Silicon Valley 2.0

Sparked by one of our classmates tweets, I sought to investigate the domestic hubs of technology, focusing specifically on Silicon Valley. For decades now, it has been the go-to for all things named after a fruit, leaking data, and too advanced for my grandparents’ use. Aside from the obvious factors, though, why? A closer look revealed the area experiencing more of a mass exodus than I ever would’ve imagined. Do other parts of the country have more to offer the technology industry? Is that a Silicon Valley 2.0 I spy on the horizon?

The Pits of Silicon Valley

1. Cost of Living 

Amongst the many factors cited for driving folk out of Silicon Valley, the most obvious and frequently mentioned was the soaring cost of living. Before reading the following metric, I thought that as Boston residents, we could sympathize with this, at least to a certain extent. Not the case. To truly quantify how rapidly the housing prices are rising, one study found that if Millennials continue to save at their current savings rate, it would take them 28 years to be able to purchase a median priced house in the area. Twenty. Eight. Years. More than a handful of years longer than I’ve been alive. Assuming the same saving rate, in Atlanta, for example, that process would only take 3 years. I found that absolutely staggering. Bearing that in mind, though, helps to understand why so many tech workers earning well over a $1 million a year feel like members of the middle class, a statement I initially thought was grossly exaggerated.

2. “Left Wing Echo Chamber” 

A term coined by a New York Times article from earlier this month describes a second element forcing an exodus of the area—the overwhelming homogeneity of residents’ political views. The most recent tech mogul to act on this was Peter Thiel, a co-founder of PayPal, early investor in Facebook and current partner at Founders Fund. In February, Thiel packed his bags and moved himself (and his investment fund) to L.A. to live full time. When asked about his reasoning behind the move, Thiel described the culture in Silicon Valley as “toxic” and wanted a city that offered more “intellectual diversity.” Michael Moritz echoed Thiel’s complaints. Across my research, this seemed to reflect a larger culture of uniformity and groupthink.

3. Egos 

Not much to explain on this one. In the past twenty years, Silicon Valley has been particularly spoiled by their success. As often happens, it’s gone to many tech employees’ heads and resulted in what one author for New York Daily News describes as “Wall Street sized arrogance.” Alexa Dell, heiress to the Dell fortune, has not been one to hold back on this observation.

Even with all of these surely unpleasant factors, Silicon Valley still has a lot to offer the tech industry. I wasn’t totally convinced that people would actually leave the area as a result. So, I looked into some recent migration data for Silicon Valley.

Sure enough, it backed up a large majority of those claims. In a study that real estate brokerage firm Redfin conducted, the company found that 49 percent of Bay area residents are considering moving. When focusing just on Millennials, they found that that number increased to 58 percent! Further, of all of the cities in the country, San Francisco was the metropolitan area with the most negative net migration, as illustrated in the graph below.

Graph 1

For any other graph you could dream of for Silicon Valley, check out this c-o-m-p-r-e-h-e-n-s-i-v-e report.

The Glitzy Rest of America 

I figured, with those numbers, it couldn’t just be the bad of Silicon Valley driving out tech. Some of it has to come from the other end—what the other parts of the country have to offer. Spoiler alert: I definitely expected to find more unique, convincing pulls. As you’ll see, I really didn’t. Most of the appeal other cities have for technology companies comes from their ability to provide the few things people dislike about Silicon Valley. Of the factors, the most noteworthy include:

  • The (again, obvious) lower cost of living
  • A more relaxed culture
  • Tax incentives
  • Decreased regulatory framework

One fact, though, proved to be slightly more interesting and, I think, ties in with the groupthink complaints of Silicon Valley. Many tech companies outside of the area argue that people in their respective city are the most attractive pull. They simply are unique. More tangibly, one new resident of Austin, Texas has found “more perspectives that [she] could borrow from and learn from than [she] found readily available in [her] circles in Silicon Valley.”

A study conducted by ZipRecruiter highlighted some of these cities, identifying the twenty fastest growing domestic markets for tech. If you were surprised by some of the cities in the article that @markdimeglio tweeted, you’ll definitely be surprised by some of these. The top five markets include Huntsville, Alabama; Thousand Oaks, California; Phoenix, Arizona; Albany, New York; and Kansas City, Missouri.

Rise of the Rest [of American Tech Hubs]

The most laudable efforts to support these randomly dispersed, emerging tech hubs is Rise of the Rest, a fund launched in December of 2017 by J.D. Vance and Steve Case. The aim of this $150 million fund will be to invest in tech companies outside of Silicon Valley, New York City and Boston. Each year, the venture capitalists will road trip to different cities, hearing pitches from a number of tech startups. The winner of the pitch competition receives $100,000. Some of the fund’s most recent investments have been in tech companies located in Ohio, Washington, Texas and Indiana.

Screen Shot 2018-03-23 at 7.05.39 PM

When VCs take a “road trip,” as photographed by Andrew Spear of the New York Times.

While Rise of the Rest is helping to spread tech outside of its traditional hubs, two primary barriers remain.

1. VC fundings is still almost exclusively concentrated on either coast of the United States. 

An article released by the New York Times cited that three quarters of all venture capital invested in tech goes to companies located in California, New York and Massachusetts. The Midwest, composed of twelve states, gets less than 10% of that money every year.

2. Other cities lack the network effects boasted by Silicon Valley. 

Closing Thoughts and Questions  

So, as always, a few of my very jumbled thoughts for you all in closing. I’d love to hear your responses to any and all of these. First, how will Amazon’s HQ2 location choice shift the tech industry away from Silicon Valley? Will it set a precedent for other tech companies looking to expand outside of the Silicon Valley area? Second, does tech destroy any area it becomes a large part of? Or, as this article puts it, will other cities “bloat like the Bay area?”

Applying a little of Steve Case’s wisdom to this helps bring some clarity to the situation. He argues that the tech industry has unfolded in three distinct stages. The first wave inaugurated basic connectivity. In the second, companies moved from “building the internet to building on top of the internet,” creating things like apps, social networking sites and search engines. And, presently, in the third wave, technology has become a “disruptor,” taking on and taking over everyday industries like energy, government and health care. Bearing this in mind, I would argue that because different parts of the country specialize in different industries, it is inevitable that the technology industry will have to move to those areas and, thus, branch out from its Silicon Valley hub.

Important to note, though, is that this spread doesn’t mean Silicon Valley loses or becomes less important. As Case says (he does it, again!), the “rise of the rest does not mean the fall of Silicon Valley.” In our day and age, the tech industry is not a zero sum game. It’s spread and expansion just means more high skilled jobs and wealth (and traffic!) for different parts of the country.

 

5 comments

  1. Thanks for starting this discussion, Lucy! Your points are particularly relevant to me since I plan on moving to upstate NY post-graduation, and was shocked at how much farther my dollar goes in those areas compared to in Boston. The appeal of a lower cost of living is definitely a huge draw that is difficult to resist, and living paycheck-to-paycheck is too precarious a situation for many to comfortably be in for any length of time. With that in mind, it’s no wonder that cities like Salt Lake City and Raleigh are hubs for rapidly-developing new companies. In addition, in today’s internet-reliant age, we don’t have to focus our most productive cities near traditional commerce locations such as those near the coasts. This allows us to develop new businesses and succeed nearly anywhere we can get a WiFi signal.

    Regarding the similar political views, I’ve also heard similar stories from colleagues living in and around the San Francisco area that the groupthink effect is real, and that it’s difficult to have thoughtful discourse on almost any subject when a large portion of the population tends to argue the same point of view. I can understand and relate to the comfort that exists when you’re surrounded by those who share similar life goals and priorities, but there comes a point where the concentrated sameness can be counterproductive to advancement and improvement. Sometimes, the most productive meetings I’ve been in have resulted from only a single member speaking up to offer pushback on a seemingly waterproof idea. This spurs others to examine new angles and tackle a situation using hypotheticals that wouldn’t have arisen otherwise.

    Finally, I agree that Amazon’s famous search for an HQ2 location has started a discussion about the viability of San Fran as an ideal and picturesque location for startups. Since such a massive and notable corporation is spearheading efforts to designate a new city as being “HQ-viable”, I can imagine other companies will take note of whichever city is chosen, creating network effects in that city, and attracting future development there. Of course, only time will tell to see how true this becomes, but I think it will be very interesting to see how things pan out once a city is announced, and the next wave of companies begin considering copycat moves.

  2. Awesome blog Lucy! This is a really interesting development especially as a lot of us prepare to graduate and enter this world flooded with technology.

    I definitely agree with @mqzhang that the announcement of Amazon’s HQ2 could have profound effects on these trends. It will send a message to other companies that headquarters do not have to be placed in San Francisco, Boston, or New York. I know something I have been considering in job searching, however, is where I want to live. Personally, working in Boston is much more attractive to me than working in a small town like Huntsville, Alabama. Although the cost of living is definitely attractive, I do wonder if companies could start to have trouble recruiting young talent if they migrate out of big technology hubs. That being said, I have found a lot of these towns like Raleigh and Austin are growing fast and are gaining reputations of being young and hip due to the influx of young people and their efforts to attract this demographic. Also, with the vast array of technologies available today to improve working across offices, time zones, and countries, I wonder how important headquarters or where people are located will be.

    I think it will be interesting to see how San Francisco, Boston, and New York work to address this outflow of people and to combat some of the negative stereotypes associated with them. I imagine the liberal groupthink present in San Francisco is a hard topic to address or start to breakdown. I wonder how they will work to address or improve this and their image?

  3. I loved this post Lucy – incredibly comprehensive! I especially enjoyed your closing quote, “the tech industry is not a zero sum game.” I think all too often the competitive nature of the industry gets hyped up through the media, and we think that everyone has to out-do one another, rather than work together.

    I found it interesting you focused on the surrounding area of Silicon Valley, because my Aunt and Uncle have actually been living in San Francisco for the last 20ish years. They originally moved out there for the counterculture movement and found a great community, however almost all their friends have been forced out by Silicon Valley employees. Since most employees live in San Francisco, rents have sky-rocketed and forced out anyone who can’t afford them (luckily my Aunt and Uncle have a rent control apartment). Additionally, like your post mentioned, the migration of all of the Silicon Valley workers has really killed the counterculture movement in San Francisco. Groupthink carries back to the communities where they live, and a lot of the areas that used to foster innovative creative and artistic thought have been overrun.

    I would argue, like you emphasized, that the groupthink mentality is the most dangerous part of Silicon Valley. I think the average person would assume that because Silicon Valley is so progressive and liberal, it is a great place to explore new thought. However, when it becomes an echo chamber, ideas are never challenged and employees are never pushed to think outside of their perspective.

  4. I really enjoyed your post, Lucy. I think one of the biggest takeaways from your post is that technology is not a “zero-sum game”. Since Silicon Valley seems like it is saturated so new tech companies should look for some other location. I think it can benefit other regions of the US where economy isn’t as booming. I also think it is interesting how the problems of Silicon Valley you mentioned are almost like a vicious cycle. Because housing prices are so high only tech employees can afford them which creates a problem of group-think and so on. As Katie mentioned, I wonder if companies move to less “exciting” locations they will be able to find the same level of talent among the pool of potential employees. Silicon Valley is a place of group thinking but it does attract people who share these values. So naturally people who like tech will want to live in a place where they know they will find like-minded people. However, I think that companies like Amazon have such a reputation that will easily attract people outside of SF. And if other companies follow the lead, there might be a new tech cluster in the US sooner than we think.

  5. Great post! I think you touched on some really interesting things – I think that though there’s still a lot of hype and focus on Silicon Valley and the big tech companies in their hubs, this is definitely the beginning of a trend away from the extreme concentration of tech talent in that area. It’s not feasible to have everyone involved in tech living on top of each other, so it will start to only leave room for the “top of the top” so to speak. I was interested in your findings on groupthink. The huge presence of groupthink and the lack of diversity in opinion and ideas doesn’t surprise me at all, but it’s not something I’d specifically thought of before reading this either. As others have said, I like your note about how technology is not a “zero-sum game.” I think this is really important for us to keep in mind going forward so that we don’t end up cannibalizing our own potential!

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