Mass layoffs at Snapchat, the precipitous drop in valuations at Meta and Apple, and hiring freezes at other big tech firms have given new impetus to an increasingly common question: Is Silicon Valley’s golden age coming to an end?
Experts say the answer is complicated. The tech industry has enjoyed impressive growth for some time now, and in recent years a pandemic has forced much of the world online and fueled a surge in demand for tech services. That explosion — and the high salaries and office perks that come with it — appears to be slowing.
“This party can’t go on forever,” said Margaret O’Mara, a professor at the University of Washington and author of “Code: Silicon Valley and the Remaking of America.” “In many ways, we’ve only gotten back to normal after a huge increase, during which everything got supersized.”
The global recession has exacerbated these trends—and the tech world isn’t immune, she added. The Fed has already raised interest rates three times in 2022 and is expected to raise interest rates more.
The previous low-interest-rate environment fueled a tech boom that fueled “unicorns” — companies valued at more than $1 billion. Notable examples include Airbnb and Uber, whose respective public offerings were valued at $47 billion and $82 billion, respectively. But with interest rates changing, O’Mara said, “there is less liquidity” and investors will deploy cash “in a smarter way.”
“Certain investors will still have cash, but in a recession like this, deal flow will cool,” she said.
Rapid growth has also been tempered by a series of high-profile cautionary tales, from the decline of WeWork to the collapse of Theranos. bn until its claims are found to be untrue.
Stories like this, coupled with more scrutiny of the entire tech industry over the past decade — including whistleblower revelations of Facebook and public grilling of tech executives by Congress – is shaking the image of Silicon Valley. Even some of the most vocal advocates, including former President Barack Obama, appear to be reconsidering. Obama used Facebook extensively during the 2008 campaign and praised the company in his 2011 State of the Union address, but recently denounced its role in spreading disinformation in a speech at Stanford University, especially during the election period .
“One of the biggest reasons for weakening democracy is a profound change in the way we communicate and consume information,” Obama said.
Lawmakers and U.S. federal agencies are now also joining the fray. With more action from the Federal Trade Commission (FTC) and upcoming legislation in Congress, Big Tech may face its biggest hurdle yet.
The general public’s perception of tech has also changed, with 68% of Americans saying they believe tech companies have too much power and influence in the economy – up from 51% in 2018.
“Americans don’t really like big things — people worry about the concentration of power,” O’Mara said. “No one is going to be a golden boy and become a $2 trillion company. It’s part of the life cycle.”
Silicon Valley expands from California
The geography of Silicon Valley is also changing, experts say. As an all-encompassing term for a region south of San Francisco, Silicon Valley has cemented itself as an innovation hub in the public spirit for nearly a century. When U.S. military operations began establishing research contract sites around the 1930s, it began to emerge as a technology hub, a trend that continued into the private sphere in the following decades.
But the tech industry has expanded far beyond the Bay Area — a trend accelerated by the pandemic. In 2021, electric car company Tesla will move its headquarters to Austin, Texas, following similar moves by other tech companies such as Oracle and Hewlett-Packard.
That’s reflected in hiring, too, said Brent Williams, who works at Michael Page’s recruiting agency, adding that the impact is what the industry calls a “venture capital winter.”
“Coronavirus has changed the whole game,” he said. “Companies have become extremely competitive in recruiting talent because they’re not just working for people in the Gulf, but against everyone in the United States.”
This trend, combined with an increase in work-from-home policies, would have been alarming in the pre-pandemic era — as tech companies invested billions of dollars in their sprawling campuses to provide employees with perks like commute transportation and exquisite on-site dining .
‘Industry obituaries are written too early’
Despite the growing hurdles, “Silicon Valley is still very strong,” said Nicholas A Bloom, a professor of economics at Stanford University. He added that it has gone through “multiple cycles”, including the 2001 and 2008 downturns, and has recovered each time.
“While some companies may be moving outward because of work-from-home and globalization, Silicon Valley is still ground zero and no other area can come close to where it has in the industry,” he said.
In fact, O’Mara said, it’s unlikely we’ll see a major shift in Silicon Valley’s legacy or its actual location in the heart of the Gulf.
“The Bay Area and San Francisco have a resiliency appeal and unique quality that’s hard to replicate elsewhere,” she said. “People come there for a reason — they want to be there.” Even as California faces a housing crisis, Employees flock to cheaper states, and that remains the case.
“Industry obituaries have been written prematurely several times,” she added. “This may be the end of an era in Silicon Valley, but it’s unlikely to be the end of Silicon Valley.”