So far on the #BlogBus tour

At the end of Day 2 of the #BlogBus tour I am beginning to see more clearly the opportunities as well as the limitations of innovation in the Valley.

You can access my liveblogs of the companies visited today as follows:

I also had a chance to explore the town of San Francisco and to see just how many firms are located now in the hubbub of the city, while also getting to see how the campus style of Palo Alto differs. I’ll get to see more of that tomorrow too.  (And I have an early start so I’ll keep this post brief.)

But I wanted to just summarise here the impressions I’ve gleaned so far from my exposure to organisations on the tour.

First: our time with Orange Silicon Valley.  You can see the liveblogs I did of those sessions on this blog, but my general impression is that Orange Silicon Valley is doing a marvellous job on a shoe-string budget, incubating fabulous new businesses, and generating valuable, socially-driven research reports that can act as a rationale for investing in those new businesses.  I hope, but I have seen little evidence of it yet, that other businesses in this region are similarly forward thinking, providing both a future for their core business, as well as diversifying their expertise in a rapidly changing, “post-IT” environment.  Of the businesses I saw demonstrated yesterday, I see a clear alignment of the partnership between Orange and Xyratex for maximising efficiency of existing bandwidth, particularly as mobile connectivity spreads.  And I certainly see an opportunity for Australia’s broadband network to invest in the technology to overcome weaknesses in our bottle-necked undersea cable and satellite communications connections to the international network.

It’s great also to see that Orange is using its research events and even this tour, to share what they have discovered during the course of their research and their business incubation.  I certainly think more could be done to promote the work they are doing – but more of this later.

Today, I was completely inspired by the development and consistent reinvention of Causes.  This is an organisation that began as a political social network, transformed in to a Facebook fundraising service and has now transformed again, back in to a social network that drives both fund raising and measurable community action.  Chan wants Causes to be a locale for democratic action of the future.  It’s a bold ambition, but it is one that is feasible if they continue to diversify their partnerships with non-profits, and prove themselves as an online focal point for socially-driven community action.

Beyond the function and ambition of the firm, I found the story of Causes and Chan’s own experiences fascinating. He spoke of the ubiquitous generosity of the region, the tendency among these pioneering players in the social space, to share ideas, to assist development and solve problems collaboratively.  And he was clear that for individuals to succeed in the region, required a personality which was perpetually open to ideas, and willing to learn – something he thinks is not limited to young people, but is characterised by a practice – perhaps even a discipline – of communication and experimentation.

I was then on familiar ground at Mekanism, an advertising agency in San Francisco that arose from an animation and film production house.  While 1000heads is a different concept, our practices are in similar territories, with us both seeking to maximise the opportunities of social channels and emergent technologies to connect brands with audiences.  But what was especially interesting about Mekanism was their perspective on the economics of activating a social brand, and their sense of the sustainability of the start-up culture of Silicon Valley.  Mekanism stated (and I would agree) that the risk of engaging an agency to develop a sophisticated social strategy for a startup is generally too high, until the firm is turning over significant (>$1m) revenue. But they noted that even a substantial socially oriented startup may prefer simply to be valued for access to a vibrant community rather than seek to extend brand awareness, particularly if their goal is to merge or be acquired by one of the tech giants of the region.

What matters is function and purpose.  If a firm is seeking to establish itself as a distinguished brand, which may one day compete with a major player, then a social activation strategy and branding exercises will be at least attractive and probably crucial. The same may not be said for a firm that seeks merely to be acquired. Yet it strikes me that becoming involved with social activations in partnership with a major player may be a clear route to acquisition.  Perhaps firms should not dismiss the notion so completely?

Then it was also interesting to hear that Mekanism were not confident that the current density of startups in Silicon Valley is sustainable.  Funding for new individual projects is now so low (down to about $5K per project and even lower on Y-combinator deals) that if a project fails to execute or excite in a very short period, it is not economically viable to continue development (except as a hobby project, or through family and friends investment). So while investors can spread their focus across a range of projects for short periods, and to cherry pick the winners as they emerge, the competition for funding continues to grow and cost of setting up a business is unlikely to fall any further.  Additionally, with increased litigation around patents, smaller firms will struggle to adapt processes and interfaces to avoid potential legal action from major players without compromising usability and efficiency. Mekanism itself still finds its position in the region useful as a means of finding out about new applications, technologies and protocols, and then considering how they might adapt them for advertising purposes.  But it is instructive that they also perceive momentum for investment in New York and they are growing their office there.

There is another perspective emerging from my examination of company practices here associated with strategy and promotion. There seems to be a paradox of promotion – the more companies there are in Silicon Valley, the lower the seed funding, and the harder it is to attract user attention.  And the lower the seed funding, the less likely it will be for a firm to invest in sophisticated social strategies that will allow firms to attract attention and gain significant, action-oriented user share.  It seems to me there may need to be a new protocol for project partnerships between more established firms and startups as an alternative to seed funding, and to assist startups in raising their profile.  Perhaps based on profit-share or performance targets, such partnerships could act as a new launchpad not just for exciting new companies, but could help educate established firms about how best to adapt their businesses to emergent media. And I imagine that firms who will recognise this opportunity will be best placed to profit from successes.  Perhaps this will be the next wave of venture capital?

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