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NYC is strategic real estate for Google

2011 January 1
by stefann

Just before the Holidays Google closed on a $1.8 billion purchase of a 3 million sqft office building in Manhattan; the same location where they were leasing 0.5 million sqft for their NYC office with about 2,000 employees.

Aside from the fame factor (the most expensive building in the US) I believe this is a strategic move for Google to capture the emerging New York tech innovation and to dominate relationships with the ad, book, and fashion industries (all of which operate largely out of NYC and are subject to disruptions by tech).

I say this considering the following observations:

1) Better talent retention. Silicon Valley is a fickle talent market: there’s a slow, but constant defection/poaching trend from Google to Facebook in the last year with folks like Lars Rasmussen (who started Maps and Wave and “coincidentally” moved to Facebook as they announced their new email service) and others.  This talent transfer is facilitated by the physical proximity of all innovation foci in the Bay Area which seems a blessing in the nascent phase and a curse in the maturing phase of company.  It makes it hard if not impossible to hold on to talent over decades (which you need if you are to build a “[Good To] Great” company).

Microsoft on the other hand has enjoyed three undisturbed decades of talent retention due in part to Seattle’s physical separation from other innovation foci (opinion expressed in more detail in this debate Why has Microsoft seemingly stopped innovating with which I largely agree).  As proof, the Google office in Kirkland, WA is having some pull effect on Microsoft talent, and while the scale is insignificant you can see the principle at work.

Of course Mountain View will always be the HQ, but NYC is now perfectly positioned to become a major contributor to their future leadership.  I believe NYC will be Google’s “Seattle” (i.e. “isolated” innovation center) and it’s a deliberate plan.

2) Capture fruits of innovation democratization. NYC isn’t known traditionally as a tech innovation hub but that’s changing as tech innovation now includes business model innovation not just engineering in a strict sense. To be fair, the tech entrepreneurial culture will never the size of the Bay Area, maybe not even Seattle or Boston, but that doesn’t mean it should be ignored.

The talents of folks who naturally cluster in the North East are becoming relevant for tech innovation.   Notable recent NYC start-ups: Etsy, Gawker, Foursquare (more here). NY is among the top 5 entrepreneurial states (after CA, MA, WA, CO).  Google will be the natural next step for this talent as the start-ups mature.  If you establish a life in New York it’s unlikely you’ll want to move, much like if you establish a life in Seattle with Microsoft it’s unlikely you’ll want to move.

3) Physical real estate constraints. Due to the unique nature of real estate in Manhattan, it is physically impossible to replicate the “cool” West Coast style tech campus with large play/open spaces, higher number of sqft/employee, etc.  For instance, offices of financial institutions in NYC are fragmented across many buildings and supporting staff (corp operations) work mostly out of NJ rather than Manhattan (being a cost center, IT dept offices are anything but cool, mostly depressing).

The sole exception is this particular building which is located in Meatpacking District (home of former warehouses, etc) and it’s unusually massive.  It allows Google to build a West coast style campus for 10,000 employees within Manhattan, further adding to the appeal of the location.

That won’t happen overnight since the building currently houses mostly data center and telecom switching equipment (most of Manhattan’s communications go through that node), but I expect that over the next 10 years those facilities will move out to NJ and Google will slowly build the coolest workplace in Manhattan.

3 Responses leave one →
  1. March 2, 2011

    bravo Stefan… this was an eye-opener for me- and it makes total sense!

  2. Richard permalink
    February 13, 2012

    Part of the appeal of NYC is the idea of poaching talent. Despite SV’s reputation as tech capital of the world, NYC is a huge city with an equally massive (or maybe even larger) tech community filled with smart technical folks. Many of these technical folks are used to the more money-oriented NYC culture and have a different perspective on technology and I think that’s part of the reason that NYC is strategic for Google. To grow, they need smart engineers and NYC is the next biggest source of that. The other big reason that NYC is strategic is that it’s financial and advertising and business capital of the world. To continue to make key strategic relationships with businesses, you need to have a presence in NYC. Part of the reason why this is so critical for Google right now is that businesses are seeing Facebook’s IPO hype and are pushing for social media attention rather than focusing on Google. If you go back and look at the Super Bowl ads, a lot of these companies were promoting their Facebook page, if you look at how desperate smaller busineses are for attention on Facebook, you’ll see dozens and dozens of companies listed at FacebookFansReviews that do nothing other than promote social pages. This is why Google has to secure their relationships within the business community. That’s why I think that NYC is pretty strategic for Google and what’s why I think that Facebook will look to continue to expand in NYC far beyond the very minor engineering office they made in Manhattan – that will further their goal of being accepted there as well.

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