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Net economy creates new Silicon Valleys

Industry Standard
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(IDG) -- The Internet, experts said, would free us to do business anywhere. As a result, where we did business would no longer matter. We'd live in a "placeless" society. As it turns out, the experts were wrong: Where we do business matters now more than ever.

Sure, companies with foundations built on information technology theoretically can set up shop and plug in to the Net just about anywhere. All they really need is a reliable power supply, some business support services and maybe decent tax incentives. However, the new economy's most critical resource is its workforce, from engineers to multimedia designers. So a company can't settle just anywhere.

"In today's labor market, you have to be where your team members want to be," says Matthew Burkley, co-founder of Zefers, an Internet consultant firm in Boston. "You can't tell people how they want to live. They tell you."

Let's face it, the high-tech talent is not clamoring to be in Cleveland. The result is that the Internet Economy is driving fundamental changes in America's landscape, creating new winners and losers out of cities and towns. Urban technology centers such as San Francisco are thriving, while older industrial cities, such as Buffalo and Detroit, have lost their way. Some suburbs, such as those outside Boston, have evolved into high-tech havens, while others, particularly those near the old industrial cities, are little more than tree-lined slums.

The most affluent parts of rural America, such as Park City, Utah, are enjoying a remarkable resurgence, while towns in regions such as the Great Plains struggle to survive.

Communities across the country see the trends and are scrambling to respond. Gone are the days when a region could simply promote physical assets such as ocean ports, rivers, and coal or iron deposits. The availability of cheap, unskilled labor, once a lure, is less relevant. The marketing of places focuses now on livability and technology.

But how do Internet Economy workers want to live? The answer is a bit complicated. Three distinct types of companies have emerged in this new business world, each with its own set of personnel needs. Engineering-oriented companies tend to employ older workers in search of the perfect suburb in which to raise a family. Content companies often employ young, single workers looking for a hip urban experience. And a growing number of businesses, led by CEOs seeking a remote but wired escape, are moving to the country.

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Engineering's love affair with the suburbs began during the rapid growth of science-based industries after World War II. Companies developing new electronic products, aircraft and spacecraft looked to the bucolic fringes of urban centers. Particularly favored were areas with good climates, plenty of room and scenic appeal, such as Southern California's San Fernando Valley, the Santa Clara Valley south of San Francisco and the rolling hills surrounding Sun Belt cities such as Atlanta.

These areas now boast some of the highest concentrations of technology workers in the world. Cities have their own success stories to tell. Once pronounced dead, many have experienced new life, not only due to their roles as cultural centers, but because of their singles scenes. By the late 1990s, major concentrations of Internet and new-media businesses, populated by young, creative professionals, developed in urban neighborhoods.

The move back to rural areas has its origins in the early 1990s, when America's rural population spiked because of job growth in the boonies. This led to a critical change in the demographics of the countryside. It used to be less-educated and older people who flocked to rural areas, but knowledge workers make up a growing percentage of the population. Thanks to the Internet, employees can locate not only outside the city, but even far outside the metropolitan area.

The new geography, like the new economy, is hardly static. As once-idyllic suburbs most notably those in Silicon Valley have become more crowded, expensive and unpleasant to live in, the attraction has shifted to newer, less-populated locations that still approximate the suburban ideal. These places include the leafy outer suburbs of older eastern cities such as Philadelphia and more remote locales such as Huntsville, Ala., and Reno, Nev.

Fred Sibayan, a venture capitalist who moved to Reno from Silicon Valley in 1998, sees a big opportunity to attract other tech entrepreneurs to the area. "The quality of life is better here," he insists. "The fiber optics are here. People can't afford to stay in the [Silicon] Valley anymore."

High real-estate prices and tight labor markets are making some of the most successful urban neighborhoods too expensive for growth companies. Couple that with dwindling equity and venture capital, and conditions are ripe for the development of more reasonably priced urban digital districts such as Chicago's Bucktown-Wicker Park, central Oakland, Calif., and downtown Tulsa, Okla.

"Tulsa is a little-known secret," says Brent Johnson, who founded encryption software maker SecureAgent.com there in 1992. "There's a tremendous amount of networking activity here." Engineers cost about 40 percent less than they do in the Bay Area, and housing and office space are a better deal, too. "This building has a lot of character," he says, "and it costs me less than it would have in California 10 years ago."

At the same time, advances in telecommunications continue to transform getaways into viable business locations. The Hamptons, the Berkshires, the lake districts of southern Wisconsin, Cape Cod and San Luis Obispo (located on the central California coast) harbor a growing number of full-time tech workers.

It's already becoming apparent that changes in the new geography won't be limited to who's winning and who's losing in the new economy. The rules of the game could be getting more complicated. Raleigh-Durham, N.C., for example, is a highly desirable suburb for older techies, but developers there are being pressured by some companies to provide a more exciting, hip environment for the new generation of young, single workers.

Raleigh-Durham does lack the kind of cool, urban counterpart that other major tech regions enjoy. After all, Silicon Valley has San Francisco as a cultural annex; Massachusetts' Route 128 taps into Boston; Orange County, Calif., is just south of Los Angeles and Hollywood; and northern New Jersey and Connecticut are a short ride from Manhattan. "In Raleigh-Durham," quips one observer at the University of North Carolina's Kenan Institute for Private Enterprise, "we can always visit the hog farms."




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