San Francisco is becoming a dystopia but maybe AI can fix it
By Mitchel Gaby
Imagine getting off the 101 and exiting Market Street, the major road in San Francisco, and witnessing plenty of hallmarks and venue emblems of San Francisco’s rich history. As you pass through Billy Graham Civic Auditorium and Golden Gate Theatre and drive to the SoMa district, you will see familiar places like convenience stores, delis, and retail outlets on their last legs.
Thanks to the growing theft and cost of living, residents are leaving the area and heading for safer ground. However, on that same street emerges another name that has moved in and has a repeated phrase: AI — artificial intelligence.
As AI grows in the United States and worldwide, the city of San Francisco is calling it home. There are already 35 AI startups in California, with San Francisco having the most with 20. In May of this year, San Francisco Mayor London Breed claimed that San Francisco was the “AI capital of the world.”
From 2008 to 2023, 11 of the top AI companies in San Francisco made the city over $15 billion in revenue. The importance of AI makes cities take advantage of these startups and how they boost the tech economy in major metropolitan cities, and investors are looking to find more.
“The excitement around generative AI since the launch of OpenAI’s ChatGpt in November has spurred a flood of investor interests in major companies and start-ups alike,” said a Business Insider article. “ It’s perhaps unsurprising that AI companies seem to have San Francisco in their sight.”
It comes at a time when residents and journalists assess an uncertain future of San Francisco.
“While in-person activities in many major cities in the United States have rebounded since the start of the Covid pandemic, San Francisco’s recovery has been strained,” said a CNN article back in August. “ San Francisco’s downtown is in dire straits.”
According to the recent U.S. census, San Francisco had over 800,000 residents before 2020 but is now on a steep decline in population and hovering over 700,000 in the city. But not just in San Francisco; the Bay Area at large has suffered a significant decrease in people living with reasons ranging from crime, drugs, and the cost of living being too high for folks. Issues that the San Francisco officials tried to clean up and address swiftly just before the APEC conference back in November were criticized by activists and locals who believed the city was trying to impress world leaders.
“When you look at what we’re charging in taxes compared to any other major city, it’s almost criminal,” said Breed in a CNBC interview. “In fact, most of the people who don’t have employees in the office are saving money that they don’t have to then pay the city for.”
How can AI contribute to the Bay Area and San Francisco’s comeback? One of the top AI companies is OpenAI, which is expected to have a $29 billion company value and is only getting started. Early this year, OpenAI made a deal with Microsoft with an estimated $13 billion contract, which could bring in revenue to meet the desperate need.
Another company that is getting its feet wet in the cerebral artificial world is Scale AI. The company is making waves in the AI industry due to last year’s investment in defense contracts. Last year, the company secured a $249 million deal with the Department of Defense (DoD) and the Joint Artificial Intelligence Center (JAIC).
According to the Washington Post, the technology made by Scale AI is being used to combat China and its use of AI technology to undermine the national interest of the US. The company became the latest partner in a larger trend of the US military using AI companies to deploy automatic vehicles, planes, and ships to protect America’s interests aboard.
“Without AI developed by private tech companies, the United States won’t be able to maintain its technological edge over the rising military power of China,” said the article.
In a CNBC interview, SV Angel founder and San Francisco native Ron Conway is optimistic that AI and venture capitalism will grow as AI becomes more prominent in the city.
“Native AI companies, there’s plenty of funding out there…the beauty of that is most of those companies are rising up in the great city of San Francisco, which we love,” Conway said. “We have about 50 investments in native AI companies that we have accumulated over the last five years, and the pace is speeding up.”
While the AI industry is still new and without long-term results, the AI job market has affected San Francisco’s job market. San Francisco is beating every other in the AI sector by 22 percent. The Bay Area is around 59 percent more than any other city in the country.
A job market also requires space for companies and people to work with. Because of AI, the real estate market has also made a slight boom in San Francisco. Post-pandemic office space created a significant downturn for San Francisco, which had a 30 percent vacancy rate. That downturn has been bucked, and the city experienced a huge demand for office space. According to a VTS study, demand in San Francisco commercial real estate increased in the 2023 market quarter by 10.2 percent.
Michael Tennenbaum, CFO of Brex Corporation, explained why the company had moved back to San Francisco after leaving during the pandemic.
“Our CEO is pretty vocal about being closer to AL, and what is happening across the ecosystem in San Francisco was a goal for him moving back,” Tennenbaum said.
The hype and prospect of a revival of San Francisco are promising, but the AI world is still fresh and nebulous regarding its long-term results on the economy. While the city of San Francisco is opening its doors to the cerebral world of AI, there are no assurances that it will completely revamp the city and even the state of California.
Even though the state has made $15 billion for San Francisco, it also employs only 3,400 people for those companies. It’s a drop in the bucket from the 150,000 that were lost during the pandemic. The city needs more workers to compensate for the pandemic’s losses. Due to the nature of AI, companies are allowing their programs to communicate with customers and handle inquiries that a human being would traditionally take.
OpenAI has over 700 employees in San Francisco. Sam Altman was recently roiled with controversy due to the board of directors removing him from the CEO position. The employees at the company defended Altman, and then it was immediately reversed, primarily because of the demand by the employees who threatened to leave. As successful as OpenAI is, it only employs 770 people.
Roger Lee, co-founder of Comprehensive.io, which tracks job hiring across the state, said that despite the AI industry hype, no specific company dominated the market. Lee was warned that the industry boom phase won’t last long.
“We saw these same tech companies go on a hiring spree and splurge salaries, only to roll back layoffs,” Lee said. “Only time will tell if the current AI boom will end differently.”
There are still other issues San Francisco has to address before it has a turnaround and convinces the public it’s back on the right track. Solely relying on the booming AI industry to bring back the lore of San Francisco would be naive due to how unexpected the future is and how new the AI industry is.
Back in November, the business community in San Francisco spent millions of dollars to promote the city titled “It All Starts Here,” hoping to bring back tourism, which has been down over the years, to the city.
“There is a lot of great things happening in San Francisco, and ‘It All Starts Here’ really refers to the innovation economy, which we really are at the forefront of,” said San Francisco Giants CEO Larry Baur. “We’re attacking those issues right, and it’s not going to be overnight, and it’s gonna take some time.”
Southern California is catching up to what the Bay Area did with AI and being competitive. AI companies are set up shop here in the greater LA area. These companies include Gridspace and Finesse, which is an AI company that blends fashion with home video interactions. “Zara meets Netflix” is their pitch to the public.
San Diego is considered to be an “early adopter” due to AI activity in the San Diego Metro, which appears to be bigger than other metros other than the Bay Area. With federal contracts in the area and other tech companies like Qualcomm, San Diego is emerging as the next hub of AI. In San Diego, Shield AI is a company that has a clientele with the defense department, especially the US Air Force and Army. Hivemind, developed by Shield AI, is an autonomous software developed by Shield AI. It’s software that allows operations without human pilots, which include F-16 fighter jets.
With California being the fourth largest economy in the world and still considered the tech industry giant, the state is naturally becoming the right home for the growing AI world. But it all starts with its proverbial headquarters in San Francisco and the prospects of a booming cerebral economy. OpenAI, Scale AI, and others are inside Soma, Mission, or Potrero Hills neighborhoods. Still, with so many complexities of AI, and wonder if this AI boom can continue its low employee count, San Francisco’s homeless crisis, the instability of management like Sam Altman, and other questions unanswered, it remains to be seen if AI can change San Francisco’s declining trend for the better.
