November 20, 2001

Cities Online: Urban Development and the Internet

Part 4: Cleveland

Introduction

Cleveland, though not known as a hotbed of Internet activity, is taking some innovative approaches to using the Internet for economic and social purposes.  Most prominently, the city is using approximately $3 million in revenue from cable fees to subsidize Internet access and computer training through community development corporations (CDCs).  A number of CDCs have provided Internet access in low-income neighborhoods for several years, so an infrastructure exists for putting that money to use.  Additionally, providers of affordable housing are starting to use the Internet to improve service and to promote Internet access among residents. 

Economically, Cleveland is not as entrepreneurial as other cities when it comes to dot-com start-ups; its economy has traditionally been dominated by large manufacturing firms.  But the Cleveland area sees a great opportunity in the New Economy in using the Internet for business-to-business electronic commerce.  Cleveland’s business leaders believe the city can exploit its knowledge of manufacturing to develop ecommerce business plans that address inefficiencies in manufacturing operations. 

Two other factors bode well for Cleveland in the New Economy: software and bandwidth.  Cleveland has a surprisingly strong cluster of software developers, with over 2,000 software companies in the region. The Northeast Ohio Software Association (NEOSA) has 325 members, and the Cleveland Area Growth Association has identified software as one of the keys to the region’s economic future.  As for bandwith, Cleveland’s abundance has taken city leaders almost by surprise.  Because major railroads run through Cleveland, and because railroad rights-of-way are used to run fiber cable, an enormous amount of bandwidth runs through the city.  This has led to the growth of a number of “telehotels” in Cleveland–buildings that house telecommunications switching equipment linking the customers of telecom providers to high-speed data transmission infrastructure.  The presence of bandwidth presents an economic opportunity to attract firms that need high-speed links, although as in Portland there have been concerns about the impact of telehotels on Cleveland’s downtown. 

The Internet and the Community

Cleveland has a long history of using the Internet for community purposes.  The National Telecomputing Public Network, a movement designed to provide free dial-up access to online resources, got its start in Cleveland, and the Cleveland Free-Net was founded in 1986, well before the Worldwide Web.  At its height, 10,000 people used the Free-Net, which was run by Cleveland State University.  The Cleveland Free-Net closed in 1999 because the cost of making it Y2K compliant made its continued existence unfeasible.  Although it never developed a critical mass of community content or made strong inroads into the low-income community, it provided email access to many people who otherwise would not have had it.  Many of these individuals later became active in today’s community computing activism in Cleveland.

Cleveland currently has several initiatives aimed at providing Internet access to the low-income community and improving the computing capacity of nonprofits.  In 1994, a settlement in a regulatory case before the Public Utility Commission of Ohio required the local Bell operating company, Ameritech, to provide funds for community access to the Internet.  This set in motion two major efforts to put the Internet to use for the low-income community.  First was networking nonprofit organizations in Cleveland that provide services to low-income people.  The second was providing computer and Internet access and training directly to low-income individuals.

i. Wiring Nonprofits

Neighborhood Link, operated out of Cleveland State University, is a partnership of Cleveland State, the City of Cleveland, the Cleveland Public Library, the Neighborhood Centers Association, and Ameritech.  The goal of Neighborhood Link is to promote economic growth in Cleveland through communitywide access to government information and through enhancing the delivery of government and social services.  One of its priorities is connecting community development corporations to the Internet. As of mid-1999, only about 15 percent of CDCs in Cleveland had Internet access, and frequently there was only one email address for the entire staff.   Equipment was of poor quality and CDCs had little technical support for training and troubleshooting. 

The preeminent program to link Cleveland’s 49 CDCs is the T2K initiative, located at www.T2K.org on the Web, which links CDCs to potential funders and helps improve service delivery to clients.  A wide range of partners beyond Neighborhood Link, including The Enterprise Foundation and the Cleveland Housing Network, drives T2K.  Half of the funding for the development of T2K came from a 1999 grant of $525,000 from the U.S. Department of Commerce’s Technology Opportunities Program (TOP).  T2K software is designed to provide a one-stop shopping screen for social service providers in determining which services are available for their clients, and T2K also tracks affordable housing inventory. Because pictures of housing units are posted, social workers can discern whether they are suitable to clients’ needs.  The T2K software also allows affordable housing providers to update the housing database.  Housing providers have every incentive to do this, since promptly removing a filled listing reduces unwanted phone calls and posting new listings gets a paying tenant into the unit quickly.

A final benefit of T2K is easing reporting by community organizations to funders.  Many CDCs in Cleveland receive federal funding from the Community Development Block Grant (CDBG) program.  Reporting to city officials granting CDBG funds can be burdensome, so automating it online can save significant time for CDCs.

One CDC in Cleveland, the Westtown CDC, received a grant from the Enterprise Foundation two years ago and has added computers for staff, thus improving operating efficiencies:  Westtown can now train staff online and look for funding more easily.  The Internet also allows Westtown to find low-interest loans for housing rehabilitation.  Another benefit of the Internet for nonprofits is institutional memory.  CDCs often have high staff turnover, and archiving case histories and common forms can help new staff get up to speed quickly.  As Westtown CDC director Lou Tisler put it, CDCs generally have been under pressure to operate in a more business-like fashion in recent years, and Internet access is part of the drive for tighter internal management practices.

ii. The Internet in Low-Income Neighborhoods

Like most cities, Cleveland has a well-developed system of public access points for the Internet.  Between CDCs and access points in the library system, there are approximately 150 computers with Internet access publicly available throughout the city.  However, mere access to the Internet is usually not thought to be sufficient in encouraging extensive Internet use, particularly in low-income neighborhoods.  Models for rolling out the Internet to the underserved remain unsettled around the country. 

In Cleveland, Bill Callahan of the West Side CDC is the most prominent community-computing activist, and he has clear ideas about the Internet’s role in a community. The explicit goals behind his programs are to increase community activism, provide greater economic opportunity for individuals, and improve communication within his community.  Callahan proceeds from the premise that there is no reason to think that low-income people learn about the Internet any differently from higher-income people.  The latter might have first gotten Internet access at work or at a university.  Low-income people learn about the Internet from family and friends and, most important, must have a good reason to go online. 

Although Callahan hopes that Internet access will eventually lead to community activism, his immediate goal is to provide job skills.  Some of this involves formal training, but Callahan believes that making the Internet part of the fabric of the community is necessary as well.  In the Stockyards neighborhood, people tinker with cars; it is a social phenomenon, as people gather together to fix up an old car.  It is also an economic phenomenon, as the neighborhood’s informal economy revolves around lots of car “fix it” businesses that bring in extra cash. Callahan wants people to be as comfortable going online as they are with opening the hood of their car; by giving people enough training, he hopes to foster a culture of computer tinkering in the Stockyards. Callahan was the “community help desk” when he introduced computers to his community center five years ago; people with home computers turned to him because they felt he was the most knowledgeable person around.  Today, residents know of several other people they can turn to for technical help.

At the Westtown Community Development Corporation, computers have been part of the mission for the past 18 months.  According to Westtown CDC Director Lou Tisler, it has been slow going.  The neighborhood is largely elderly and working class; some people—often older ones—are afraid of the technology, and others, often younger, simply do not see why the Internet and computers are important to them.  But as Westtown has obtained more computers, interest has grown.  Computer and Internet training are available, and at least one person nearby runs a Web design business out of his home. In 2001, Tisler hopes to expand Westtown’s after-school computer program for kids and build upon a small core of highly engaged senior citizens who use the Internet.

Asked how the Internet has affected their communities, Callahan and Tisler said it has brought new people into their community centers.  This, in turn, has fostered new relationships.  Many people exhibit genuine excitement about the Internet and some are using it to make extra money, although Callahan emphasizes that a key goal is to have people certified in programming or computer repair to permanently increase their employment prospects.  Some of the early Internet activities in Cleveland neighborhoods amount to people emailing their neighbors.  But, says Callahan, anything that increases communication among people in the neighborhood is bound to be beneficial. 

iii. The Digital Vision Coalition

In October 2000, the Cleveland City Council took action to address the issue of long-term funding for community computing projects in Cleveland.  Adelphia Communications’ acquisition of Cablevision Systems, which had been the main cable operator in Cleveland, required the transfer of the city-granted franchise from Cablevision to Adelphia.  Under the terms of the transfer, Adelphia will donate $5.5 million to the City, $1 million for the city channel that broadcast council and other public meetings, $1.5 million to a minority affairs station, and $3 million for computer access centers.  According to Michael O’Malley, the council member who took the lead on the computer access provision, Callahan’s West Side Community Computer Center is the model for programs to be funded under the plan.  The Cleveland Foundation will administer the $3 million fund. 

The Council’s action was the outgrowth of lobbying by Digital Vision, a group of community activists who see computer access as a way to address economic inequality. The specific proposal for channeling a portion of cable access fees to community access projects came from a conference in early 2000 that brought together community leaders and national specialists in community technology access. 

The notion of using cable franchise fees for community purposes is not unique (Servon, 1999).  However, the action is notable for Cleveland, where until recently City Hall has paid little attention to the digital divide and the Internet.  The city lacks a unified domain name for city workers’ email addresses, and department Web pages are little more than brochures and directories.  The Digital Vision coalition has stimulated new debate in the city and is in a position to build bridges between low-income neighborhoods and the traditional economic development community.  Since the success on cable fees, Digital Vision has worked with the Cleveland Growth Association (essentially the chamber of commerce) to run computer boot camps to train people without degrees for jobs in the technology sector. 

The Internet and Cleveland’s Economy

Cleveland has had few dot-com start-ups, but the city believes it is well positioned to be a smart close follower as the Internet matures.  According to a survey conducted by Ecom-Ohio, only about 15 percent of Ohio businesses had a Web site in November 1999, placing Cleveland below the national average.  As one regional business magazine put it, there is a fear in the area that “a lot of companies are turning a deaf ear to the Internet’s siren song.”  However, the past year has seen a number of initiatives to hasten Cleveland’s transition to the New Economy.  Among economic development officials, there is widespread agreement that Cleveland’s large companies finally “get it” about the reality of the New Economy. 

In particular, Cleveland sees opportunities in business-to-business electronic commerce.  Economic development officials are fond of quoting a February 2000 report from Forrester Research that says:

“Business-to-business [electronic] trade isn’t growing up in high-tech centers like Silicon Valley; it’s developing in industrial hubs like Cleveland and Detroit.  As B2B trade expands, there will be a flight of talent and venture capital money to support these efforts, leaving the coasts feeling a bit of a frost—while middle America experiences the Internet boom in 2001.”

With intimate knowledge of manufacturing systems and where their inefficiencies are, Cleveland foresees developing a cluster of ecommerce vendors to serve large manufacturers such as Eaton, TRW, and Ford.  Between “entrepreneur boot camps,” establishment of networks of angel financiers for start-ups, technology incubators, and telehotels, Cleveland is optimistically playing catch-up in the New Economy.

i. Creating an Entrepreneurial Environment

Cleveland’s strategy in adapting to the New Economy centers on exploiting its existing economic assets and improving the climate for business start-ups.  At a conference at Case Western Reserve University in early 1999, economic development officials and representatives from the private sector acknowledged that Cleveland has lagged behind the national norm in many measures of the New Economy.  When it comes to initial public offerings (IPOs), Cleveland ranked 18th nationally from 1988 to 1996, compared with its population rank of 14th, and only one of the thirty-nine IPOs was related to the computer industry.  Moreover, the Cleveland-Akron area ranks below the national average in educational attainment.  While there are prestigious universities in the area and throughout the state, Cleveland has a difficult time keeping young brains at home.  A challenge to reversing these trends is the state’s fragmented civic leadership; as Roderick Chu, the chancellor of Ohio State University, observed “there is no state of Ohio” that might move in concert to facilitate economic change.

Notwithstanding these statewide issues, leaders of Cleveland’s business community are searching for ways to promote greater entrepreneurial spirit in the region.  One initiative is the Seed Capital Initiative spearheaded by the Northeast Ohio Software Association (NEOSA).  The objective is to bring wealthy individuals in the Cleveland area interested in investing in start-ups together with New Economy entrepreneurs looking for funding.  A challenge to this sort of matchmaking is the gulf between established wealth and New Economy businesspeople.  Much of Cleveland’s wealth has come from manufacturing tangible goods; people in this sector are more inclined to invest in businesses they understand, not dot.com start-ups whose business models are radically different from their business experience.  Boake Sells, former head of the Revco drugstore chain, has invested in several dot.com start-ups, but he says he is hesitant to invest when business plans are sent to him because he lacks expertise in assessing them (Crain’s, May 15-21, 2000).  Sells acknowledges that there is not yet a critical mass of angel investors for the New Economy in Cleveland.  Angel networks usually build on the success of a few highly successful start-ups; absent those successes, it is difficult to set the investment cycle in motion.

In addition to the Seed Capital Initiative, NEOSA has sponsored an “EntrepreNerd Boot Camp” to give potential entrepreneurs the tools to bring technology ideas to the market.  Entrepreneurs often do not have the business skills to match their technical prowess, and the boot camp provides information on how to develop a business plan, how to manage a growing business, how to develop partnerships with other businesses, and where to find capital to start the business. NEOSA also sponsors a regular happy hour open to interested businesspeople.  The monthly “Tech Thursday” gathering is supplemented by a monthly “New Horizons” breakfast meeting that is devoted to specific topics, such sales and marketing for start-up firms.

NEOSA is not the sole focal point for entrepreneurial promotion in northeast Ohio.  In Lorain County, just west of Cleveland and part of the metro area, the Lorain County Community College (LCCC) has established a technology incubator that college officials hope will serve as the county’s presence in the New Economy.  Lorain County’s “Digital Economy Task Force” is chaired by LCCC’s president Roy Church, and the Great Lakes Technology Park will provide a place to nurture business ideas while also providing job opportunities for LCCC students.  LCCC has invested $6 million in an engineering, training, and development center for faculty and students.  The technology park will be a 57-acre site south of the college to house emerging information technology businesses.  At any given time, the incubator will house eight to ten companies, with companies moving out as they mature.

The LCCC incubator will not operate in isolation; indeed Church recognizes that such a strategy would be self-defeating.  The Great Lakes Technology Incubator will market itself jointly with NEOSA, which already has established channels to software entrepreneurs in northeast Ohio.  The incubator will also work with large companies that may have business ideas that are promising but so peripheral to their core businesses that they want to spin them off.  Because the state has well-developed economic development programs, the incubator will coordinate with state programs such as the Thomas Edison Centers.7 Finally, the incubator will link its tenants to venture capital.  This includes not only NEOSA’s seed capital initiative, but other sources around the state as well. 

A tension in Cleveland’s efforts is that the New Economy moves quickly, while the development of a region’s entrepreneurial spirit takes time and patience.  In Silicon Valley, for instance, one of the hallmarks of the region’s entrepreneurialism is a high tolerance for failure.  Whether a region dominated by fairly conservative manufacturing firms can adapt to the pace and spirit of the New Economy is an open question.  Cleveland’s efforts, while promising, would benefit from a big dot.com success to accelerate the pace of adjustment.


Box 2

Telehotels: Hubs in the Information Economy

As consumer and business demand for Internet service grows, cities are starting to be affected by the infrastructure requirements of the networks that run the Internet.  One prominent phenomenon is the telehotel, is a facility that houses switches, routers, and servers for telecommunications carriers or Internet service providers.  Telehotels are not quite on-ramps to the information superhighway; they are more like airports, which provide gates where airlines collect and discharge passengers.  Like airlines, different types of “data movers” demand different numbers of gates.  A large telecommunications carrier such as AT&T or MCI might have sufficient demand to build its own airport—a telehotel just for itself.  An Internet service provider might only need a few gates, or rooms at the telehotel, to route traffic onto high-speed trunk lines.  A dot-com that ships content over the Internet might need to rent only a small amount of space.

If not built by large telecom carriers, telehotels are frequently conceived as real estate projects.  That is, real estate developers purchase an existing office building, retrofit it to house telecommunications equipment, and then rent space to telecom carriers, ISPs, or other companies. Real estate developers are banking on the Internet axiom that data traffic will expand to fill existing bandwidth capacity.  The hope is that Internet companies, whether business-to-business or business-to-consumer, will choose to locate near telehotels, or that non-Internet firms with large data needs (e.g. financial institutions) will set up operations nearby.

Telehotels are an urban phenomenon because they need to be located near abundant bandwidth.  The reasons are technical; communication signals degrade over distance, so they need the boost a switch provides.  Telehotels also require a lot of space, buildings with high ceilings and sturdy construction, excellent cooling systems, and plentiful and reliable electric power.  Old department stores fit this bill nicely.  They are spacious, with high ceilings and wide-open floor space, and are fairly easy to retrofit as homes for communications equipment. 

While there is no established geography of telehotels yet, they are springing up in major U.S. cities such as Chicago, Boston, Los Angeles, New York, Washington, D.C., and San Francisco.  Smaller markets such as Atlanta, Baltimore, Cleveland, Phoenix, Portland, and Seattle have also experienced a surge of development.  Because telehotels put to use buildings that have sometimes been abandoned for years, many hail them as a way to revive underused buildings while serving as a magnet for New Economy firms.  Some are less sanguine, worrying that buildings filled with humming telecom equipment will populate parts of downtowns and disrupt street life with noisy electric generators. Telehotels, it is feared, will exhibit few signs of life and take up scarce office and residential space. 


ii. Cleveland’s Telehotels

One resource that has made Cleveland an attractive place for telehotels is the gold mine of bandwidth that runs through the city.  Cleveland has long been a hub for railroads, and the railroad right-of-way that passes through the city contains an enormous amount of bandwidth.   According to the Ohio Supercomputer Center, 50,500 megabits per second of bandwidth are available in Cleveland/Akron area, more than twice the combined bandwidth available in Dayton, Cincinnati, Columbus, and Toledo.  This abundance first became evident to city leaders when a fiber cable whose capacity was 40 gigabits of data was accidentally cut near Cleveland in September 1999.  The cut slowed data transmission speed dramatically between the East and West Coasts, and effectively shut down the networks of some companies and ISPs. 

Although city officials were unaware of their bounty, the private sector was not.  By early 2000 several telehotels were under development downtown, some of them in former department stores.  One of the first conversions was the May Company building, an old building near Cleveland’s Public Square.  Because of the building’s picturesque façade, the May Company conversion set off some alarms in City Hall, as there were concerns that the building’s beauty would attract attention to the fact the it lacked any commercial activity.  To address this, the Council passed an ordinance aimed at telehotels that required the first floor of downtown buildings to set aside space for retail storefronts.  Another prominent telehotel conversion is the upper eight floors of the building that houses Dillard’s Department store on Cleveland’s Public Square.  Dillard’s maintains operations on the bottom floors, so the site already complies with the Council ordinance.  Several other telecom hotels are under development in Cleveland, some downtown and one on the outskirts of the city.

As an economic development tool, officials at the Cleveland Area Growth Association see telehotels as a way to make Cleveland more attractive to New Economy firms that require bandwidth.  By themselves, however, telecom hotels have prompted some anxiety within Cleveland.  First, they do not generate many new jobs on their own; it takes a modest number of employees to keep floors of telecom and computer equipment online.  Second, telecom hotels are huge consumers of electric power, mostly to cool the buildings so the switching equipment can run properly, and onsite generators are very noisy.  Finally, there is concern over the “build it and they will come” approach to telehotel development.  Some telehotels are built on speculation; if projected demand does not occur, large buildings with idle telecom equipment may adorn the downtown.  However, if Cleveland does become a center for business-to-business ecommerce, telecom hotels will be vital infrastructure for business development.  In the meantime, long-abandoned buildings are being purchased at a premium and space is being rented out at $16 to $20 per square foot, more than the going rate of $10 to $13 for office space or $5 per square foot in industrial buildings. 

iii. Business-to-Business Ecommerce

Established manufacturers in Cleveland in the chemical, steel, and automotive sector have made forays into the business-to-business ecommerce sector.  In each case, the ecommerce business plan aims at reducing inefficiencies in the supply chain while also providing a “many buyers/many sellers” environment in which stiff price competition lowers procurement costs for participants in the electronic exchange.  In the steel industry, eWinWin, Inc., was founded in Cleveland with online DealRooms in which suppliers invite potential buyers to review products and negotiate over price.  The firm initially included 40 companies from northeast Ohio; the goal is to expand to include the roughly 400 companies in the Steel Service Center Institute trade association. 

Among chemical companies, Geon Corporation, a major polymer manufacturer in Cleveland, has set up GetGeon.com to serve as an ecommerce site for its industrial customers.  Its main attraction is automated ordering and order filling, and in its first three months, GetGeon.com processed $10 million in orders.  Finally, for automotive suppliers in the area, TRW, Inc., and Eaton, major manufacturers headquartered in Cleveland, have initiated a study to examine how electronic commerce might improve supply-chain management and quicken product delivery. 

The hope is that these initiatives will create first-mover advantages for Cleveland manufacturers in specific ecommerce areas.  If eWinWin becomes the standard for electronic exchanges in the steel world, then Cleveland suppliers may benefit disproportionately. Going further out in the supply chain will present a different challenge for small manufacturers.  There are hundreds of small “mom and pop” suppliers in Cleveland in a wide variety of manufacturing sectors.  Not all are online, but the number is growing.  In a survey conducted by Cleveland’s Council of Smaller Enterprises (COSE), 45 percent of small businesses in Cleveland had a Web site by the first quarter of 2000, a small increase (from 43 percent) from a year earlier.  Among goods producers, however, the growth was substantial, with 54 percent reporting having Web sites in 2000, up from 36 percent the prior year.  This does not mean that small goods producers are conducting online sales; in fact, only 22 percent sell over the Internet.  However, this represents a dramatic increase from the 1999 figure of only 6 percent.

The Internet and Social Capital in Cleveland

Cleveland has achieved solid successes in altering foot traffic in the city to take advantage of Internet opportunities in the community and economic arenas.  Bill Callahan’s vision of what the Internet can do for the Stockyards area is squarely about using the Internet as a magnet for people to come to his CDC with civic goals in mind. With the $3 million in City funds, Callahan hopes to replicate his initiatives throughout the city.  All in all, in the community arena, the catalytic effect of the Internet is strong in Cleveland, with the Digital Vision coalition serving as an ongoing forum to strengthen the social networks that the Internet has helped to stimulate. 

In the economic development community, the “foot traffic” effect is manifest in attempts to create a stronger entrepreneurial spirit in Cleveland.  NEOSA and the Lorain County Community college business incubator have spearheaded these efforts, but changing a region’s business culture is a long-term challenge.  Cleveland’s manufacturing base and conservative outlook on business start-ups are bound to loom large in the area for some time.  But tailoring dot-com promotional activities to business-to-business ecommerce is certainly a sensible strategy.  Whether this economic development strategy pays off depends on a lot of things that Cleveland’s leaders do not control, such as capital availability for Internet start-ups.  Nonetheless, the prospect of dot-com pay-offs has brought together Cleveland’s business community in new ways.

Content development—the more advanced manifestation of the connection between the Internet and social capital—has come into play in some important ways in Cleveland.  In the affordable housing community, the T2K project is a content-driven portal that helps nonprofits take aim at inefficiencies in the delivery of housing services.  A long-term goal of Bill Callahan’s Internet access project in the Stockyard area is to make the Internet a prominent enough part of the neighborhood so that people start to create content.  On the economic side, there has been little in the way of content development in the form of Internet start-ups, although that is the clear goal of the Lorain County business incubator and the Cleveland Growth Association’s emphasis on business-to-business ecommerce.

At present, however, the whole of Cleveland’s efforts does not seem equal to the sum of its parts.  One reason is that nearly all of the initiatives profiled here are in their infant stages.  It will simply take time to see if any surprising synergies arise in the community from these undertakings.  One missing ingredient, according to a number of people involved with community computing, is strong leadership from City Hall.  As one measure of Cleveland’s lack of engagement with the Internet, by fall 2001 there was still no standard domain name for emailing City employees, and there seems to be strong consensus that the City has lagged in considering ways to use the Internet to improve service or provide information to citizens online.  Even with the promising initiatives among community activists and economic development proponents, more active leadership from the City is a missing ingredient that, if added to the mix, could add momentum to Internet efforts in Cleveland.

  1. Established in 1983 to encourage the use of technology in the Ohio manufacturing economy, the incubator will try to complement the center’s focus areas, which, in the Cleveland area, include biotechnology and manufacturing technology.