Redmond's Loss May Be Seattle Tech Industry's Gain

To non-locals, Seattle's high-tech industry may seem synonymous with one particular software company. As such, the prospect of mass layoffs at Microsoft Corp. would seem to be catastrophic.

Sure, say experts and local boosters, but only in the short term. Seattle's tech scene is bigger and more diverse than generally recognized, they say.

Research unveiled Thursday by the Washington Technology Industry Association (WTIA) shows the Seattle area is home to more than 700 high-tech vendors, startups and major ancillary institutions.

The state of Washington has led the country in growth of venture capital funding since 2001, according to Jenna Leary, research manager for the American Electronics Association (AeA), with $1.32 billion awarded to Washington startups of all stripes in 2007.

"I think we are already in the top three today," said Tom Alberg, managing director of Madrona Venture Group, a leading locally founded VC firm.

While Alberg still considers Boston to be ahead of Seattle, that's changing, Alberg said. "I've been doing deals in which the Boston firms will come out to invest and say they are impressed with the amount of activity here," he said.

While the layoff of thousands of employees at Microsoft will undoubtedly be traumatic for many, they also provide opportunity for some and rouse others from inertia.

"Sometimes corporate changes such as layoffs are a source of entrepreneurship," said Virginia Tech urban planning professor Heike Mayer, who conducted the research and created the map unveiled today by the WTIA.

Mayer's map depicts startups as moons orbiting planets, or their parent companies, which include both those that funded or created the startup, or those whose employees left to found a startup.

By that definition, more than 100 companies trace their parentage to former Microsoft employees. They include Corbis, Real Networks, game makers such as Big Fish Games and Valve Software, travel site Expedia, real estate site Zillow.com and others.

"I'm not so sure what will happen with Microsoft, and it probably depends what type of people they will lay off and what type of business units they will close," she continued. "If they are innovative, entrepreneurial types, then maybe we will see more startup activity. Entrepreneurs typically do not leave the region they are in, they have what we call location inertia."

Mayer also cited the "Silicon Forest" industry in Portland, Ore., spawned in part by ongoing layoffs at Beaverton, Ore.-based Tektronix Inc., which shrank its 15,000 workers down to 2,500.

Seattle has plenty of the same ingredients as Silicon Valley, Mayer said. They include strong anchor companies such as Microsoft and Amazon.com Inc. and a first-rate educational institution in the University of Washington. Known as "U-Dub" to locals, the school has spawned nearly 100 startups, the best-known of which include networking vendor F5 Networks Inc. and travel shopping site, Farecast.com.

Seattle also has a trio of anchor firms, two of which no longer exist, that helped launch a large number of startups: Boeing Co., which helped create Classmates Online, and Magic: the Gathering game maker, Wizards of the Coast; McCaw Cellular Communications, which forms the core of the U.S.' second-largest wireless carrier, AT&T Mobility LLC and spawned XO Communications, Nextel Communications and Clearwire Corp. ; and Aldus Corp., maker of PageMaker and acquired by Adobe Inc. in 1994, which also spawned about 20 startups.

Seattle's other strengths include leading startups in areas such as Web 2.0, gaming and software, and hyper-motivated immigrant scientists and entrepreneurs with links back to the old country.

Alberg goes further. The type of people whom Microsoft recruits and brings to Seattle are often the "best and brightest from India and other countries," he said. "They are real technologists and networkers to boot. They seem really on the make."

Seattle does face some barriers. One is the constant shortage of technical and business talent, according to Alberg. Others are more general growing pains endemic to a big city, said Mayer, such as expensive real estate and traffic congestion.

Alberg, who has observed a down cycle or two in his long career, doesn't expect many companies to launch IPOs in the next several years, but it may not matter. "I haven't seen a falloff yet in people starting companies here," he said.

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