Where is the Next Silicon Valley?
Home to nearly two-thousand tech companies, Silicon Valley is a region of the San Francisco Bay Area known as the global center for high technology and innovation. Its name is a nod to the chemical element silicon (Si), a key component in integrated circuits and certain MOS transistors that were used to manufacture the region’s first products. Frederick Terman, the Dean of Stanford School of Engineering in the 1940s and 1950s, is credited as Silicon Valley’s founding father, as he pioneered an entrepreneurial spirit among the prestigious Stanford faculty. Professor Terman notably encouraged two of his students, William Hewlett and David Packard, to form the high-tech company we know today as Hewlett-Packard. Over the last twenty years, Silicon Valley has experienced a “once-in-a-lifetime alignment of advantages” conspiring to create an extraordinary concentration of wealth and power in the hands of Big Tech firms. However, after decades of glory, the region is now faced with an array of existential threats that are only exacerbated by the ongoing pandemic.
As Silicon Valley’s reputation as an entrepreneurial hotspot grew, hoards of technology companies and their employees piled into the Bay Area, driving housing demand sky-high. This lack of housing and high cost of living has developed into a major issue for San Francisco residents. In 2019, VOX reported that a significant proportion of tech employees struggled to buy homes in the area, despite making well over six-figures. That same year, houses in the city were selling for a median price of over $1.1 million, emphasizing the urgency of San Francisco’s housing problem. If the well-paid struggle to buy a home, those working for smaller corporations or struggling start-ups face even greater difficulty. The city’s rental market faces similar issues, as Silicon Valley ranks as one of the most expensive U.S. cities to rent in. Unsurprisingly, a study conducted in 2020 for the Bay Area News Group found that 47 percent of residents were thinking about moving, while nearly 10 percent had concrete plans to leave within the year.
It seems, however, that unhappy Silicon Valley residents have found a solution for their desire to relocate. With the increase in remote working due to COVID-19, former city-dwellers now have the option to reside in other, less-expensive regions without compromising their salaries or employment opportunities. This sudden decrease in demand has led to a steep and unprecedented decline in San Francisco housing prices. Although the exact percentage of people who have left is not yet known, market prices indicate that this number is large enough to negatively impact the city’s housing market. In October 2020, San Francisco topped the U.S. list for the biggest rental price decreases, and the real estate website Zumper reported that the city had experienced a 20.7 percent decline year over year since. Only recently have rental prices begun to recover since their initial decline in April 2020.
The real estate market may show signs of resurrection, but Silicon Valley’s corporate landscape faces more permanent changes. Over the past year, prominent corporations such as Hewlett-Packard Enterprise Co. and Oracle have decided to move their headquarters to Texas, citing COVID-19 restrictions and California’s high taxes from the Trump Tax Plan as contributing factors to their relocation. While a large number of corporations remain rooted in Silicon Valley, the companies’ policy changes indicate that post-COVID, the region will no longer house the same dense roster of talent. Tech giants like Twitter and Facebook have recently announced permanent work from home policies, and Pinterest paid $89.5 million to terminate their lease for an upcoming office building in San Francisco. Evidently, many industry leaders continue to maintain a stake in Silicon Valley. Yet they also have their sights set on a future less intrinsically tied to the city.
The question on every investor’s mind is, where is the next Silicon Valley? Domestically, Austin is deemed the city most likely to carry on America’s tech legacy. For the second year in a row, the Texan capital ranked first in CompTIA’s Tech Town Index Report, which compares twenty metropolitan areas on the cost of living, number of IT job postings, and projected IT job growth over the next five years. Austin pays an $87,880 median salary for IT pros and posted an impressive 68,323 IT jobs between August 2019 and July 2020. In comparison, San Francisco and San Jose ranked seventh and fourth in the 2020 report, likely due to their aforementioned high cost of living. In September 2020, Amazon announced it would open fifteen buildings in Texas within the year and hire 1,700 employees in the Austin metro area. Similarly, Tesla’s Austin-area factory is poised as the launching point for its new electric pickup, the Cybertruck, and Elon Musk hopes to have the factory up and running by late 2021.
Internationally, the Insider’s publication has brought forward six contenders for the new Silicon Valley: Tel Aviv, Berlin, Shenzhen, Lisbon, Bengaluru, and Stockholm. Referred to as “Startup Nation,” Israel has undergone an impressive high-tech revolution and now attracts more venture capital per person than any other nation. Waze, a GPS navigation software app founded in Tel Aviv, was acquired by Google for $1 billion back in 2013. Tech giants like Google, Facebook, and Oracle own research centers in or near the Israeli capital, and Amazon opened its Tel Aviv office in October 2020.
Berlin has itself welcomed a surge of tech companies thanks to its plethora of affordable property. Apple and Facebook now have corporate offices in the city that SoundCloud and Wunderlist call home. From 2015 to 2017 Berlin witnessed an impressive 9% increase in startups, and continues to attract international tech talent given its attractive cost of living for a cosmopolitan city.
Home to more than 14,000 high-tech firms, Shenzhen’s tech industry accounts for nearly 40% of the city’s GDP. With national tech giants Tencent and Huawei both headquartered in the city, it is no surprise that Shenzhen is already known as China’s Silicon Valley. In fact, Shenzhen is a crucial component of the Chinese government’s tech and innovation strategy to rival the California region. Steven Yang, ex-Googler and CEO of battery tech company Anker, is one of many high-profile advocates for the city’s unparalleled culture of fast-paced innovation.
Lisbon boasts thirty-two tech scale-ups that have each raised just under $1 million in funding. Between 2014 and 2016, seven-hundred companies in the high-tech industry were founded in the Portuguese capital, whose rundown buildings are now being revived and transformed into vibrant tech hubs and co-working spaces. In 2016, the Portuguese government launched the StartUP voucher initiative to offer a yearlong fellowship to 400+ entrepreneurs. They also created a $225 million venture capital fund to drive foreign investment in startups.
Bengaluru, also known as Bangalore, was declared “India’s answer to Silicon Valley” given its diverse tech sectors, spanning artificial intelligence, food tech, fintech, robotics, and more. India’s prized IT industry began in this city nearly thirty years ago, when foreign companies sought out cheap labor to cut back on costs. Now, Bengaluru has risen to become an entrepreneurial hot spot and was named the world’s most dynamic city by the World Economic Forum in 2017.
Finally, Ben Schiller of the business magazine Fast Company named Stockholm as the “second Silicon Valley in Scandinavia.” With coders comprising 18% of the workforce, Stockholm produces the highest number of unicorns - privately held startups valued at over $1 billion - per capita of any global city outside of Silicon Valley. The Swedish capital is also home to immensely successful tech companies, such as the streaming service Spotify and the gaming company King. Johan Attby, an entrepreneur who has worked in both Silicon Valley and Stockholm, described the latter as a place where “[we] share and collaborate rather than brutally try to outdo others in a race for the top,” alluding to Silicon Valley’s cutthroat culture as a considerable turn-off.
As remote work becomes the new normal and living costs in the Bay Area continue to rise, California’s Silicon Valley may be approaching the end of its reign over the tech world. Today, many flourishing tech hubs are attracting young talent, propelling economic growth and innovation forward in these areas. Only time will tell which of the several contenders will secure the title of Silicon Valley 2.0 – and perhaps even forge society’s new tech giants.