The backlash has been building.
Fed up with the sky-high costs of living and doing business and a workaholic culture that prizes success over everything, tech companies are increasingly fleeing Silicon Valley and moving to the Arizona desert. In fact, in his recent State of the City speech, Phoenix mayor Greg Stanton said the number of tech companies in downtown Phoenix alone has nearly quadrupled in the past five years, from 67 to more than 260.
The greater Phoenix metropolitan area even has a new nickname: the Silicon Desert.
What gives? Why the California exodus to the urban and geographical center of Arizona? There are three main reasons:
- Phoenix has a lower cost of doing business
- Phoenix offers a more affordable, higher quality of life
- Phoenix has a growing talent pool
Let’s take a look.
Phoenix has a lower cost of doing business
Lower taxes. Arizona’s corporate and personal tax rates are lower than those of California. Much lower. According to the Tax Foundation:
- The current corporate tax rate in Arizona is 4.9 percent, compared to California’s 8.84 percent
- The maximum individual income tax rate in Arizona is 4.54 percent, compared to California’s 13.3 percent
Lower taxes, of course, means more take-home pay for bosses and employees alike.
Cheaper office space. The average cost to rent office space in Phoenix is $24.80 per square foot, according to the Phoenix Business Journal — and that’s for “Class A” space. Now compare that to the Silicon Valley rents cited in this Bloomberg article, which go all the way up to a shocking $129.91 per square foot.
“Worst value.” Paysa, a software company that provides market salary data, analyzed tech job salaries along with the highest and lowest costs of living nationwide. Of the 10 cities considered to be the worst value for tech workers, four are in California — but not one is in Arizona.
Phoenix offers a more affordable, higher quality of life
Lower cost of living. It’s cheaper to live in Phoenix — a lot cheaper. Someone making $100,000 in Phoenix would need to make a mind-blowing $521,429 in Palo Alto to maintain the same standard of living, according to Sperling’s Best Places.
Housing, gas, food, entertainment, child care — it’s all less expensive in Phoenix. This, of course, means salaries go farther than they do in Silicon Valley. As Paysa points out:
“A salary in a city where the cost of living is high means less expendable income. The same salary that has you living rich in one city may leave you living paycheck to paycheck in another.”
Again, taxes are lower. Yes, corporate and personal taxes are lower in Arizona, and so are most other taxes. The Tax Foundation reports:
- The current state sales tax rate in Arizona is 5.6 percent, compared to California’s 7.25 percent
- The current state gasoline tax rate in Arizona is 19 cents per gallon, compared to California’s 38.13 cents per gallon
- Property taxes paid as a percentage of owner-occupied housing value in Arizona is .66 percent, compared to California’s .72 percent
Some things you can’t put a price tag on. Quality of life isn’t just about tax rates and mortgage payments. Phoenix boasts a supportive entrepreneurial community that’s simply not found in the cutthroat undercurrent of Silicon Valley.
Arizona offers a variety of tax-friendly programs designed to boost entrepreneurship, and the startup community has access to a range of programs, incubators and accelerators — including PHX Startup Week, an annual five-day event celebrating startups and entrepreneurship in the Valley of the Sun.
Work-life balance is another quality-of-life issue that’s prompted the migration to Phoenix. In a post on Medium titled, “If You’re Building A Startup You Need To Move To Phoenix (Not Silicon Valley),” the now-Phoenix-based startup Tuft & Needle penned:
“The people who make Phoenix home aren’t workaholics. They actually care about having a family, having work-life balance, and having something outside of their job that gives them meaning and joy. In [Silicon] Valley, it was our experience that while people paid lip service to these things, or went to countless yoga or meditation classes to undo the damage their jobs were doing to them, the truth was that no one was achieving anything resembling balance. And everyone was egging each other on, to become more and more absurd about the amount of time they invested in their work.”
An abundance of universities means a growing talent pool
Phoenix offers an exciting educational environment. Leading the charge here is Arizona State University — both the main campus in Tempe and the downtown Phoenix campus. U.S. News & World Report recently ranked ASU number one on its “Most Innovative Schools” list for the second straight year — ahead of both MIT and Stanford.
In fact, all three state universities (ASU, University of Arizona and Northern Arizona University) have campuses in downtown Phoenix, contributing to a growing pool of educated, talented tech grads.
But wait, there’s more.
- Grand Canyon University in central Phoenix offers vigorous undergrad tech programs
- Phoenix Coding Academy is a groundbreaking public high school located just north of downtown Phoenix that teaches teens coding, software and web development, networking, information security and engineering
- Galvanize, a tech education center and co-working space for startups and established tech companies, is up and running in the downtown Phoenix warehouse district
Now, add this abundance of universities and schools to the fact that Phoenix has a recently expanded light rail system that connects all these education centers, and Phoenix becomes even more attractive to those seeking respite from congested California commutes. In fact, according to the TomTom Traffic Index, of 71 major U.S. cities with the worst traffic, three California cities are in the top 10 — but Phoenix comes in at a distant number 47.
Here are just some of the major companies now calling Phoenix home
Tech opportunities with growing startups and established companies alike abound in Phoenix. Major companies that now call Phoenix home or have outposts in the Phoenix metropolitan area include:
- Weebly, web-hosting service, Scottsdale
- WebPT, software for rehab therapy professionals, downtown Phoenix
- Yelp, web/mobile app software, Phoenix
- Uber, transportation network company, Tempe
- DoubleDutch, software company, downtown Phoenix
- Avnet, electronic components and embedded solutions, Phoenix
- Apple, data center, Mesa
- Lyft, transportation network company, Phoenix
- GoDaddy, Internet domain registrar and web hosting company, Scottsdale
- LifeLock, identity theft protection, Tempe
- Endurance International Group, web hosting and digital marketing solutions, Tempe
- ClearVoice, content marketing software, downtown Phoenix
- JDA Software, retail and supply chain software, Scottsdale
- Tuft & Needle, e-commerce and manufacturing company, Phoenix
- Shutterfly, Internet-based image publishing service, Tempe
- Zenefits, cloud-based human resources software, Tempe
- Gainsight, customer success management software, Phoenix
- BoomTown, lead generation, CRM technology and websites, Scottsdale
- SiteLock, web security, Scottsdale
- ZipRecruiter, job search engine, Tempe
- Infusionsoft, small business CRM, sales and marketing software, Chandler
- Insight, B2B and information technology company, Tempe
- IBM, computers/technology, downtown Phoenix
- American Express, financial services, Phoenix
- Cognizant Technology Solutions, digital/technology consulting services, Phoenix
- Upgrade, Inc., is a San Francisco-based credit platform company that’s moving to downtown Phoenix, where they’ll employ about 300 people in the next two years, the Phoenix Business Journal reports
- The global cybersecurity technology company Kudelski Group is opening its North American corporate headquarters in Phoenix, the Arizona Commerce Authority reports
- RJR Technologies, Inc., is a semiconductor packaging company that’s leaving California and setting up new corporate headquarters in Phoenix, according to the Phoenix Business Journal
- Endurance International Group already has a presence in Tempe, but the web hosting, cybersecurity and mobile business solutions company will be adding to it in 2017. According to a company press release, the company will hire an additional 600 people and spend $2 million to double its office space.
- ZipRecruiter, the job search engine headquartered in Tempe, will also expand operations this year. The company plans to create 238 new jobs over the next five years, according to AZ Big Media.
The competitive advantage goes to…
About 70,000 people are employed in the greater Phoenix area’s information and communication technology sector, according to a Greater Phoenix Economic Council report. And that number is only growing as frustrated companies leave their California roots and set up shop in Arizona.
Tech employment in Phoenix is up 78 percent since 2000, and software employment in Phoenix has jumped 28.8 percent since 2010, Forbes reported. Software jobs are expected to grow 14 percent by 2019, outpacing Austin and Denver. In fact, a recent search of tech jobs in the greater Phoenix area on Paysa.com yielded 3,541 job openings.
A thriving tech industry, reasonable cost of living, doable housing costs, lower operating costs, cheaper taxes, a supportive and nurturing entrepreneurial community, a robust talent pool — this is what Phoenix offers. None of the slightly snide, “tech bro” culture that prizes 16-hour work days and success at all costs. Companies are leaving Silicon Valley for the new Silicon Desert, and they’re not looking back.