Microsoft layoffs could boost Seattle's tech industry in long run

Puget Sound area is home to 100 companies launched by ex-Microsoft employees

To non-locals, Seattle's high-tech industry may seem synonymous with one particular software company. As such, the prospect of mass layoffs at Microsoft Corp. would seem to be catastrophic.

Sure, say experts and local boosters, but only in the short term. Seattle's tech scene is bigger and more diverse than generally recognized, they say.

Research unveiled today by the Washington Technology Industry Association (WTIA) shows that the Seattle area is home to more than 700 high-tech vendors, start-ups and major ancillary institutions.

The state of Washington has led the country in growth of venture capital funding since 2001, according to Jenna Leary, research manager at the AeA high-tech trade association, with $1.32 billion awarded to Washington start-ups of all stripes in 2007.

"I think we are already in the top three today," said Tom Alberg, managing director of Madrona Venture Group Inc., a leading local VC firm.

While Alberg still considers Boston to be ahead of Seattle, that's changing, he said. "I've been doing deals in which the Boston firms will come out to invest and say they are impressed with the amount of activity here," he noted.

While the layoff of thousands of employees at Microsoft will undoubtedly be traumatic for many of them, the cuts could also provide opportunities for some and rouse others from inertia.

"Sometimes corporate changes such as layoffs are a source of entrepreneurship," said Virginia Tech urban planning professor Heike Mayer, who conducted the research and created the map unveiled today by the WTIA.

Mayer's map depicts start-ups as moons orbiting "planets" representing their parent companies, which include those that directly funded or created the start-up, and those whose employees left to found a start-up.

By that definition, more than 100 companies can trace their parentage to former Microsoft employees. Among them are game makers such as Big Fish Games and Valve Software, travel site Expedia, real estate site, Corbis and Real Networks.

"I'm not so sure what will happen with Microsoft, and it probably depends what type of people they will lay off and what type of business units they will close," Mayer said. "If they are innovative, entrepreneurial types, then maybe we will see more start-up activity. Entrepreneurs typically do not leave the region they are in. They have what we call location inertia."

Mayer also cited the "Silicon Forest" industry in Portland, Ore., spawned in part by ongoing layoffs at Beaverton, Ore.-based Tektronix Inc., which shrank its workforce of 15,000 down to 2,500.

Seattle has plenty of the same ingredients as Silicon Valley, Mayer said. They include strong anchor companies such as Microsoft and Inc. and a first-rate educational institution in the University of Washington. Known as "U-Dub" to locals, the school has spawned nearly 100 start-ups, the best-known of which include networking vendor F5 Networks Inc. and travel search site

A trio of anchor firms, two of which no longer exist, also helped Seattle launch a large number of start-ups. Boeing Co. helped create Classmates Online and game-maker Wizards of the Coast. McCaw Cellular Communications, which formed the core of America's second-largest wireless carrier, AT&T Mobility LLC, spawned XO Communications, Nextel Communications and Clearwire Corp. And PageMaker creator Aldus Corp., acquired by Adobe Inc. in 1994, also spawned about 20 start-ups.

Seattle's other strengths include leading start-ups in areas such as Web 2.0, gaming and software, and hypermotivated immigrant scientists and entrepreneurs with links to their native countries.

Alberg goes further. The type of people whom Microsoft recruits and brings to Seattle are often the "best and brightest from India and other countries," he said. "They are real technologists and networkers to boot. They seem really on the make."

Seattle does face some barriers. One is the constant shortage of technical and business talent, according to Alberg. There are also the more general growing pains endemic to a big city, said Mayer, such as expensive real estate and traffic congestion.

Alberg, who has observed a down cycle or two in his long career, doesn't expect many companies to launch IPOs in the next several years, but it may not matter, he said, adding, "I haven't seen a falloff yet in people starting companies here."

Copyright © 2009 IDG Communications, Inc.

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