Rob Glaser: Silicon Valley's Bright Future

I have a lot of respect for Scott McNealy. Scott did a terrific job running Sun for many years. Sun is one of the 25 greatest companies started over the past 30 years, and the company had a hell of a run by almost any measure.

But I don’t buy Scott’s concerns about the future of Silicon Valley. Indeed, I think he got it 95% wrong. While I live in Seattle, over the past year I’ve spent a lot of time in Silicon Valley — helping to start one Valley company, investing in 2 others, and looking closely at a couple dozen more. My take is that Silicon Valley, and the U.S. tech scene in general, is more vibrant, exciting, and laden with big opportunities than at any time in my 30 years in the business.

First, the 5% where Scott’s right: When he says the valley “ain’t what it used to be,” he’s absolutely right. Nowadays, everything in the Valley — and in U.S. InfoTech in general — is software-driven. That doesn’t mean that hardware is dead – there’s plenty of Valley innovation in chips (e.g. Arm and Apple A4), Computers (e.g. the iPad), and other physical products. It’s just that winning products nowadays are fundamentally great software wrapped in either great hardware, or good & cheap hardware. In the past, it was possible to win big in hardware in the U.S., without being great at software, but no more. So yes, that’s a big change that has lots of implications.

But the 95% that’s wrong is when Scott seems to suggest that all of the opportunity in the Valley is focused around Social Networking (or unsustainable Government-funded Greentech). This is wrong in 2 fundamental ways:

First, it ignores many *huge* sectors where the Valley is thriving and indeed taking the lead in value creation away from other territories. Take operating systems for mobile phones: The #1 and #2 worldwide products – Google’s Android and Apple’s iOS – both come out of the valley. Their leadership has driven a massive shift in the geography of value creation in the mobile industry. In the 2000s most value creation in mobile phones happened in Europe or Asia – think Nokia, Ericcson, and Samsung. North American giants like Motorola and Nortel got left behind and struggled mightily. Now it’s just the opposite – Nokia is famously reeling, for instance, while Apple, Google, RIM, and other North American companies are thriving.

And because the OS is at the core of mobile platforms, the success of iOS and Android is creating a massive ecosystem of value creation in the valley – mobile advertising business like Admob; mobile applications like Flipboard; mobile chips like Qualcomm’s Snapdragon, etc. While it’s possible to start great mobile companies anywhere in the world, Silicon Valley has become the single best place in the world to start most kinds of mobile software and services company.

Mobile Phone leadership is just one example where the U.S. is taking the lead globally. For another example, look at social ecommerce, where new companies like GroupOn, Living Social, and Etsy are taking off and creating a huge amount of value.

Scott’s second misguided thought about Social Networking is his dismissive attitude: “I’m not sure it’s really going to change the quality of life in a positive way,” implying that Social Networking is just some frilly consumer fad like a hula hoop. I couldn’t disagree more. Social Platforms are enriching and redefining how hundreds of millions of people work, navigate through information, and communicate. Yes Social Platforms are also great for playing games. But to imply, as Scott does, that the essence of Social Networking is gaming is as misguided as saying that PCs are just toys simply because they’re great for playing video games. (Of course, back in Scott’s day Sun used to take this position, but that’s a different matter…)

Look, the Valley’s not in perfect shape by any means. Regional unemployment is way too high, as it is across the Country. The new software-driven Valley is not as labor intensive as a manufacturing industry like cars. But that’s nothing new — IT manufacturing has been moving out of the U.S. for at least two decades.

Scott’s also right that the cost of doing business in Silicon Valley is high. But it’s been high for many years and that hasn’t stopped four generations of entrepreneurs from thriving and building great businesses for 40 years. And it’s not holding back the next generation of great entrepreneurs and great businesses.

Rob Glaser (Twitter: @RobGlaser) is Founder and Chairman of RealNetworks, and a Venture Partner at Accel Partners.