A Comparison of Austin and the Bay Area by an Austin Local and Bay Area Transplant
Note: (Views expressed in this article are my personal views only and not representative of my current employer)
I’m writing today from my hometown of Austin, Texas which has lately been the center of attention in the tech world as luminaries, companies, and regular working people alike have decided to relocate (or are looking to) here from the Bay Area. I moved here when I was 1, so I’m not quite native but close. I can still remember the days of the old Mueller airport, eating at the original Torchy’s Taco truck and P. Terry’s burger stand (when there was just 1 of each around), and driving 3 hours to Houston just to shop at a large Asian supermarket (this is entirely unnecessary now that H-Mart and 99 Ranch are here). I previously was living in San Francisco (and still plan to return in the spring) and spent about 3 years there. In the Bay Area, I’ve spent time working (in order of duration) in San Francisco proper, East Bay, and the South Bay.
Given the crushing amount of interest in Austin from folks in the Bay Area, I wanted to provide an Austin local (and Bay Area transplant) perspective comparing the two areas so those who are thinking of making the move can have a better understand of Austin (and surrounding areas) compared to the Bay.
But first, let’s take a brief detour and look at the luminaries that recently announced their plans to relocate to Austin. The last few months have brought Austin some noteworthy names including Joe Lonsdale of Palantir and 8VC fame, Drew Houston of Dropbox, and (very likely) Elon Musk of you know what and more. The below chart shows net worth of individuals and when they announced their moves to Austin.
Elon Musk is crazy rich, there is no doubt about that. How rich? Well, his current net worth as of 1/4/2021 exceeds the ENTIRE 2019 GDP of the Austin metropolitan area. I had actually updated the chart a day before and he was slightly below…but Monday news on Tesla’s performance pushed him over.
OK, diversion aside, the plan is to compare the regions across 7 different factors listed below. Today’s area of discussion will be tech jobs.
- Tech Jobs
Pre-COVID Tech Job Market
At the beginning of 2020, the tech job market in the Bay Area was fundamentally a very different than the one in Austin. First, we’ll explore the dynamics of these differences in-depth and then make predictions on what the post-COVID future will look like.
Software Engineering Job Market
First let’s take a look at the market for software engineers (SWE). SWEs at tech companies are the soccer players, everyone else is support on the team. PMs are coaches, finance are the training staff, etc. and top compensation goes to the players as they are generating the most value.
One of the biggest draws to the Bay Area has always been high paying jobs in software engineering where compensation in entry-level roles at the top companies can hit close to or even exceed $200K while senior engineers with 5 YOE + can often command compensation packages close to $400–500K if not more in many instances.
Austin on the other hand, despite the moniker of Silicon Hills, has a SWE job market that is/was FAR less lucrative. Entry-level roles pay closer to $100K or below and senior engineers are lucky to clear $200K.
The Bay Area market is akin to the La Liga or the Premier League when it comes to SWEs. Austin is akin to a lesser European league or the MLS (which is coming to Austin!!!).
The below two charts show self-reported data from levels.fyi on SWE compensation in the Bay Area vs. Austin.
Two key observations from the charts above beyond the self-explanatory median numbers (which are still interesting, the San Francisco median is close to the Austin 95th percentile):
- The Bay Area curve is skewed much further to the right compared to the Austin curve. If you want to make $300k+ then there are ample opportunities to do so in the Bay Area, but it is pretty much unheard of in Austin where ~$250k seems to be the ceiling for the vast majority of employees.
- Stock grants are a significant part of compensation in the Bay Area and much less so in Austin. Large pay days that can make one a millionaire from either rapid stock appreciation of handsome stock grants and/or from new IPOs (e.g, Zoom, Twilio, Google, Airbnb, Snowflake, etc.) are relatively common events in the Bay Area but rare in Austin. The last major event that led to a boom of millionaires was Dell going public (the first time around) and that was 20+ years ago, people who benefited from that were known as “Dellionares”. This factor is not even visible in the charts above as stock appreciation is often not factored in for initial compensation packages.
I will note that these numbers are not COL-adjusted, if we adjust for COL then it appears that the median Austin comp is higher. Here is a quick COL comparison from Nerdwallet.
However, that doesn’t tell the full picture as the two insights above (salary curve skewing right and stock grants in Bay Area) make pursuing a career in the Bay Area far more attractive financially for ambitious SWEs.
This data is proof of a story that’s often floated around tech circles. If you have aspirations of making it big then the Bay Area is the place to be. If you want to be comfortable, have a laid back lifestyle, and don’t care about climbing the ladder then Austin is great.
I hinted at it earlier, but part of what is driving the vast differential in compensation is that the pool of SWE jobs is very different in the Bay Area vs. Austin. The Bay Area has a critical mass of high-paying SWE jobs that hit that $300K+ range in a wide range of companies (e.g, Facebook, Google, Airbnb, Twilio, Doordash, Netflix, Lyft, Snowflake, the list goes on and on…) and can offer the opportunity for the everyday worker to become a millionaire. Some of the largest employers offer some of the highest pay and consequently, a lot of the best talent migrates to the Bay Area.
If we use alumni from schools as a proxy for migration of talent, it’s more common for UT-Austin alumni to migrate to the Bay Area than for Berkeley and Stanford alumni to migrate to Austin. UT enrollment (~50k) is just a bit less than Berkeley and Stanford combined (~41k + ~17k = ~57k) so even when adjusted on a per capita basis there is still 2x + going Austin->Bay Area than vice versa.
Even though I’m a proud Longhorn, I will admit that Berkeley and Stanford are better schools overall and especially when it comes to computer science. The talent pool in Austin is strong, but it can’t compare to the Bay Area.
If one really wants to hit below the belt, you could point out that the entry point of the infamous recent Russian hack job was an Austin-based software company (SolarWinds) and use that as a proxy for talent pool, but that’s probably too extreme.
Austin as the data showed above does not offer such high paying jobs at either big tech companies or at startups (which aren’t exactly booming in Austin, we’ll get to that later). Let’s do a quick comparison of some of the biggest tech employers in each region. The biggest tech company in the Austin area is Dell and the salary gap between Dell and Google (or Facebook, Netflix, Uber, etc. etc. etc.) is massive. At the more junior levels the multiple is 2x and approaches 3x at more senior levels. There’s less of a gap with Oracle (which is moving its HQ to Austin) but it is still meaningful. COL adjustments can’t even correct for the difference at mid-career. The below chart shows SWE salaries for Dell vs. Oracle. vs. Google at entry level up to 3 levels above (staff/principal).
In more recent years, companies such as Google, Facebook, and Apple have hired SWEs in Austin, although their numbers are still limited. Moreover, in pre-COVID times, compensation was much lower compared to the Bay Area (I read the tech social networking site Blind that Facebook was around 15–30% lower) at these companies. The below chart shows the # of SWEs at some of the largest Bay Area companies compared to Austin.
As the chart above shows, Austin is a minor outpost for SWEs at these top tech companies. For Facebook and Google, Seattle and NYC are much bigger hubs for SWEs while for Apple Austin is the second biggest hub. In the pre-COVID days, even if you desired to move to the Austin internally from one of these companies and would accept lower compensation and options, you likely would have not been able to as the teams are not based out of there. Austin does have large satellite presences for Facebook, Google, and Apple (the biggest one of the bunch in Austin) but the majority of the jobs are not SWE ones.
Which bring us to our next topic, tech jobs outside of SWE.
Non-SWE Job Market
The relatively low numbers of SWEs in Austin at the likes of Facebook, Google, and Apple isn’t unsurprising (in fact they were actually higher than I had imagined) because from my understanding the initial aim of the Austin outposts wasn’t to build software engineering centers. Facebook and Google in particular went to Seattle so they could poach talent from Amazon and Microsoft but were probably relatively uninterested in poaching from Dell or the Texas government in Austin.
The Austin outposts OTOH, were onshoring efforts meant to move some non-core, back-office type functions in an effort to lower costs. Each company had slightly different focuses when it came to onshoring to Austin. Facebook focused on risk/community operations, Google on HR/recruiting, and Apple on operations. These were already lower compensation roles (especially when compared to SWE) in the Bay Area and moving them to Austin probably lowered compensation/costs even more, but was likely an overall net positive move for employees due to the lower Austin COL.
For non-SWEs, working at one of these companies in Austin meant a limited set of functional roles and more limited career trajectory with lower pay compared to the Bay Area but higher pay compared to the other tech options in the area. The Bay Area was still the place to be for those who wanted to fully partake in the corporate “rat race”.
Startups and Venture Capital
Let’s talk about startups and its cousin venture capital. Despite the hype, Austin still far behind in successful startups compared to the Bay Area. The Bay Area has ~105 unicorns according to Crunchbase, I scoured the internet and found ~4 in the Austin area, two of which are not in the most classical sense, “tech companies” (Everlywell, a health testing company which just became a unicorn a few months back on the heels of its Series D and Kendra Scott a jewelry company).
Overall funding levels for Austin are sizeable based on 2019 data (approaching the level of Seattle region which is quite good given that Seattle has a much larger tech base) but the Bay Area is still by far the place where the magic happens.
The effect on this on employment is that if you want a chance to hit the jackpot, the Bay Area is a much more attractive place to be.
Post-Covid Tech Job Market
We’ve discussed the Bay Area vs. Austin from a pre-COVID lenses, now we move to the post-COVID world where things are quite a bit different. Most critically, the biggest hurdle impending tech job growth in Austin that was the lack of high-paying SWE jobs has to a large extent been removed or is actively being removed as we speak. So what will happen in the next 5 years in Austin?
Software Engineering Job Market
There will be a critical mass of high-paying SWE jobs moving to Austin with limited reductions in pay as companies adopt flexible working options and employees push to relocate to Austin.
I don’t think most people truly want to be fully remote and live in the woods/beach/etc., they would like a place to socialize (for young folks) and good schools (for families) and Austin has both. They would also want to have Facetime in the office and companies seem to be looking to make that happen (or they already have them here), from large tech companies to even startups going “remote first”. Facebook is reportedly hunting for 1M+ of real estate in downtown Austin in addition to what they already have and I can guarantee that isn’t just an onshoring center for ops, there will be plenty of SWEs there.
Salary reductions to adjust for COL will be limited, a 10% reduction in salary isn’t much in the grand scheme of things given the lack of a state income tax and so much compensation tied to equity.
With all that in mind, the Austin compensation distribution will begin to move in the direction of the Bay Area very quickly. Overall, I think compensation will still lag the Bay Area given COL and relative lack of high paying opportunities (even with growth), but the gulf will shrink. Compensation will be similar to Seattle levels, another area with a large tech presence and no state-income tax.
At the median-level (non-Google, Facebook, etc. type companies), SWE compensation will still rise as companies such as Oracle establish their presence and push salaries upwards. Established Austin firms such as Dell will be pressured to raise compensation given increasing COL and competition for talent intensifies as opportunities from Bay Area firms arrive. It will be difficult for them to retain top talent otherwise if the opportunity to 2x+ your comp exists without having to move.
Non-SWE Job Market
I predict an additional influx of non-SWE jobs into Austin that are “more-core” (e.g., product managers or finance) to accompany the influx of SWEs at tech companies. This especially true for companies that move their headquarters to Austin such as Oracle. If the executives are moving, then core roles will surely follow. The pay of these roles will be closer to Bay Area levels than existing Austin levels.
As for the existing “onshoring” roles that are already here in Austin at these companies, compensation will have to rise partly because of increasing COL but mostly because of inequality. If employees from the Bay Area are moving to Austin and keeping (or only slightly decreasing) their compensation, it isn’t fair to have a such big gap between employees, even if the job functions may not be the same. The cost savings that employers could enjoy by onshoring to Austin will likely be less in the future.
Startups and Venture Capital
I’m bearish on the ability of Austin to develop a robust startup and VC scene. I think it will improve substantially in the near-future, but the Bay Area will remain the hub of innovation. Why? Possible reasons could include the concertation of the VC community, talent pool, something in the water. These are all solvable (perhaps not the something in the water part…).
I believe what will hold Austin back is a combination of infrastructure and ethos (or something in the water). The family-orientated folks moving to Austin will retreat to their large homes after a 3-day in-office workweek and spend more time with their families (good for them) without the pressure of trying to “make it” in the Bay Area. The younger single people will be living in posh downtown condos a quick walk or Uber away from the fun at 6th or Rainey street, not grinding it out in a multiple roommate situation and enjoying San Francisco’s merely passable nightlife. What makes Austin an attractive location for tech workers (low COL and fun) will also be its Achilles when it comes to incubating successful startups.
The Bay Area has a long and storied history when it comes to startups and I strongly believe that ethos and history combined with the hustle culture driven by the high COL will continue to make it the hub for new tech companies.
Preview of Part #2 (Housing)
Part #1 on jobs flows nicely into the next topic, housing. Covid-19 burst the dam open for high-paying tech jobs into Austin and that is already having an outsized impact on the housing market, specifically when it comes to buying a single family home. The oil was just poured onto a spark and now the market is on fire.
Austin proper has been hot the last few years but now the fervor has reached suburbs outside the city limits. I took a peak at a nice 4000sqft place in Round Rock, a suburb of Austin listing for $650K that would be great for a family. The location was just OK (~30 min from downtown Austin and ~20 from Apple) and last year this time probably would have sold close to list with <5ish offers. This year? A agent mentioned that they expected 20–30 offers with the winner at 10–20% above list. Areas that were recently “the boonies” of Austin and not all super desirable are all suddenly smoking hot.
I’ll bet that a good chunk of those offers came from Bay Area migrants, because for them even at 20% above list that kind of house is a slamming bargain when compared to the Bay where something of that size in a good school district in reasonable commuting distance of tech companies would be $2M.
More on this in the next episode!