Growing software sector fuels Ann Arbor economy
Growth, resiliency and diversification in Ann Arbor’s software community positions the sector to emerge from Michigan’s economic crisis as a Midwest leader.
The information technology industry's remarkable stability during the recession illuminates its role as a barely recognized yet crucial driver of economic growth in the Ann Arbor economy.
“Ann Arbor is a software hotspot,” said David Bloom, IT consultant and principal of Chelsea-based tech consultancy Factotem.
Easy entry into software and Web development, spurred partly by the impact of “cloud computing,” is a key driver behind the growth, according to about two dozen interviews with technology entrepreneurs and executives in the Ann Arbor region.In a financial era defined by lack of easy access to capital, companies that don’t need large amounts of cash are better positioned to add jobs quickly and thus spark an economic renewal.
“Software in general is not nearly as capital intensive as any of the other areas we’re targeting,” said Bill Wagner, co-founder of Ann Arbor-based SRT Solutions. “You can do it out of your house. We just need a place for desks.”
The impact of cloud computing and open-source software on the startup community is not to be underestimated.
Cloud computing, which allows companies and entrepreneurs to rent server space from outside firms like Amazon, helps startups expand quickly. Open-source software lets companies build on existing technology without intellectual property repercussions.
Economic development experts believe that the software and Web community is poised to help the Ann Arbor region - and perhaps, to a smaller extent, Michigan - recover from the economic crisis.
Ann Arbor’s growing IT community is still small compared to behemoths like Silicon Valley and Boston. However, the region compares favorably to fellow Midwestern IT hotspot, Madison, Wis., for example.
IT jobs that focus exclusively on technology represent just over 3 percent of Ann Arbor’s economy, according to the U.S. Bureau of Labor Statistics. It’s the same rate in Madison.
Those figures do not account for management, administration and
sales jobs related to software and Web development - a figure that’s
much harder to determine. Google’s 250-person sales operation in downtown Ann Arbor, for example, does not figure into the region’s total tech jobs count.
The presence of the University of Michigan - along with Eastern Michigan University and Washtenaw Community College - is an undisputed catalyst in the IT community’s growth.
“That provides this institutional, artificial gravity there to keep the smart particles from leaving town,” Bloom said.
Amy Cell, director of talent enhancement for Ann Arbor SPARK, tracks job opportunities for the economic development organization. She said about 17 percent of recent job openings marketed through SPARK were related to software or Web development.
“As companies consider relocating to Michigan or expanding their operations in Michigan, a lot of times it’s because of talent,” Cell said.
Where is the growth?
The information technology growth is concentrated a few specific subsectors of software and Web development:
-Cybersecurity. Growth in Ann Arbor’s IT security sector is particularly notable. From 2005 to 2008, the number of network and computer systems administrators in Washtenaw County increased 56.8 percent to 690, according to federal data. During the same period, the total number of jobs in the region dropped 5.6 percent.
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Ann Arbor information technology statistics
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-Web applications, including health care technology and mobile application development. The number of computer software engineers in Washtenaw County increased 12.5 percent to 1,260 between 2005 and 2008, according to federal data.
HealthMedia, one of the biggest software companies in the region, employs about 200 workers. Thomson Reuters’ 1,700-person presence in Ann Arbor and Dexter includes several software elements, including health care IT. Other health IT companies like Cielo MedSolutions, MedHub and White Pine Systems are gaining traction in the electronic medical records field.
In addition, a host of early-stage startups are emerging in this area.
“These guys are coming out of the woodwork,” said Dug Song, a veteran software entrepreneur and community activist in Ann Arbor.
Web customer satisfaction measurement firm ForeSee Results expects about 40 percent revenue growth this year.
Web site developers, content management companies and search engine experts - a wide-ranging field that includes Pure Visibility, Fry, Enlighten and Switchback - represents another pocket of growth.
-Customized software for manufactured devices. The number of computer programmers in Washtenaw County grew 11.4 percent to 1,140 between 2005 and 2008.
Major companies, including the Toyota Technical Center in York Township, for example, rely heavily on “embedded controls” software.
“It’s software that doesn’t have a user interface, but it is necessary,” Bloom said.
Smaller customized software companies like Ann Arbor-based Menlo Innovations are also key players in this area. Menlo CEO Rich Sheridan said his 8-year-old company is enjoying record revenue growth this year. Menlo’s software expertise was crucial to the development of Scio Township-based medical devices maker Accuri Cytometers’ lead product.
“While the hardware is obviously critical to (Accuri’s) success, it is the software that the user perceives as the product, because that’s what they interact with,” Sheridan said.
Influence of startups
In each subsector of software and Web development, early-stage startups are sprouting up in bunches. That’s partly because of cloud computing, a trend that is boosting companies like Ann Arbor-based data firm Online Technologies.
“There’s more and more of those options,” said Larry Freed, CEO of ForeSee. “There’s very little capital needed to get started.”
What threatens the region’s software and Web momentum is the very factor that’s driving its momentum: the speed with which competitors can knock each other off.
That factor led to a significant decline in the region’s computer support specialists in recent years.
Major corporations have gradually cut their computer support staffs and outsourced those jobs overseas to save costs and boost profits. The number of computer support specialists in Ann Arbor slipped 26.4 percent to 1,170 in 2008.
But that trend may be reversing. In September, a California-based startup called Systems In Motion secured tax incentives from the state of Michigan to launch an IT support center in the Ann Arbor region. The company expects to hire 1,085 workers over the next five years.
Customized IT support is allowing smaller players, like Ann Arbor-based Dynamic Edge and Ann Arbor-based LTI Information Technology, to thrive despite the trend of outsourcing IT services.
“We don’t just provide an outsourced single IT person, we provide an outsourced IT team,” said Kevin Phillips, vice president of LTI.
Contact Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter and subscribe to the AnnArbor.com Business Review weekly newsletter.
Comments
adaptivecampus
Wed, Oct 28, 2009 : 12:15 p.m.
Adaptive Campus is a start-up that is hiring software developers. With our current funding, we'll add several, with another round, hopefully a lot more. We're planning to stay in Ann Arbor for the foreseeable future. It takes a certain type of person to work for a start-up. So it isn't just about how many IT professionals you have in the area. And pay is lower in general for start-ups. If you are looking for a just a paycheck from a start-up, then you don't get it. The real measure imo for if we become a player in this field, is the concentration of start-up junkies within the IT area. I would love to know how Ann Arbor compares in that regard. If Ann Arbor is going to become a hub for IT and software development, we need to foster a more entrepreneurial atmosphere within this industry. And it isn't just finding people with a high risk tolerance, it includes creating a culture that teaches the ability to identify opportunity and having an understanding of how to pursue it in a commercially viable way. A culture that teaches a passion for creation, where the real reward is not financial, but in the personal gratification that you've made a real impact in your corner of the world. Not just get a job, work for a big company as long as possible trying to get as much pay as possible, on so on. There seems to be a lot of momentum in the right direction, which I am very encouraged about. There is no doubt though, this is a great time to be starting a software company in Ann Arbor.
AnonymousCoward
Thu, Oct 22, 2009 : 3:58 p.m.
Unfortunately, I have to agree with sr_monkey. When looking for a job within the last year, Chicago was about the only option, as it offered about 2x what I was able to find in Ann Arbor. I fear for Ann Arbor's future as anyone who can leave Michigan seems to be doing so. As for the situation of pay rates, higher wages are a sign of a healthy economy, not lower ones. All that the lower wages are a sign of, is more people looking for jobs than can find them. I have a hard time seeing that as a bright spot for Michigan. Perhaps that is just my recently induced cynicism. Though I can see how this is nice for anyone looking to open a new business. It sure points to a great opportunity to exploit a desperate work force. I can't imagine that will be too stable of an economy, though. As jobs opportunities grow, wages go back up, and businesses which counted on low wages will all find themselves in trouble.
Moose
Mon, Oct 19, 2009 : 10:12 p.m.
Welcome Ryan. I hope you got a good deal on a great place. Hope your job holds out and you have a bunch of kids.
Ryan Munson
Mon, Oct 19, 2009 : 9:28 p.m.
Not so true Moose. I am in fact one of those younger people working at one of the mentioned companies in this article. I did just purchase a home in Ann Arbor.
Patrick Haggood
Mon, Oct 19, 2009 : 9:51 a.m.
Actually, with around 3M folks; Chicago is almost 30x larger than A2. Together with its suburbs it's around 50x larger.
sellers
Mon, Oct 19, 2009 : 7:29 a.m.
Ann Arbor can be said to be stainless steel in the otherwise heavy rust belt and the comparison to Chicago is unfair too. Agreed we are not as heavy as Chicago, we are only 1/10 the size or so. We also have eager labor who will commute from Jackson, Detroit, and Toledo along with the young professionals from the U's. But put it into perspective, a house in Chicago's west suburbs, the tech area as I'm told, is much more than the same house in the AA area. It all comes down to cost of living and quality of life. Those two make the value. And Doug, the picture is not that bad. :)
Dug Song
Mon, Oct 19, 2009 : 12:37 a.m.
Also, that is like the worst photo of me ever. I'm not vain, but I'm also not Evita. Damn.
Dug Song
Mon, Oct 19, 2009 : 12:33 a.m.
There are three different and distinct phenomena actually being described here: 1. the growth of new software startups (with national or global reach) 2. the growth of new software consulting / service firms (with mostly local or regional reach) 3. the "insourcing" of comparatively-cheap IT labor by large coastal companies Re: the first, the capital requirements to launch a new software company or online service have fallen drastically in the last 5 years thanks to "cloud" platforms that replace fixed-cost infrastructure with variable-cost, metered utility computing (you only pay for what you use), open-source software that reduces cost (free vs. proprietary operating systems, tools, etc.) and provides powerful application development frameworks that can be learned in days, and online business models that begin with global, not local, market reach. The second is related to this paradigm shift, but probably also factors in regional economic and IT trends. I'd be curious to hear the stories of their clients, growth markets, and any local "economic gardening" measures being undertaken to help them grow. GDI Infotech is a good example of a local integration/service company absolutely killing it in some key verticals - but with much of their business outside the state. I don't believe these have much to do with the third phenomenon, which may be related to our traditional economic development activities (tax credits and incentives), industry backlash against offshoring (largely due to security / regulatory concerns), and our depressed labor market. I've heard this disparagingly referred to by some as "ABC: Ann Arbor is the Bangalore of California" - but whatever the case, mo' jobs, mo' betta.
Moose
Sun, Oct 18, 2009 : 9:37 p.m.
79 G's ain't too bad for new hires or even old ones. There are a lot of people who make do on a lot less. Quit yer bellyachin'.
Moose
Sun, Oct 18, 2009 : 9:21 p.m.
A competitive edge because of low wages? Now that's a double edged sword. This helps make the point that: 1) those jobs wont pay enough to buy a home in Ann Arbor and 2) that the jobs won't be located in Ann Arbor, but the townships. This kind of kills the presumption that we need downtown "density" to attract and keep "young professionals" downtown and in the city. They'll most likely living in the cheaper townships where the jobs are being created. This kind of shoots down all the cheerleader talk about speculative developments like the Moravian and City Place.
Nathan Bomey
Sun, Oct 18, 2009 : 8:07 p.m.
Sr_monkey, thanks for your comment. You're not alone in your sentiment. In fact, Ann Arbor-based think tank Michigan Future has conducted research on this topic. Check out this piece I wrote about how Michigan Future believes that Michigan's low-paid white-collar workforce could ultimately lead to our economic turnaround. http://www.mlive.com/business/ann-arbor/index.ssf/2009/04/michigans_highpaid_manufacturi.html A highlight from the report: "Lower wages in the knowledge-based sectors of the economy - where most of the job growth and good-paying jobs are - could be a competitive edge for Michigan."
sr_monkey
Sun, Oct 18, 2009 : 6:12 p.m.
Hey Nate, I've expected you to write an article like this for some time now. Unfortunately I don't share your rosy outlook about Ann Arbor's software industry. Cheap labor is the main motivation for setting up shop here. High talent with low salaries are abundant in Ann Arbor. The pay rates here are dismal compared to a nearby major market like Chicago (who's software industry is fueled by financial trading). We can thank the University for the low wages, for the following two reasons: (1) They produce a never ending supply of smart, young, and cheap software talent. (2) As the largest IT employer in Washtenaw County, they have a $79,000 salary cap for most new hires, regardless of experience. If you dig below the surface of the press releases often posted in your articles, you'll discover that things aren't quite so "vibrant".
KarenH
Sun, Oct 18, 2009 : 10:27 a.m.
Regarding companies who are reversing the outsourcing of their IT jobs, there's also General Electric's newly planned Advanced Manufacturing & Software Technology Center in Van Buren Township (between Detroit and Ann Arbor). They are already hiring now for dozens of newly created jobs, with plans over the next two to three years of having over 1,000 high-paying IT jobs located in their new state of the art R&D Center. http://www.ge.com/careers/advanced_manufacturing_and_software_technology_center.html Great article and great news all around!