D.C. Dotcom

12 minute read
Sally B. Donnelly and Adam Zagorin/Washington

You can see all the way from the past to the future of Washington from atop the Tower Club, a posh, crusted-sea-bass kind of eatery crowning an office building in Tysons Corner, Va. Barely visible in the distance is the 555-ft.-high Washington Monument, looking like a gray toothpick far out on the horizon. But right down below, amid miles of suburban shopping malls and carpet outlets and car dealerships, is a place that’s becoming as important as the formal capital of the U.S., a place that’s doing something traditional Washington has never done before: generating billions in private wealth.

Just 15 miles across the Potomac River from the marble and granite monuments built during 224 years of democracy, the acronyms of Washington have been newly scrambled. You won’t find the FTC, the FBI or the DOD; but you can’t miss the shiny new glass-and-stone headquarters of UUNet and PSINet, AMS and UUcom, commercial titans of the new Washington. You can’t miss the new-economy entrepreneurs in their Lexuses and Land Rovers doing deals on cell phones as they zip around I-66 and Routes 7, 50 and 123. And you certainly can’t avoid the traffic. Fifteen years ago, Fairfax, Loudoun and Arlington counties in northern Virginia were nothing but sleepy residential communities and remote farmland, places to drive through on the way to Dulles Airport or concerts at Wolf Trap or camp sites near Front Royal. Now this 1,400-sq.-mi. area of northern Virginia is threatened with becoming a concrete-and-asphalt expanse of office buildings and parking lots, home to hundreds of new dotcoms, telephone companies, wireless firms, Internet-service providers and venture capitalists–home to everything that makes the new economy the powerhouse that it is.

“Washington isn’t just a government town anymore,” observes Treasury Secretary Lawrence Summers, who recently ventured all the way out to speak to a gathering of new CEOs at the Tower Club. “The synergy of telecommunications and the Internet has created a boom.” And this is a boom with cultural as well as economic consequences. The thousands of companies that dapple suburban Maryland and Virginia don’t face the Pentagon or the Treasury anymore: they face Fairfax County, Va., where the real money is. “The best thing governments can do is stay out of the way,” says a prominent northern Virginia venture capitalist, voicing a common if ironic sentiment in the heart of the region that created the Internet. But official Washington isn’t about to disappear. Administration officials, Senators and members of Congress–and, more important, the fund-raising arms of their political parties–are making it a point to know who’s who in the local tech world. “We have no problem getting our phone calls returned,” says John Backus, chairman of the Northern Virginia Technology Council (NVTC), a business-promotion group.

WELCOME TO TECHTOPIA

In the new Washington, money talks. Suburban Fairfax County (which bills itself as “E-county”) recently became the richest county in America, with a median household income of $90,937. An estimated 2,000 high-tech firms are on hand there, helping attract 20,000 new residents each year. A decade ago, the main Fairfax shopping center, Tysons Corner, was just a big mall. Today Tysons is the 14th largest business district in the U.S. It consists of two strip malls and two mega-malls near one another, with 80,000 people working in the vicinity and dozens of high-end outfitters–like the local Tiffany & Co., which outsells the company’s flagship store on Manhattan’s Fifth Avenue.

With all that has been going on, venture capitalists were sure to follow. There are 20 venture-capital firms with offices in Fairfax County alone. They include Draper Atlantic and Friedman Billings Ramsey. Fairfax County firms obtained $327 million in venture capital during the first quarter of 2000, well above the pace of almost $1 billion for all of 1999. Meanwhile, more than 150 foreign businesses, including giants like Cable & Wireless and Hitachi Data Systems, have parachuted into Fairfax County, and the Fairfax County government has established offices in London, Tokyo and Frankfurt. Says Alan Merten, president of George Mason University, the region’s most tech-focused academic center: “The Washington region has become a global player.”

Nor is the boom confined to the dotcom universe. In nearby Montgomery County, Md., just north of the District of Columbia, a new set of novel names and acronyms studs the suburban landscape. Biotechnology start-ups such as Genetic Therapy, Human Genome Sciences and GeneLogic and established health firms such as EntreMed and MedImmune fan out around the National Institutes of Health in Bethesda. Two hundred of the 300 biotechnology firms in Maryland are located in Montgomery County, whose median household income is $77,774 (ninth nationally). Montgomery County ranks sixth in the nation as having households with incomes of $500,000 or more. Like that in northern Virginia, the high-tech corridor in Maryland is congested with traffic. Commuters who try to use public transportation like the subway find that the vast parking lots in even the most distant suburbs are full by 8 a.m.

Techtopia–as some local boosters call the new-economy belt around Washington–isn’t just another one of those business incubators that seem to have taken root in nearly every large American city in the morning of the 21st century. If software center Seattle is the new economy’s brain and chipmaking Silicon Valley is its heart, then Washington is its central nervous system. Spread along, around and mostly under Techtopia’s main drag, the Dulles Toll Road, are the vital electronic pathways–wires, cables and fiber-optic lines–that carry more than half of all traffic on the Internet. The region is home to more telecom and satellite companies than any other place on earth. The Washington area boasts a higher concentration of people who use the Internet at home and at work than any other urban area in the world. That makes northern Virginia America’s main IT node a strategic target as important as the Pentagon. It also explains why so many big companies, such as MCI Worldcom, Network Solutions and America Online (which hopes to own Time Warner by the end of the year), are happy to be in the neighborhood.

At the core of the new Washington are some 5,000 firms involved in high tech that currently generate well over $100 billion in annual revenue and employ more than 500,000 people, easily outstripping the roughly 350,000 jobs filled locally for the Federal Government. In northern Virginia, the focus is more impressive: there are 2,600 firms with 237,000 workers singularly devoted to technology. The NVTC expects those numbers to double by 2010. The new firms have been followed by armies of lawyers, consultants, p.r. agencies and accountants.

Washington’s place at the center of the new economy is appropriate because, in a sense, Washington invented the Web. For much of the cold war, the Pentagon poured money into the supersecret National Security Agency and the Defense Advanced Research Projects Network to create the Arpanet, a highly exclusive communications grid designed to allow Pentagon-based researchers and engineers to stay in touch with their counterparts across the country. Over 40 years the Pentagon’s need for so much information–the next big weapon, the next great spy satellite, the perfect battlefield walkie-talkie–also led to the creation of some very unusual companies around the Beltway. There were think tanks and consultancies, with people who tinkered and debugged and helped the Pentagon and other agencies make decisions. They had names like SAIC (Science Applications International Corp.), BDM (Braddock, Dunn & McDonald) and SRC (Systems Research Corp.) and worked on projects so highly classified that many people in Washington had never heard of them. Big manufacturers disdained them and called them “Beltway Bandits.” And because they had the same government clients for decades, they did not set the business world afire. “Fifteen years ago, ‘Washington entrepreneur’ was an oxymoron,” says Mario Morino, an early tech multimillionaire turned philanthropist.

But then came Ronald Reagan and Bill Clinton, the end of the cold war and the advent of the balanced budget. Many federal contracts disappeared; some government services were privatized; and lots of inside-the-Beltway engineers and researchers took their expertise as sophisticated communications specialists, computer innovators and software designers out on the street. Those changes collided with the rise of the personal computer and the opening of the Pentagon’s Arpanet to the private world. In effect, a huge talent pool of high-tech experts became free at the very instant that the private sector was taking custody of the engine of the new economy. Many stayed put where the big cold war consulting firms had been located, in the low-rent northern Virginia suburbs.

Washington is home to the pipes of the emerging world of technology. Miles and miles of phone line and fiber-optic cable come together in the region. It has the largest single portion of vital Internet backbone and the biggest concentration of Internet-service providers in the country. The infrastructure of MCI, UUNet, Digex, PSINet and Sprint has for years helped speed the connections that have fed the Internet boom. As these companies have grown or morphed into bigger, broader ones, they have helped develop start-up firms. Small companies like fantasysports.com in Reston, Va., aren’t bidding for contracts from the Federal Government; they’re offering services to the local giant, AOL.

THE OLD VS. THE NEW

The old Washington has been watching all the ferment and doesn’t know whether to laugh or cry–or try to get in on the action. There was never much private industry in D.C. For years the biggest private employer was the Washington Post. Because of the relative scarcity of large private fortunes, there were very few big locally owned banks. Power and influence were the currency. Elected officials, lobbyists, lawyers and consultants lived and worked in the same neighborhoods, schmoozing over lunches and dinners and cigars at watering holes like Duke Ziebert’s and country clubs like Burning Tree. What mattered was whom you knew and how long you had known them.

No more. With so many companies hiring so many people and paying so many of them in equity, Techtopia has begun to draw, like the gravitational pull of the moon, from government and K Street out to Virginia. “There has been a fundamental psychic shift in favor of entrepreneurship,” says businessman Morino, who runs a well-known incubator for start-ups.

So now old Washington is in culture shock. The new mecca is vastly different: the crowd is rich, young and isn’t naturally inclined toward politics or government. Last summer Bobbie Kilberg, NVTC president, threw a fund raiser for George W. Bush’s presidential campaign. She thought about having the event downtown but discovered that prospective donors in the high-tech suburbs weren’t keen about that idea. Kilberg held the event near the Dulles Toll Road instead. It was the first real political event anyone could remember in northern Virginia, generating $600,000 for Bush.

Only in the past few years have new Washington companies overcome their disdain for politics, banded together to form lobbying groups and begun to press their case. Their list of demands is growing both in size and in the amount of attention it is attracting in Congress. In the past year lawmakers have begun to make personal pilgrimages to talk to CEOs outside the Beltway.

Old Washington still can’t decide what to make of Daniel Snyder, a Bethesda, Md., advertising-firm owner who made a killing there, bought the beloved Washington Redskins in 1999 and then this year moved its summer-training camp to Loudon County. Snyder is a herald of what is to come; a group of tech executives is mobilizing to bring a professional baseball team to northern Virginia–not Washington. Ted Leonsis, an AOL executive, formed a group that bought a majority interest in Washington’s NBA, NHL and WNBA franchises. Then Leonsis made it clear he wanted not only to own but to win: he hired Michael Jordan as president of basketball operations for the NBA’s Washington Wizards.

WHO’S IN CHARGE?

The change in the balance of power can be seen in the most fundamental ways, starting with the commute. Most mornings on the Dulles Toll Road, traffic leaving the federal district has begun to rival that of old-fashioned commuters heading downtown. In the past year alone, commuters admit, the drive time has increased 50%. Traffic is so bad that the Washington region ranks second only to Los Angeles in severity of snarls. The area is short on roads, bridges, ramps–everything but cars. Local police have begun to complain that well-heeled commuters blithely invade high-occupancy-vehicle lanes to save time; the $50 ticket doesn’t slow many of these folks down. Traffic, says the NVTC’s Backus, “is by far our biggest problem.”

But who cares? Last year a local techie in blue jeans and a sports shirt walked into Ferrari of Washington, a former furniture dealership located discreetly in a glass-and-brick office park in Sterling, Va. The buyer knew exactly where he wanted his new car to go: in his living room. Sales manager Ralph Cestero knew just what to do. He collected the $225,000 price on the 550 Maranello and arranged delivery. “We took the car over,” Cestero relates, “and saw that he had removed a wall of his house and built a large ramp up to the living room floor.” Cestero is doing so well he has taken down the billboard ad he had placed at Dulles Airport and is donating the savings to charity.

In the end, the new techies may solve the traffic problem in their own inimitable way. Local developers are planning a web of six or seven helicopter ports around the region to cut commuting time in the three-county area as well as to make fast connections to airports. Meanwhile, the Cessna sales office at once sleepy Leesburg Municipal Airport in Loudoun County has become one of the best-performing sales points in the nation. Last year Mark Peters nearly doubled his quota and sold 40 planes. “There are a lot of prosperous so-called geeks out there who want to fly,” says Peters. “The Dulles Toll Road should be called the Yellow Brick Road–and the yellow is gold.”

It’s not a coincidence that Virginia license plates recently got a new slogan: THE INTERNET CAPITAL OF THE WORLD.

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