When Keith Richman moved from Silicon Valley to West Hollywood in 2002 to start an Internet company, he wanted to quickly plug into the local tech community.
But there was a problem: He had a hard time finding one.
Richman had already started and sold two companies, and he moved to the entertainment capital of the world because he planned his next venture to blend the Internet and media. But Richman was used to moving in a milieu of entrepreneurs, and his new home seemed dead.
The wreckage of the dot-com crash was still smoldering and the handful of executives at then-unknown startups such as LowerMyBills.com and Intermix Media weren't arranging get-togethers. Richman even had trouble finding qualified local job candidates.
"There wasn't really what I would call a community," said Richman, now chief executive at Break Media, a Beverly Hills-based Internet company that targets an audience of young men. "It was just people. There were a few organizations, a few angel investors. That was really it."
Richman didn't know it then, but Los Angeles was in the midst of an evolution that would catapult it ahead of Silicon Valley and to the forefront of the tech world.
A Business Journal analysis of federal Bureau of Labor Statistics data from 1999 to 2008 shows that Los Angeles has surpassed Silicon Valley in total number of tech-related jobs, despite the Northern California region's reputation as the epicenter of the industry.
At the height of the dot-com bubble in 2000, Silicon Valley had 16 percent more tech jobs than Los Angeles. But when the bubble burst, Silicon Valley tech jobs experienced a freefall a decline of 10 percent in 2001, and 22 percent in 2002 from which the region struggled to recover. Los Angeles, with a more diversified economy, surpassed Silicon Valley in tech jobs in 2002 and still holds a slim lead. In 2008, L.A.'s tech community had 122,000 jobs, compared with Silicon Valley's 119,000. That puts Los Angeles second nationwide only to New York, which has 172,000.
The numbers, which include jobs in industries such as Internet, energy, aerospace and video games, prove Los Angeles can rightfully claim to be the tech capital of the West Coast.
Surprised? You're probably not alone. Even among some of L.A.'s technocrati, there's a perception that they toil in the shadow of Silicon Valley. Part of the reason is Silicon Valley is home to the most recognizable tech companies on the planet, including Internet giants Google Inc. and Facebook Inc., and iPod manufacturer Apple Inc. By comparison, L.A. tech companies are often lower profile. While Google has a sprawling complex in Mountain View dubbed the Googleplex, MySpace.com, a unit of News Corp. that is one of the largest social networking sites in the country, hasn't even put up a sign outside its Beverly Hills headquarters.
Despite that reticence, L.A. tech companies have been growing. A video game industry renaissance has fueled a boom in area game studios, including two of the largest game publishers in the country, THQ Inc. and Activision Blizzard Inc., which alone employs more than 1,300 people in the L.A. area.
Recent interest in alternative fuel vehicles and renewable energy has led to a string of startups that stretches from Long Beach to Palmdale and includes companies that build electric cars, rechargeable batteries, and solar and wind power. And local aerospace and defense companies, while not operating at the heights they saw during the Cold War, have pumped talent and technology into other local startups. What's more, the region's universities including UCLA, USC and Caltech produce one of the nation's leading talent pools of engineers.
"Los Angeles has a lot of historic advantages, and a lot of ties to aerospace and Hollywood," said Kevin Klowden, managing economist at the Milken Institute in Santa Monica. "A lot of development has happened in Silicon Valley, but a lot has happened here, too."
Richman can testify to what he's seen of L.A.'s ascent.
Now, his e-mail inbox is bombarded with invitations to university conferences and local tech parties at posh hotels. His company, which has grown into a network of Web sites with a monthly audience of 60 million, has little trouble filling jobs from a growing local talent pool.
And what happened to those relatively unknown startups he heard about when he first arrived, LowerMyBills.com and Intermix Media? Credit information company Experian Plc. paid $330 million for LowerMyBills in 2005. That same year, News Corp. bought Intermix Media which had since become MySpace for $580 million.
Given the sheer size of Los Angeles, tech still makes up only a fraction of the overall job pool about 2.3 percent. That's far lower than Silicon Valley, where about 13 percent of all jobs are tech related, and a smaller percentage than other tech centers such as New York, Seattle and Boston.
But L.A.'s lower proportion of tech jobs likely played a role in softening the blow of the dot-com crash, and may have made the region ripe for a quicker rebound. While Silicon Valley experienced double-digit declines in tech jobs in 2001 and 2002, tech jobs in Los Angeles only fell 4 percent and 3 percent those years, respectively.
"Silicon Valley was much more heavily oriented toward computer-related tech, while in Los Angeles the jobs were traditionally more engineering related," said Jerry Nickelsburg, a professor at the UCLA Anderson School of Management.
L.A.'s robust tech sector has also grown in spite of the decline of the local aerospace and defense industries. When defense spending began to dry up at the end of the Cold War, many companies either began to close up or move to other states. A study done by the UCLA Anderson Forecast found that aerospace employments totaled 220,000 in 1990 and declined to just 75,000 by 2006. The gut-wrenching losses led many to fear that Los Angeles would suffer a net-loss of tech jobs.
Instead, in a phenomenon known as "tech transfer," some aerospace professionals chose to remain in the L.A. area but moved into different fields, including power generation, medical devices and computer sciences. Some even jumped to other aerospace companies such as Space Exploration Technologies Inc., a startup in Hawthorne that's building rockets and employs 600 people in Los Angeles. Perhaps fittingly, the company is housed in a warehouse that once was used by Northrop Grumman Corp. to assemble fuselages for 747 airplanes.
"Yes, aerospace in Los Angeles has shrunk, but what's important is the way it's shrunk," Nickelsburg said. "I think a lot of these aerospace engineers, they went out and started their own companies, or they moved into other fields."
Mecca for cars
One industry that has helped fuel growth in L.A. tech and could be critical if Los Angeles wants to maintain its lead in tech jobs is alternative fuel vehicles. Long known as a mecca for car designers and enthusiasts, Los Angeles is also developing a reputation as a new-age car capital.
Many of the major car companies, including Honda and Toyota, have long-established design studios in the L.A. area, and Los Angeles produces many of the world's best car architects. California, meanwhile, is an eco-conscious state with tough vehicle emission standards and incentives for consumers to buy and drive high-mileage vehicles.
CalStart, a nonprofit organization focused on alternative energy vehicles, has tallied more than 50 companies in the L.A. area involved in the manufacture and development of hydrogen, hybrid and electric vehicles. No firm count of those jobs exists, but they easily number in the thousands.
The count includes companies such as AeroVironment Inc., a defense company that builds unmanned drones for the military but also is researching fast-charging devices for electric vehicles. Another company, Quallion LLC in Sylmar, recently announced plans to build a plant in Palmdale that would make rechargeable batteries for vehicles and could generate hundreds of jobs. Los Angeles is even home to some electric vehicle companies, including Coda Automotive Inc., that are seeking to sell electric cars to the masses.
"People can envision a future where Los Angeles becomes the Detroit of electric vehicles," said Mike Madden, manager of industry development at Automotive Consulting Group in Torrance.
Meanwhile, explosive growth in the video game industry has given rise to dozens of studios scatted across Los Angeles. No agency has tallied video game jobs in Los Angeles, but industry watchers estimate about 20,000 people likely work on video games statewide, with a sizable portion of them local.
L.A.'s appeal to these companies is simple: The region has an ample supply of artists, animators, story writers, music composers and sound engineers required to piece together a successful game.
Once regarded as a niche industry, skyrocketing sales have given rise to numerous independent studios in Los Angeles that work on games for platforms ranging from the iPhone to the PlayStation 3. In addition, Los Angeles is home to Santa Monica-based THQ and Agoura Hills-based Activision, two of the largest publishers in the country.
Meanwhile, the second generation of Internet businesses, focused largely on social media, online entertainment and Internet advertising, also has been a job generator.
After the dot-com bust, entrepreneurs looking for a fresh start or a way to capitalize on growing consumer interest in digital media flocked to Hollywood. Simultaneously, movie studios and large media companies such as Warner Bros. Entertainment Inc. and Walt Disney Co. began pouring millions of dollars into beefing up in-house video game and digital divisions. Some of their investments are now paying dividends; Santa Monica video-streaming site Hulu LLC, a joint venture of News Corp. and NBC Universal, is projected to overtake Google-owned YouTube.com in revenue this year.
At the same time, Los Angeles became a capital of companies working in advertising technology. Some companies focused on getting small business to advertise on the Internet, while others built the back-end technology that streamlined ad-buying on the Internet. Companies were drawn to the field because advertising promised revenue, and L.A.'s location promised ready access to media professionals.
"This is a major media location and it has a big, big talent pool," said Tony Winders, a vice president at Westlake Village-based ValueClick Inc., a publicly traded Internet advertising company. "So the tech community settled in here as a hub for the digital advertising business."
Winders estimated that the number of Internet advertising and marketing firms in Los Angeles is "easily in the hundreds." By comparison, he said Silicon Valley likely had only a fraction of that.
The rise of Internet advertising gave Los Angeles a reputation as a place where tech companies put revenue first. While Northern California companies such as Facebook and Twitter.com openly flaunted the fact that they didn't have a revenue model when they started, industry watchers said L.A. companies such as Demand Media Inc. of Santa Monica and Brentwood's MyLife.com always stress revenue and profitability.
"The nice thing about L.A. is that they're really focused on making money," said Jasmine Antonick, a consultant with San Francisco-based Dealmaker Media Inc., which hosts tech conferences in Los Angeles and Silicon Valley. "In Silicon Valley, on the other hand, you often get people who say, 'We'll make money later, but for now we just want to run free and experiment.'"
The looming question for Los Angeles is: Can it retain its edge over other tech centers? Silicon Valley has rapidly been closing the gap as it regains momentum from the dot-com days. In 2003, Los Angeles had about 18,000 more tech jobs than Silicon Valley. In 2008, it had fewer than 3,000 more tech jobs, according to Bureau of Labor Statistics data.
Besides competing against other bastions of technology such as Seattle and Boston, regions such as Austin, Texas, and Washington, D.C., are also emerging as high-tech hubs.
Meanwhile, federal jobs data has not yet been released for 2009, meaning the toll the recession has taken on local tech businesses has not been tabulated.
Luring new companies
To keep its lead, L.A. officials will have to lure new and emerging companies while keeping established ones happy with economic incentives that can offset the high cost of living and working locally, said Klowden of the Milken Institute.
"This is a great place for entrepreneurs and it's a great place to start up a company," he said. "But once their companies reach a certain size, it's an expensive place, and there's no one here telling them to stay."
Still, entrepreneurs have been drawn to L.A.'s burgeoning tech scene. And while tech in Los Angeles is booming, newcomers and veterans alike said that it has retained the intimacy of a smaller community.
That intimacy was what convinced Wil Schroter, an entrepreneur from Columbus, Ohio, to start Gobignetwork here instead of Silicon Valley or elsewhere. While in Los Angeles one day earlier this year, Schroter decided on a whim to send an e-mail introducing himself to Jason Nazar, chief executive at Internet company Docstoc.com and one of the most prominent entrepreneurs in Los Angeles.
Within minutes, Nazar e-mailed Schroter back suggesting the two meet for lunch, and offering to introduce him to other entrepreneurs and investors. Nazar's introduction helped Schroter land a dinner later that same day with Matt Coffin, another big-name entrepreneur who founded LowerMyBills.
"That was a seminal moment for me," said Schroter. "It was a perfect example of how the tech community here is so welcoming. In Silicon Valley, it's not like you're going to show up in town and in a few hours be sitting across from the co-founders of Google. Here, you're a phone call away from anybody. I've never seen anything like it."
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