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How Austin became the fastest-growing tech hub in the US

Austin’s emergence as the central US hub for high tech development was not happenstance, but rather a carefully planned trajectory cultivated from its inception.

Austin has not always served as the capital of Texas. In the late 1800’s, during the Texas revolution, Houston served as the capital of the Republic. As the Republic of Texas pushed for westward expansion, the capital was moved to central Texas in the area we now know as Austin. During this time a massive infrastructure project began to expand the city and slowly shift the government from Houston. This shift was not met with unanimous approval. Sam Houston, President of Texas, was a proponent for the capital to return east. When he called for the national archives to be transferred, the citizens of Austin refused. Troops were sent to seize the documents, however, the citizens fought back holding that Austin was the rightful/ideal site for the capital.

Following the annexation of into the United States in 1845, Austin was named the temporary state capital until two statewide elections in both 1850 and 1972, cemented Austin as the official state capital.1

Austin’s infrastructure expansion did not end with government buildings. In 1881, Austin was chosen as the location of a university, today known as the University of Texas (UT), with doors opening to students in the fall of 1883.2

At the turn of the century, much of Texas’ economy was still driven by industrial and consumer goods. Driven by the demands of a rapidly expanding nation and ongoing war, oil, ranching, timber, and agriculture made up Texas economics.3 The city of Austin itself was considered simply a “government town” with massive amounts of tax-exempt government property and in dire need of a private sector tax base to bring in revenue for the city and its inhabitants.4

As the Texas economy diversified and businesses continues to expand in Houston and Dallas, Austin found itself losing highly educated individuals in the mid 20th century looking for high skill and business-oriented employment other large cities with a business or technology-oriented focus. Agriculture and infrastructure implementation was still a large source of revenue for the city, but the citizens of Austin recognized the need to develop advanced industry in Austin in order retain university graduates and draw in additional labor, revenue, and expansion into the city.4,5

This initiative, spearheaded by a privately funded group, the Austin Area Economic Development Foundation formed in 1948, and ultimately pulled into fruition by the Austin Chamber of Commerce, to market Austin to new companies and industry leaders as well as assisting current businesses in expansion.4,6

A young, newly elected president of the Austin Chamber of Commerce, Vic Mathias led a sustained effort with various local leaders to determine the best way to bring forth impactful economic development to the city of Austin. Mathias determined that the technology and electronics industries would be highly desirable to Austin, as each were considered to be “clean industries” without smokestacks that operated in offices similar in appearance to university buildings.4,7

Over the next decade, the Austin Chamber of Commerce, led by Mathias, became the recruitment center for central Texas with its sights set on bringing the technology to Austin. The Chamber created Austin’s Economic Development Council in 1961, utilizing pamphlets, brochures, UT professors hosting meetings with industry leaders when travelling, to hosting festivals highlighting Austin’s abundance of resources, Mathias took direct action to showcase the city of Austin and its potential.4,8

In conjunction with proactive marketing efforts for the City, Mathias leveraged the weight of the Austin Chamber of Commerce and established bonds to expand the Austin airport, electric supply, and roads.4,9 These efforts set the stage for a welcome reception when the Economic Development Council’s marketing efforts brought visitors and site selection teams to Austin.

Austin began to reap the benefits of the combined efforts of the Austin Chamber of Commerce and the Economic Development Council, as more and more companies began locating in the area including Industrial Instruments, Johnson Controls, Austron, and Houston Instruments.4

Eventually, Mathias recruited Economic Development Department Manager, John Gray, to join the Economic Development Council. Though Gray‘s efforts, the council was able to recruit upwards of 50 companies during his 17 year service. Gray’s arrival to the team was followed shortly by the area’s first major technology manufacturing plant being established by IBM, distinctly placing Austin on the tech map.8

In the years following, Austin gained many new manufacturing companies (Infotronics and Communications Research, Texas Instruments, Westinghouse, Motorola, Data General, Advanced Micro Devices) and these companies both expanded and fostered spin off companies.

During this time of tech industry expansion, the Austin Chamber of Commerce supported many political campaigns spanning almost two decades with specific focus on expanding utility infrastructure, such as electric, water, wastewater, and roads. Additionally, the Chamber pushed for an increase flight scheduled to the Austin airport, expansion of major roads and expressways, construction of the convention center, low electric rates for large businesses, and the legislation of Capital Metro.4

In the early 1980’s, Austin was elevated to the next tier of tech industry hubs when Microelectronics and Computer Technology Corporation (MCC), the first research and development consortia in the United States, chose Austin as the location of its labs. MCC’s founding was garnered resounding support by the Department of Defense and the Justice Department in response to expansion of Japan’s technology development, as the leading high tech US companies shared resources through MCC to produce breakthrough technologies that could then be integrated and implemented among their own production process.10

The momentum didn’t stop with MCC, 3M Company moved their Division for Research and Development to Austin and Dell Computer Corporation was soon founded in Austin by University of Texas freshman, Michael Dell.4,11

In the late 80s, Austin truly earned its position as a top technology market when SEMATECH, Incorporated (Semiconductor Manufacturing Technology) announced its headquarters in the city. SEMATECH, similar to MCC, as a consortium brought together to include private high tech companies, the US Department of Defense, research coordinators from universities nationwide, and a team dedicated to global sourcing of equipment and materials. SEMATECH married the public and private sectors enabling a relationship of cutting edge technology development between producers, development companies, suppliers, and the US military.12

The state of Texas, as well as the city of Austin, created an attractive environment for these companies looking to relocate not only with the draw of an educated work force, low cost of living, and quality of life, but through tax laws and negotiated incentives. Texas has no personal state income tax, carries lower sales and gas taxes, and at the time many of these companies were able to take advantage of Texas having no major corporate taxes. This recipe attracted both favor from companies as well as their employees to call Austin home.4,13

The established tech presence and favorable tax environment fueled the continued growth of high tech companies in the city of Austin and its suburbs. From 1990 to 2000, these companies generated a 125% increase in growth of high tech industry employment for the city. Workforce growth shifted during the 90s as Austin’s tech environment shifted to focus on the emergence of software centric products, platforms, and professional services as many manufacturers began to outsource. For the first half of the decade, semiconductor employment growth rate led high tech. However, in the latter half, high tech growth rates surpassed the manufacturing rates driven largely by the dotcom era.14 Software engineers were in high demand with the expansion of internet based companies and services for both established industry giants and start ups funded during the boom.15 During this same period, Data Foundry was established and became one of the first colocation providers in the state, and specifically in Austin with its first facility opening its doors in 2003.16 In addition to AT&T, Level 3, more colocation focused firms like Digital Realty, CyrusOne and Equinix entered the Texas market.

As the Dallas and Houston data center markets grew at record pace, the Austin data center market grew slowly (6-10 MW per year), primarily attracting government, manufacturing and University users. The University of Texas established its Texas Advanced Computing Center in 2001 and in 2016 launched LoneStar5, one of the most advanced high performance computing platforms in the world.17,18

In the past 5-years Austin has seen tremendous growth from the technology sector with continued expansions from Apple, Dell, Oracle, IBM, Samsung, Tesla and many others.19 Samsung’s recently announced $17B+ semiconductor manufacturing project is among the largest in the world.20 This has been coupled with Data Center growth and the emergence of new data center providers to the Austin market including Skybox Datacenter’s Austin I and its new PowerCampusTM Austin in north Austin.

As Austin continues to experience the growth, expansion, and spin offs, the venture capital market continues to hone in on Austin opportunities, fostering start-ups and the presence of incubators across the city.21 With the movement of four of the “big five” tech companies, Apple, Google, Facebook, Amazon in 2019, many large and mid-sized tech companies have followed in their footsteps.22 This consistent migration of companies, industry leaders capital, entrepreneurs and workforce from the Bay Area to Austin since the mid 80’s has earned and cemented the city its title of “Silicon Hills.”23

Citations

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3. The Transformation of the Texas economy. The Texas Politics Project. Published January 11, 2016. Accessed August 5, 2022. https://texaspolitics.utexas.e...

4. A short history of Austin’s economic development. Environmentaldirectory.info. Accessed August 5, 2022. https://environmentaldirectory...

5. Humphrey DC. Austin, TX (Travis County). Texas State Historical Association. Accessed August 5, 2022. https://www.tshaonline.org/han...

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9. Mathias V. Austin’s Airports--Three of ’em - 1928 ’til now. Vic Mathias Thoughts While Thinking. Published January 19, 2011. Accessed August 5, 2022. http://vicmathias.com/content/...

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13. Folger J. Why silicon Valley companies are moving to Texas. Investopedia. Published December 17, 2020. Accessed August 5, 2022. https://www.investopedia.com/w...

14. Federal Reserve Bank. South Texas Economic Trends and Issues. Federal Reserve Bank of Dallas, San Antonio Branch. Published Issue 1 2006. Accessed August 5, 2022. https://core.ac.uk/download/pd...

15. The Investopedia Team Reviewed by Khadija Khartit. Dotcom. Investopedia. Published November 26, 2003. Accessed August 8, 2022. https://www.investopedia.com/t...

16. Fact Sheet - Data Foundry. Data Foundry. Accessed August 30, 2022. https://www.datafoundry.com/me...

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18. Singer-Villalobos F. TACC continues legacy of Lonestar supercomputers - press releases - Texas advanced computing center. TACC- Texas advanced computing center. Published July 13, 2015. Accessed August 30, 2022. https://www.tacc.utexas.edu/-/tacc-continues-legacy-of-lonestar-supercomputers

19. Nicastro D. Is Austin emerging as the new American technology hub? Cmswire.com. Published August 20, 2021. Accessed August 30, 2022. https://www.cmswire.com/customer-experience/is-austin-emerging-as-the-new-american-technology-hub/

20. The Associated Press. Samsung says it will build $17B chip factory in Texas. NPR. https://www.npr.org/2021/11/24.... Published November 24, 2021. Accessed August 30, 2022.

21. Pllc CW. The Silicon Hills of Austin are Texas’ venture capital headquarters. Lexology. Published June 17, 2021. Accessed August 8, 2022. https://www.lexology.com/libra...

22. Bluestein A. Austin was destined to replace silicon valley. Then the pandemic hit. Marker. Published July 15, 2020. Accessed August 8, 2022. https://marker.medium.com/aust...

23. Agresta M. No, Austin won’t become silicon valley 2.0. Texas Monthly. Published January 3, 2021. Accessed August 8, 2022. https://www.texasmonthly.com/n...