Boom and Bust

Recently, the San Francisco Chronicle ran a series of articles on the history of Silicon Valley. Formed around radio technology and military radar contracts, the valley grew as the behavior of its founders was repeated. Small groups of engineers broke off from their employers to form other companies. As small teams of engineers broke off of these new employers, the pattern was formed.

At it's essence, the employment contract in Silicon Valley is different than it is elsewhere. Pay for performance is at the heart of the ebb and flow of business cycles. Combined with a dependence on externally supplied Research and Development (military contracts), the economic fortunes of the valley are dependent on rapid adaptation.

One fly in the ointment is the tendency for herd behavior. When one idea starts to flourish, small bands of adaptive engineers launch multiple versions of the same thing. Witness blogging and social networks which have certainly expanded rapidly.

The other problem is the core research and development business which used to be at the heart of the Valley's ability to grow. Before Iraq I, the semiconductor and tube industries were at the heart of military electronics development. When the R&D system was effectively dismantled, it didn't bother the new upstarts in the valley. The internet boom was on and they were having a field day.

Today's R&D projects are not being awarded to Silicon Valley firms. I wonder if this signals an end to the Valley's technical dominance?