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Microsoft, Amazon Propel Washington to Most Innovative State

Photographer: Mike Kane/Bloomberg

The Space Needle is seen through "Grass Blades," a sculpture by John Flemming, at in Seattle. Close

The Space Needle is seen through "Grass Blades," a sculpture by John Flemming, at in Seattle.

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Photographer: Mike Kane/Bloomberg

The Space Needle is seen through "Grass Blades," a sculpture by John Flemming, at in Seattle.

The most innovative state in the U.S. isn’t California, home of Google Inc. (GOOG) and Stanford University, according to data compiled by Bloomberg. It’s Washington, where Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN) are based.

California came in second and Massachusetts third in the ranking, which looked at criteria such as the percentage of professionals in science, technology, engineering and mathematics, and the number of patents and public technology companies in each state.

Washington, known for rainy Seattle, abundant greenery and fleece-clad citizens, had the highest total score, not by topping any of the categories -- California is highest in patent activity and five states have more skilled workers -- but by placing near the top. That’s due to the large technology workforce, high productivity rates and plethora of public companies in aerospace, biotechnology and computer technology.

“I am a big believer in the state of Washington,” said Sunny Gupta, co-founder, president and chief executive officer of software-maker Apptio Inc. in Bellevue, Washington, who said he chose to live in the Seattle region over the San Francisco Bay area. “It really comes down to having an incredible network effect, primarily dominated by Microsoft and Amazon but also a lot of great entrepreneurial talent.”

Technology enterprises make up 21 percent of Washington’s public companies, according to the ranking, while they comprise 29 percent in California and Massachusetts.

Engineering Roots

The state’s strong engineering roots go back to Boeing Co. (BA), the airplane manufacturer that was based in Seattle until 2001 and still has extensive manufacturing operations in the Puget Sound area. The company attracted not just employees but also suppliers to the area, said Ed Lazowska, who holds the Bill and Melinda Gates chair in computer science and engineering at the University of Washington in Seattle.

Microsoft’s 1979 move to the suburbs of Seattle from Albuquerque, New Mexico, attracted computer engineers throughout the 1980s and 1990s, as did other area companies such as Aldus Corp., the maker of publishing-software PageMaker. Nintendo Co. (7974) chose Redmond, Washington, as its U.S. headquarters, pulling in game developers, Lazowska said.

Former employees of these companies have gone on to found local startups in and around Seattle. The availability of top engineers has attracted technology firms such as Google, Facebook Inc. (FB) and Salesforce.com Inc. (CRM), which have set up large offices in the area.

“These companies move here because we, in fact, have a phenomenal workforce,” Lazowska said.

Cloud Cover

Washington state “arguably owns the cloud,” said Lazowska, referring to computing services delivered via the Web that are offered by companies such as Amazon and Microsoft. The area also boasts a strong presence in segments such as data analytics and storage.

Internet firms such as Zillow Inc. (Z) and Expedia Inc. (EXPE) merge the region’s strength in retail -- as seen with local companies such as Nordstrom Inc., Starbucks Corp. and Costco Wholesale Corp. -- with technology expertise, Lazowska said.

Engineers are attracted to the Seattle region instead of Silicon Valley, thanks to more affordable housing and lower taxes -- Washington has no state income tax -- said Gupta, who develops software that helps companies manage and monitor their technology spending.

About 2.8 percent of Washington residents work in science, technology, engineering and mathematics, more than California’s 2.3 percent, and below Washington DC’s 9.2 percent and 3.4 percent in Massachusetts, the data showed.

Learning Environment

Microsoft alums such as Brad Silverberg and Pete Higgins co-founded venture-capital firms Ignition Partners and Second Avenue Partners. Rob Glaser founded RealNetworks Inc. after he left Microsoft and Sujal Patel left RealNetworks to found storage-company Isilon Systems Inc., which became EMC Corp.’s biggest acquisition in 2010.

The region also has a strong wireless heritage, owing to McCaw Cellular Communications Inc., which became AT&T Wireless. McCaw executive Tom Alberg co-founded the venture firm Madrona Venture Group LLC, which has funded local firms such as Amazon, Isilon and Gupta’s Apptio. T-Mobile US Inc. (TMUS) is based in Bellevue.

While Seattle has developed a reputation for rain and clouds, the region also offers natural beauty and outside activities, Gupta said.

“Skiing is close by. There’s hiking and kayaking and the landscape,” he said. “The only negative is the weather.”

Education Challenge

While the technology industry benefits the state, residents and lawmakers should have one major concern, said Lazowska -- how poorly Washington does educating local students. The economy was built by a labor force educated elsewhere, and Washington rates 49th in the U.S. in the number of students who graduate with bachelor’s degrees from public universities, he said. There aren’t enough spots for university students in areas such as computer science, he said.

“It’s a question for the kids that grow up here,” he said. “Are they going to be first-tier participants in this economy, or are they going to be washing people’s cars and selling them cars?”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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