Apple recently announced its plan to build a $1 billion campus in Austin, Texas. This is one of the most recent companies to move out of Silicon Valley to cultivate its next generation of products and workers. In a bold move to put more of its eggs in the satellite trend, Apple (AAPL, +5.27%) will build other campuses in San Diego, Seattle, and Culver City, California. Over the next three years, it plans to expand into other cities across the country, including New York, Pittsburgh and Boulder.
This is most likely not a death sentence for Silicon Valley. The remarkable region just south of San Francisco is still a beacon of innovation and technology. In fact, Apple plan to keep its home base there. Many other tech giants, such as Google, Facebook, Cisco Systems, Oracle, Intel, and others call Silicon Valley home too. It enjoys a position of dominance that as yet remains unshaken. However, things can change quickly.
Many tech startups plant a flag here to compete for the area's venture capitalists, angel investors, tech talent, and investment banks. As time goes on, though, they keep a smaller team in Silicon Valley, set up shop in cheaper locales, and encourage a majority of employees to telecommute. Satellite locations and remote employees are viable options to save money on infrastructure, especially as the tech giants themselves shift away from hardware to software advances. Programmers and analysts can do their thing anywhere, and it doesn't cost anything to send a line of code across the internet.
Cost and Challenges
There are considerable economic, recruitment, and retention barriers for setting up a business in the exorbitant Silicon Valley area. Even the tech giants are feeling the pinch. It's estimated that the cost of operations for a tech startup is up to four times more expensive in Silicon Valley versus emerging hubs in Pittsburgh, Austin, Columbus, Wilmington, Boise, and Charlotte-Durham.
One equity investor recently related the story of a tech company that moved to a Midwest tech hub and increased their cash burn by six months, a considerable incentive, especially for publicly traded companies. A related factor is the high cost of living, driven by housing prices, which are among the highest in the country. Even many well-paid Silicon Valley employees find living here out of reach.
The Quest for Talent
Growing companies require high-quality talent and often import employees from elsewhere. This has caused serious infrastructure concerns and contributed to traffic congestion in the entire region. A recent estimate of commute time states that Silicon Valley commuters sit idly in traffic for over an hour every day.
No doubt other tech companies are keeping close tabs on Apple’s move to Austin and some may emulate that strategy in tech hubs around the country. Selecting a new campus in Austin was partly based on Apple’s previous experience there. About 6,000 of its employees already live in the state capital. This rivals only the number of employees based in Silicon Valley.
The number of employees in Austin may someday rival those in its Silicon Valley headquarters. Apple plans to increase its footprint here by 150 percent, or 15,000 workers. Because it had such a strong base in the city, Apple was spared the tremendous expense of pitting cities against one another to win a bid of a new headquarters, such as happened with Google's search for a new corporate office.
It's unclear if other tech companies are already planning similar moves to enable rapid growth and more efficient operations. This will likely be driven by the ability to find the heavy technical expertise they need from local or relocated employees.
For candidates, this could mean an opportunity to work remotely.
Growing Trend for Remote Work
Requiring a group of workers to come together in one place and work and set schedule is a remnant of the Industrial Age. Before that, people worked at home. It's time to get back to basics. Remote workers save infrastructure cost since they have to purchase and maintain their own computers. This is becoming more the rule than an exception at this point.
It's also a boon to recruiters, who can hire the best candidate for the job, no matter where they're based. The wide pool of expertise needed by tech companies is difficult to find in one location. There is no open pool of unemployed programmers or web developers your company can scoop up immediately.
This inevitable trend presents pros and cons to communities across the U.S. Universities and colleges have to ramp up quickly to produce educational opportunities that tap into the needs of the tech companies that settle in each community.
Attract the Right Talent
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