the revision of company?mission statement into "empower every person and every organization on the planet to achieve more”. What followed next is the pure example that “elephants can dance” so culture of Microsoft keeps evolving into collaboration, growth mindset and continual learning. At the end of the day it is about technology, but the secret is to make sure you extract value. And value is realised differently for a small fast-growing company and in a very different way for a larger incumbent operating in highly-regulated industry. Therefore the focus on self-reinforcing ecosystem starting with office user productivity, followed by mature services of Microsoft Azure and amplified by GenerativeAI (the recent 10bn investment into OpenAI).

Think 10x

And then comes Google Cloud Platform (GCP) with its urge to think big. Googlers seem to be selected and continuously trained to think 10x. This means that instead of focus on continuous incremental improvements (frugal innovations), we should force ourselves to image order-of-magnitude increase. You can think about it, that instead of learning to swim faster in red ocean you should rather swim into a new blue ocean. Sundar Pichai has taken seriously the original mission of Larry Page and Sergey Brin and intends to bring data at disposal of everyone. The motto of GCP is to “accelerate ability to digitally transform business” and they keep refining their vertical stack to optimise it. Starting with backbone internet cables submerged between continents, with data centres, optimised hardware and software so that users get the seamless experience they are looking for. This truly Silicon Valley geek culture managed to produce nine applications that have more than 1bn users and keeps innovating with generative AI to bring even more insights and intelligence.

AI - enemy at the gates?

The most recent hype in Silicon Valley is surely that of GenAI (Generative Artificial Intelligence). McKinsey reports that between 2030 and 2060, as much a half of current jobs will be rendered obsolete thanks to GenAI. However, as master Yoda keeps repeating “Fear is the path to the dark side” so Silicon Valley’s response is that of glass half-full. There is rather the notion of co-pilot so concept that all employees from CEO to troops on the shop floor will be more productive and take better decisions thanks to AI assistance. This vision is an optimist one since as mankind we will become even more productive and could spend larger percentage of time on business value-add or just leisure.

Either way Generative AI seems to be the logical evolution path of current AI solutions. We already use algorithms that help us scan text, process images, funnel down options and get most specialised data at our fingertips in split second. The generative feature means we can get one step further and not only obtain available options, but also generate the most convenient one. All this being done in natural language and pretty soon via voice, gesture and other natural human interfaces (I bet you saw the recent presentation of Apple’s Vision Pro gear).?

And yes, AI needs to be regulated to fully understand the algorithms, protect private data and ensure no bias, but again this is where tech companies are willing to evolve. Just take a look at NVIDIA reaching 1tn market cap and you will see that the future computing power is all about supporting even larger number of more sophisticated algorithms.?

Be brave

Among the quotes of Steve Jobs, one that I like a lot is “Have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”. This is the spirit that day after day attracts best talent to the Silicon Valley and results in approx. 40 thousand startups being active there. And now wonder that we already have more than 60 unicorns that were created there.

And the story continues with technology inventions accelerating continuously. Think about internet of things and 6G mobile data standard that would enable global connectivity at the scale unheard before. We could soon download 142h of Netflix movies in 1 second or … think 10x and do something smarter than that.

So while riding in autonomous (aka driverless) taxi in San Francisco I was thinking … Long live the Silicon Valley!?