The End of Silicon Valley

Last Updated Sep 1, 2008 1:53 PM EDT

Is the party over in Silicon Valley? Judy Estrin, a serial entrepreneur, investor and former chief technology officer at Cisco apparently thinks it is, in a book coming out Tuesday, "Closing the Innovation Gap."

She tells the Bits blog at the New York Times in Does Silicon Valley Face an Innovation Crisis? that innovation is flagging in Silicon Valley, and the U.S. more broadly, because, as the blogger sums it up, "Cisco and other fast-growing big companies started acquiring start-ups with innovative technologies instead of developing new ideas internally. Entrepreneurs began founding companies with the goal of selling to a big tech company, and venture investors encouraged that."

You might argue that big tech companies are supposed to buy good ideas from outside; that's one of the methods that Clay Christensen recommends in "The Innovator's Dilemma," to help them with their blind spots.

But she says that innovators are developing ideas so that they can be purchased, rather than aiming for genuine breakthroughs.

"In some ways, we have the problem that it looks like innovation is flourishing, but too much of it is short-term, incremental innovation," she said.

I've interviewed Estrin a couple of times and she's no Cassandra -- she's sharp, well-connected and has a great ability to see things in context. Yet as a journalist I see more novel ideas than I can write about, and many of them seem to have potential for sweeping scope. Perhaps they are merely exceptions to the norm in the Valley and elsewhere. It is also true that Silicon Valley firms suffer from an overhang problem -- they have more money than they really can invest effectively right now, especially with the stock market and merger activity in the doldrums.

I also see many Silicon Valley firms are taking big risks, pushing money to energy and green investments, things that do not fit the traditional Silicon Valley model, and lack a track record. It's hard to say that's not trying to build the foundation for the next generation of investors.

Maybe what she's really seeing is a push for economies of scale, finding things that look big, rather than diseconomies of scale. There's a compelling discussion of diseconomies of scale on the Management by Baseball blog, which comes at the topic by examining how the countries that have split off from the former Soviet Union did at the Olympics. In fact, the former Soviet Union would've crushed the rest of the world, and was far more dominant than when the Soviet Union existed. The reason? Well, diseconomies of scale from being smaller created more opportunities, more competition, more room for new ideas to be tried out.

I won't know if she goes in this direction until I read her book. Her main success in the Valley was pre-Internet bubble, and it may be that her areas of expertise are dominated by Soviet-style market monoliths (Microsoft, Google, Cisco), and she is missing emerging areas of tech innovation.

This will be a book worth reading.

UPDATE: The NY Times expanded its article on Estrin.

  • Michael Fitzgerald

    Michael Fitzgerald writes about innovation and other big ideas in business for publications like the New York Times, The Economist, Fast Company, Inc. and CIO. He’s worked as a writer or editor at Red Herring, ZDNet, TechTV and Computerworld, and has received numerous awards as a writer and editor. Most recently, his piece on the hacker collective the l0pht won the 2008 award for best trade piece from the American Society of Journalists and Authors. He was also a 2007 Templeton-Cambridge Journalism Fellow in Science and Religion.