The Rise of Silicon Beach

Ask investors, company heads, and other influentials what makes our tech sector special and they’ll sum it up this way: creativity

Watch what’ll happen, though: The more businesses that originate in L.A., the safer the bet to stay in L.A. as their growing numbers make fertile ground for more businesses to form, and so on. It’s predicted to become a self-reinforcing system fed not just by the city’s engineers but by film schools at USC and UCLA that pump out a generation of filmmakers and producers who grew up on the Web (really, on the mobile Web) and who mint the new coin of the realm: video clips, the value of which is entirely determined by their shareability.

By most accounts L.A.’s tech sector will remain much smaller than the north’s. In a February 2016 CityLab report, urban studies theorist Richard Florida ranked the L.A.-Long Beach-Santa Ana area fifth in terms of venture capital investment, at nearly $1.7 billion. San Francisco (which Florida distinguishes from Silicon Valley) tops the list with almost $8.5 billion, followed by Silicon Valley’s $4.9 billion. Taken together, the Up There sphere commands 40 percent of the venture capital in the United States; Los Angeles has 5 percent of the pie. It may be no less comforting to read that while New York, D.C., Seattle, Boston, Chicago, Raleigh-Durham, and Austin tend to show up on the various lists ranking America’s top tech cities, L.A. appears only some of the time.

The relative lack of funding in L.A. tech does have an upside. “I think companies here have to be much wiser,” Idealab’s Bill Gross says. “When you start out with a little bit less capital, you’re scrappier, you’re more inventive, and you’re forced to respond to your audience better…because you have to pay attention to them.” Fewer resources restrict the profligate spending that has made Up There worthy of both admiration and parody.

Anton Reut, chief operating officer of El Segundo e-commerce site Onestop Internet, puts it another way: “L.A. is about revenue. That’s what the entrepreneurs drive to. That’s what they think about. In San Francisco it’s the opposite.… Revenue comes later.” Twelve years old—ancient by tech standards—Onestop was a small dot-com that found a niche handling online sales for clothing lines too busy to deal with the internet. You have Onestop to thank in part for the spread of high-end denim and the Von Dutch brand (think trucker hats and Ashton Kutcher).

It was among the first to connect L.A. trendsetting to a consumer audience. “The DNA of this market was ad-tech and e-commerce,” says Brian Garrett of Crosscut Ventures. Garrett points to things like “pre-bubble highfliers” (big spenders who imagined Web 1.0 would last forever) and “click arbitrage” (middlemen for online ad sales) as a way of explaining L.A.’s fiscal conservatism. “We’ve bred a culture here that’s avoided raising capital just to raise capital.”

Jim Andelman of Rincon Venture Partners says that after the dot-com crash, the cloud made it easier for new businesses to get off the ground. Companies like Twilio and Amazon Web Services take care of IT infrastructure so you don’t have to worry about where to put servers and an army of programmers. “It has to a large degree democratized start-ups. Back when I started 15 years ago, it was a scarce skill set,” he says. Now “the value shifts to satisfying customer needs.”

Refreshing Paws: Santa Monica’s DogVacay, where employees’ pets are part of the decor.

Photograph by Spencer Lowell

DogVacay is the start-up you wish you’d thought of. As adorable as it is lucrative, it’s a pet-sitting service that finds and vets sitters. Its Santa Monica offices are, not surprisingly, full of employees’ dogs. They wander around the high-ceilinged, open-plan space with the same brisk but unhurried purpose of the 80 or so humans at computers or in meetings in the Chow Chow Room. These dogs have places to go, though knee-high swinging doors foil their attempts to wander too widely. “Our product is not just a mobile app or a Web site,” says Aaron Hirschhorn, founder and CEO. “It’s end to end,” meaning the branding, the customer service, the entire operation is in-house. So it is that DogVacay controls and mediates the relationships between dog owners and dog sitters and, most likely, dogs, using Twitter and Snapchat to post pics and GIFs and links to DogVacay blog posts about taking pets glamping. (Most of the terms in the preceding sentence did not exist, say, five years ago.)

In a similar way Onestop handles branding for companies on social and has a studio to shoot Insta-gram-worthy pics. “It’s not just, here’s five views of a shoe,” says Reut.

Everything is becoming interactive. Even doorbells. James Siminoff made finding out who’s at the front door an experience with Ring, a wireless doorbell that connects to your smartphone. “These doorbells are really information-gathering devices that function obviously as your old doorbell did, but they’re also much more, with motion detection and the cloud services,” he says. “They allow you to really see, monitor, and be actionable about what’s happening in your neighborhood, and that can help reduce crime in the neighborhood if you have enough of them there.”

Ring doesn’t want to be a noisemaker and Onestop doesn’t want to be a catalog and DogVacay doesn’t want to be a kennel. Their business strategies are ascendant in tech and in media generally. Ventures like Dollar Shave Club (grooming), Honest (beauty products), and Thrive Market (groceries) want to build communities; social media interaction lets them understand their customers well enough to suggest they may even know them a little bit. They require a different relationship with customers—not as money spenders but as audience members and participants.

Arrival: An amphitheater at central park in Playa Vista, which has become home to multiple tech firms and more than 10,000 residents since 2002.

Photograph by Spencer Lowell

Nobody gets this better than an outfit that was in Silicon Beach before the “Silicon” arrived. At advertising giant Deutsch, which moved into Playa Vista in 1998, the place is littered with artifacts of successful campaigns for Taco Bell and Volkswagen—like that time when all the guys named Ronald McDonald ate tacos or when that Darth Vader kid used the Force to fire up the Jetta. Walking through the offices—open plan, of course, with a dog or three lolling on the poured-concrete floor—kindles an “Oh yeah” feeling of light nostalgia for moments in our shared consumer lives. It’s all pleasant, which suggests Deutsch is doing its job.

I sit in the glass-walled office of Mike Sheldon, who opened Deutsch’s L.A. office in the late ’90s. He’s looking neater than usual (he says) in a crisp button-up. Chief technology officer Pam Scheideler, a former head of production at Google Creative Lab, is casually dressed. Both are breezy and fluent as they pull data points out of I don’t know where. We talk about how companies must keep growing to stay afloat. With the DogVacays of the world handling their own branding, Deutsch, too, has to adapt to keep up. Not merely with TV ads but also events; also gamified Web sites; also, when Deutsch’s 48,000-square-foot production space, Steelhead, opens, music videos or commercials or whatever anyone with a need wants to use it for. Deutsch puts together the whole brand for a musician, say, tweets and all.

“The bar now is shareability,” says Sheldon.

“What people are looking for is engagement,” Scheideler adds. “And brands love engagement because it’s longer interaction, it builds loyalty, it pushes them. Again, there’s a lot of marketing science, and the more people engaged with the brands, the more likely they are to feel affinity for that.”

“Because it’s a constant interaction rather than ‘I need to buy a car at five or ten years’ ?” I ask.

“And we care so much more about brand behavior,” says Sheldon. “Particularly if you’re younger, you care about how they treat the environment and people and how they give back and how they source.”

“Those Gen Zers—they really care,” says Scheideler. “They care so much.” We nod, knowing, but not really.

Gen Zers helped make Snapchat the success that it is. If the company’s public debut goes as planned, it will produce billionaires and millionaires who, if other successful IPOs are any indication, will go off to birth their own projects in the area with hopes of mimicking Snapchat’s story. A social network, news service, fashion-forward camera company, and above all an Experience, the company arose only in 2011, offering users the ability to send photos and videos designed to evaporate—the very antithesis of the internet’s desire to hoard everything forever. Founder Evan Spiegel’s simple concept turned out to have surprising depth and nuance in the way it enabled users to communicate. Snapchat has also gone on to create a potentially sophisticated form of many-eyed, crowd-sourced news in its Live Stories. In this way the app has transformed from being a notorious teen peep show to being a notorious teen peep show with content. Even the NFL Channel has a Snapchat presence.

And unlike other social media companies, Snapchat released an actual product with its Spectacles, stylish glasses that film and upload ten-second clips of whatever the user’s looking at to his or her feed. Besides being universally celebrated since they came out in November—in sharp contrast to the dramatic misfire that was the nerdcentric Google Glass—Spectacles push us farther down the path to becoming walking, talking content. Everything information. Everything shareable.

And we’re back to YouTube. There’s content that ends up on YouTube (that’s the stuff Jukin devours) and content made for YouTube. Maker Studios is the latter. So is Defy Media, which, with its youth-focused channels, is a lot like any TV network. By using social media, says Defy Media CTO Chris Poe, you “cast a wider net and get more people watching your programming. It’s a more comprehensive play.… Developing the brand is the focus.”

Which has led to a proliferation of digital outlets. Santa Monica-based Whipclip loves TV and converts traditional broadcasts into easily digestible online form. Whipclip contracts with networks and uses its tech to break down episodes into shareable clips, which are sent to the news media for reviews and anywhere else people want to share. Whipclip then produces its own content around that content. Jeremy Reed, Whipclip’s head of programming, says, “The idea is, if you’re interested in TV and you want to be part of that large fandom conversation, that’s who we are. We want to create content around that.” So they make shows for people who love shows. Other companies have their own specializations. Tastemade is an online outlet for foodies. Machinima is for gamers and related geekdom. Mitú is, says cofounder and president Beatriz Acevedo, rolling out “content that is an authentic reflection of who Latino youth in America are.” On and on, an entertainment culture based on Hollywood but aimed at direct interaction with audiences, using better analytics. How will it improve upon the network model, even as cable TV’s mounds of unwatched channels push it toward obsolescence? “We guide our development process by analyzing all the insights that we get from every single piece of content that we publish,” says Acevedo. “What do people share most and why?”

Consider the range of content coming out of L.A.’s media hothouses: on the one hand, Jukin Media’s “Goat Makes Weird Noises”; on the other, Surgerytheater’s “How to Perform an Aortic Root Replacement.” Born from Hollywood, these “multichannel networks” combine data, user control, monetization, and a democratized form of entertainment that can be as basic as someone opening a package. YouTube has thousands of these unboxing videos, their creators doing a product striptease as they luxuriate in the unveiling. It’s a glimpse of a person having an intimate relationship with a brand. It’s consumer voyeurism.

One especially popular kind of unboxing video involves Loot Crate. Loot Crate is a purveyor of “mystery boxes,” surprises from the worlds of comics and gaming shipped monthly from its Lincoln Heights headquarters to 650,000 subscribers in 35 countries. When you break down what’s in the boxes—special collectibles, making-ofs, a magazine explaining the monthly haul—it seems interesting, but not necessarily the kind of interesting that landed the entity at the top of Inc. magazine’s list of fastest-growing companies last year. The secret of Loot Crate’s corporate value is in the look on those YouTubed faces. What specific thing is in the boxes doesn’t ultimately matter; the product is the experience. And we’re back to content, back to storytelling, back to Los Angeles. “If you only have 16 waking hours, you’re only gonna spend it with companies and content that produce compelling stuff,” says cofounder Chris Davis. “Things that are commoditized and transactional are fading. Things that invest in the experience will win.”