There are a few key things to remember.
First, San Francisco likes to
compare itself with Paris, or say, Florence.
It ignores San Jose and Santa
Clara County. Its
blueblood natives pride themselves on tolerance and philanthropy, and they don't
know the difference between a memory chip and a guy named Chip out at the club.
Second, Santa Clara County,
home of the original Silicon Valley, is often slammed as
being a culturally deficient workaholics' paradise that cares less about
philanthropy than it does about how the latest chips will "enable"
their business models and provide their well-deserved multimillions.
Meanwhile, over in Oakland, Berkeley, and the rest of the East Bay, chips grow
on peoples' shoulders as the fastest-growing region of the Bay Area continues
to get little respect, yet provides the last conceivably affordable housing in
the region and has a true cultural and economic diversity not seen in its two
domineering brethren.
Yet these three areas hold together well enough to form the
San Francisco Bay Area, a region cooled by the Pacific Ocean
and tempered by a mosaic of homegrown U.S.
and international cultures, and a deceptively intense daily pace that simply does not
allow for serious regional grudges to take root. Hey man, it’s cool, no problem.
Be yourself, man, but dude, that was my parking space!
This reporter has lived throughout the Bay Area off and on
for the past 25 years. I love it, as do most people who live here. Great
weather, great food, an underrated sports environment, and an area that
continues to be among the most creative—and competitive—technology-driven
regions in the world.
But yes, the Bay Area can seem insufferable. Self-satisfied
and smug, on the bleeding edge of political correctness, and a place that has
fueled individualistic narcissism since the days of the Gold Rush of 1849.
So maybe there aren’t many tears being shed for us these
days. But the severity of the economic doldrums of the past five years cannot
be overstated, at least when compared to previous Bay Area economic slumps.
This was hardly a little dip, a little soft patch, a little recession. Eyes
rolled when the 2000-2001 national recession was declared over in 2002, as our
beloved technology industry was still in freefall that year.
The fall continued, and continued, like a nightmarish roller
coaster with an undetermined, and perhaps unlimited drop after that nice
initial climb. Official unemployment rates never told the story, as most
out-of-work engineers and marketeers in the Bay Area simply became underemployed
consultants, contractors, or eternal job seekers who refused to file for
benefits.
In a state that encourages 100% interest-only housing loans,
and with real-estate taxes tightly capped from the days of Proposition 13 in
1976, it still seems as if the equity train can be ridden forever. Living off
of one’s home equity has become the latest lifestyle choice, like buying a hot
tub in the 70s, getting that Bimmer in the 80s, or putting in a great wine
cellar in the 90s.
Over the past five years, marketing budgets got zeroed out,
engineering got outsourced and offshored, and business after business went out
of business when caught in the vice of declining revenues and long-term lease
agreements for office space they’d never use. I’ve seen documents relating to
several major business failures, and all contained leases for as much as
500,000 square feet of office space (at premium prices) that had as much chance
of being fulfilled as the promise of cheap nuclear power. Basements full of
hundreds of computers, phones, desks, and chairs now worth less than the
plastic contained in them became a
common, iconic image.
The good news is that some of the worst commutes in this
traffic-strangled region improved dramatically. One could now sail at virtually
any speed past empty glass houses, chatting on one’s cellphone about…what?
Certainly not business, because there wasn’t any.
And the doldrums persist. A report in the May 29 issue of
the San Francisco Chronicle, headlined “Painful Recovery,” brings some statistics
to bear on a problem that has simply not gone away.
The story, written by Tom Abate, shows average Class A Bay
Area office rents continuing to drop, reaching a current $24.18 per square foot
per month. This compares to close to $60 in early 2001, dropping quickly in
2002, but continuing to drift slowly downward to the present day. Vacancy rates
have dipped slightly from a year ago, but still stand at almost 19%, compared
to about 3% in 2000.
Payrolls in metropolitan San Jose
dipped by 20%, or more than 200,000 jobs. (San Francisco
lost about half that amount, and the East
Bay declined only slightly.) But
remember, these are official government statistics. They don’t count all the
outsourced payrolls that actually provided jobs to the region, and they cannot
reflect the psychological effect on a region that has been used to double-digit
growth on a regular basis for decades. Hotel room and occupancy rates have
recovered from their lows of two years ago, but still stand well below their
peak.

Downtown San Jose. Will This Be The New Detroit?
Trade shows can be a good arbiter of how things are going in
the industry. Well, Comdex has died and is probably not going to be
resurrected. Although not held in the Bay Area, about 40% of its attendees and
exhibitors came from here in its glory days. Major events such as Sun’s
JavaOne, held at the Moscone Center,
seem to have lost their edge. (We’ll find out in a couple of weeks when the
show returns for its 10th year.) MacWorld Expo seems to be back,
albeit fueled more by iPod enthusiasm than any sharp increase in personal
computer marketshare by Apple.
Company-produced events such as the Intel Developer’s Forum,
and annual customer events by Oracle and RSA, have strong enough attendance
these days, although they don’t seem to be on the sort of dramatic growth curve
one routinely saw at industry events for a 15-year period from 1985 to 2000.
And I saw recent enthusiasm at a major wireless event and a
more recent PalmSource developer’s conference, both in San
Jose. But both at San Jose
hotels, with crowds in the 1,000-attendee range. The days of drawing 40,000
people to the San Jose Convention
Center for Internet World, and paying $40 to park
your car in this underserved transit corridor are gone, gone.
San Jose will
become the new Detroit, in Oracle
CEO Larry Ellison’s memorable comparison in a Chronicle interview awhile back,
if it doesn’t somehow figure out how to deal with a more global economy,
business consolidation, and a more reasonable assessment of its strengths and
weaknesses. San Francisco’s bluebloods don’t miss the dot-com era, as all these
assuming young hotshots were driving what’s left of the “working class” out of
The City (as it likes to call itself). And Oakland,
whose Mayor is feisty former Governor Jerry Brown, continues to be the unsung center
of an unsung region.
But, specific parochial viewpoints aside, the entire region
has in fact suffered from a decline that does not show signs of a true,
imminent recovery. Abate’s story quoted an academic as referring to the recent
regional downturn as “massive” and noting that 80% of the job losses will
probably not return. Ever. Ever?
The story also profiled what may be the typical new growth
company in the region, a company involved in GPS systems that is showing a 20%
revenue growth per year but is hiring “in the single digit range…(and) whenever
possible…at other locations outside the Bay Area.”
To be sure, there are still several very large companies out
here, making profits. Cisco, HP, Oracle, Intel, and even Sun come to mind.
Yahoo and Google and eBay are all newcomers to the superstar scene.
Hundreds of smaller companies continue to churn out great
products and great ideas. Intense, passionate, even fanatic communities
continue to thrive, whether dedicated to Java, open source, search, or plain
old silicon horsepower enhancement.
But the reality is that that Silicon Valley
and the San Francisco Bay Area have been knocked off their perch—some would say
high-horse—in the world of technology. The idea of outsourcing ever more
aspects of the business to India
or China are
not popular here. Nor are H1B visas.
Web developers make half of what they made five years ago. Stock
options went under more water than a coral reef and ESOPs disappeared like the
coin in that creepy magician’s hand. The irony is that most people are working
harder than ever to make less and less. There’s no such thing as a debate over
restricting workweek hours or guaranteeing jobs for technology employees. Here,
your career lives or dies solely on your abilities and wits. There is little
room for complainers, order takers, or cruise-control work ethics. Here, as
they say, “it’s about” opportunity, insane creativity, and new paradigms.
Silicon Valley and the Bay Area were
saved in the mid-80s slump by the emergence of the personal computer (with a
grudging thanks to IBM and Microsoft, two not-Bay-Area companies), and then in
the mid-90s by the Worldwide Web (with a big thanks to Switzerland
and the local heroes at Netscape).
Surely something will come along soon to refire the area’s
creative and engineering cauldrons, something for which the Bay Area’s unique
combination of talent and climate is better suited than anywhere else on the
planet. There are simply too many experienced, manically driven people here to
keep the good times from returning, full force. Right?