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Austin tech industry debates next moves after Prop 1 vote

This article was written by Lilly Rockwell and Lori Hawkins and appeared in 512 Tech, Austin American-Statesman.

Austin tech industry debates next moves after Prop 1 vote

Could vote have long-term impact on Austin’s reputation as a tech industry leader?

The Proposition 1 vote on ride-hailing regulations was emotionally charged and divisive for the Austin tech community, with some contending that a vote against it put Austin’s reputation as an innovation hub at risk.

Now that Austin voters have officially rejected the ballot proposition, and Uber and Lyft have kept their promise and left the city, many tech investors and entrepreneurs are surveying the damage – if any – to Austin’s status as a technology center.

Joshua Baer, founder of Capital Factory, the downtown technology incubator, has been a critic of the proposed regulations. He said he believes the vote sent signals that Austin is hostile to startups.

“Losing Uber and Lyft is a major setback to our reputation as an innovative city and technology hub that is already impacting decisions made by venture capitalists and Fortune 500 executives,” Baer said Monday. “It’s critical that the tech community and City Council come together… before our reputation is damaged further.”

But others scoffed at the notion that the Prop 1 vote could do any long-term damage to Austin’s entrepreneurial reputation. Austin economist Brian Kelsey said the vote is unlikely to have negative ripple effects on startups.

“Prop. 1 may be a setback in how the outside world views our seriousness in local policy making, but branding Austin as ‘anti-innovation” is ludicrous,’ ” Kelsey said. ” If the existence of two ride-sharing companies locally has an impact on your business model, then I’d say Prop. 1 should probably be the least of your concerns.”

Saturday’s vote, with 56 percent voting against Proposition 1, means the Austin City Council-approved ride-hailing regulations are in effect. These rules, opposed by Uber and Lyft, require fingerprint-based background checks and vehicles to have an identifying “trade dress,” among other regulations.

Though Uber and Lyft have until April 2017 to fully comply, both made the decision to leave the Austin market entirely, effective Monday morning.

Initially, many tech workers and entrepreneurs said they thought the vote would get industry support because of general opposition to more regulation of emerging technology business models.

But they now say Uber and Lyft’s aggressive marketing tactics derailed the discussion.

“I think it backfired in the tech community,” said Austin entrepreneur Richard Bagdonas, who supported the proposition. “I have talked to many people who said ‘I’m pro-Uber and pro-Lyft, but the number of flyers, calls and texts I received pushed me over the edge.’ “

Political consultant Mark Littlefield, who advised the anti-Prop 1 group “Our City, Our Safety, Our Choice,” said the amount of money pumped into this race – more than $9 million – from Uber and Lyft had a backlash effect.

“The narrative started to change” by the end of April, said Littlefield, who was doing polling throughout the campaign. “It became less and less about the policy and more and more about the personalities.

Some tech leaders, worried about whether the tech community would vote at all, mobilized to try and get out the vote. Baer, for example, participated in a news conference last month to encourage participation in the process.

“I must admit, I don’t think this is a slam dunk,” he said at the event with former Mayor Lee Leffingwell. “I’m worried about it. I think it’s going to be hard to get the tech community to realize it and vote. They’re quick to like things on Facebook or tweet about things. But it’s hard to get people out at the polls.”

Baer’s hunch was correct.

Turnout for Prop 1 was dominated by “traditional” voters who reliably show up to vote in state and local elections, Littlefield said.  Early voting data showed that 70 percent of the Prop 1 voters were these traditional voters, he said.

“I’ve seen it time and time again,” he said. “There are people who will vote in May elections and there are people that no matter how vitally important the results of the May election are to their own personal interests, they simply do not vote.”

Political experts said Uber and Lyft underestimated whether support for their service translated into votes.

Take David Goss. He’s a 40-year-old systems engineer for EMC Corp. in Austin. He regularly uses Uber when he’s going downtown for drinks and needs a sober ride home. On paper, Goss sounds like he would be for Prop 1.

But Goss said he voted against the measure. “I do love Uber, I use it all the time,” Goss said. But he said he wasn’t in favor with just letting Uber and Lyft write their own regulations.

“I definitely felt that there was some middle ground, we needed to find a way to ensure the rides were safe and make sure the employees were treated fairly,” he said.

Austin marketing veteran and entrepreneur Josh Jones-Dilworth, who opposed the proposition, said he watched as the discussion — and tech workers’ opinions — morphed.

“It started as a safety issue, and then it became an innovation issue, and then evolved into a corporate bullying issue,” Jones-Dilworth said. “It’s a complex issue, and there was never a consensus. I know a lot of people who changed their mind. And I know a lot of people who stayed on the sidelines because they thought this was a no-win situation.”

David Broockman, a business professor at Stanford University and an Austin native, said startups like Uber and Lyft view themselves as the underdog taking on an established industry: taxis.

“In Silicon Valley there is a tendency to view startups as David against Goliath,” he said, but that doesn’t always translate outside the Bay area, he said, where they are viewed instead as the Goliaths.

Bagdonas, the entrepreneur, agreed with Baer that Austin’s rejection sent a message to the tech industry outside of Texas.

“We have now created an environment that scares investors. New companies are probably going to have a tougher time raising money in Austin if they’re doing something that the City Council can get their hands on,” he said.

Rather than a set back, Jones-Dilworth said he believes the discussion and vote got a productive conversation going.

“I don’t think that one hyper-political issue with no clear mandate is going to set us back much at all,” he said.

Chip Rosenthal, an engineer and former chair of civic hacking group Open Austin, also said he believes Austin will come out ahead in the ride-hailing debates by developing an innovative compromise that will be emulated in other cities.

City leaders might already be working on one.

Mayor Steve Adler’s office put out a statement Monday detailing the steps he and the rest of the Austin City Council will take to ensure Austinites will be able to continue using ride-hailing services.

Some of his next steps include “talking with Uber and Lyft,” though a spokesman for the mayor’s office wouldn’t confirm whether talks are ongoing. It also mentions the possibility of creating a TNC nonprofit.

Adler’s statement also said he is creating an ad hoc committee made up of members of the tech community, including Baer, Jones-Dilworth and Eugene Sepulveda, CEO of the Entrepreneurs Foundation.

“I hope the speed at which the mayor, this council and community leaders address issues impacting riders and drivers signals to the rest of the world that Austin is absolutely open for business, that we value innovation and entrepreneurship, and that these things don’t have to be in conflict with local control,” Sepulveda said.

What the tech industry’s slowdown means for Austin

This article was written by Lilly Rockwell and appeared in 512 Tech in the Austin American-Statesman.

What the tech industry’s slowdown means for Austin

Recently I wrote about the dreary headlines dominating the tech world these days.

Companies like Intel are announcing major layoffs, while other large tech employers, like Apple and Microsoft, are watching their stock prices plummet.

So what does this all mean for Austin? Could the tech industry downturn lead to layoffs here?

Over the past week I interviewed several local tech industry experts to try to answer this question. As expected, their reactions were mostly incredulous. The Austin tech industry prides itself on its exceptionalism.

I was reminded that the Austin tech ecosystem is fairly diverse. No longer does Dell Inc. and the semiconductor industry dictate the health of the local tech economy, though they certainly have a significant impact.

People like Barbary Brunner, head of the Austin Technology Council, said Intel’s layoffs  – the company announced last month it was eliminating 12,000 jobs – were mostly just a reflection of poor management.

She warned against taking the example of Intel and applying it to other tech firms. That’s a fair point, though local chipmakers have also struggled in recent months, reporting falling sales and profits not in line with analyst expectations.

Brunner distinguishes between what’s going on with the bigger, legacy tech firms and the startups and medium-sized companies such as HomeAway or Indeed that populate Austin’s tech landscape.

Even so, Brunner acknowledges that hiring data recently has revealed a detectable tech industry slowdown.

“What we’re seeing happen in Austin right now is that companies are absorbing all the hiring they have done over the last five years,” Brunner said. Translation: Hiring in the local tech sector has slowed down.

Local economic development expert Brian Kelsey said employment growth has cooled off from the “torrid pace of the economic recovery.” Last year, tech job growth in Austin was about 4 percent compared to 3 percent nationally.

The latest forecasts are predicting a 2.4 percent tech job growth in 2016 compared to 1.6 percent nationally.

“As of right now, there are still segments within tech that are expected to see relatively strong employment growth this year,” Kelsey said. And certain areas, like custom computer programming and systems design, are still expected to have job growth in the range of 4 percent to 6 percent in 2016.

“There were nearly 9,000 job postings advertised for core tech related positions in the Austin region as of March, which was only about 8 percent off the pace from a year ago,” Kelsey said.

Brunner echoed those comments, saying tech workers in Austin shouldn’t be worried about losing their jobs, though, interestingly, she made the caveat that people who work for larger employers like Dell should be more concerned.

She might be right about that. Some of Austin’s biggest tech employers could be shedding additional jobs this year, or they have already done so in recent months. For instance, both Dell and Advanced Micro Devices downsized their workforce last year. Dell eliminated 10,000 jobs and AMD said it would cut 500.

“If I wanted a job in tech, Austin is one of the best places I would come,” Bruner said. “We have an incredibly fertile environment here. Particularly if you want to be in early-to-mid-stage companies.”

Documents: Apple has created over 2,000 Austin jobs since 2012

This article was written by Lori Hawkins and appeared in the Austin American-Statesman.

Documents: Apple has created over 2,000 Austin jobs since 2012

Tech giant is on pace to meet hiring goals it promised in exchange for millions of dollars in incentives.

Technology giant Apple Inc. has created more than 2,000 new jobs in Austin since 2012 and remains on track to meet the Central Texas hiring goals it promised in exchange for millions of dollars in public incentives, according to documents filed with the city of Austin.

Apple, which disappointed investors last week with troubling financial information, is set to receive $35 million in tax incentives over the next several years from the city of Austin, Travis County and the state of Texas for an expansion of its operations in Central Texas.

The expansion is expected to generate a $304 million capital investment in the Northwest Austin campus, which will include seven new office buildings with 1 million or more square feet of space.

Under the terms of the incentives package, which was signed in March 2012, Apple agreed to create more than 3,600 new full-time jobs in Austin in 10 years while retaining at least 3,100 existing full-time jobs year over year. The average wage for those new jobs is to be $54,000 a year in the first year of the expansion and will stretch to $73,500 in the 10th year, according to the incentives agreement.

In 2012, the Austin City Council approved $8.6 million in tax breaks for Apple in exchange for establishing its Americas Operations Center here. Apple also is in line for between $5 million and $6 million from Travis County.

Apple, the world’s largest consumer electronics company, said last year that it was well ahead of hiring projections. A more recent report — filed March 10 by Terry Ryan, Apple’s senior tax manager — indicates that the company continues to outpace the requirements.

As of Dec. 31, the total number of full-time Apple jobs in Austin was 5,102, according to the company’s report. That includes 2,089 new jobs that been created since 2012, according to the report — an average of more than 550 a year. (The agreement calls for Apple to create 300 new jobs by the end of 2016.)

In addition, there were 904 contract employees as of the last day of 2015, the report said.

If Apple ultimately reaches its hiring goals, it will become the second-largest technology employer in Central Texas, behind only Dell Inc.

In a written statement, Apple said: “We’re incredibly proud that Apple’s innovation supports tens of thousands of jobs across a wide range of industries in Texas. Apple started in Austin 24 years ago and we’ve grown to support over 6,000 employees in a variety of roles from sales, operations and finance to our online store, engineering and the best customer support organization in the world. We also partner with a number of companies in Texas to source materials and components for our products, including the manufacturing and assembly of Mac Pro just down the road. Austin is a special community and we look forward to continuing to grow and invest here.”

Apple’s new Austin campus, at West Palmer Lane and Delcour Drive, is responsible for running the company’s business operations for the entire Western Hemisphere. In addition to the limestone-and-glass office buildings, the 38-acre site includes restaurants; smoothie and coffee bars; a full-scale gym with saunas and a wellness center with services including medical, dental and eye care along with acupuncture and massage.

The campus, which is scheduled to be completed this year, employs workers in finance, human resources, corporate sales, customer support, information systems, accounting and other administrative roles.

The new campus is just part of Apple’s growth plan in Austin. Last year, the company bought the nearby Riata Crossing complex, which has four buildings with 350,000 square feet of space, which the company had been leasing.

It also signed a lease for the entire 216,000-square-foot Capital Ridge office building under construction in Southwest Austin. The company isn’t saying what work will be done at the various locations.

Apple already has accepted two sizable payments from the Texas Enterprise Fund, which was created in 2003 to attract new jobs and investment to the state. The state gave the company $5.25 million in September 2012 and another payment of the same amount in December 2015. The total award from the Texas Enterprise Fund will reach $21 million over a decade.

Jon Hockenyos, an Austin economist, said the types of jobs Apple is creating at the campus are a key component to the region’s economy.

“These are the equivalent of manufacturing jobs in the old days — they’re jobs that pay a solid wage,” he said. “They provide solid middle-class incomes that sustain families. They’re the kind of jobs any city wants to see being created.”

Hockenyos said Apple’s recent woes — the company last week posted its first quarterly revenue decline in 13 years — are unlikely to affect its Austin operations.

“They’re facing some challenges, but a lot of what Apple does here is core to its business — things they have to do to continue to stay in business,” he said. “Because of that, the issues they face probably won’t be felt here as much as they might in other places.”

In fact, Austin economist Brian Kelsey said, Apple could provide stability to Austin’s economy if the technology industry were to experience a downturn.

“We’re in the longest streak of economic expansion since the late 1990s, but Austin is still primarily a startup town,” Kelsey said. “That’s important to keep in mind because entrepreneurship can be a shaky foundation for economic development when the business cycle starts to turn.”

Large players operating like Apple aren’t immune to a global slowdown, Kelsey said. “But they can provide some stability, making Austin more resilient to changing conditions,” he said.

Government officials shouldn’t be too concerned with Apple’s recent earnings report, said Patrick Moorhead, president and principal analyst at Moor Insights and Strategy.

Apple might have frustrated investors, but it’s “way too early to be concerned” in Austin, Moorhead said.

“Apple, unlike other companies, didn’t invest too far forward related to its commitments in Austin. In fact, given their profitability and revenue base, they may not have enough space for everything they need to do,” Moorhead said.

If profits are most important, Moorhead said, then “Apple should consider moving even more functions to Austin from expensive California.”

For med school’s backers, big dreams meet mundane details

This article was written by Dan Zehr and appeared in the Austin American-Statesman.

For med school’s backers, big dreams meet mundane details

Sit down at the round, glass-topped table in state Sen. Kirk Watson’s office, and you can never quite be sure where the conversation will take you.

But that’s kind of the point when you’re discussing the dreams and designs for the Dell Medical School, an innovation district built around it and the impact those entities could have on the health and economic wellbeing of Central Texas.

When Watson, Central Health, the Seton Healthcare Family and University of Texas officials pitched the whole concept to taxpayers, they sold it as an innovative driver of improved health across the community — but also as a critical missing piece that could help expand the Central Texas economy in ways previously unavailable.

That second part of the plan promised an especially visionary idea: A medical school, supported by a voter-approved property tax increase, would turbocharge the local economy, much like IBM, MCC and Sematech transformed Austin from a university and state government outpost to the tech-driven, knowledge-based metro area it is today.

“I think in 20 years we’ll be looking back at that and saying it’s one of the pivotal moments in the history of Central Texas,” Watson said. “How often can you do something like that? It’s pretty rare.”

Construction continues at the Dell Medical School, which is scheduled to open later this year. Mark Matson for American-Statesman

Watson sees the school, hospital and innovation district as especially promising because they’re rooted in a community-backed effort that capitalizes on Austin’s richest assets — its people, its mind, its brainpower. They provide new outlets for those strengths.

Watson admits believes what emerges from that will have a transformative effect on Central Texas.

“This was a place that was a college town with state government as the dominant part of the economy, so it was all people-oriented,” he said. “That transferred into a focal point in a worldwide smart economy, and now it’s going to go to the next phase of that knowledge economy. Without the medical school I don’t think it would’ve done that.”

Getting to something that remarkable, however, will require what Clay Johnston, the dean of the school, describes as a balance of visionary and pragmatic forces.

On one hand, it requires the ability to dream big, to imagine Austin as the model healthy community. It requires a school and teaching hospital at the vanguard of a major new digital health economy, developing technologies that both fit within and help shape new models of healthcare delivery.

On the other hand, it also requires a sense of perspective — when it comes to life sciences, Central Texas will not become San Francisco, Boston or San Diego, where venture capital, grants and funding resources are measured in the billions of dollars.

As local economic development expert Brian Kelsey noted in a recent report, the Silicon Valley tech economy is roughly the same size as the entire Austin-area economy.

“People love the vision part, and that’s great,” Johnston said in an interview this month. “But we have to put some meat, some proof, around it.”

We’ve started to see bits of meat grow around the bone. The medical school is preparing to roll out a new model of health care delivery that it calls, wonkily enough, “integrated practice units,” or IPUs.

The IPUs are designed to bring together a diversity of caregivers around a particular ailment — the first one targets osteoarthritis and will be launched in a month or so. They collectively coordinate care in a way that’s guided by patient needs rather than by physician specialties.

So instead of a primary doctor referring a patient to a surgeon, who can’t see them until next week, the surgeon can walk the patient down the hall and consult with a physical therapist, a nutritionist or other specialists—including a surgeon—all with expertise in that ailment.

For the next few years, those sorts of health care benefits might provide the most tangible evidence of the medical school’s impact on the community. The school’s support to helping provide safety net care in Travis County should improve community care, especially if the new delivery models prove to be as efficient and effective as school and local health officials hope.

But, absent a big-splash move from a major corporation or funder, the community-wide economic benefits could be more difficult to see — and, in an odd way, the innovation zone might actually have countervailing effect on those efforts.

The notion of “place-making” undergirds innovation districts and much of urban development today. Create the type of place that draws people, industry and activity, and it will start to pull in and generate its own creative energy.

Even much of the place-making terminology – “anchor institutions,” for instance – has a grounded, centered connotation to it. Yet the promise of community-wide benefits means that energy, resources and opportunities will have to generate enough energy to break free of the gravitational pull and radiate into disadvantaged neighborhoods and workers.

In that sense, perhaps the biggest advantages of the innovation zone will stem from the connections it forges with local businesses.

“What you really want to do is build local wealth, to have good jobs locally,” said Christina Gabriel, president of the University Energy Partnership, an energy-technology research collaboration among several mid-Atlantic universities.

In any region, jobs tend to emerge in local clusters, Gabriel said. When the population expands, so does employment at stores, gas stations and restaurants. When an agglomeration of certain industries coalesces, that concentration tends to spur even greater levels of activity.

What’s key for building wealth, Gabriel said, is expanding the traded clusters — the concentrated sets of industries that bring in dollars from outside the region, through exports, venture capital, grants and the like.

But spreading that wealth throughout the community requires “local ownership of the local cluster that serves the traded cluster,” she said.

“Startup companies need to buy a lot of supplies for the products and services they sell,” she said. “The more of that supply chain and service chain that can trade in local businesses … (the more) those jobs are actually better jobs.”

How well Capital City Innovation, the organization overseeing the new district, can build those connections with local businesses remains to be seen. Officials have only announced the formation of the entity. We have yet to see a staff, a budget or any strategic plan.

But back at the Capitol, sitting around the table in Watson’s office, the same themes emerge.

No one could have predicted that the arrival of IBM or Sematech would shape Austin the way they have. Nor can anyone know whether the medical school will become one of those landmarks — an economic and health care engine beneficial enough to pay back the price of the property tax increase that made it a reality.

Even Watson will tell you: “The beauty of the future is I can’t predict it.”

Officials launch nonprofit to oversee new medical school’s innovation zone

This article was written by Dan Zehr and appeared in the Austin American-Statesman.

Officials launch nonprofit to oversee new medical school’s innovation zone

Community leaders today are announcing the formation of a nonprofit organization that will develop and oversee an innovation district anchored by the Dell Medical School.

The nonprofit, called Capital City Innovation Inc., will help bridge Austin’s entrepreneurial community with the health care research and development emerging from the medical school and teaching hospital, officials said of the initiative announced as South by Southwest Interactive began.

“The branding has become ‘rethink everything,’” said state Sen. Kirk Watson, D-Austin. “Well, part of what I see the innovation zone doing is … we get to rethink the future. We get to rethink innovation.”

Austin couldn’t have created this zone without the new medical school, teaching hospital and the 14 acres of downtown real estate held by Central Health, Watson said. Those entities, including Central Health, the Seton Healthcare Family and the University of Texas medical school, will provide the initial funding for Capital City Innovation, officials said.

Each of those will hold one seat on the nonprofit’s board, which was designed to include mostly public-sector representatives. Mayor Steve Adler and Travis County Judge Sarah Eckhardt will serve as advisory members, and four other slots will be held by community representatives.

The public-sector leadership reflects the district’s founding institutions and the project’s commitment to the community, Watson said, but it will have a lot of private-sector input.

“Let’s get this locomotive started, and then we’ll figure out what next steps are,” he said, noting that details about staff and funding will be hammered out in the coming weeks and months.

Officials said they envision the district becoming the primary mechanism for disseminating the medical school’s economic and health care benefits. Seton and Central Health will serve as a primary conduit on the medical side, for example, taking new models and ideas and integrating them into their care.

“Think about all the different venues where we collaborate with partners, service providers and other community partners that would benefit from these activities,” said Patricia Young Brown, CEO of Central Health. “We always played a connector, convener role, and I’d see us extending that into this space.”

While the district’s core will surround Central Health’s downtown property, she said organizers envision multiple zones. They could include Austin Community College facilities, as well as clinics or other entities throughout the region, officials said.

With multiple locations, Young Brown said, “they’re probably a little more embedded in the community. … You have the potential to bring different constituencies into the conversation.”

On the industry-development side, the benefits might be a little less defined. Innovation districts have had a mixed record of success in building centers of commercialization and startup activity, according to national urban development experts.

Kendall Square in Boston gets a lot of attention for its success. But outside Boston, San Francisco and San Diego, many similar efforts in other regions haven’t generated a major increase in funding, startup or commercialization activity.

To some extent, it’s a matter of expectations, said Joe Cortright, economist and head of City Observatory, which studies urban and economic development. If the objective is to create a big medical research institution and bring in grants, create highly paid jobs and provide some medical care, that’s a reasonable goal, he said.

“But if you have the expectation that’s somehow going to lead to commercial activity, especially in the biopharmaceutical space where the big bucks are, that doesn’t tend to happen outside those established places,” Cortright said.

He pointed to the track records at some of the country’s top medical hot spots, including Johns Hopkins University in Baltimore and UT’s MD Anderson Cancer Center in Houston. Both bring in huge amounts of federal and grant funding, but their rates of commercialization, venture capital investments and spinoff activity can’t match the trio of top life-science centers.

Local officials said they don’t expect Capital City Innovation to challenge those hubs, especially in industries they already dominate. But they don’t shy away from bold terms when discussing the region’s potential role in emerging health-related industries.

“We think traditional biotech and pharmaceuticals, there are opportunities there to enhance that, and we want to help,” said Clay Johnston, dean of the medical school. “But we also think that Austin is uniquely situated, especially with the medical school and how we’re approaching our mission, to make advances in the whole digital health arena, so where technology meets health.”

Johnston cited medical devices, health care apps and consumer products, such as Fitbit, as a few examples of how Austin can merge its traditional strengths in information technology, software and semiconductors with health care.

In those fields, he said, Capital City Innovation could create a new “center of gravity” for digital health products and services — especially technologies geared for the emerging models of health care delivery that the school hopes to pioneer.

“We have big and small companies here, a history of tech and a system designed to develop forward-thinking technologies and deliver health to populations,” he said. “That’s not the case in San Francisco and Boston, and that gives us an opportunity to do something unique in an area where it’s feasible for us to compete.”

The target shouldn’t be on the top tech hubs, said Scott Andes, a senior policy analyst at the Brookings Institution, where he studies innovation and place-making. The best innovation districts take what an area does well already, and amplifies that in one place. Successful medical-related districts create a space with amenities that draw people, encourage entrepreneurial activity and forge connections with the surrounding community, Andes said.

Further, he and other experts said, the biggest impacts on regional economies usually extend from the connections built between participants in the innovation district and existing local companies and residents.

“It’s less about envy for Silicon Valley and more about how we can build wealth locally,” said Christina Gabriel, president of the University Energy Partnership, an energy-technology research collaboration among several mid-Atlantic universities.

Efforts to bring locally owned businesses into the supply chain can build wealth across the community, Gabriel said. And developing educational and training programs now could help Austin’s current low-skill workers move into new jobs — many in coveted middle-wage occupations.

Even without specific ties to the community, an innovation district could generate plenty of research, startups and investments, said Brian Kelsey, founder of Civic Analytics. But that probably would occur anyway, without the additional incentives and public investment in a district.

“If this really is about inclusive development, then you must be able to show how the innovation zone is achieving measurable outcomes on inclusion,” Kelsey said. “Otherwise, this is nothing more than a real estate play.”

Welcome to the Panel Economy

It’s upon us. The time of year locals love to hate and hate to love. When the “old Austin” vs “new Austin” bickering reaches its fever pitch crescendo, increasing to new levels of absurdity each year.

When usually reasonable minded people convince themselves that live tweeting panels somehow counts as productive economic activity.

When the Panel Economy, as a friend so aptly put it recently, blurs the line between what’s real and worth paying attention to and what’s personal brand marketing, which I’m still not really sure how to define or make sense of.

Economic development outfits from cities around the US have apparently joined the party like never before this year in an attempt to convince SXSW intelligentsia that their markets are viable alternatives to the usual suspects. So, in the spirit of promoting fair competition, here’s a quick update on 2015 performance and 2016 projections for some of the tech-driven regional economies around the US.

We’re defining tech here in the same way we do for the research we’ve published with the Austin Technology Council, relying primarily on the CompTIA/TECNA definition used in their annual Cyberstates report, but with an additional industry category that captures one of Austin’s largest tech employers. Our adapted CompTIA/TECNA definition includes 49 six-digit NAICS industries, and we rely on data from EMSI, which includes self-employment.

The first table below focuses on metropolitan statistical areas (MSAs) with at least 50,000 employees in the tech sector and a location quotient of at least 1.5, or, in other words, places where the concentration of tech employment is at least 50% greater than the US economy as a whole.

Economic development analysts like to quibble over where to draw that line–1.5, 1.3, 1.2–to delineate degrees of concentration, but for our purposes here 1.5 is good enough because it captures most of the usual suspects and excludes markets like New York (0.9) and Los Angeles (1.0) that have large tech sectors simply because they are very large markets overall with a lot of employees in most sectors.

Atlanta, you have a strong case (1.36) to argue while you’re here, but we’re leaving you off this list.

large_tech_regions_table

As expected, San Jose and San Francisco are leading the pack of large and highly concentrated tech markets ranked by job growth in 2015. Raleigh and Portland, with fewer than 100,000 tech employees, get a bit of a boost here since we’ve used percentage growth to create the ranking, but impressive nonetheless. I’m a bit surprised that Austin is not a few spots higher on the list, but 3.4% annual job growth is nothing to be ashamed of. EMSI’s projections for 2016 seem to reflect the slowdown that many of the macro soothsayers have been predicting now for several years, with only San Francisco and Seattle in the 3.0%+ range.

Austinites love to complain about how the city is turning into California, even though much of that ire should really be directed at Florida. But for those of you in Austin worried about becoming the “next Silicon Valley,” don’t fret, we have a really long way to go. Value-added is the tech sector’s contribution to Gross Domestic Product (GDP) at the regional level. Basically, it is tech’s share–direct, no multiplier–of the total regional economy. Tech accounts for $98.3 billion of San Jose MSA’s GDP, or approximately one-half of the total, according to EMSI’s estimates. That’s nearly as large as Austin MSA’s entire GDP ($107.7 billion). Further, Austin’s economy is much more diversified than Silicon Valley’s economy. Tech here makes up only about 21% of Austin MSA’s GDP.

However, if anybody sees Mike Judge at SXSW, this in no way suggests that he shouldn’t do a Silicon Valley spinoff on the social entrepreneurship scene in Austin. Mr. Judge, you should totally do a Silicon Valley spinoff on the social entrepreneurship scene in Austin. #socent

Now, the smaller markets:

small_tech_regions_table

We’re defining small here as highly concentrated (tech LQ 1.5+) MSAs with 10,000-50,000 tech employees. Two of my favorites, Provo and Durham, make the cut, as well as a few others I know very little about (Palm Bay?). Provo’s economy appears to be at ludicrous speed, with merely ridiculous speed projected for 2016.

My advice to the economic developers and PR professionals, especially from non-coastal markets, in town for SXSW marketing their cities: print out a copy of these tables, add a column with average housing costs, and then make your pitch. We’re reaching a tipping point, even here in Austin.

Image Credit: http://the-gadgeteer.com/

Austin tech sector bristles at city’s regulatory changes

This article was written by Lori Hawkins and Lilly Rockwell and appeared in the Austin American-Statesman.

Austin tech sector bristles at city’s regulatory changes

Could the Austin City Council’s recent moves to regulate “sharing economy” companies put a freeze on Austin innovation and outside investment?

That question is being debated by entrepreneurs and venture capitalists, some of whom say that by restricting ride-hailing services Uber and Lyft and short-term rentals, the city is sending a negative message about its commitment to the tech startup community.

The dialogue got more heated when Mike Maples, a Silicon Valley venture capitalist with longtime ties to Austin,

@JoshuaBaer Yep. FLOODGATE now has policy not to invest in on-demand companies in Austin. Local government too hostile.— Mike Maples (@m2jr) February 25, 2016 ” target=”_blank”>weighed in on Twitter recently that his firm would no longer invest in on-demand companies in Austin because local government is “too hostile.”

That provoked an outcry by startup founders that Austin was in danger of driving away early-stage investment dollars that already are hard to come by.

“The City Council is telling the entrepreneurial community that if you would like to innovate and potentially disrupt an existing industry, you should do it elsewhere,” said Richard Bagdonas, a serial entrepreneur and founder of medical software company MI7.

Supporters of these regulations argue that the City Council isn’t trying to hurt the tech community but is enacting rules to promote safety, in the case of ride-hailing companies, and to preserve the residential character of neighborhoods. And Austin isn’t alone in passing these sorts of regulations — many American cities and states are grappling with how to regulate sharing economy companies.

“A lot of what we’re dealing with now is the right role for government at the intersection of government and the sharing economy businesses,” said Mayor Steve Adler, who voted for both regulations after he couldn’t get enough votes to pass less-stringent versions.

“This city cannot and should not abdicate its role to help ensure safety in the community,” he said. “But how it does that is something that needs to innovate and evolve.”

A problematic investment

Maples, founder of venture firm Floodgate, which has backed a number of Austin startups, said in late February that his decision to step out of the Austin market is based on risk factors.

“Startups are impossible to begin with, and if I’m going to invest in one, I have enough uncertainty without worrying about what the government’s going to do,” Maples said. “If I invest in a company that has high consumer appeal and could end up facing regulatory issues, that becomes a problematic investment.”

The discussion centers around two closely watched Austin City Council votes. Council members voted 9-2 last month to limit certain types of short-term rentals listed by companies like Austin-based HomeAway and Airbnb. This meant that all “Type 2” short-term rental owners, which is the type of rental where the owner doesn’t live on-site, will be banned in residential areas by April 1, 2022.

That followed another 9-2 vote in which council members decided that Lyft, Uber and other ride-hailing companies must require their drivers to complete fingerprint-based background checks, a requirement that the ride-hailing companies aggressively lobbied against. (Voters will get a chance to weigh in on these regulations in May, when an ordinance drafted by the ride-hailing companies is on the ballot.)

It was this decision in particular that generated a backlash against City Council Member Ann Kitchen, one of the main architects of the proposal.

A group called Austin4All attempted to force a recall vote on Kitchen by filing a petition with the city clerk. But on Friday the clerk rejected that petition due to a paperwork omission. The biggest backer of the anti-Kitchen effort was Joe Liemandt, founder of software company Trilogy. He contributed $20,000 to Austin4All.

Austin economist Brian Kelsey said Austin is one of a number of tech regions facing collisions between companies developing disruptive technology and those charged with regulating it.

“Public policy is always going to be playing catch up with technological innovation,” Kelsey said. “That’s true at the federal level and especially true at the local level. But when we have questions of public safety or how we tackle land use and neighborhood planning, of course the city government has to step in and take a position. “

According to research done by city of Austin staffers, at least five other major U.S. cities, including Houston, conduct the background checks for ride-hailing drivers rather than letting the companies conduct their own background checks. And in other U.S. cities, such as New York, short-term rentals for under 30 days are forbidden.

A slap in the face?

For HomeAway co-founder and CEO Brian Sharples, the clampdown on short-term rentals feels personal.

“I’m not sure it was intended to be a slap in the face of HomeAway, but it’s a little embarrassing for us to essentially have our prime product be illegal in the town in which we operate,” Sharples said.

Launched in 2005, HomeAway has built a network of websites with more than 1 million vacation home listings in almost 200 countries, making it the world’s leading platform for online vacation rentals.

The company, which was acquired by online travel giant Expedia in December for $3.9 billion in cash and stock, has 1,300 employees in Austin.

Sharples said Austin needs to decide whether it wants to be welcoming to startups that are using technology to build new kinds of businesses.

“It does send a signal to some entrepreneurs that maybe the city isn’t the friendliest to innovation and change,” Sharples said. “City Councils will come and go, and opinions will change. Unfortunately, the actions of a small group do reflect on the impressions that people outside the city have.”

Austin entrepreneur Dan Graham said it also matters what message the city is sending investors.

“One of our biggest challenges as a city is convincing venture capitalists to invest more dollars here,” said Graham, founder and CEO of BuildASign. “The availability of capital is what encourages entrepreneurs to start businesses, and it encourages the entrepreneurs we have to stay in Austin.”

Political consequences

The Maples tweet did not go unnoticed at Austin City Hall. Adler downplayed the comment as just one man’s opinion, pointing to a recent quote from Dallas billionaire Mark Cuban as evidence of investor support for Austin.

“Every startup stands on its own merits,” Cuban told CultureMap Austin. “As long as the rules apply to all competitors, then it would depend on the economics of each deal.”

Adler said Maples’ comments don’t change the “fundamentals” of Austin being an innovative city “where good ideas become real.”

“Most investors like Mark Cuban know that Austin is still vibrant and our investment community is growing,” Adler said.

Kelsey said it’s important to note that the entire tech community is not aligned in the belief that the city’s position is harmful. “There are some companies here that could stand to benefit from whichever direction the city decides to go on the sharing economy,” he said.

But for Austin City Council Member Ellen Troxclair, who voted against both regulations that the tech community is unhappy about, Maples’ message was exactly what she feared.

“To me it was really a display of how over-regulation has a tangible economic impact,” Troxclair said. “One of the reasons, clearly, that Austin has been so successful is because of our image as this innovative forward-thinking city, and yet the city is making decisions that are going to negatively impact entrepreneurs and the tech community.”

The Kitchen recall effort has raised the question of what the political consequences could be for the current council members. There are about 100,000 people employed in the tech community in Austin.

Local Democratic political strategist David Butts — who has worked on the campaigns of Adler and other City Council members — said there’s no doubt that the council’s votes on ride-hailing and short-term rentals will have an influence in the 2016 council elections. He said some incumbent council members who voted for the new regulations could face opponents who will campaign on the opposite side of this issue.

Butts says he wants to frame the discussion around the attempted “corporate takeover” of the Austin City Council and the effort to “undo what are reasonable laws for the public’s interest to benefit a profit margin for a multibillion-dollar corporation.”

In particular, Butts said he is concerned about the May vote on the ride-hailing ordinance. He helped set up a political action committee to fight it.

“(Uber and Lyft) have enough money to be successful,” he said, and are skilled at building political support among their users.

“Can Austin resist that?” he said. “We’ll find out.”

Austin’s job growth boomed in 2015, despite state’s energy sector woes

This article was written by Dan Zehr and appeared in the Austin American-Statesman.

Austin’s job growth boomed in 2015, despite state’s energy sector woes

The first of the annual revisions to 2015 Texas workforce data made two things abundantly clear — that depressed energy prices hammered the state’s oil and gas workforce last year, and that Austin keeps barreling through the statewide headwinds.

Revised data released Friday by the Texas Workforce Commission showed that Austin-area employers added 9,600 more jobs than initially reported, even as energy-heavy regions suffered sharp downward revisions to their 2015 payroll figures.

All told, employers in the Austin metro area added 44,500 jobs last year, a 4.7 percent increase, according to the commission’s revised data.

Preliminary data released earlier this year suggested local employers had expanded payrolls by 3.8 percent — a remarkable enough rate in a year when many observers expected local job growth to moderate.

Rather than cooling, though, the revised data showed Central Texas payrolls expanded faster in 2015 than in the prior two years.

“That is incredible,” said Brian Kelsey, founder of Civic Analytics, an Austin-based economic development firm. “It goes to show Austin’s economic resilience in the face of strong headwinds emanating from the rest of Texas.”

The revisions to last year’s data almost made the typical January workforce chill an afterthought. As usual, the Austin metro unemployment rate ticked higher in the first month of the year, to 3.2 percent from 3.0 percent in December, the commission said.

Local employers slashed 13,000 jobs during the month, a drop of 1.3 percent, according to commission data. In fact, the commission reported only three industry sectors that added jobs in January — federal government, state government and credit intermediation and related services firms.

However, even those payroll cuts were lighter than the typical January contraction, according to commission data.

“Of course a loss of 13,000 jobs could be alarming, but we know that is the trend in January,” said Tiffany Daniels, director or communications and employer engagement at Workforce Solutions–Capital Area Workforce Board. “Seasonal hiring, contract end dates and the start of new fiscal years can all affect job creation.”

Daniels said the board saw no major layoffs during January, and the “exceptional” annual job growth rate left her “more than encouraged.” The numbers explain more about the time of year than about the health of the Central Texas labor market, she said.

In fact, after adjusting for seasonal workforce trends, Austin’s unemployment rate dropped. The commission doesn’t immediately make adjustment to its local data, but calculations by the Federal Reserve Bank of Dallas put Austin’s seasonally adjusted jobless rate at 3.2 percent in January, down from 3.3 percent in December.

Statewide, the seasonally adjusted unemployment rate ticked down to 4.5 percent from 4.6 percent in December, the commission said. The national jobless rate fell to 4.9 percent from 5.0 percent.

On Friday, the U.S. Bureau of Labor Statistics also reported U.S. employment data for February. The nation’s seasonally adjusted unemployment rate held steady at 4.9 percent last month.

One of the few potential hitches in Austin’s workforce data appeared in the professional, scientific and technical services sector. Those firms, which employ many of Austin’s high-tech and white-collar workers, cut 2,400 jobs during the month, an unusually large number for a January, according to the workforce commission.

While month-to-month data can fluctuate widely, especially at the local level, the chill fit somewhat with a more cautious trend around Austin tech, said Cory Kruse, president of Novotus, a locally based staffing firm.

“I’ve seen at least in the last quarter – coming out of the holiday quarter – I’ve seen folks kind of holding off on tech hiring, at least from some of the bigger folks,” Kruse said.

What has increased, he said, is contract work. With some uncertainty about the statewide, national and global economies, companies are looking hire flex workers rather than full-time. But many workers have also moved toward contract gigs, as well.

“Someone will have one or two different jobs, more flexible,” he said, “and we’re seeing that more than two years ago when people were really hunkered down.”

The high-tech industry’s pauses and that preference for contingency staffing ebb and flow. With several large companies already hiring, like Apple, or getting ready for large expansions, like Oracle, tech hiring probably won’t stay static for long, Kruse said.

Either way, it seems less likely that the local job market will suffer any significant pain from the state’s depressed energy sector. The commission’s revisions pushed Austin’s job-creation rates higher, even as its adjustments revealed an even harsher fallout for oil and gas jobs and the regions where they’re concentrated.

According to the commission’s initial estimates, firms in the oil-and-gas extraction and mining-support industries cut 38,600 jobs across Texas in 2015. That figured ballooned to 57,700 job cuts in the revised data released Friday.

Energy-heavy Houston saw a slight upward revision, thanks to the industrial diversity that comes with such a large metro area. The heavy oil-and-gas presence in Midland and Odessa, on the other hand, left both areas with sharp downward revisions.

Midland’s total job count dropped 9.8 percent after the commission’s revisions. Odessa’s fell 12.5 percent.

Austin sees another year of record new car sales

This article was written by Claudia Grisales and appeared in the Austin American-Statesman.

Austin sees another year of record new car sales

The good times continue for Austin-area auto dealers.

For the fourth consecutive year, Central Texas dealers posted record sales of new vehicles in 2015.

Dealers sold 133,428 new cars, trucks, vans and SUVs last year, according to data from Dallas-based Freeman Auto Report, which tracks new auto registrations in Travis, Williamson, Hays, Bastrop, Burnet, Blanco and Caldwell counties.

The 2015 sales total is up 84.6 percent from 2009, the region’s low point during the recession.

And while new auto sales on an annual growth basis slowed to 2.6 percent — down from double-digit increases just a few years ago — the figures are just the latest reminder that Austin’s economic engine is still running strong.

“Economic growth and low unemployment in Austin are positively impacting wages… and over the past couple of years we’ve seen an unprecedented net inflow of wealth from people moving here from other states,” said Austin economist Brian Kelsey, founder and principal at economic research firm Civic Analytics. And “interest rates are still low. All of these factors are likely contributing to new auto sales volumes.”

Sales of new vehicles are a key indicator of an area’s consumer confidence, as purchases of big-ticket items such as a new car tend to indicate consumers aren’t worried about their job status or economic stability.

The 2015 numbers reflect the region’s highest sales figure for the industry since the Freeman Auto Group began tracking the data in the mid 1990s. The recent series of annual sales records began in 2012, when auto sales reached 105,440, and have climbed steadily since.

“Pinch me, we are lucky to be in Austin,” Vicki Roberts, dealer principal for Lexus of Austin, which also opened Lexus of Lakeway last year, said of the sector’s gains.

Still, it’s possible that the new car sales trends could be heading for a plateau, some industry experts have warned.

In Austin, this year’s new car sales annual growth rate saw its smallest increase in nearly a decade at 2.6 percent, below dramatic gains of 14 percent to 15 percent seen from 2011 to 2013. In 2014, the rate was 7.8 percent.

Roberts said it may challenging for the industry to see gains of 8 percent or more this year, but Lexus remains confident in the Austin market.

“We are still bullish. We like the market,” Roberts said.

There are still signs that dealerships are confident in the Austin market. Last month, the Cavender Auto Family announced plans to open Toyota of Cedar Park in 2017 along the U.S. 183-A tollway.

Experts say that a fourth straight year of record sales signal the industry continues to be fueled by strong population growth, lower gasoline prices and a healthy local economy.

This month, for example, average gasoline prices continued to fall, dropping to below $1.50 in some Austin locations, driven by a continued dramatic slide in global crude prices.

And last year, Austin’s job growth grew 3.8 percent — ahead of the same rate a year earlier — despite headwinds such as lower oil prices and other economic challenges. And the region’s housing market ended 2015 still among the hottest in the nation with record home sales for the fifth straight year.

Kelsey said the latest gains could also reflect other boosts to the local economy.

For example, it took 15 years, but inflation-adjusted average wages in Austin are now back up to pre-recession levels, playing a key role in the local economy, Kelsey suggests. And now Austin is a top destination for new residents, also fueling the gains in jobs, housing and auto sales.

“In fact, Austin now ranks among the top places in the country for net inflow of wealth from movers, right up there with high-income retirement areas in Florida, as well as Phoenix,” Kelsey said.

The latest report also signals the economy continues to show improvements since its recession days.

New car sales in the region reached 100,090 in 2007 before falling 18 percent to 72,277 in 2009. But the sector began to see a turnaround by 2010, with new car sales increasing 2.6 percent or more since.

In 2015, Austin-area auto dealers saw an up and down year in terms of monthly gains or declines, starting out the year on a sluggish note with a 6 percent decline before posting a series of gains late Spring into the summer. By the fall, dealers saw the up and down pattern return, but ended the year on a positive note with monthly gains in the final three months of the year.

Greg Kimball, general manager at Town North Nissan, said he suspected 2015 would be a strong year for the region. His dealership on Research Boulevard near MoPac Boulevard (Route 1) saw brisk traffic last year, with a record-breaking December to top off a busy year.

Kimball agrees that the economy, population gains and lower gasoline prices made a difference in the year’s new car sales growth. Also, manufacturer incentives made a difference, he added.

This, as the Federal Reserve in December raised its benchmark interest rate for the first time in nearly a decade.

“We didn’t really see much of a backlash,” Kimball said.

And he suspects Austin could see more good news on the new car sales front this year.

“Last year was great,” Kimball said. And “This past year wasn’t a let down for us. As for 2016, I don’t see any reason it would be any different.”

Overall for 2015, the top seller in the Austin area for new vehicles was Ford, which saw 19,302 sales of cars, trucks and sport-utility vehicles, according to the Freeman Auto Report.

Ford was followed by Chevrolet, which saw 16,753 sales, and Toyota with 14,982. Nissan posted the next top sales figure with 11,851, followed by Honda, Hyundai and Jeep, which all posted 6,000 to 12,000 in sales each last year.