Silicon Valley’s Big Shift

26th July 2013


Question… What’s the first thing that comes to mind when someone says ‘Silicon Valley’?

‘High tech’, right?

Over the past 75 years, Silicon Valley has done a masterful job globally branding/positioning itself as the high tech capital of the world, so much so that 70+ Silicon ‘Blanks’ around the world have attempted to mimic its success, and without much success.

Silicon Valley is in the midst of a big shift… an enormous shift actually. Simply put, the Valley is transitioning from the ‘high tech capital of the world’ to the ‘industry disruption capital of the world’.

What does that mean?

It means the Valley no longer should be thought of as the worlds preeminent provider of high tech to businesses worldwide, but instead now builds businesses itself to take market share from the very industries it once sold IT to. It’s shifting from an arms merchant model to a mercenary model. The former sells you weapons; the latter fields a private professional army at great expense, gives them the best training and incentives, and goes into battle to take real estate.

Remember what Marc Andreessen said about Why Software Is Eating The World?  Similar views were recently expressed by KPCB’s Mary Meeker, which she calls The Re-imagining of Nearly Everything.

So what’s happening?

There is a layer of information on top of every industry, some industries that layer is thicker, some industries it’s thinner; but the thickness of that information layer is increasing for all industries. Further, that layer of information is being exploited by disruptors, both via business model innovation and by software itself. Industries are becoming more and more software enabled, and the Valley has an enviable track record with software.

Apple and Google together have transformed the mobile industry globally and are generating $75B annual revenues for their efforts. Google isn’t a search company and Facebook isn’t a social media company, they are digital advertising companies and together are redirecting $45B per year into their coffers. Apple didn’t dream up the iTunes platform then approach the music industry with some scheme to license their music database; rather they directly entered the market as a huge music industry disruptor. The list goes on.

Isn’t this simply that all industries are becoming more digital?

Yes and no.

15 years ago businesses worldwide  quickly ‘got it’ that they all needed a so-called digital business strategy.  HSBC woke up each morning and thought about Barclays, Lloyds, Standard Chartered, RBS and lesser UK high street banks as competitors.  Silicon Valley (and a few others) have basically provided the same technology stack to all of them for the past 30+ years.  What bank has gotten sustainable competitive advantage from that?  Fast forward the tape 15 years.  As the information layer on every industry has become thicker over time and non-traditional entrants can more easily enter an industry, perhaps the high street banks don’t compete with each other going forward inasmuch as they might compete with a Silicon Valley disruptor?  Commonwealth Bank of Australia (CBA) Chief Executive Ian Narev recently made precisely this point; that although Aussie banks compete with each other, CBA is equally worried what kind of disruptions Google or perhaps Apple are capable of in the financial services sector.  Australia New Zealand Bank (ANZ) Chief Executive Michael Smith recently toured Silicon Valley with his Board of Directors and was ‘terrified by the potential disruptions from tech innovations‘ coming from the Valley.  You think of New York as a global financial hub, right?  American Express, Citigroup and JPMorgan Chase have all recently put key strategy/innovation/venture teams in Silicon Valley.  (pssst, can someone let Mayor Bloomberg know?)  Standard Chartered CEO Peter Sands recently indicated Banking Is Headed Towards It’s Spotify Moment,

At 650 Labs, we’ve spent the better part of the past year looking deeply at Silicon Valley, and viewing it unencumbered by many of the classic stereotypes of what the Valley is purportedly all about.  What our research has discovered is 10+ very powerful industry clusters that have formed in Silicon Valley: financial services, mobile, automotive, retail, media education, consumer packaged goods, healthcare and a few others.  These industry ecosystems are a combination of startups, serial Valley disruptors and traditional multinationals globally all collaborating (and sometimes competing) – and at massive human scale.

200+ multinationals have pitched up an opened a strategic presence in the Valley, some employing hundreds and even thousands of employees.  Companies like American Express, Citigroup, Anheuser-Busch, Blue Cross, Coca-Cola, Nielsen, Ducati, Procter & Gamble, DuPont, Solvay, Westfield, Walmart, Target, Amgen, Ford, Toyota, Hyundai, Standard Chartered, Singtel, Capital One, General Electric, Telefonica, BBVA, Telenor, Pearson, J&J, Nestle, Unilever, BNP Paribas, and AT&T.  Even Électricité de France (EdF) quietly rolled into Silicon Valley and opened a research & innovation lab not far from our own office.  Lets hope though the Valley disruptors don’t get the bright idea to quickly go disrupt the nuclear energy industry.  The activities of the multinational outposts in the Valley is widespread: from conceiving and building new products and services, to doing deep-dive industry research, scouting and driving partnerships, venture investing, making acquisitions, tapping into innovation best practices, even ‘culture vultures’ trying to lift the organizational secret sauce of the Valley and somehow transplant it back in some distant HQ locale far away.

We’re excited for the next chapter of Silicon Valley to unfold.   We’ve had an amazing year doing the research above and socializing our early insights to audiences in North America, Asia and Europe.  Equally, over the past year we’ve been advising senior executives at a number of ambitious multinationals in financial services, media, healthcare, mobile, retail and other industries who all want to better understand how to co-exist with Silicon Valley industry disruptive capabilities going forward; we call it helping them with their 650 strategy!

Over the coming months, we’ll be blogging about various aspects of Silicon Valley as industry disruptor.  We’ll dig deeper into various industry clusters that have formed, extract best practices for multinationals with a presence in the Valley, and even wade into the ‘next Silicon Valley’ debate (hint: there isn’t one).

We look forward to starting a dialogue with you and getting your perspectives on our research and observations.

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