There's much buzz about Michael Arrington's post provocatively titled "Silicon Valley Could Use a Downturn Right About Now. I don't interpret it as a literal call for a downturn but as a signal that a well-established pattern is reappearing and that, as is always the case, something feels lost when the people who care most about money start to dominate the people who care most about art (great companies, great technologies). The post is fine, but the comments are the must-reads, for both wisdom and foolishness. One of the best is this one from Brendan. It's long, but here's an excerpt:
[U]p until the late 90s, the Valley toiled in relative obscurity building tech giants. Now that the world knows about it, like the world knows about Hollywood, this is the place to "make it" in technology. So people flock here, capital flows here and ideas flourish here. It is an ecosystem, highly evolved over 30+ years - to producing technology giants. It is not an accident that Intel, Oracle, Sun (former paradigm-changing, at least), Yahoo, Cisco and Google all emerged from the technology primordial soup that is the Valley.
From time to time, one of the precedent conditions gets out of whack and upsets the balance. This is almost always $$ - too many VC $$ flowing into the system. These VC $$ are provided by state pensions, endowments and other institutional investors chasing the out-sized returns that VC promises. (mostly untrue for all but the very best VCs) With so much money the VCs become indiscriminate in their funding choices - supporting too many "me-too" concepts for too long. In order to rise above the noise, these start-ups hire PR agencies and throw launch parties, creating more noise. This escalates for awhile and then it goes off a cliff. We'll be back to no VC $$ for even excellent ideas. entrepreuneurs - real entrepreneurs will bootstrap themselves again. Good ideas will rise to the top on their own merits and VCs will again begin to notice, starting the whole cycle over again. In the meantime, until the next crash, restaurateurs, PR hacks, event planners, coffee chains, commercial landlords, Porsche dealers and real-estate agents will live fat and happy. Then they won't. And they'll cry poverty. We've seen this movie before. Does no one remember?
Ah yes, no one does because the Valley has no institutional memory. That is why this will happen again, and again. And - pay attention here - this is the magic of the Valley.
My least favorite comment? Probably the naif in Australia who quotes Tom Friedman to "prove" that since the World Is Flat, Silicon Valley is irrelevant. That argument from authority is not only wrong but self-refuting. If Tom Friedman didn't work for The New York Times and name-drop like crazy, nobody would read his books. His success proves that the world is not flat, whatever that means. (Ed Leamer's Journal of Economic Literature review is the definitive word on Friedman's book, combining entertaining metaphorical parsing and serious economic analysis.)