Silicon Valley: Economies of Scale in Urban Development

Economies of scale are evident in many places, such as:

- The larger the city, the higher the per capita output will be.

- However, the larger the company, the more hierarchical it becomes, which can, in turn, hinder the per capita output of the company.

If a city can easily establish connections between people and provide comprehensive basic services, it can stimulate individual initiative, and creativity and productivity will be greatly unleashed.Two Significant Technological Innovations

Silicon Valley has seen several waves of remarkable advancements in technological innovation over the past few decades.

Some of the more impressive ones include:

- The first wave was semiconductors, which gave rise to companies such as Intel.

- The second wave was the internet, which spawned numerous internet giants.

These technological innovations have been able to spread rapidly and widely, which is related to the liberation of productivity.In fact, there are many technological innovations, but,

- General innovations only bring limited progress.

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- Significant technological innovations can bring exponential progress.

Typical examples are two famous laws:

(1) The first is Moore's Law.

Chips at the same price, performance doubles every 18 months.

This law has been effective for a long time.In reverse, startups that make full use of chips can create better and cheaper products.

The cost for the corresponding companies decreases exponentially every once in a while.

This has given rise to a series of companies that have influenced the world, such as Intel and Apple.

(2) The second is Metcalfe's Law, also known as the network effect.

The value of a social network grows with the square of the number of users.

For example, if one social network has 1 million users and another has 100,000, the difference in value between the two is not tenfold, but a hundredfold.Metcalfe's Law, in turn, has also driven the emergence of internet giants.

For instance, after the widespread adoption of WeChat, other instant messaging software could hardly survive.

Because whoever has the largest number of customers, their value will far exceed that of their competitors.

The more people use it, the higher the value; the higher the value, the more people use it, forming a "flywheel."

E-commerce companies like Amazon, social networks, and so on, all exhibit network effects.

Different technological innovations complement each other, creating greater value.What's more interesting is that Metcalfe's Law did not replace Moore's Law, but rather coexists with it. The two complement each other, unleashing greater value.

The explosion of the Internet in the 1990s, as well as the explosion of mobile Internet in 2010, can be attributed to two factors:

- On one hand, the decrease in hardware costs brought about by Moore's Law;

- On the other hand, the increase in value brought about by Metcalfe's Law.

PS: The recent buzz around AI (Artificial Intelligence) also has similar potential. According to research reports, the cost of artificial intelligence is expected to decrease by 50%-70% annually before 2030, akin to an AI version of Moore's Law. Training a model like ChatGPT currently costs tens of millions of dollars, but by 2030, it might only cost a few tens of dollars.AI is not meant to replace Moore's Law or Metcalfe's Law; it coexists with them.

Why technological innovation tends to be applied in Silicon Valley

However, technology is just one aspect of it.

Taking the semiconductor industry from a few decades ago as an example, at that time, in terms of semiconductor technology, the East Coast of the United States and Japan also had technical strength that was not inferior to Silicon Valley.

But why is it that many innovative applications of semiconductor technology were born in Silicon Valley?At that time, on the East Coast of the United States and in Japan, the cutting-edge technology in the semiconductor field was in the hands of many large companies.

In contrast, the semiconductor technology in Silicon Valley at the time was actually in the hands of the founding teams of numerous startup companies.

This brings us back to what was mentioned in "Scale": the larger the enterprise, the more levels it tends to have.

Eventually, it may gradually shift from being "for the customers" and "for the business" to being "for dealing with the boss."

Gradually, some technically skilled individuals could not stand the hierarchical system and the fact that they could only receive a small portion of the salary, while the lion's share was taken by the company.

So they left with their technology to establish their own companies in Silicon Valley.

Transforming from employees to bosses, those "technical experts" would also be more motivated in their work.Entrepreneurship naturally has a higher failure rate, but that's okay; those with the drive can make a comeback.

If you're not willing to go through the hassle, there are many other companies, and talent mobility is quite convenient.

Silicon Valley initially provided an environment for small companies to communicate and start up.

Over time, it would attract more talents in this field to come and showcase their skills.

Small businesses are more likely to produce disruptive innovations.

- Apple was born in a garage.- Facebook was born in a student dormitory.

- Then, by 2023, ChatGPT was just a team of a few dozen people before it became widely known.

Innovation does not necessarily originate from large corporations.

On the contrary, the mechanisms of large corporations are often suited for incremental innovation, making it difficult for disruptive innovation to emerge.

In 1973, there was a famous paper in sociology, proposed by sociologist Mark Granovetter:

Compared to a small number of strong ties, a large number of weak ties can generate more information flow.If a platform is provided that facilitates easy communication and offers comprehensive supporting services for a large number of talents and small and medium-sized enterprises, then innovation will continuously emerge.

However, another issue arises.

As technical personnel, they often have technology and creativity.

But they lack funds, personnel, sales, and may even struggle with leading a team.

So, how do these technical personnel start from scratch to create their own businesses?

This is inseparable from another large group in the investment field: venture capital.Please provide the text you would like translated into English.