Four Threats That Could Decay Silicon Valley

By Jeremiah Owyang, from Silicon Valley

In many respects, Silicon Valley sits atop the world. Its growth and influence has made it the globe’s top location for innovation, STEM jobs, IT patents, venture capital funding, and Internet and software growth, and Unicorn startups galore.

And yet there’s also been a shift in the Valley’s culture. Growing social and economic rifts have bred fraud, anger and protests. Where housing isn’t in high demand, neighborhoods lay abandoned. One-third of students in East Palo Alto, next to Facebook’s shining new HQ, for instance, don’t even have a home. The new administration poses many questions on the role of tech, labor, and regulation.

One could argue that there’s an emergence of signs that strikingly resemble Detroit in the glory days of the age of transportation. While Silicon Valley will no doubt enjoy many more years as the technology capital of the world, it has its own vulnerabilities.

In Detroit’s case, where I visited earlier this week, the Motor City reveled in its dominance in the 1950s, but growing social unrest soon culminated in a massive riot in the late 1960s. Foreign competition hit next, making the most of economic opportunities to steal market share in the 1970s. Underlying credit problems grew for decades and finally surfaced in the 1990s, and ultimately despite unprecedented bailouts, major bankruptcies hit in 2009, with the city itself declared officially bankrupt in 2013.

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Here are four threats, aside from natural disaster, or whole scale physical attack for Silicon Valley today, along with a futuristic probing of their possible conclusions in the coming decades:

Threat One: Complacency and Competition
The byproducts of rampant success are beginning to take their toll on the Valley, especially in the escalating costs of doing business. A concentration of talent and vision that once was a tremendous advantage is now an ever-rising obstacle for new startups or collaborative partners looking to tap into those resources. To think Silicon Valley’s trajectory will continue unabated for much longer represents an arrogance that’s creating a tremendous blind spot for the region.

New tech oases are rising in places across the country – Austin, Texas, is a prime example – and around the world in places like China, India and Korea. In Detroit, Japanese carmakers gained their foothold when a global oil shortage spiked gas prices and opened a door to sell smaller, more efficient cars. Today, there are a lot of regions in the world where tech innovation can be accomplished for cheaper than Silicon Valley. Eventually someone may figure out how to do it faster or better too.

Threat Two: Lack of Economic Diversity Means Fragility
One industry in a single city is a risk. Stemming from that very same tech-obsessed culture comes the liability of being one-dimensional. The threat of a Silicon Valley bubble unplugging from the realities of the rest of America and the world could render its innovations out of touch and useless, whereas a more balanced economy where arts and humanities are also thriving is more likely to produce thinking outside the box.

Historically, iron and steel towns have faltered when global economic shifts happen – they have no backup, and the homes, stores, and businesses that all support that single industry may result in their shuttiner. Additionally, having a variety of industries only breeds a plethora of viewpoints, which can only aid in helping guide a better technology set for humans. Where Silicon Valley is strong with tech, it’s equally deficient in the humanities.

Threat Three: Disappearing Margins as Tech becomes Commoditized.
The open source movement and spread of tech knowledge are diminishing Silicon Valley’s advantage over the rest of the world. There’s an abundant supply of new software developers coming into the market, and technology has a way of democratizing at such a low price point that healthy margins are nearly impossible. And if energy technology succeeds in providing inexpensive renewables in the not-too-distant future, the threshold of entry for competitors will drop even lower. While the iPhone is able to maintain a high price point, China is on their heels with a $25 smartphone. Could other regions in Asia and Europe develop open source versions of technology that smash the price of technologies?

Threat Four: The Rise of AI, Silicon Valley builds its own master
The race to develop artificial intelligence and machine learning could backfire on Silicon Valley if AI breakthroughs displace the need or abilities of its army of tech pioneers. Or the intense pursuit of that goal could unleash uncontrollable machines that wrest power away from the elites. Technology has proven to be a capable disrupter of businesses, industries and entire ways of life. Deliver that kind of disruption on an unprecedented scale and it becomes incredibly hard to predict the consequences.

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Any one of these warning threats has the potential to morph into a serious threat to the future of Silicon Valley, and avoiding such eventualities begins with addressing their underlying issues.

Just remember, no industry is hot forever, they all have their own lifecycles the question is, is Silicon Valley just a teething youngster, or in it’s final stages?