Silicon Alley and Silicon Alley and Canadian New Media Clusters Canadian New Media Clusters

Cliff Wymbs

May 6, 2005

Comments From Earlier As Comments From Earlier As They Relate to Silicon AlleyThey Relate to Silicon Alley

People climate/business climate The BUZZHigh risk, high reward - (IPOs like Hit

Records)F-2-F key, the less perfect the informationUniversities producing knowledge:

– How people learned new media: 87% self taught, 73% informal on the job, 15% college

Key Silicon Alley FactorsKey Silicon Alley Factors

Slack creative resourcesRejection of the establishmentImportance of partiesAbility to see and sell the futureRole of uncertaintySuccess attracts imperfect imitatorsDown the slippery slope

Uncertainty on Many LevelsUncertainty on Many Levels

Incommensurability – fragmented nature of understanding (Is there a new economy? and what is new media?)

Indeterminacy – unpredictable others (models don’t make sense, but the stock price keeps going up, IPOs keep getting funded)

Irrelevance – Managers inability to grasp the phenomenon (old media people don’t get it)

Uncertainty permitted evangelism and narratives to develop the New Economy/New Media stories.

How Silicon Alley Is Similar to How Silicon Alley Is Similar to the Canadian Clusters?the Canadian Clusters?

Inception (late 1980s-1994) S.A., Montreal, Toronto: deindustrialization of

the 1970s, R.E. surplus in the early 1990s. Toronto and S.A. both had head offices of

corporations, media firms and financial institutions

All started with freelance creative workers in small firms and produced business services and specialized content.

Silicon Alley Is Different Than Silicon Alley Is Different Than The Canadian ClustersThe Canadian Clusters

Growth (1995-2000) In Silicon Alley:

– First to market was new idea was critical– IPO companies not tied to an industry projects, but

rather broad content segments– IPOs provided excess of funds, led to rapid and

inefficient domestic and international expansion– Finance, press and old media cheerlead new vision– Little to no government support– Workers spend 20 hours a week on employability

Silicon Alley Is Different Than Silicon Alley Is Different Than The Canadian Clusters The Canadian Clusters

The Aftermath (2002 +) Silicon Alley

– After 9/11 the narrative died.– Old media resurfaces to buy remaining innovation for

cents on the dollar. They repackaged themselves as the best of both worlds.

– Lack of game or animation/film anchors hurt– Money alone does not buy lasting innovation– Financial externalities extend beyond Silicon Alley– Significant slack resources exist today

Fast Forward to TodayFast Forward to Today

Best way to grow Dot.coms is to sell to established players, not in the sluggish IPO market

Silicon Alley entrepreneurs are reinventing themselves, Seth Goldstein: Today I want to direct my energies to a market that makes sense instead of just being opportunistic

A federal judge ruled that a massive class-action suit alleging IPO fraud can go forward against 55 investment banks

"At the end of the day, companies are not valued based on eyeballs or clicks,"

SourcesSources

Crain’s New YorkNew York TimesIndergaard, M. Silicon AlleySilicon Alley DailyPricewatrhouseCooper Third New Media

Survey, 2000Cornell Survey 2000

Silicon AlleySilicon AlleyThe Timing was RightThe Timing was Right

Restructure and cross penetration of industries

Degree of uncertainty is striking (regulatory, organizational, financial, technological)

Cities are a rich reservoir to develop business and social networks

Clusters and UncertaintyClusters and Uncertainty

The higher level of uncertainty, the greater potential for radical solutions, and cluster growth

Silicon Alley leveraged uncertainty by challenging existing status quo (Got Wall Street & old media’s attention & interest)

Investor funding & BUZZ, not the product and service market, legitimized effort

Creating the BuzzCreating the Buzz

The party circuit was critical to meet like minded individuals and befriend power brokers and share innovative ideas.

Twenty minute pitches, once in the lifetime window.

IPO success, the importance of narratives. Bank analysts became celebrity pitchmen. 77 buy

recommendation, 1 sell recommendation. Excess of surplus capital, 86 investment funds

operating in Silicon Alley.

A Cluster With a VisionA Cluster With a Vision

The Internet could destroy the hierarchal power and the cultural dominance of big media.

Silicon Alley was about new forms of “content,” much broader than Silicon Valley’s “technology.”

Silicon Alley could become “The Next Big Thing,” “It could Change the World.”

The Search for The Killer AppThe Search for The Killer App

Web services: Razorfish, Agency.comAdvertising Networks: 24/7, DoubleclickCommunity Networks: Starmedia, I-villageE-commerce: Alloy, BarnesandNoble.com

Create own measure “eyeballs, mindshare”

Location MattersLocation Matters

Silicon Alley strategically positioned between Wall Street and Corporate mid-town.

V.C. investment in a target declines dramatically with Distance.

Spatial geographic clustering of social and professional relations led to spatial concentration of an industry (some spreading out, but . . .)

New York City has the deepest and most diverse pool of intellectual capital anywhere.

Institutions MatterInstitutions Matter

Industry Association “New York New Media Association” NYNMA. 1994 – Brought the new media industry into public view:

Surveys, PR, matchmaking Alliance for a Downtown New York

– Responsible for the first wired building Lack of direct State participation led to diverse

kinds of entrepreneurs State not successful in creating satellite Silicon

Alleys

Timing MattersTiming Matters

1960-70s, abandoned manufacturing buildings had been converted to lofts by artists. The start of the techno bohemian social circuit.

Stock market crash of 1987 and recession 23% vacancy rate in downtown Manhattan New digital tools, fame awaited those who used

technology to make money. ‘Silicon Alley describes a moment in time from

1994 to 2001 when Internet companies were built, absorbed or went out of business”’

Silicon Alley CultureSilicon Alley Culture

Reaffirm one identity as someone who “got it”

Cybersuds gathering where the suits joined the tattoos.

Techno bohemians were morphing into cyber yuppies

A new risk culture, no guarantees

The Internet Changes The Internet Changes EverythingEverything

It’s about having a story and convincing everyone else of your vision.

New genre of investing, new set of investment criteria. Big hit mentality.

Reputable Experts and news media buy into the script. Become oracles

Arthur Anderson declares being in Silicon Alley now is like being in Detroit in 1905

$4.6 B funding of Silicon Alley firms in 1999

The Seeds of DestructionThe Seeds of Destruction

Firms do a good job of coming up with ideas that seem novel and creating a buzz about them, but are not as good at applying the ideas

S.A. ethos, They are interested in what is hot – trends, skills, content, not in the people they work with or the impact of the project.

Death NellDeath Nell

Stock market collapse March 2000, attempts to reinvent, e.g., wireless, not successful

Narrative continues until WTC attack The collapse of the illusion Industry consolidates, old media wins, buys start-

ups for pennies on the dollar Silicon Alley had more to do with buying and

selling money than with innovation

Picking up the PiecesPicking up the Pieces

Initially, the people participated because of the excitement of what they could do, then the money came in and changed the priorities

People came into the business for the wrong reasons, escape corporations for the safety of entrepreneurs

The mingling of the bohemians and the bourgeoisie did not create a lasting fusion after all

Most of the human capital has stayed in New York, so that is a resource that's waiting in the wings for the next wave of start-ups.

Process of Innovation Process of Innovation Silicon AlleySilicon Alley

Workers gained new media skills:– Self teaching 87%– Informal on the job 73%– Colleagues and friends 52%– College 15%– Employer training 11%

Workers spend 20 hours a week on employability, – 6 looking for work and – 13.5 on unpaid learning

What Does this Say About What Does this Say About Clusters?Clusters?

Uncertainty extends cluster boundaries Morphing of talented individuals driven by profit

became the catalyst of cluster. Networks need foundations based on innovation

not money Individuals rather than firms provide the stickiness

and vitality of location bound networks, clusters. Creative people still there, (slack resource). What will be the next Big thing to energize them?