Round Table Gives Its Spin on the L.A. Connection

Today is the one-year anniversary of The Cutting Edge. To mark the occasion, we invited a small group of technology industry leaders to a round-table luncheon on the future of high technology in Southern California.

The group included Stephanie Brail, founder of Digital Amazon, a Santa Monica Web design firm; Sky Dayton, founder and chairman of EarthLink Network, a fast-growing Internet service provider based in Pasadena; Steve Glenn, chief executive of the Internet start-up PeopleLink and a partner in IdeaLab, a company dedicated to nurturing new Internet businesses; Jon Goodman, executive director of EC2, a business incubator affiliated with USC; James Larkin Jonassen, executive director of the Los Angeles New Media Roundtable; Steve Koltai, founder and chairman of CyberStudios, an emerging Internet entertainment firm; Steven MacDonald, head of the LA Business Team established by Mayor Richard Riordan to recruit and retain businesses; Harold Rosen, co-founder of Rosen Motors, which is developing a low-emissions vehicle based on turbine and flywheel technologies; and Jake Weinbaum, president of Disney Online.

They were joined by Amy Harmon, Karen Kaplan and Michael Hiltzik, who cover technology for The Times, and Cutting Edge Editor Jonathan Weber, who moderated the discussion. A full transcript is available on The Times’ Web site at https://www.latimes.com/HOME/NEWS/CUTTING

Jonathan Weber: The idea of this lunch is to talk about some of the issues relating to high technology in Southern California--what it means to have a high-technology community in a city like Los Angeles, what some of the challenges are in further developing these industries, and what the government and the private sector can do to assure the continued strength of the local high-tech economy.

To start out, I’d like to ask each of you why it is that your business is in Los Angeles to begin with, and what it is about this region that helps make your company successful.

Steve Glenn: We started in Los Angeles because (IdeaLab founder) Bill Gross and his family live in Pasadena, and I live here. But it turns out that there are some really great advantages about being in L.A. and some serious disadvantages.

The advantage is that you don’t have as much competition for folks. There aren’t as many companies in the Internet space as there are, for example, in San Francisco, and so it tends to be a little bit easier to recruit people. But the downside is that a lot of people really don’t want to be in Los Angeles.

Weber: Because of quality-of-life issues?

Glenn: Yes. You’ll hear the usual stuff, about smog and about how it’s not a real city and about crime and blah, blah, blah. But the issue that we probably can do something about is the pretty widespread perception that there isn’t a real community for people who work in this industry.

San Francisco has South of Market. New York has Silicon Alley. There are pockets here--IdeaLab is trying to develop one in Pasadena, certainly EarthLink and CitySearch and some other companies are helping, and some companies in the Glendale-Burbank area are creating a nice center there, and Santa Monica too.

But you don’t have organizations. For example, New York has Cybersuds, a mixer every month that brings people together and allows networking. Jim’s done great stuff with Lawnmower [the Los Angeles New Media Roundtable], but it doesn’t happen a lot.

Stephanie Brail: I disagree that it’s not competitive in Los Angeles. I’ve been in this business since it started here, and I find that the Web design itself is competitive.

I think Los Angeles is a great place to be. I’ve considered whether or not I should be moving to New York or San Francisco, because I think that a lot of the more underground stuff--the really exciting stuff that I’m really interested in, the young people my age who are doing really exciting things--a lot of those people are in New York or they’re in the San Francisco area.

I find that L.A. is a very entertainment-based Internet industry, and there are a lot of pluses to that. There’s a lot of resources here for doing multimedia. On the other hand, as Steve was saying, community is not like it is in those other cities, and that’s just a question of the geography.

Weber: Do others of you share that idea that there isn’t a real community here?

Jon Goodman: I think the answer to that is yet. Because really what you’re dealing with is critical mass. . . . Content is the key issue. And the creators of content are present in more numbers here in Los Angeles than anywhere else on the planet--storytellers, people who really understand dynamic communications. This is where they are. Content is and always will be king.

Jake Weinbaum: But on the Internet you really can’t divorce content from technology. Those writers, those creators, those designers have to be married to engineers. I mean, they have to have them sitting with them, because the production tools don’t necessarily exist. An engineer has as much to offer through the creative process at this stage as a creative person does.

And that’s the big challenge we find in L.A. A good programmer often knows that if this gig they sign up for and move to L.A. for doesn’t turn out, they might get stranded, whereas in San Francisco or Seattle there’s so many jobs that they can always move on.

Our biggest challenge is to get good programmers. Interestingly, because of the shakeout in the CD-ROM market and some other industries, we’ve found in the last six months that we’re having great success in hiring better-quality programmers and engineers.

Michael Hiltzik: How long is that connection between technology needs and content needs going to last? If you look back at the history of television, there was certainly a point at which technical knowledge as to how to use the medium or how to program for the medium was as important as content. But as the technology became more widespread and more accepted, the hurdles to access for the technology came down.

Weinbaum: I think it’s not going to stabilize for some time to come. You still need really good designers and really great creative people to be able to capture some value of a technology that’s been created. But I think that in terms of what you can actually do on the Internet today compared to what you will be able to a year or two years from now, there’s still a huge gap.

Weber: Harold, you’re on a different end of the technology spectrum and I’m wondering if you share the concerns regarding recruiting people, and this question of community.

Harold Rosen: First of all, the reason Rosen Motors is where it is because a number of years ago when I was deciding to go to graduate school I had a choice of Harvard or Caltech. The old Life magazine came out with a big spread on beach parties, and my choice was made that very day (laughter).

In the field I left [aerospace] and the field I’m in now I can’t think of a better place to have access to people. My present field, a modern power train for automobiles, it will be lean and mean and green, and the green part of it, the nonpolluting aspect--that attracts a lot of people in the Southern California area.

The school system in California couldn’t be better. The University of California, Caltech, Southern Cal, Cal State San Luis Obispo. . . . I couldn’t imagine us doing our research and development anywhere else. And the beaches are still nice.

Steven McDonald: I’m wondering, on the quality-of-life issues that you mention, Steve, whether part of it is a result of this kind of strange antipathy that exists between San Francisco and Los Angeles and perceptions kind of gone wild. Maybe in certain areas that you’re looking for people, they have a particular idea about what Los Angeles is like.

Many times when you’re dealing with other countries or other places where people have a completely different perception of L.A., they’re more than willing to come here. In fact, this is where they want to be.

Glenn: You’re right, that’s why we’re recruiting in Eastern Europe now (laughter). We’ve actually had great luck hiring from the aerospace industry. We have two engineers who’ve been really superb, even though they weren’t really working in the areas that we have them focusing on.

One other thing worth mentioning is that, at least in our business, the Internet business, I think it’s less and less important that you’re at the same physical locale. I think more and more we will see a distributed working model that requires people to be at the same physical place much less.

Steve Koltai: I also wanted to chime in with a somewhat contrarian view. . . . I was raised in Pasadena, I lived in New York for a long time and went to a lot of trouble to figure out how to come back to Los Angeles. I think one of the best things to get people to come to L.A. is to get them to go to New York (laughter).

But apart from that, I’m in a very different part of this business as well. We’re not at all technology-oriented. We’re entirely marketing- and commerce-oriented. We’re in fact as low-tech as we can possibly be, because our goal is to create mass-market, revenue-generating programming. So for our business, we don’t have rocket scientists, we have marketing people.

There are three cities--New York, Chicago and L.A.--that have people who have advertising agency experience and marketing-promotion-writing kind of experience. And of those three places, I think L.A. is head and shoulders the richest in terms of diversity of people. They come from all aspects of the entertainment business, whether it’s location-based entertainment or television or film or radio. We have found that to be a real advantage, apart from my own personal predilections.

James Larkin Jonassen: For each center--San Francisco, New York, Los Angeles--you kind of take your anchor tenant wherever you can find them. A lot of the Web sites that are being developed in New York, it’s Madison Avenue publishers row and Wall Street that are driving it. In San Francisco and Silicon Valley, a lot of it is kind of the incestuous technology companies creating content and Web sites for their own content.

I think that Los Angeles has a very bright future from the standpoint of the creative people being able to grab the tools, feel comfortable with them and begin to create.

Goodman: That’s a fascinating issue because one of the things that’s clearly missing here is infrastructure. And I don’t mean people infrastructure.

Weber: Sky, is the telecommunications infrastructure here a problem? Is it worse in L.A. than in other places?

Sky Dayton: The physical infrastructure is definitely a problem. It’s the gating factor in what we do, and for what we call the network layer above it.

It’s just as bad in L.A. as it is everywhere else. In fact, Silicon Valley has one of the worst physical infrastructures comparatively. The computer industry has sort of flourished in an open competitive environment, but the communications infrastructure has lagged behind in a monopoly-regulated environment, and, you know, as a result [technological improvements have come more slowly].

When we started 2 1/2 years ago, there were, I think, about five Internet service providers in Los Angeles, only maybe two of which were actually based here in Los Angeles. So we were going into arguably the largest potential market in the U.S.; it was totally wide-open and our growth obviously reflected that. Today we have about 100,000 people in the Los Angeles basin connected to EarthLink, and that’s out of a total customer base of about 250,000.

Something I found from my coffeehouse days was that amazing things happened when you got people together and they had the opportunity to communicate and share ideas in an open, unrestricted environment. When the Internet came about, it seemed like the perfect way to use technology to leverage what we were doing at the coffeehouse. We do suffer, though, from the fact that Los Angeles has no center.

Koltai: Something I want to add, and I’m not just saying this because we’re [at The Times] right now, but one of the reasons why I think that The Times and The Cutting Edge section that you started is so important in this town is because there aren’t very many strands that tie it together.

We have over 65 affiliated developers in CyberStudios, and we just brought on our first German developer, from Bavaria. And he came and visited and hung out, and he was here on a Monday and saw The Cutting Edge, and he said, “What on earth is this?” And I said, “Well, this is our local paper, and every Monday they do this.” The guy said, “You’re kidding.” I said, “No, this is what’s going on.” This is in the air. It’s not a specialized niche thing that a few people who go to certain restaurants or certain clubs and are cloistered together are involved in. It is becoming a mass-market issue.

Weber: Let’s talk about what government can or should do. The city of Los Angeles recently passed a tax break for multimedia companies. Does this kind of action make sense?

Goodman: There’s a significant amount of research on this. And it’s pretty clear: The kinds of tax incentives that the city has recently instituted for interactive communications do work. They will attract larger companies. But they won’t keep them.

MacDonald: I think, as you’ve pointed out, there are a number of different factors that companies look at, and this is only one of many things that the city should be doing. I don’t even like to call it a tax break, because what it really is, is that we have a tax structure in the city of L.A. that was instituted in the 1920s. We have a new industry that’s burgeoning called the multimedia industry, and there’s no place in our tax code to peg that industry.

So it’s simply doing what any organization should be doing, which is reviewing their policies and procedures and making allowances for something that’s happened very rapidly over the last several years. We put a new tax rate specifically for the multimedia industry that puts us in a more competitive position with the rest of the area.

It’s one of a number of things we have to be doing. We have a number of issues that still need work in the infrastructure area, including permitting issues and how we can help these companies expand in their current locations.

Weinbaum: We moved from Glendale to North Hollywood mainly because the vacancy rates are so tight in the Glendale-Burbank area, and we found a very nice building in North Hollywood and the city was actually extremely helpful. We were growing very fast. We had a schedule we had to keep on. The city was very helpful in facilitating the move, getting the infrastructure in place that we needed to make the move go quickly. So in that respect it wasn’t the city that made us move--it was vacancy in a good building, and then the city assisting us in getting it done quickly.

Glenn: In terms of office space, there really is a disconnect between what works for start-ups and what typically works for a lessor of space. Most developers are looking for a three- to five-year commitment. They want to see financials that are fairly solid. If not, they want you to make personal guarantees, and this doesn’t work for start-ups.

Silicon Valley for a couple of decades now has had entrepreneurs who actually have taken abatements in rent in exchange for equity, and some of them are multimillionaires now as a result. . . .

Goodman: There’s another issue to remember if you ask what this industry needs. First of all, I’m not so sure it’s an industry. I think it’s a collection of applications that cut across every industry in the world, which is what makes it so powerful. There’s literally no limit to the size of the market. The real issue on what it needs is real simple, and that’s deep pockets.

And if we were to look at the development of these multimedia or new-media applications in Los Angeles, I think it would be instructive to remember that the largest single source of money for start-up and growth is in California. And Silicon Valley [venture capitalists’] preference in terms of the money focus is California. Because they really don’t have to do anything more than hop on a 45-minute commuter plane.

Hiltzik: Well, but even more so it’s Northern California--they want to invest in a company that they don’t have to hop on a plane to see, but can get in a car.

Goodman: I think that’s changing, because there’s so much competition among the venture capitalists, the valuation of the deals is going up. So they’re starting to widen the network, and California’s a pretty good place.

And one last point: It’s important to remember when you talk about New York that New York has a booster. The New York Times has been pushing Silicon Alley for years now. It’s not necessarily independent journalism but boosterism.

Weber: Is there a lot of cross-pollination between the local aerospace industry and the new-media and Internet industries?

Dayton: Well, they are very different. There is a certain amount of retooling that [aerospace people] go through [to work in new media]. But they’re bright, they have good business processes already in place, and in many ways they help us mature our technology because they come from a mature environment.