I think we will see the Summer of 2015 as the peak of the San Francisco Internet Boom.
San Francisco is a boom town, like the wild days of any gold rush. Traffic is unbearable, cranes are everywhere, coffee shops are full and parking spaces are non-existent. Unemployment is negative. Getting workers is impossible. Family members and retirees are recruited for every project. Construction workers are coming into town from 2 hours away. Rents are the highest in the nation. A one bedroom apartment, about 900 sq. ft. is $3500 a month in an ordinary neighborhood.
This boom has peaked. How do I know?
First this boom needs to be understood in historic terms. The first dot.com boom began in 1994 and ended in 2000. I call it the HTML boom. Every small business that had a business card and a handout flyer needed the equivalent online. That was about 1.5 million projects and 100,000 jobs. Those 1.5 million HTML projects had a beginning, middle and end.
The second growth spurt began in the late 1990’s was for all the businesses that could sell products online. That was focused on San Francisco and the Peninsula. Online businesses primarily use databases. I call that spurt the Internet Database boom. Those businesses require permanent staff to maintain the websites and IT staffs to supervise. What began in San Francisco spread all over the country, to lower cost locations and it has now spread to the world. The Internet Database boom is now mature and has become a permanent enduring industry.
The third boom came from the Iphone. It is the App boom. It began in 2008, has ridden the spurt of the Database boom and has now crested itself. The App boom brought 100,000 app developers to San Francisco. There isn’t much money in the app business, very few $billion dollar companies came out of it. Their aren’t always new interesting apps, once we got past the million app mark.
Now the second boom has leveled off, with a number of $billion Internet companies steadily growing, but none with geometric sales still ahead of them. The third App boom has peaked and is declining.
I see no boom coming out of the Internet of Things.
The best clue to all this is that tech IPO’s (new stock issues) are at their lowest since the Iphone was introduced 7 years ago.
What will happen to San Francisco? Financial markets are always volatile. The extreme height of the real estate market will probably change directions as will the rental market for residential and commercial. The current excessive overbuilding will come online and present a surplus in the next few years.
That is the same time the San Francisco $15 minimum wage will be driving 6,000 solid retailers and restaurants out of business. It won’t look pretty.