A New Brand Of Tech Cities

Oakland, Calif.

When telecom executive Mory Ejabat was looking for a home in 1999 for Zhone Technologies, his networking-equipment start-up, one of his first calls was to Oakland's mayor, Jerry Brown. "I said I planned to put up four buildings and create 1,500 jobs," says Ejabat. "He said, 'Let's make a deal'." City officials gave Ejabat a discount on a large parcel of undeveloped land on Oakland's waterfront in exchange for 100,000 shares of Zhone's pre-IPO stock. "We did what any good venture capitalist would," says Bill Claggett, a Brown adviser. In addition to the discount, building permits were filed and approved over the Internet, and the city quickly built the needed access roads and power grid. It even named the freeway exit to the company's new campus Zhone Way. Within six months, Zhone employees had moved into the first of four airy glass-and-steel buildings. "I've never seen a city government move that fast," says Ejabat.

The royal welcome--and unconventional sweeteners--were all part of Brown's campaign to transform Oakland, the gritty, "other" city by the bay, into a technology center. With commercial real-estate prices 25 percent lower than in San Francisco and nearby Silicon Valley--and with relatively affordable housing stock--Oakland has made itself an increasingly attractive location for start-ups. More than 300 companies, ranging from unknown biotech outfits to webvan.com, the struggling Internet grocery service, have come to Oakland since Brown, California ex-governor and two-time presidential candidate, became mayor in 1998. "The key to Oakland is its proximity to San Francisco and its relatively undeveloped character," Brown says. "There's room here for investment and change."

Brown's team developed an innovative package of goodies to dangle in front of companies searching for a home. In 1998 Oakland started offering tax breaks to desirable industries, including software, multimedia, telecommunications and biotech. Companies that qualify are given a discount on their business-license tax for up to a decade. Oakland also subsidizes its own start-up incubator, the Communications Technology Cluster, in the historic Rotunda building downtown. After a $49 million private restoration, the 100-year-old former department store now boasts high-speed fiber-optic connections and subsidized rent, furniture and utilities for up to a dozen companies. A bonus: the Rotunda is close to city hall, so it's protected from northern California's rolling blackouts. In today's hostile market, those fledglings may not survive outside the nest, a prospect that doesn't seem to trouble Brown. "Some die, others come up," he says with a shrug. The same is true for cities. Omaha, Neb. Omaha is definitely not hip; green-haired XML programmers do not glide past gourmet coffee emporiums on Razor scooters. But Omaha is where the blue-collar work of the information economy is done. Phones are answered, money is counted and data are processed. Six national fiber-optic networks converge here. Twenty million toll-free calls come into 23 corporate call centers each day (answered in flat, Midwestern English). In a hundred-year-old building, technicians monitor thousands of freight trains crossing the Western United States.

Indeed, Omaha has been a Tech City since the cold war, when the Strategic Air Command set up shop at nearby Offut Air Force Base in 1947. SAC attracted talent, but more importantly, it built a communications network that could stand up to a nuclear blast. Peter Kiewit Sons Inc. was the construction company that dug the trenches and laid the fiber. Eventually Kiewit's owners realized businesses might want access to all that bandwidth, too. For a risky $10 million, they built a new high-capacity phone network in 1987.

The problem was creating a new generation of workers and keeping homegrown companies in town. The city knew things were bad when Level 3, the fiber-optic company that grew out of Kiewit's second big network project, moved to Colorado in 1997. Local firms responded by giving $47 million for an info-tech institute at the University of Nebraska. Joe Ricketts, founder of Ameritrade, ponied up $1.5 million for another one at Creighton University. And after Bruce Springsteen played Fargo, N.D., but not Omaha, voters last year approved a new $300 million arena and convention center.

Still, recruiting remains a challenge, particularly when candidates find out that the best sushi bar in town is in an old IHOP. But housing is cheap and commutes are light. In all, not a bad place to set up the back room of the New Economy. Tulsa, Okla. Growing up, Tulsa native Christopher Broyles expected to work in the oil business and be a cowboy. Today Broyles wears black cowboy boots to work and plays a decent country guitar. But he does it in his office at C2 Technologies, a software- engineering firm he runs out of an old bank building downtown (the old vault makes a nifty place for a server). "We deal with people from the coasts, and their first image of us is that we're just Okies," Broyles says. "I like to think we're technology cowboys."

The crowning moment in Tulsa's transformation from oil town to telecom frontier came last month, when Williams Communications officially spun off from parent company Williams Oil and Gas. The collapse of the oil industry in the 1980s cost Tulsa 40,000 jobs and threatened to turn the city into a ghost town. But Williams hung on. The company stayed in its skyscraper downtown, determined to figure out what to do with a nationwide network of decommissioned pipelines. After briefly considering piping milk to the far corners of the country, Williams's bosses figured they'd try running fiber-optic cable for telephone lines. It worked. Williams begat WilTel, now part of telecom giant WorldCom--at a gain of 4,500 jobs for Tulsa. Eventually the extensive local fiber network attracted national call centers, like the one for airline-travel reservationist Sabre.

Thanks to Tulsa's relative lack of dot-com companies and the world's perception that barbecue is its main contribution to civilization, the venture-capital boom passed it by. Which means the city's economy remains relatively robust. Williams is building a new $100 million building to go with the old one downtown. Nearby, 20 miles of hiking and biking trails line the Arkansas River. Those kinds of amenities--shorter commutes, good public schools, outdoor recreation facilities--attract older, more stable employees. And the barbecue is darn good, too. Dallas, Texas The telecom corridor along Route 75 between Dallas and Richardson, home to some 700 telecom companies, proves the real-estate adage about "location, location, location." A half day's flight from either coast, the region is amazingly convenient. Texas Instruments has been here since 1951, but the telecom companies really started popping up after the breakup of AT&T in 1983. MCI was followed by offices for Nortel, Fujitsu and Ericsson. Richardson started offering the tech companies fast-track zoning and 25 to 50 percent tax abatements. "It was strictly a matter of geography," says Ron Martin, a Fujitsu executive VP. "You can reach anyplace [in the United States] with a nonstop flight."

Like other major tech centers, Dallas has felt the bite of the slowdown. Texas Instruments had a first-quarter drop in profits of 45 percent, and plans to lay off 2,500 people. Cisco and Nortel global layoffs also have local techies nervous. But the corridor lives on. "Companies like to be where other companies are, where their suppliers are, where their customers are," says Gary Slagel, mayor of Richardson. He should know. He's the CEO of e-business TeleCentric, his fourth start-up in 10 years.Huntsville, Ala. Want to develop a thriving tech community in your town? Have the U.S. government put a piece of the space program in your backyard. The government located Marshall Space Flight Center here in northern Alabama in 1960. These days it puts together payloads for the International Space Station. And around it is a concentrated but thriving high-tech cluster, one that has largely weathered cuts in both defense and aerospace research. The rocketeers came here, and some started companies--which attracted even more technology. "We grew up with the space program," says Olin King, who worked with the legendary German rocket scientist Wernher Von Braun at nearby Redstone Arsenal. In 1961, King started SCI in a basement; now it's an $8.3 billion electronics firm.

City officials say up to 85 percent of Huntsville's high-tech companies trace their origins to the Army or NASA. Former rocket scientists diversified into industries from software to biotech to telecom. Time Domain is working on a way to transmit wireless data via short bursts of radio waves. At Shearwater Corp., biotechnologists are making drugs more soluble, so lower doses will work better. The space age echoes after hours, too, when "Microwave" Dave Gallaher, an Air Force vet who served in Vietnam, plays the blues with his band, the Nukes--a reminder of another world-changing technology. Akron, Ohio For most of the 20th century, Akron's success smelled like molten rubber. Goodyear, BF Goodrich, Bridgestone/Firestone and General Tire once were headquartered here. But takeover attempts, globalization and product recalls battered the once thriving industry and the tire plants all left. Only Goodyear kept its corporate headquarters in what was once the "Rubber Capital of the World." Between 1970 and 1990 Akron lost 35,000 manufacturing jobs. By the 1980s, the city didn't have much to offer except for new-wave rock bands Devo and the Pretenders, whose lead singer Chrissie Hynde, an Akron native, lamented in song that "my city was gone."

But luckily for Akron, the rubber industry left behind a research infrastructure. It was dedicated to the field of polymers, long chains of molecules found not only in rubber and plastic but in lubricants, superstrong fabrics and liquid-crystal displays like those found in computers and mobile phones. It turns out the New Economy is not entirely virtual--big swaths of it are made out of real stuff, and polymers are needed to hold much of that stuff together. Northeastern Ohio's "Polymer Valley," with Akron in the center, has 400 polymer-related companies, employing 30,000 people. Ninety-four of the companies are in the city itself. "Polymers saved Akron," says Alan Robbins, president of The Plastic Lumber Co., which makes outdoor furniture and play structures from recycled plastics.

Polymers are found in washing-machine seals and tool grips, too, but they also have higher-tech applications. At the University of Akron's 146,000-square-foot Goodyear Polymer Center, researchers are working on cut- and puncture-resistant surgical gloves, artificial organs and light, strong prosthetic limbs.

The most obvious evidence of Akron's rebound is Canal Place, a 38-acre development on the former site of BF Goodrich's tire plant. When Goodrich pulled out, an investment firm prevailed on the company to help clean the site, which was overrun with asbestos, PCBs and contaminated soil. Both companies threw in $4 million to renovate the old factory's main building. Today the project, located along the banks of the Ohio & Erie Canal, houses The Plastic Lumber Co. and 145 other businesses, including polymer heavyweight Advanced Elastomer Systems. Nearby, the minor-league Akron Aeros play baseball in a brand-new park that's packed with fans every summer. The new smell of Akron's success: popcorn and hot dogs. Ventura Frwy. Corridor Southern California's high-tech corridor doesn't have a nifty name. It's just a chain of towns stretching 40 miles along Highway 101, from Glendale to Ventura, which used to be filled with aerospace and defense contractors and the engineers who worked at them. The region lost 300,000 jobs when the defense industry crashed in the 1980s. To survive, some of the old defense companies restructured themselves. Today the companies in the 101 corridor make the gear that keeps the Information Superhighway up and running: power supplies, servers, routers and high-speed chips.

A few companies made elegant transitions. Vitesse Semiconductors used to make high-speed computer chips for the military. When the defense-money train derailed, Vitesse refocused on commercial applications--and now it's a $442 million maker of chips for moving data over fiber-optic networks. Today you'd be hard pressed to find a major router that didn't use chips designed in Vitesse's plain, boxy building in Camarillo, Calif. Illusion Engineering started researching simulations for defense in the 1970s and in the '90s spun off emergency-management consultants eTeam.com. And some of the engineers became entrepreneurs, too. The founder of data-switching company Xylan (bought in 1999 for $2 billion) worked at defense contractor Litton Data Systems.

In the recent downdraft, some companies haven't fared as well. Southern California's dot-coms are all but gone, and once high-flying Internet service provider NetZero now has a name that reflects its stock price. But the tech-business infrastructure is moving south as well. Silicon Valley Bank's branch here had no clients 18 months ago; today it has 80. Washington D.C., area Technology executives in and around Washington know a little secret--it's good to be near the people who regulate you, make laws about you and fund the R&D that makes you tick. The Internet actually started here, and high-tech companies now dominate the suburbs around the nation's capital. MCI came to D.C. in 1981 to take on AT&T. AOL founder Jim Kimsey resisted Steve Case's pleas to move the company to California for years. WorldCom, which absorbed MCI, monitors the Internet's legendary fiber-optic backbone, UUNET, from a seven-building, 1.3 million-square-foot complex in Ashburn, Va. Reston-based Nextel has sold various branches of the government 125, 000 mobile phones.

In Maryland, the National Institutes of Health attracts biotechnology companies. Montgomery County is home to about two thirds of the state's 300 biotech outfits, including heavyweights Celera, EntreMed and Human Genome Sciences. The county gave HGS tax breaks and $1 million to build its new headquarters on the 300- acre Shady Grove Life Sciences Center (a county-developed land parcel). The big worry is that the economic downturn--hurting companies like e-biz consultant Proxicom and Internet service provider PSINet--will halt the redevelopment of downtown D.C. Denver, Colo. When Denver's City leaders set out to remake their town into a high-tech haven, they decided to sell quality of life. Where else but Denver can you kayak through downtown? Techies love amenities--they're what economists call "the second paycheck." Denver's slogan is "Technology with altitude."

Quality of life--plus a really, really big airport--turns out to be a serious draw. The nation's biggest cable company is in Denver, as are telecom giant Qwest and aerospace firm Lockheed Martin. Sun Microsystems is nearby, outside Boulder. And city economic-development officials are scurrying to complete a proposal to induce aerospace giant Boeing to pick Denver as its new headquarters town. A Boeing spokesperson listed the airport, the business climate and "significant recreation opportunities for employees" as Denver's most attractive features.

The Denver economy hasn't been immune to the downturn. New job opportunities declined 7 percent from February to March, and last year 10 companies canceled their IPOs. Still, Colorado consistently ranks among the top states on metrics like educational attainment, online population and venture-capital investment. The only other downside: if you sell your quality of life too hard, too many people show up and ruin it. San Diego, Calif. Fifteen years ago San Diego's Gaslamp District was largely porno theaters and empty buildings. Today it's a dozen blocks of restaurants, jazz clubs and coffeehouses, surfing on a wave of money brought to town by hundreds of new biotechnology and wireless companies.

The universities made it possible, world-class biomedical-research facilities, including the Salk Institute, Scripps and the University of California. Two UC, San Diego, researchers set up the first biotech company in the area, Hybritech, in the 1970s. Today there are 200 biotech firms here. The wireless industry benefited from UCSD's eagerness to capitalize on the discoveries of its faculty. For example, Irwin Jacobs, founder of local wireless titan Qualcomm, was a professor. Now overseas-based Nokia, Ericsson and Kyocera have offices in San Diego, too. CDMA2000, one of the wireless technologies in competition to become a new standard, was developed at Qualcomm.

And who wouldn't want to live here? When local techies gather, it's to talk shop, but also to plan their weekends. The Gas-lamp's flame shows little sign of going out.