Tech Companies' Bold New Offices Test 'Campus Curse'

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amazon.com downtown seattle headquarters rendering
NBBJ/AFP/Getty ImagesA rendering of Amazon.com's proposed futuristic greenhouse-style headquarters to be built in downtown Seattle.
By Bill Rigby and Alistair Barr

SEATTLE and SAN FRANCISCO -- While much of corporate America is retrenching on the real estate front, the four most influential technology companies in America are each planning headquarters that could win a Pritzker Architecture Prize for hubris.

Amazon.com (AMZN) this week revealed plans for three verdant bubbles in downtown Seattle, joining Apple's circular "spaceship," Facebook's Frank Gehry-designed open-office complex and a new Googleplex on the list of planned trophy offices.

"It signals a desire, a statement, to say that we're special, we're different. We have changed the world and we are going to continue to change it," said Margaret O'Mara, associate professor of history at the University of Washington, who has written about the building of Silicon Valley.

"It's also a reflection of robust bank accounts. They have a lot of cash."

Historically, however, when a company becomes preoccupied with the grandeur of its premises, it often signals a high point in its fortunes. These fantastical buildings may end up as little more than costly monuments to vanity and a loss of focus on the core business that made for success in the first place.
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"I've been thinking the Apple spaceship is going to get nicknamed the 'Death Star' because the project is so big and the timing is so bad," said hedge fund manager Jeff Matthews of Ram Partners. The building is coming to fruition just as Apple's product cycles may be maturing, he explained. "It is such a classic contrary indicator that you just get the shakes." He no longer holds Apple Inc. (AAPL) stock.

Walter Price, who runs technology investment funds at RCM Capital Management LLC, shares the outlook: "When companies build big headquarters it's usually when they're doing really well and have strong outlooks, and that often coincides with a peak in their stock." Apple, Amazon, Google and Facebook are battling to recruit tech talent, and attractive campuses help with that, he added, but Apple's plan hasn't gone down well with investors. RCM's tech funds no longer hold shares.

Project Runway

Amazon's design, presented to Seattle city planners this week, includes three steel and glass spheres almost 100 feet high, which will serve as the centerpiece for three new skyscrapers that will house a rapidly growing workforce in downtown Seattle.

The plans call for "a series of intersecting spheres with ample space for a wide range of planting material, as well as individuals working alone or in groups." Amazon declined further comment.

Google Inc. (GOOG), the world's largest Internet search company, has outgrown its original headquarters in Silicon Valley's Mountain View and is planning to build a 1.1 million square foot Googleplex nearby.

Called Bay View, it will have nine rectangular buildings, horizontally bent, with living roofs surrounded by courtyards and connected by bridges. No employee will be more than a 2½-minute walk away from any colleague, a design aimed at encouraging collaboration. A Google spokeswoman declined further comment.

Facebook Inc. (FB) is taking the collaborative idea a step further, with plans for Facebook West, an addition to its main campus in Menlo Park, Calif., that will be the size of 7½ football fields.

Facebook hired Gehry to bring his trademark style of unexpected angles and understated drama to what is essentially one enormous open-plan office, where a worker can wander from one end to the other without ever going through a door. The rooftop serves as a park.

An earlier version of the building plan featured flares on the ends of the structure like butterfly wings, but Facebook decided not to go ahead with them, said Rachel Grossman, associate planner for the city of Menlo Park.

Facebook spokesman Tucker Bounds said the expansion will be "extremely cost-effective" and is needed to help the company develop new products for its users. He declined to comment further.

Apple has the most ambitious idea, a 2.8 million square foot glass ring on 176 acres. It would be in part a monument to former Chief Executive Steve Jobs, who described it as like a spaceship and was closely involved in the plans before he died in 2011.

The project, which could cost up to $5 billion according to reports, would house about 12,000 Apple employees. An Apple spokeswoman declined to comment.

Tempting Fate

The technology sector has amassed large cash piles in recent years, leaving many companies over-capitalized, said Bill Smead, head of Smead Capital Management, which oversees $465 million in assets and doesn't own shares of Apple, Amazon, Facebook or Google. "Over-capitalized companies often don't perform well, and leaders of over-capitalized companies sometimes squander the money," he said.

Apple, Amazon and Facebook aren't getting tax breaks or other similar financial incentives for their plans, according to local officials. It isn't clear if Google is receiving any incentives.

While these plans radiate optimism, they risk bringing down a curse that has befallen big companies just as they construct pyramid-scale palaces.

AOL-Time Warner started building the Time Warner Center, a 2.8 million square foot structure on the edge of New York's Central Park featuring two towering glass skyscrapers, right as the tech stock bubble popped in 2000, destroying more than three-quarters of the Internet and media company's value.

The New York Times Co. (NYT), Wall Street bank Bear Stearns and chemical company Union Carbide also built ambitious headquarters just before their businesses hit tough times.

The "campus curse" has claimed several tech victims as well.

In the early 1990s, Borland Software -- once the second-largest independent software company -- spent more than $100 million on offices just south of Silicon Valley that featured ponds, tennis courts and a swimming pool. By 2008 the company had been hammered in the market by Microsoft (MSFT) and was worth less than the cost of the complex.

Since then, Yahoo Inc. (YHOO), MySpace, Inktomi, Sun Microsystems and Silicon Graphics International (SGI) have either hatched plans for or moved into swaggering headquarters, only to hit the skids. Google moved into Silicon Graphics' campus and Facebook took over Sun's headquarters.

Salesforce.com Inc. (CRM) got the shakes in time. In late 2011 the stock had fallen from a July high, and analysts were criticizing the company for excessive spending on sales and marketing. Earlier approved plans to build a $2 billion high-tech campus in San Francisco were canceled by the following February.

Productivity Premium?

Despite these cautionary tales, some say the new breed of tech companies are smart to construct their own buildings, which match the collaborative way they work and can yield long-term productivity and energy-efficiency benefits.

"As they see energy prices going up they recognize that these buildings have to last longer, and they need to be more in control of the operation costs of these buildings. A property developer does not focus on such long-term things," said John Barton, director of the architectural design program at Stanford University.

"Employees are more productive in the right kinds of environments. That may be more expensive, but if it pays back in a 5 percent productivity increase, that may be really smart," he added.

O'Mara at University of Washington suggests the new tech giants are emulating the workplace innovations of the famous Bell Labs, the historic research arm of AT&T (T) that gave birth to the transistor, the laser and technology behind mobile phones over many decades.

Bell's legendary facility, designed by modernist architect Eero Saarinen in the late 1950s, might not be the right role monument.

Now owned by global telecom giant Alcatel Lucent, the quarter-mile-long mirrored box lies empty, and is likely to end up being turned into a medical center -- or razed.

Tech Companies' Bold New Offices Test 'Campus Curse'

Brand Value: $27.8 billion

Percent Change v. 2012: 34%

What Happened: MasterCard's rank flew up nine spots this year to the 20th most valuable brand in the world, and Millward Brown VP Oscar Yuan attributes that ascent to "the growth of mobile technology." As consumers up their online shopping habits, brands like Mastercard and Visa reap the rewards for offering noncash payment methods.

Brand Value: $34.36 billion

Percent Change v. 2012: 34%

What Happened: "They're really into the big data," Yuan explained of the German tech brand, "So [the increase in value] is reflective of a consistent storyline: The growth of mobile shopping." SAP has the big data solutions enterprise companies need.

Brand Value: $36.2 billion

Percent Change v. 2012: 5%
 

What Happened: Walmart, however, has mastered the art of brick and mortar shopping. "You can't buy milk online," Yuan said. The retail giant has a large and loyal consumer base that is constantly growing - even internationally.

   ↵

Brand Value: $39.7

Percent Change v. 2012: -8%
 

What Happened: Vodafone's 8% drop in value can be attributed to O2 and Orange's recent success. But at almost $40 billion, it is still one of the largest mobile carriers in the UK.

Brand Value: $41.1 billion

Percent Change v. 2012: -1%
 

What Happened: While Americans might have never heard of the Industrial & Commercial Bank of China, Yuan explains that in its home country, "the logo is ubiquitous." ICBC is the first of two Chinese brands in the top 20, a number which is largely due to the countries growing middle class.

Brand Value: $42.7 billion

Percent Change v. 2012: 15%
 

What Happened: "I think a lot of the growth is really tied to several consumer trends - and I'm talking about the need for consumers to shop online mobile devices," Yuan told BI. Consumers need to get the products they bought on the internet somehow, and that's where UPS comes in.

   ↵

Brand Value: $45.7 billion

Percent Change v. 2012: 34%
 

What Happened: It's almost impossible for brick and mortar shops to compete with Amazon's wide selection, low prices, and mastery of the mobile marketplace - easily allowing consumers to buy anything from anywhere on their phone or tablet. Recent acquisitions of Audible.com and Goodreads also show the company's determination to dominate all aspects of mobile book consumption and sharing.

"There's no stopping amazon as they go international," Yuan said."

   ↵

Brand Value: $47.7 billion

Percent Change v. 2012: 20%
 

What Happened: After acquiring Wachovia in 2008, Wells Fargo successfully expanded from a California-based bank to a national name. Coming from California also helped Well's Fargo's image with consumers considering that it was one of the few banks to remain unscathed during the financial crisis. "It also started a major rebranding strategy expansion," Yuan said.

Brand Value: $53 billion

Percent Change v. 2012: 8%
 

What Happened: Verizon got a boost after Apple opened its services to carriers other than just AT&T. While Verizon and AT&T's rivalry heats up, Yuan predicts that the competition will up both brands' game. "As data devices continues to proliferate, we will continue to see Verizon do well," he said.

Brand Value: $55.3 billion

Percent Change v. 2012: 21%
 

What Happened: "GE ... continued to be one of the most well respected consumer and industrial brands in the world," Yuan said. And the public is starting to see that it makes more than just light bulbs. General Electric has dedicated major marketing dollars to making sure that consumers know it produces everything from airplane engines to wind turbines to medical equipment. Hammering in its dedication to innovation, a recent ad campaign even enlisted the help of famous robots.

"In terms of B2B, GE is one of the most well respected brands," Yuan continued, citing that it was often used in business school case studies.

Brand Value: $55.4 billion


Percent Change v. 2012: 18%

What Happened: China Mobile is the largest mobile carrier and brand in China, so it's a no-brainer that it's one of the most valuable brands in the world. "There are more mobile phone subscribers in China than in the U.S.," Yuan said.

Brand Value: $56 billion

Percent Change v. 2012: 46%

What Happened: A key way to bolster global presence is to sponsor the Olympics. But that's not the only thing that upped Visa's brand value so drastically. As one of the most trusted names in non-cash payments, Visa has gained clout in the world of online shopping and mobile payments.

Brand Value: $69.4 billion

Percent Change v. 2012: -6%

What Happened: Marlboro is a top 10 regular, which goes to show that even though smoking is restricted in the U.S. doesn't mean that the rest of the world has laid off the habit. "Marlboro has consistently invested in the brand ever since its inception," Yuan said. "The rugged cowboy is very strong and consistent globally."

To put it another way, "about 25% of world's population are smokers, and they use it 5 to 10 times a day. I don't drink 10 bottles of water a day." That's getting your brand out there.

Brand Value: $69.8 billion

Percent Change v. 2012: -9%

What Happened: As a $70 billion brand, Microsoft is in great shape even in spite of a 9% value decrease. Microsoft is a powerhouse and has a reputation as one of the strongest tech brands in the business. But, Yuan notes, "with consumers, there's confusion as to where Microsoft fits." The company's fortune is largely tied with the PC business, but it has emerged on the mobile scene with the Surface and other devices. The company went through a major rebranding in the summer of 2012 to stay relevant.

Brand Value: $75.5 billion

Percent Change v. 2012: 10%

What Happened: AT&T is another company to gain value due to the increasing U.S. consumption of mobile products. For a long time, the service provider had an exclusive deal with the iPhone, so it became synonymous with the new technology. What's really interesting, however, is that even when Apple opened the iPhone up to Samsung and T-Mobile, AT&T's value didn't go down.

Brand Value: $78.4

Percent Change v. 2012: 6%

What Happened: "What's consistently impressive about Coca-Cola is its ability to innovate," Yuan said. "People think that soda consumption is declining, but Coke is turning the business on its head." For example, this year Coca-Cola released a series of freestyle machines which allows consumers and retailers to mix their own flavors of the soda syrup to make their own individual Coca-Cola. The company is constantly innovating and staying fresh.

Brand Value: $90.3 billion

Percent Change v. 2012: -5%

What Happened: Yuan noted that one of McDonald's gifts was the ability to listen to consumers' sentiments and adapt, particularly to growing health concerns. "It has come out with a much healthier menu with apple slices, oatmeal, and a Chicken McWrap which has done well," he said.

McDonald's is also gaining a stronghold in the coffee space, which should be an interesting new endeavor to follow.

Brand Value: $112.5 billion

Percent Change v. 2012: -3%

What Happened: At $112.5 billion, IBM's three percent value decrease is not a substantial figure. IBM is known as a company that consistently delivers year after year, Yuan told BI. And it is particularly hailed in the B2B sphere.

Yuan also noted that its Ogilvy-made "Smarter Planet" campaign, in which the company explained its plans to help clients innovate and make the world a better place, inspired consumers to believe in the brand.

Brand Value: $113.7 billion

Percent Change v. 2012: 5%

What Happened: Google has effectively taught consumers that it is more than just a search-based company. With maps, mail, shopping, and more, Google is integrated into everyone's lives. The company also made recent headlines about its new contribution to the hardware world in the form of Google Glass. "It will be interesting to see how Google Glass will contribute to the brand value, but now it's too soon to tell," Yuan said.

Brand Value: $185 billion

Percent Change v. 2012: 1%

What Happened: In spite of harsh Wall Street analysis and media speculation regarding Tim Cook's leadership capabilities, Apple continues to be a strong brand in the eyes of consumers - a major value measurement for Millward Brown. "Despite what the press says and stock market says," Yuan noted, "Apple in the eyes of the consumers is the gold standard."

In the last eight years, Apple's value has increased 1,045% - only topped by Subway's meteoric 5,145% rise. (Although Subway still hasn't broken the top 20.)

Those companies are constantly innovating to stay on the top.[Those companies are constantly innovating to stay on the top.]The gay pride Oreo, from Kraft's Facebook page.

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