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Business model innovation is making Silicon Valley less important as a startup center

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Last week I noted some companies that have quickly grown revenues to over $1M/mth, including Zynga, Playdom, Playfish, Gilt, Hautelook, RueLaLa, Groupon, Living Social, Lifelock and Zoosk. Later I and others added Crowdstar, Cash4Gold, Shoedazzle, Second Life and TheLadders to this list.

It’s interesting to break this list down geographically, especially if you seperate the gaming/virtual world companies from the rest.

  • Gaming Companies in the Bay Area: Zynga, Playdom, Crowdstar, Second Life
  • Gaming Companies outside the Bay Area: Playfish (London)
  • Other Companies in the Bay Area: Zoosk
  • Other Companies outside the Bay Area: Gilt (NY), HauteLook (LA), RueLaLa (Boston), Groupon (Chicago), Living Social (DC), Lifelock (AZ), Cash4Gold (FL), Shoedazzle (LA), TheLadders (NY)

Given that the the Bay Area attracts the most VC funding (a proxy for startup activity), the fact that most of the gaming/virtual world companies are based here isn’t too surprising. But what is pretty surprising is that the vast majority of other fast growth companies are from outside the bay area.

One notable thing about many of these companies is that they innovated more on business model than on technology or product. While there is some core technology to each of these companies,  most of them have more people in functions like marketing,  sales, customer care, merchandizing etc than in technology. This is in marked contrast to the gaming and virtual world companies where the bulk of the headcount is in technology since the product is the game.

Many other “hot” companies in the bay area also show a bias towards product and technology in their employee mix; youtube, facebook, digg, etc.

When product and technology are core to the success of a company, Silicon Valley still dominates the startup scene, but when the innovation is in other functions, and technology is more an enabler than core to the product, other regions can be as competitive, if not more so.

What do readers think?

Read the original story at Lightspeed Venture Partners



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