I wrote a post Sunday about the difference between cultural waves in Silicon Valley and the individual companies that come out of them. Many of the individual companies survive but the wave itself always has to crash. That’s the nature of waves. But it’s also the nature of waves that another one always comes along. I have no idea what that will be. After all, the smartest people in the Valley thought social networking was a feature not a business ten years ago.
But it’s clear that the Valley is at a crossroads: Will it follow the Web 2.0 path further down the road of media and entertainment or go back to its roots of hardcore science and technology?
For a few decades, waves in Silicon Valley followed each other logically. Innovation in semiconductors lead to innovation in computers, which lead to innovation in software, both personal and enterprise. That lead to a desire to connect all that stuff via Ethernet, the Web, telecommunications and huge banks of servers, switches and routers. And on top of all of that we built the first wave of highly functional Web companies– sites that used the technology the Valley had already built to enable us to to do things like buy a plane ticket way cheaper and way easier.
But in the early 2000s, the Valley was at a crossroads. Was the future cleantech or Web 2.0? Put another way, was the future starting a new stack or continuing to iterate on top of the mostly-built out one? The cleantech camp was championed by a lot of top Valley names– most famously John Doerr– who saw it as the most important way to change the world and an undeniably huge market that required real innovation. The Web 2.0 camp was championed largely by the PayPal Mafia’s angel investors like Reid Hoffman and Peter Thiel, and a handful of other angels and mentors like Marc Andreessen. Many of them prized the fact that Web companies were the opposite of cleantech: Thanks to decades of technology build out they were cheap and low-tech to start, utterly changing everything about these companies from the size of the exit you needed to have a good return to how quickly you could know if you had something or not.
Ultimately, Web 2.0 won the Valley’s heart and hype, and because of a few giants, it’ll likely win in sheer returns. There are a lot of explanations why. It could have just been the better opportunity for venture-style investing that typically shies away from funding big science projects. It could be because it was just the easier opportunity. It could be because the people holding the checkbooks were more excited by it. It could be because the government hasn’t done its part in funding more cleantech research, or because the government hasn’t done its part in creating subsidies to spur the early days of an alternative energy market. It could also be that there’s a cleantech equivalent of Facebook out there, it’s just taking longer to build and prove itself and we don’t know it yet. But one thing is pretty safe to say: Cleantech was the first huge market ripe for innovation in decades in which the Valley lost its leadership position. By almost any measure there are bigger markets for and innovation in cleantech happening elsewhere in the world.
A few keynotes and backstage conversations I had at Disrupt last week emphasized that the Valley is at another cross roads. And it’s a more exaggerated version of the last: Between a return to companies based on real, disruptive science or further down the rabbit hole of Web-enabled media and entertainment.
Peter Thiel said it the most strikingly when he– the man who turned a $500,000 investment in Facebook into $3 billion and the man who believed the Web was still a great opportunity when few others did– said that the Internet as a category was dead from a venture capital standpoint. The next day, Vinod Khosla backed this up by mocking the idea that a conference called “Disrupt” would have a demo of Microsoft’s next version of Windows. Even Eric Schmidt got into the futurist act with all his longing for cars-that-drive-themselves. On the other side we had the group of startups in the middle of Monday’s afternoon of competitions that were all basically iterations on Foursquare. It’s one thing for companies to build off of the success of Facebook or the iPhone, but Foursquare hasn’t even proved it can go mainstream.
This is not a zero-sum game. Both waves will find funding– after all more money was put into cleantech than Web 2.0 in the mid-2000s. And it bears noting that the two waves are also inexorably intertwined. Yesterday I listened to a heady, science-filled keynote by Valley egg-head Steve Jurvetson of Draper Fisher Jurvetson, where he described innovation around energy and water as the first trillion-dollar opportunities VCs had ever seen. I asked him afterward how the Valley would do tackling them. Would we still dominate? The clear answer was no, but not because there is less innovation was coming out of the Valley. Instead, more innovation is just happening elsewhere, he said. And he added that a lot of the things people deride as not disruptive enough– particularly applications like Skype, Gmail, Facebook, Twitter– have played a huge role in knitting together tech elites around the world, making this surge in global disruption possible.
But one path will likely dominate the Valley zeitgeist, impact and returns over the next decade. You don’t see a cleantech movie do you?
I’d vote with Thiel and Khosla for science. There are a lot of amazing innovations brewing in fields like bionics, artificial intelligence, space travel, agriculture, energy and material science– some of which are largely made possible because of the build out of the computing stack. But my guess is most of the TechCrunch audience and many of my colleagues would pick the other route. A path where San Francisco becomes the center of Web media, the way New York was the center of news media and LA was the center for entertainment media. These businesses are easier to understand, quicker to evaluate and more likely to produce a series of newsy blog posts. I don’t say that as a value judgment– I wrote a book on Web 2.0. It’s as fun and sexy as the Valley gets, and it’s what a mass audience cares about.
The reason Silicon Valley has been so resilient in wave-after-wave is its ecosystem, and four main groups of that ecosystem will play their roles in determining which wave wins.
The first is the media. Writing about science isn’t easy, and it isn’t popular. Part of this is on us, but blogs are a community. Posts I’ve written on science and other off-the-beaten-track topics like innovation coming out of slums and villages in the developing world typically don’t drive the same traffic or engagement that a post about the latest YCombinator company does. If the page views aren’t there– will reporters who want to write about this stuff be supported?
The second are smart engineers and talented executives. Do they want to work at companies like these? Or do they want to aim for the next Facebook, Zynga, Groupon or Twitter– companies where you get the instant gratification of reaching millions of people and where increasingly you don’t have to wait for an IPO or acquisition to get a windfall?
The third is investors. That’s the one I’m least worried about. Hype about new media, super angels and flips aside, there are still billions of dollars in the Valley that has never had a big hit from the consumer Internet and would just as soon back something with proprietary science. And some of the Valley’s biggest names are getting behind companies like these whether they are superstar investors like Khosla and Thiel or superstar entrepreneurs like Elon Musk and Jeff Bezos and their bets on space travel.
Mostly it will depend on the fourth factor: The entrepreneurs. Ultimately that’s who we all revolve around. Call me an idealist, but I still believe in the core organizing structure that has made Silicon Valley what it is: Great, determined entrepreneurs disrupting a big market will get funded and the rest will follow– maybe not at Web speed, but it will follow nonetheless.