Is Seattle Silicon Valley’s Next Favorite Stop?

Editor’s Note: Hadi Partovi is a technology investor and entrepreneur and is the co-founder and chief executive of the Seattle-based nonprofit Rich Barton, Glenn Kelman, Ed Lazowska, and Ari Steinberg contributed to writing this. 

In the last ten years, the Seattle tech scene has changed quite dramatically.

In the 1990s and early 2000s, the only gigantic software companies in town were Microsoft and Amazon. For a time it even became common knowledge that most Seattle-based startups had only two viable exit strategies: go public, or get acquired by Microsoft.

This led to a lopsided startup ecosystem, with a very small number of tech titans, and a large number of relatively tiny startups, with very little in between.

Unless your startup was clearly on the IPO trail, the shortage of alternative success strategies caused a dampening effect on the startup ecosystem. Whether you were looking for investors or trying to recruit star talent, it’s harder to pitch a startup whose only fallback is “getting acquired by Microsoft.”

Of course, when one invests in a startup, one aims for outright success.  But the presence of reasonably attractive fallback options is still appealing, especially with recruits who may be scared of making the leap to a new startup.

The recent rise of the acqui-hire as an attractive fallback strategy has created an incentive for a lot more Silicon Valley entrepreneurs and engineers to try their hand at a startup.  But the same incentive has been missing in Seattle, because there have historically been very few potential acquirers for most tech startups.

The last 10 years have seen a sea-change in this dynamic in Seattle, caused by two forces.

The first part of the change has been the rise of a new breed of large Seattle-based tech companies – companies that are still smaller than the two local titans, Microsoft and Amazon, yet large enough to fill out the middle tier of the tech ecosystem.

This group includes public companies such as Expedia, Zillow, Tableau, Zulily, as well as very large acquisitions such as PopCap Games, Isilon, Big Fish Games or Bluekai. Along with older companies such as Adobe and Real, the home-grown tech industry in Seattle now has a sizeable number of companies not only at the $100 billion valuation, but throughout the $10 billion, $1 billion, or $100 million valuation ranges.

A decade after Google set up shop in this city, Seattle has seen an explosion of Silicon Valley companies setting up their second engineering office.

The second force has been the increasing appearance of Silicon Valley engineering offices in the Seattle metro area. Google was one of the first major Silicon Valley offices to open an engineering office in Seattle, and in fact Google now has two engineering offices – one downtown in Seattle, and one in the suburb of Kirkland, WA.

Ever since Google’s first expansion to Seattle, a host of team-productivity and engineering-productivity tools have arrived on the scene and made it much easier for teams to work together across geographical boundaries – whether it’s Atlassian’s HipChat, the more recent Slack, or tools like GitHub.

A decade after Google set up shop in this city, Seattle has seen an explosion of Silicon Valley companies setting up their second engineering office. Seattle is now home to engineering offices for Google, Facebook, Apple, Twitter, Salesforce, eBay, Dropbox, Uber, SpaceX, Taser, Palantir, Groupon, Hulu, Electronic Arts, Yahoo!, Pivotal Labs, and many others (feel free to list ones I missed in the comments).

Even China’s Alibaba has opened a Seattle engineering office, which is rumored to become the US headquarters for the Chinese e-commerce giant. Many of these offices have only appeared on the scene within the last two years (Apple, Dropbox, Uber, Twitter, Hulu, SpaceX).

Many of these offices are planning to hire thousands of engineers. Some of these Seattle-outposts have even started acquiring smaller startups without requiring relocation to the Bay Area – for example when Google acquired Picnik, or when Salesforce acquired Thinkfuse – enabling a new exit strategy for Seattle’s newest entrepreneurs.

At this point, the Seattle tech scene is demonstrably different than just seven years ago.

There’s a misconception that tech companies expand beyond Silicon Valley to reduce costs – because software engineers demand too much in salaries. This is clearly not the case – and in fact, software engineering salaries in Seattle are on average second only to the Bay Area. The more important factor is that there simply aren’t enough high-caliber, experienced software engineers in Silicon Valley to feed the ambitions and growth potential of these companies. And when they look to expand to open a new engineering office, Seattle stands out as the first stop for three reasons:

(1) Seattle has one of the largest populations of software engineers, in part because of the original recruiting power of Microsoft during the 1980s and 1990s.

In fact, Washington State is one of only 4 states where the most common job occupation is “software developer” (the others are Virginia, Colorado, and Utah). According to the Bureau of Labor Statistics, the Seattle-Bellevue-Everett metro region has more software developers than any other tech region – more, for example, than the San Jose-Sunnyvale-Santa Clara metro.

(2) The University of Washington houses one of the top 10 computer science programs in the country, with a steady flow of graduates who want to remain in the region. A recent analysis of LinkedIn data by a Boston startup found that of UW graduates in the past two years who list their occupation as “software engineer,” 90% reside in Seattle! . The New York Times extensively profiled UW CSE’s impact on the local tech scene in 2012.

(3) Seattle is in the same time zone as San Francisco – so setting up meetings doesn’t require coordinating across coasts. And thanks to Alaska Airlines, travel is a piece of cake between Seattle and San Jose or San Francisco, with 8 and 9 nonstops each way each day. (These flights are known in the industry as “nerd-birds” because of all the tech industry passengers)

At this point, the Seattle tech scene is demonstrably different than just seven years ago, in 2008, when Glenn Kelman of Redfin wrote that Seattle would be “the next Silicon Valley,” or John Markoff of the New York Times wrote about the influx of talent and capital and a whole lot of “Baby” startups, offshoots of the 3 big companies of the region (Microsoft, Amazon, and Google).  Seven years later, the ecosystem has changed.

It’s home to pretty much all the biggest names in tech, whether they are homegrown, or setting up their second shop. And the “Baby” startups have grown up, resulting in multiple technology IPOs in Seattle every year.

No question Seattle is still smaller than the Valley. In fact, Expedia and Zillow co-founder Rich Barton recently described Seattle as the “blond, scruffy-haired little brother of the star quarterback (Silicon Valley).”

Privately, he added: “It can be really awesome being that little brother….  His girlfriends muss your hair up and call you cute, and so on. Obviously money and talent flows along a very high bandwidth route between the Valley and Seattle.”  Indeed the next batch of Seattle IPOs such as Redfin or Apptio have investors in Silicon Valley as well as Seattle, as is increasingly common.

The one thing that hasn’t changed? It’s still a lot cloudier than California. Or as Oren Etzioni of the Allen Institute for Artificial Intelligence compares working in Seattle to working in San Francisco: “People aren’t distracted by too much sunshine.”