AOLs headquarters in Dulles in 2007. (Susan Biddle/The Washington…)
In many ways, HelloWallet is quintessential Washington. The company’s mission to bring personal finance services to moderate-income Americans is altruistic in origin. The founder, a public policy scholar, hails from the Brookings Institution. Its seed-stage capital was a Rockefeller Foundation grant, not venture capital. Yet it’s hard to imagine the firm taking root in the District even a dozen years ago. In a region long dominated by federal contractors, telecommunications providers and professional services, a start-up with ambitions of Web and mobile-based software had little place in the local economy.
In recent years, that has begun to change. Technology firms in industries as varied as e-commerce, education, health care, cybersecurity and energy have made their home in the nation’s capital and its surrounding suburbs.
The result is a burgeoning technology hub that some consider the region’s new economy, particularly in the District, where hundreds of young entrepreneurs have formed a creative class of technologists with business ideas and the zeal to execute them.
“If you want to change the world, you still come to Washington, D.C.,” said Matt Fellowes, HelloWallet’s chief executive. “What we haven’t done very well to date is connect that intellectual firepower with the capability of technology to solve these big problems. And that’s what is happening right now, so I only see growth in this area going forward.”
But that growth has already encountered challenges, and more are inevitable. Many of the ingredients that have allowed places such as Silicon Valley and Boston, and more recently New York, to thrive seem to be lacking here — or missing altogether.
Local entrepreneurs and investors have moved quickly to tackle such issues as the shortage of Web developers or the dearth of investors, but it remains to be seen whether those efforts can coalesce and a vibrant tech economy will emerge as a result.
Creating an ecosystem
AOL established the Washington region as fertile ground for consumer technology companies as the firm introduced millions of Americans to dial-up Internet, and pioneered the concepts of chat rooms and instant messaging.
The company’s epicenter shifted to New York in 2007 after its ill-fated merger with Time Warner, and many of its workers here have defected to start their own ventures. Indeed, if you scan the resume of many local entrepreneurs, including LivingSocial chief executive Tim O’Shaughnessy, a stint at AOL can often be found.
These veterans created an ecosystem that many say forms the foundation for a successful technology hub: A megalith company attracts thousands of workers, who then gain experience, grow restless and decide to forge their own path. The result is an ever-extending pipeline of fledgling technology firms poised for growth.
That has contributed in part to the more diverse technology sector around Washington today. Grotech Ventures partner Don Rainey points out that the big tech firms of the 1990s, such as UUNET Technologies and MCI Communications, traced their roots to technology developed by or for the federal government.
That’s not always the case anymore. Firms such as energy software maker Opower in Arlington, Web site builder Webs.com in Silver Spring and data privacy upstart Personal in Georgetown have been built exclusively with consumers and corporate customers in mind.
“Our historical, legacy core competencies have been government-derived things — security, wireless, Internet,” Rainey said. “You look at them and the DNA is all government expertise.”
“While you can’t see government DNA in this generation of start-ups, you can often see AOL DNA. And I suspect in 10 years, you will see LivingSocial DNA in the generation of start-ups that make headlines,” added Rainey, an early LivingSocial investor.
But even as LivingSocial has filled AOL’s void as the region’s banner consumer technology company, doubts remain about the company’s prospects for long-term success. Amazon, which holds a 29 percent interest in the company, disclosed in a July regulatory filing that the firm lost $93 million in the second quarter, down from a loss of $198 million during the same quarter last year. What’s more, LivingSocial has tried with limited success to untether its bottom line from the daily deals business.
Regardless, one LivingSocial does not an economy make. For the tech sector to buoy the region’s economy in the way advocates promise, the region will need several companies with a similar narrative of explosive growth, rapid hiring and global reach.
A new economy
The consumer tech sector’s rise comes as other industries have begun to wane. Government budget cuts and the threat of sequestration have formed a dark cloud over contracting. The recession and slow recovery have weakened many sectors from real estate to retail.