The Boston Area Technology Sector is a Lot Like Silicon Valley/Santa Clara County …. Not.

by Lee Gesmer on January 22, 2010

The Boston Area Technology Sector is a Lot Like Silicon Valley/Santa Clara County …. Not.

A table from Branko Gerovac’s website, Empirical Reality compares the technology areas of Massachusetts and Silicon Valley The two areas are far more alike, on the statistical level, than I had realized –

2008Boston CSA*San Francisco CSA
Total population7,514,7597,354,444
Population 25 years and over5,086,6715,013,980
Bachelor’s degree21.80%24.70%
Graduate or professional degree15.60%16.60%
Population 16 years and over6,047,1315,888,844
In labor force69.60%67.60%
Unemployed4.00%4.10%
Median household income (dollars)66,72377,247
Mean earnings (dollars)90,213104,526
Per capita income (dollars)34,32439,069
Households2,835,3042,628,007
Owner-occupied housing units64.60%58.80%
Median home value (dollars)345,000656,500

(* CSA stands for “Combined Statistical Area”)

However, it’s no more accurate to say these two regions are comparable than it is to say that two 175 pound men are comparable – one may be all muscle, the other, well …..

Unfortunately, as Mr. Gerovac details in a number of other posts, Boston is far behind Silicon Valley in innovation, start-ups, and a variety of other key factors central to business development.  Mr. Gerovac quotes from an October 2009 TechCrunch article by Vivek Wadhwa, who wrote as follows (selected quotes):

Ever heard of Route 128? To my surprise, neither have any of my students at Duke or the entrepreneurs I’ve met in Silicon Valley. I’m surprised because it wasn’t so long ago that Silicon Valley was considered a poor cousin of Boston’s tech center—a cluster of technology companies located along this freeway which partially rings the city. Starting in the 1960s and on through the 1980s, Route 128 was, if anything, more closely associated with tech than Silicon Valley. Today few young technology workers even know where Route 128 is located, let alone its importance in the tech world. Silicon Valley has simply left Boston’s tech center behind.

In the 1980’s … if you were betting on one you’d have been wise to bet on Route 128 because of its longer industrial history and proximity to a large number of high quality educational institutions . . . and proximity to Bell Labs and other large corporate research centers. . . . Now, . . . Boston is a distant second nationally to Silicon Valley in technology entrepreneurship. So, what happened to Boston?

A young professor at UC-Berkeley, AnnaLee Saxenian, wrote a book in 1994 which answers this question. At a time when Boston still thought it was the powerhouse of the tech industry, Saxenian declared Boston the loser in the tech race and explained why it would only fall further behind. This book was titled Regional Advantage: Culture and Competition in Silicon Valley and Route 128. It kicked off a firestorm of criticism from the Boston elite. Saxenian also alienated friends at her alma mater, MIT.

She noted that Silicon Valley had an amazing dynamism about it. There were extensive professional networks, job hopping was the norm, information was exchanged openly, and the culture encouraged risk taking. The Silicon Valley ecosystem supported entrepreneurial experimentation and collective learning. In other words, Silicon Valley was a very open network—a giant social networking site working in analog before the concept of such a thing even existed.

This organizational mechanism was in sharp contrast to that of Route 128. Dominated by large, vertically integrated, and secretive minicomputer producers such as DEC, Wang, Prime, and Data General. Technology, skill, and know-how were trapped within the boundaries of the large corporations.

The differences were evident at many levels: venture capitalists in Silicon Valley had deep roots in local networks and were far more nimble than their east coast counterparts; educational institutions and research labs in the West partnered with local startups as well as more established firms, while those in the East worked only with the largest corporations; and the meritocratic openness of Silicon Valley made it a magnet for non-traditional talent and immigrants.

By the mid-1990s the east had missed the shift from minicomputers to personal computers as the flexible Silicon Valley ecosystem sped ahead with innovation across a diversifying range of components and systems going from chips, routers, and application software to ecommerce and search engines. Today Silicon Valley is the leading location for cleantech venture activity, an area widely considered to be the next big value creation engine for the U.S. and the world.

Boston, however, is no slouch. The Route 128 community remains the second biggest in the U.S. in terms of venture funds committed. Boston has powerful research institutions, still, and lots of very strong companies. In some areas, such as biotech, Boston may even rival Silicon Valley. But overall, its pretty clear that the Valley has not only won but is racing further ahead.

Most entrepreneurs and engineers that come to Silicon Valley, come to experience this network and to embrace the culture it has created. That’s why I came, too. Network effects don’t just work for fax machines. But then again, most of them knew that intrinsically. University guys like me need to do a bunch of surveys to figure it out. They voted with their hearts and feet.

Gerovac presents an interesting graph on his site comparing the percentage of tech company founders who established a start-up in the same state in which they received a degree.  California ranks tops at 69%, compared with 29% in Massachusetts (which is below the study average of 45%).

In our firm we’ve been talking informally about this phenomenon for years, and these posts are food for much thought.  Could it be simply that California is a lot softer on noncompete agreements than Massachusetts is?  I’ve always wondered whether it could be something as simple as the weather.

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