Tech.Seattle.Com -- Hundreds Of Local Companies Have Ridden Microsoft's Coattails To Put Seattle On The Map As A Regional High-Tech Center

With its colorful film posters and folding metal tables, Peter Mitchell's office at 911 Media Arts Center in Seattle's industrial Cascade neighborhood looks more like the lobby of a college dorm than a center for high-tech wizardry.

911 is no Microsoft, and its six employees aren't on the millionaire track - yet.

But in teaching artists, filmmakers and others to use computers and the Internet for their work, the nonprofit agency is helping lead a cyber-revolution in which more and more information is conveyed across computer lines rather than on paper or through television. 911 is among hundreds of local companies and groups riding Microsoft's coattails and putting Seattle on the map as a regional high-tech center.

This phenomenon has been officially blessed by national media, with reporters from Newsweek, MTV, The New Yorker and Business Week breezing into town for a few days at a time and turning out cover stories on the local scene.

Now with the emergence of the Internet, the global computer online information network, the question is whether CyberSeattle can live up to its own image.

This is one of those questions we've debated among ourselves a number of times," says Kathleen Humphrey, a board member with the Washington Software & Digital Media Alliance (formerly the Washington Software Association). `" think most people realize the Silicon Valley is the center of it. But it seems this area is giving Silicon Valley a run for its money."

1,900 companies, 22,000 jobs

Seattle is no Silicon Valley. Only about one in 40 jobs here is tied to high-tech; around San Jose, Calif.it's one in four.

But last year alone, 317 new software companies were formed in the state, joining 1,600 already here - businesses scattered from Seattle to Spokane to the Oregon border.

The rise of the Internet offers huge potential for growth, and by all accounts this area is poised to take advantage of it.

Here's why:

-- The region has made a high-tech name for itself with a few dominant players, including Microsoft and video-game king Nintendo, but the area is filled with hundreds of smaller technology companies hoping to make it big.

-- The 1,900 software companies in Washington state last year generated $9.5 billion in revenue, up 24 percent from the year before and expected to grow to $20 billion by 2000.

-- Most of the companies are tiny operations that dream of hitting it big. Two-thirds last year employed fewer than 11 people each. Most had annual sales of less than $1 million.

-- The companies employed more than 22,000 state residents last year, paying $2 billion in wages.

-- When telecommunications companies are added in, the numbers nearly double: 3,500 companies, 56,000 employees, $3.6 billion in payroll.

-- The area is home to three of the world's largest networking-software businesses, which connect fleets of computers within companies: Attachmate Corp. of Bellevue, Wall Data of Kirkland and WRQ on the western shore of Lake Union. The largest, Attachmate, employs nearly 2,000 and ranks, by one market researcher's count, as the seventh-largest PC software company in the world. And this is a niche that is taking off.

911's Mitchell, a blond, pony-tailed 26-year-old, said the people he sees in Web classes are increasingly sophisticated, picking up on the culture, the business and the language of the Internet.

"Just that someone can say `dot-com-slash' (tech-speak for part of an Internet address) and that means something. That's funny," Mitchell says. "I don't know what it means, but something's happening."

Hiding in warehouses

Drive around the congested, concrete-and-glass covered landscape of the Silicon Valley, and you'll see the biggest difference between there and here: more giants. You can't miss 'em. There are the mirrored towers of Oracle Corp., the sprawling campus of Apple, the family of buildings at Sun Microsystems, the mishmash at Intel, the brick low-rises of Hewlett-Packard.

Around Puget Sound, there's Microsoft's grassy main campus, with 26 buildings and counting, and a five-building satellite site, both in Redmond. There's Nintendo's eye-catching headquarters in the same area and the offices of the three large network-software companies: WRQ, Wall Data and Attachmate.

Beyond that, you have to hunt pretty hard to find some of these companies: the 65 Web designers housed in an old brick warehouse, the 25 programmers stuck in one corner of an office park, the 12-person multimedia force hidden on one floor of a senior-citizens apartment tower.

"Seattle isn't just a great place to live, but a great place to start a business," beams Steve Sperry, a 32-year-old entrepreneur who's riding high after landing $20 million in venture capital and private financing for his company, Primus.

Sperry, a former Boeing engineer, formed Primus (then called Symbologic) in 1987. The company, which makes software used by computer companies to troubleshoot customers' problems, employs 65 in a downtown high-rise. Some expect it to go public one day with a stock offering.

A few rooftops away, in the heart of Seattle's downtown retail district, a trio of executives at Visio Corp. tout its latest victories, including a deal to license a graphics-software package to be installed in every desktop computer at Palo Alto, Calif.-based Hewlett-Packard, which has 105,000 employees. Visio, launched by Aldus co-founder Jeremy Jaech in 1990, began selling stock last year. It has made $7.2 million in profit since September.

South of downtown, in an office building a few cobblestone strides from Occidental Park, the founder of Free Range Media dreams that his Web-site company will one day employ thousands. Andrew Fry, 35, left his Microsoft project-manager's job in March 1994 to mine the riches of the Internet.

Many of Fry's 65 employees, who build Web sites for companies including Microsoft, Pennzoil and H&R Block, know they're in a cutthroat business that will likely see a shakeout soon. Fry intends for Free Range to be one of the survivors.

Across Lake Washington, on two floors of a conspicuous glass building next to Interstate 90, Starwave runs one of the most popular Web sites in the world: ESPNET SportsZone. President Mike Slade acts a bit as if he believes the company's rapid ascension to Internet fame could be too good to be true. The 3-year-old company employs 265 people and can't keep up with new job listings written on index cards hanging on a hallway bulletin board.

"Maybe that means we're golden," Slade says. "Maybe it means I'm just a Milton Berle." No talent, but a big hit anyway.

Aldus blazed typical path

The history of Puget Sound's high-tech industry is grounded in the desktop computer. While some companies toiled earlier at running big mainframe computers - the room-sized mammoths that are the backbones of banks and hospitals - it was the rise of the personal computer that led to the local high-tech boom. Microsoft co-founders Bill Gates and Paul Allen led the way with their mantra, "A Computer on Every Desk and in Every Home."

Local pioneer Aldus Corp., once an important name in computerdom, followed what has become a typical path. The company began in 1984 by developing a desktop-publishing program, a product that owes its existence to the availability of PCs. Although Aldus was bought in 1994 by Mountain View, Calif.-based Adobe Systems, many of its people are now successful executives around Seattle - among them the group heading Visio.

Doug Walker, who co-founded Walker Richer Quinn (now WRQ) in 1981, the year the IBM PC came out, remembers starting his business out of his Ballard house, then opening his first office in Fremont 15 years ago. He can recall only three other major start-ups at the time: Microsoft, a "pretty small" company with less than 100 people, Aldus and a company whose name he can't even remember.

There was also Boeing Computer Services, an internal division of the aerospace giant and an early pioneer in the local software industry.

Now WRQ employs about 550 worldwide, 515 of them in a 10-story, terraced glass-and-atrium-style building overlooking Lake Union.

Despite rapid growth in the late 1980s, the local tech business beyond Microsoft didn't really blossom until the early 1990s, when computers moved beyond bells and whistles to cartoons, songs and interactive movies. That's when the genre of "multimedia" software - programs that combine text, art, sound and video - took hold, and Seattle-area companies became leaders in the field. Humongous Entertainment opened in Woodinville in 1992, led by two game designers from Los Angeles. Edmark Corp. of Redmond began making educational software in 1993. HyperBole Studios, which started in Texas in 1990, moved to Belltown in 1993 and worked on its experimental line of interactive CD-ROM movies.

HyperBole's chief executive, Greg Roach, figured he would move his company to California after staying here two years to please his publisher and then-business partner, Media Vision Inc. of California. But he fell for Seattle after six months and called Media Vision to say don't bother moving us.

"That was based partly on the quality of life, the charms of Seattle," Roach says. "We like the city and we like the pool of talent that's available to us."

Although multimedia is growing into big business in Seattle, the volatile market has yet to prove consistently profitable. The Washington Software & Digital Media Alliance estimates 22 percent of the state's software businesses are making multimedia products.

Now, many of those companies are hoping to translate their CD-ROM work into games, stories and movies that can be played over the Internet or link to some complementary Internet site.

Internet profits slow to come

"Risk? Boy, you can talk to me about that."

Tom Poole, 35, is living on the edge, a pioneer of sorts who ditched his commercial real-estate job to make a business off the Internet. He had been helping his grandmother look for retirement housing and couldn't find any information. First he decided he could make a business selling the information some traditional way. Then he discovered the Internet.

He decided to start SeniorCom, a World Wide Web site with all kinds of information for older people, from lists of health clinics and legal services to housing information to a place to order large-type books.

"I went from an industry where I was comfortable, I was secure, it was good to me. And I really took a leap of faith," Poole says. "And the jury is still out, let me just put it that way.

"But I think the potential of the Internet is such that it draws me as well as other people to take that leap."

Poole started SeniorCom a year and a half ago; he now employs four people and takes nothing for granted. But his wariness is backed by an unwavering optimism.

His attitude is shared by many who are taking the same risk. Among the Seattle-area companies betting their futures on the Internet: Starwave, Progressive Networks, Free Range and Amazon.com, a "virtual bookstore" whose large supply and long list of customers have gained attention in the national business press.

Poole quotes studies estimating the total value of products and services bought over the Internet was $100 million in 1995 and will be $186 billion by 2000.

"That's huge growth," he says. "I take all the numbers I see, divide 'em in half, and divide 'em in half again. And if we reach that potential, we're in great shape."

It's slow going, though. Poole's company has yet to make a profit.

"For those interested in starting an Internet company," Poole says, "I would only say to them, it costs twice as much as you'd ever imagine and takes three times as long. So get ready."

The downside

It's time for a reality check.

It's fun to see the occasional Seattle lovefest articles in national magazines like Business Week. But go back and reread that 2-year-old story, and you might notice something about the companies it featured: A handful of them have died, gone on life support, or remained stunted, releasing few products but refusing to give up.

A sampling:

-- Medio Multimedia, started by an ex-Microsoftie, earned good early reviews for its products but shut its doors last year after spreading too thin and growing too fast.

-- Splash Studios: The venture-capital firm that backed Splash, a 2-year-old multimedia company specializing in children's software, ousted its founders in April and appointed a new president. The staff was cut from 21 people to seven.

-- Midisoft: The 10-year-old music-software company lost $12.1 million last year after customers canceled orders that had been booked prematurely as sales. After replacing top management several times, and laying off part of its staff, the company has settled on a new chief executive and appears to be rebounding.

The failures and slow starts by these companies - darlings just two years ago when multimedia was hot - make some people fear for today's Internet companies, the category du jour.

"There were so many companies jumping on the CD-ROM bandwagon, and there wasn't enough demand in the market," says Humphrey, the Washington Software board member, adding that she's surprised more companies haven't failed. "Now people are talking about CD-ROMs as if they were passe, like computer tapes or something. It makes you wonder about all the viability and longevity of these Internet companies."

Roach, the HyperBole Studios chief, notes how his company has been laughed at because it chose such a "big" name for a little enterprise. He explains that the name reflects the goal of creating something big, of lofty ambitions. But he quips that it's also appropriate in a city that has seen more failed companies than insiders foresaw.

"Maybe," Roach says, "the city should be named HyperBole."

Many second chances

Steve Podradchik sits alone in a nearly empty one-room office, looking through glass walls at graphic artists who occupy suites across the hall. He's just opened shop in a chic brick building on Western Avenue in downtown Seattle, creating and selling software for people to track the use of their Web sites - mostly so they can sell advertising.

Podradchik's 10-week-old company, Marketwave, is his resurrection. He'd better not screw up.

A former Microsoft product manager, he started the now-defunct Medio Multimedia. After a fast start in 1993, including rave reviews for a CD-ROM on John Kennedy's assassination, Medio expanded rapidly. Podradchik branched into online publishing and hired 75 people within two years. Then competing CD-ROM titles swamped the market. Medio's sales slipped. Podradchik missed some payrolls. After a failed attempt to sell the company, he closed Medio in September.

This time, Podradchik promises to take things slower. But he is counting on an explosion in the demand for Web-tracking services.

He's also counting on the forgiveness of the software industry. And that's a pretty sure bet.

In this industry maybe more than any other, it's accepted - even expected - that successful people will venture off on their own to try something new. Many of them will fail. Some will start over.

Visit Silicon Valley and you'll hear how computer entrepreneurs are revered as heroes, even when they don't strike gold or save the world.

Seattle may not have the mass Silicon Valley does - the number of companies, venture capitalists or workers. But Podradchik's revival indicates it might be getting the spirit.