Silicon Valley Still IT Epicenter

If you want to know how Silicon Valley manages to remain, after 16 years, the center of U.S. IT innovation and production, Roger Kay will take you first to Morocco.

"Many years ago, when I was traveling, I went to the central market in Marrakech looking for a drum," Kay, president of analyst company Endpoint Technologies Associates, told eWEEK. "At the edge of the market, there were some people selling a drum or two, but [the drums] werent that great, and the tables were filled with many other items. If you went further into the center of the souk, you could find 12 master drum makers selling in the same area, and there you had the best drums for great prices."

What it comes down to, Kay said, is the economics of a central marketplace. "If you want the best price and the best quality, you have to go where everyone is doing the same thing."

This, in short, is why Kay believes that even in an age when work is increasingly decentralized using wireless and remote communication technology, the Silicon Valley region of California is still where the technology magic happens.

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It is also why, despite some ebb and flow in its IT job market share over the last 16 years, the Bay area has remained the national leader in IT employment. This was the focus of an Economic Letter released Aug. 3 by the Federal Reserve Bank of San Francisco, which looked at the evolution of IT employment trends and how they have affected the regions long dominance in this area.

Reviewing regional shares of the nations IT employment from 1990 to 2006 over five metropolitan regions, the report covered developments in the late 90s that led to the dot-com boom, the recession in 2001 and 2002, and a retrenchment and subsequent recovery in IT investment.

The Bay area remained the leader among metropolitan areas throughout these booms and busts, although market shares of other top IT centers have shifted. While Los Angeles has maintained its second-place ranking, its share of the nations IT employment has fallen. This has been the case in the Boston area as well, which has seen some of its IT employment base erode.

Most recently, the Boston area ceded its third-place ranking to the Washington, D.C., area, which has grown rapidly from its government contracting roots.

"In our own research as well, a lot of people were surprised when Virginia surpassed Colorado as a technology employment hot spot," Matthew Kazmierczak, an analyst at the Washington-based American Electronics Association, told eWEEK.

Read here about how the IT turnover rate signals a strong market.

Kazmierczak was referring to the AEAs annual CyberStates report, from which the Federal Reserve paper drew much of its research. "The D.C. area used to be just infrastructure for the government, but it has grown up beyond that to software as services," he said.

Seattle remained in fifth place, but its share showed a steady rise over the 16-year period.

In contrast, the Bay areas share of the nations IT employment has traveled a bumpier road, hovering around 8 percent through most of the 1990s before spiking to just above 9 percent in 2000, at the tail end of the IT boom. In the years since, its share has leveled off to 7 percent.

That said, analysts dont see Silicon Valleys smaller piece of the nations IT employment as a sign of the imminent demise of the tech epicenter.

"That slippage seems to be from the 2000-to-2001 height," said Kazmierczak. "In that period, things were gangbuster, and [venture capitalists] were spending crazy amounts —something like $67 billion, compared to $12 billion between 2002 and 2006.

"There were jobs, but they were not sustainable jobs; things were built with backing but little merit. We really didnt need a store that delivered nothing but pet food by FedEx. Its true that IT has slipped from the period before the downturn, but only a little, and its fairly flat now."

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