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AUSTIN: A THRIVING CLONE OF THE VALLEY

The rise of Austin, Tex., as a high-tech center has been nothing short of breathtaking. Since the first chipmaker arrived in 1974, lured by low-cost land, low wages, and a big pool of university grads, the economy of the state's capital city has been on a high-tech-fed boom. Where Austin's tempo was once set by government, its biggest and fastest-growing employers today are chipmaker Motorola Corp. and PC superstar Dell Computer Corp.

Lately, Austin's high-tech community has introduced another section to its ensemble. An estimated 1,200 software companies, up from 457 in 1991, now call the area home--including one of the fastest-growing groups of Internet startups in the U.S. Nurtured by a growing supply of venture capitalists, including newcomers such as Onset Ventures, and a series of high-profile stock market successes, Austin is becoming a software mecca. No less a chronicler of hip culture than Swing Magazine recently named it the best city for twentysomething software coders. They're drawn by local stars such as pcOrder.com, whose software for configuring and ordering PCs online is used by big computer dealers; Vignette Corp., whose Web-production package is the linchpin at broadcast and media sites such as Time-Warner's Pathfinder and CNET, and Smart Technologies, a fast-growing developer of Internet sales and marketing programs used by Minolta, Compaq Computer, and dozens of others.

One reason the software culture has rooted so quickly is that Austin compares favorably to Portland, Boston's Route 128, and Silicon Valley as a place to recruit and keep programmers. For instance, 1989 startup Trilogy Development Group has doubled its workforce to 500 employees in the past two years. It has already spawned its first spinoff, pcOrder.com, which adapted Trilogy's sales and marketing package for the online world. For employers, the area's low cost-of-living means lower salaries than in other tech hotspots. Programmers who would command $60,000 a year in San Francisco cost about $40,000 in Austin, say local executives.

The outlook is for continued growth, too. Despite employment gains that outpaced the national average since 1990, the city's job outlook ranks a high third among 114 communities over the next five years, behind only Las Vegas and Raleigh-Durham, N.C., says Sara L. Johnson, chief regional economist at consultants DRI/McGraw-Hill, which along with Business Week is a unit of the McGraw-Hill Companies. "We're averaging five to seven IPOs [initial public offerings] a year, and the pipeline looks awfully strong," says local economic consultant Angelos G. Angelou." The next likely candidate for going public: Power Computing Corp., a $370 million manufacturer of Apple Macintosh clone-PCs that is preparing an initial offering for September.

For employees, Austin is an easygoing place to live compared with Silicon Valley. Just ask Joe Varuola, who recently relocated from California to join the Austin R&D center at BMC Software. "When you look at the quality of life in Austin and compare it to San Jose, people here are friendlier, the cost of living and the pace of life is much better," says Varuola. "I'm not saying Austin is slow, it's not as helter-skelter as San Jose."

Such newcomers have created an Austin metroplex of 1 million people, up from 532,000 back in 1977, extending well beyond the city's limits. The population of Williamson County, north of Austin, is growing at twice the rate of Austin proper. Dell Computer, DuPont Photomask, and Maxserve now call Round Rock, a Williamson County suburb, home. "Round Rock is to Austin as Mountain View is to Palo Alto," says Betty Otter-Nickerson, a 1987 Mountain View transplant. The Austin region's new housing permits last year hit 14,600, up 750% from 1990.

The city's rise has been so fast that signs of strain are appearing. With the region's population growing by 23,000 newcomers a year, the city's cost of living is edging up. Austin recently became the only one of Texas' major cities with a cost-of-living index above the national average. (Austin's 101.3, though, is still way below Boston's 145 and New York's 227). And while the local schools deliver a strong pool of software engineers, the demand for experienced developers is such that salaries are moving up, too. Wages last year grew by an average 4.5% in Austin, vs. the nation's 3.7%. Three years ago, Austin's increase trailed the national average.

As a technology satellite, Austin's expansion is closely linked to Silicon Valley. It gets about 28% of new arrivals, some 6,500 people each year, from California. That fosters an economic dependence that doesn't always work in Austin's favor. For example, Austin startups rely heavily on executive recruits from established California software companies. "You can find good engineers in spades, but the executive talent isn't here for software startups," says iChat Inc. CEO Mark W. Saul, who tapped California and Midwest companies for his recent sales, marketing, and R&D hires.

The downside to Austin's lack of native executive talent is that its growth suffers when its bigger counterparts are growing pell-mell--and their executives are content to stay where they are. "Austin performs extremely well when the economies of Boston and California are weak. It performs O.K. when it's moving on the same cycle," says consultant Angelou, founder of Austin business consultants Angelou Economic Advisors Inc. and former vice-president for economic development at the Austin Chamber of Commerce.

Just as Austin's success is driving up housing and other prices, it's forcing the area to improve an underdeveloped infrastructure. A new airport will open next year, replacing Mueller Municipal Airport, where it can be next to impossible to find a parking space on busy days. In fact, if Austin's growth doesn't cool soon, it may really need the services of some of its newest Web startups, such as Garden Escape. It's a retailer of gardening products that requires no parking spaces at all: Its only storefront is in cyberspace.

By Gary McWilliams in Austin


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Updated Aug. 7, 1997 by bwwebmaster
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