May 19, 2013 admin

Austin’s tech scene: Fewer workers but healthier ecosystem

Dan Zehr, Austin American-StatesmanAustin’s tech scene: Fewer workers but healthier ecosystem

May 19, 2013

Back in 2001, just before the inevitable collapse of the high-tech boom — and long before Austin had transformed into the more diverse and healthier technology ecosystem it is today — every new perk seemed better than the last.

Recruiters dangled new cars and ski weekends to entice the top college graduates. Students negotiated salaries for summer internships. And in Austin, when a night’s festivities wrapped up, people looked for the Trilogy employees.

The software company’s cab cards provided its workers — and many of their friends — a free ride home after a night on the town. Trilogy’s tab, Josh Baer recalled, ran as high as $30,000 a month.

“Ten years later I’m still talking about it,” said Baer, who joined the company in 1999 and now heads Capital Factory, a local technology incubator. “It was kind of brilliant actually.”

But like most of the excesses of the dot-com boom, it couldn’t last forever. The next two years put a deep freeze on the local technology ecosystem. Companies that survived cut back, and perks like the cab cards faded into lore.

“We bought a large chunk of that hype,” said Pike Powers, one of the key forces in Austin’s business development for decades. “Local people made some money. IPOs were successful. And champagne was drunk. The exit ramp off that was pretty painful.”

By some measures, Austin still hasn’t fully recovered from its dot-com excesses. According to an analysis by the American-Statesman and Economic Modeling Specialists International, or EMSI, the region’s key high-tech sectors have fewer full-time, part-time and self-employed workers today than they did in 2001.

While the region has recovered from the darkest days of 2002-2003, the local high-tech headcount is down by about 7,700 from 2001 levels — about 9 percent lower, according to the data. The key technology sectors accounted for 11.6 percent of Austin’s workforce in 2001; today, that has dropped to 8.6 percent.

Yet the more broadly one looks at the arc of Austin’s high-tech history, the more the dot-com frenzy looks like an aberration — and the better the industrial mix looks today. Buoyed by Samsung and the massive presence of even a struggling Dell Inc., the region continues to get significant economic production, if fewer jobs, from its “hard tech” industries, such as computer and semiconductor manufacturing.

Meanwhile, the area’s “soft tech” industries — from software to gaming to Internet technology firms — are mushrooming, making for an increasingly diverse industrial mix. A thriving Web-services industry has emerged through companies such as HomeAway and Bazaarvoice, with plenty more percolating in local startup incubators.

Online and computer gaming companies have made Central Texas a key hub of digital entertainment production. And with the formation of a new medical school at the University of Texas’ flagship campus, Austin will add what many local developers called the vital missing piece in a nascent life sciences industry.

After adjusting for inflation, Austin’s information, communications and technology sector more than tripled its output from $4.6 billion in 2001 to $15.4 billion by 2010, according to data from the U.S. Bureau of Economic Analysis.

Using a more locally focused definition of technology, a new report compiled by Civic Analytics and published last week by the Austin Technology Council found that local high-tech companies supplied about 9 percent of the area’s jobs and accounted for roughly 21 percent of its $97 billion economy in 2012.

Yet without the frenzy and fallout of the dot-com era, Austin’s high-tech ecosystem might look a lot different today, and not necessarily for the better, said Carl Everett, a one-time Dell executive and partner at Accel Partners, one of the leading Silicon Valley venture capital firms.

“The upturns and downturns are a key piece of the mortar of the industry. It really makes it better,” Everett said at his Lakeway office. “If you look at the possibilities for technology innovation and investment today versus 2001, it’s much broader. More people can participate.”

Hard tech shifts

Austin’s “hard tech” suffered the worst of the technology bust. As the economy went global, so did much of the work in Austin’s two largest technology sectors — semiconductors and personal computers.

While those two sectors retain the area’s largest tech workforces today — about 41 percent larger than the software, Web and mobile, and life sciences sectors combined — they shed more than 12,000 jobs when compared with 2001 levels.

Yet those same sectors still provide most of the fuel for Austin’s technology engine. To date, Samsung has invested about $11 billion in its plant and produces billions of dollars of chips each year. Freescale Semiconductor, one of Austin’s earliest hard-tech recruits, still generated almost $4 billion in revenue last year. And Dell remains the largest private employer in Central Texas, with about 14,000 of its 110,000 worldwide employees based here.

Thanks largely to Dell’s presence, the PC and electronics sector continues to spend by far the most money with suppliers and vendors, both within Austin and around the world, according to the EMSI analysis.

All told, local PC and electronics companies pumped about $3.8 billion into other businesses that make up their supply chains in 2012 — the same amount as Austin’s other four technology sectors combined. Almost $1.8 billion of that spending went to local companies.

Furthermore, innovation has hardly ended on the hard-tech side, and some parts of Austin’s hard-tech sector are getting softer. A wider variety of semiconductor-design firms — from Intel and Advanced Micro Devices outposts, to homegrown firms like Silicon Laboratories and Cirrus Logic — has helped offset the loss of chip-manufacturing jobs.

‘Software conquers everything

These days, though, the soft-tech industries are fueling most of the local high-tech growth.

In his review of the EMSI data, local economic consultant Jon Hockenyos, principal at TXP, broke out the Central Texas industries into “hard tech” or “soft tech” categories. The hard tech industries, including hardware production and the like, have seen their headcounts drop by 41 percent since 2001 — almost 18,000 fewer jobs.

“In the end,” said John Thornton, longtime general partner at Austin Ventures, “software conquers everything.”

Indeed, soft tech jobs have jumped by 27 percent, adding more than 14,000 positions, according to Hockenyos’ breakdown.

“If you’re talking about making physical products, that’s something that’s more and more commoditized, and that’s not something where Austin or the rest of the United States has a comparative advantage,” Hockenyos said. “Our comparative advantage will be in the application of knowledge, creativity and intellectual capital, and you’re seeing that more and more on the soft-tech side.”

In fact, one of Austin’s most successful companies from 2001 to 2012 has been National Instruments, a firm that straddles the line between hard tech and soft tech: It produces both hardware and software for test and measurement systems used by scientists and engineers.

National Instruments had almost 2,900 employees in 2001. Today, it employs more than 6,800 people worldwide — including more than 2,500 in Austin alone — and it expects to add 1,000 local workers as part of an expansion project over the next 10 years.

That expansion has come thanks to advancements on both the hard- and soft-tech sides of the coin, said Ray Almgren, the company’s vice president of corporate marketing and platform adoption.

Hardware developments and falling costs have allowed tech companies to put a microprocessor in just about any product, Almgren said, but to do that you need more and more software to connect and run it all.

“That’s been one of our keys to success — that Austin is a rich environment (for software),” he said. “We need all the great software minds we can get. That’s not likely to change around NI or Austin for years to come.”

Economic ripples

The broader shift toward a more diverse set of tech sectors has had a marked effect on Austin’s workforce. And as those trends continue, the impact will likely ripple through the rest of the economy as well.

New technologies — particularly open-source software, cloud computing and the rise of mobile apps and social media — are making it easier and cheaper for a broader range of people to participate in high-tech ventures.

“Together,” Baer said, “those three things … have dramatically reduced the amount of money required to do a tech startup.”

That combination of powerful technology available at lower costs has helped spawn a more diverse mix of local seed-stage companies. More than half the startups at the Austin Technology Incubator are focused on information technology, said Isaac Barchas, the incubator’s director, but the rest are pushing out into a wide range of industries, including mobile apps and life sciences.

All told, local employment in the software sector has grown by about 28 percent since 2001 and is up almost 43 percent from the trough in 2003, according to the EMSI data. Payrolls in the Web and mobile technologies sector have jumped 14 percent since 2001 and 30 percent from the lows of 2003.

And while these growing soft-tech sectors spent less money with suppliers and vendors than hard-tech companies in 2012, they tend to keep more of that supply chain spending — about two-thirds of it — within Central Texas, according to the EMSI data.

“They are spending money on salaries,” said Thornton, the Austin Ventures general partner, “whereas Dell would buy components from all over the place.”

‘Fantastic at invention’

As Richard Garriott will attest, the continued growth of soft tech and the diversity it provides Austin doesn’t necessarily mean we’ll see new, home-grown platforms for a turbocharged high-tech explosion.

Garriott is the godfather of Austin’s online gaming industry and the key force behind the area’s digital entertainment industry as a whole. When he opened his first Origin office in Austin in 1983, his was the only entertainment software company in the state.

The company soared, boosted by Austin’s combination of creativity, arts and digital expertise. Central Texas quickly established itself as the premier hub of digital entertainment outside of California and the Northeast.

“We had our best opportunity … right when we developed one of the first-ever massively multiplayer games, which grew the market tenfold,” Garriott said. “It grew enormously, led by a team here in Austin, and teams split off from my company and started even more companies. It looked like Austin would only increase its standing in the global digital entertainment market.”

Today, however, Garriott laments what could have been. The region remains a premier center for digital entertainment talent, he said. But through the ups and downs of the game-development cycle, the companies’ headquarters in California retain more jobs and income than the outposts in Central Texas.

“Austin is still fantastic at invention,” Garriott said. “We do a much better job than most people do at invention, but what we have to figure out a way to do is retain those leadership positions when we make them. We’ve survived by being a center of invention. It’s a shame we don’t hold onto that longer.”

To be sure, Austin has managed to draw the attention of companies in California, including Apple and Visa, which together will create thousands of new jobs here in the coming years. Other companies have picked up and moved here entirely.

Three years ago, when Julie Huls joined the Austin Technology Council, she got fewer than 10 inquiries from California companies for the whole year. Today, she said, she’s getting three or four a week.

“It’s important to make sure those relocated entrepreneurs have the resources they need,” Huls said. “That will augment this organic approach to entrepreneurship that Austin is really getting known for.”

‘Look different and feel different’

The combination of Austin’s organic growth and the companies streaming into the region will almost certainly push technology workforce levels past those of 2001 — within two years if recent expansion rates hold.

But the local technology system isn’t immune to another shock. Getting past that point, local officials said, would probably require the local germination of a new, fundamental technology platform, such as Google in search or Facebook in social media.

“It’s possible to create a platform in any city now, at least in any major city,” said Everett, the former Dell and Accel executive. “So then the question becomes: Why not Austin? Or when will the next platform be created in Austin?”

Looking back on the go-go days of the dot-com boom, Thornton lamented that Austin didn’t produce another massive, publicly traded company like Dell or the myriad household names to come out of Silicon Valley.

Yet at the same time, that has led the local tech sectors to double down on what they do best — products and services geared toward businesses instead of consumers. And that’s not a bad thing, he said.

“We at (Austin Ventures) are pretty excited about that because we think all the buzz-word (corporate) stuff — big data analytics, all that stuff — is about to explode,” he said. “And it’s a bigger opportunity than the consumer market.”

Yes, the halcyon days of salaried interns and free cab cards from Trilogy are gone. But then Austin didn’t get back to where it is today by producing the flashy consumer companies, Thornton noted. It stuck to what it does best.

That might not generate all the buzz of consumer technology, but it produces the revenue, profit, jobs and consistent growth that make for a solid high-tech scene.

Sprinkle in the highly educated workforce and creativity that Central Texas prides itself on, and the area’s transforming technology ecosystem appears to be moving in an increasingly fruitful direction.

“As long as we have that curiosity and refusal to accept that what we’ve got can’t be improved on, we’re going to be fine,” he said. “But it’s going to look different and feel different.”

Given the aftermath of the 2001 high-tech heydays, different might be the best perk yet.


By the numbers

-18,000 — Austin’s net loss in ‘hard tech’ jobs since 2001.

+14,000 — Net gain in software jobs since 2001.

-7,700 — Net loss in all high-tech jobs since 2001.

About this story

To get a sense of the changes in Austin’s high-tech ecosystem, the Austin American-Statesman worked with Joshua Wright and his colleagues at Economic Modeling Specialists International (EMSI) to identify some key trends in the area’s primary technology sectors.

Statesman reporters Kirk Ladendorf, Lori Hawkins and Dan Zehr initially identified five high-tech sectors that reflect the state of Austin-area technology, past and present – semiconductors, computers and electronics, software, Web and mobile, and life sciences.

Working with breakdowns supplied by EMSI, the Statesman grouped each of the relevant individual industries into one of these five sectors. EMSI then used that framework to produce employment (full-time, part-time and self-employed) and supply chain data for each sector.

As with any such effort, this one comes with caveats. For example, many Austin technology companies cover a wide range of different industries, and many of the industry totals include workers employed in a broad range of occupations – some high-tech and some not. And certain industries include jobs that cross multiple sectors.

We excluded many such industries because they didn’t employ enough people to significantly impact the broader trends. In cases of larger industries, we excluded those in which most workers were employed in fields that didn’t fall in the five key high-tech sectors.

The Statesman consulted with local economic development and business experts to finalize and analyze the data. We thank them for their aid and insight: Jon Hockenyos (TXP); Brian Kelsey (Civic Analytics); Michael Hennig (Capital Area Council of Governments); Susan Davenport (formerly of the Greater Austin Chamber of Commerce); and Tracey Panek (Hoover’s).