Silicon Valley vs. New York – a silly comparison

Comparing the tech industry in New York and Silicon Valley? That's just silly

It happens every few years. At some point or another in the tech cycle, someone asks or claims that New York is not keeping up in technology space, pointing to the valley’s outstanding growth (here’s the latest iteration, which provoked this response). And yet, the comparison is wrong. Dead wrong.

The Valley: Detroit for Technology

The claim center around the fact that New York is not keeping up with technology because the technology industry in New York is not moving as fast as it is in the silicon valley. And so, I’d fully grant that it’s true. In fact, New York is also not keeping up with the car industry because Detroit seems to be doing a better job of that and has been since the 1940s. Sure, it has a tower named the Chrysler building but let’s face it, Detroit is producing many more cars than New York. In fact, Detroit’s impact on the car industry is much larger than that of New York.

Reading the previous paragraph, you might be thinking that it’s a very silly analogy. And it is there not only for effect but also to point out that any comparison of New York to the Valley is based on a flawed assumption. The assumption is that such comparison can have merit. For the last 40 years, Silicon Valley has been a single industry area: the technology industry. Most major technology innovations have come from the valley (with the exception of software licensing, which came from a place a bit north of that: Seattle).

So, as New York is not and will never be the leader in the car industry, nor will it ever be a leader in the technology field. I’m just hoping that the valley will never suffer the same fate as the epicenter of the car industry is feeling right now. Being based on a single industry, in the long, is a pretty scary concept and the lack of diversity can sometimes be fatal.

New York: Diverse by choice?

Interestingly, it is New York’s diversity is part of what has made it more resilient than most cities in the United States and the increase of one industry over another is what generally hurts it. The rise of the financial world as a substantial employer in New York has hurt the tax base and lowered the employment opportunities in the city. The bubble and subsequent explosion of the real estate market in the late 1980s and early 1990s did the same thing to the city, lowering property values to the point where real estate was cheap enough for 20somethings like myself and others to think about starting new companies, giving rise to what came to be known as Silicon Alley.

Embedded in New York’s success is the abandonment of industries: New York could have been the nation’s capital but Madison, a quintessential New Yorker sent the US government further south in exchange for control of the economy. New York could have been the center of the movie industry (most of the early movies were made in New York) but that title went to Los Angeles, where real estate was cheap. New York was, for a few decade, the center of the advertising world but the title ended up getting shared with Chicago and London.

The truth is that New York creates industries, takes a portion of them, and lets others become single industry towns:

  • US Government: Started in New York, now in DC
  • Oil: Consolidated in New York (Rockefeller), now centered around Houston
  • Steel: Consolidated in New York (Carnegie), now centered around Pittsburgh
  • Media: Started in New York, Movies (and some TV) now in Los Angeles, Radio diffused, print
  • Advertising: Started in New York, now shared with Chicago and others

The result is that each brings something new, including new tensions and conflicts as one industry tries to dominate the others or establish a place of prominence for the heart of New Yorkers. However, in each case, they end up being put back in their place and shown that diversity is what makes New York what it is and that rule from a single industry would hurt the very fabric of what made it one of the truly global centers.

The exception: Money

But New York understands that two things make the world go round: Money and influence. Ever since the political leadership was taken out of town, New York has defined itself as a city based on commerce (one could argue that even before the revolution, New York was always about commerce, something that becomes evident when you realize that the dutch sided with the British when they realized that it could hurt their economic interest to not do so and did so again during the revolutionary war when it became clear that war could be profitable business).

Due to both geographical advantage and the foresight of its administrators, New York became the first port in the country and, in the process, became the place where trading and financial management were done. The country came to New York for money and New York dispensed its money to the country. During the robber barons era, this lead to New York helping consolidate industries and create monopolies. When those were dismantled, New York held on to the financing aspects of those industries, even if the other portions went away. Through that, it gained control.

So while the valley is leading in tech, the financial aspects relating to financing all those technology efforts are still based in New York. Yes, most of the tech VCs are sitting on Sand Hills but the truth is that their funds are generally funded outside the valley. Of course, it makes no more sense to argue that the valley is behind New York on funding technology than it does to argue that New York is behind the valley on tech innovation. Each has developed a long history and set of capabilities around one area so such comparisons are moot.

The crash and what next?

With the rise of increasingly complex financial instruments in the last few years, it is true that a lot of programmers ended up being hired by Wall Street. However, the other thing that is true is that such phenomenon has been a hallmark of Wall Street since the 1980s. Yet, a portion of the Internet industry did grow in New York in the 1990s. And to be honest, a similar phenomenon happened in the most current (aka Web 2.0) cycle.

The big difference is in the way Internet people in New York and Silicon Valley comport themselves. Because New York is so diverse, our local media is not as focused on what happens in the tech scene as the local media is when it comes to the valley. And because our tech scene is generally quieter, it also tends to be more insular than the valley scene: people who innovate on financial applications in the Internet space may not necessarily rub shoulders with people who innovate in the media space relating to the internet or people who innovate in the commercial space on the Internet.

In fact, the closest thing to a center, as far as the Internet crowd is concerned in New York, is the New York Tech Meetup, which meets once a month, as it has done for many years now. Each month, 5-10 local start-ups get  a chance to showcase their wares. Small companies like Etsy, delicious, fotolog, kickapps, or thumbplay (and many others) have all demoed at an event organized using technology provided by local company Meetup.

But truth be told, none of them really advertises their affiliation with New York that much because, to a large extent, that affiliation is insignificant. They do not define themselves based on WHERE they are but rather based on WHAT they do.

And, almost more importantly, none of those companies were created by people from the financial industry. The techies in the financial world are happy in their sphere and few actually cross path with those in the internet space. Different groups, different industries, different people.

So will the collapse of many Wall street firms mean the beginning of an exodus from the financial tech community towards startups? I doubt it: there is little cultural fit, and there are still ample opportunities on either side. People who are naturally drawn to finance-related type of computing will find positions in that field, even if its remains more competitive; and people who are looking to launch start ups will continue to do so.

New York will continue to have a tech community that is smaller than Silicon Valley’s and, truth be told, that’s just fine. Because each have advantages and disadvantages but ultimately, each can serve as the host to the next big thing, no matter whether they are based on El Camino Real or on the L line.

About the Author

Tristan Louis

Writing and working on the internet since 1993, I've launched 6 companies, of which 2 (internet.com and Earthweb) went public and two were sold (Net Quotient and MoveableMedia). My latest, Keepskor provides tools allowing anyone to develop mobile and connected TV games without writing a line of code. This is my personal site and all opinions here are mine.

  • bill washburn

    Hi Tristan,

    Nice to revisit an old question. I wouldn’t take issue with what you’re suggesting. NYC is doubtless the mother of diversity/diversification in the sense of the enormity of the array of opportunities in business and the arts. Where else could even dream of comparing with what you can find there. Note: National Geographic just reported that a street in Queens may have the a more diverse collection of human beings (in terms of DNA array) than any other place on the planet.

    What I would offer is a cultural observation about the silicon valley that I believe makes it unique in its own right. For a set of historically interesting reasons the Bay Area has retained much more of a culture of the wide open frontier of a metaphorical “gold rush” environment, albeit highly evolved, than any other metropolitan area. As a result, this quintessentially western, frontier, boom and bust culture attracts the risk takers, the ingenious business creators and pulls on a certain set of entrepreneurial energies of dreamers from everywhere. The Bay Area of California, despite the laid back, liberal reputation is an intensely hard working and hungry, competitive world. And, like the gold rush mentality of the past, it is a place where the notion of abundance is more prevalent than the scarcity notions of the zero-sum game belief in scarcity that seems to permeate much of the rest of the globe.

    Add to this the presence of Stanford and Berkeley (and the med school UCSF); definitely among the more fascinating, magnetic universities in the world – so close together they constantly form an ever changing force field of change, opportunity, and critical mass of raw intellectual strength.

    The Bay Area will not soon take anything much away from New York (which is what? – four or ten times as big as the San Francisco environs?). But the Golden Gate is an unrivaled link to Asia generally and China/Japan/Korea particularly. It will be great to see New York and California learn to dance together – so to speak. And L.A.- influential as it is – is a sun-drenched desert culture somehow obsessed with slick self image. The Bay Area is never as happy with itself as it is obsessed with changing the world. Maybe it’s got another 25 years of power and influence, maybe not. But I don’t see computer techies, Internet techies, biology techies, green techies, or social network techies caring or trying to unsettle or unseat the one and only capital of the planet where the master’s of the universe run everything. We all know only New York money and power brokers are able to perform without fail… okay, 2008 was slightly worrying… but hardly anyone noticed it seems.

    bill

  • http://www.tnl.net/blog/ Tristan Louis

    Bill,

    There is no doubt in my mind of the uniqueness of the valley and I find that both the valley and the tri-state area have different advantages. The point I’m trying to make is that technology innovation is no longer just a local thing and any discussion of alley vs. valley is simply ridiculous. On a global stage, one could argue that increasingly, innovation comes from locations outside the valley: Skype being but one example.

    Ultimately, discussion about the supremacy of one location over another are not as fruitful as discussion of what’s new. And yet, the old discussion always seems to show up again (could it be because late August, early September is a slow news time?) so I’m trying to put things in context :)

    As far as New York’s supremacy in the money business… Well, I think that too is beginning to be challenged. Other financial centers like London and Honk Kong are starting to rise and who knows whether New York will manage to stay on top. It might remain an important player in that industry (as it is in many other industries) but I suspect that the heyday of the New York financial sector may be behind us…

  • Bryan Thatcher

    Nicely said, I think another point is just sheer size, the Valley is relatively small when compared to NYC so it inflates the concept even further.

  • Alex

    I think the cost of living in NYC hurts it for tech start-ups, it is much easier to create a low-cost “garage” environment for 5 yrs in the valley to launch and still live resonably well then it is in NYC.

  • Marco

    NYC wins when access to money is the driving factor in bootstrapping or buying up a young industry. Once the industry can sustain itself financially, it only makes sense for it to transition to someplace closer to the actual source of wealth. The oil industry where the oil is (Texas), steel industry where the coal is (Western PA & WV), retail where the “average” customer lives (Arkansas).

    Meanwhile it’s still the case that most industries are heavily connected to NYC money if they are large and profitable, i.e. exploitable by Wall Street. Any company that wants to IPO, expand, merge, etc. will go through half a dozen NYC financial and legal institutions.

  • http://www.tnl.net/blog/ Tristan Louis

    Alex,

    Actually, living in Brooklyn or Queens is probably equivalent cost to living in Oakland or some parts of SF so the cost of living issue does not seem to be much of an impediment.

  • http://www.tnl.net/blog/ Tristan Louis

    Marco,

    An interesting point when it comes to hard industry but what does it mean when it comes to more intellectual property or service based industry. It could be argued that the source of wealth, in those cases, is probably distributed around denser, more populated areas… places like, well, like NYC :)