Virtual giants in a place of steep housing costs

EVEN Facebook can't make distance disappear. The social network is virtual, and the company led by Mark Zuckerberg even bought virtual-reality startup Oculus VR last year. But in the real world, it's still paying staff US$10,000 and more to live near its Menlo Park campus. A downside of Silicon Valley's concentration of skills is the need to keep pace with rising real estate costs and commuting times. Companies end up clustered together because the benefits of doing so outweigh the costs.

People with specialised knowledge, niche suppliers and customers are thick on the ground. Financing from those who understand the industry's risks and potential is readily available. And meeting peers after work means ideas and new ways of doing things spread quickly.

Such things help explain why Los Angeles dominates entertainment, New York, finance, and Silicon Valley, technology. While clusters tend - like networks - to persist once established, they can be destroyed by prohibitive costs or new technology. Massachusetts used to be known for clothing mills, then computers. Now it's known for biotechnology.