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).

The advantage I'm arguing for in my post is mostly around the idea that there's specialized knowledge that you gain in a community that really focuses on it. That's not to say that you can't start in Taiwan and eventually make it into big screen blockbuster movies, but there may be more uphill battles than being immersed in it. I know certainly that in my time in the Bay Area I've learned lots of DIFFERENT stuff than I was learning in Seattle, some of it helpful and completely unhelpful

I think logically, maybe the reason why there are more UGC-oriented social sites in the Bay Area is that there's just more startups. So it's just a kind of observation bias.

I'm just saying that from my personal observation, I'm leaning towards a cultural difference in the kind of regional specializations. Whether that's accurate or not, who knows, but I think it's a point worth considering (and investigating further) for those who care.

But what does a specialized region get you? Lots of peers to talk with,
surely… But how many do you need? And how much time should you really
invest in talking to peers? Investors who are comfortable with the space
(but with early traction, I think most would invest out of the Valley).
Conferences? Generally it's all online a few days later. Was Zuckerberg an
avid networker / startup event go-er? Brin and Page?

Is the net-effect a meaningfully positive one? Clearly our 3 or 4 MOST
world-changing consumer stars either started in the Valley or eventually
moved there. IMO, the bigger question is rate and (to a less extent)
magnitude. i.e. For every 100 social startups in the Valley, how many
exit? Is that different than Seattle? (note: according to Crunchbase,
that's NOT the case for startups in general, though it might be different
for consumer/social startups). For those same 200 startups, what was the
average exit value?

This is all hard data to get at… But given the number of world-changers
that at least started outside of the valley, I think it's probably okay to
spend your formative months elsewhere and head south if the situation
warrants it.

After thinking much more about my points, I think I am mostly pointing out that there is a geographic specialization for Seattle to go for transactional/revenue-centric business models versus the Bay Area being more comfortable going for “audience” businesses.

Inherent in my “world changing” label is the idea that to change the world, you have to impact 10s or 100s of millions of consumers. Maybe that is not true? But that is really my definition.

I'd love to see someone take all of the CrunchBase data (or any other data set), segment it by audience (consumer, B2B, etc) and measure the success rate by where the company is located. Bonus points if you also measure by where the company was founded (Facebook, StumbleUpon, WordPress, etc., were all founded outside of the Valley).

I paid a few virtual assistants to get the hometown of all companies on a big list of exits over 3 years if you feel like playing with the data:

http://www.tonywright.com/2009/just-how-importa...

Same data crunched a different way:

http://www.tonywright.com/2009/should-you-move-...

Honestly though, if you disagree with what I'm saying about Seattle's regional focus being on transactional businesses, it'd a lot more helpful to hear about why you disagree rather than slamming me for supposedly not practicing what I preach.

Anyway, I appreciate your passion and the time you spent reading my rambling blog post.