Is Silicon Valley coming to an end?

Yammer founder David Sacks. Photo: Robert ScobleHave Silicon Valley’s entrepreneurs run out of world-changing ideas? Is its string of new transformative companies “coming to an end”?

That’s the surprising view put forward by David Sacks, who has just sold his start-up Yammer to Microsoft for $US1.2 billion.

Sacks wrote on Facebook that “Silicon Valley as we know it may be coming to an end”. He wrote that in order to create a successful new company you have to find an idea that has escaped the attention of major internet companies (“which are better run than ever before”), is capable of being proven out for around $5 million and is protectable from the onslaught of those big companies “once they figure out what you’re on to”.

“How many ideas like that are left?,” he wrote in his post, adding that new opportunities would increasingly be picked up by big incumbents.

Marc Andreessen, the serial entrepreneur who created the first mainstream web browser, Mosaic, co-founded Netscape, founded and sold Opsware to Hewlett Packard and created the social networking platform Ning, was quick to hose down Sacks’ remarks in the comments below his post.

Andreessen’s venture capital firm is still investing heavily in start-ups and he sits on the board of directors of some of the Valley’s biggest incumbents including Facebook and eBay.

He wrote that there are only a few “competent incumbents” who can only do so many things “before you get B and C teams screwing up”. Start-ups continually drain talent out of incumbents, impairing their ability to innovate.

“As the incumbents become more powerful, they increasingly prioritise stability over change … betting on incumbents over time equals betting against technological change,” Andreessen wrote.

In other words, big companies – like Microsoft – often struggle to innovate because they do not want to cannibalise their existing products – like Office and Windows – with disruptive innovation.

Sacks’ other investor and entrepreneur friends soon entered the fray. Jonathan Abrams, who in 2002 created Friendster and now is the co-owner of Slide nightclub in San Francisco, said the big companies today might be Twitter and Facebook, “but they will someday be as big and old as Yahoo and AOL are today”.

Some pointed out the irony in the fact that Sacks’ start-up Yammer sold for $US1.2 billion despite being at first dismissed as a “Twitter for business”. Google was just another search engine when it launched and Facebook was a social network for universities.

“The transformative things often don’t look transformative at the start,” wrote Andreessen, to which Sacks replied that if big tech companies were constantly being disrupted, why invest in them at all?

Sacks clarified that Silicon Valley could still produce innovative software start-ups but these would be exceptions to the rule because the big existing companies would copy their ideas or acquire their companies.

The full comment thread is public on Sacks’ Facebook profile, but Fairfax Media polled some Australian entrepreneurs and investors to get their thoughts on the debate.

Niki Scevak, founder, Startmate – “I think it’s along the lines of Bill Gates saying ‘640kb is all the memory anybody would ever need on a computer’ and is simply a function of a lack of imagination rather than any reality.”

Anthony Goldbloom, founder, Kaggle- “The biggest lesson I’ve learned from Kaggle is that big companies are very slow and reluctant to change. This is particularly problematic for technology companies, where the environment is changing so fast, and process of creative destruction happens that much more quickly. Who’s ever heard of Silicon Graphics (other than in books about the history of Silicon Valley)? Silicon Graphics (SGI) was making $7b a year in 1995. As it declined, many of its top engineers left to build Netscape, another now-defunct company. Today, the old SGI campus is occupied by a large search engine… by the name of Google. Fast forward to today, and companies like Dell and HP, which rely heavily on their server businesses, are under threat from Amazon Web Services. Companies like SAP and Oracle are starting to face competition from Software as a Service (SaaS) businesses.”

Brett Welch, co-founder, SwitchCam – “Massive respect for the guy as a business man, but it’s bullshit. As long as the world is changing and people are being creative, there will always be big, new opportunities that big cos won’t spot.”

Geoff McQueen, founder and CEO, HiveSystems – “Disagree – but share concern of others that there’s a lot of investment and energy going into stuff that isn’t particularly innovative.”

Matt Barrie, CEO, Freelancer苏州美甲美睫培训 – “It’s rubbish. In all the hype around consumer internet people have forgot that to go the distance you need a sustainable competitive advantage. That is, something that others can’t replicate easily.”

Jonathan Barouch, founder, Roamz – “Major Internet companies don’t have a monopoly on ideas or innovation and even if they did they often aren’t able to execute as well as a nimble startup. Companies are now able to create a product and test a market very cheaply … so I think this arbitrary $5 million value is meaningless. There have been many examples of companies that have formed over the last 10 years where the big incumbents figured out what the little startup was up to but for whatever reason wasn’t able to either start a similar service or execute in the same way.”

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