The entire Bay Area has become a large declining tech company

The large declining tech company. We’ve all read articles in the tech press and blogs analyzing how once hot companies lost their way. Most of them have followed similar trajectories and have a common set of characteristics. What if we apply the same “large declining tech company” framework to the Bay Area? It turns out that large declining tech companies and the Bay Area actually have a lot in common.

It breaks my heart to see what has become of San Francisco. I lived there for almost 25 years. When I first moved to San Francisco in 1997, it was a magical and inspirational place. Remember the Flying Saucer and Survival Research Labs parties? I hope that by analyzing what has gone wrong using a framework we know well, we can find a path to revitalization, and also provide warning signs for other metropolitan areas to not follow a similar policy trajectory.

The fall of Yahoo! is a well-documented example of a large declining tech company, and the following five categories are a great framework to analyze what is going on in the Bay Area.

1. The monoculture and shunning of heretics

If you worked at Yahoo! in the early aughts, you were considered a heretic if you brought up that Search was becoming a more important feature than Directory or Portal. People would stop inviting you to meetings. Your manager would tell you to stop being negative. But if you walked out of the building to any other company, people would agree that Search was a vast and fast-growing trend, and Google was already becoming a verb.

A scant five years ago, a “tech bro” wrote an open letter to the San Francisco mayor about street conditions, including being assaulted by a homeless person and pervasive drug use on the streets. He was lambasted in the tech and national press, and his letter effectively ended his career. If he had written that letter in pretty much any other city, everyone would have agreed with him. In San Francisco today, everyone now publicly states what he wrote five years ago.

Eventually, a trend becomes indisputable, but there is an interim narrative, and people desperately cling to their false reality and piously lecture dissenters. The Bay Area claims they are the most woke, and everyone else is racist. Yet this is the area where rich white kids went to in-person school in October 2020 only six months after the pandemic started, while BIPOC children couldn’t even dial into Zoom class for eighteen months due to lack of technology. Just like with Yahoo!, you can walk out of the building and state obvious facts to broad agreement, but if you bring up obvious fallacies in the Bay Area, people get angry.

2. The declining brand and the power of buzz

For years, Yahoo! was a hip, young brand that was the web’s home page. Everyone used it, and everyone talked about it. Over time, the brand degraded, and the users and advertisers moved on to Google. All of us in Silicon Valley have seen this rise and fall numerous times.

Right now, the Bay Area doesn’t have any “heat.” Key influencers like Elon Musk, Jason Calcanis, and Keith Rabois say it is a terrible place to start a new company. Hip young mayors like Miami’s Francis Suarez are like the hot up-and-coming startup with better services and a better cost model. The media is lapping it up with cover stories and commentary.

The brand and the buzz matter because it is what attracts new entrants. The engine of Silicon Valley’s growth has been that it is THE place for new startups to form, with an extensive network of angels, investors, and advisors. Right now, what is the compelling reason for two young founders who just graduated from Carnegie Mellon to go to the Bay Area and pay California 13% of their outcome? A fun, bustling city? There are now networks of founders and investors in the emerging tech hubs, and in particular networks of founders and investors fomenting the next waves of technology like Web3. Their idols and influencers are saying to go elsewhere, and you can already see the profound effect on Bay Area funding metrics.

It’s well known now that older companies like HP and Oracle are moving their headquarters to Texas. Yet just like Facebook is moving on to the Metaverse, Google, Facebook, Apple, and Salesforce are hiring in New York, Seattle, Austin, and Raleigh. Salesforce, San Francisco’s top employer, canceled the lease on a new office tower, and only 5% of its almost 2,000 job listings are exclusive to the Bay Area.

3. The empty campus and petty crime

As companies decline, their campuses begin to empty with people “working from home.” Employees walk around like zombies, and nobody’s smiling. The headquarters campus is always kept spiffy, but remote campuses begin to decline due to a lack of capital expenditures, with conference rooms that have CRT screens, old desks, and dirty kitchens.

The corporate campus decline is very similar to San Francisco’s rapid decline into an empty and dirty downtown dominated by the mentally ill and drug addicted, with an unsmiling populace working remote and rarely seen on the streets. Like the spiffy corporate headquarters campus, people post photos of Dolores Park and Crissy Field on the rare sunny day and tell you everything’s great.

It’s common for declining companies to experience rampant petty theft. Employees barely work two-hour days, don't report vacation time, go on expensive boondoggle trips to unnecessary conferences, and regularly sit on the beach doing nothing while yet another re-org shakes out. The managers that are supposed to be catching this behavior are doing the same things themselves, so there is no oversight. However, the accounting department will cite employees if they expense a drink out of a hotel minibar even if they arrive at a city at midnight on a legitimate business trip.

Much like a declining large tech company, San Francisco has descended into a well-documented spiral of petty crime, with rampant thefts and no quality of life issues enforced. However, the police will happily cite you for using your phone at a red light, which happened to me personally three times in the couple of years before I moved.

4. The people who leave and the people who stay

Initially, it’s the risk-takers that leave, and quite literally life or death considering there was a pandemic underway. Their peers lambast them. How could you leave Yahoo!? It’s been so good to you. You should stay. You’re going to die at the new startup. Search is stupid.

Just like people who moved to Florida and Texas didn’t die, neither did the people who left Yahoo! and went to Google and other companies. In fact, they flourished as their destination grew and prospered. They live on the waterfront in Miami and have parties on yachts, all at no cost due to tax efficiencies similar to the cost efficiencies of Google using cheap x86 hardware to scale their search algorithms. People start to follow them. At some point, the people who left are celebrated, like Yahoo! alums are currently celebrated.

Of course, people do stay. There is nothing wrong with staying and enjoying your current company and job. Some people like to be with a stable, well-known company, much like the prestige of Silicon Valley. Some people have the golden handcuffs of in-the-money stock grants, much like a house with a low Prop 13 tax rate. Some people don’t want to disrupt their work relationships, much like moving disrupts connections to family and friends. Some people have H1B visas or green card sponsors and have to stay put. There is nothing wrong with continuing to work at Yahoo!. Yet it is continuing to work at Yahoo!. Promotion practices stagnate and the mediocre rise, much like California will no longer teach algebra to middle school students.

Of course, to stem the flight, both companies and jurisdictions attempt to deploy friction on people leaving. Some companies try to sue people who leave for stealing trade secrets. San Francisco has a new tax on the sale of expensive homes. I would not be surprised if California attempts to deploy an exit tax on unrealized gains, similar to how the US taxes unrealized gains when people renounce their citizenship.

5. The shenanigans with finances and metrics

Yahoo! And other declining companies typically do financial engineering to show that they have a sustainable business. But look under the hood, and it turns out that Yahoo! Japan provides the value, not the rest of the business. It’s also typical to change metrics, such as switching from tracking monthly active users to the number of pageviews.

San Francisco is surviving on a fiscal stimulus that will expire at the end of 2022. In the next twelve months, will the downtown offices fill up? Will Union Square storefronts be re-occupied by retailers, Moscone Center full of conventions, and Pier 39 full of tourists? This is highly doubtful. At that point, very tough decisions will have to be made, like the budget cuts to the San Francisco school system now that there has been a dramatic drop in students.

In the Bay Area and California, there are similar shenanigans with metrics. They actively tell you that crime is down by cherry-picking statistics. They say that they’ve had the fewest COVID deaths when all-cause mortality (which includes increased suicides, drug overdoses, and homicides) is almost equivalent to fully open Florida. The ne simple metric to evaluate whether an area can support growth is housing construction. No housing construction, no growth. Will Austin add 300,000 housing units and widen its freeways? While in the midst of a housing price spike from the sudden influx of people, Miami is literally building new neighborhoods.

The potential turnaround

So how do you turn around a declining company or entire metropolitan area?

After out of control looting, years of crime spikes, and miserable street conditions, London Breed, the mayor of San Francisco, yesterday announced that lawbreakers had “destroyed the city". It’s great when management finally admits that there’s a problem. But are the people whose policies caused all of the problems and then ignored that they were happening, really the right people to turn things around?

Marissa Meyer was brought in as the savior CEO to Yahoo!, but her strategy was to throw a lot of money at acquisitions and bring in smart people. San Francisco has the most money per capita of any major U.S. city, and has hired a lot of smart people, but just like at Yahoo!, lots of money and smart people do not turn around a sinking ship. Simple projects like redoing the Yahoo! home page or adding bus lanes to Van Ness are cumbersome, overly expensive, and take forever.

Brad Garlinghouse, now the CEO of Web3 company Ripple, wrote the infamous peanut butter manifesto at Yahoo! where he described how resources were spread thin with a lack of vision, ownership, accountability, and decisiveness. Brad was ignored, and he moved on to bigger and better things and is now a billionaire as the CEO of Ripple, a company that has clear vision and execution, even under the onslaught of the SEC.

Clear vision and execution need to be articulated and executed for the Bay Area to succeed. Not a single politician has stated that they would like to see tech companies back in downtown San Francisco, or that it is a great place for founders to start their companies, or that the government will support and nurture the nascent crypto/Web3 industry.

A turnaround is a hard thing to pull off. After a series of acquisitions and divestitures, Yahoo! is now owned by a private equity firm that hired my former boss Jim Lanzone as CEO. Jim is proven: he pulled CBS – a moribund media company – into cloud streaming and an array of profit spewing websites. The Bay Area needs the equivalent: people who know how to grow a metropolitan area, build housing and infrastructure, and attract new business. The problem is that the voters have to vote for a change agent, and the change agents are all moving to Miami.