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Why An E-Commerce Wonderboy Has Bet On Las Vegas As The Next Tech Mecca

Tony Hsieh, the founder of e-commerce powerhouse Zappos, is moving his 2,000 staffers to Sin City. Can he help seduce Vegas with new economy dreams?

Why An E-Commerce Wonderboy Has Bet On Las Vegas As The Next Tech Mecca
Irmela Schwab

LAS VEGAS - The once colorful facades of the Fremont Hotel & Casino in downtown Las Vegas have faded.

Some homeless people are silently drinking coffee near the entrance. Hunkering down in threadbare down jackets and wooly mufflers, they seek shelter from the wind that whistles around buildings and rattles power cables. A traffic light blinks.

"Alcohol is good for you," says a Fremont poster depicting a nurse who’s fallen into a giant martini.

In the 1950s, the Fremont, with its 155 hotel rooms, was the biggest building in the entire state of Nevada. Those were the days when Vegas was just establishing the reputation for gambling that later made it famous. Money lenders, gangsters, prostitutes, Hollywood stars all gathered here back then, but today there are only a few tourists on Fremont Street and in the casinos.

The hot ticket is about a half hour away by car, at city’s edge, in glittering palaces like the Bellagio and the MGM Grand Hotel, which has 40 times as many beds as the Fremont.

Downtown Las Vegas is now something of a wasteland. The old City Hall, built as a showcase in the 1960s, stands desolate and alone; the administration buildings that used to surround it have been demolished.

But next autumn, it will have new occupants: Tony Hsieh, boss of the online-merchandiser Zappos, and 2,000 staffers. By the end of 2013 Hsieh will have set up his company’s headquarters here. "The idea came to me one night after I’d had a few drinks," says the 39-year-old, who’s wearing his favorite outfit: jeans with a blue T-shirt bearing the Zappos logo.

But the Harvard-educated computer scientist likes to think big. He knows about e-commerce, and raising the necessary capital is most certainly not an issue. In 1999, at just 24, he sold his first company, Linkexchange, to Microsoft for $265 million. Since then he’s been turning the online clothing and shoe business on its head, and Zappos was acquired by Amazon in 2009.

About his relocation to Vegas, he says: "People will be drawn here, even if it’s just to see the changes.” Because change – big change – is in the air this year for Las Vegas and its self-appointed urban planner, Tony Hsieh.

Hsieh is using $350 million of his own money, to fix up the neighborhood around the old City Hall. He’s budgeted $200 million for buildings, and $100 million for schools, restaurants, and small service providers.

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(photo: Tony Hsieh)

The remaining $50 million goes to the Vegas Tech Fund that he created with a handful of partners and Zappos colleagues to realize his idea of utopia in the middle of the Nevada desert.

The money will be used to be used to fund technology and design companies – successful ones, it goes without saying – because something else Hsieh wants to see rise up out of the ruins of old downtown Vegas is a model city for start-ups, a kind of art campus without borders where notions of “job,” “work,” and “leisure time” all fuse together. And Hsieh isn’t stopping there – he sees the model taking on international viability.

Bright lights big city

Hsieh calls his Las Vegas revitalization project the Downtown Project, or DTP for short. He’ll be able to supervise construction work on the semi-circle-shaped old City Hall from his 23rd floor apartment in the Ogden residential complex – and he doesn’t need a telescope to do it, because it’s only about 100 meters away. He’ll also be able to watch the eateries, boutiques, bakeries and other businesses he wants to see going up on the empty lots that used to house pawnshops and branches of Bank of America.

Just a few minutes’ walking distance from Hsieh’s apartment, in a dark bar on Fremont Street, a couple of people sit working at their laptops. Work stops when the first drinks are served at 5 p.m. A door separates the office-bar from Coterie, a newly opened fashion boutique. In this former casino, designer clothing hangs in the spaces between what used to be tellers’ booths. T-shirts, slacks and sweaters are attractively arranged on tables covered – in tribute to the building’s heritage – with the kind of green felt used for poker tables.

Under bright lights in the back room sits Tony Hsieh’s right-hand man – Zach Ware. He’s the one who put together the 25-head DTP team, which acts as a kind of advance command unit. At Zappos, Ware used to be the head of product management, but now he’s proud not to have a job title anymore, he says. His business card reads: Zach Ware, Zappos, No Title.

Ware believes that as far as hiring is concerned a potential candidate’s passion is better than intelligence and know-how – he would rather hire somebody he likes than somebody with the “perfect” CV. The principle explains the success of Zappos – a billion dollar company – he says (although he does not provide answers when questioned about how that success translates into turnover, profits, salaries), and it will allow Vegas to blossom again, to become another Silicon Valley. Silicon Valley was also based on a new concept, he points out.

In his apartment Hsieh lives out the concept of his own Silicon Valley. In the open kitchen there are empty bottles from the previous evening’s festivities – he let Adobe use the place to host some illustrious guests from the tech scene. By the front door there is a board full of Post-Its, on which team members have noted their wishes that are then voted on in a democratic process. Dog minders just got approved; Thai massage and an Indian restaurant are on the back burner for the time being.

Is doggie day-care enough to get people to move to barren Vegas? Hsieh’s idea of a technology utopia is awakening cautious interest. Last year, 10 start-ups moved to the old downtown. One of the companies is Wedgies, a provider of real-time social polls that has received $500,000 worth of financing from the Vegas Tech Fund.

Once a week, DTP founders meet with all other interested parties in the Tech Library that has been set up in a former medical building. In what were formerly doctors’ offices, artists showcase their work. On the ground floor is a coffee shop where Tony Hsieh conducts his business meetings.

Hsieh describes himself as a people person who prefers to work with friends. He’s written a book about how to be happy and successful, called Delivering Happiness. Yet the man who’s investing over a quarter of a billion dollars in Las Vegas is also a shrewd calculator. Behind the idea of a city full of hungry young entrepreneurs lurks the expectation that at some point rents and the price of real estate will go up. He may be in Vegas, but one thing Tony Hsieh is not - a gambler.

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