Of the few questions outsiders have about Seattle’s star startup ecosystem, the most common is: “Why haven’t Amazon and Microsoft done more for the area?” Microsoft deserves a post of its own, but the truth is that Amazon has had a bigger impact on startups than nearly any other company in the world.
The key words are Amazon Web Services.
Startups don’t require much to get off the ground these days, but among the top-five needs is solid hardware to build on. When Amazon introduced AWS in 2006, it simplified startup creation and vastly reduced the overhead startups need.
AWS’s impact shouldn’t be overstated, and cost reduction isn’t the only benefit. But AWS now powers roughly 1 percent of the Internet, with popular companies like Yelp and Foursquare running on top of the structure. It is one of the largest supercomputers ever created. And, if that’s not enough: Netflix relies on AWS.
If AWS didn’t exist, the startup world would be incredibly different. But despite so much of the Internet’s reliance on Amazon, the company is sometimes seen as the neglectful parent of Seattle.
That’s not entirely fair.
For a start, Amazon is a magnet for talent. Dave Schappell, the founder of online marketplace TeachStreet.com, which Amazon recently acquired, says the company attracts top staff from around the world. While a lot of firms can claim that, says Schappell, Amazon does it in “a way few other companies do.” This talent tends to stay in Seattle even if they later leave the company. But while this talent is a big plus for the Amazon/Seattle relationship, for many people it isn’t enough.
One of the many people who aren’t thrilled with Amazon’s role in the ecosystem is longtime Seattle resident and 500 Startups mentor Galen Ward, who founded real-estate search company Estately. According to Ward, Amazon does draw talent, but it locks them in with long-term vesting periods for stock options “that tend to vest over a period of six or seven years, with the bulk coming towards the end of the term.” This then tends to force people to settle at Amazon, when they could otherwise be creating new companies.
Others, such as Founder’s Co-op partner Chris DeVore, disagree. DeVore maintains that this doesn’t have a huge impact on Amazon’s influence. He told me Amazon does delay vesting to encourage people to stay at the company longer, but that entrepreneurs are “born not made,” and that as long as people are able to cover basic expenses, they will pursue the dream of starting a company and “just build cool stuff.”
Which brings me to the main point: Jeff Bezos is too good at running Amazon to care about the Seattle startup ecosystem.
Amazon attracts some of the best talent in the world, it pays them fair over time, and, according to DeVore, it is better than most companies at creating entrepreneurs. “People and employees operate on a quantitative, product-building basis,” DeVore says. The challenge is to then “knock them loose like free radicals,” allowing them to start companies.
How that will happen is the biggest question for how significant Amazon’s impact on the Seattle ecosystem will be. On the one hand, Amazon can continue to draw talent that escapes in drips and drabs, which would be a net-positive for the ecosystem but wouldn’t really be a major turbo-boost for the area. On the other hand, Seattle’s ecosystem might blow up, closing off its disadvantages, thus incentivizing people to leave Amazon and start companies.
While startups emerging from companies is good for a technology ecosystem, the other side of the coin is that startups are sometimes folded into larger companies. Amazon doesn’t acquire many companies, and when it does, it does so quietly. While I heard mixed reports in Seattle, many people claimed that Amazon was so secretive about acqui-hires that it would force the small number of employees to change their LinkedIn profiles on different weeks.
This is fine for the company as a whole and for the acquisition targets, but it doesn’t do much for the ecosystem in general. One of the best things about Silicon Valley is that even if someone leaves Google to start a company, they can find a job regardless of what happens to the startup. This perception helps mitigate the risk of starting a company, at least from the founders’ perspective. In Seattle, where risk mitigation is a large factor in starting a company, seeing fewer local acquisitions does hurt potential startups.
One factor that shouldn’t be underestimated is Amazon’s move to South Lake Union, which is steadily becoming the hub for startups in Seattle. With Amazon, Founder’s Co-op, and dozens of other startups and community centers being moved there, the forced interaction could spur new ideas. That, at least, is Founder’s Co-op’s goal, and it’s one they share with some of Seattle’s larger companies.
This all supports the theory that, while Amazon won’t be the catalyst that sends Seattle into the next dimension, it will at least provide an additional boost as the area grows organically. In the end, regardless of what impact Amazon has on Seattle, two things remain true: One, Amazon has done plenty for the startup world already and could, figuratively, retire at this point. And two, it’s hard to criticize a company that succeeds on its own.