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How Silicon Valley Works

Investment in Silicon Valley is at record levels. Venture firms are managing more funds and raising more money. New starts are also at a high, with more companies raising megadeals -- rounds of $100 million or more -- than ever before.
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Investment in Silicon Valley is at record levels. Venture firms are managing more funds and raising more money. New starts are also at a high, with more companies raising megadeals -- rounds of $100 million or more -- than ever before.

Yet, some are wondering aloud whether Silicon Valley has jumped the shark, investing now in trivial applications and me-too companies. What's going on here, where's the next big bold, audacious thing?

To answer, you must understand how Silicon Valley innovation really works.

Technology adoption is a nonlinear process punctuated by fits and starts, successes, failures, triumphs and shortfalls. It is widely observed that a new technology goes through five common stages of adoption. Leading industry analysts like the Gartner Group express the stages well:

1. "Technology Trigger"
The first phase of adoption is the "technology trigger" or breakthrough, product launch or other event that generates significant press and interest.

2. "Peak of Inflated Expectations"
In the next phase, a frenzy of publicity typically generates exuberance and unrealistic expectations. There are some successful applications of a technology, but there are typically more failures.

3. "Trough of Disillusionment"
Technologies enter the "trough of disillusionment" because they fail to meet expectations and quickly become unfashionable. The press usually abandons the topic and moves on to fresh ideas.

4. "Slope of Enlightenment"
Although the press may have stopped covering the technology, some businesses continue through the "slope of enlightenment" and experiment to understand the benefits and practical application of the technology.

5. "Plateau of Productivity"
A technology reaches the "plateau of productivity" as the benefits of it become widely demonstrated and accepted. The technology becomes increasingly stable and evolves in second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only a niche market.

I believe there is a Sixth Phase of technology adoption: the "Delta of Unanticipated Consequences."

The double meaning is useful: this phase delivers an inflection point produced by numerous tributaries of innovation. Just when a discrete technology hits a steady state, tinkerers out there begin to mesh it with other things to create new combinations and permutations. That's where we are now.

An excellent current example is the autonomous (self-driving) car which is about to hit the accelerator to become a mega-game-changer. It's going to change the pulse of cities, architecture, work-life-balance, even life expectancy. What's most important about the autonomous car is not the technologies involved (although significant) - the paradigm shift it represents is mind-blowing.

Even five years ago, we imagined a world of "smart" roads and highways that would use embedded tech to regulate cars to drive more safely, reduce traffic congestion, save energy. Problem was, wiring our highways would be a massive infrastructure project on the scale of the Eisenhower years. With Washington dysfunction, even the best ideas were non-starters. Then, a couple of years ago a few smart folks at Google, Intel, Samsung and others started to connect the dots of existing technology. We don't need to make the roads smarter, they reasoned; instead let's make the cars smarter using a lot of well-tested, off-the shelf technologies like GPS, sensors, cameras, and mobile connectivity. The shift was the equivalent of going from Eniac to iPad - from hidebound mainframes, to distributed computing to mobile cloud in a flash of insight.

Now, numerous teams are putting all the pieces together, successful tests are underway in many states and cities and car manufacturers are getting ready to introduce self-driving models as early as 2017. And when I say "pieces," I mean more than the technology components, but as importantly, the protocols also. In other words, just as paved roads and repair stations originally designed for bicycles, meshed with the corner-store availability of gasoline for farm equipment, and set the stage for the mass adoption of the automobile a century ago, many precedents have been leading up to the arrival of the autonomous vehicle. Without the early and often crude technologies paving the way, the good stuff never happens. The autonomous car's arrival has been hastened by unexpected contributions from the likes of OnStar and Uber (underlying location applications), ride-sharing services like Zipcar and apps like Parker (parking space finder) and on board cameras and sensors that today make it easier to parallel park. The more the general public gets accustomed to strange new rules and interfaces, the faster the end game can play out.

So, while some question the "small ball" tech that seems to be coming out of Silicon Valley these days, the truth is every new introduction is in some way preparing us for the next future. Sure, it's easy to poke fun at what seems like trivial applications today - a Snapchat platform for teen sexting or the Dog Whistler app to train your pup - but one day the true value of most crazy ideas will be revealed. That's the real magic of Silicon Valley - we believe all innovation is intrinsically good. Sometimes you have to wait to see just how good.

Note: I am busy writing a follow up to my best-selling book Jump Point. If you'd like a sneak peek at some of the new ideas, send me a note at