Over the past two years, SUNY’s Levin Institute hosted a series of panel discussions to explore the state of innovation in New York City. Innovate New York - Envisioning an Inventive City was jointly sponsored by the Levin Institute, the New York Academy of Sciences and the Sloan Foundation. Its basic premise was:
“New York is a global city, a diverse blend of culture, vitality, and extraordinary talent. But the wealth of science and technology talent and innovation is less apparent, at least in the form of a thriving technology economy.” The Innovate New York series aimed to discuss “where New York stands relative to its competitors, and to identify approaches that could capitalize on New York's strengths, shore up its weaknesses, and plant it firmly on the map as a capital of innovation.” Panel discussions were held in a variety of areas, including finance, media, services, life sciences, arts, and culture.
I personally participated in a couple of the panel discussions, and in my role as Senior Fellow at the Levin Institute, was involved in helping to organize the series.
The Sloan Foundation has agreed to renew its sponsorship of Innovate New York, this time focused on one industry, - media and communications, - which will enable us to explore the topic in considerable more depth.
Few industries are feeling the brunt of the transformative forces of creative destruction like media and communications. As Ernest Wilson, dean of USC’s Annenberg School of Communications and Journalism observed:
“ . . . The communications and media sectors are in a state of great turmoil. Over a relatively short period of time, technological progress has altered everything from the media for information delivery to the revenue sources for the news, media and public relations business. At this moment, there is a remarkable confluence of social, economic and technological change - all of which affect vital information flows in our democracy.”
It thus makes a lot of sense to focus this next round of the Innovate New York series on the media and communications industry. Given the huge role that the Internet and digital technologies in general are having on the transformation of this industry, and the fact that New York is not, and not likely to become a major center of technology innovation on a par with Silicon Valley and the Boston area, a key question that we need to explore is whether New York can remain the media capital of the world in the 21st century?
A Levin Institute colleague brought to my attention a recently published article, Here's Why This Latest Wave Of New York Startups Is Just The Beginning in Business Insider by venture capitalist, entrepreneur and banker James Robinson. Robinson believes that New York is well poised to become a major entrepreneurial and innovation center in a number of its leading industries, notwithstanding the fact that like media and communications, these industries are being extensively transformed by information technologies.
His optimistic outlook is based on three key factors: New York continues to be a place where people want to live; the general trend toward capital efficiency; and the horizontalization of information technologies. Let me briefly discuss each of these factors.
A number of magazines, like The Economist, publish most liveable city rankings based on a limited set of criteria, including stability, healthcare and culture and environment. By there measures, mid-size cities in Canada, Australia and Europe dominated the rankings. The Economist rankings, based on 5 key indicators, has Vancouver at the top, followed by Melbourne, Vienna, Perth and Toronto.
But, the results are very different when you look at more extensive rankings, such as The Global Power City Index (GPCI) developed by the Mori Memorial Foundation in Japan, which aims to explore “the comprehensive power of cities to attract creative people and excellent companies from around the world.”
The GPCI measures sixty nine different indicators grouped into six main categories: economy, research and development, cultural interactions, liveability, ecology and natural environment, and accessibility. In addition, it measure the attractiveness of the cities to five main kinds of people: residents, managers, researchers, artists and visitors.
By these more comprehensive measurements, New York ranks at the very top in the overall rankings, followed by London, Paris and Tokyo. New York, as well as London rank very high in all categories except for liveability (working environment, cost of living, security and safety) and environment (ecology, pollution), but their strengths in the other areas compensate for these weaknesses. New York was also ranked highest in attracting researchers, artists and visitors, and second highest to London in attracting managers. Most important, New York was also the top ranked city by its residents, followed by Paris, Berlin, Tokyo and London.
As Jim Robinson writes in his article: “New York City has always been a place where people want to live, and today is no exception.”
Attracting talented individuals is a necessary requirement for an innovative, entrepreneurial city or region, but it is not sufficient. You also need capital to be able to support startups, especially in their early stages. High personnel and real estate costs have made it expensive to start new ventures in New York compared to other areas.
Jim Robinson believes that this picture is now rapidly changing as a result of increased capital efficiency, which makes it possible for more companies to afford to move to New York. “A variety of dramatic cost-reducing realities have lowered the fixed-cost of building a software or web startup by an order of magnitude. At the top of the list are the rapidly advancing technologies of open-source software and cloud computing. As a result, some of the hardware and support-system costs (such as large staffs of IT personnel and extensive real-estate footprints) once associated with operating in New York simply do not apply in this new environment.”
But, given that New York is not a major center for innovation in information technologies, how can it possibly retain its leadership in industries in which it has led for decades, but which are being extensively transformed by IT, including not only media and communications, but also finance, retail and fashion? The answer, says Jim Robinson, is a nuanced concept called horizontalization.
“The technology industry has been a standalone industry throughout most of its history, a vertical that stood alongside other large industries. Today, technology is becoming more of an integrated portion of the existing stacks - or the distinct components of hardware, middleware and software required to operate entire IT infrastructures - within businesses rather than a separate vertical industry. As a result, essentially all industries - including the seven industries [finance, media, publishing, advertising, communications, retail, and fashion] headquartered in New York - are increasingly able to make use of the lower-cost, better-integrated information technology that open-source software, cloud computing and related innovations are enabling.”
“With this evolution comes a striking change in calculating the optimal location for technology businesses. It is simply no longer true that technology companies must be located near technology centers. Today, the optimum strategy often puts these companies near business centers, where the customers are. Few business centers in the world are as central as New York City. No matter where something is invented or produced, it is sold here.”
In other words, once a technology has become standardized, commoditized, and ubiquitous, its key value is no longer found in the technology itself, but in its applications and transformational impact on industry after industry. IT is now going through this transition from an end in itself to an enabler of innovation for those industries and companies that use it extensively and wisely. Electricity went through a similar transition one hundred years ago.
A number of economists, including Harvard’s Dale Jorgenson and MIT’s Erik Brynjolfsson have come to similar conclusions based on their analysis of labor productivity over the past several decades. While IT itself is commoditizing, the evidence suggest that its strategic value to business is accelerating. The more profitable and productive companies are those that have made the most intensive use of IT, and that have invested in the necessary organizational capital to better leverage IT for competitive advantage.
At the conclusion of his article, Jim Robinson reiterates why he believes that New York is well-positioned to become a major center for business innovation and entrepreneurship:
“New York remains one of the world’s greatest and most livable cultural centers. It has a diverse core of seven global industries competing aggressively, increasingly through technology. A new set of lower-cost economics is enabling technology providers to operate closer than ever to business centers such as New York. And New York is attracting a widening pool of talent for start-ups that is highly motivated. This latest wave in the long, storied history of entrepreneurship in New York is only getting started.”