AI Startups: Bringing Dollars and Lean Workforces to San Francisco
In a frenzy reminiscent of the early 2000s social media boom, investors are pouring billions into generative AI, sparking a startup revolution in San Francisco. These investments are seen as a potential solution to the city’s economic struggles following the pandemic. However, experts warn that the growth of the AI industry may not be the cure-all for the city’s commercial real estate woes. Unlike previous technology booms, AI companies excel at operating with lean workforces and automating tasks, resulting in fewer job opportunities.
Jeremiah Owyang, a Silicon Valley investor, cautions against excessive optimism regarding San Francisco’s commercial real estate revival due to AI. He explains that AI startups prioritize the implementation of AI technology, reducing the need for human workers. Despite this warning, 11 out of the top 20 AI companies in the country are based in San Francisco and have collectively raised $15.7 billion between 2008 and 2023. However, these companies employ just 3,400 people in the city, accounting for merely 2.3% of the estimated 150,000 daily workers lost due to the pandemic. Prior to COVID-19, office workers contributed to nearly three-quarters of the city’s gross domestic product.
Generative AI, which uses past data to create original content, is considered a game-changer for workplace efficiency, particularly for software engineers who form the backbone of San Francisco’s tech workforce. AI has already transformed their work, with 92% of software developers utilizing AI, according to research from GitHub. Developers using GitHub’s coding assistant were able to complete coding tasks 55% faster. However, unlike companies such as Airbnb and Dropbox that employ thousands of individuals, AI startups are characterized by their small employee numbers. OpenAI, backed by Microsoft and known for developing the ChatGPT chatbot, has raised over $11 billion in eight years and has around 500 employees. While these companies embrace AI, they still actively recruit human talent, including customer support staff.
Despite San Francisco’s pressing challenges, such as drug problems, homelessness, and unaffordable housing, the city has earned a reputation as the AI capital of the world. The excitement around AI is palpable at tech events, reminiscent of the era before the pandemic when Google opened offices and startups thrived in industrial areas. However, the city has faced recent headlines highlighting its problems. Office buildings in San Francisco currently have over 30% vacancy rates as people continue to work remotely, venture capital firms prefer more tranquil locations, and major tech companies downsize. Downtown San Francisco’s BART rapid-transit system has experienced a decline in ridership, and foot traffic remains dismal, leading to store closures and struggling hotels.
Despite these challenges, some tech professionals believe that AI will ultimately help the city’s economy by creating smaller firms that hire dozens of people instead of a few large tech companies employing thousands. However, others argue that the benefits of AI will be concentrated in the hands of a privileged few, exacerbating the existing wealth inequality in California’s third-largest city. Daron Acemoglu, an economist at the Massachusetts Institute of Technology studying technology’s impact on inequality, predicts that a select group of top executives and engineers will benefit significantly from generative AI, while the broader population may be left behind.
