Unbundling Silicon Valley

And spawning Valleys all over the world

Last week, a late-night Twitter conversation with Marc Andreesen and Dave McClure got me thinking about the future of Silicon Valley in a different way.

The perennial “future-of-the-Valley” debate isn’t a new one. Nor is it surprising that a community preoccupied with building the future is curious about how the entrepreneurial world map will be redrawn in years to come. Will the Bay Area remain the mecca of modern tech entrepreneurship? Or will replica Silicon Valleys sprout up in cities like Singapore, Moscow and Tel Aviv that eventually reach parity? In short, will the future of the Valley be a story of continued consolidation or one of global diffusion?

I’ve always been in the camp that’s long on Silicon Valley—not just as a physical space for entrepreneurs but a mental one that values putting big dents in the universe. The ecosystem here is both complex and self-reinforcing, and each component—the Stanfords, Googles, Wilson Sonsinis, weather and natural beauty—would individually be so difficult to replicate that copying the entire package would be nearly impossible, akin to building a man-made Mount Everest in the desert and convincing the best climbers in the world to abandon the original and come scale Ever-esque.

I still believe this about the Valley. But Marc’s 140-character stream of thoughts has me thinking the entire premise of the debate may be wrong—and far too binary for what the future might actually look like. The Silicon-Valley-versus-the-world argument smacks of the mercantilist rhetoric of the 16th century that viewed global wealth as a zero-sum game—that Silicon Valley’s loss would be some other ecosystem’s gain and visa versa. Instead, Silicon Valley’s biggest export may be a model and culture of entrepreneurship routed across the globe, pollinating pockets of specialization that emerge and contribute new value to a much larger ecosystem. These geographic outposts would apply the Valley’s startup model to new domains where they are uniquely positioned to build a longterm, sustainable comparative advantage.
These “X” Valleys would become satellites of innovation even as Silicon Valley remains the center of gravity.

In the Wealth of Nations, Enlightenment economist Adam Smith introduced the concept of comparative advantage—a cornerstone of modern economic thought—which states that if a country can produce a product at a lower opportunity cost, even if another country is more efficient overall, they both benefit by trading with one another. Consider the Silicon-Valley-versus-the-world argument through the same framework: In an absolute sense, Silicon Valley is the most productive technology capital in the world, but if “X” Valley in another corner of the tech universe could produce wearable computers or self-driving cars at lower marginal costs and ship them worldwide with giant AmazonAir drones, the entire ecosystem prospers. It’s Adam Smith’s gains-from-trade model on crack.

Scottish economist Adam Smith

A bonus: new wealth being pumped into the system percolates to places beyond the golden triangle of San Francisco, Palo Alto and Atherton, while amplifying the mothership of Silicon Valley and benefiting consumers worldwide. The same engine of technology that has historically widened the gap between the haves and have-nots in the world may end up doing the exact opposite. The leverage that allowed twelve people to build the billion dollar Instagram can be exported, catapulting the world’s poor into the cloud and distributing tech power to the makers amongst the masses. Any bright-eyed kid with an Internet connection and some programming savvy can become an “X” Valley entrepreneur, no coercion required. And funding for his “X” Valley startup can be crowdsourced instantly by a global network of individual investors looking to bet on the next big thing (unless Dave McClure wires the money first☺).

Perhaps the greatest opportunity for poor countries in this space-race to spawn a hundred new “X” Valleys is to exploit a disadvantage rich countries have fallen prey to: overregulation. As large Western economies turn to government intervention to quell tumultuous markets, provide consumer safeguards, and protect politically influential incumbents, they suppress certain categories of innovation, inviting poorer countries to take the lead. Imagine “Robot” Valley, “Nano” Valley or “Biotech” Valley disrupting more affluent incumbent countries in the robotics, nanotech and biotech spaces—much in the way Singapore has become a biotechnology haven by lowering regulatory barriers. As Marc points out, one could envision a “Bitcoin” Valley springing up in a country without tight financial regulations and (as Naval Ravikant notes) a poor country could become wealthier by driving adoption of Bitcoin on a national level and displacing a weak currency. This is much less likely to happen in the United States or Germany because of strict financial controls, but could happen in a small country like Cyprus, engulfed by financial turmoil and needing to pivot. This would be the national equivalent of “moving fast and breaking stuff” to win.

Greater financial freedom across the globe creates broad ability for more people to vote with their feet and move to geographic outposts with shared values. It’s not hard to imagine the emergence of hundreds of new states, organized around “X” Valley capitals, that provide security and infrastructure for these golden egg-laying geese. As Dave McClurehypothesizes, in the future we will prototype entirely new countries, organizing small teams of people to search out national product-market fit. The freedom and efficacy synonymous with unparalleled access to the information, capital and computing power could also be a destabilizing force against dictators who control and coerce their people. And in waning areas where authoritarianism prevails, refugees will have more safe havens to flee to, with more “X” Valleys popping up on the map.

In a sense, this unbundling process is already happening. We can see the metamorphosis of a “GreenTech” Valley (Boulder, Colorado) or “Biotech” Valley (Singapore) already underway. It’s not inconceivable that North Dakota could become an “Energy” Valley or that some small country will grab the “Bitcoin” Valley mantle. We see top tier venture capital validating this unbundling process by flowing to startups in countries like Germany—bets now possible because the “Valley mentality” has been distilled to the point where it can exist outside the petri dish of Northern California. These proof points demonstrate that the mental space of Silicon Valley is far more premium real estate than the physical, with the ability to turn arid deserts into bustling metropolises and helpless people into entrepreneurs.

The unbundling of Silicon Valley and the spawning of new “X” Valleys across the planet could present a model for a more prosperous future. Like many of our forefathers who fled oppressive regimes and emigrated to a New World, and like those of us who came to Silicon Valley in search of a better life, the next wave of progress will be driven by a mass pilgrimage into the cloud. In this future, Silicon Valley doesn’t have to hoard the currency of innovation, monopolizing the ore of opportunity like mercantilist Kings of the past. Instead, we become the launch pad for sending satellites into orbit that will expand the tech universe and transform a regional phenomenon into a global one.