Listen to this article
Earlier this year, Marcelo Vergara, an app developer in downtown Kansas City, Missouri, lost two members of staff, fired the company that maintains his servers and started hunting for smaller premises. It might sound as if his company, Propaganda3, is in trouble, but all he has done is change his internet provider — to Google.
Rather than storing his work on racks of hard drives, he now keeps the company’s current project — an interactive book for children called Kung Fu Robot — on online storage services such as Dropbox. Whereas uploading large files once took hours or even days, now the transfers are measured in minutes. “I used to pay a guy $200 every month to manage my servers. After a week of waiting, I went completely to the cloud.”
Vergara has benefited from living in “Google Town” — otherwise known as the Kansas City metro area — the place that the world’s largest search engine picked to build a super-fast broadband network, Google Fiber, in 2011. Google started signing up companies like Propaganda3 to a corporate version of its broadband service at the end of 2014, having initially focused its efforts on the domestic market. The speeds on offer to consumers and businesses — 1,000 megabits per second — are about 100 times faster than the quickest connections typically available in the US.
Google’s service also costs a fraction of what other internet providers charge small businesses: $100 a month compared to a typical $700. Along with a much lower electricity bill, a result of dumping all those servers, Vergara estimates his monthly outgoings have gone down by at least $1,000, and will fall further when he swaps his oversized offices for something smaller. “Everyone laughs at the cost,” says Vergara of Google’s pricing. “They must be losing money hand over fist. But I suppose you have to look at the derivative benefit: they know a lot more about us that they didn’t know before.”
Vergara’s belief that Google Fiber is really a vehicle to collect personal information is widely held in Kansas City. The company, however, offers a different explanation. America’s internet infrastructure, like its railways and bridges, lags behind the rest of the developed world: prices are higher, speeds are slower and 73 per cent of households have broadband, compared to 88 per cent in Germany and the UK.
This pitiful state in its domestic market poses a big problem for Google, given that it makes most of its money by selling online advertising. By building an experimental network, the Silicon Valley stalwart intended to show how things should be done.
Having laid roughly 10,000 miles of fibre, Google is almost done here, but its ambitions have grown. What started as an experiment in the Midwest has morphed into a much larger project. Google Fiber is now available in Austin, Texas and Provo, Utah and there are plans to take it to 18 more cities. It has not said if, or when, it is going to stop.
If Google hopes to build its network across the US, then Kansas City was a good place to start. It is a miniature version of the country, with an economy that mirrors the nation as a whole. Most people work in soft jobs such as education, healthcare and retail. No single sector dominates: this is not a North Dakota shale town or a finance city like New York.
Although many US cities can claim to be divided, there are few where the separation is so literal. The Kansas City metro area is made up of two distinct cities that share a name but have their own legislatures and mayors. The first incorporated in Missouri in 1853, the second in Kansas two decades later. There is a fierce rivalry dating from the civil war.
When Google ran a competition to decide which city would get Google Fiber, nearby Topeka renamed itself Google, while in Sarasota, Florida the mayor tried to win publicity by diving into a shark tank. Yet it was the two Kansas Cities — which together form America’s 30th largest metropolitan area with a population of 2.1 million — that submitted the winning bid in a rare moment of co-operation.
Google is not the only one to have spotted the location’s appeal. Christopher Ayala, a former attorney in private equity and the oil industry, says Kansas City was an ideal place to develop Alcohoot, a start-up that makes digital breathalysers that plug into smartphones. He temporarily relocated there from New York, lured by an “accelerator” programme that makes $120,000 investments in promising young companies that move to the area.
Ayala is returning to the east coast now his accelerator year is over but he has decided to open a local office in Kansas City. “It’s a good base measurement of the entire nation: big corporations, small ‘mom-and-pops’; old wealth, new wealth; a broken education system; and big sports teams. For building a business that you would want to roll out nationally, testing in this community is pretty compelling.”
As Google prepares to move on, the town is under intense scrutiny. Many politicians in other parts of the country hope the arrival of Google Fiber across “fly-over” America will be as important as the railroads of the 19th and 20th centuries, helping the country build a durable, digital economy that can offset years of decline in industry and agriculture.
But the project has not been without problems. If Kansas City’s economy mirrors America, then so too do its racial and economic divisions. Some local politicians think a digital renaissance in the city has excluded those who miss out all too often in the US.
When Google Fiber first started hooking up people in Kansas City in 2012, the service was only available to residential customers — much to the frustration of technology start-ups who wanted to access the new speeds. Ben Barreth, a local software engineer, came up with a plan that would “use some of our natural assets, like good old Midwestern hospitality, to get businesses hooked up”.
First he tried to convince volunteers to donate their spare rooms to start-up entrepreneurs. Though he signed up six willing families, all of them lived in areas that would not get Google Fiber for at least a year. So Barreth pitched what he admits was a crazy idea to his wife: “‘What if we just bought a house and put start-ups in it?’”
Within days they found themselves looking at houses in Spring Valley, an area that was about to become Kansas City’s first ever Google “fiberhood”. Soon they had put in an offer on a five-bedroom house for $50,000. They hoped to fund the deposit with their savings, covering the mortgage payments by renting one room at the going rate, and giving the others away for free to promising start-ups. When the mortgage company asked for more collateral, Barreth cashed in his retirement account.
A few weeks later, he went to a tech conference in Iowa to talk about his “hacker house” and bumped into Brad Feld, a venture capitalist based in Colorado. Feld, an early investor in Fitbit, was enthused by the scheme and asked if there was anything he could do to help. In 2013, he too bought a house, directly behind Barreth’s.
Feld’s house has a different model. Rather than giving the rooms to individual entrepreneurs, he runs an annual competition for established start-ups: the winner can use it as their headquarters, rent-free, for 12 months. Now the Kansas City start-up village has grown to include more than a dozen properties, housing 25 companies with about 80 employees. Once an area known for its antique shops, it has become a technological kibbutz.
The outgoing tenant in the Feld House is Leap2, a company that is building a search engine. Inside, the house has none of the pseudo-industrial chic that is so often the backdrop for tech start-ups. The blinds are permanently drawn, and the only decoration is posters for the KC Royals, the local baseball team, and some dead potted plants.
“My friends in San Francisco and New York say they don’t see how I can do this from Kansas City,” says Mike Farmer, Leap2’s boss, who ticks all the boxes for a start-up entrepreneur: check shirt, Nike trainers, a neat beard. “But I don’t see how they can get anything done. They’re just trend chasing.”
He describes the collection of houses as the modern equivalent of the Californian garages that once provided accommodation for some of the biggest names in technology. “If you think about Hewlett-Packard and Apple, they were the start-up in the garage. But Steve Jobs and Steve Wozniak were a hardware play, so they didn’t have to have speed. This is the same but for digital start-ups.”
For all his positivity, there are clearly things about being in Kansas City that rankle. Entrepreneurs here struggle to raise money: he identifies two competitors in New York who have secured $36m between them, while Leap2 has raised $3m. The dearth of cash is exacerbated by a cultural problem: the same Kansas City hospitality that made the start-up village possible in the first place. Everyone from clients to partners finds it difficult to criticise and complain. “New York is no bullshit. People will just say no,” says Farmer. “But here it’s a slow no-go. It’s a cultural Midwestern thing. Overly polite. Never calling it like it is.”
Farmer met his wife Bridget in Washington DC, before moving to San Francisco and then New York. When she became pregnant, they moved to Kansas City for its “green spaces and good quality of life”, she says. They live in an upscale suburb built in the 1920s by Jesse Clyde Nichols, a developer who had a big influence on US suburban housing. Although the restrictive covenants once used by Nichols to keep out African-American families are no longer in place, the houses are still occupied almost exclusively by white families, as are the local private schools where most people send their children.
That night the start-ups gather for a party to celebrate the opening of a new “village square”, part community town hall, part co-working space. People are drinking craft beer and eating barbecued pulled-pork buns. The crowd is mostly male, exclusively white and quite drunk. It feels like a party for ageing, well-behaved frat boys.
But listen harder and you hear a different language. These are not conversations but “collisions”. Every interaction is a chance to discuss new ideas, swap Twitter handles and broker introductions. They speak in hallowed tones about “unicorns” — start-ups such as Uber with valuations of over $1bn — and pepper their talk with the first names of their own celebrity stars, such as Mark [Zuckerberg, of Facebook] and Larry [Page, co-founder of Google].
The standard party question, “What do you do?” has been replaced by “What is your start-up?” Everyone has at least one, some more. Jason Grill, a former attorney, runs an online sock shop. “I don’t earn a salary. There are good months and bad months. But it would be way harder if I worked in New York.” Kansas City residents are always comparing the town to New York and Silicon Valley, extolling, above all, the cheap cost of living.
City leaders say they want it to become the most entrepreneurial town in America, estimating that 120 start-ups have come as a result of Google Fiber. Yet as I chat to people, I wonder just how real it all is. In Kansas City, where the living is easy and cheap, the cost of failure is low. Many of the start-ups sound credible but some seem like little more than hobbies, their founders supplementing income with casual work in bars and restaurants.
There is one guest I do not expect to see at the party: Jane Vogl. She is clutching a cup of beer and looking rather sheepish. Just a few nights ago she was standing in Kansas City town hall, launching her bid to have the start-up village closed down. I first met her at the monthly meeting of the local planning commission, where she was trying to convince officials to revoke the permits the start-up village needs to run businesses out of residential homes. If she had been successful, houses like Feld’s and Barreth’s would have had to shut down and their tenants forced to move to more expensive commercial accommodation, which many say they would be unable to afford.
She cut a lonely figure at that meeting, her green fleece upstaged by the red T-shirts worn by the 20 or so entrepreneurs who turned up to defend themselves. She approached the lectern clutching a yellow carrier bag stuffed full of petitions. Sixty-six Spring Valley residents had signed them, their chief concern being a lack of parking spaces, an unsurprising complaint in a town where the car is king. Yet their comments also showed a mistrust of “outsiders”, as well as resentment that some entrepreneurs use houses for cheap office space while raising their families in more salubrious parts of town.
The planning commission ruled against Vogl, continuing the council’s long-held support for the start-up village. Afterwards, I overheard one of the entrepreneurs dismissing the complainants as “lower-middle-class people looking for a scapegoat for change”.
The following evening, Vogl invites me to join her as she takes her dog for a walk around Spring Valley. There is a chill in the air now the sun has gone. It seems odd that this quiet neighbourhood, with its modest, higgledy-piggledy houses, should become a flashpoint in Google’s big experiment.
Away from the formality of the town hall, Vogl, an administrator at the local university, is more confident, with a sharp tongue and dry wit. “They treat us like we’re on food stamps, like we’re poorly educated,” Vogl says of some entrepreneurs in the start-up village. “There is this idea that has taken hold that we’re a poorer lower-middle-income area, which they’ve raised up somehow, so it is not rundown. Many in the neighbourhood disagree.”
She is scathing about the “really wealthy” people who commute from Johnson County, a nearby suburb that is one of the richest places in the US. “Their business model is to buy a house for less than $100,000 and to use it for a business. It’s dirt-cheap commercial rent at the expense of our lives. This would never happen in Johnson County.”
The real dividing line in all of this, though, is Troost Avenue, once the border for purposes of racial segregation: whites to the left, African-Americans to the right. Spanking clean streets populated by yoga studios and upscale brunch spots give way, suddenly, to potholed roads and urban blight.
Leroy, who’d rather not give his last name, sits on his porch drinking a beer in the midday sun. He spent 42 years working at a hide house, stripping the skin and fat from dead cattle. He has no retirement fund and struggles to pay his gas bill. “This used to be a town like any other,” he says, gesturing to a row of boarded-up shops where there was once a dry cleaner, a butchers and a barbecue joint. “Now it is like the wild, wild west.”
It changed almost overnight, he says, following two days of rioting in 1968. The violence was sparked by a heavy-handed police response to a peaceful march against the school district’s refusal to let pupils have the day off for Martin Luther King’s funeral. “They sent the National Guard in. It never really recovered.” The tale of racial division in Kansas City is depressingly familiar. Desegregation prompted “white flight”, then an exodus of middle-class black families, who left behind low-income manufacturing workers. The subsequent decline of heavy industry led to high unemployment, a spike in crime and drug problems.
It is a story shared by countless nearby towns. Ferguson, famous for the police shooting of an unarmed African-American teenager last year, is a three-hour drive away. Even now, the schools in Kansas City, Missouri, are effectively segregated, with almost all white children at private schools. Just nine per cent of pupils in the state system are white. Almost 90 per cent are on free lunches.
In the past 20 years, a new inequality has emerged, a “digital divide”. One in four Kansas City families do not have access to the internet. When Google started building its network, narrowing the gap was one of its objectives. “The project is about making the web better and faster — but it’s also about making the internet more accessible for people throughout Kansas City. Digital inclusion here is a priority for Google,” said Kenneth Carter in 2012, when he worked as a policy counsel at the company. But there is little evidence Google Fiber has closed the gap, and some early research suggests it could be entrenching existing inequalities.
The company offers two packages: a super-fast 1-gigabit service for $70 a month and a slower 5-megabit option that costs $300 upfront or $25-a-month for a year, after which it is free for seven years. But a recent survey of low-income neighbourhoods in Kansas City, Missouri found only 10 per cent of residents subscribe to the fast service while 5 per cent take the slower one. It also found that in middle- and higher-income neighbourhoods, 42 per cent take the fast package, while 11 per cent are signed up for the slower version.
Part of the problem is that Google has built its broadband network in an unconventional way. To control costs, it has only laid its fibre cables in areas where there has been sufficient demand. If enough households subscribe during sign-up drives known as “Fiberhood rallies”, the company will take the network to their neighbourhood. Those who do not sign up in time miss out.
Margaret May is a community organiser in Ivanhoe, a neighbourhood where four out of 10 households do not have a computer and where the median income is roughly $20,000. “When Google Fiber came to town, we were determined to meet the goal.” But she says she had problems convincing residents to part with a $10 sign-up fee, let alone the $300 installation fee. “A very kind person donated $500, so we went door-to-door and signed up the last 50 houses we needed. But it wasn’t easy.” May worries about families who missed out. “We are entering a world where all information is going via the internet, and there are people who don’t know anything about it. It’s just another level of illiteracy. I’m concerned people will be left out.”
In February, local Congressman Emanuel Cleaver sent a letter to Larry Page, co-founder of Google, warning that “preliminary statistics [for Google Fiber] suggest the beginning of a ‘digital redlining’ in our city”. A month later, the company reopened sign-ups in Kansas City. Google says about 96 per cent of neighbourhoods did meet the sign-up goal. It says in many poorer areas, it convinced families who had never had a broadband connection to sign up for the first time. It has also announced plans to expand its digital outreach programmes.
Michael Liimatta, a pastor turned internet evangelist who runs Connecting for Good, a charity that tries to close the digital divide, says it was folly to think Google would offer a quick fix: “There is a history of more than 100 years of racial segregation in this town. So when Google Fiber came and others started talking about a sea change, we knew it was dreaming.” Liimatta says Google has been generous to his charity, donating money and computers. Yet he also says the service is unattractive to people on low incomes. The cheaper product is good value over the long term but it cannot be taken with you if you move; so signing up makes little sense in the poorest areas, where 40 per cent of families switch homes before the year is out.
Liimatta tried to convince Google to install connections in community buildings, to power a cheap WiFi service in low-income areas. The company refused, saying it violated its terms of service. “It’s our biggest disappointment. We would have loved to have taken Google Fiber to the worst places, where it could have really made a difference.”
I follow Liimatta’s green pick-up truck to the Connecting for Good headquarters, housed in a former strip joint. It is 3pm and the computer room is full of children just finished school. A seven-year-old boy says he comes every Wednesday to play games because he does not have a computer at home. His sister, 15, is doing her history homework. In a computer class for adults, I meet Donald Sease, who has dropped in to buy one of the computers the charity refurbishes and sells for $75. He is an avid reader of The New York Times Magazine and of Frederick Douglass, the 19th-century abolitionist. “I’m learning computer skills because I want to write a book one day. You get a computer, and you can find out the things to better yourself.”
Carol Myers, a volunteer teacher, offers a list of more prosaic things now done almost exclusively online: applying for security benefits, house-hunting, comparing prices. She recalls one woman who used to walk several miles to a cheap supermarket and take a circuitous bus route home. “I’ll never forget her face when she learnt how to get groceries online, and that delivery was less than the bus fare.”
In the corner there is a Google Fiber stand, staffed by two young, good-looking sales reps. They are here as part of the company’s attempt to reach out to the disadvantaged but they look deeply out of place, avoiding eye contact with the students and furiously tapping away on their laptops. They are wearing matching grey hoodies and New Balance trainers, a pair of which costs more than twice the price of Sease’s new computer. “They don’t look very comfortable, do they?” quips Liimatta. No they do not. Not at all.
David Crow is the FT’s senior US business correspondent
Photographs: Terry Ratzlaff