Peter Thiel: Silicon Valley’s monopoly on big growth tech companies is over
cnbc.com
cnbc.com
The physical business of building computer parts, especially chips, involves a lot of hard science and deep magic and requires a kind of priesthood steeped in that magic. SV's original success was built on this -- it got rich because it is where the silicon priests lived. But now things have evolved so the it is the Chinese who know how to build the computers and (sometimes) the Californians program them.
Except writing apps is not really deep magic, and is something that can be done anywhere. So SVs advantages move to ever more nebulous things like networking and mentorship -- which are also human universals that happen everywhere.
It's been about software and design of hardware for at least that long.
You're also ignoring the networking advantages (personal, career, and business) that proximity provides. They are not trivial. It's why SV has stuck around post dot-com.
Lazy bas --- err, I mean, damn efficient, well done, old beans.
(Screw the cattle who have to deal with the fallout. Not adding value.)
Those chips were built on the fervor of people imagining what we could someday do with them. They could create a connected world, solve and create so many problems on a global scale...it's not super surprising that their successors went on to do those things.
What is surprising, and shameful, is how investors reacted, buying into the mania hook line and sinker. There cannot be a Bell Labs or Fairchild Semi in silicon valley today, because they could not promise 10,000,000% user growth and a massive acquisition in N years.
It seems like the market equivalent of snorting pixie sticks instead of eating a balanced meal, but I'm not the person with billions of dollars to swing around.
Sure there can, they just can't have VC as a part of their business plan.
Thankfully, more and more startups are realizing that VC is not their only option, nor usually their best one.
I guess they could go with a Bajillionaire Patron, or get funding through usury. Sorry, those aren't even close to fair comparisons, but 'bootstrapping' does seem pretty out of reach these days, for people who don't already have 8-10 figures laying around.
Like Google, with ads.
Google's R+D arms are arguably in the same broad category as Bell Labs was when it started out. We just need to wait 50 years to see if we will view them the same way in hindsight.
How is Bell Labs so different from Google X? How is Bell Labs any different from IBM San Jose Research (SQL, photoresists, Gray+Agrawal, relational databases, reliable databases, ...)
Second, the equipment that is capable of fabricating the most complex chips is almost exclusively developed here. Companies like Applied Materials, Lam Research, and KLA-Tencor make the machines that perform mind boggling feats of physics and chemistry[0]. Those companies are currently dominating 3 of the 5 top spots for revenues globally. One of the other 5 is in the Netherlands (ASML), the other in Japan (Tokyo Electron).
So the actual fabs (along with their Superfund legacy) are gone. But the Silicon innovators are still here and thriving.
That's not like how SV used to be: before automated layout, design and fabrication were forced to be vertically integrated—you needed a real fab to iterate your design against. So the designers needed to stay where the fabs were, and the fabs would get built where the designers were.
Uncoupling the two means that the fabs can go where it's cheap, and IC design is now just another kind of whiteboard-driven engineering, rather than a kind of monastic ritual performed within a warehouse-sized machine.
[1](https://www.bloomberg.com/news/articles/2010-07-01/andy-grov...)
These cycles work like a bellows, re-shuffling engineering teams en masse and thereby fueling innovation. It's actually pretty painful, but is an important factor and remains unique not in the fact that it happens, but in the scale that it happens in The Valley.
This argument is reminiscent of reformations and the political landscape of Europe way back when.
Frank Herbert, the author of the Original Dune books, once made the observation that corporate hierarchies are very much like feudal hierarchies.
There are probably more tech workers in SV than any other major metro area
DJI, founded in Shenzen, has 87% market share at the most popular price point, and 48% share in the next closest. This is an $8B market and will likely double or triple in the coming years. US companies won the web, but China is making a run for the IoT.
http://www.marketwatch.com/story/businesses-want-cheaper-dro...
I've travelled the world and my experience is that very few places in the world have America's, often irrational, can-do attitude, appetite for new venture risk, and societal acceptance of new venture failure as an important part of the entrepreneurial process.
I just don't think it's that easy to graft these cultural norms to other cultures, let alone replicate the new venture capital, both human and monetary.
As someone in London I wouldn't be on hacker news to 'keep my finger on the pulse' if I believed otherwise.
Europe may or may not have the culture you are suggesting, China might have that hunger but no business started there is safe from gov control, Russia has that control without the economic growth, a lot of places are too small.
But...there's probably a dozen cities in the US where you could get everything you can in SV (ok, maybe not the monoculture, the crazy VCs, the crazy cost of living, and tens of thousands of programmers). There are massive advantages to getting out of the Valley, someone is going to realize that, if it hasn't been obvious for a decade.
But if your goal is to work for next decades google, Apple, etc, then no, Google is not the place to be.
Start working on Bitcoin. Start working on Ethereum. Get to the cutting edge.
Everything you do at google right now is about 10 years out of date (and I'm including machine learning and all their "cutting edge" AI stuff) and targeted at supporting their existing established business.
Take this from someone who has been on the cutting edge for 30+ years-- the challenge for most people is that the cutting edge changes, and you have to be paying attention to follow it... by the time you learn mobile development, surprise, there's bitcoin! (as an example.)
I don't recommend anyone to really go to Google to work on the future (besides perhaps if you want to get an edge in AI). It's just that SV has a lot of people that have accumulated experience while building Google, FB, etc and that helps a lot no matter what comes next. You get a lot of experience and people able and willing to take risks which is a nice basis to build something new.
But you won't learn as much about search as you would at Google, or about logistics as you would at Amazon, or about psychological manipulation as you would at Facebook. All that knowledge is locked up in the corporations that profit from it, and if all your software knowledge is based on what's publicly available, you probably wouldn't even know it exists. You might learn how deep learning works and how to apply it to MNIST digits from a web tutorial, but you won't learn anything about how to apply it to other problem domains or even what those other problem domains it can be applied to are from it.
And economic returns are all based on supply & demand, so if you're supplying a service that everybody else can learn too, your economic returns are bounded by what all those other people are willing to work for. The big bucks accumulates to monopolies, those firms and the people who work within them who know things that nobody else does.
Wait, really?
As with any organic, self propelled, system.. it matures and growth turns to maintenance, and eventually decay. Is the general argument here that SV has become a victim of it's massive organic growth, has it eaten up one of it's resources (housing, healthy diversity, etc) to the point where another city/system can now flourish??
Gonna need a source on that one
I don't know enough about Chicago to know exactly how far our an hour's drive is or to know exactly what 'nice' means in this context but it seems like there are areas where the median price is quite a bit lower than 200k.
[1] https://www.trulia.com/local/chicago-il/type:home_prices_sal...
Yes, there are talented programmers in every metropolitan area but the Bay has significantly more of them than anywhere else.
You can get really good engineers in bay area, it just cost more than many are willing to pay.
I.e. "loudest" isn't really the right word to describe the only group that is even allowed to speak publicly.
You can't really use this as an "advantage" since it disappears rapidly once it starts become a tech hub.
But mostly Chicago just sucks. Its all the shitty parts of the midwest without any of the good ones. What you really want is Indianapolis, Columbus, Minneapolis, Louisville, etc...
Shameful Indianapolis trolling.
There's something you don't hear every day.
Logan Square apartments would get more expensive, but the market would respond to that the way it did with Lincoln Park, Wicker Park, Bucktown, and Ukranian Village: by gentrifying westward into Humboldt Park, Hermosa, and Belmont-Cragin.
An underrated advantage in SV is its top tier legal and capital talent. WSGR, Cooley, Fenwick, ... are outstanding. For VCs you can start with Sequoia at the top and work your way all the way down to angels. L+S did a demo in Andy Bechtolsheim's garage and walked away with a check for $250,000. That just ain't happening in Chicago.
(Northwestern, the other top-tier Chicago school, does have an engineering program).
We should probably dispense with the notion that regions "need" engineering schools to feed a tech industry. That is probably not generally how it works. Portland has a thriving tech scene, but not many people travel for engineering school in Portland. Boston has world-class engineering schools, and an anemic tech scene.
The graduate rankings for CS aren’t great, but the CS faculty are teachers first and researchers second; this may be to your advantage as an undergrad who is not eyeing a career in academia.
It has 5500 undergraduates, and until the last 5 years or so, less than 100 of them were CS students. So yeah, you won’t see as many of us out in the world as you will graduates of a school with 25k students.
It’s also a global institution in a cloister 7 miles/45+ CTA minutes from the nearest part of Chicago that white professionals set foot in (extremely segregated city); its effect on the city as a whole is going to be muted. People come from all over the world and then promptly disperse all over the world.
I hope Chicago or Saint Louis gets Amazon's second HQ but not at too great a cost.
What you're really trying to say is that there's no venture capital market here. That's true. (And, as a result, there's no real venture law here). Venture capital is a rounding error in the global financial markets. Don't extrapolate lack of VC to lack of capital.
Obviously, none of this is helpful for tech companies that want to raise a round in Chicago. If you plan on raising, you should probably at least start in SFBA or NYC.
http://static.crunchbase.com/reports/annual_2016_yf42a/crunc...
But this isn't the 70s+80s anymore when frankly you had to be in SV. Nowadays there are tremendous advantages to being here but you can be successful elsewhere. Instead, today SV competes for the market rather than owns its.
As for the topic, I think Thiel is a pompous twit. What I will say is that places like Chicago can be quite competitive by being less competitive and more organic. Here, it's I'm doing Snapchat meets Uber. Not quite Dot Com but awfully close. A YC side effect.
If you've got a real idea, it doesn't become real by being here despite here having huge advantages. Was Zuckerberg wrong for picking up his toys and moving to a rental in Palo Alto? Not really. But Xero isn't here. Hell, Xero isn't even American.
So it's kind've like Hollywood. For a few decades, they had tremendous advantages. Now Hollywood competes and other cities do production and location work. But Hollywood is still central to the industry and will be for the foreseeable future.
There are billboards on the state border encouraging people to live in Indiana (live in Gary?!) because Indiana isn't going bankrupt.
And it isn't just the obvious form of corruption that everyone can see and hate on, like Blagojevich trying to outright sell a vacant senate seat. It's also the subtle form that pays public employees slightly too much to do not quite enough, and then a pension that gives them even more for doing even less, while their replacement adds even more to the burden. You can't just fire all those people and take away their pensions, because then you can't provide municipal services to your residents, and that is more acutely painful than being slowly bled to death.
Edit:
In slight support of those billboards and some cousin posts, Indianapolis is one of the most affordable cities in the US for buying housing. And the pool for tech talent is largely untapped.
Public transit sucks, though. The city has a huge area and is almost completely flat, so it has taken extreme advantage of its ability to sprawl. Any sudden spike in growth will immediately lead to commuting nightmare traffic, all around the entire city.
The Chicago and Illinois Democratic party machines are almost certainly corrupt (or just rife with corruption), like most single-party states. But it's not clear to me how this impacts ordinary life for citizens.
Indianapolis is fine. I generally think, if you're going to move to a Midwestern city with no critical mass of tech companies, you might just consider throwing a dart. There are more tech workers in Chicago than Indianapolis, but in no Midwestern city are you going to exhaust the supply.
We generally need to get away from the notion that the locale in which you start your company is make-or-break. What we don't need to do is suggest that there's a Midwestern Ur-city where everyone needs to go.
It impacts ordinary citizens by raising their taxes and making the siting of production facilities in that locale even less attractive to companies, which tends to compound the problem. Real jobs leave. Fake jobs spring up. Companies that offer real jobs get squeezed harder to pay for the fake jobs. When they finally reach a breaking point, they leave and take the jobs with them. Spiral further down and repeat.
This gets thrown around on HN a lot, but the root cause of the problem is the implicit and seemingly unassailable assumption that everyone has to work in order to eat. People actually get angry at the idea that someone might get the minimum portion of life's necessities without sweating on them first.
Until that is addressed, no city in the US is totally safe for a business founded to do productive work, and the safest cities are those where enough new businesses are founded to employ all the people who would otherwise be forced to do make-work jobs to survive. And I think that's why people want to found companies in places that are already considered to be friendly to startups. The tightness of the labor market is not a bug; it's a feature. It means that more of your taxes go to infrastructure and vital services, and less to stealth welfare.
The best place to start a business is one that doesn't need for you to start it there.
Imagine if Motorola was first to have a major smart phone get popular like the razr instead of Apple.
Seatlle has amazon and microsoft.....chicago has nothing comparable I think.
In contrast, the entirety of Canada has about 500-600 homicides per year.
https://en.wikipedia.org/wiki/Crime_in_Chicago#Murder_and_sh...
Investments are way too little
We only have public companies here who are throwing pennies at startups ( 25 k) including the governement.
Eg. http://idealabs.be/ ( Belgium from Telenet NV - the biggest ISP here)
The major Northeast hubs have tons of programmers. The difference is that a lot of them work for the financial industry, government contractors, pharma, and the "unsexy" sort of older tech companies.
This is good for finding somewhere with a lot of programmers but the downside is that the employment market is just as tight here and COL/salary is nearly as high.
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If you're looking for somewhere that actually offers you payroll savings but still has a good enough talent pool to be able to find employees fairly easily, that list is pretty small and arguably getting smaller.
A lot of the trendier secondary cities for this (ex: Denver, Portland, Austin) are themselves getting very expensive, very quickly.
https://www.techinasia.com/china-top-well-funded-startups-20...
Didi has raised over $10bn.
But there are no Chinese brands that are widespread household names out of China. Even if a billion Chinese use renren the rest of the world uses Facebook (and maybe vk). Even if a billion Chinese use Baidu the rest of the world uses google (and maybe yahoo, in Japan, for some reason).
Go on Amazon.com and Chinese brands are bestsellers in many electronic categories: Anker/Sunvalleytek in phone accessories, Yi in action cameras and dash cams and security cameras, TCL in televisions, etc.
Also the rest of the world isn't just US. Chinese smartphone brands have 50% marketshare world wide. Xiaomi, Huawei, OPPO are growing fast in South Asia, South East Asian and MENA. Transsion (you've probably never even heard of this company) owns phone brands that dominate Africa and is the marketshare leader there. Chinese home appliance and consumer electronic brands are also big in non-western countries.
It's not easy to summarise the importance and pervasiveness of guanxi... from a Western perspective it could be described as corruption but it's more like a social currency that is involved in any important transaction.
So I will say guanxi is not an noticeable factor here. If you look back, how many SV startups are funded by people with a lot of resources, under the name of, networking? Does that count as your definition of social currency? In fact, guanxi, or 关系, in Chinese means connections. Sounds familiar, isn't it?
The reason China has a huge startup scene is not that hard to understand if you are willing to come out of your idealogical/cultural bubble:
1. Presence of GFW. It bars the competition from outside of China.
2. Cheap local talents. They work twice the hours, but possible rewarded with 1/2 or 1/3 of what their SV counterparts are earning. The Chinese system allows such exploitation, while not anywhere else in the world.
3. Vast market. There are 1B cellphone users in China, that alone could sustain several 100B companies.
Exactly why do you think I'm in an ideological or cultural bubble?
What personal experiences in China's new venture scene can you share with everyone on HN that does not involve guanxi at all?
Lastly I disagree with your assertion that guanxi is simply "connections" or "networks". Granted I am a westerner but I dealt with Chinese manufacturers and business partners for several years and my personal experience is that guanxi is much more than what you are implying.
- "guanxi" = old boy's club
- "face" = Italian mobster respect
USA has 300 million high value customers. Any successful company will be massive.
There is hardly any other big market like that in the world.
In the past the decade, it has become impossible for most of India and China's best people to come to the US due to very long Green card wait times.
From the Indian perspective alone. Billion dollar start ups and entrepreneurial ventures are popping up all over the country. Even a decade back this was impossible to even think of.
My guess is US is will gradually lose its grip being the economic super power of the world as China and India eat their lunch. It won't happen over a throw of switch, it will be a very gradual prolonged process.
That's inherent to the process of all creation and business starting. 90% of everything is garbage. That's a case where there's nothing unique about Silicon Valley. I'm sure you're at least vaguely aware of the very high failure rate of all new businesses within just a five year span.
Or see: last 200 years of industrial history. There were hundreds of automakers just in Detroit in the US, experimenting with just about everything they could. Most of it was garbage. It's a required part of the process of experimentation. If someone stands up and proclaims that aspect is stupid and a waste and they know better (they'd never make such mistakes, they'd never need to perform such wasteful experimentation), well, at least then you know who you're dealing with.
Silicon Valley's 10% is better than the 10% anyone else produces. It also does it at a higher volume simultaneously. That's why it's Silicon Valley and nobody has managed to match it in the last 50 years.
SV is good at what it does, it's the best at what it does, but that's orthogonal to building a great company. We believe it's necessary because that's how it has been done.
Well, yea, hence silicon valley. Like begets like - if there's a place where all the best engineers are hanging out, why wouldn't a budding engineer head out there? This is literally why I moved to San Francisco from Houston :P
And then, the best of the best engineers making oodles of money are probably not going to want to live in like, Michigan, growing tech sector or no. Give up good weather, quick access to great vacation spots (mexico, vegas, anythign over the pacific, all the national/state parks...), legalized weed, etc? Nah man.
edit: My language is assertive but I am very open to being challenged on this.
In a lot of countries failure will follow you for the rest of your life. Not to mention that you'll be broke owing to banks, friends and tax authorities.
The rapid lead that the large, unified market of the US + Canada provides, is extraordinary. Only China offers something competitive to that and as an outsider you can't move to China and form successful large start-ups (which is why among their major tech companies, there are no cultural foreigners or non-Chinese running businesses like Tencent, Baidu, Alibaba, Didi, Alipay, etc and there never will be). The US + Canada = near $21 trillion in economy, with extremely high disposable income levels, that mostly all uses/understands English.
Fundamentally this is why Europe has struggled so immensely to produce new tech giants in the last 20 years, compared to the US or China. It's not the lack of risk-seeking capital; although that's less than in the US, there is still enough. There is some cultural restraint depending on the country. Mostly though, it's because of how extremely difficult it is to adopt to all the various nation by nation differences early into the life of a product and acquire market dominance in enough of them to then have a strong foundation from which to springboard globally.
Couldn’t the same be said about Hollywood in LA or Wall Street in New York?
Should we be more careful since this was said in an investment fund which is not located in Silicon Valley? Or should we trust Peter for his words?
Clearly population numbers are not sufficient in themselves to explain why the situation will change.
This is not some profound statement from Thiel, but something very obvious.
Look back to the 1980's. I remember watching news clips on TV of people smashing up Japanese electronics because they were taking over the US. It was plainly obvious they were going to displace the US as the leading economic power. Hell! They were buying up all the largest buildings in the US!!
Didn't quite turn out that way, huh?
The world is also significantly different from 80s. China's GDP in 1980 was $200 bn. Now it is $11 trillion
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