Silicon Valley: Too Big to Fail, or Too Big Not To?

Am I seeing things or is the innovation capitol becoming less hospitable to really new ideas and strong patents?

Are Silicon Valley’s guiding lights still willing to extend the welcome mat to entrepreneurs that provide potentially disruptive ideas and new business models?

While it may have the ability to periodically re-invent itself, we should not assume that San Francisco Bay Area has the confidence and perspective to avoid the mistakes of Detroit and the U.S. auto industry.

Firmen_im_Silicon_ValleyThe desire to maintain market share and profitability has turned companies once considered radically innovative somewhat mainstream. Some are stockpiling cash that they are uncertain about how to use and parking it off-shore to avoid paying U.S. taxes.

Silicon Valley: too big to fail, or too big not too?, published next week in IAM, uses The Intangible Investor column as a springboard to examine whether tech companies like Apple, Google, Facebook and Cisco are still supportive of new ideas or just managing their position as top dog until someone bigger and badder forces them to yield.

Others’ Inventions

Independent developers and big companies have something in common: they both dislike recognizing others’ inventions. To them patents are considered an impediment as opposed to a potential asset that can provide the leverage to help them succeed. Surely the maze of broad, ill-defined patents can create a minefield that makes legitimate businesses cringe, but without these rights new industries and technologies would be even fewer and further between. Also, capital would likely be even less available for new businesses, some of which, like Apple and H-P, will grow into big ones that employ a lot of people.

Silicon Valley, home to successful tech giants like Intel, Oracle and eBay, appears to be turning more risk averse as it matures and failure becomes more costly. This really should not too much of a surprise. The question is what does it mean for innovation and inventors’ rights, and for investors? At last glance, Apple, for example, was sitting on $140 billion in cash, up from about $20 billion in 2008, with a stock that has lost about $300 per share from its peak. It’s not easy being highly innovative when you are protecting assets and stockpiling cash.

Hacker’s Mantra

The hacker’s mantra heard often around Facebook, “Move fast and break things,” may be turning into more style than substance. A pre-IPO valuation of $100 billion will tend to do that. “Move fast and break the bank,” may be more like it.

What happens to companies that rely on inventions that were once disruptive? They tend to get careful and want to hold onto what they have created and manage their success and minimize risk. Good for profits; not so good for next generation technologies, or investors.

The area south of San Francisco extending to San Jose was once mostly about transistors, bold hardware engineering and innovative marketing. Today the engineers have been supplanted with e-commerce pioneers and software programmers. The drive to breakaway and start your own business, while seemingly easier now, is waning in the face of increased costs, competition and time pressure to succeed. Weaker patents and a less reliable patent system do not help.

* * *

Silicon Valley remains one of the most dynamic places for innovation. Unfortunately, it may take a recessionary cycle or two, another tech bubble, or cheaper real estate, to get its mojo back.

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