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Thursday, May 28

At this rate they'll need to raise the minimum hourly wage to $100

Titan of Industry: Snapchat Flees to LA

Silicon Valley's Innovation Economy spills into housing market countrywide; gentrification and insane rents follow .... 

From Soaring housing costs forces talent to flee Silicon Valley by Glenn Kelman, CEO of Redfin, "a next-generation technology-powered real estate broker," for CNBC, May 21, 2015:

Now of course, Silicon Valley isn't going to empty out. Its population remained constant over the last decade and will remain so again in this one. More people will come here, but more will leave, too.
The result will be the Valley-fication of America, a form of gentrification more extreme than most of America has seen before, with high-tech jobs, high incomes and more expensive coffee, yoga studios and -- yes -- houses, too.
From Is rent out of reach? As more Americans become tenants, study shows how 11 big cities stack up; Associated Press via Fox News, May 28, 2015:
NEW YORK – Renters are on the rise in America's biggest cities, but many tenants are scrambling to keep up with growing rent bills and shrinking vacancies, according to a study being released Thursday.
From Boston to Miami, New York to Los Angeles, more than half of tenants are paying what experts consider unaffordable rents, says a report by New York University's Furman Center, which studies real estate and urban policy, and bank Capital One, which is a leading affordable-housing lender and financed the research.
More passages from Redfin CEO Glenn Kelman's article:
Silicon Valley transplants have become so common that Redfin's Boston agents just this week reported resentment among locals who can't compete.
"My God, they are pouring in," Redfin's Boston broker, Alex Coon, wrote me this morning, "particularly in Cambridge and Somerville."
Read More Silicon Valley real estate reaches bubble levels 
The result? According to Matt Zborezny, the Redfin agent for that area, 20 percent above asking price is the new norm.
Can't afford to stay
Folks are leaving Silicon Valley, mostly because they can't afford to stay. For the first time ever, the median price for a Silicon Valley home just exceeded $1 million.
That's about double what it is in other tech cities, like Boston or Seattle, and triple what it is in aspiring technology hubs, like Portland, Denver or Austin.
Commercial rents are nearly double
Salaries aren't the only costs that are lower in other places. Silicon Valley Portland, and 50 percent higher than Austin or Seattle. For a 100-person office, the difference is $400,000 a year, lowering operating expenses by about 2 percent; in a typical software company with 15 percent margins, this difference is significant.
Many high-tech businesses are starting to worry about the rent: When we asked a CBRE broker, Owen Rice, for this data, he wrote back with a funny-that-you-should-ask email, noting that "more and more we are creating multimarket analyses for our clients," including those based in a suddenly more expensive Seattle, as well as the Valley.
Priceless innovation
But what about the original question—whether it's possible to build a technology platform company outside Silicon Valley. A platform company builds technology used by other technology companies, from the iPhone that runs other applications to the Facebook login we use to access other websites, compounding each employee's leverage.
This is why Facebook's market value exceeds $20 million per employee.
These companies don't have to worry about expenses much. As my first mentor in Silicon Valley, Kirill Sheynkman, once explained to me at a French restaurant, the point in an innovation economy isn't to spend less, it's to make more. And for a platform company, the value of being close to the technology companies that build on your platform is priceless.
But as our industry matures, the pressure will be on profits, not just revenues. And few high-tech companies get as much leverage as Facebook from each employee. Even a platform company like Twitter is worth about four times less per employee than Facebook.
With less equity to burn, Twitter has had to be the pacesetter in raising San Francisco engineering salaries, which is why its stock is now under so much earnings pressure. Only the techiest of tech companies -- and only their tech people -- don't feel the pinch.
From CNBC, May 26: Snapchat CEO: There's a bubble, and a correction is coming:
Snapchat CEO Evan Spiegel said that years of near-zero interest rates have created an asset bubble that has led people to make "riskier investments" than they otherwise would.
He added that a correction was inevitable, but wouldn't speculate on timing, other than to say such concerns are "something we factor into our business decisions."
Remarks from the 24-year old Spiegel came in response to a question at Re/code's Code Conference in Rancho Palos Verdes in California.

The founder of the young "ephemeral media" company --which now boasts nearly 100 million daily active users and a valuation of more than $15 billion -- spoke for an hour with Re/code co-executive editors Walt Mossberg and Kara Swisher on topics like the company's growth plans and the lack of diversity in technology.
Have a nice day. Where's my hoodie? 


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