For decades, Silicon Valley has existed as a US tech mecca, serving as ground zero for tech enterprises and promising start-ups alike. However, in 2020, a number of Silicon Valley mainstays have ditched the area for emerging tech hubs around the US–especially those situated in Texas. Earlier this month, SpaceX and Tesla CEO Elon Musk announced that he had moved to Texas. In recent weeks, Hewlett Packard, a company which evolved from a Palo Alto garage that would later be known as “the Birthplace of Silicon Valley,” announced plans to move its headquarters to the Lone Star State as did tech heavyweight Oracle. In light of high-profile relocations and an increasingly remote workforce, could emerging tech hubs serve as the next cornerstones of innovation in the years ahead?
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Forging a tech sector in Texas
There are myriad factors at play behind the notable tech relations to the Lone Star State, and some are seemingly more straightforward than others. For example, one of the financial reasons behind tech billionaires moving to Texas could hinge on simply maximizing the dollar, as Texas, unlike California, does not have a state income tax.
“Mr. Musk and several other technology professionals deciding to leave California is not surprising and is not a new phenomenon. Personal income taxes have been steadily increasing for California taxpayers over the years, particularly on high-income earners,” said Christian Burgos, co-leader of the State and Local Tax Practice at accounting and advisory firm Friedman LLP, via email.
California, in particular, boasts a relatively high cost of living; comparatively, Texas offers less expensive housing, child care, food, and more.
“The Bay Area is just too expensive for many start-ups to do everything in California anymore,” said John Sculley, CMO of RxAdvance and former Apple CEO, via email.
While leadership teams often remain located in Silicon Valley, Sculley said that the “platform engineers doing the heavy lifting” are increasingly situated in “less expensive locations” ranging from Canada and India to Vietnam.
Aside from financial considerations, it’s also important to note the location of place and the proximal access to both local and regional talent. The schools and universities in a given region will serve as the talent pipeline for tech organizations in emerging hubs.
“The money flows where the talent goes. When I came to Silicon Valley in the early 1980s, Stanford University was a huge creator of entrepreneur talent. Talent for new companies flowed from Stanford and also flowed from legendary high tech companies like HP, Intel, and IBM,” Sculley said. “A decade later, when the Web was created and commercialized, many newly successful companies were generating talent for a new generation of internet companies.”
With the relocation to Texas, companies are not wholly reliant on the pipeline of talent physically situated in a given area. In fact, these high-profile relocations could influence talent from elsewhere to follow suit. According to a recent poll, 61% of respondents across all industries and employers said they “would follow tech leaders to emerging tech hubs if they were to relocate,” and 58% of professionals who worked at Facebook, Amazon, Apple, Netflix, or Google said they would follow tech leaders to burgeoning tech hubs.
“If the talent flows to Austin, the money will flow there as well. Entrepreneurial services infrastructure is so important. VCs, bankers, lawyers, accountants, and consultants and more,” Sculley said.
We asked John Tully, SVP and managing director of the south region at SAP America, if he believed that figures like Elon Musk moving to Texas could influence high-skill tech employees to follow suit.
“Absolutely. Granted, these individuals aren’t the typical economic factors that Adam Smith described in his Invisible Hand theory of economics. However, there is unquestionable momentum happening in each of these markets where developments like these create a snowball effect,” Tully said via email.
Austin’s Silicon Hills, the Texan equivalent of Silicon Valley, touts a number of high-profile tech companies including VMWare, IBM, PayPal, Oracle, and more. Neha Sampat, CEO and founder of Contentstack, moved to Silicon Hills from San Francisco in 2019. She explained numerous ancillary components of the tech sector have emerged during her time in Austin.
“Silicon Hills definitely has the potential to become a hub. In the time I’ve been here, I’ve noticed more angel networks and incubators propping up the local community. Larger companies like Tesla, Splunk, and Dropbox making their moves is only going to accelerate the change,” Sampat said via email.
While Austin does have certain downsides compared to Silicon Valley, Sampat explained that the coronavirus pandemic and the switch to remote work has diminished some of these logistical challenges related to transportation and commuting.
“If you’d asked me about a drawback a year ago, I would have said infrastructure. It’s not that easy to get around here. But going virtual has changed that,” Sampat said.
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While some companies have started to bring workers back to the traditional office, other companies, including notable tech companies, have made long-term commitments to remote work in the years ahead. Interestingly, up to 23 million US workers plan to move due to work from home flexibility, according to a recent Upwork survey.
Financial considerations are central to these relocation plans for many respondents. In fact, about half (52.2%) of households plan to move into a home “that is significantly more affordable than their current home.” About one-in-five of those planning to relocate are based in major US cities.
“COVID-19 is clearly accelerating the exodus of high tech talent from the Bay Area. Working from home is so easy now. There are clearly better alternative locations for high tech with less traffic, lower cost residential real estate, less expensive schools, and much lower taxes,” Sculley said.
Whether Silicon Hills or another burgeoning tech hub will supplant Silicon Valley as the next tech mecca in the years ahead remains to be seen. However, in light of recent high profile tech relocations and paired with an increasingly virtual workforce, Silicon Valley could look very different as innovators and talent rethink their prospective futures.
“Silicon Valley can still be a vibrant area for high tech innovations, but it’s quickly losing the specialness and some of the mystique it has enjoyed for 40 years. Silicon Valley may still create some exciting new companies, but Silicon Valley is no longer alone at the top,” Sculley said.