why tech companies are in San Francisco when they could have cheap offices and fast internet pretty much anywhere?
In: Technology
Prestige and access to talent.
These days, when anyone in tech can arguably work more productively remote, it’s mostly prestige.
Because for the most part people don’t want to live in those places. You need to have offices where the talent pool is. Since the tech industry essentially started around Silicon Valley the labor force has been there. The Bay Area is a great place to live if you have a high income like tech employees generally have.
For the same reason that here in Canada all of the big financial institutions are in Toronto rather than Regina or Prince Rupert where it’s much cheaper, because that’s where the most talented graduates and the supporting institutions are. A lot of people want to live in big cities and it is difficult for some companies to find people who are willing to work in more provincial areas, especially if they aren’t getting really big relocation bonuses.
It’s a self-sustaining cycle. Tech companies are in the Silicon Valley. That means the talent (engineers, programmers, etc.) go to the Silicon Valley to work.
If you form a new company, do you want to be in the middle of nowhere where you have to fight to attract employees? Or do you want to be in the Silicon Valley where you can just poach from Cisco/Oracle/Apple/Facebook/Google/Intel, etc.?
And employees face the same question. You could get a tech job in Kalamazoo. But if you don’t like that job, there’s no local employer to move to. So you take the job in Silicon Valley. If you don’t like it at Google, you go to Facebook just down the road.
Silicon Valley originally arose around San Francisco because universities around there, including Stanford and Berkeley, were pioneers in early computing. Now, tech companies continue to have headquarters in San Francisco because that’s where the industry is. Sure, it’s expensive to be there, but there are a lot of benefits to being where all the other tech companies are. There are lots of tech employees there, so you have a lot of people you can hire without them needing to relocate. There are tons of associated businesses there; if you need a PR firm, or a law firm, or investors, who are specialized in working with tech companies, SF is where you’ll find them. Even though it’s possible to do a lot of this stuff remotely, and you don’t need to be in the same city as the people you work with, it’s preferred, so companies want to be where all the other companies are.
Although slightly off topic, the documentary, [From Controversy to Cure](https://vimeo.com/444879438) about how Kendall Square in Cambridge, MA became the “silicon valley of biotech” sheds some light on the answer.
They can’t get venture capital funds outside of SF area. SV tech bubble is also a long-game political strategy run by leftist elites.
a large percentage of skilled technological workers live there so they have more access to talent there, plus a large amount of tech companies are in the sf bay area so you will be able to access technological suppliers there
plus many of the skilled interns live there so they can get away with paying low salaries to the guys most experienced with new tech
In addition to what others have said, more and more, companies are leaving SV and leveraging remote workers. I don’t know if it’s a net negative, but it is happening. Probably around 1/3 of my tech friends now either work from home or moved with their companies. Austin is a popular tech city now, but I hear the cost of living is already shooting up like crazy as a result.
Taxes. Large tech companies CAN do what they do anywhere, so they routinely threaten to leave the area unless they get tax incentives to stay. See Amazon in Seattle as an example, or Boeing in New Jersey.
Edit: in most cases the benefit of a reduced tax liability is preferable over a reduced operating cost. While a lower operating cost would result in higher profit, that higher profit is still taxed at a corresponding rate, resulting in more taxes paid. But higher expenses mean more cost deductions for tax calculation, PLUS the negotiated tax incentive, resulting in significantly less profit being lost to taxes compared to a lower cost of operating.
Latest Answers