Which City Will Be Silicon Valley 2.0?

Austin and New York aggressively recruit tech companies.

Aug. 26, 2010— -- For the past 40 years the southern portion of the San Francisco Bay Area has been the dominant hotbed for technology and software companies. Now, the once-frantic, fast-paced culture of Silicon Valley has begun to slow.

While Silicon Valley is still one of the top areas in the U.S. that companies target when looking to start up or relocate, but in the past half dozen years, two more cities have presented viable options for emerging tech companies, or established companies looking to move off the West Coast: New York City and Austin, Texas.

Austin: The Opportunistic Up-and-Comer

Austin may not be the first place that comes to mind when you think of technology meccas. For years it was the home of the University of Texas Longhorns, the Live Music Capital of the World and "that place where Dell started." But Austin has quietly grown into a city that attracts -- and produces -- some of the most innovative companies in the country.

This year, technology powerhouses Facebook and LegalZoom opted to expand out of Silicon Valley and opened offices in Austin. Facebook's Austin location is the social media giant's first major presence outside of California. Texas Governor Rick Perry offered monetary incentives to Facebook to launch a new 200-employee sales and operations office in the state's capital.

"There is plenty of high-tech talent in Austin, from engineers to marketers to executives," said Kenneth Cho, co-founder of Spredfast, an Austin-based startup that helps companies and organizations fully capitalize on social media outlets. "The University of Texas has a lot of young talent who are willing to take a lower salary to stay in Austin."

Cho, who received his MBA from UT, added that Austin is a great place to stay and raise a family, with nationally accredited schools, lower living costs and a highly educated population. According to the city's chamber of commerce, 38 percent of the 6 million people who live in the greater Austin area have a bachelor's degree. That's more than twice the national rate of 15.5 percent who hold bachelor's degree, according to the U.S. Census Bureau.

Difficulties In Building Capital

"Our tagline here is 'Austin: The Human Capital,'" said Susan Davenport, vice president of business retention and expansion with Austin's chamber of commerce.

Yet despite the push from Austin's civic boosters, building capital, especially for tech companies focused on new and social media, can be difficult. When he first began gathering funds to launch Spredfast, Cho said he had trouble convincing investors to buy into his company.

"Much of the money out here comes from older individuals who made their money working for Dell years ago," Cho said. "I found they don't quite 'get' social or new media quite yet. They are hesitant still of its long-term opportunities. If you don't have direct connections with [where the money is], you might have to work harder than expected to raise funds."

The city, no doubt recognizing that challenge, works with the Austin Technology Incubator, one of the largest business incubators in the country. The ATI, a not-for-profit division of UT, assists local entrepreneurs and fledgling companies by offering counsel, providing infrastructure support and helping to locate investors. It operates in conjunction with UT's McCombs School of Business and has assisted more than 150 entrepreneurial teams in raising more than $725 million in investor capital.

Issac Barchas, ATI's director, grew up in Palo Alto, Calif., the heart of Silicon Valley, and says he sees many of the same cultural, ideological and educational factors he did in Silicon Valley in the 1970s.

"[Those factors], coupled with the abundance of tech employment, Austin has a similar vibe to the early days of Silicon Valley," Barchas said.

The cost of living is attractive to entrepreneurs as well. In 2009, housing prices in Austin were 16 percent below the national index, almost 300 percent lower than housing costs in San Francisco, the Council for Community and Economic Research reported.

Austin also boasts one of the country's lowest unemployment rates for a major metropolitan area. At 6.7 percent, the U.S. Bureau of Labor and Statistics' data shows that Austin's unemployment rate is the lowest among the 15 largest cities in the United States.

New York City: Social Media That Never Sleeps

New York City has long been the international business, finance and media capital of the U.S., and arguably the world. In the 1990s, NYC was also one of the hot spots for the dotcom boom, when dozens of online startups brokered successful private buyouts or IPOs. Local media dubbed the expanding dotcom industry in the city "Silicon Alley."

When the online bubble burst in the 90s, New York's tech industry took a major hit. Recently, however, Silicon Alley has made a strong return on the backs of cutting edge media and social networking companies such as Meetup and other peer-networking sites. Meetup is an online network that allows people with shared interests to form clubs in local communities. It was one of the first companies to emerge from the rubble of the dotcom burst.

Andres Glusman, vice president of strategy and community for Meetup, said the city is drawing all types of young talent and entrepreneurs because of its "brewing tech scene."

"There is a feeling of momentum here," Glusman said. "There's never been a better time for the technology sector in New York City than right now."

Some believe the rising tide of new media technology in New York City may be attributed to the decline of traditional information gathering, such as reading the newspaper. As technology advances in every sector, industries are looking for alternate means to reach goals (via mediums such as Meetup and other social online constructs), which makes room for the city's bevy of new media companies.

"At this point, we are looking for new ways to consume and distribute information," said Marilyn Byrd, of executive recruitment firm Byrd Associates in Manhattan. Byrd has recruited talent for iVillage, Beliefnet and Everyday Health.

Byrd, who specializes in start-up and early-stage digital companies, said the opportunity for new technologies and companies in the city are endless. "New York City is the media center of the country, maybe the world," she said. "Information is shared and developed here unlike anywhere else."

New York: Fertile Ground for Experimentation

Entrepreneurs admitted that the cost of living and working in New York City is a hurdle to growing a business, but the opportunities and resources help make up for the expenses. Glusman said he has seen the general cost of operating in the industry decrease in the last five years, as the amount of capital needed for social media endeavors has gone down.

"New York City is willing to try new things at a much faster rate than any other cities," said social media application Foursquare's co-founder Naveen Selvadurai. "Because of [the city's] high density of people, there is always new content to feed through the system."

In addition, the city itself actively working to entice new businesses and entrepreneurs. Mayor Michael Bloomberg announced at the city's TechCrunch Disrupt conference in May that the city is setting up a $22 million entrepreneurial fund to support New York-based tech start-ups.

When asked at TechCrunch why companies should choose New York over Silicon Valley, Bloomberg said, "It's a great place where intellectual capital is important. If you want to compete in the big pond, if you want a breadth of cultural opportunities … this is the place to come."

Austin, on the other hand, would beg to differ.

ABCNews.com contributors Travis Measley and Caitlin Mangum are members of the ABC News on Campus bureau in Austin, Texas.