Upon first glance, Stanford’s campus directory reads more like a who’s who of the tech industry than a list of college buildings. The names etched across campus — Hewlett, Packard, Terman, Gates, Clark — run deep in Silicon Valley, insignias of the defining impact that Stanford and the Valley have had on each other.
For the last 120 years, a symbiotic relationship has brought prestige, influence and industry to both parties. But today, the world looks very different. Prompted by a global pandemic that has forced businesses and employees to reevaluate the nature of work, the tech giants that have defined the region for decades are taking stock of a new reality and making moves — literally. Amid a fast-changing professional landscape, Silicon Valley fixtures are looking beyond the Bay Area in search of new locations for their headquarters.
When Palantir Technologies, a data-mining company co-founded by Peter Thiel ’89, moved its headquarters from Palo Alto to Denver in August, some experts wrote it off as an anomaly. Palantir has often clashed with the Valley’s political environment, and recently fell under heavy criticism for providing U.S. Immigration and Customs Enforcement with software used to profile undocumented immigrants for arrest, prosecution and deportation.
But Palantir executives say the company’s concerns with Silicon Valley run deeper. According to Bonnie McLindon ’14, head of board operations and recruitment at Palantir, the company “no longer believes that you have to be in the Bay Area to recruit the top technical talent.”
“There is no denying that top talent continues to come out of Stanford,” McLindon said. “But I would say that, more so than even five years ago, there are other parts of the country and other institutions that we can go to where we can also find top talent.”
If there is a tech exodus brewing beneath the surface in Silicon Valley, Stanford may be forced to adapt to a changing landscape or risk loosening its stranglehold on the tech industry. In 2017, the University placed second on a list of top schools with the most undergraduate and graduate alumni hired by the 25 biggest Silicon Valley employers. And in 2020, Pitchbook data showed that Stanford graduates founded more startups, raised more capital and led more companies than any other university in the U.S over the past 14 years.
Other companies soon followed Palantir’s lead. Within the next three months, tech giants like Hewlett Packard Enterprise (HPE), Tanium and Oracle announced plans to relocate their headquarters from the Bay Area to Houston, Seattle and Austin, respectively. Together, the companies are worth more than $200 billion and, in 2020, employed at least 7,500 people in the Bay Area.
And that’s just the tip of the iceberg: According to an August report published by Blind, 15% of working professionals surveyed had relocated out of the Bay Area since work-from-home policies began, and 64% said that they would consider relocating if given the opportunity to work from home. Meanwhile, the office vacancy rate spiked to 16.7% in January, a higher rate than the city saw in the wake of the dot-com bust and the Great Recession.
“This is a big deal,” said Russell Hancock, president and CEO of Joint Venture, a non-profit Silicon Valley think tank. “Oracle is an iconic company. It’s been synonymous with Silicon Valley for its entire history. So, this is a headline grabbing development. And when it happens it shakes people up, they wonder if there’s something deeper underlying.”
Still, Hancock cautioned against jumping to conclusions. “Let’s be clear about the facts,” he said. “The facts are that there are more companies staying than leaving.”
Growing up together
Stanford and Silicon Valley’s roots are woven together. In fact, the man known by many as the “father of Silicon Valley,” Frederick Terman, stood at the forefront of Stanford scholarship in engineering and later served as provost.
While at Stanford, Terman was one of the first to highlight the opportunity for partnership between industry and academia in the region, working side by side with his engineering students, most notably Bill Hewlett ’37 and David Packard ’34, to develop proprietary products and launch startups on Stanford’s campus. As provost in the 1950s, Terman helped launch
the Stanford Industrial Park, which leased land to tech firms including HP and Varian Associates.
He also urged his faculty to serve as consultants to tech companies and urged companies to subsidize research and fellowships at Stanford. At one point, Terman was personally advising half of Stanford graduate students in electrical engineering, working closely with many of them in the lab and striving for an ecosystem where companies could “take full advantage of Stanford’s prestige among the universities in electronics, and simultaneously further strengthen electronics at Stanford.”
“What Terman added to the mix is that he realized that the currency of this realm, to some extent, is graduate students,” said Henry Lowood, curator for the History of Science & Technology Collections at Stanford Libraries. “One way of keeping that talent in the Bay Area and on the West Coast is to create those pipelines between Stanford and companies.”
Terman’s efforts paid off: “Quickly, many Stanford graduate students, instead of going on the job market on the East Coast or looking for faculty positions, start going to these companies,” he added.
Over the half-century that followed, Terman’s work paid dividends, both for Stanford and for Silicon Valley. Along with bold startups came new University partnerships, vast corporate campuses and a deluge of cash rushing in and out of Sand Hill Road. More importantly, throngs of aspiring engineers and entrepreneurs flocked to Stanford, solidifying its reputation as the premier pipeline to the frontier of tech innovation.
But as the Bay Area became a magnet for high-paid employees and free-flowing investment capital from around the world, it also brought soaring living expenses, rising state and local taxes and strained relationships between business and residential communities. During his tenure as Stanford’s president from 2000 to 2016, John Hennessy saw Silicon Valley’s leadership position in information technology burgeon, but he was also beginning to observe indicators of a crisis in the Bay Area, he said.
“I raised the issue of housing shortages and costs, as well as inadequate mass transportation, a number of years ago,” Hennessy said. But since then, there has been little progress.
“We reached the breaking point, where the advantages of the clustering of technology companies and top universities is sometimes outweighed by the infrastructure problems,” he wrote.
A breaking point in the Valley
To some, the notion that Silicon Valley is at a “breaking point” sounds like a broken record. For years, pundits have foretold an end to Silicon Valley’s dominance, calling out the region’s inability to keep up with the increased pressure of skyrocketing populations and California’s strict regulatory environment. But the exodus that so many had predicted never came. When companies like Facebook and Google moved portions of their operations elsewhere, new employers poured in immediately. In 2018, Bay Area startups brought in a record $63.6 billion in venture funding.
The current moment feels different to some.
The COVID-19 pandemic set off major transformations regarding how and where employees can work. Facebook, which is headquartered in Menlo Park, announced in May that it planned to shift up to half of its 48,000 person workforce to remote work over the next decade. Companies including Twitter and Slack also announced similar plans.
According to Sonya Brown, a partner at Palo Alto-headquartered Norwest Venture Partners, the pandemic could set the stage for a larger-scale tech migration.
“From the employee perspective, it has been building up for a while,” Brown said. “Now, there’s this catalyst with COVID and work-from-home, because it has enabled a lot of companies to explore other geographies with lower cost of living and lower taxes. And companies have seen good productivity out of their employee bases that are working remotely whether they’re working remotely from Palo Alto or from Austin, Texas.”
The pandemic has introduced new variables to the cost benefit equation of staying in the Bay Area. With remote work seemingly here to stay, Silicon Valley stalwarts are reevaluating whether concentrating their infrastructure in the region is worth it.
For some companies, the answer is clear. With physical offices no longer a prerequisite, companies no longer need to be in Silicon Valley to hire from Silicon Valley talent bases, according to HPE spokesperson Adam Bauer.
“The pandemic has taught us as a company that we can be highly effective from anywhere we work, so it’s not necessarily a binary choice depending on the situation,” Bauer wrote in a statement to The Daily. “The move toward less time spent at a dedicated office day to day and more flexible working arrangements also allows us to be more inclusive in our hiring as geography becomes less of a barrier.”
Though the pandemic may have catalyzed some of the moves, many companies and employees were already growing concerned with rising challenges in the region. The Bay Area has been mired in traffic and high costs of housing for years. And as tech workers flocked to the region at a frenetic pace over the past decade, local communities have struggled to absorb the influx. In 2019, the median sale price for a Silicon Valley home was almost five times that of the nationwide median. Meanwhile, as landlords hiked rents in response to the rise in higher-paid tech workers, homeless rates sailed to record highs.
“The relationship over the past 10 years has not been a good one,” Palo Alto Mayor Adrian Fine told The Daily. “It’s been an adversarial relationship between the city and residents and businesses, which is not something I like.”
In the Bay Area, it is easy to see the battle scars of this adversarial relationship, as residents rail against growing economic inequality. Anti-tech advocates plaster stickers reading “Die Techie Scum” on newspaper boxes, slash tires of expensive cars and spray paint slogans of protest on sidewalks and walls. Meanwhile, many tech executives are dissatisfied with how the region is governed, citing constant fear of crime, open drug usage and skyrocketing rates of homelessness in the Bay Area. Amid new flexibility for workers during the pandemic, the region’s bruises are beginning to show.
“There are people who are leaving San Francisco because of the dysfunction,” said Rahul Prakash, founder of NOMO Ventures, a Bay Area venture capital firm. “It’s not an easy city to live in, and I live in it. It doesn’t function as well as it should, nor is there a good rapport between the communities and tech.”
The departure of tech employees has already dampened the Bay Area housing market. After nine straight years of increases, median rent prices plunged in 2020. By November, the median rent for a studio apartment in San Francisco County was 35% lower than it was a year earlier.
“Almost every other city in America is fighting for jobs, and we’ve had that benefit for so long that we’ve kind of forgotten how to take care of it,” Fine said. “There’s still a huge technology ecosystem here that outpaces other areas. But we’re losing the edge.”
Stanford’s path forward
Stanford, too, may be at risk of losing its edge. Increasingly, tech companies are expanding the channels from which they can funnel new hires. Over the past decade, tech companies have changed longstanding policies, no longer requiring hires to hold a college degree and prioritizing performance in technical interviews instead. And in 2020, Google launched its own six-month career certificate program, which the company says it will consider the equivalent of any four-year degree.
“Now people are thinking differently,” Hancock said, explaining that the traditional draws of a university are no longer as attractive to students as they once were. “People are wondering, ‘do you even need these things in the first place because people really just need to get to work and companies end up training their workers anyway?’ Universities are having an identity crisis.”
When asked if Stanford students would be negatively affected by a migration of tech companies away from Silicon Valley, University spokesperson E.J. Miranda wrote in a statement that “Stanford students receive an exemplary education. Their skills and talents can add value to any sector — technology, or otherwise — regardless of whether they work remotely or in a traditional workspace.”
In the eyes of some Stanford students, however, the diaspora of tech companies and jobs to other parts of the country is worrisome. Victor Cardenas ’23 came to Stanford from Venezuela seeking the University’s unique relationship with the surrounding business community. Cardenas, a computer science major, said he is concerned by an accelerating trend of entrepreneurs fleeing the Valley.
“What’s more impactful isn’t Oracle and these very large corporate corporations leaving the valley,” Cardenas said. “It’s that the pandemic has enabled anyone to start a business remotely — that’s the status quo. So there is a very strong push for early stage startups to hire people all over the country and all over the world just because you have access to a broader talent pool.”
With physical proximity to talent bases and business hubs taking a backseat to cost efficiency, Cardenas said he is worried that Silicon Valley’s advantage as the epicenter of the tech industry will be diminished.
“I would personally be a little sad if that were the case and people continue to leave the Bay in droves,” Cardenas said. “I very much want to live in a place like the one that attracted me to come study at Stanford in the first place.”
If the end of the pandemic does not bring an end to the outflow of tech companies and entrepreneurs from Silicon Valley, Stanford may look for ways to adapt to a new landscape, according to Lowood, the curator for Stanford’s History of Science & Technology Collections.
“I don’t think it necessarily means that Stanford will lose its connection with the companies,” Lowood said. “But, as companies like Facebook and Intel and others start to have their workforce spread out, maybe that means Stanford does something like that as well.”
Lowood pointed to Stanford’s attempt to establish a second applied sciences and engineering campus in New York in 2011. Though the University ultimately canceled the project, Lowood said that “maybe now is the time” to revisit plans to decentralize geographically.
Though recent corporate moves have benefitted growing business hubs like Austin and Miami, for some, there remains no clear alternative to Silicon Valley. To many business leaders, the Valley will always be a unique nexus of academia, innovation and industry, no matter how many other regions try to replicate its success.
“In Silicon Valley there’s this vibe in the air of problem solving, of swinging really big,” Prakash said. “There’s a fierce belief that anything can happen and there’s a unique support mechanism for that. To a large extent, that starts at Stanford, SRI [International], Berkeley. So many things that start off in a lab they turn into companies, and those companies have professors, and those professors advise and invest. There’s no other place in my mind like it.”
The future of Silicon Valley has never been set in stone. Time and time again, its entrepreneurial and educational communities have demonstrated their capacity to tweak, adapt and rebuild. But for Silicon Valley to remain at the forefront of innovation, Hennessy wrote, leadership will have to take action “with new determination and urgency.”
“The long-term effects on the University are less predictable,” Hennessy wrote. “The most important thing in a university is the people, students and faculty, and as long as Stanford continues to attract the best of both groups, it will be the place to be.”