Silicon Valley is having a moment. Startups are household names. Entrepreneurs and VCs are being treated like celebrities. We even have our own eponymous television show on HBO, after being ignored for decades in favor of New York’s media and finance industries, DC’s politicians, and LA’s entertainers. Many young entrepreneurs are brash enough to believe that they deserve this treatment, and to them this moment must seem like business as usual. It isn’t. There are specific reasons why Silicon Valley is having a moment; by understanding these reasons, we can better understand how long this moment will last and what’s likely to follow.

The shadow that Silicon Valley casts varies with its traditional boom-and-bust cycles. Just in my lifetime, we’ve seen things like the videogame boom, the personal computer boom, the Dot Com boom, the Web 2.0 boom, and whatever we want to call our current boom (Social/Mobile?).

These cycles follow the classic Gartner hype cycle—the “peak of inflated expectations,” which leads to the “trough of disillusionment,” ending with the “slope of enlightenment” and “plateau of productivity.” Amara’s Law stated this slightly differently: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”

Yet the past few booms have been qualitatively different from those that came before. For example, before the Dot Com boom, total venture capital investment was less than $3 billion per year.  It spiked to $100 billion during the height of that boom, and even after a considerable decline, never fell below $13 billion per year and sits at $24 billion per year today. That’s an eightfold increase over the original baseline.

Similarly, technology’s share of the market cap of the S&P 500 was about 6% before the Dot Com boom, surged to 35% during that boom, and is still nearly 20% today, a roughly threefold increase over the original baseline.

These numbers simply reflect the key shift that has made Silicon Valley into “SILICON VALLEY.” Before the Dot Com boom, technology was an isolated sector that few people encountered in their daily lives.  Very few workers ever saw an IBM mainframe or Cray supercomputer. The boom brought technology to the mainstream consumer, and the effect has only strengthened since then.

Today, the average consumer shops online, belongs to several social networks, and owns a smartphone that has more computing power than a 1980s supercomputer. And the rise of touchscreen computing may be the most underappreciated yet fundamental change.

A little irrational exuberance can be fun and productive, but don’t mistake a temporary peak for a permanent plateau.  Tweet This Quote

As I’m fond of telling folks, my mom is a technological Luddite who mistrusts science and technology.  Yet now that she has an iPad, she’s constantly on the Internet… as I can tell from all the chain letters and urban myths she forwards to me on a daily basis! Touchscreen computing made computers truly consumer products for the first time. No complicated interface to learn; no drivers to install. And the tablet revolution is only four years old at this point!

Yet just because Silicon Valley has become more important than ever doesn’t mean it’s no longer subject to the boom-bust cycle.  Other powerful industries such as finance, media, and entertainment still go through extreme ups and downs—just ask anyone who’s been on Wall Street over the past decade. Nor do powerful industries stay on top forever—just ask the auto makers, railroads, and steamship companies that were once the hot new technology.

It’s easy to see the signs of the “trough of disillusionment” already – the criticisms leveled at “brogrammers” working on “meaningless social apps” as they drive out the long-time residents of San Francisco aren’t just a matter of sour grapes. They are a leading indicator of a coming correction that Silicon Valley boosters would be wise to heed.

Silicon Valley should enjoy its moment. Times like this don’t come that often, and a little irrational exuberance can be fun and productive, as long as you don’t mistake a temporary peak for a permanent plateau and plan accordingly. If you remember the big picture and the history of the Valley, you’ll be able to keep your head during these heady times.

Silicon Valley should enjoy its moment. Times like this don’t come that often.  Tweet This Quote

Chris Yeh

Author Chris Yeh

Chris is the VP Marketing for PBworks, partner at Wasabi Ventures, and an avid startup investor and advisor. He is also a co-author of The Alliance and serial tech entrepreneur in Silicon Valley.

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