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NEW YORK'S SILICON ALLEY: A STEEP ROAD AHEAD

Ask denizens of lower Manhattan's Silicon Alley if they work in computers, and they'll likely tell you no, they work on computers. It's a subtle but revealing clue to understanding high tech in Gotham, where hardware and software aren't an ends but a means: for filling cheeky online magazines; for assembling pricey corporate Web sites; and for airing punk bands over Internet radio stations.

No doubt, technology-related companies are thriving here in New York's Silicon Alley, a three-mile strip extending from the borough's trendy Chelsea district to its southern tip. Last year, according to a study by Coopers & Lybrand and the New York New Media Assn., Silicon Alley was home to some 700 hardware and software-related companies, whose combined sales topped $1 billion. But rather than a cluster of small companies run by stereotypical geeks, startup tech companies in New York are, well, less geeky.

"The Alley is not about people tinkering in their garages. It's about people quitting their journalism or design jobs," says 25-year-old Andrew Wanliss-Orlebar, who in 1994 helped launch one of the city's first for-profit Web sites, Total New York, an online magazine with Manhattan-related features and listings. Indeed, New York's long association with media -- advertising, radio, broadcast television, and telecommunications -- is the basis of the city's involvement in the high-tech future.

That artistic bent attracts the young talent that, just five years ago, would have landed in junior copywriting or movie production jobs. But now, these people are opening leading Web-design shops such as Razorfish and Methodfive, which have scored fat corporate contracts with the likes of AT&T, Sony, and National Geographic. They're also filtering into online magazines such as iVillage, and the wired media of MSNBC. Coopers & Lybrand expects total new-media employment in the New York area to climb to 120,000 by 1998, up from 71,500 in 1995 and 28,400 in 1992. "This is one of the few cities I could be in," says Robert Gould, founder of a 10-person, Internet talk show and live music site, GRIT. "Compelling guests are constantly coming through New York City."

It's that same creative emphasis, however, that casts doubts on the chance that Silicon Alley will ever become a technology hotbed. Artists and writers account for an estimated 48% of the Alley's new-media workforce, while programmers and engineers total less than a quarter. And though the New York area is home to dozens of universities, none of them possesses the computing prowess of Palo Alto's Stanford or Austin's University of Texas. At new Alley software company Social Science, which is developing Web chat software, nearly all of the company's technical staff graduated from Pittsburgh's Carnegie Mellon University. "There's a real dearth of programming skills out there," observes Wanliss-Orlebar. Indeed, a recent quick look at the New York New Media Assn.'s online want ads finds companies in hot pursuit mainly of technical talent. More than 50 listings advertise technical and production jobs, while 8 offer writing and editing posts.

Other pressures might limit Silicon Alley's growth and eventual wealth-generating power. Chief among them is the relative scarcity of solid financial backing. For the first half of 1997, New York State attracted $120 million in new-venture capital, placing it fifth behind No. 1 California, then Massachusetts, Texas, and Tennessee. While that's a 17% jump over last year, it still puts New York far behind the Golden State, which garners the lion's share of venture funding -- $1.13 billion. Content companies are generally considered too risky for venture capital firms, a fact reinforced by the collapse of Wolff New Media, which produced a Net-listings service called Your Personal Network, as well as the scaled-back Web projects of Voyager, an early New York multimedia firm.

Further, New York venture and angel investors have little experience in new media and high technology. "They've traditionally invested in retailing, manufacturing, franchising, and some biotech," says Mark Lerner, president of Morgen, Evan & Co., a small investment bank. Venture capitalists balked at Lerner's attempts to set up a $25 million fund for backing New York tech and new-media companies. The fund was eventually scrapped.

What's more, even as initial public offerings pop up around the country, Silicon Alley IPOs still number zero. That's to be expected considering the industry's relative infancy in Manhattan. But given the city's race for high-tech investment, it's a point of mild civic embarrassment. After all, it took Seattle's Amazon.com less than two years to bring its shares to market.

Competition might also put a future squeeze on Manhattan's startups. Madison Avenue advertising agencies, which once farmed out their new-media projects, are now keeping more of the work for themselves. For example, Visa recently awarded a new $2 million Web campaign to its traditional-media agency, BBDO. "In 1994, everyone just wanted to get on the Web, but now people are being held accountable for all the money that's being spent," says Marc Suzdak, general manager of Oculus Interactive, a Web advertising firm.

Still, the lure of a potential new-media windfall is too tempting for New York City officials to resist. They're hyping lower Manhattan as ground-zero for high-tech entrepreneurship. The city has rewired five Wall Street-area buildings and is now offering 120,000 square feet of discounted leases to information technology companies. Early takers include San Francisco's Studio Archetype as well as the headquarters for Cybersmith, a cybercafe chain that is relocating from Cambridge, Mass. "The city is one of the most important places to be for retail and entertainment companies," declares Cybersmith Vice-President Jay Shapiro.

Could Silicon Alley become as important a place to be for high-tech companies? That will depend, in part, on how well -- and fast -- the first wave of startups can adapt outside the city's traditional strongholds of advertising, publishing, and entertainment. To attract top talent, venture capital, and public backing -- all keys to Silicon Valley's rise -- Silicon Alley companies will also have to start developing their own technology products. Failing to do so won't necessarily stop new media from succeeding in Manhattan, but it will likely quash New York's chances of ever creating a true Valley in the Alley.

By Dennis Berman in New York


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Updated Aug. 13, 1997 by bwwebmaster
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