Remote Work Proves Cities Are Invaluable

Last week, Andreessen Horowitz (A16Z) announced they are "moving to the cloud." The company was initially skeptical about working remotely but learned from experience:

"It turns out that running a technology company remotely works pretty darned well. It’s not perfect, but mitigating the cultural issues associated with remote work turns out to be easier than mitigating the employee satisfaction issues associated with forcing everyone into the office 5 days/week. As a result, nearly every technology company has moved to a remote or hybrid approach to work and this change is profoundly weakening the Silicon Valley network effect."

A16Z is not just another company. They were investors in some of the most prominent technology companies, including Facebook, Twitter, Coinbase, Affirm, Airbnb, Lyft, Slack, Roblox, Flexport, and Instagram. Their leadership and guidance impact hundreds of thousands of employees.

But A16Z's announcement included another bit of new:

"In our firm’s new operating model, we work primarily virtually but will use our physical presence to develop our culture, help entrepreneurs, and build relationships. Specifically, the firm is now virtual but can materialize physically on command.

As a result, we have configured the firm to be able to physically assemble anywhere in the world very quickly. To that end, we are opening 3 new offices in Miami Beach, New York, and Santa Monica in addition to our existing Menlo Park and San Francisco locations."

Wait, what? "moving to the cloud" and "opening 3 new offices"? At first, these two statements seem contradictory. But they make perfect sense. The ability to work remotely doesn't mean we will no longer work in person; instead, it means we can (and must) be more deliberate about how we interact in person.

The internet does not replace cities; it extends them. Creativity and innovation depend on the efficient dissemination of ideas — on the rapid flow of information and the speed at which this information can reach the specific person who can make the best use of it.

Cities are networks. And historically, being in a city meant tapping into information (and know-how) unavailable elsewhere. It enabled the rapid matching of tasks and expertise and rapid meetings between people with something to gain from each other.

Remote work showed us how efficient matching and collaboration could be when eliminating the cost of physical space. Not just rent, but the cost of walking to a meeting, or commuting to the office, or finding that person you need to speak to. And yes, also the cost of not meeting or hiring anyone who doesn't live in the same metro area.

As Luis Bettencourt points out, cities are social networks that aim to enable their nodes to interact at the highest possible speed. This is because the returns on those interactions are superlinear and thus very productive. By superlinear, I refer to the fact that every new person added to a city makes it X times more productive: Increasing the population by 1% results in more than 1% increase in productivity and innovation.

In a way, this argument shows why remote work is so attractive. It enables a firm to instantly increase its talent pool by tens of millions of people. But this argument also reminds us why cities still have so much potential. Over the past decades, many cities have become worst at doing what cities do best. Instead of helping increase the speed of interactions, cities reduced that speed. They did so by encouraging more traffic, neglecting public transport, by forcing more people to live farther away (due to a lack of new construction or regulation that slows down and drives up the cost of development).

This was particularly true in the most prosperous cities such as New York and San Francisco and, to a lesser extent, London. Cities were doing so well that they started taking their residents — and their potential residents — for granted.

At the same time, society took cities for granted. We assumed that they were what they were and that we couldn't hope for them to be much better. They were already much more productive than the alternatives, so we assumed that's as good as it gets. But remote work showed us that the information flow within networks of people could be even faster and lead to even higher productivity. This was not proof that we need fewer cities. It was proof that we need bigger cities that accommodate more people and allow them to move faster and interact more intensively.

Over the next few decades, some cities will become more valuable than ever. These will be the cities that figured out how to increase their size and speed up the movement of people within their metro area. Cities should not fight (or give up on) the internet. They should figure out a way to fit into it, to become super-nodes in a connected world. They need to speed up and scale up. Then, many other firms will follow A16Z  — they’ll move to the cloud and open multiple new offices.