ITx Coffee #3 – What impact has the pandemic on the Silicon Valley?
For some time now, Silicon Valley has not been the absolute centre of gravity of the tech world: a number of successful and globally successful tech companies are not based there like Shopify in Ottawa and TikTok is Chinese.
But Big Tech has fared very well so far in the pandemic crisis. Indeed, containment has stimulated the use of digital technology and has given American tech giants the opportunity to grow strongly and increase their already exorbitant dominance. Many startups have also benefited, such as those in fast-growing business areas such as home delivery, the cloud, or digital collaboration and training tools. Not the others.
On the other hand, Silicon Valley’s Big Tech faced other challenges.
What has happened to Big Tech and Silicon Valley since the beginning of the pandemic?
For some time now, the issue of gender equality and equity has developed with the increase in social activism of tech employees, particularly in the BLM movement[1]. The rise of the “Woke” culture [2] has brought to light the differences between the rather libertarian elite (radical liberalism against government intervention) and the rather liberal employees of Silicon Valley Tech. The CEO of a cryptocurrency company Coinbase has issued a manifesto against the politicization of life in the company by displaying principles of apolitical attitudes for his company.
Very controversial, especially by the former boss of Twitter who in a tweet said that “Capitalists me-first who think that one can separate society from [life in] enterprise are going to be the first to be aligned against the wall and shot during the revolution”.” He criticizes the abandonment of the social contract within Silicon Valley companies in favor of the search for quick profit without a soul. In some cases we see that “technology, which is supposed to be used to make the world a better place, has become a weapon of hate.”
There were also antitrust charges by the U.S. administration that resulted in a lawsuit against Google (October 20, 2020) and another against Facebook (December 9, 2020). It is likely that there will be other lawsuits for example against Amazon and Apple. And also in Europe.
Big Tech has been accused of mishandled information about people, discriminating business practices and increasingly concentrating the power to stifle innovation and entrepreneurship, and manipulating opinions.
The big four had to submit to questioning by the House of Representatives Committee of Inquiry in July 2020. This is the most notable investigation against tech since Microsoft was indicted in 1992. A very accusatory report was released on October 6, 2020 and outlines a more difficult future for Amazon[3], Apple, Alphabet (Google) and Facebook. One recommendation – strongly pushed by Democrats – calls for the dismantling (structural separation) of GAFA’s activities that would affect Facebook and Google more than others. However, Republicans have indicated that they do not agree with a restructuring of this magnitude: “It is very important that we proceed with a scalpel and not a chainsaw.”
Weird by the way, Democrats are so heavily attacking Big Tech and Silicon Valley, which traditionally supports them (including financially): perhaps it’s the resurgence of radical ideological anti-capitalism against the Trump administration. The election of Joe Biden to the U.S. presidential election won’t change much because the commission of inquiry was bipartisan. If the past is repeated in this area, the implementation of some of the report’s recommendations will take time and there will be “settlements” (arrangements) with the justice system. In the meantime, this can cut off the wings and the desires for “competitive dominance” of Big Tech.
Regarding the antitrust lawsuits against Google and Facebook that began since October 2020 under Trump, it is likely that they will continue under Biden and may even be weighed down.
In October 2020, the CEOs of Facebook, Google and Twitter were forced to testify again in a hearing before the Senate Commerce Committee.
The focus was this “Section 230” which is a crucial law that protects internet companies “interactive computer services” and allows them to filter the content they carry as they see fit. In a nutshell, this makes internet companies not responsible for the content they distribute. And curiously, both Trump and Biden want, for different reasons, to revoke this section 230 of the Internet Media Act.
How did BigTech and Silicon Valley position themselves in relation to the US presidential elections?
They have been heavily involved, whether at the corporate level or at the level of the managers and employees of these companies. There have been many individual donations and also through organizations such as PAC (political action committees), candidate committees and political parties.
Employees have made more donations to Democrats. They gave 20 times more money to Joe Biden’s campaign than to Trump’s re-election bid.
The U.S. venture capital community also made record donations of $69.7 million, almost double the $37 million advanced for the 2016 election. About 79% of those donations went to Democrats, a sign of Silicon Valley’s religious support for Biden and his huge hostility to Donald Trump. Venture capital firms, however, are concerned about Biden’s plan to raise taxes on long-term capital gains.
Why so much support for Biden and for Democrats from American digital tech?
Silicon Valley’s love affair with Democrats is not new. Silicon Valley has positioned itself early on as a protest counterculture carried by young people and opposed to the east coast of the United States, its government and administration, its banks and its large companies considered monopolistic and uninnovating elephants. The hippy influence was very clear in Silicon Valley in the late sixties and early seventies. If we remember that the beginnings of Silicon Valley were heavily funded by the Department of Defense, we can see an interesting first contradiction. It can be added that the development engine of Silicon Valley is totally capitalist thanks to venture capital, which on paper was not ideal for the hippy culture of the time.
The pinnacle of the friendship between Washington and Silicon Valley is under Obama. But there was a precedent with Al Gore very popular in Silicon Valley before and after his failure in the presidential elections. He is the man of the “super information highways” at the beginning of the development of the commercial internet in the USA. Then he became the man of climate change with his famous book (An Inconvenient Truth: The Planetary Emergency of Global Warming and What We Can Do About It.) which became a documentary “An inconvenient truth”. He had unsuccessfully launched a cable TV channel, Current TV sold after two years to al Jazeera America.
How did this pro Biden attitude translate into the presidential vote?
When you look at the election results in the San Francisco Bay Area in four very tech counties, you can see the pro-Biden activism. In Silicon Valley, in the three significant tech counties, San Francisco, San Mateo (Menlo Park, Redwood city, Redwood City…), Santa Clara (San José, Cupertino, Sunnyvale, Palo Alto, Mountain View, Stanford, Santa Clara…), Alameda (Berkeley) the results are very strongly anti Trump and favorable to Biden. Alameda, where Berkeley is located, is traditionally his university on the left, with a record success rate of 79.81% for Biden but unsurprisingly in that county.
Here is a table that I have compiled with the official results published in the sites of the counties and the state of California.
San Francisco gives Biden the highest score with 85.26% because there are also many Tech companies including Salesforce, Twitter, Lyft, Twillio, Square, Docusoft, Mulesoft, Square, Fitbit… And a lot of “geek” singles. San Francisco is a Democratic city anyway.
The San Francisco Bay Area with its four tech counties shows a 78% lead for Biden while at the California state level Biden is at 63.5% and 51.3% nationally.
But the Los Angelès region is also very pro-Biden which receives 71.04% of the vote in the county of Los Angelès where the world of cinema is located with Hollywood etc… compared to 56.87% for Trump. Los Angeles County is the most populous in the United States.
By adding Alameda County, where Berkeley Is located, we have four counties representative of the san Francisco Bay Areas.
Nationally in the US, Biden received 51.3% of the vote and Trump 47%.
But what can Democratic tech and Silicon Valley supporters expect?
They’re probably waiting for more than they’ll get… Part of the support for Biden (but first of all for Sanders) is an expression of strong animosity against Mr. Trump, the man and his facets. So they’re relieved of Trump’s departure!
This hostility is a little ironic because the Republicans have not done too much harm to American tech. Indeed, if we look first at the Republican side, we can note that The four years of Trump will have been great for the American Bigtech. There have been great gifts, including lower taxes and the ease of tax revenue to repatriate assets of these foreign-based firms. Bigtech’s stock price has soared in four years. Amazon’s was up 4.2-fold for a capitalization of $1,603. Apple is at 1,982 T$, Microsoft at $1,627, Google/Alphabet at $1,211, Facebook at $791,283, Tesla at $555,242, Netflix at $217.08 T$
The total capitalization of the top four of tech is 797,716 T$! Almost $8 trillion!
And, Elon Musk, Jeff Bezos, Microsoft, Facebook are among the richest people in the world.
The Trump administration has pushed for the acceleration of AI in 2019: The “American AI Initiative” is calling for more federal research funds to be redirected to AI. Which has much more to American tech.
(Biden, for his part, is asking for a $300-billion investment budget for research in I. A, in electric vehicles and 5G)
Trump also abolished in 2018 the principle of “net neutrality” that treated all Internet services the same way and prevented more debits from being granted to a particular company. This is very interesting for large broadband consumers like video streaming services. And allows internet operators to use users’ data without their prior consent… One can imagine to whom it pleased …
But what displeased was Trump’s anti-immigration provisions, which hit Silicon Valley hard as it employs a lot of foreign personnel on visas. Biden said he would withdraw Trump’s H1-B visa suspensions.
The economic war with China has also displeased, including the ban on selling products to some Chinese companies, including Huawei.
Trump has launched attacks on the four big big tech companies (excluding Microsoft) for their growing uncontrolled influence on the flow of information and on citizens’ opinion. And more prosaically, what greatly displeased is the personality of Donald Trump himself who is at odds with the “cool” Californian or “geeks” and minority advocates in Silicon Valley.
Aren’t Democrats more tech-friendly than Republicans?
We have to distinguish between Biden’s plan and the Democrats in the broadest sense.
On the Democratic side, there is a kind of paradox in their positions vis-à-vis tech.
On the one hand they want for their own reasons to reduce the power of Bigtech and on the other they cherish them, especially their financial support. Bigtechs obviously enjoy sending their employees to collaborate in the state’s services.
On the same side you have Elizabeth Warren and Bernie Sanders bowing to the Bigtechs that should not only be regulated but especially dismantled as AT and T. To do a bit like against IBM and Microsoft in the past of antitrust lawsuits in passing. If Democrats win the Senate Warren and Sanders will be heard highly.
Here’s what Warren said in 2019, who isn’t particularly friendly to Bigtech:
“Today’s big tech companies have too much power — too much power over our economy, our society and our democracy. They have reduced competition with bulldozing, used our private information for profit and tipped the scales on the other. And in doing so, they have harmed small businesses and stifled innovation.”
On the other hand, during his campaign Biden was not very vocal about tech, which is not his priority. He distanced himself from the (too?) close friendship between Obama and Bigtech, which he disapproved of as vice president. He thought bigtech were arrogant. He is more concerned about climate change, the battle against the Covid-19. In fact, its four priorities also include economic recovery, racial equality. Broadband is unique but not regulation at all.
It is likely that he will add to Trump’s anti-trust lawsuit against Alphabet/Google and Facebook. And will extend it to others like Amazon, and perhaps even Apple for the same and other reasons discussed during the hearings of these companies before the committee of congress in July 2020: unfair competition, invasion of privacy, life inside these companies, freedom of opinion of their employees etc.
Antitrust actions are not won and these cases can take years without decisive results. Meanwhile the march of history can in any way change the give with new generations of consumer entrepreneurs, businesses and technologies.
Even with hefty fines it is not won that these companies “will fall into line”. Assuming that we have been able to define precisely what that means in their cases.
Tackling the “bias” of platforms and self-referencing, when the offending internet services display their own lists above those of competitors appears difficult and technically complicated.
There is also the intention to better supervise and monitor mergers and acquisitions initiated by Bigtech. It is easier to implement politically. We can already expect a slowdown in acquisitions by Bigtech. The four Bigtechs would have more than $248 billion in cash that can allow them a lot of acquisitions….
The desire to get Trump out of Silicon Valley and big tech was so entrenched that there may have been an intellectual (and prosaic) overinvestment in Biden. With unrealistic expectations based on the pro Silicon Valley comfort of the Obama years.
But as the bipartisan action of Congress against the power of Big Tech last summer showed, there was already a very serious common concern beyond the parties about the risks caused by the inexorable and uncontrolled rise of the American tech giants. Democrats are changing, too. And Biden is not Obama.
Biden will probably be less conciliatory with Big Tech than the Obama administration. He also explicitly indicated that he wanted to revoke Section 230. He didn’t really talk about tech during his campaign and in his program. Since his election he has only referred with Kamala Harris to the need to expand broadband in rural areas and not to the issue of bigtech’s overly dominant powers.
Two other important developments have transformed the Silicon Valley landscape: the “exodus” of tech people out of Silicon Valley and the massive adoption of telecommuting.
Could remote work weaken or strengthen Silicon Valley?
The exodus raises the question of the sustainability of the region. These departures have certainly been accelerated by compulsory telework, but the main reason has been the exorbitant cost of living in the region for some time now, with its deficient public services. (The pandemic may be a good alibi for reducing the wages of those who will live where the cost of living is lower!). The result is that Silicon Valley could be emptied of the in situ presence of its best talent including at prestigious local universities like Stanford and Berkeley.
Two companies decided to leave Silicon Valley and relocate: HPE to Houston, Texas, Palentir to Denver, Colorado, and Elon Musk himself moved to Texas. He built a new factory near Austin and a new shooting range for Space X near Boca Chica. It is also said that he will benefit from a much better personal tax in Texas compared to California. There were also the departures of two other Silicon Valley venture capital eminences, Peter Thiel in Los Angeles and Keith Rabois in Miami.
Big Tech and Silicon Valley are looking at a new post-Covid world where their employees would be distributed remotely and outside offices or labs
(The ironic paradox is that these companies, including Apple, Facebook and Nvidia, have invested heavily in the creation in 2017/2018 of their majestic and colossal headquarters inviting the in situ presence of huge numbers of employees.)
But one wonders how and why this new ex situ work model could stand out against the in situ model that worked so successfully until Covid-19 containment, since 1956 when the first semiconductor company Shockley Semiconductor Laboratory was created. (which indirectly helped to christen the region after “Silicon Valley” in 1971 under the pen of a journalist.)
Clearly Silicon Valley Tech companies will gain economically by offering lower wages outside the region. But also in performance with access to a huge pool of sharp skills outside its lands around the world without the need for specific premises. This process was already initiated in part before the pandemic.
However, there are significant risks to the ability to continue to innovate in as ingenious and disruptive a way as it has been since the beginning of Silicon Valley’s history.
How could the “serendipity” of Silicon Valley, the impromptu innovation caused by real encounters, continue despite this decentralization of employees?
Serendipity is part of the Silicon Valley legend like the garages of the great inventors, the bare feet of Setve Jobs and the pranks of Apple co-founder Steve Wozniak (WOZ). It is true that the tech industry in Silicon Valley has largely built on serendipity,these fortuitous and inspiring encounters of people and their ideas. Serendipity and an unsealed but powerful form of collaboration. Innovations are unannounced in large companies, universities and startups. Serendipity allows us to imagine new ideas and stimulates the motivation of the teams. There is cross-pollination between people but startups are also born from large companies thanks to this physical and cultural proximity.
For it to happen, serendipity needs people’s encounters to produce in “face-to-face” in the real world. In presentation. Two or more.
The mutual physical closeness of the employees is also accompanied by emotional and social dimensions that are not codifiable but essential. It is referred to as “tacit knowledge.” Knowledge rhizomes. Different skills meet and interact by daring to push the boundaries of what is feasible, legal (or reasonable!), coming out of the incremental and conformity of the establishment. A bit of a reaction from students, geeks and nerds. Silicon Valley is also a land of enlightened “thugs”, iconoclasts and pranksters who want to get to the goal very quickly.
Being together in the same place (even in the cafeteria or restaurant) also means being in a band and reassuring yourself, supporting each other to convince yourself of the possible viability of quirky, complicated and daring projects and you have to “go fast and break everything” would say Facebook (Move Fast and Break Things). It’s really hard to replicate this model, this modus vivendi, without a manual of use – either geographically or virtually elsewhere.
We haven’t figured out how to make virtual coffee machines yet! So a virtual Silicon Valley is not for tomorrow!
That’s why he thinks that telecommuting and its virtualization of relationships run the risk of reducing or eliminating serendipity and its generation of great ideas.
On the other hand, telework has long been practiced in Silicon Valley and has coexisted with the very majority presenter. There was never any question of replacement or substitution. And it’s likely that this will be the case for a long time to come. A Yahoo CEO when he took office in 2012 had banned telework at the company.
In May 2020 Mark Zuckerberg, facebook’s CEO, said 50% of his employees wanted to return to the office as soon as possible. But that in the next ten years 50% of its employees would work remotely… Given Facebook’s rapidly growing workforce, we can expect that within ten years this 50% still represents a lot of people in Silicon Valley. At the slightest threat of new competitors or loss of performance, things will change very quickly. And we will quickly refocus even geographically.
But does this mean that the original culture of Silicon Valley is perennial and not reproducible elsewhere?
Silicon Valley benefits from a high density of entrepreneurs, researchers, iconoclastic engineers and enlightened investors combines with a high-quality academic environment that produces brilliant inventors and entrepreneurs like the founders of Google. And there is a mythical history of this region (HP, Intel, Apple, Fairchild, Xerox, etc.), which irrigates and stimulates the local entrepreneurship culture.
The networks of local veterans and intergenerational collaboration are rooted in the land: no exodus on the horizon for them!
Venture capital, on the other hand, ensures the link between startups and established firms and boosts entrepreneurship. There are quite a few defectors from local tech companies to venture capital, which greatly facilitates exchanges and access to the right people in the right places. The trio of universities, venture capital and large tech companies from former startups have produced great success stories.
It is a perennial culture that is difficult to replicate from A to Z elsewhere, including in the USA. Otherwise it would be known since time … There’s always an A or a Z missing.
Are there other risks to Silicon Valley post pandemic?
Yes, we are talking about the risk associated with the current decline in innovation among BigTechs and the concentration in their hands of a huge power of intervention and obstruction of local entrepreneurship through acquisitions aimed at preventing competitors from developing. A theme mentioned in the report of the House of Representatives Committee of Inquiry (so only one charge at this point). Another cause of the “decline” of innovation is the shift of innovations to B to C or B to B to C. That is, a less business orientation (Business) and more towards consumers. That requires shorter cycles of development and maturation.
Big Tech has focused on their core business by also trying to diversify internally. But they also buy many potential competitors or try to copy them for non-incremental innovation that they don’t fully master. This can hinder innovation by stifling startups deemed dangerous by neutralizing them in their critical phase of expansion. And they also buy useful companies to complement their product and service lines. This has always been done throughout the industry without any particular regulatory problems.
There is also less radical innovation in Silicon Valley right now with the exception of artificial intelligence (which is not unique to Silicon Valley or BigTech) and quantum computing.
But the 5G cocktail – AI – Internet of Things (IOT) will bring out new business and technology ideas. There is also a generational effect that will certainly play out, with “new ways of seeing and wanting the world” by young people, which can nerdy the current tech establishment as has been done since the arrival of the internet and mobile for the ancestors of Big Tech. The PC is still there but it’s no longer “cool”.
All the former American tech giants seemed unbreakable, and then it was imagined that they would disappear as a result of antitrust lawsuits. But apart from an exception or two, or as a result of mergers, they are still there and some with a spectacular second life like Microsoft. So we didn’t see the Pony Express (tech) disappear with the arrival of the train (Big Tech)!
And similar developments in Silicon Valley are to be expected.
What is also noteworthy is that instead of going public, the vast majority of Silicon Valley startups are being bought out and thus cease to be competitive. This is a concern for the region’s elite, including enlightened visionaries.
“Silicon Valley has changed the world. It did so because the founders and venture capitalists wanted to win the markets of tomorrow, not sell to those who had already won yesterday. [4]
The final word: a secure but different future for Silicon Valley?
The IPOs of Silicon Valley startups were nil in 2020 but things picked up in the fall with names like Palantir, Snowflake, Asana, Sumo Logic.
There will still be a lot of acquisitions even if the U.S. Congress seems to want to reduce the room for maneuver of the big four of American tech.
As soon as a vaccine against Covid is born, the office’s tropism will prevail in Silicon Valley and its startups will start to change the world again. But they won’t be the only ones.
People all over the world have always wanted to go to Silicon Valley to work close to the great tech talents in this micro anthill of ideas, imagination, audacity and celebrities.
Silicon Valley is to technological innovation what Hollywood is to creativity in entertainment. You’ve got to be there!
Pour parodier un fameux dicton californien : » Silicon Valley Is Not Just A Place. It Is A State Of Mind »,
I would say:
“Silicon Valley is not just a state of mind, it’s a place.”
Where you have to be.
-o-o-
Paris, December 2020 by
Georges Nahon
Consultant and lecturer in Paris Former CEO for 15 years of Orange Silicon Valley in San Francisco, subsidiary of the Orange Group.
www.linkedin.com/in/georgesnahon
[1] BLM – black lives matter. It is a global movement created in the USA in 2013. Their mission is “to eradicate white supremacy and strengthen local power in order to intervene in the violence inflicted on black communities by the state and militiamen.” (Black Lives Matter Foundation, Inc. is a global organization in the US, UK, and Canada, whose mission is to eradicate white supremacy and build local power to intervene in violence inflicted on Black communities by the state and vigilantes)
[2] Woke: a progressive left-wing, anti-racist, feminist and LGBT activism (source: wikipedia)
[3] Amazon is based in Seattle so it’s not really a Silicon Valley company even though it has a large development lab there with about 7,000 employees in 2019 and has a cloud-focused group in San Francisco.
[4] Mark A. Lemley is currently William H. Neukom Professor of Law at Stanford Law School and Director of the Stanford Law School Program in Law, Science and Technology, as well as a founding partner of the law firm Durie Tangri LLP