Silicon Alley and Canadian New Media Clusters

1. Silicon Alley and Canadian New Media Clusters Cliff Wymbs May 6, 2005

2. Comments From Earlier As They Relate to Silicon Alley • People climate/business climate • The BUZZ • High risk, high reward - (IPOs like Hit Records) • F-2-F key, the less perfect the information • Universities producing knowledge: • How people learned new media: 87% self taught, 73% informal on the job, 15% college

3. Key Silicon Alley Factors • Slack creative resources • Rejection of the establishment • Importance of parties • Ability to see and sell the future • Role of uncertainty • Success attracts imperfect imitators • Down the slippery slope

4. Uncertainty on Many Levels • Incommensurability – fragmented nature of understanding (Is there a new economy? and what is new media?) • Indeterminacy – unpredictable others (models don’t make sense, but the stock price keeps going up, IPOs keep getting funded) • Irrelevance – Managers inability to grasp the phenomenon (old media people don’t get it) • Uncertainty permitted evangelism and narratives to develop the New Economy/New Media stories.

5. How Silicon Alley Is Similar to the Canadian Clusters? Inception (late 1980s-1994) • S.A., Montreal, Toronto: deindustrialization of the 1970s, R.E. surplus in the early 1990s. • Toronto and S.A. both had head offices of corporations, media firms and financial institutions • All started with freelance creative workers in small firms and produced business services and specialized content.

6. Silicon Alley Is Different Than The Canadian Clusters Growth (1995-2000) • In Silicon Alley: • First to market was new idea was critical • IPO companies not tied to an industry projects, but rather broad content segments • IPOs provided excess of funds, led to rapid and inefficient domestic and international expansion • Finance, press and old media cheerlead new vision • Little to no government support • Workers spend 20 hours a week on employability

7. Silicon Alley Is Different Than The Canadian Clusters The Aftermath (2002 +) • Silicon Alley • After 9/11 the narrative died. • Old media resurfaces to buy remaining innovation for cents on the dollar. They repackaged themselves as the best of both worlds. • Lack of game or animation/film anchors hurt • Money alone does not buy lasting innovation • Financial externalities extend beyond Silicon Alley • Significant slack resources exist today

8. Fast Forward to Today • Best way to grow Dot.coms is to sell to established players, not in the sluggish IPO market • Silicon Alley entrepreneurs are reinventing themselves, Seth Goldstein: Today I want to direct my energies to a market that makes sense instead of just being opportunistic • A federal judge ruled that a massive class-action suit alleging IPO fraud can go forward against 55 investment banks • "At the end of the day, companies are not valuedbased on eyeballs or clicks,"

9. Sources • Crain’s New York • New York Times • Indergaard, M. Silicon Alley • Silicon Alley Daily • PricewatrhouseCooper Third New Media Survey, 2000 • Cornell Survey 2000

10. Silicon AlleyThe Timing was Right • Restructure and cross penetration of industries • Degree of uncertainty is striking (regulatory, organizational, financial, technological) • Cities are a rich reservoir to develop business and social networks

11. Clusters and Uncertainty • The higher level of uncertainty, the greater potential for radical solutions, and cluster growth • Silicon Alley leveraged uncertainty by challenging existing status quo (Got Wall Street & old media’s attention & interest) • Investor funding & BUZZ, not the product and service market, legitimized effort

12. Creating the Buzz • The party circuit was critical to meet like minded individuals and befriend power brokers and share innovative ideas. • Twenty minute pitches, once in the lifetime window. • IPO success, the importance of narratives. • Bank analysts became celebrity pitchmen. 77 buy recommendation, 1 sell recommendation. • Excess of surplus capital, 86 investment funds operating in Silicon Alley.

13. A Cluster With a Vision • The Internet could destroy the hierarchal power and the cultural dominance of big media. • Silicon Alley was about new forms of “content,” much broader than Silicon Valley’s “technology.” • Silicon Alley could become “The Next Big Thing,” “It could Change the World.”

14. The Search for The Killer App • Web services: Razorfish, Agency.com • Advertising Networks: 24/7, Doubleclick • Community Networks: Starmedia, I-village • E-commerce: Alloy, BarnesandNoble.com • Create own measure “eyeballs, mindshare”

15. Location Matters • Silicon Alley strategically positioned between Wall Street and Corporate mid-town. • V.C. investment in a target declines dramatically with Distance. • Spatial geographic clustering of social and professional relations led to spatial concentration of an industry (some spreading out, but . . .) • New York City has the deepest and most diverse pool of intellectual capital anywhere.

16. Institutions Matter • Industry Association “New York New Media Association” NYNMA. 1994 • Brought the new media industry into public view: Surveys, PR, matchmaking • Alliance for a Downtown New York • Responsible for the first wired building • Lack of direct State participation led to diverse kinds of entrepreneurs • State not successful in creating satellite Silicon Alleys

17. Timing Matters • 1960-70s, abandoned manufacturing buildings had been converted to lofts by artists. The start of the techno bohemian social circuit. • Stock market crash of 1987 and recession • 23% vacancy rate in downtown Manhattan • New digital tools, fame awaited those who used technology to make money. • ‘Silicon Alley describes a moment in time from 1994 to 2001 when Internet companies were built, absorbed or went out of business”’

18. Silicon Alley Culture • Reaffirm one identity as someone who “got it” • Cybersuds gathering where the suits joined the tattoos. • Techno bohemians were morphing into cyber yuppies • A new risk culture, no guarantees

19. The Internet Changes Everything • It’s about having a story and convincing everyone else of your vision. • New genre of investing, new set of investment criteria. Big hit mentality. • Reputable Experts and news media buy into the script. Become oracles • Arthur Anderson declares being in Silicon Alley now is like being in Detroit in 1905 • $4.6 B funding of Silicon Alley firms in 1999

20. The Seeds of Destruction • Firms do a good job of coming up with ideas that seem novel and creating a buzz about them, but are not as good at applying the ideas • S.A. ethos, They are interested in what is hot – trends, skills, content, not in the people they work with or the impact of the project.

21. Death Nell • Stock market collapse March 2000, attempts to reinvent, e.g., wireless, not successful • Narrative continues until WTC attack • The collapse of the illusion • Industry consolidates, old media wins, buys start-ups for pennies on the dollar • Silicon Alley had more to do with buying and selling money than with innovation

22. Picking up the Pieces • Initially, the people participated because of the excitement of what they could do, then the money came in and changed the priorities • People came into the business for the wrong reasons, escape corporations for the safety of entrepreneurs • The mingling of the bohemians and the bourgeoisie did not create a lasting fusion after all • Most of the human capital has stayed in New York, so that is a resource that's waiting in the wings for the next wave of start-ups.

23. Process of Innovation Silicon Alley • Workers gained new media skills: • Self teaching 87% • Informal on the job 73% • Colleagues and friends 52% • College 15% • Employer training 11% Workers spend 20 hours a week on employability, • 6 looking for work and • 13.5 on unpaid learning

24. What Does this Say About Clusters? • Uncertainty extends cluster boundaries • Morphing of talented individuals driven by profit became the catalyst of cluster. • Networks need foundations based on innovation not money • Individuals rather than firms provide the stickiness and vitality of location bound networks, clusters. Creative people still there, (slack resource). What will be the next Big thing to energize them?