BUSINESS CASE: A Tale of Two Research Clusters

Silicon Valley in California and Route 128 in Massachusetts are the preeminent high-tech clusters in the world. Silicon Valley dates back to the early 1930s, when Stanford University encouraged its electrical engineering graduates to stay in the area and start companies.

Courtesy Silicon Maps

In the early 1950s Stanford created the Stanford Industrial Park, leasing university land to high-tech companies that worked closely with its engineering school. In the mid-1950s, defense contractors such as Lockheed brought dollars to the area. Soon after, a critical mass of talent had accumulated. For example, in 1968, eight young engineers left their employer over a disagreement; over the next 20 years, they founded 65 new companies, including Intel, which later created the microprocessor chip, the brain of personal computers.

This pattern repeated: one researcher estimated that in small and medium-sized firms, 35% of the workforce would, on average, turn over in a year. Silicon Valley became a fertile location for startups, with dozens sprouting every year—everything from firms specializing in hardware and software to network firms like eBay, Facebook, and Google. It also became home to investors who specialize in financing new high-tech companies. Silicon Valley’s compact geographical location allowed people to form close social and research bonds even while working for rival firms.

On the other side of the country, a high-tech cluster known as Route 128 came into being on a 65-mile highway surrounding Boston and Cambridge. It owes its start to the Massachusetts Institute of Technology (MIT), the top engineering university in the world, as well as funding from the U.S. military, NASA, and the National Science Foundation. In the 1950s Route 128 dominated Silicon Valley, with three times the number of employees.

But early on, Route 128 differed from Silicon Valley in significant ways. It was much more spread out and its firms were larger, reflecting the needs of defense contractors during the Cold War. And MIT extended little help to Route 128 firms.

Another major difference between the two clusters was in how firms were organized. Route 128 firms tended to be “vertically integrated,” combining the entire chain of production from research to design to production in the same firm. Silicon Valley firms focused exclusively on research and design, contracting production out to specialized firms to achieve economies of scale. In contrast to the fluidity of employees and ideas across companies in Silicon Valley, Route 128 firms emphasized a commitment to lifetime employment and closely guarded their innovations.

The 1970s and 1980s were harsh for Route 128. Military spending dried up, and it lost its edge in minicomputers when Apollo Computers lost its preeminence to an aggressive Silicon Valley firm, Sun Microsystems. By 1980, electronics employment in Silicon Valley was three times that of Route 128. Over time, Route 128 ceded the advantage to Silicon Valley in electronics and networking. Today its niche is in biotechnology, genetics, materials engineering, and finance.