The Bay Area tech scene is already booming, but the initial public offering of Mark Zuckerberg's company could shift the Valley economy into overdrive.
Thanks to the impending, record-breaking Facebook initial public offering, as well as a slew of other recent tech deals, Silicon Valley is gearing up for what could be the flushest times since Google went public in 2004. No matter that Facebook CEO Mark Zuckerberg prefers to focus on his Menlo Park-based company's "social mission" rather than its bulging financials or bevy of new multimillionaires. The rest of Silicon Valley, from merchants to realtors to building contractors, can think of little else. "The evidence is that all activity in Silicon Valley is flowing into other parts of the economy," says Jon Haveman, chief economist with the Bay Area Council Economic Institute.
It is not hard to understand. Facebook, which seeks to raise at least $5 billion, is far larger and significantly more profitable than Google was at the time of its offering. This has led many experts to conclude that the social networking giant's offering will, by itself, yield a much greater windfall to the region than Google did when it raised roughly half of what Facebook will. In addition, the so-called Facebook effect is not isolated. A whole new crop of technology darlings, including Zynga, Twitter, LinkedIn, and Pandora, is producing new wealth that, when combined, may be enough to put Silicon Valley back on solid economic footing. "It's all part of the reason why we see Silicon Valley in particular growing out of the recession faster than other parts of the Bay Area, California, and much of the United States," explains Haveman, adding that he expects the good news to "intensify" in 2012.
Certainly the economic data backs up that view. Employment in the hard-hit construction sector, for instance, grew by just 1 percent throughout the Bay Area in 2011 and by less than 4 percent in all of California. By contrast, it was up by more than 9 percent in the heart of techland. Retail, sluggish throughout the state last year, was up 3% in Silicon Valley. Even rents and housing prices are on the rise, especially in communities that are close to successful upstarts. While noting that the housing market has a lot of ground to make up after being pummeled during the recession, realtors report an increasing number of multiple offers on properties, many over asking price.
The promise of greater gains in the coming year has businesses scrambling. Kerns Fine Jewelry, an upscale retailer in Burlingame that sells bling at an average price of about $15,000, plans to increase its inventory by as much as 30%. In addition, the family-owned, 68-year-old boutique is changing the way it markets itself to cater to its younger, more tech savvy customers. "When someone comes into your store wearing a three-piece suit, he's probably going to rob you," quips Kerns owner Eric Mendell. "When he comes in wearing Diesel jeans and a t-shirt, he's probably going to buy something." For the first time ever, Kerns will begin this year advertising its goods through highly sophisticated and targeted tools on the Web instead of merely through more traditional outlets.
Maguire Real Estate, which serves residential sellers and buyers throughout the Bay Area, is also developing new ways to connect with the expected influx of younger buyers. "We want to have the right props ready for them when their cash comes in," notes Maguire's vice president of marketing and operations Alex Buehlmann. The company will soon be rolling out a unique customized smart phone app using a tool known as augmented reality. Essentially, clients will be able to hold up their phones on a street with homes of interest. The camera will capture the image, creating a virtual reality of sorts over the real location. Icons will appear over every house, which can be clicked on to reveal everything known about the residence, from the last purchase price to the number of bathrooms inside.
Contractors are also priming. Allwood Construction Inc. of San Carlos recently moved its headquarters to be "middle ground for Silicon Valley," says Allwood's Matt Gomez Jr. Moreover, the firm recently launched a new website, hired two additional project managers and five carpenters, and is intent on finding ways to get in front of potential customers, including having a Facebook page.
It's all part of what locals hope will be the new normal--at least for awhile. Silicon Valley is a region long known for its boom and bust cycles, with this latest cycle being particularly painful. Consequently, the prospect of some good times ahead has many looking forward to a recovery that could include anything from a new car to some fancy jewelry. Observes venture capitalist Larry Marcus, an early investor in internet radio upstart Pandora: "It's wonderful when management can make some money and hit the hyperspace button on their lifestyle." Indeed.