The Silicon Valley Disaster
What happens when you cram some of the smartest people in the country who demand high wages into one spot: you have Silicon Valley.
Silicon Valley, has very high salaries and very high real estate prices. The result is an extremely high cost business environment. Labor makes up most companies costs, and when labor is higher, it is harder to make money.
The advantage that some claim of silicon valley is that almost the entire industry is in one spot and that allows for more things to get done or more efficiently. Well, if this is the case, employees in silicon valley must be able to do 50% or more work or be that much more efficient than most of the non-silicon valley counterparts just to be equal to that of employees located in different parts of the country. This is because Silicon Valley costs about 50% or more per employee in the region.
To me, this seems very questionable whether or not this can be achieved. Their are many smart people who are located all over the country. These people can probably do just about the same amount of work or be just as efficient as Silicon Valley employees per given period of time at a much lower price than Silicon Valley. It just seems that being outside of Silicon Valley may be the smart thing to do.
California has recently been having electric shortages in many areas of the state and has approved a rate increase within the state to try and save some of the utility company. This is another reason not to be in Silicon Valley. In addition to this, the region has had one of the most dispropriate male/female ratios. So, in addition to electric shortages, their are female shortages in the region.
So, through this on top of an unstable advertiser based strategy, add money to it, have investors backing you and you have the making for a disaster. Many of these companies in the valley will fail. We are already starting to see Internet companies fail.
Eventually, money will dry up and stop flowing to money losing companies and the companies will have to become acquired or file for bankruptcy protection. Hopefully, though, this won’t happen and many of these companies will expand their operations to other cities and use Silicon Valley as an incubator.
However, with the recent downturns in Internet company interest by investors, many of these companies have started disappearing. The real estate prices and wage rates in Silicon Valley may start to even out to that of other areas in the country.
UPDATE: JAN 5, 2001
According to a recent Cnet article, Egghead is moving many of its employees out of Silicon Valley for cheaper areas. 20% of its workforce is to be moved to Washington state.
PlanetRx is also moving its entire headquarters out of the valley to Memphis Tennessee where the companies lease will cost 60% less, not to mention lower wage rates.
Well, the Silicon Valley disaster looks like it may be happening. Nearly every week now we have been hearing about Internet companies that are filing for bankruptcy protection.
http://news.cnet.com/news/0-1007-200-2671618.html?tag=st.ne.1002.srchres.ni
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