I think you are conflating together some things that happened centuries apart. In fact Genoa's mercantile empire declined faster and more dramatically than the Venetian one. To the point that Genoa essentially lost political independence much earlier than Venice.

A first phase of relative decline of the Republic begun with the long conflict with Venice, culminating in the War of Chioggia in the 1380s. Genoa's expansion was ended and most of the resources of the Republic went into consolidation of its oligarchic structure and the former trading empire evolved into a prominent banking venture. The founding of the Bank of St. George in 1407 marked a turning point in the evolution of the Republic that, surrounded by more powerful nations, had to suffer repeated periods of French and Milanese occupation in the XV Century. The fall of Constantinoples - the Genoese had been traditional allies of the fading Bizantine Empire enjoying special trading privileges - was another blow to their trading ambitions.

It was in fact the Bank which helped the City survive and avoid permanent conquest: in the XVI Century the Genoese bankers became prominent lenders to the Crown of Spain. Under the rule of the Doria family, strong of the ties with the Spanish kingdom, the city saw a period of resurgence. Noetheless the absolute prominence of the Bank within the City meant a growing identification of the Administration with the Bank's "shareholders". Very few most renown families held control of the Bank, which was to say of the entire economy of the City, as the Bank also oversaw traffics, tariffs and taxes, held lands under direct or indirect control; it also brought a situation where the leadership was essentially extracting money by financing no longer the debt of foreign nations but the public debt of the city itself.

The decline of the Spanish finances during the late XVI early XVII Century marked therefore a new period of decline for the Genoese; again they were subject to political and military pressure from outside forces: the French and the Austrians took turns as major influences until, after the brief restoration of the Republic during the Napoleonic Campaign in Italy, Genoa ended up with the Kingdom of Sardinia. Which is also the moment when some resurgence of its trading nature begun, as it became the main port of the Kingdom under the reactionary Carlo Felice and his more progressive son Carlo Alberto.

In any case, despite the glorious parenthesis of the XVI Century, the Genoese decline was more marked than the Venetian one. Venice retained a larger trading influence for longer time, a larger degree of political independence and, despite being forced to abandon its policy of conquest on the mainland, roughly after the War of the League of Cambrai a the beginning of the XVI Century, a larger mainland crossed by some trading routes. The progressive erosion of their commercial empire under pressure by the Ottomans led Venice to a similar evolution in a conservative-oligarchic sense. Here though, having retained a significant portion of land, the Venetian leadership was heavily based on land possession and the public debt was therefore transofrmed in a series of concessions - at times very unfortunate - that developed a system of internal tariffs and borders, which ultimately resulted in a general backwardness of the agrarian and (almost non existent) industrial production of the main land in the late XVIII Century.

By the time of the Restoration, both Venice and Genoa were in deep economic and political decline; but Venice was perhaps in slightly better condition. Unfortunately for them - if the annexation to the Austro Hungarian Empire brought a progressive elimination of the internal borders, as the Austrians used the Venetian mainland as a pathway to their more advanced Lombard holdings - the Austrians already had a main port on the Adriatic sea: Trieste. And they saw no purpose in developing another one, despite the Venetian maritime tradition becoming important for the Empire.

By the way, the port of Genoa isn't necessarily the largest port of Italy by every indicator - for example Trieste carries more tonnage as you can see here and Venice is far from a merely turistic city (you usally don't visit the port and industrial town of Mestre-Marghera because frankly they are desperately unpleasant to the eye).

The resurgence of Venice as an industrial pole is usually tied to the personal efforts of Giuseppe Volpi, who is famous for an infinite list of things: the Cinema Festival, being in charge of the finances under Fascism, the creation of the often renamed Adriatic Society of Energy, pioneering the Hydroelectric sector with the construction of Alpine dams, etc.

This process continued during the Italian economic boom in the post WW2 period and would bring us to cross the 20 years barrier. Also it must be noted that there are geographical limitations to the access to the Venetian lagoon that have made harder to logistically accomodate large volumes of traffic; essentially the need to develop and maintain channels dug into the lagoon.

For sources I used G. Candeloro's Storia dell'Italia moderna.

I also used some data from this publication of the City of Genoa

Edit: Added a couple of sentences that were left in my fingers when I posted.

Also I think I broke the record for the use of the adjective prominent...

Finally, this is a long, long subject to deal with and I am not entirely familiar with it, as Candeloro's work mostly focused on the condition of pre unitary Italy and the nature of the economical relations within the various states. I hope someone may fill in the gaps I left; also you may want to know more on the Venetian development process after WW1 but of that I know very little unfortunately.

I can answer at least to the part about Venice's decline. What you said about the Ottomans wasn't entirely correct. When the Ottomans came into power, they were perceived as an enemy of Europe. This stopped flat the entry of Silk Road goods into Europe. The main exception to this, actually, was Venice. Many merchants in Venice struck deals with the Ottomans to trade those Silk Road goods, giving them a monopoly on these goods when trading with the rest of Europe.

What caused Venice's decline was the discovery of alternate trading routes with Asia, because suddenly Venice lost their monopoly. This situation was further worsened by sporadic conflicts with the Ottomans which plummeted Venice into increasing irrelevance.

As for industrialization, it is important to consider Venice's position as a small island in the Adriatic. This means that any and all raw materials coming to Venice have to incur import costs. This wasn't a problem when the city flourished, as wealth was abundant to cover these costs. But since the decline, these costs have actually become a large obstacle to the survival of the city. Venice in modern days is suffering from depopulation and is in a state of disrepair, a truly sad state for the Serenissima.

Timely question! I'm actually reading Alvise Zorzi's Venezia Austriaca right now!

I've been going a bit crazy writing tediously winding posts about Italian economic history, so I'll try to be more concise here. The short answer is: The Railroad.

First things first: Venice continued to be the political, economic, and social center of the Republic of Venice even after the stratospheric rise in Atlantic trade made Mediterranean trade comparatively less of an economic force. Further, the relationship between Venice and the Ottoman Empire was more complex than it is commonly depicted. Just because northeastern Europe accelerated doesn't mean that economic activity in southern Europe stopped altogether. Far from being a "backwater," to this day Venice is the political and administrative capital of the Veneto region, one of the most industrious in Italy. Although the historic portion of the city only houses twenty thousand people in a space built for ten times as many, the area administrated by the city council extends over multiple islands in the lagoon and far into the mainland, governing two hundred and fifty thousand people. The Venezia-Pedua-Treviso urban area houses over two and a half million people and is home to three universities, two airports, and according to an OECD study, manufactures 23% of Italian exports. So just because the historic center of Venice is swamped with tourists doesn't mean there isn't anything else going on nearby.

However, a depopulation like that experienced in Venice's city center has no precedent in Italy. Once the Republic of Venice was amalgamated into Napoleon's Kingdom of Italy, and later handed off to the Austrian Empire's constituent Kingdom of Lombardy-Venetia, two things happen: the apparatus of government moves to Milan, and Triest exists. You see, although Venice was awarded the title of "Joint Capital" with Milan, apart from the pomp and circumstance surrounding occasional royal visits, the city housed none of the offices of government above the provincial level. The city's educated young men hoping for a career in government found that they had to move to the Lombard capital, and often took their families with them. On the entrepreneurial level too, although the region was (and still is!) economically vibrant, local entrepreneurs found increasingly few reasons to visit the city from their estates and manufactures in places like Treviso, Vicenza, and Verona. Of course, they city population had already been on the decline as emergent manufacturing shifted the economic focus from the city to the mainland, but as long as the city was the gateway to the Republic it retained some economic relevancy; annexation by the Austrian Empire ended that. The reason for that is the second point I brought up: Triest. The Austrian Empire's historic port on the Adriatic was not only closer to the Empire's heartland, but also not in the middle of a lagoon. The Empire's industrialists could unload goods from ships directly to railcars in Triest, while in Venice they had to load them onto river-boats, and in a second moment load them onto railcars. River navigation had been in use for hundreds of years, and the navigable river and canal network in northern Italy was certainly extensively developed, but could in no way compare to the boon in transport and industry brought by railroad.

In addition, Austrian policies often disproportionately favored Triest. In Venice, an early boon thanks to the Austrian fleet being based there was soon erased after a series of mutinies triggered a policy of de-italianization in the navy, in addition to its relocation to, you guessed it, Triest. The move was doubly beneficial, since the triestine seaport was also revamped and updated to accomodate the move. Also, because Triest was the closer port of entry for Austrian entrepreneurs, it was declared a duty-free zone, with the natural consequence that lot of Italian trade that had previously passed through Venice was also redirected there. Edit: It's worth saying that there were attempts to connect Venice to the mainland via rail, however at the time of the revolt of 1848 the line stopped at Verona (and just two years prior stopped even earlier, in Vicenza). By 1857, the line to Milan was completed, but that same year Triest's connection to Vienna was also finished, sealing that port's position as the preferential point of entry for the Empire's Austrian, Czech, and Hungarian realms.

Once Italy was unified, there were some attempts to stop the city's moribund trajectory: the Università Ca'Foscari was founded, which was meant to be a training academy for the Italian Kingdom's diplomatic corps. Starting in the early 20th century, a large port complex was constructed just across the lagoon in Mestre and Marghera, and the historic center was connected to these facilities (and the mainland) with a railway bridge in the 1930s. After WWII, the government sanctioned a large petrochemical refinery to be constructed just across the lagoon. However, if these policies were meant to revitalize the city, they were sorely misguided: with so many new structures just across the lagoon, the historic center depopulated even more rapidly.

The story of Genoa was somewhat different. After it's zenith in the twelfth and thirteenth centuries, it would first become a puppet of the Milanese, and later construct itself as a client-state of Spain, giving up sovereignty and in return becoming an important financial center. In a twist of fate that had a surprisingly positive effect, the Congress of Vienna awarded the Republic of Genoa to the Kingdom of Sardinia as a reward for the little kingdom's firm anti-Napoleonic stance. The Kingdom of Sardinia was a bizarre polity, centered on Piedmont but in possession of its namesake island since 1718 due to curious circumstances following the War of Spanish Succession. Under Piedmontese rule, Genoa would again flourish: the "Royal Road" connecting the seaport to Turin became an important transit line in northwestern Italy, while in 1844 King Charles Albert commissioned the Genoa-Turin railway, which would become one of Italy's most important industrial axis. Indeed, The Turin-Milan-Genoa triangle would become the country’s industrial heartland after unification; with Genoa the key point of departure to and from Milan and Turin.

If you'd like to know more about Italian economic history, I'd suggest the following:

Davis, John A. Italy in the Nineteenth Century, 1796-1900. Oxford: Oxford UP, 2000. Print.

And if you can read Italian:

Romani, Mario. Storia Economica d’Italia nel secolo XIX. Bologna, Italy: Il Mulino. 1983. Print.

More to the point, why did Genoa become an industrial power, and Venice did not?

Paul Strathern argues that, among other things, the fall of the ERE and rise of the Ottoman Empire was one of the tipping points in Venetian history. Venice, in many ways, was not ideally situated for the type of commerce it mainly engaged in, to the point where the Council of Ten considered leaving and being the Republic of Venice somewhere other than the Venetian islands.

Part of what had previously made Venice successful were lucrative trade deals that the Republic had made with the ERE, including trading rights in Constantinople and other major ports. With the ERE on its deathbed and the Ottomans rising, the Venetians had hoped to renegotiate these trade rights with the Sultan, which is likely part of the reason why they delayed a relief fleet which was meant to go to Constantinople. However, that did not work out as well as they had hoped and the Ottomans were far less willing to negotiate trade deals than the Greeks had been.

In addition, the 15th century was filled with many economic and technological changes, one of the most important being the Portuguese navigating a route around the Cape of Africa. So diminished trade opportunities, foreign competition, and a less-than ideal geographic location were factors to the decline.

I have been studying quite a bit of Mediterranean history at university, and what others have said about the decline of Venice is very true. Discovery of the cape route most certainly the decline in trade for Venice, but also the entry of the English and Dutch in the 16th and 17th centuries (the so-called Invasion of the Northerners) undercut their monopoly heavily. On the other hand, Genoa was already mostly out of the trading business by the 16th century with the loss of their Black Sea and Aegean colonies. But they remained financially very central to Europe through their banking business and they were able to profit from the growth of long distance trade by transforming their port into a free port (although mostly limited to grain). Opening up the port meant that Genoa became a point from which grain was distributed to the rest of the peninsula, and in term kept traffic flowing through it as the Genoese got into other businesses.

I would suggest looking at works by Thomas Allison Kirk for Genoa and for Venice Frederic Lane's works are pretty good. Maria Fusaro (one of my tutors) has some works on the English 'invasion' which I highly recommend as well.