Tech Giants Plant Flags in Established and Emerging Talent Hubs

Tech Giants Plant Flags in Established and Emerging Talent Hubs

After a yearlong search that saw cities compete for its favor, Amazon announced in November that it had picked two locations rather than one for its second headquarters (“HQ2”) project: the Long Island City neighborhood of Queens, New York, and the Crystal City area in Arlington, Virginia, a major suburb of Washington, DC. The choices proved controversial, as the tech giant had made a spectacle of courting many bidders that may never have had a chance, while both New York and Virginia are giving Amazon generous subsidies to set up shop in their states, despite the fact that these locales are strategically desirable locations for tech companies anyway.

While some observers had speculated that Amazon would pick an up-and-coming city in the US heartland, where the introduction of such a huge employer would transform the local economy, in the end, the choice came down to talent, and the New York and DC areas simply offered better access to talent than any other city Amazon was considering. (It’s also setting up a smaller operations center in Nashville, Tennessee — more on that later.) It’s no coincidence, Recode’s Jason Del Rey observed at the time, that the winning bidders were among the country’s leading tech talent hubs:

[W]hat do you see when you look at rankings of the top technology talent pools in the U.S.? Only two metro areas rank above the Washington, D.C., metro area: The San Francisco Bay Area, which Amazon never considered, and Seattle, the home of Amazon’s original headquarters. At No. 3, Washington, D.C., makes a lot of sense. Fourth is Toronto — but despite its booming tech scene, Amazon never gave any hints that it would seriously consider a big move across the border. Which brings us to No. 5 on the tech talent list: New York City.

Ultimately, Amazon decided it needed two cities — whether it always knew this or not is up for debate — to meet its hiring demands and to reduce some of the potential downsides that Seattle has experienced as a result of Amazon’s 45,000-employee footprint there.

Establishing these new headquarters will take years, the Wall Street Journal added this month, perhaps as much as a decade, because Amazon plans to do most of its hiring for them locally rather than relocate workers from its home base in Seattle. By the end of next year, the company plans to add 400 employees in Crystal City and 700 in Queens — out of an expected total of 25,000 in each city by 2028, assuming the e-commerce giant continues its trajectory of rapid growth.

Amazon’s decision underscores the importance of talent communities for major companies making strategic planning decisions with regard to location. While many workers in tech and other digitally-enabled professions can work remotely today, most organizations still prefer to recruit and base the bulk of their workforce in centrally located offices, so it pays to set up shop in a place where the talent you need already lives or would be willing to move.

The broader economic effects of this trend are curious and potentially troubling, as the pursuit of scarce, geographically concentrated pools of skilled employees creates a feedback loop that can exacerbate inequality between these “superstar cities” and other, smaller cities and rural areas, Emily Badger pointed out at the New York Times — while also making it harder for employers in these less-fortunate areas to find the talent they need:

“It’s just absolutely hard-wired into technology economies,” said Mark Muro, a senior fellow at the Brookings Institution. “It’s not just a sort of interesting thing that happens — it’s inherent to the technology.” …

In that sense, we look naïve in even raising the question that this could have gone to a different kind of Midwestern, heartland place,” Mr. Muro said. “There wasn’t really an alternative.”

By choosing to go where high-skilled workers and other prosperous companies already are, Amazon will effectively ensure that more companies follow it in turn. Opportunity will concentrate further. The differences between, say, New York and Scranton, Pa., will widen. This divergence, underway for about 30 years, has accelerated since the Great Recession.

At the same time, Amazon’s entry into the local and regional economies of New York and Northern Virginia will also put the squeeze on other employers in these areas by tossing a giant talent magnet into a tight labor market, Bloomberg noted in November. In New York, those employers include Wall Street financial firms; in the suburbs of Washington, DC, they include the federal government and companies that do business with it, such as defense contractors. The need for programmers, data scientists, and other tech talent is large and growing in both finance sector and the public sector, while Amazon will also compete for managers, administrative staff, and other non-tech employees (only about half of the jobs Amazon’s New York City expansion will create are in technical roles).

Government and defense sector employers near the nation’s capital are particularly sensitive to this heightened competition, Government Executive’s Lindy Kyzer pointed out, warning that “the government’s struggle to attract talented technologists is about to get a lot harder”:

While the area may have available office space, there is one thing it doesn’t have in abundant supply—talent. There is demand for tech talent across the country, but the tech skills talent shortage is even greater in the Washington metro area. The LinkedIn Workforce Report shows a 212,838 person shortage of software engineers in Washington. Why such a skills shortage in the nation’s capital? Just like every other region, everyone needs tech talent. In Washington, you have not just the demand for health, finance, and commercial tech, you also need skilled professionals to keep the defense industry and Intelligence Community in business. …

Amazon will likely add to the current hiring trend of poaching for great technical talent, and it will be able to offer both competitive salaries and stock options, a benefit rare among federal contractors and not available to government employees. And commercial sector positions won’t face the issues of continuous evaluation or government data breaches.

Amazon isn’t the only big tech company making a big push into New York City; Google announced plans this week to spend $1 billion opening a new campus in downtown Manhattan over the next several years, Fast Company reported:

In total, the new campus will cover 1.7 million square feet of space, and Google says the Hudson Square campus will be the primary location for the company’s New York-based Global Business Organization–the search giant’s sales division.

Google says the new Hudson Square campus will give it the ability to more than double its current staff of 7,000 in the city over the next decade, meaning by 2028 Google could employ at least 14,000 people in NYC. But though Google is announcing the new campus today, it’ll be a few years before anyone can move in. Google says the buildings at 315 and 345 Hudson Street will be ready for employees starting in 2020, and the 550 Washington Street location will be ready in 2022.

The moves by the two tech giants underscore the growing prominence of technology in the New York City economy, the New York Times adds:

Since 2009, jobs in tech and advertising in New York have increased 31 percent to 360,600, while financial-services jobs in the city increased about 12 percent to 475,500, according to an analysis of federal data by Ken McCarthy, principal economist at the real estate firm Cushman & Wakefield. By contrast, the education and health sectors employ about one million people in New York, while the hospitality industry employs 465,800, according to his analysis.

Mr. McCarthy said federal data categorized jobs based on the employer, meaning any bank employee is counted as finance. But New York’s traditional industries — banking, retailing and consulting — have also added thousands of tech jobs. JPMorgan Chase, Goldman Sachs and Citigroup each employ thousands of tech workers, including many in new fields like data science, blockchain and machine learning.

And New York’s tech sector is accelerating. Over the past year, the share of New York postings on the job site Indeed increased nearly 13 percent for tech jobs and just 2 percent for finance and accounting jobs. About 5 percent of all New York jobs posted on Indeed are now tech related, the site said, compared with 3 percent for finance and accounting.

At the same time as they are expanding in these legacy cities, tech sector heavyweights are also making moves in smaller cities where the tech community is less well-established, but growing. Amazon’s operations center of excellence in Nashville, plans for which were announced contemporaneously with its choices for HQ2, will create some 5,000 job opportunities in the Tennessee city, representing the biggest one-time infusion of jobs in the state’s history. The same day, the accounting firm EY said it would expand its presence in Nashville with 600 new employees. The Tennessean took a look at the broader talent implications for the area, where local employers will also face the disruption of new, large, cash-flush competitors:

Nashville recruiters have this advice for local tech employers in the wake of Amazon’s announcement of 5,000 new jobs in city: Prepare for poaching. … “A tight job market is going to get tighter,” said Craig Buffkin, managing partner of Brentwood-based recruiting firm Buffkin Baker. “There will be quite a few employers who will end up losing people to that new group. It’s sexy and new and a shiny new object.”

In Nashville, the unemployment rate is 2.9 percent. Jeff Haithcoat, a director of Brentwood recruiting firm Vaco, described the local tech unemployment rate at “effectively zero percent,” as every local sector now needs highly skilled tech employees. The Nashville Technology Council is among local groups that have launched initiatives and training programs to build the local pipeline of talent and boost recruitment efforts.

Nashville tech leaders and company officials acknowledged that there may be some retention challenges for local firms, but emphasized the Amazon presence is a significant win for expanding the city’s tech talent.

That’s the other side of the coin, particularly for smaller cities. Their hope is that in attracting a big-name employer like Amazon, they become a more desirable destination for techies and are able to attract a larger community, ultimately growing the talent pool for other local employers to draw from.

Apple, too, announced last week that it would be opening or expanding its offices in several cities outside its Silicon Valley home base, TechCrunch reported:

Apple has announced a major expansion that will see it open a new campus in North Austin and open new offices in Seattle, San Diego and Los Angeles as it bids to increase its workforce in the U.S. The firm said it intends also to significantly expand its presence in Pittsburgh, New York and Boulder, Colorado over the next three years.

The Austin campus alone will cost the company $1 billion, but Apple said that the 133-acre space will generate an initial 5,000 jobs across a broad range of roles with the potential to add 10,000 more. The company claims to have 6,200 employees in Austin — its largest enclave outside of Cupertino — and it said that the addition of these new roles will make it the largest private employer in the city. Beyond a lot of new faces, the new campus will include more than 50 acres of open space and — as is standard with Apple’s operations these days — it will run entirely on renewable energy.

Looking at why Apple chose these particular cities for their expansion, Wall Street Journal reporter Tripp Mickle wrote that the decision “draws a road map of its transformation away from its identity as an iPhone maker toward a future reliant on services and higher-priced devices”:

Culver City gives Apple a Hollywood homebase as it pushes into video programming. Seattle is a machine-learning hub where it can develop algorithms that personalize streaming-music playlists and improve Siri. San Diego and Austin offer semiconductor engineers who can advance the customized-chip efforts that help Apple wring more money out of its iPhones, iPads and Macs.

In general, if West Coast tech companies are looking outside their immediate surroundings in the San Francisco Bay Area and Puget Sound, it’s because they need to look farther afield to sate their thirst for skilled talent, the New York Times pointed out in response to Apple’s move to Austin:

“They’re expanding out,” said Mark Zandi, chief economist at Moody’s Analytics. “Tech talent is in very short supply. So if these tech companies want to grow and flourish, they need to find talent in other parts of the country.”

The chase for tech talent has been global for decades, and Silicon Valley’s older companies have had big offices all over the world for years. Intel, for example, has far more employees in Oregon than it does in California. Hewlett-Packard, which split into two companies three years ago, has had large outposts in Idaho and Oregon.

Amazon, Apple and Google are now increasingly adopting the same strategy as they hire for growth and pursue the brightest minds in new technologies, in an effort to outmuscle one another. Over the past two years, Amazon’s work force has doubled to 613,300 employees; Google’s parent, Alphabet, has increased its head count by 35 percent, to 94,300; and Apple has grown nearly 14 percent, to 132,000 workers.

That doesn’t mean tech companies are abandoning their original hubs, however. Just this week, the Austin-based job search engine Indeed leased new office space in downtown Seattle, GeekWire reported on Tuesday, grabbing 200,000 square feet or enough room for around 1,000 new employees:

The new office more than doubles Indeed’s presence in Seattle, said Raj Mukherjee, senior vice president of product, in an interview with GeekWire. Underscoring the scale of Indeed’s growth in Seattle, the company foresees holding on to its two current locations, at least in the short term, even after the new offices are ready, starting in 2020.

Indeed has quietly been one of the fastest growing tech companies in the Seattle region. It went from 80 Seattle employees in 2016 to 170 a year ago, to more than 400 today. Indeed’s growth is the latest example of an out-of-town company taking a huge chunk of Seattle real estate to attract and retain top-tier tech talent, a trail blazed by giants like Google and Facebook. Seattle is the company’s largest engineering hub outside of its headquarters. The self-proclaimed number one job site has 7,400 employees spread across 27 offices in 14 countries.