Google’s astonishing rise and Apple’s reinvention are reminders that, when it comes to great ideas, location is crucial. “Face-to-face is still very important for exchange of ideas, and nowhere is this exchange more valuable than in Silicon Valley,” says Paul M. Romer, a professor in the Graduate School of Business at Stanford who is known for studying the economics of ideas.
In short, “geography matters,” Professor Romer said. Give birth to an information-technology idea in Silicon Valley and the chances of success seem vastly higher than when it is done in another ZIP code.
No wonder venture capitalists, who finance bright ideas, remain obsessed with finding the next big thing in the 50-mile corridor between San Jose and San Francisco. About one-quarter of all venture investment in the United States goes to Silicon Valley enterprises. And, according to a new report from Joint Venture: Silicon Valley Network, a regional business group, the percentage has risen, to 27 percent in 2005 from 21 percent in 2000.
Many times in the past, pundits have declared an end to Silicon Valley’s hegemony, and even today there are prognosticators who see growing threats from innovation centers in India and China. Certainly, great technology ideas can come from anywhere, but they keep coming from Silicon Valley because of two related factors: increasing returns and first-mover advantage.
The paradox, which the article doesn't really address, is that Silicon-Valley-as-place remains constant while the mix of industries and companies is in constant flux. The Valley's success depends on both: a keen sense that everyone shares a common, bounded geography (more or less from Redwood City in the north to Morgan Hill in the south), and the ability to move extremely freely from firm to firm (and from university to firm) within that geography. Eventually, I will explore this in a separate post, but it is worth remembering that Silicon Valley success owes a lot to the fact that noncompetition agreements are all but uneforceable under California law.