Apr 25, 2019

London — the historical center of innovation is only now catching up

By Miloš Čitaković

Here we are today, at the cusp of the Information Age with the invention of the internet. History is repeating itself as IT has become an all encompassing part of every industry and our daily life. Tech has become one of the hottest sectors in the global economy, and there is no sign of it cooling down — Facebook’s earnings are beating every expectation and Apple is well on its way to becoming a trillion-dollar company.

London — the hub of the industrial revolution and the precursor of the information Age has seemingly lost its steam. Silicon Valley is now the poster child of the tech revolution. Silicon Valley works because there is such a high density of people working on start-ups and they are inclined to help each other, which is crucial. Other tech hubs have this as well but this is a case of Metcalfe’s law — the utility of a network is proportional to the square of the number of nodes on the network. Silicon Valley has far more nodes in the network than anywhere else. So what is London’s tech environment like?

London’s tech ecosystem is in its infancy. When compared to Silicon Valley, it has 20 years of catching up to do. In London the difference and risks associated between a brick-and-mortar business and online is still not fully understood. Furthermore, although being a large city, the tech ecosystem is relatively small — mostly found in Shoreditch. The world of start-ups benefits tremendously from network effects — to replicate Silicon Valley you would need an area where many ambitious people care most about start-ups and technology, and a focus on long-term compensation. In London, finance and real estate dominate the conversation. If start-ups are not the priority, it will be challenging to replicate the environment of Silicon Valley.

The focus in Silicon Valley on long-term compensation is also important. Nearly everyone wants to get rich but they’re willing to wait to do so. Conspicuous consumption isn’t that cool; not too many people drive Ferraris or talk about their vacation homes. Unlike London where people are mostly focused on cash compensation for this year, in Silicon Valley more people talk about equity than salaries. A focus on making a lot of money in the long term at the expense of short-term opportunities is essential to building companies that have a huge impact — they take a long time. On top of those ‘structural’ issues found in London, there are numerous other factors that play into the slow development of London’s tech scene.

Suzanne Noble, the founder of Frugl which is based in London is part of its tech scene and is able to provide valuable insight.

One thing is clear — London will never be able to emulate the success of Silicon Valley, nor should it try to. There are fundamental differences in the ecosystem, culture, focus — and London is very late to the race. Nevertheless, the tech sector is growing rapidly around the globe and that can be clearly seen in London too. Never mind all the comparative burdens that London’s start up scene is facing, it is growing at an increasingly fast pace and the status quo is shifting. With companies like CityMapper, TransferWise, Funding Circle and Deliveroo we are on our way of witnessing the birth of London-based unicorns. The growth and development that comes with these successes as they become household names in the UK is tremendous. It will be interesting to see how London’s tech sector develops, being the historical forerunner forerunner of innovation — it has a good track record.

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