The Wrong Lesson Companies Learn From Silicon Valley

MARK MURO: Too often, companies—and places—think the great lesson of Silicon Valley is to pile onto the consumer Internet. And it’s true, as venture capitalist Marc Andreessen says, that “software is eating the world.” Given the ascendancy of Google GOOGL +0.36% and Facebook, it’s no wonder companies tend to distill the point of Silicon Valley down to the power of Internet-information offerings.

And yet, it’s a mistake. The true point of Silicon Valley is instead about convergence—about the emergence of a new interdependency of software and hardware, bytes and atoms. Software has been entangled with hardware since the beginning; all along, technology has been an onrushing tango of software built on top of and around a hardware platform comprised of ever faster, smaller, and cheaper microprocessors embedded in devices. And so the crucial lesson of Silicon Valley is not about the centrality of consumer-Internet services but about the power of deep, synergistic and interdisciplinary industrial know-how–the kind responsible for Google’s driverless car, the Apple universe of devices and services, and the extraordinary hybrid experiment of Tesla Motors.

I call this convergence economy the advanced industry sector in a recent Brookings Institution report, and not surprisingly, Silicon Valley epitomizes it, with 30% of all of its jobs residing in one of the 50 designated research and development- and STEM-worker intensive advanced industries. But here again it’s clear that the true Silicon Valley formula is not software alone but a balanced, diverse interaction of software and hardware pursuits. Today, in fact, manufacturing industries employ nearly half (46%) of Silicon Valley advanced workers. For that matter, the semiconductor manufacturing and computer equipment making industries are significantly larger than the web search/Internet publishing and software products industries.

And so I would say that the key takeaway from Silicon Valley is not the rule of the consumer Internet but the advantage to be gained of putting it all together in an inimitable way—software and hardware, online services and cool devices.

This is the American edge.