• Market Crumbs

Are Tech Companies Starting To Throw In The Towel On San Francisco?

Image via NewCities Foundation

Silicon Valley has long been the home to some of the world's most innovative technology companies. Tech giants such as Apple, Google, Facebook and Intel are just a handful of the more than 30 Fortune 100 companies located in Silicon Valley.

As a new wave of technology companies emerged over the last 15 years, many decided to set up their headquarters in San Francisco, which is about 35 miles north of Silicon Valley. Companies such as Twitter, Uber, Dropbox, Square and Airbnb are some of the most notable tech companies that are based in San Francisco.

The issues surrounding the cost of living in San Francisco have been well documented. San Francisco is the second-most expensive city in the U.S. behind Manhattan, according to Quicken Loans. Conversely, Deutsche Bank found San Francisco is the highest-paying city in the entire world. While not surprising, these salaries still leave many well-paid citizens unable to afford the same quality of life as many other cities due to the cost of living.

Given the confluence of expensive real estate—both residential and commercial, as well as expensive salaries, which are driven even higher as a result of competition in surrounding areas, it appears Twitter may be finally throwing in the towel on San Francisco. On last week's earnings call, Twitter co-founder and CEO Jack Dorsey didn't shy away from sharing his thoughts on Twitter's future in the city.

"Our concentration in San Francisco is not serving us any longer, and we will strive to be a far more distributed workforce, which we will use to improve our execution," Dorsey said.

Dorsey didn't explicitly detail Twitter's future plans, but it seems that Dorsey, who is moving to Africa for three to six months this year, believes the future involves a workforce that is distributed across the world and connected through technology.

"I do think that we need to figure out how to build a company that is distributed, that is not burdened by time zones, but is advantaged by them," said Dorsey. "And I think, it’ll give us a lot more perspective into markets that continue to emerge and are growing extremely quickly, and to the point where even our peers are looking very, very deeply within those markets and within those continents."

With countless companies offering workplace tools such as video conferencing, messaging and document sharing, the need to have thousands of employees in one of the most expensive cities in the world doesn't make sense anymore.

Brandon Borman, Twitter's Vice President of Communications, expressed a similar view as Dorsey, saying "We remain committed to SF, but hiring global talent shouldn’t require them to uproot their lives, leave their communities, and move to where we have an office."

Even Facebook co-founder and CEO Mark Zuckerberg has expressed a similar sentiment. He recently said at a conference in Utah "I do think, on balance, that if I was starting from scratch now I would not pick the Bay Area." He cited Amazon Web Services as allowing companies to build outside of Silicon Valley, lack of housing and mono-culture that is focused solely on tech as reasons other regions are now more appealing.

The comments from Dorsey come at an interesting time, considering some of the largest technology companies are expanding their presence in New York City, which is not exactly much cheaper. While the world's largest, most innovative companies will always need a presence in the most expensive cities, it appears Dorsey's comments could make other executives realize that there are tools available to have a workforce that can thrive outside of traditionally tech-dominated cities.

Leftover Crumbs

  • Supply chain disruption. Major Chinese tech supplier Foxconn, which is the world's largest iPhone assembler, has been blocked by Chinese authorities to resume work amidst the outbreak of coronavirus. A major supply chain disruption is looming as Foxconn also produces products for Amazon, Google, HP, Dell and Huawei, among others. "The local governments do not want to risk the potential virus spreading in such a labor-intensive working environment. No one wants to bear the responsibility of restarting work at this critical moment," said a source with knowledge of Foxconn's plan. Shares of Apple have thus far mostly ignored what could amount to a material impact on its operations and financial results, as shares are less than 3% from their all-time high.

  • It's nothing some more not-QE can't fix. According to the Federal Reserve's semiannual monetary policy report, officials believe risks to the economy as a result of the trade war have subsided, but new risks relating to coronavirus have emerged. "The recent emergence of the coronavirus ... could lead to disruptions in China that spill over to the rest of the global economy," the report said. The Fed also appears to be concerned about the bubble that they literally created, saying "asset valuations are elevated and have risen since July 2019, as investor risk appetite appears to have increased." Federal Reserve Chairman Jerome Powell will testify on the report in front of congressional committees tomorrow and Wednesday. 

  • Drama in Switzerland. Tidjane Thiam has resigned as CEO of Swiss bank Credit Suisse following a "power struggle" with chairman Urs Rohner. When news broke that two former executives had been put under surveillance—to which Thiam denies having knowledge of, things "became more difficult," Rohner said. "At some point we realised that we couldn't get out of this situation unless we made a change and Tidjane Thiam understood that too," said Rohner. Credit Suisse's board unanimously accepted Thiam's resignation. Thiam will be replaced as CEO by Thomas Gottstein, who heads the bank's Swiss business.

  • He's back with another airline. JetBlue founder David Neeleman has filed paperwork with the United States Department of Transportation for a new airline, Breeze Airways. The airline, which will be the fifth founded by Neeleman, will offer point-to-point air travel to mid-sized U.S. cities "abandoned by our current air transportation network." "We’re going to fly where no one else is flying," Neeleman said. Breee will initially sublease airplanes from Azul, which Neeleman also founded. Neeleman said Breeze will begin taking deliveries of the planes in April and could begin flying as early as this year.

  • He has to pay for space travel somehow. Amazon founder Jeff Bezos unloaded 2 million shares of Amazon, worth more than $4 billion, over the last week, according to SEC filings. The sales amount to 3% of his total holdings, leaving him with a stake still worth more than $115 billion. The sales are not surprising, as Bezos has previously said he will sell at least $1 billion worth of stock each year to fund his space company Blue Origin. "The price of admission to space is very high," Bezos said in 2018.