x Abu Dhabi, UAEMonday 24 July 2017

Tech boom to spread beyond Silicon Valley

Now it's getting physical. The top high-tech firms are trying to attract the best software developers with palatial working environments

Google is vying with competitors as it bids to attract talented software developers by offering incentives such as campus bicycles. Jeff Chiu / AP Photo
Google is vying with competitors as it bids to attract talented software developers by offering incentives such as campus bicycles. Jeff Chiu / AP Photo

Silicon Valley is booming as at no time since the technology market crashed more than a decade ago. But this time around, it looks as if the boom will also spread outside the United States to regions such as the Middle East.

Ernst & Young believes that the market will start to encounter a bumper crop of technology companies making an initial public offering of their shares. At the same time, UBS believes that high corporate spending on information technology (IT) bodes well for big players such as Microsoft, IBM, Cisco, Intel and Oracle.

There are also physical manifestations of a tech boom in the Silicon Valley area. Fifteen years ago, the San Francisco freeway was decorated with huge billboards advertising US$100,000 (Dh367,290) start-up bonuses for programmers.

Today, the only difference is that the incentives are much subtler. In an effort to attract already well-paid software developers, Apple, Facebook and Google are vying for talented developers by offering incentives such as palatial working environments.

Apple's new "Spaceship Headquarters" will include a world-class auditorium and an orchard in which the developers can wander.

Facebook's campus, reportedly inspired by the works of Walt Disney, boasts a Main Street with a barbecue shack, sushi house and bike shop. But before the paint has had time to dry on its existing campus, the social networking giant is already breaking ground on a newer and even more luxurious and flamboyant campus close by that has been designed by Frank Gehry, regarded as "the most important architect of our age" by Vanity Fair magazine.

The new facility's roof will be landscaped with grass and trees.

Production cycles today are even faster than they were during the last tech boom and companies want to make sure they can squeeze the most out of their developers by encouraging them to work long hours.

The purpose of gaming rooms, swimming pools, gyms, free haircuts and massages is not merely to attract staff but also to encourage them to freely associate with one another. Google's new Bay View campus, for example, will feature walkways angled to force accidental encounters between staff. Yahoo is also reported to have prohibited its developers from working from home.

But such a high level of competition is not considered entirely positive for the US technology sector at a time when IT companies are under increasing pressure from rivals in developing countries such as China.

"The fact that some of Silicon Valley's major technology corporations are designing luxurious headquarters to attract talent should not be seen as a signal that the technology sector is in good health. Rather this is a signal of the competition for scarce developer resource in Silicon Valley," says Adrian Drury, a principal analyst at the research company Ovum.

It also looks as if the so-called "tech boom" may leave some companies behind to flounder while others will see increased investment.

"Talking about the 'technology sector' as an homogenous group of stocks hides some important detail. This is a sector that thrives on creative destruction," says Mr Drury.

"While some tech stocks continue to slide as they struggle to make the transition to cloud and mobile computing, such as HP, others continue their upward trajectory such as Google."

According to Gartner, this year global IT spending is set to rise to $3.7 trillion. A big driver behind the spending is the increase in corporate IT spending as companies move their operations on to a remote server, known as "the cloud" and try and incorporate features such as social networking into their communications networks.

"Our view is that we are seeing a bubble in select sub-segments of tech. Areas such as enterprise mobility, big data and enterprise social networking are right at the top of their hype cycle," says Mr Drury.

But Ovum believes that technology companies also have strong structural drivers for growth. As their clients are using increasingly sophisticated digital equipment and services in their own operations, the big enterprise technology companies can expect to reap fat profits in the years ahead.

"This is driving investment in tools, platforms and services to enable these businesses to maximise customer lifecycle value," says Mr Drury.

But although the boom might not reach all of Silicon Valley, it is set to spread through other regions outside the US, including the Middle East.

"For now the Valley appears to be doing enough to make the difference. But changes in taxes or a reduction in incentives could easily reverse this," says Rob Enderle, the principal analyst at the Silicon Valley-based research company the Enderle Group.

"The risk is that it shifts out of Silicon Valley as other states and those countries with lower labour costs move to take over this opportunity."

It looks as if the global trends now powering the IT sector are set to continue as the boom spreads outside the US to countries such as the UAE.

And, according to Mr Enderle: "It is doubtful the tech boom will go away any time soon."