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

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

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

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

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

Silicon Alley Is Different Than The Canadian Clusters Growth (1995 -2000) l In Silicon Silicon Alley Is Different Than The Canadian Clusters Growth (1995 -2000) l 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

Silicon Alley Is Different Than The Canadian Clusters The Aftermath (2002 +) l Silicon Silicon Alley Is Different Than The Canadian Clusters The Aftermath (2002 +) l 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

Fast Forward to Today Best way to grow Dot. coms is to sell to Fast Forward to Today Best way to grow Dot. coms is to sell to established players, not in the sluggish IPO market l 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 l A federal judge ruled that a massive class-action suit alleging IPO fraud can go forward against 55 investment banks l "At the end of the day, companies are not valued based on eyeballs or clicks, " l

Sources l Crain’s New York l New York Times l Indergaard, M. Silicon Alley Sources l Crain’s New York l New York Times l Indergaard, M. Silicon Alley l Silicon Alley Daily l Pricewatrhouse. Cooper Third New Media Survey, 2000 l Cornell Survey 2000

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

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

Creating the Buzz l l l The party circuit was critical to meet like Creating the Buzz l l l 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.

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

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

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

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

Timing Matters l l l 1960 -70 s, abandoned manufacturing buildings had been converted Timing Matters l l l 1960 -70 s, 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”’

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

The Internet Changes Everything l l l It’s about having a story and convincing The Internet Changes Everything l l l 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

The Seeds of Destruction l Firms do a good job of coming up with The Seeds of Destruction l 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 l 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.

Death Nell l l Stock market collapse March 2000, attempts to reinvent, e. g. Death Nell l l 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 startups for pennies on the dollar Silicon Alley had more to do with buying and selling money than with innovation

Picking up the Pieces Initially, the people participated because of the excitement of what 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 l People came into the business for the wrong reasons, escape corporations for the safety of entrepreneurs l The mingling of the bohemians and the bourgeoisie did not create a lasting fusion after all l 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. l

Process of Innovation Silicon Alley l Workers gained new media skills: – Self teaching Process of Innovation Silicon Alley l 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

What Does this Say About Clusters? Uncertainty extends cluster boundaries l Morphing of talented What Does this Say About Clusters? Uncertainty extends cluster boundaries l Morphing of talented individuals driven by profit became the catalyst of cluster. l Networks need foundations based on innovation not money l 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? l