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Forum: The dot.com bust could be Pittsburgh's boom

Those high-flying Internet firms may flee California for less expensive turf. If Pittsburgh markets itself correctly, says Christopher Briem, we can ride the next wave

Sunday, December 31, 2000

The dynamic New Economy may seem to have gone from boom to bust almost overnight. Predicting the demise of e-commerce would be as wrong as the irrational expectations that were originally placed on it. In the end the Internet will reshape much of how business is conducted and the businesses that take advantage of it will prosper. The only thing that's changed is that firms looking to succeed in the New Economy are for the first time having to consider the cost side of the profit equation and not just rosy forecasts of future e-commerce generated revenues.

 
  Christopher Briem is a Ph.D. candidate in economics and a research associate at the Center for Social and Urban Research, University of Pittsburgh. His e-mail is cbriem@pitt.edu. 
 

In a more realistic new economy, Pittsburgh may be in better shape than ever before to compete for the high-tech businesses, investment and people it is trying to attract.

When all future profit projections were expected to be boundless, the issue of where to locate a new e-business was almost a nonissue. Despite some of the highest business costs anywhere, there was almost no thought given for a respectable dot.com to be located anywhere but in Silicon Valley. Now, those costs are bearing down on the new Internet firms that have solid but reasonable revenues. Pittsburgh may be able to gain an advantage in the competition for new economy investment only because of the weakness that the new economy now shows.



There has been more than one major Internet company that has fled Silicon Valley with the goal of lowering costs and becoming profitable. PlanetRx, for example, has led the way in its attempt to bring the prescription drug business from Main Street to the Internet. Facing a more realistic revenue stream than was originally planned for, the company has moved its headquarters out of San Francisco and relocated in the much more reasonably priced Memphis, Tenn.

It may have been hard to persuade a high-tech firm to locate in Pittsburgh instead of California. But we really should be able to beat out Memphis.

PlanetRx will not be the first major dot.com that will be forced to leave what is the highest-cost region in the country. The goal is to have Pittsburgh be the location of choice for businesses that choose, or are forced to leave, Silicon Valley.

Pittsburgh has already proved that it can be competitive at attracting the cutting edge technology and professional organizations. The anticipated arrival of hard-drive manufacturer Seagate Corp. is driven by the concentration of high-tech expertise here. The California-based think tank RAND came to Pittsburgh last year in part because of its desire to operate in a region of the country where its workforce did not have to have seven-digit mortgages in order to own a home. That selling point will ring true for the many dot.coms that are only beginning to come to grips with the concept that their future will have to be outside of Silicon Valley. The goal will be to make RAND and Seagate the forerunners of what will come and not exceptions.

Until this point, it may have seemed impossible to compete for high-tech businesses when Silicon Valley was a magnet for almost all that is considered the new economy. That home-field advantage may have become the prime disadvantage, as the costs of everything from housing to cafe lattes throughout Silicon Valley have become astronomical. Prime office space in San Francisco has reached past $77 per square foot, literally three to four times the cost of most comparable space here.The differences in the cost of family housing are even more striking - the median cost of a detached single-family home around San Jose now hovers around $600,000.

Even lettuce is reported to cost over $1.78 a head in some areas of California, twice the national average.

Pittsburgh can now sell itself not only as the place where the technical expertise exists, but also as a place with a low-cost business climate that compares favorably to almost anywhere in the country.



There may seem to be a downside for the region if the Internet economy retrenches and some e-commerce firms fail. The reality of high tech in Pittsburgh is that the region has yet to define what its economy will look like a decade from now. The potential of high technology is real with the dot.coms that grew here, the emergent businesses of the Pittsburgh Digital Greenhouse and what may be the even greater potential of biotechnology-related businesses.

In terms of employment and earnings, however, much of this potential remains just that - and the core of the regional economy is the financial services, education, health care and even the steel mills that were here before anyone heard of Netscape and Internet Explorer. The strongest high-tech companies will survive and prosper despite the economic reality check taking place.

Attracting businesses from elsewhere means attracting the investment and the people that form the core of all businesses. The revelation that many stock options will never be worth anything will change a lot of minds in how they do business and, more importantly, where they do business. Pittsburgh needs to take advantage of the changes taking place in the economy.

The circumstances of the high-tech economy have opened up a window of opportunity for Pittsburgh if it can market itself correctly. The essence of marketing is targeting your audience. The target can be the emerging Internet companies that are going to be shopping around for where they will grow for the long haul. It was once the case that even the most successful of local Internet companies were eventually forced to move to higher-cost regions in order to hire the people they needed.

If successful, we can reverse that trend and bring to Pittsburgh today the firms that will be the Microsofts of the future.



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