Urban Technology Shift

Interesting piece in the WSJ about an Urban Drfit for technology companies:

For as long as many of us can remember, high-tech industries have flourished in the suburban office parks that are so ubiquitous in Silicon Valley, North Carolina's Research Triangle and other "nerdistans." But in recent years, high-tech has been taking a decidedly urban turn.

Silicon Valley remains the world's pre-eminent center of high-tech industry, of course. But even in the Valley, denser, more mixed-use and walkable places, like downtown Palo Alto, are becoming the preferred locations for start-ups and smaller firms. And many other start-ups—Pinterest, Zynga, Yelp, Square and Salesforce.com, to name just a notable few—are taking up residence in downtown San Francisco.

New York City's Silicon Alley—after a false start during the tech bubble of the late 1990s—is now home to more than 500 new start-up companies like Kickstarter and Tumblr, not to mention the gigantic Google satellite in the old Port Authority Building on Eighth Avenue between 15th and 16th streets.

I recall at the height of the dotcom boom, you couldn't move in San Fran without tripping over a a Blazer'd and Chino'd dotcommer, but Silicon Alley was still mainly Chinatown - so is it just a new Bubbletime, or is it a real shift?

Across the Atlantic, London's once- derelict Shoreditch district—now known as Tech City or Silicon Roundabout—has been transformed into a thriving high-tech district housing 3,200 tech firms and 48,000 jobs, according to a recent report from the Centre for London.

Except that's not really true, the action is more spread out - Soho, London Bridge, and other areas all have their enclaves, but they are still mainly within the inner city Circle line, it is true. So asssuming it is a real trend, what is driving it? Part of it is avoiding the increasingly traffic-jammed commutes to beltway business parks, says Mark Suster (now in LA, but he was a London boy when I knew him), and part of it is other amenities:

There are also the distinct lifestyle advantages of setting up shop in the hurly-burly of real urban districts. Compared with previous generations, today's younger techies are less interested in owning cars and big houses. They prefer to live in central locations, where they can rent an apartment and use transit or walk or bike to work, and where there are plenty of nearby options for socializing during nonwork hours.

"It's not that young people wanted to live in Mountain View in the past," Mr. Suster blogged. "In fact, so many did not that companies like Google & Yahoo had free buses with Wi-Fi from San Francisco to their Palo Alto and Sunnyvale headquarters."

I suspect there is also the shadow of underlying modern economics there, in that I am reliably informed that you can no longer afford a Mountain View house and car on startup money, so if it's to be a bijou pad and bus it may as well be somewhere with decent amenities outside.

But SV and New York and London have long had overpriced housing, so why did people go to out-of-town campuses in the first place?

The answer was cost - companies used cheaper land business park campuses to minimise their costs, while also externalising the inconvenience cost by forcing employees to bear the cost of commuting and car ownership. However, when the majority of employees own the companies (as is the case in a small startup) then that economics is turned on its head and it's far more rational to live as near the shop as you can (or even above it, or in it). Also, its an attractor. A company baesd in central London is easy to get to for a large number of people all around London. Put it out on the beltway, and its becomes inaccessible to 3 quadrants out of 4 without a bad commute. And if they have other options, you've just lost 75% of your potential staff recruiting base.

Also, it would seem the startup and market economics have changed:

An even bigger part of the story is rooted in the changing nature of technology itself. A generation or so ago, the fastest-growing high-tech companies were more like factories. They developed proprietary software systems, designed and manufactured chips, built computers and created the infrastructure that made the Internet possible. Whether it was Microsoft or Apple, they deployed big engineering teams—and they needed big suburban campuses to house them.

The changing nature of technology—cloud-based applications in particular—enable new start-ups to succeed more quickly, with smaller teams and much smaller footprints.

The speed of technology has also accelerated. The companies that succeed are the ones that stay in the closest contact with their end-users and first adopters, as MIT's Eric Von Hippel has shown. When a company is located in a city, many of those end-users can be found right on its doorstep.

At the same time, high-tech products and industries are more multidisciplinary than they used to be. Success often requires excellence in more than one field of technology and in other lines of business. East London's tech scene is led not by tech firms per se but by "digital creative" companies that combine computer technology with music, art and narrative—and musicians, artists and writers cluster in cities.

I'd discount the London thing as an overall trend, London bats way above its weight in media (online and off, it always has, it houses the UK's Madison Avenue, Hollywood, News Media and the BBC plus its multiple spin outs/offs/ins/etc), just as SV does in new technology infrastructure, so I'd say that's a London cluster-specific issue. The rest of the economics of firm size, speed to market and close to consumer issues do ring true though.

The other thing about cities is that, well, they are just fun places for smart people to live in:

Cities are central to innovation and new technology. They act as giant petri dishes, where creative types and entrepreneurs rub up against each other, combining and recombining to spark new ideas, new inventions, new businesses and new industries.

Once you are tired of London (or New York, San Fran, Berlin, etc etc) you are tired of life.

(Incidentally the article is written by Richard Florida, whose major thesis is that liberal urban areas attract the most groovy, smart, creative and interesting people. As a Londoner, I have to agree . As an aside, my experience is that having a big University (or even better, a few) in the town is a huge boost to that vibe as well )