Steven Pearlstein: Steering the region from .gov to .com

Local economic boosters love to remind anyone who will listen that the Washington region boasts the greatest concentration of technical or knowledge workers in the country. The implication, of course, is that we’re right out there on the technological edge alongside Silicon Valley, Austin and Boston.

It makes for a wonderful marketing story, but it’s fundamentally misleading. What the numbers don’t tell you is that almost all of this high-tech work is done for the government — and therein is the problem. For even with this impressive ecosystem of firms, workers and advanced technology, the region hasn’t yet spawned a critical mass of companies providing technology products and services for consumers and private businesses.

Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.

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There was a brief moment, in the mid- to late ’90s, when the commercial tech sector looked like it might be taking off, with hot, fast-growing companies such as AOL, MicroStrategy, Nextel and scores of other entrepreneurial startups supported by a burgeoning network of venture capitalists. But as a result of failed mergers and the dot-com bust of 2000, most of that faded away, along with the commercial-tech sector’s momentum and swagger.

Very little was made of this disappointment during the ensuing decade, if for no other reason than the government-contracting sector was growing so fast it didn’t seem to matter. Now that the region faces the prospect of a decade-long decline in federal spending, however, it has taken on some urgency.

That doesn’t mean that the Washington region can never develop a thriving commercial-tech sector — as I’ll explain in a moment, we can and must. The challenge is that we’ll have to do it with different companies and different workers operating in a different business culture.

The reality is that firms and workers that thrive in a government-contracting environment are almost antithetical to the ones developing new apps for the iPhone or even a new database-management system for Macy’s. The customer base, the timelines, the marketing, the skill sets, the way products are priced and employees are paid — they’re all quite different. As former Lockheed chairman Norm Augustine used to quip, the history of “diversification” by government contractors is unblemished by success.

You can feel the difference in the two cultures the minute you step into any of the District offices of LivingSocial, the daily deal site that has become one of the hottest tech startups in the country, with 5,000 employees and $175 million in fresh funding in its coffers. Everything about LivingSocial is young, hip, playful, full of entrepreneurial energy and possibility, which is to say it feels nothing at all like walking into Booz Allen in Tysons Corner.

Not surprisingly, LivingSocial has its roots in the Washington of the dot-com bubble. Its founders, Tim O’Shaughnessy and Val Aleksenko, were barely out of college back then, but they got their start, along with some of their initial funding, from Revolution, a local entrepreneurial hothouse founded by former AOL executives Steve Case, Ted Leonsis and Donn Davis.