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.
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.
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.
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.