Monday, Jan. 26, 2015 | 2 a.m.
In a room packed with state dignitaries, reporters and political leaders, Gov. Brian Sandoval delivered a surprise in his State of the State address: a bold statement about the future of technology in Nevada.
Las Vegas data company Switch, he said, will dole out $2 billion to build 4.5 million square feet of additional warehouse space in Las Vegas and Reno, bringing an estimated 5,000 new jobs to the economy.
“This will make Nevada the most digitally-connected state in the United States of America,” Sandoval said.
The announcement came just a few months after electric car giant Tesla Motors unveiled plans to build a $6 billion gigafactory near Reno and well into Zappos founder Tony Hsieh’s ongoing quest to revitalize downtown Las Vegas by attracting tech startups.
But is it enough to put Nevada on the map as a tech contender that one day might compete with hubs such as Silicon Valley and Boston?
Those who contend Las Vegas is poised for a tech revolution say the evolution has been a long time in the making and point to the failure of energy giant Enron as our very own tipping point moment.
The journey began in the late 1990s, when Enron planned to build a massive network of fiber optic cables in our desert to feed the country’s growing demand for access to the worldwide web. Investors were enthusiastic about the expansion into Las Vegas, where the dry weather, lack of rain and easy tax structure made the project a no-brainer.
After spending millions of dollars to connect fiber optics providers to a single center in the southwest valley and in the process making Las Vegas one of the most connected places in the country, Enron declared bankruptcy. Switch founder Rob Roy swooped in and bought the network.
Today, Switch headquarters is a hub attached to thousands of fiber optic cables that run under Las Vegas, connecting the city to telecommunications networks from more than 25 providers, such as Verizon Wireless and AT&T. It’s a place so connected, Fortune 500 companies including eBay and PayPal flock to an unassuming slice of suburbia in Southwest Las Vegas to process financial transactions. Over the past 15 years, Switch has grown ten-fold.
With gambling profits steadily declining and states across the country loosening their laws to let in casinos, Las Vegas economists agree: Tourism and mining no longer can be the valley’s only economic engines. Some point to Switch’s massive bandwidth bank as a catalyst that could make tech a necessary third leg of the valley’s economy.
What would it take, and what’s holding us back?
Here’s a look at the six most important factors that will make or break Las Vegas’s future as a major technology hub.
On a Wednesday afternoon in early November at Switch’s InNEVation Center, scholars from the Brookings Institute Mountain West shared grim findings: Las Vegas has tech jobs — but it doesn’t have the talent to support them.
Unlike Silicon Valley, Chicago and Boston, Las Vegas doesn’t have top-notch universities needed to pump out top-tier talent.
The lack of tech-centric education programs in the valley, and the lack of talent that absence has created, has forced major corporations such as Bally Technology and local startups to travel to Silicon Valley and abroad to recruit engineers.
Brookings Mountain West Director Rob Lang named Orlando, Fla., as a city comparable to Las Vegas. In both places, a technology base was built on top of a tourism industry.
But in Las Vegas, the tech sector is only half the size it should be based on population. That’s because of a lack of educated talent and educational programs in the area, Lang said.
Orlando has the University of Central Florida, which has done world-renowned work with NASA’s Kennedy Space Center. Southern Nevada doesn’t have that, although “at UNLV, we have great pockets of talent,” Switch Executive Vice President Jason Mendenhall said.
The university’s computer science department, for instance, boasts a 100 percent placement rate for graduates.
Then again: “Southern Nevada doesn’t even have a medical school,” said Shing Tao, owner of Las Vegas-based Remark Media.
The region’s lack of a medical school might not be forever. In August, the state Board of Regents asked Sandoval for $26.7 million to build a medial school.
Though plenty of preliminary work remains to get the project off the ground, many consider the request a huge step toward making a Southern Nevada med school a reality.
Cities once were built on waterways that supplied lifeblood to sprouting industries.
Today, the Internet — integral in almost every aspect of life, from trade to entertainment to communication — plays that role.
That means data centers such as Switch likely are vital to the valley’s future, both in the services they offer and the example they set. Seeing a company’s progress here could inspire other companies to take a shot on Las Vegas and set up shop here as well.
“One firm can start an ecosystem,” Lang said. “Switch is an anchor firm in Las Vegas… We need more of them.”
A similar domino effect happened in Dallas, where Texas Instruments spurred the region’s growth in technology. Following on Texas Instruments’ heels were companies such as Nokia and AT&T, which located in Dallas even though the city has no top-tier university.
As Las Vegas marketing officials wrack their brains over the Strip’s next reinvention, Switch is growing. In the decade since the company snatched up Enron’s abandoned infrastructure, Switch has built a sprawling technological footprint, including unparallelled cloud computing capabilities.
Dozens of start-ups have come to Las Vegas to become a part of that ecosystem, joining the ranks at the company’s tech incubator, the InNEVation Center.
But for Las Vegas to grow as an exciting and innovating tech center, it needs more companies with a scope like Switch’s.
“We get companies to bring their infrastructure to the state,” Mendenhall said. “When they do that, they almost always bring people with them… It isn’t about just our success.”
Switch estimates 5,000 employees live, work and send their children to school in Southern Nevada.
It’s cheap to live in Las Vegas, one reason many tech companies have migrated to the desert.
It’s also a big part of why Los Angeles company Shield Your Body plans to incorporate in Las Vegas this year — no state income taxes and cheap rent.
Founder R. Blank developed a series of products designed to protect customers from the potential dangers of electromagnetic waves in wireless devices. The Pocket Patch, for instance, is meant to be ironed into clothing to make it safer to carry a cell phone.
Blank said his wallet was a big factor in deciding where to set up shop.
“There’s a pure cost factor,” Blank said. “Things are just way cheaper here.”
In Las Vegas, the average rent is about $900 a month. In San Francisco, it’s $3,000.
For a new company operating on a small profit margin, money saved in rent can mean the difference between turning a profit and going broke. That makes Southern Nevada a friendlier place than Silicon Valley or Chicago, where the real estate market is less forgiving to companies that have yet to pull in significant capital.
In September, Nevada made history by offering Tesla one of the largest tax abatement deals of all time, approving up to $1.3 billion in savings over 20 years. Switch also will receive tax breaks for its multibillion-dollar expansion, but the company hopes the Legislature approves even more abatements in its upcoming
Every year, more than 40 million people visit Las Vegas. As such, many tech entrepreneuers simply wait for business to come to them.
Banjo founder Damien Patton described it as “playing catch.” His social media application raised more than $16 million in Silicon Valley before relocating to Las Vegas in 2013.
“In any business, you have to travel to go and see everybody,” Patton said. “That’s a massive part of your budget. But I don’t travel hardly anywhere. They come to me.”
Patton said many of his business contacts visit Las Vegas multiple times a year, for conferences, music festivals and vacation.
But Southern Nevada doesn’t have a subway or as complete of a bus system as some similarly-sized cities.
The region seems to be focused on fixing those difficulties. With guidance from the Las Vegas Global Economic Alliance, city officials have considered installing a light rail to improve public transportation.
Before he moved to Las Vegas to head technology for JusCollege, Allan Teruel was a Silicon Valley success story.
With a degree in information technology management from Santa Clara University, Teruel worked with the team that founded Intervert Networks, which was acquired by virus protection giant McAfee. He moved on to Meraki, a large networking firm that provided cloud-based services to small and mid-sized companies, which Cisco bought for $1.1 billion.
“I’ve seen the highs and lows of Silicon Valley,” Teruel said. “I have been a programmer, a sales guy, the whole gamut.”
So when the opportunity arose to try something different with JusCollege, a travel site that helps groups of college students plan trips, Turell accepted the challenge. He moved here in August 2013 and said Las Vegas has grown on him — but it’s no Silicon Valley.
“I think there are some very smart individuals here,” Teruel said. “But I don’t see the hustle and bustle that Silicon Valley puts on you, which is good and bad.”
Other tech professionals echo his sentiments. Before moving Banjo to Las Vegas, Patton secured the company’s seed money in Silicon Valley, where he said it felt like there always were 10 other companies working on the same thing. For a year, his crew worked 18 hours a day, six days a week to stay ahead of the competition.
Compared to Silicon Valley, there isn’t much competition in Las Vegas yet. That’s because there aren’t as many investors to heat things up. With few venture capitalists and board members breathing down your neck, there is no pressure.
That could be a big, big problem.
“Vegas needs a grenade thrown into it,” Patton said. “People need to get inspired.”
Here, a tech company can release software two months late without consequence. In Silicon Valley, jobs would be on the line.
But there’s an upside, too — less burnout. In a cut-throat atmosphere, you get employees working 120 hours a week. Then the workforce starts to flail , and it leads to a domino effect. Only companies with the most money and manpower survive.
When Patton arrived in Las Vegas, he set up shop downtown at the Work in Progress coworking space, a budding tech scene bankrolled by by Zappos founder Tony Hsieh. Banjo lasted two months there.
The relaxed atmosphere was too much. Productivity sagged.
Then there’s Tony Hsieh. He’s behind the $350 million campaign to flip downtown Las Vegas into a moneymaking center of commerce and culture.
Dubbed the Downtown Project, his team set aside $200 million to buy real estate, $50 million to fund small businesses, $50 million to fund education and $50 million to seed startups through the Vegas Tech Fund. A native of the Bay Area, Hsieh centered his empire on a seemingly simple corporate mission: build a strong sense of community in an inclusive environment with a culture of happiness.
If you consider what downtown looked like before Hsieh rolled into town, it’s indisputable the Downtown Project has had success. The campaign made major financial investments, which led to more commerce, foot traffic and new construction. Formerly blighted parts of downtown have been transformed into hip, high-traffic meccas for young people. And it’s easy to find companies with innovative ideas; just stroll through neighborhood co-working spaces and witness young entrepreneurs at work in T-shirts and blue jeans.
Hsieh often is described as the linchpin of all things high-tech in Las Vegas, but he’s only part of a larger scene that doesn’t get much attention.
Some people have criticized Hsieh for lacking a clear mission, saying most of the businesses funded by the Tech Fund don’t aspire to be the next Microsoft or Snapchat. Instead, the businesses funded by Hsieh have fit his laid-back style. Instead of big-time tech, we get bars, a cool boutique motel and a vegan doughnut shop.
Similarly, when events such as the Tech Cocktail Celebrate Conference land in Las Vegas, as happened in October, most of the panelists come from other tech hubs, such as Chicago, Seattle and Austin.
Where do we go from here? What’s next for Las Vegas tech?
Are connectivity, cheap land and a few dedicated entrepreneurs enough to topple the region’s education problem and relaxed culture?
If one thing is certain, Southern Nevada needs more — more programs that teach technology, more enthusiastic companies to act as anchors and more enthusiasm about a brighter future.
We’ll be tracking the progress.