Geographic Shifts in Innovation (& VC)

Chris Dixon has a good post on the recent resurgence of New York in the startup / venture scene. I agree with a lot of what Chris says, but I think it's more complex than that. Yes, it's true that for the past 8 years or so, developers in New York flocked to financial services because the pay was (is?) better and the upside was just as good. But, I think that focusing on job availability as it relates to developers is only one part of the equation.

There's a lot to be said about ecosystem, which Fred Wilson aptly points out in his post. It's not fair to compare New York to Boston to Silicon Valley to Mid-Atlantic without taking a look at the incumbent industries that operate in them.

The Boston Globe recently published a list of the top 100 employers in Massachusetts in 2008. In looking through the top 50 (by employee headcount), I broke down the list into 10 categories of relevance (Software & Infrastructure; Medical Device, Biotech, & Pharma; Consumer Brands; Business Services; Finance; Media; Defense; and Industrial).

Interestingly, the two largest categories (by far) were the first two (Software & Infrastructure and Medical Device, Biotech, & Pharma), with 14 companies (or 28%) and 13 companies (26%), respectively. Based on this, we can state that more than half of the 50 largest employers in the Boston area were in categories that VCs generally invest in.

Specifically, to address one of Chris Dixon's points, Boston had an infrastructure & software boom driven by the likes of EMC (founded in 1979), Iron Mountain (1951), 3Com (1979), Nuance (1992), Parametric (1985), ModusLink Global (1986), Lionbridge (1996), Virtusa (1995), Novell (1983), Teradyne (1960), Analog Devices (1965), Akamai (1998), etc, etc. Note the founding dates of these industry leaders and, more importantly, the kinds of businesses they are -- enterprise software, infrastructure software, and infrastructure equipment.

I don't know much about the life sciences sector, but some of the top on the list worth noting are Medical Device companies like Boston Scientific (1979), Millipore (1954), PerkinElmer (1931), & Biogen (1978), and Biotech companies like Genzyme (1981), Parexel (1982), & Sepracor (1984). Also note the founding dates for these companies.

The only media company on the list is IDC (1968).

So, what does this all mean? Well, it means that Boston's ecosystem (and people skills) should be centered around Software & Infrastructure and Medical Device, Biotech, & Pharma.

What companies are New York City's largest employers? I can't quickly find anything better than Wikipedia, so based on that list of 25 ranked by revenues, here are some numbers (it's probably a decent representation of employment if you exclude hospitals & universities, which tend to employ large numbers). Over half are financial services companies, 14 to be precise, 5 media & telecoms companies, and mixed bag of the rest. So, what does that mean? Well, it means that New York's ecosystem is centered around Finance and Media & Telecoms. Okay, that's clearly obvious to all reading this but it had to be said. More importantly, per Wikipedia (again):
New York is by far the most important center for American mass media, journalism and publishing. The city is the number-one media market in the United States with 7% of the country’s television-viewing households. Three of the Big Four music recording companies have their headquarters in the city. One-third of all independent films are produced in the Big Apple. More than 200 newspapers and 350 consumer magazines have an office in the city. The book publishing industry alone employs 25,000 people. For these reasons, New York is often called "the media capital of the world."
That's a lot of people creating an ecosystem.

If one looks at the segments of the Internet "evolution" or, more succinctly, the wave of venture innovation started in the late 80's, it started with the personal computer and related equipment. Then, opportunities were abound in software to run those computers. That was followed with the networking of those computers and the hardware to do so. Then, we started seeing (again) opportunities in software to take advantage of that networking. Those new ideas started small, led by basic content services such as Yahoo! and other web pages. Now, (amongst many other things) we're on to enabling those networked computers to become a new distribution channel/mode for existing demands (software, music, printed text, video, etc, etc). Interestingly, this new wave has roped in several new industries to the opportunity for innovation. And, more uniquely, those industries are not necessarily based in the traditional "technology" hubs of Boston (Rte 128) and Silicon Valley.

Media is in New York. So, by sheer numbers, innovation in media is going to have to have a significant presence in New York. Obviously, other places will benefit from innovation in media (Seattle due to Amazon, Virginia due to AOL, Kansas City due to Sprint, Silicon Valley due to Google/Apple, Boston due to IDC, etc, etc), but given the number of people concentrated in New York that work in media, we should continue to see the startup ecosystem thrive in this city.
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