In taking a look at the state of NYC’s digital economy covering the first quarter of 2021, the area that looms largest is not surprisingly the devastating effect the pandemic has had on the larger economy.
Positive news and hopes for recovery have often focused on the digital economy, the shift to which has also been accelerated by the pandemic. Investments that had been made prior to the pandemic to diversify NYC’s economy and allow the growth of the various sectors of the digital economy have turned out to be critical to the city’s economic survival going forward.
Thanks in part to this, Big Tech is investing substantially in the city, especially in terms of having a larger presence that will be physically located in the city’s office spaces, which will also impact the real estate industry, which has been a major part of the city’s tax base.
As to NYC’s startup scene, the Wall Street Journal characterizes it as having gone ‘quiet’ for only about a month after the pandemic hit and then going into ‘overdrive,’ and the New York City Economic Development Corporation (EDC) asserts that it currently constitutes the world’s second largest startup ecosystem, with over 9,000 companies and an estimated value of over $71 billion.
Representing 20% of all private sector wages and having been cited as “the primary reason city tax collections have proved far higher than expected,” Wall Street has fared well during the pandemic. In relation to, and also in competition with Wall Street, New York is also playing a substantial role in virtual currencies in terms of both the growth of the area as well as when it comes to figuring out a regulatory framework.
When it comes to broadband access, the city continues to struggle severely. Last October, the NYC Comptroller found over 100,000 students to be without internet access and that same month at a hearing the Chair of the City Council’s Committee on Technology expressed that he was “very skeptical” about Mayor de Blasio’s ‘Internet Master Plan.’ Five months later in March, the city was still looking for the telecommunications industry to ‘step up and propose a range of technologies that [would] modernize broadband infrastructure and bring 4G and 5G connectivity to those New Yorker’s who need it most.”
Finally, NYC’s higher education system has been receiving attention as a source of resilience amidst the economic turmoil. The EDC has asserted that the city’s over 100 institutions with over one million students have contributed to the diversification of our economy noting the Cornell Tech Roosevelt Island campus in particular with its applied science and engineering campus. NYC Comptroller Scott Stringer has recently issued a report studying the economic impact of City University of New York (CUNY) graduates, asserting that they earned a combined $57 billion in 2019 contributing $4.2 billion in income taxes that year to the State, with current implications summed up in his statement that there is “no economic recovery without a strong and well-funded CUNY system.”
PANDEMIC INDUCED ECONOMIC HARDSHIP
Job loss estimates for 2020 caused by the pandemic range anywhere from 631,000 to over 1 million, with the New York City Independent Budget Office estimating on March 1, that such losses would not be recovered by 2025. A Partnership for New York City Survey published on March 11, showed that only 10% of office workers had returned as of early March, which was unchanged from late October and that 56% of office employees were expected to continue working remotely ‘at least part of the time.’
Multiple industries vital to NYC have been severely impacted and a report by the Citizens Budget Commission of New York (CBCNY) found that job losses in sectors that require in-person interaction were among such industries that were especially hit hard with 59% of losses in leisure and hospitality; trade, transportation and utilities; and other service industries. An additional 120,700 jobs were lost in Education and health care, showing the vulnerability of each of the above sectors.
Others report that real estate, dining (sometimes included in leisure and hospitality) and the arts have also been severely impacted, all of which will contribute to billions of dollars in revenue shortfalls, although the American Rescue Act may provide a much needed cushion.
THE DIGITAL AND DIVERSIFIED ECONOMY & BIG TECH’S INVESTMENTS IN THE CITY
Many of the positive signs that a robust recovery might be possible focus on the digital economy.
According to a March report by the EDC the diversified nature of NYC’s economy, which has occurred in substantial part due to the efforts of former Mayor Michael Bloomberg, is a “key source of resiliency” that may assist our recovery, and has laid the groundwork for a situation in which “even after COVID, major companies are taking notice of the city’s economic transformation and resiliency by investing in NYC.”
Specifically, the EDC notes the following:
- Google has added about 1.7 million square feet of office space in Manhattan;
- Facebook doubled down on NYC by leasing 2.2M square feet of space in Midtown Manhattan
- Apple plans to expand to a second building, leasing an additional 220K feet in Penn Plaza
- Amazon is moving ahead with plans to lease 335K square feet of office space in Manhattan and studio and production space in Brooklyn.
- TikTok signed a lease to take over 232K square feet of prime real estate in the heart of Times Square.
- Beam Suntory relocated its corporate headquarters from Chicago to NYC, transferring 150 positions to Midtown Manhattan.
- Deerfield Management is redeveloping a 12-story building at 345 Park Avenue South into a life sciences campus to provide life sciences space to support healthcare and biotech start-ups and growing companies that work on cutting-edge R&D to treat diseases and chronic conditions.
All have benefited from the accelerated transition to the digital economy which in Google and Facebook’s case has taken the form of increased online ad spending, with Google also doubling the number of data centers in the U.S. since 2018.
More so than most other large tech corporations, Google has also been making a stronger push for the return of its workers to offices, targeting the fall.
Additionally, provider of co-working office space, WeWork, recently announced a partnership with the Chambers of Commerce for all five New York City boroughs to encourage businesses to return to office-based work.
The City, through new acting President of the EDC Rachel Loeb, is said to be making an effort to help NYC “recover, rebuild, and reemerge as [New Yorker’s] reignite the economy in the wake of the COVID-19 pandemic.” Loeb, who is credited with helping to develop the City’s economic recovery effort will add the oversight of land use, investments and infrastructure to her responsibilities.
THE STARTUP ECOSYSTEM
According to reporting by the Wall Street Journal, last year already saw funding for NYC startups break records, with some estimates as high as $20 billion and the trend continuing in 2021, fueled by local venture capitalists and angel investors being flush with cash from numerous IPOs and acquisitions having taken place.
Notably, it states such funding has been inclusive of a diverse variety of businesses, but that such businesses tended to be in traditional industries existing in the city such as financial services, retail, media and entertainment and more recently biotech.
Built in NYC, an online community for NYC startups and tech companies continues to track numerous fundraising deals for startups including $2.3 billion raised in March alone for six key entities including healthtech companies Redesign Health and Ro; cryptocurrency lending company BlockFi; and better known Squarespace.
Additionally, AlleyWatch, which according to its site serves as the ‘first read’ for individuals such as venture capitalists, angel investors and entrepreneurs has the total amount of NYC startup fundraising for March at $3.5 billion in aggregate, stating it to be the “the single best month for NYC startup funding in history.”
Such activity is further strengthening what the EDC asserts is the second-largest ecosystem in the world and is adding to the estimated 9,000 startups in the city.
The EDC itself has made public investments in tech and applied sciences with a stated goal of encouraging the creation of over 1,000 spin off companies over 3 decades and its LifeSci NYC initiative seeks to invest in new startup companies and build a pipeline for talent.
However, when it comes to competition from other regions, a new index from the Draper Hero Institute has asserted Washington, Texas and Florida to be better locations to launch technology startups than even Silicon Valley, let alone New York, providing one among many examples of how NYC needs to remain vigilant and actively grow its startup ecosystem and digital economy.
Amidst the positive environment surrounding startups, it must be noted that the city’s existing traditional small businesses have been hit hard by the pandemic with many having closed down, especially in the hospitality, restaurant and retail industries, perhaps highlighting the need for such businesses to develop e-commerce capabilities.
DIGITAL CURRENCY & WALL STREET
Along with the technology sector, Wall Street has also fared well during the pandemic and according to THE CITY, reportedly produced profits of over $45 billion last year, benefiting from low interest rates, a strong stock market, and a series of initial public offerings. Further, the publication found that it accounted for 20% of all private sector wages and 18% of all state tax collections, providing much needed revenue to the city as well.
More relevant to the digital economy, but in part due to the base in the area of finance that Wall Street has established, New York State’s Department of Financial Services (DFS) has been licensing companies involved in virtual currency business activity since 2015 and has put much effort into devising a modern regulatory framework that includes a streamlined process for companies to adopt coins through self-certification. It has stated that the recent grant of a charter under New York Banking Law to BitGo to operate as a limited liability trust company constitutes its 28th such charter or license and is yet another step towards promoting the “continued growth of the virtual currency industry in the State, helping diversify and innovate New York’s economy.”
However, NYC companies such as BitGo and BlockFi mentioned above, face stiff competition from those elsewhere, with the New York Times reporting that there are currently thousands of financial technology startups “riding an investor driven frenzy.” In fact, this wave threatens Wall Street itself, as it is characterized as being “driven by a growing realization that Big Finance is ripe for a tech makeover.” It can also be noted that currently the private company with the highest valuation at $95 billion is digital payments company Stripe, which is headquartered outside of New York.
Following an effort to encourage the adoption of broadband in NYC’s outer boroughs in 2019, Mayor de Blasio issued his ‘Internet Master Plan’ for the city’s broadband future in January of 2020, with the goal of charting a path for internet providers in the private sector to work in partnership with the City to “address gaps in the market, close the digital divide and deliver universal broadband to all New Yorkers.”
With the pandemic beginning in March, the needs of the over 1.5 million people in the city estimated by the Internet Master Plan itself to be without any type of broadband service to be able to connect to the internet became urgent and pronounced. However, with the ‘digital divide’ being a nationwide problem affecting over 20 million U.S. households by some estimates, a lack of coverage has persisted, both in the city and the country, and the Biden Administration’s new FCC chief has stated recently that the government must make reaching all citizens a “national priority.”
In July of last year, Mayor de Blasio announced that the city would accelerate broadband deployment in all 5 boroughs, saying it would make an additional $157 million investment which was to reach roughly 600,000 underserved New Yorkers, including 200,000 residents in public housing.
However, in November, having found over 100,000 NYC students to be without internet access the month prior, City Comptroller Scott Stringer stated his view that the city had “no comprehensive plan,” and roughly during the same period the New York City Council’s Committee on Technology held a hearing on the matter during which Chair Bob Holden expressed criticism of the Internet Master Plan. Mr. Stringer also issued a letter to internet service providers and carriers in the hopes of convening them to consider fast paced and affordable options to provide access to students.
In late December 2020, the City announced the appointment of Aaron Meyerson as a new Deputy Chief Technology Officer to lead the implementation of the Internet Master Plan, who together with three to be named individuals in additional positions were to focus on improving public-private partnerships and analyze broadband coverage data as to underserved New Yorkers among other things.
The Mayor’s Office of the Chief Technology Officer did not record any activity or progress concerning the Internet Master Plan on its site in either January or February of this year, nor did it announce any hires to the three positions created in December to assist with the plan’s implementation.
On March 3, 2021, the City announced the release of a Request for Proposals (RFP), inviting the telecommunications industry to “create new affordable broadband service options,” via the granting of access of up to 100,000 city assets including street poles under a multi-agency effort that includes 18 entities. With a deadline of April 19, Chief Technology Officer John Paul Farmer stated that the city was “opening the door for industry to step up and propose a range of technologies that will modernize broadband infrastructure and bring 4G and 5G connectivity to those New Yorkers who need it most.”
The City’s statement says the “The RFP will reach 600,000 New Yorkers, including 200,000 public housing residents,” who are presumably the same individuals mentioned in the statement from July of last year, although a day later the City announced that a public-private partnership had delivered Wi-Fi upgrades that would grant over 12,000 students and adults utilizing the Cornerstone Community Centers internet access. Subsequently, free Wi-fi service to the QueensBridge Houses provided by Lumen and managed by a partnership including the Office of the Chief Technology Officer was reported as having been extended through April 2023.
No other activity was recorded for the rest of March.
According to the NYU Tandon Future Labs page, NYU has created over 150 startups and 3,200 jobs and between 2009 and 2017 had an economic impact of roughly $4.1 billion. This year so far sees its Entrepreneurial Institute preparing a new series of programs to “help launch the next generation of NYU-technology based ventures” in the form of the NYU Technology Venture Program.
Columbia states that it’s ‘Columbia Technology Ventures’ program has had a hand in launching over 200 companies based on the University’s intellectual property, “many of which have ended up receiving professional VC Funding, getting acquired, or holding an IPO.” Earlier this year, it joined a group of 15 Universities in the U.S., including Brown, Harvard, and UC Berkeley, to “create a centralized pool of licensable IP,” and serve as a “one-stop shop where corporations and startups can discover and license patents” according to a TechCrunch article.
With a much shorter history, Cornell Tech Roosevelt Island students moved into their permanent campus in 2017, with a stated goal of aspiring to “conduct groundbreaking research, collaborate extensively with tech-oriented companies and organizations and pursue their own startups.” In March, the University’s “Break Through Tech” program expanded a joint initiative called “Gender Equality in Tech (GET) Cities” to Washington D.C., seeking to propel more women and underrepresented groups into tech education, careers, and leadership. In February, Cornell Tech alumni startup Datalogue was acquired by Nike, Inc., while Auggi was acquired by microbial sciences company, SeedHealth.
More generally, in March, NYC Comptroller Scott Stringer published a report noting City University of New York (CUNY)’s economic contributions to the City and State. With over 80% of incoming students from New York High Schools, CUNY graduates working in New York State earned a combined $57 billion in 2019 and paid roughly $4.2 billion in state income taxes. Made up of 25 separate institutions and having over 265,000 students enrolled in the fall of 2019, the report also cites a Brookings Institution study that ranked 6 of CUNY’s senior colleges and 6 community colleges as being “among the top 10 [Universities] nationwide in promoting social mobility, moving students from lower-income backgrounds into the middle class.”
In total, NYC has over 100 institutions of higher education and over 1 million students.