Silicon Valley Isn’t The Only Out-Of-Touch Tech Bubble
AOL co-founder Steve Case is right. Silicon Valley is in its own bubble—but it’s hardly alone.
Early this week on CNBC, Case, who is now an investor, restated his point that Silicon Valley’s tech elite is “tone deaf” to the concerns of most Americans who do not share in the wealth generated by VC-funded startups. Case is now CEO of Revolution, which last year launched a $525 million fund to invest in startups in places far, far away from Silicon Valley in hopes of remedying that have-and-have-not situation.
“When people in the middle of the country feel like they have been left behind, it’s because they have been left behind,” Case noted.
For more than a year, he has said the U.S. needs to spread the wealth of tech-related startups and jobs around the country. Silicon Valley is famous for being a tech enclave, with executives insulated by stock options, office baristas, and gourmet dining rooms from the worries of middle America where finding a job, let alone one with perks, is a tough slog.
But Seattle isn’t much different. This week at a tech conference in nearby Bellevue, Wash., there was much talk about whether the Seattle-Bellevue-Redmond axis is on the upswing compared to Silicon Valley. Investors and tech executives in the area which is home to Amazon (AMZN) and Microsoft, expounded on how it has become the world’s cloud capital.
Amazon Web Services is the largest “cloud” company, supplying data center services to businesses of all sizes. Microsoft Azure is seen as No. 2. And other cloud contenders based in Silicon Valley, including Google and Oracle, also put large cloud development and engineering offices in the Seattle area. One reason is that there is a lot of relevant talent there. Another is that Seattle, although an expensive place to live, is less so than around Silicon Valley.
“You could call Seattle Silicon Valley’s little sister, but it’s not true. Everyone is moving here,” Sheila Gulati, managing director of Tola Capital, a Seattle-based venture capital company, told attendees of the Geekwire Cloud Tech Summit in Bellevue, Wash. this week.
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Companies in Silicon Valley and Seattle (followed by Boston and New York), soak up the lion’s share of tech-related venture funding. The great swath of the American South and Midwest? Not so much.
Cassie Yaple’s experience illustrates how the current status quo of “tech rich” and “tech poor” cities is perpetuated. Yaple, a Detroit native and University of Michigan graduate, ended up in Seattle because she could make a better living there than she could at home.
“It’s telling that the university I went to is a recruiting hotbed for Google, Microsoft, and Amazon not only because the engineers are good but because West Coast companies know they can get the students to move easily,” she said.
When she graduated six years ago with a degree in engineering, there weren’t many local job options. So, she said, “I packed up my life, said goodbye to my support system and headed out—taking my partially tax-payer-funded education and future disposable income with me.”
Brad Silverberg, a former Microsoft (MSFT) executive and co-founder of Fuel Capital, an early-stage Seattle venture capital firm, agrees with Case that there should be more geographic diversity in tech. “I love what Steve Case is doing,” Silverberg told Fortune.
He also holds out hope that other cities, including his hometown of Cleveland, can do better. He pointed to Montreal as an example of a city, not known as a hotbed of entrepreneurship, that is seeing huge success in artificial intelligence, a critical tech sector.
Montreal’s success is due to the presence there of several academics from the University of Montreal and University of Toronto. “There are few professors who are doing amazing work and thus attracting more talent,” Silverberg said. Google, Microsoft, and other tech companies have invested in Montreal artificial intelligence startups as a result.
He thinks it’s possible for other cities to replicate that success by focusing on a key technology, taking advantage of educational and business resources they already have. Pittsburgh, home of Carnegie Mellon University, has done this with robotics and automated driving, for example.
Detroit could parlay the car makers and nearby University of Michigan into becoming more of a center for automated driving. And Cleveland could draw on academics and students at Case Western Reserve University and the world-renowned Cleveland Clinic. It’s all a matter of execution.
And tech centers are victims of their own success. The sky-high cost of living near San Francisco makes it hard for even highly paid techies to buy a house and support a family nearby. Living costs in Seattle are not far behind. And that is prompting tech companies in those areas to seek more affordable outposts—in Boise or in Bend, Ore. or Portland, Ore. or elsewhere.
Midwestern and southern cities are further from tech hubs, but offer a real promise of home ownership, which should be a draw. “Chicago, Cleveland are nice places to bring up a family,” Silverberg said.
Now if only they could bring in more job-yielding businesses.