Sunday, October 9, 2011

Why Distance Is Not Dead Yet: New York’s Tech Start-up Scene

The belief continues to persist that the internet is rendering compact cities obsolete. The Cato Institute’s Randal O’Toole recently contributed to a discussion in The American Conservative on the fiftieth anniversary of Jane Jacobs’ The Death and Life of Great American Cities with the assertion that “in the age of the automobile and internet...the value of living in close proximity to other people and businesses is steadily declining.” This may be true for some places and some industries, but I argue that New York City’s currently thriving software start-up economy is still benefiting from the advantages of proximity to other people and businesses. In fact, this is what will set it apart from Silicon Valley.

The software industry thrives on the generation of new ideas, investment and willingness to take risks. While both New York and Silicon Vally have lots of investment and deep talent pools, where New York excels is in the ease of face-to-face encounters. People who have not been to Silicon Valley often do not realize that it is a sprawl of low-slung office parks along an approximately thirty-mile-long stretch of Highway 101. Meeting someone who works at another company can involve an hour’s trip or longer along this highly congested road, so it is not something most people are going to be willing to do every day or even every week. In New York City, it is relatively quick to get together with other people by walking or taking the subway. Not only is this beneficial for the sharing of ideas and knowledge among fellow software engineers, but it makes it much easier for engineers to meet with those who hold what they refer to as “domain knowledge,” that is, expertise in some other field. In New York, a couple of examples of such domain knowledge might be banking or advertising. Thus, one edge that compact New York has over sprawling Silicon Valley is the ability of start-ups to cater to specialized business needs, rather than the more generic consumer-oriented companies (shopping and social media) that can flourish in greater isolation. If a company only relies on an idea and an ability to execute it, it can locate anywhere, so long as it has the talent to build its product. If, on the other hand, it relies on access to specialized knowledge outside its own employees’ expertise, it will be advantageous to locate near people who have that knowledge.

In July, Mayor Bloomberg announced a Request for Proposals to build a technology-oriented campus in New York, as a means to support the burgeoning software industry. A few days later, the New York Times published one of its “Room For Debate” discussions on the topic, and I was amazed at most of the contributors’ lack of understanding of New York’s unique advantage. Most of the contributors focused on Silicon Valley’s head start, and why that would continue to make the Valley a mecca for graduates of Bloomberg’s new campus. I agree that a school is not the key to creating a thriving local software economy. However, I disagree that New York will never provide significant competition for the best talent in the industry. It is a shame that even a prominent New York-based venture capitalist like Fred Wilson of Union Square Ventures, Inc., fails to understand his city’s unique advantage. He is right that that the internet will make us “see Apples and Facebooks get built in China, India, Brazil, Eastern Europe, Western Europe, the Middle East, Africa, and plenty of other places.” I think there is a good chance that the next Facebook could come out New York - the city’s ability to attract talent and facilitate idea generation is unsurpassed. But there is also more to software than mass-appeal companies like Facebook. Many of the companies that come out of New York may not be the industry’s household names; their strength will likely come from being highly targeted to New York-specific businesses. New York’s software economy is uniquely poised to benefit from its proximity to other New York  industries, which themselves have grown up over the centuries by reaping the benefits of density and proximity.

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