Terry Nagel | Joint Venture's Economic Indicators

Joint Venture's Economic Indicators

Joint Venture: Silicon Valley Network’s Annual State of the Valley Conference

February 2, 2007, San Jose

About 1,400 people, including many business and community leaders, attended this year’s conference. Its focus was the unveiling of the annual “Index of Silicon Valley,” which maps statistics and spots trends. Keynote speakers were Google CEO Eric Schmidt and former U.S. Vice President Al Gore. Audience reaction was measured with a real-time voting system offered by Mozes, which invited people to give feedback using their cell phones. It did not show actual numbers of votes, just the relative ranks. It also displayed audience comments.

INDEX OF SILICON VALLEY

The Index aims to paint a statistical picture of the “Silicon Valley Region,” which Joint Venture defines as all of Santa Clara County, San Mateo County as far north as San Mateo, three cities in Alameda County (Fremont, Newark and Union City), and Scotts Valley in Santa Cruz County. However, some stats pertain to different regions, such as all of Santa Clara and San Mateo counties. Here are some key findings from the 2007 Index:

Jobs
* For the first time since 2001, the region had significant job increases. The number of jobs in Silicon Valley in the second quarter of 2006 was 2.9 percent higher than during the same quarter in 2005.
* The biggest increases in Silicon Valley cities were in the areas of software (up 5.1 percent), creative and innovation services (up 5.6 percent) and semiconductor and semiconductor equipment manufacturing (up 2.1 percent).

Income
* For the first time since 2001, the media household income in Santa Clara County rose. It increased 6.5 percent from 2004 to 2005.
* Real per capita income increased only 0.01 percent from 2005 to 2006 in Santa Clara and San Mateo counties, but it is 2-1/2 times the average in the nation.
* The average pay in Silicon Valley cities increased 4 percent from FY2005 to FY2006, to $74,300.

Venture Capital
* VC investment in Silicon Valley firms was $5.6 billion in Q1-Q3 2006, compared to $4.6 billion for the same period in 2005.
* The share of VC investments in Silicon Valley, compared to the rest of the U.S., rose from 21 percent in 2000 to 27 percent in 2006 (not quite as high as the 2004 peak in recent years).
* Investment in clean technology has risen significantly in recent months: 266 percent from Q1 2006 to Q3 2006, indicating a strong interest in this sector. The biggest clean tech investments were in energy generation, energy storage and advanced materials.
* Broken down by industry in Q1-Q3 2006, VC investment was greatest in software (23 percent), semiconductors (15 percent) and medical devices/equipment (12 percent).
* VC funding from 2001 to 2006 grew 776 percent in industrial/energy, 72 percent in electronics/instrumentation, 70 percent in media/entertainment and 27 percent in biotechnology/medical devices and equipment.
* Silicon Valley received 14 percent of the world’s venture capital in 2005. The U.K. continues to be the top investor in the region, but China is by far the most favored foreign destination for Silicon Valley venture capital.

Innovation* Six of the 10 top cities in the nation for patent registrations in 2005 are located in Silicon Valley, and San Jose was the leader, with 1,960 patents.
* Other areas of the world rank far higher in patent registrations per capita, including Tokyo and Shanghai.

Education
* Education continues to be an area of concern.
* The high school graduation rate in Silicon Valley high schools fell from 89 percent in 2004-05 to 86 percent in 2005-06, while the share of graduates who met UC/CSU requirements fell 4 percent, to 44 percent, during that time frame.
* The drop-out rate increased 1 percent from 2004-05 to 2005-06, with Latinos 2-1/2 times more likely to drop out of high school than whites.
* In Santa Clara and San Mateo counties, 48 percent of households speak a language other than English at home.
* The two counties fall short in generating science and math majors: 55 percent of local science and engineering talent is foreign born, with the greatest numbers coming from India and China.

Housing and Land Use
* Affordable housing is another challenge.
* The number of affordable housing units approved for construction in Silicon Valley in 2006 was the lowest since the Joint Venture survey began in 1998: less than 1,000.
* Apartment rental rates rose 5 percent from 2005 to 2006 in Santa Clara and San Mateo counties, after years of decline.
* Foreclosures increased 20 percent in Silicon Valley from 2005 to 2006.
* A higher percentage of households in Santa Clara and San Mateo counties are paying 30 percent or more of their household income in mortgage costs. The 30 percent threshold is widely used as an affordability measure. In 2005, 49 percent of Silicon Valley households paid 30 percent or more on mortgage costs.
* The average units per acre of newly approved residential development increased 10 percent in Silicon Valley from 2005 to 2006.
* One-quarter of all Silicon Valley land is protected open space.

Transportation
* From 2005 to 2006, the number of rides per capita and revenue hours on public transit systems rose a modest 2 percent in Santa Clara and San Mateo counties.
* During 2005, 76 percent of commuters in the two counties drove alone, 11 percent carpooled, 5 percent worked at home and 4 percent used public transportation.

City Revenue
* Revenue for Silicon Valley cities, including property tax, sales and other sources, declined 6 percent from 2003 to 2004 – a decrease for the third straight year.
* After eight years of growth, property taxes dipped slightly, by 1 percent, while sales taxes and other taxes increased 4 percent.

WHAT THE INDEX IS TELLING US

Panel with Tom McEnery, former San Jose mayor; Heidi Roizen, managing director of Mobius Venture Capital; Aart de Geus, CEO of Synopsis

McEnery: Higher-density housing brings challenges to cities of making neighborhoods safe and trying to provide basic services for more people.
Roizen: We need to invest in education, particularly in science and education, even though we won’t see the benefits for 15 to 20 years.
De Geus: Leaders need to pay attention to the things that have long-term consequences, such as improving education and driving for a carbon-neutral environment. If we don’t set the standards, we won’t get there. Specifically, we need to set the expectation that every child will graduate from high school, and we need to increase the stature of teachers.
Roizen: Companies are creating compelling clean-tech products. One example is Tesla Motors: “It’s a hot car that’s better for the environment.”
McEnery: Problems cross city borders. We need to think regionally about effects of our decisions, such as higher-density housing.
De Geus: When you honor a kid (“say, a kid who has built a nuclear power plant in the basement”), you also see the child reflected in the eyes of the parent, who is saying, “My kid can do that.” Their high expectations open new doors for their child.
DeGeus: Leadership is “whatever situation you’re in, you try to move forward and make a difference.”
Roizen: “We need new leadership models. The Britney Spears of China is Bill Gates and, unfortunately, the Britney Spears of the U.S. is Britney Spears.”
Roizen: “We need not only technical entrepreneurs but also social entrepreneurs,” such as people in microfinance. “We need to get the media involved in celebrating those and not who’s divorcing whom.”
De Geus: Any region has a small percentage of people who don’t succeed. It is the government’s responsibility and all of our responsibility to help them through services such as Second Harvest.

ERIC SCHMIDT, CEO OF GOOGLE

* “Globalization is about uniform information. People in India and Africa want the same things for themselves and their families.
* Massive data centers are now being built. “All current recorded media could be on a single hard drive within 10 years.”
* “Search is still the killer app. The information explosion is the killer app.”
* Google is built around “aha” moments – people saying, “Boy, this is really neat.” (He gave the example of being able to “climb” Mt. Everest by using Google Earth.)
* The presence of immediate information can be life changing, such as when a heart attack victim searches his symptoms and the first result is “Call 911.”
* He defined Web 2.0 as the “vernacular” that lets you have applications that run on any platform. “This is what convergence is – not one device but where the information is.”
* When he started as a young engineer in Silicon Valley, people made money by selling software with expensive support. Now, he said, salaries are being paid by advertising.
* “Targeted advertising is one thing that won’t change. Globalization is the other thing that won’t change.”
”The Internet is a victory of simplicity over complexity.”
* The next generation of mobile phones will have GPS and be personalized. For example, he said his phone would say, “Eric, yesterday you had a hamburger, and today you might like pizza. By the way, there’s a pizza place on your left.”
* “Google is trying to be the one-stop stop for all information – and we have a good shot at it.”
* He is a big fan of mashups – taking a number of Web sites and combining them in minutes to create new applications. “You could argue that you could also merge companies like that.”
* “My proposed first rule of the Internet is that people have a lot to say.” If you want proof, just read some of the blogs online.
* The scarcity factor is people’s attention. It is going to become increasingly important to manipulate the system. For example, politicians and corporations could set up communities to manipulate public opinion.
* UTube is very powerful. It is letting users become programmers.
* Four questions to consider:
1. What will happen with 1 billion more people are on the Internet? Will they discover that their governments are not serving them well, and say so? Will hate groups proliferate?
2. What happens when you have 100 languages doing simultaneous translations? This could be a huge thing in places like the Arab world, where information about other cultures is limited.
3. What happens when 1 billion people use cameras to document what is going on? Will we see wars in progress? Will disturbing images be posted that are difficult to police?
4. What happens to personal privacy when everything is documented all the time? Nixon lost his job because his conversations were taped. Will we have a new rule about sharing too much in early life? True anonymity will be very rare.
* At the World Economic Forum, three “scenarios” were described: (1) a world where instability drives everyone crazy and control is regulated from above, (2) a hybrid model in which governments work with companies that do identity management and (3) one in which users take over. He is hoping that model No. 3 will prevail.
* “Government systems don’t understand how powerful end users really are.”

Al GORE, FORMER U.S. VICE PRESIDENT

* Gore’s presentation occurred on the day that the United Nations released a report on global warming that said the world’s leading climate scientists have concluded (to a 90 percent degree of certainty) that humans are causing climate change. He said the report should end the debate that has been fueled by a small group of skeptics. “The degree of certainly, which was already very high, is now as close to certainty as scientists are ever going to say,” he noted.
* He defined the problem as “a crisis in the relationship between human civilization and Planet Earth.” He lauded Silicon Valley’s newfound interest in clean technology (funding in Valley firms from $141 million in 2005 to $516 million in 2006) and said it could play a “historic” role in solving the problem.
* He also dissed “unethical” disinformation campaigns and answered one question about why the current administration has dismissed climate change warnings by saying, “You know that answer to that one. It isn’t that the oil lobby has too much influence in the White House. It’s that the oil lobby is the White House.”
* He said he has no plans to run for president because “I’m involved in a different kind of campaign.”

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