Long before Silicon Valley became the archetypal tech company cluster, 100 years ago and 344 miles south, the city of Los Angeles owned the space.
The emergent film industry of Southern California was the original tech hub, in many ways. A collection of outsourced companies serviced the film industry that assembled and subsequently boomed in Hollywood.
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In the early 1900s it looked as if New York would be the city that defined movies, however. Thomas Edison opened the first film "studio" there in 1893; the advent of electricity was the Internet of its day, attracting innovators to industry trailblazers in the region.
But early electric lights weren't powerful enough to expose film, so the natural sunshine of California pulled eager filmmakers and entrepreneurs west. The evolution to "talkies" only accelerated this migration, as sound companies cleaved themselves to the growing cluster.
Though Los Angeles lead the way, its evolution as a cluster over the next century was decidedly slow. Only in the past decade has it become defined by innovation beyond its film roots. Gaming, streamed entertainment and online video services are transforming the region's culture and economy.
L.A. isn't the only city to narrow its digital niche. Initially, it seemed every city was competing for a slice of the same Silicon Valley pie, yet today's tech clusters are defining themselves by entirely new flavors altogether. Tech hubs the world over are selectively recruiting certain types of companies, and geographically categorizing their expertise by region.
As clusters become more niche, even continually flexible, many are recoiling from the Silicon Valley comparison. (The people of Moscow’s increasingly robust cluster shudder at the mention of their "Silicon Kremlin.")
Silicon Valley itself used to be a defense cluster, then evolved into a space cluster, then a tech cluster, then a social cluster. Now it appears to have morphed into a mobile/cloud cluster, just as L.A. shed its all-Hollywood approach. Yet, it's still a giant. And many regions aren't even attempting to compete, choosing instead to narrow their approaches.
The truth is, every city cluster needs its own version of success. Film studios need hits as much as tech studios need exits to support the ecosystem.
Targeting a specific type of entrepreneur pays off, too. An entrepreneur who makes huge strides in a smaller field circulates that money back into his or her base city and reinforces the cluster, a lesson many cities are still learning. (The scenario is plaguing European cities, such as London and Berlin, each of which needs a big 2014 exit to remain competitive.)
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Montreal has created a strong video games cluster by offering huge subsidies for any gaming companies contemplating an HQ in the city. All video game companies receive a tax credit equal to 37.5% of their payrolls, a staggering amount for small developers as well as gaming behemoths such as Electronic Arts and Ubisoft, which have remained in Montreal for years.
To compete with such incentives, other cities will need to be more focused and innovative to attract similarly narrow angles. And organizations will need to do the same.
Another ancient American city, New York, isn't ready to abandon its media and advertising roots. Instead, by combining Mad Men and digital principles, it became a unique hub in its own right.
“New York has clearly become a major global digital startup hub, emerging from the rapid digital transformation of the local media and advertising industries," says Peter Globokar, managing director of Mooreland Partners, a technology M&A advisory company with offices in Silicon Valley, New York and London. Although New York isn't stealing the show from Silicon Valley, he says, the local ecosystem is growing fast with VCs, local and overseas entrepreneurs.
“It has also seen its first major exit recently, the sale of Tumblr to Yahoo!, a validation for a hub that has developed and grown in less time than London or Berlin," he adds. "[It's] further proof that the U.S. market remains more efficient for startups.”
For the past decade, the Meffys, the annual awards for mobile companies, has been held in London. This year it shifts to the Valley to be part of the MEF Global Forum held in San Francisco mid-November.
“We've observed how specifically mobile clusters tended to be our industry's energy sources," says Andrew Budd, MEF Global Chairman.
“London in particular has the opportunity to really excel as a mobile cluster — it’s home to the world's top creative designers and has a critical mass of technology development experts," says U.S.-born Anglophile Dennis Jones, CEO of mobile payments company Judo Payments, based in East London.
Exits aside, London has an opportunity to call itself a mobile cluster and claw back influence from its dominant rivals across the millpond. Its emerging community in Shoreditch, previously a benighted part of the city, has been dubbed "Silicon Roundabout," even if its critics sometimes refer to it disparagingly ("App Roundabout").
Some tech hubs persevere and even thrive around their struggles with connectivity. “The essential ingredient to any tech-based cluster is connectivity. This is true from London to Nairobi," says Gavin Wheelon, CEO of Purple WiFi, a cloud-based guest Wi-Fi access system that authenticates through social media. "If you don’t have the ability to connect your services to your customer, the cluster will fail. If there are too many devices trying to get down the same pipe and there isn't room, this can be potentially catastrophic for a business that is reliant on connectivity."
Economic, cultural and resource struggles are inherently geographic. City-based clusters will factor hugely into the modern tech business model. Whether these clusters are mobile, cloud or social, brands will have to decide physically where they want to base. Ironically, even as we improve global communication, geography is carrying heavier implications.
The notion of a cluster of companies defined by their geographical proximity may be more than 100 years old, but it still works. As new technologies such as 3D printing emerge, other cities are already thinking how to attract related companies — as fast as they can.
New York could have become the leading film industry in the world, but lost out to L.A. simply for its sunshine. In the future, it's bound to be something more sophisticated.
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