An explosion in software patents within the last 50 years fueled the rise of America’s six major tech hubs, but also siphoned talent from some of the nation’s biggest cities, new research finds.
The transition to six major hubs—San Francisco (Silicon Valley), Boston, Seattle, Austin, Denver, and San Diego—brings “significant and long-lasting” benefits, including greater economic growth, global talent, and even more invention to these regions, write William Kerr, the D’Arbeloff Professor of Business Administration at Harvard Business School, and Brad Chattergoon, a data analyst at Boston-based Pretium who previously worked as a research analyst at HBS.
“Astoundingly, five of the six most valuable public companies in the world in 2020 were tech companies headquartered in San Francisco or Seattle. In response, local policy initiatives to boost innovation abound,” the researchers write in Winner Takes All? Tech Clusters, Population Centers, and the Spatial Transformation of US Invention.
The rest of the country wants the jobs that come with such a boost. Some 238 US cities bid for Amazon’s second headquarters, HQ2, before the company settled on Arlington, Virginia, the researchers note. Fold in the recent rise of remote work amid the COVID-19 pandemic and the question arises: Has the trend peaked?
Tech history as told by patents
To look at the trends, Kerr and Chattergoon examined detailed filings from the US Patent and Trademark Office between January 1976 and December 2020. They focused on utility patents, or new or improved useful products that grant the inventor exclusive commercial rights for up to 20 years. To qualify, patents needed to list at least one US inventor.
What they found was a huge spike in software patents in recent years. From 1975 to 1979, just 2.5 percent of US patents were software related. Since 2015, that share exploded to 50 percent as software became widespread and legal changes allowed for broader intellectual property protection, the researchers found. “During that period of time, you had the rise of the personal computer, you had the rise of 3G, of the internet,” Kerr says. “You had a couple of wars, you had a great recession, you had 9/11. There's been lots and lots of things that have hit that world. And [software has] only continued to rise up.”
Add that to the rise of the tech centers, and a remarkable trend emerges, Kerr says. The trend is independent from the Rust Belt overseas job migration that occurred in the same timeframe, the researchers note.
“We've always known bigger cities have more patents, even on a per capita basis, than smaller cities,” Kerr says. “What I found very surprising was that, in fact, most of the growth of the tech centers was actually coming from the big population centers.”
The rise of tech hubs
What’s more, that growth isn’t stoked by long-standing companies shifting locations, like IBM did, but rather by new businesses that rise to the top via invention, like Apple and Microsoft. Another factor: Access to global talent likely shaped the transformation when it came to forming new companies.
From 1975 to 2020, four “tech clusters” attracted the biggest patent issuance shift: San Francisco, Seattle, Boston, and San Diego. Though patent production kept rising early in the time period in the biggest population centers like Los Angeles, New York City, and Detroit, the regions “lost substantial relative grounds,” the researchers write.
Researchers parsed patents across eight time periods, ultimately examining 1,559 of them. Of those, 788, or 51 percent, were manually verified as software patents. These classified patents were then used to train a machine learning algorithm to identify among millions of patents those that were software related. Once software and non-software patents were separated, the researchers found “cities like Birmingham, Alabama, or Tulsa, Oklahoma, were really losing their share for software patents compared to non-software inventions,” Kerr says.
The ripple effects of invention
Tech clusters, it turns out, are also important for non-software related patents, with those areas of invention climbing to 23 percent from 11 percent over the research period. Software is penetrating other industries, Kerr notes. Take vaccines. Pharmaceutical companies’ speedy development of mRNA-based vaccines for COVID-19 required software, he notes.
“Their capacity to bring a substantial software, AI database kind of understanding to this problem, and to be able to come up with very rapid kinds of prototypes and vaccine candidates would not have been possible in the traditional just-lab structure,” Kerr says.
As the shift drew innovation from a handful of big population centers like Los Angeles and New York, areas with “anchor tenants,” like universities, also benefited, the researchers write.
Have tech clusters peaked?
Even with the changes, the five biggest US metro areas since 1980 “have remained mostly prosperous and often hold leading positions in important sectors,” such as entertainment media in Los Angeles and finance in New York, the writers note.
The 270 major metro populations that aren’t tech centers nor the largest population centers also produced more inventions, albeit at a slower pace, rising to 48 percent of non-software patents, up from 46 percent at the start of the study period.
“Now, we've hinted at the end of the paper that I think the trend is probably getting close to its peak,” Kerr says.
It’s an area that needs more study—and doesn’t necessarily mean those tech centers will disappear. “It's not that that's gone away, and that suddenly, post-COVID, we're all in a distant, frictionless world that is going to not make talent clusters important,” Kerr says.
Talent opportunities in a new remote world
So how might businesses plan for the future when it comes to attracting the right talent?
“If you're trying to create a global-dominating consumer internet kind of play, then, well, you're probably going to have to move to one of the big tech clusters like San Francisco,” Kerr says. “Likewise, if you are a biotech entrepreneur, there are enormous advantages to being in the Boston area. But there are also a lot of inventors who work in spaces that give them more geographic flexibility.”
That means some firms may be able to settle in less-expensive regions and use crowdsourcing software and other platforms to stay on top while giving employees a better quality of life by allowing them to live in areas with lower-priced housing, Kerr says.
“The craziness that says ‘I must be a part of Silicon Valley’ is perhaps now one that may mean you can take regular trips and attend industry conferences,” Kerr says. “But you don't necessarily have to rush to create your own lab in the Valley or in the Boston area.”
[iStockphoto/uschools]