Web 2.0 companies settling in San Francisco

May 22nd, 2010 by Rahul Leave a reply »

After David Sacks decided to move his social networking startup to the Bay Area last year, he faced another choice: Should he set up shop in Santa Clara County, the traditional heart of Silicon Valley?

Instead, the founder and CEO of Yammer — a Twitter-like microblogging service for the office — settled amid a cluster of other social networking startups in the South of Market area of San Francisco, close to restaurants, bars and other big-city entertainment attractions.

“Even five years ago, I think it would have been a pretty unusual thing to start a company in San Francisco” instead of the valley, Sacks said in a recent interview in the renovated warehouse building at 410 Townsend St. that Yammer occupies with seven other tech companies. “But now it’s at least 50-50 what you would do.”

From startups such as Yammer, CoTweet and Klout, to maturing mainstays of the social Web such as Facebook, YouTube, Yelp and Twitter, “Web 2.0″ social networking companies are increasingly flocking to the area between Oregon Expressway in Palo Alto and Market Street in San Francisco, drawn by a more urban environment that appeals to their younger, hipper work force.

Unlike 1990s-vintage Internet companies such as Google, Yahoo and eBay, and older hardware and device makers such as Intel that grew to maturity in Santa Clara County, many social Internet firms created in the past few years see their future to the north.

The trend doesn’t hreaten to steal economic vitality from the traditional heart of Silicon Valley so much as to redefine it culturally and geographically.

Steve Blank, who teaches entrepreneurship at Stanford and studies Silicon Valley history, said it may be time to think of two valley cultures, a “social Silicon Valley” on the Palo Alto-San Francisco axis where entrepreneurs are finding ways to fit technology to social needs and human relationships, and a “traditional Silicon Valley” in southern Santa Clara County, where companies focus more on technology, like software algorithms and designing chips.

“When I’m thinking about social Silicon Valley, I’m talking about the explosion of companies making social networking or socialization software. Twitter and Facebook are the canonical examples,” Blank said. “That’s different from the traditional Silicon Valley.”

Fast-growing Facebook in Palo Alto and Twitter in San Francisco’s SOMA form the bookends of that social movement, and both are spawning an ecosystem of related companies on the Peninsula and in the city. Downtown Palo Alto is home to a cluster of companies trying to bring the social principles of Facebook and Twitter into the workplace, including Jive Software, which announced this week that it would relocate its headquarters from Portland, Ore.

“In my observation, startups that use hard science to solve hard problems tend to locate in southern Silicon Valley — Mountain View and south,” said Jack Herrick, founder of wikiHow, a collaborative how-to site in Menlo Park. “Alternatively, startups that might need strengths in artistic creativity, social insights and Web 2.0 technologies tend to locate in northern Silicon Valley.”

Yelp CEO Jeremy Stoppelman said many social Web sites need skills different from the hard-core engineering dominant in Santa Clara County. “A lot of these social sites rely on understanding psychology, understanding game design, or understanding Web design, and a lot of those folks tend to want to be in the city,” he said.

Some social networking startups say they need an urban vibe to prosper. Entrepreneurs behind companies such as DailyBooth, where members tell their “life story in pictures” by posting daily photos of themselves on the site; Klout, which measures the influence of content creators across online social sites; and Involver, which helps other companies do marketing on Facebook, say even the Peninsula is too homogeneous, too milquetoast — in short, too suburban.

Joe Fernandez, founder and CEO of Klout, says he is looking for people who tend to be outside the married-with-kids suburban ethic — those who can apply the cultural ferment of urban life to the online world.

“When I think of a company where it’s a 9-to-5 job, and everyone kind of goes back home to the suburbs with their families and locks themselves away in their houses and does the same thing every night, it doesn’t fit with the creativity and innovation that we need,” Fernandez said.

Urban life, he said, “sparks a level of creativity that I believe translates into a person’s work.”

Historically, Blank said the geographic definition of “Silicon Valley” was San Jose to Palo Alto, with an extension into southern San Mateo County to incorporate Oracle. But with many SOMA-based social Internet entrepreneurs referring to themselves as being part of “the valley,” the definition may be increasingly cultural rather than geographic.

“Silicon Valley has moved from being a geography to being a state of mind,” Blank said.

While San Francisco does not keep statistics on the number of social networking startups moving to or launching in the city, census data says the city saw a 47 percent jump in its population of computer engineers from 2005 to 2008, with growth particularly strong among women. This is not the first time SOMA has attracted a wave of Internet startups. Many were casualties of the 2001 bust, but this time, San Francisco officials hope to hang onto successful companies such as Twitter and entertainment and restaurant review site Yelp.

“We’re good at starting companies,” said Ted Egan, chief economist for the city of San Francisco, “but we tend to lose them as they grow.”

An Internet increasingly based on human connections is certain to be a central element of the future, but the traditional heart of Silicon Valley isn’t necessarily missing out on the next big thing. Economists and groups such as Joint Venture: Silicon Valley Network say the core of the Bay Area from San Francisco to San Jose is essentially a single economic unit in which everyone benefits from the success of any company within it.

For many social Web entrepreneurs, one of the great attractions of San Francisco is that the connectivity of an urban environment that mirrors the social fabric they are trying to weave online. The city has become a magnet for young Internet entrepreneurs like Fernandez and CoTweet co-founder Aaron Gotwalt, who moved from other parts of the country. They want the Bay Area’s concentration of venture capital, media focus and Internet expertise. But not its suburbs.

While Klout moved from New York, CoTweet moved from central Pennsylvania, and now occupies offices at Pier 38 with a cluster of other startups, many of them social companies that share an eclectic warren of offices that feature wagon-wheel light fixtures that could be refugees from a 1970s steakhouse.

CoTweet helps companies market their brand through Twitter, and Gotwalt said real-life social relationships among the entrepreneurs — such as an ad hoc run from Twitter on Tuesday evenings that attracts people from nearby startups — mirror business relationships. Even as they grow, social networking entrepreneurs like Gotwalt and Fernandez can’t imagine leaving the city.

“I don’t see us purposely going to some nondescript office park on the Peninsula,” Fernandez said. “I don’t see it fitting with the people in this company, or the product and what we’re trying to do.”

Source:http://www.mercurynews.com/news/ci_15137372?nclick_check=1

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