Even Google hasn't really capitalized yet. They have the market share, which gave them the investment dollars to buy doubleclick, which is their primary revenue generator. Investment pours into Google not so much because people think they will someday learn how to make money, but because they think the investment momentum will mean that when a big winner is found, Google will be there to buy it.

It was the same mentality people thought about Microsoft. Bet on the big wallet. Most of their war chest didn't come from sales of Windows and Office (though it helps to have a real cash flow), it came from investors betting that Microsoft would acquire, assimilate, or or neutralize the next big thing. It worked with Netscape (another virally successful, but profitability failed company.)

Now I'm not saying that creating something wildly successful that can't monetize isn't a bad thing. The truth is that it's the investment that makes most of these businesses unprofitable. Facebook could be profitable, and profitably maintained with less than 1/100th the current investment. Development isn't that expensive, even if you take 100 top developers, pay them $100K each, and spend an equal amount housing and equipping them.

That's only $20 million.

The reason why I headed straight for the community vs commerce distinction is because that is hands down the biggest difference in thinking I've observed while down here. As I mentioned in another comment, this is 100% anecdotal and unscientific.

At the same time though, I know (and have named in previous blog posts) at least a dozen teams, and by extension, 100s of employees who really know their community and viral methods cold. I can't say that I really have met anyone from Seattle who really gets this particular niche skillset, which I think is responsible for a lot of the PayPal alumni's success, Facebook's success, etc.

Maybe I am missing some teams in Seattle that really get it but I'm just unaware? It's possible (and maybe very likely) that I've just lost touch with the people doing interesting work in this area since I've been out of the region…

I really diagree about the “transactional” focus you mention. Certainly there are some companies that you can pick out, but aside from Amazon, I don't think any of these can be considered a big tech success story. I don't know anyone in Seattle who's focused on building a commerce-based business. Seattle is every bit as focused on following the next big trend and right now that appears to be viral/social/web applications.

I think this is actually one of Seattle's big flaws. The tech community here seems to be fast-followers of the latest hype cycle, but it's very much about following. There's a lot of this in the Bay Area too, but the intitators (leaders) of these trends seem to be there as well.

The viral/social vs. SEO topic is just wildly unfounded. These are 2 skillsets that I'm sure EVERYONE building a web startup today is aware of and very focused on, regardless of geography.

I have frequently asked myself this same question, but I'm not sure I have a better answer. The big players in Seattle seem to be fading, Amazon being the big exception (Real is nearly dead, Microsoft seems way behind the times, etc.). I think there are a lot of things that make a region innovative, and it all comes down to the culture.

Culture is really hard to define, and even harder to create, whether in a startup or in a region. The Bay Area has great universities, more people, more companies. It has a deep history of technology startups and innovation that can never be erased. As a result of this there are many entrepreneurs that are now investors and have a very different focus from those who are former consultants or investment bankers. These investors fund ideas that balance-sheet focused investors can't even understand. Taking chances is the only way to create something new.

The diversity of technologies in the Bay Area is much greater than Seattle and includes much more hard technology (e.g. semiconductors, networking, hardware OEMs), which I think is essential for new waves of innovation. I find it interesting that there are very few mid-sized companies in Seattle. We have big and small (startups), but there are very few in the 500-2000 person range (my definition is a little different than the government's). I think this may just be a result of more diversity.

All of these things (re)combine to make the Bay Area a fertile ground for innovation.

Even Google hasn't really capitalized yet. They have the market share, which gave them the investment dollars to buy doubleclick, which is their primary revenue generator. Investment pours into Google not so much because people think they will someday learn how to make money, but because they think the investment momentum will mean that when a big winner is found, Google will be there to buy it.

It was the same mentality people thought about Microsoft. Bet on the big wallet. Most of their war chest didn't come from sales of Windows and Office (though it helps to have a real cash flow), it came from investors betting that Microsoft would acquire, assimilate, or or neutralize the next big thing. It worked with Netscape (another virally successful, but profitability failed company.)

Now I'm not saying that creating something wildly successful that can't monetize isn't a bad thing. The truth is that it's the investment that makes most of these businesses unprofitable. Facebook could be profitable, and profitably maintained with less than 1/100th the current investment. Development isn't that expensive, even if you take 100 top developers, pay them $100K each, and spend an equal amount housing and equipping them.

That's only $20 million.

The reason why I headed straight for the community vs commerce distinction is because that is hands down the biggest difference in thinking I've observed while down here. As I mentioned in another comment, this is 100% anecdotal and unscientific.

At the same time though, I know (and have named in previous blog posts) at least a dozen teams, and by extension, 100s of employees who really know their community and viral methods cold. I can't say that I really have met anyone from Seattle who really gets this particular niche skillset, which I think is responsible for a lot of the PayPal alumni's success, Facebook's success, etc.

Maybe I am missing some teams in Seattle that really get it but I'm just unaware?

I really diagree about the “transactional” focus you mention. Certainly there are some companies that you can pick out, but aside from Amazon, I don't think any of these can be considered a big tech success story. I don't know anyone in Seattle who's focused on building a commerce-based business. Seattle is every bit as focused on following the next big trend and right now that appears to be viral/social/web applications.

I think this is actually one of Seattle's big flaws. The tech community here seems to be fast-followers of the latest hype cycle, but it's very much about following. There's a lot of this in the Bay Area too, but the intitators (leaders) of these trends seem to be there as well.

The viral/social vs. SEO topic is just wildly unfounded. These are 2 skillsets that I'm sure EVERYONE building a web startup today is aware of and very focused on, regardless of geography.

I have frequently asked myself this same question, but I'm not sure I have a better answer. The big players in Seattle seem to be fading, Amazon being the big exception (Real is nearly dead, Microsoft seems way behind the times, etc.). I think there are a lot of things that make a region innovative, and it all comes down to the culture.

Culture is really hard to define, and even harder to create, whether in a startup or in a region. The Bay Area has great universities, more people, more companies. It has a deep history of technology startups and innovation that can never be erased. As a result of this there are many entrepreneurs that are now investors and have a very different focus from those who are former consultants or investment bankers. These investors fund ideas that balance-sheet focused investors can't even understand. Taking chances is the only way to create something new.

The diversity of technologies in the Bay Area is much greater than Seattle and includes much more hard technology (e.g. semiconductors, networking, hardware OEMs), which I think is essential for new waves of innovation. I find it interesting that there are very few mid-sized companies in Seattle. We have big and small (startups), but there are very few in the 500-2000 person range (my definition is a little different than the government's). I think this may just be a result of more diversity.

All of these things (re)combine to make the Bay Area a fertile ground for innovation.

Is it really that the social/viral wave is stronger in SF than Seattle? Or is it just that Seattle only produces a huge winner once every 10-20 years?

Anyway, I sympathize, so I won't call you a Seattle-hater (but watch out or Fred Wilson might call you a Silicon Valley bigot).