Urban-Tech: Its Impact on Cities and Their Workforce
[December 11, 2018] BY Wilmer Balmocena
Office culture and work styles can be influenced by so many things. This feature does not focus on the inner workings of office or work styles, instead, it looks into external elements of which our offices are located – in large cities.
Technology has always transformed cities, therefore naturally affecting these cities’ workforce. With the invention of automobiles, building elevators, smartphones, and so many others – technological innovation across different industries have influenced the way cities run and operate. This has always been true and as new technology is invented and new products are developed, the relationship between tech and large cities will increasingly intertwine.
The same way big technological inventions have changed cities and the lives of people living and working in them in the past, we are currently in an era where Urban Tech startups are impacting cities in profound ways. These startups are focused on products that make cities and urban spaces more connected, livable, and efficient.
Why are urban-tech startups drawn to cities? There are many reasons why, but ultimately, it is because cities are ideal for disruption.
Ideal for Disruption
Large cities drive the world economy. In many countries, the majority of its population live and/or work in cities. City populations tend to be more diverse in race, economic background, and mindset, an ideal environment for any company rolling out their product. As more people are living and working in cities, the opportunity for certain products to address the population’s needs also contributes to the draw of tech startups in these urban settings.
This is especially true when assessing the workforce within cities. Urban-tech companies realize the different elements of need city working people require when looking at their products. Aside from increasing a city’s population during “professional work hours”, the workforce in metropolitan cities tend to be earlier adaptors to new technology. This fact is a big draw for these tech startups to be located where the “action” is and witness firsthand how their products are being used. Whether they’re addressing how someone who works in a city commutes to work, the location of where they work, or the needs of where someone on a business trip will stay, the behavior of people who work in cities is heavily considered and valued by these urban-tech companies.
With such large populations, the inner workings of a city are complex and hard to manage, but city governments tend to be the most effective governments to make things happen. As opposed to State or Federal governments in the US which require the approval of multiple branches (consisting of multiple people) to pass a particular policy, City governments are much smaller and tend to have fewer politics to consider, making their policy impact more tangible. The timeline of implementing a city policy is much shorter than a State or Federal policy being implemented. This fact is also ideal for startups as they roll out their product, the sort of government “feedback” or reaction takes less time to collect, allowing these startups to adjust or modify their plans if need be.
The growing sector of urban-tech products within the tech realm show no signs of slowing down. Quite the opposite as venture-capital investments continue to pour in. Between 2016 and 2017, urban-tech investment more than doubled, from less than $20 billion to $44 billion and global venture investment share surging from 13% to 22%. Reports say that urban tech may be the largest sector for investments, attracting more funding than pharma and biotech and artificial intelligence.
As urban-tech products grow in popularity within the tech industry, it’s important to look at how they impact the cities they are seeking to improve. Here, we’ll take a look at three different urban-tech companies and their impact on cities in which they operate in.
Completely changing the hospitality industry and contributing to the sharing economy revolution, Airbnb is an online marketplace and hospitality service where members can use the service to arrange or offer lodging.
The company was developed in 2008 when co-founders, Brian Chesky and Joe Gebbia, needed to make a few bucks to pay their San Francisco, California rent and saw a potential market for the idea during a big design conference coming to the San Francisco area that sold-out hotels in the city. An idea based on “trust”, Airbnb hosts (members who list their space on the platform) and guests (members who use the platform to lease space for leisure or business) saw the value in the product and now the privately owned company is worth over $30 billion.
While most people still view Airbnb as a means for leisure travel, more and more companies are using the platform for business trips as well. Forbes reports that in 2017, over 250,000 companies used Airbnb for business travel; over $296 billion was spent on corporate travel in the US alone. A growing trend in business travel, the company making a strong push to increase its business guests and seeks to make business travel its next frontier as they try to provide reasonably priced accommodations with a more personal touch.
As a platform that provides an alternative to hotels for leisure and business travelers while allowing host members to lease space that they may or may not own, Airbnb has had an impact on different areas within city operations.
The first notable area to mention is the platform’s opportunity for housing affordability to their host members. Living in urban cities usually means paying higher rates in rent or mortgage than one would if they lived in a suburban area. A big benefit for listing one’s space on Airbnb is an income from the listing, allowing hosts an extra income they otherwise would not have as a source. The company reports that 43% of income generated by the host goes to their rent or mortgage; their Airbnb income supplements rent or mortgage cost allowing these hosts who otherwise couldn’t afford to live in the city an option for income.
This income source for hosts has been controversial in large cities where the platform is highly used. In some cases, hosts find this source of income to be so beneficial that they lease out more than one unit strictly to operate an Airbnb listing, taking up an inventory of vacant spaces which, presumably, contribute to driving housing market rates up. Studies have been conducted on this matter and though conceptually this theory makes sense, findings of this were insignificant as it was determined that 0.75% of the element that contributes to the increase of housing market rates was due to Airbnb listing; a major reason for the increase is caused by city zoning.
An economic impact Airbnb has contributed to within cities is the build-out of big hotels to accommodate tourism and business trips. With Airbnb as an option for tourists, there’s less pressure for the more fully developed cities to plan and build out large-scale hotels within their city limits to accommodate visitors. Particularly relevant for cities who host major conferences or plan to host large-scale events, Airbnb allows for a flexible inventory of rentals available.
An example of this is Salesforce’s annual user conference, Dreamforce. The large conference takes places in San Francisco, CA where 170,000 conference attendees descend into the compact city for five days of the conference and associated events. The number of attendees is 20% of the city’s total population, causing all hotels to sell out months in advance. In 2017, Business Insider reports Airbnb having 7,500 guests during the conference; accommodations the city would not normally have without the platform.
Spreading Tourism Within Cities
Another economic impact the Airbnb platform provides is the spread of leisure and business tourism to other neighborhoods of a city. In most old, fully-developed cities, hotel accommodations are typically located in or near the city center or busier parts of the city. Airbnb provides options for business travelers to explore different neighborhoods with their listings; rather than having to stay in a city center hotel and have to travel to the neighborhood they want to explore or office location, guests can choose to stay in an Airbnb listing already in that neighborhood. This option then distributes tourist spending within a city to the neighborhood cafe, restaurant, retail shop, bar and any neighborhood establishment that draws that tourist or business traveler.
Another growing company that has impacted city dynamics is the current biggest office tenant in Manhattan, New York – WeWork. Founded in 2010, WeWork provides shared workspaces for entrepreneurs, freelancers, startups, small businesses and large enterprises. The company’s business model includes purchasing real estate space and transforming the space into well-designed smaller offices and common areas to lease out.
With current technologies making it easier for people to work remotely and the growing startup and small business culture the US is shifting towards, shared workspaces have become very popular to address the needs of this market. As mentioned before, rent rates within cities are high, especially for office and commercial space. Coworking spaces, like WeWork, offer more flexibility to these businesses in terms of office lease rates (rates vary depending on how big of space the business requires) and terms (flexible lease plans can be monthly, bi-yearly, or yearly); small companies and startups are not limited to a long-term lease of a building.
The value to WeWork lease tenants is the low investment expense. These tenants would usually have to invest a high rate if signing a private office lease. With WeWork, they are sharing that cost with other tenants within a coworking space that’s already designed and equipped to plug and play.
Currently, 75% of WeWork’s tenants are small businesses. Not only is the company New York’s biggest office tenant, but it’s also fastly becoming the world’s biggest commercial landlord.
A major impact WeWork has had on cities is its contribution to infill development. In many cases, WeWork offices are created in large developed buildings that have been vacant for some time, waiting for a large corporation or a business operation big enough to require that size of space. The build-out of WeWork spaces allows these large vacant spaces to be used in an alternative manner.
WeWork repurposes the existing building or space and transforms it into a space that can be utilized in today’s workplace environment. An example of this is the company’s 110 Wall Street location in downtown Manhattan. The area that once was destroyed by Hurricane Sandy and avoided by other businesses looking for real estate in the booming city was rehabilitated by WeWork and its thousands of members. This office location created a destination and reignited the neighborhood.
“WeWork is a critical piece of our economic development, job creation, and downtown revitalization strategy. WeWork launched in downtown Long Beach about a year ago and the community is already buzzing with entrepreneurs, nonprofits, and small and large businesses alike. I think WeWork can be a game changer for the future of cities.”
—Mayor Robert Garcia, City of Long Beach, California
Outer Neighborhood Economy
As WeWork offices rely on taking over large spaces to transform, their office locations tend to drive the economy of neighborhoods that would not normally have that business (as mentioned in the example above). As apart of the company’s strategy is the purchase the space of its office locations, in many cases, these locations are located in outer neighborhoods of a city where the inventory of real estate the WeWork operations requires is more available. The development of a WeWork office in these outer neighborhoods has a direct impact on the neighborhood’s economy.
WeWork locations tend to gentrify neighborhoods that would not normally have a professional population. The population helps the neighborhood economy by bringing business to the neighborhoods’ restaurants, cafes and retail shops.
A true case study of urban-tech disrupting city operations is the industry leader of ridesharing platforms – Uber. The peer-to-peer platform provides ease to ride-hailing through their mobile application and offers competitive ride rates to its customers varying on the level of shared ride (multiple passenger or private ride) and automobile requirement (black card, SUV/van). The platform’s algorithm allows its customers to obtain a quote for each ride which contributes to the ease of the user.
Founded in 2009 and first operating in San Francisco, CA, the ride-hailing platform now operates in 785 metropolitan areas worldwide and has been prominent in the sharing economy that is also linked to the two other companies previously discussed.
Prior to Uber, popular options of transit within cities were either taxicabs or public transit (bus or train). The launch of the platform provided an alternative transit option as riders were allowed to hail a ride that will take them from door-to-door, at a competitive and transparent rate, all with an easy of ordering their rides through their mobile device. This completely changed the way people get around in cities, provides another option for commuters, and contributes to the inner workings of a city being more connected.
As a door-to-door service, Uber makes it easier for riders to access areas within a city that would have been more difficult to get to prior to the development of the platform. It provides transit to areas not usually serviced by public transportation or taxicabs. As a result of its popularity, Uber not only competes with other ride-hailing options, it also competes with the city’s public transit system as transit users are now more likely to take Uber than any other option.
Uber’s service is very beneficial for commuters. Though it’s not likely for out-of-city commuters to take Uber for their entire commute, it provides them an option to mix their transit means by taking public transportation or train into the city and taking Uber from a train stop to their office destination. This is especially beneficial for commuters who would usually need to take multiple public transportation routes to get to work.
Uber’s Pool option allows work commuters within a city a “carpool” type of option as the service matches up users going towards the same direction, allowing user to share the ride and cost via Uber’s algorithm. In some cases, the cost of an Uber Pool is around the same price as taking public transit to work and usually cuts commute length.
City Traffic Congestion
Though the existence of Uber has reduced car ownership in cities, an ongoing issue the platform has caused (and cities are currently dealing with) is the influx a traffic congestion on city streets. In 2016, the American Community Survey reports that over 76% of Americans drive alone to work every day, while another 9% carpool with someone else. This fact, mixed with the growing popularity of ride hail services, make for a really congested situation.
As the demand for Uber rides increase, so do the number of Uber drivers on the road to accommodate the riders’ request. A study conducted by the San Francisco Transportation Authority showed that 50% of the increase in traffic is caused by ride hailed services (including delivery services such as Amazon delivery trucks and Doordash).
To help manage the issue and minimize disruption to existing city systems, some cities like San Francisco have implemented bus and taxicab only lanes to distribute the traffic otherwise created by the vast number of transportation vehicles on the road.
As the three companies discussed in this article have proven, urban-tech companies can impact cities and the people who work in them in very meaningful ways. Companies are and will continue to “disrupt” normal systems within cities by building on infrastructure each city already has in place and addressing problems and needs of these tech users. Airbnb, WeWork and Uber are still young companies and it’s too soon to tell whether the impact of these companies will show to be negative or positive in the longer term, but already they have put affected how large cities operate and how workers in those cities work and travel.
Cities are still being forced to debate on what kind of city they want to be and how to adapt to these new technologies. This concept is not new. What is new is the rise of urban-tech companies purposely seeking to change (in hopes of improving) city dynamics and systems.
Cities are becoming the basic platforms for global innovation…and the people who work in them are the first to adopt and be impacted by these innovations.
Writer of this post
Wilmer BalmocenaWilmer has been a resident in the San Francisco Bay Area for over fifteen years and has an extensive background in Business Operations and Office Management that gives him a fresh perspective on various topics. As the Operations Manager at btrax, an experience design agency in San Francisco, he is passionate about understanding what motivates businesses and individuals to succeed and excel.
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