If you’ve followed the seemingly endless saga of Amazon’s HQ2 you’ll know the basic storyline. In September of 2017 Amazon announced that it was looking for a new second headquarters that would be the full equal to the current HQ in Seattle. The new headquarters would supposedly eventually hire 50,000 highly paid workers and involve a $5 billion commitment from Amazon for construction of new facilities and related costs. The thought of landing Amazon’s HQ2 sent local politicians across the US into a state of unprecedented groveling to the world’s richest man, Amazon CEO Jeff Bezos.
What was not so obvious to outsiders was the costs of this public search. Economic development authorities across the country went into a paroxysm of spending money, paying consultants to figure out how to kiss up to Amazon, and ignoring other smaller projects they were much more likely to actually get. (During all this hoopla, for instance, Micron technologies announced an investment in chip technology manufacturing in Manassas, Virginia worth $3 billion, but I bet you never heard about that.
238 submissions were made, and local governments fought over each other to see who could offer the most lavish subsidy package, many of which totaled more than what Amazon had promised to spend.
Meanwhile, the best real estate projects across the country were essentially frozen for over a year, waiting on Amazon's decision. Nobody wanted to be the fool who sold property right before it was announced that Amazon was going to build right next to it; so no one sold property that had even the remotest chance of being near the winning bid. No one wanted to begin a rezoning process that would have to be completely altered if Amazon came nearby. So literally hundreds of major real estate projects in the most desirable areas of the US were essentially put on hold awaiting the Amazon decision. That also means all the jobs and economic activity from hundreds of major developments were also delayed.
Meanwhile, Amazon was getting hundreds of millions of dollars in free publicity as a constant nationwide cycle of news was generated by every sort of commentator trying to guess which lucky state would win the great prize. Coverage was especially frequent in those many cities and states thought to be frontrunners for HQ2. If you google “HQ2” you’ll find over 5 million results.
In early November Amazon announced they were not, in fact, going to choose one HQ2, but split the great prize in two. Essentially, Amazon was going to keep their Seattle Headquarters and open two large satellite offices. Supposedly this decision was made because they came to the sudden realization that:
- It would be tough to find enough qualified programmers in any single location
- Having 50,000 people in one urban location might cause politically unpleasant ramifications on housing prices and transportation in the chosen area
But what’s fascinating, is that BOTH OF THESE FACTORS WOULD HAVE BEEN COMPLETELY OBVIOUS TO BEZOS AND AMAZON FROM THE BEGINNING of this process.
And Amazon ended up picking two locations that were obvious from the beginning and already have a large number of Amazon employees, New York City, and Arlington, Virginia, a suburb of Washington D.C. No surprises here, as New York is the financial capitol of America, as well as the center for a number of industries in which Amazon is involved, in particular media, advertising, and fashion.
And Washington was an obvious choice as well. Amazon does a huge amount of government contracting and is a big government lobbyist. Bezos owns both the Washington Post newspaper and the largest home in D.C. The headquarters of Amazon Web services and many of their data centers are in Northern Virginia. The Crystal City area is literally within walking distance of the Pentagon and that’s no accident as far as Amazon’s interest is concerned.
But what did they really get in selecting these two areas? Queens, outside Manhattan, has poor infrastructure and few amenities, and is best known for cheap rents – at least by Manhattan standards – and easy access to the city. Crystal City in Arlington is an area with so many outdated office buildings that even the federal government won’t lease them; the soulless area had become an albatross to the big real estate company that owned much of it.
So both of the selected areas are pretty undesirable, but close to the urban core with plenty of space to redevelop. It took 14 months for Amazon to identify two such areas?
One thing that both areas have in common, which really helps to understand Amazon, is that they’re overwhelmingly politically liberal, and in the November 6, 2018 election voted overwhelmingly for Democratic candidates.
So why did Amazon really engage in one of the greatest acts of corporate bait and switch in recent history?
Of course, there was the endless free publicity. And the billion-dollar tax breaks and subsidies, which Amazon will utilize in both of its new locations. But there was much more.
In an age of big data, Amazon was given, for free, reams of private data about hundreds of locations across the country; data ostensibly to help them make the decision about HQ2, but that has lots of other potential uses.
According to this article:
- The proposals that 238 cities submitted to Amazon likely contain details about optimal sites for development, current and future land use and development projects, planned infrastructure investments, and demographic information.
- "Amazon will put that data to prodigious use in the coming years to expand its empire," says Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a Washington, DC-based think tank.
As mentioned above, Amazon is a huge government contractor, and their Amazon Web Service division is a leading contender for the Department of Defense’s $10 billion cloud contract, as well as many other government contracts. While Amazon was still dangling the fruit of HQ2 across the country, no politician could afford to alienate them, for fear of losing any shot at HQ2. Keep in mind, politicians were prostrating themselves to an unheard of degree; New York Governor offered to rename himself, Amazon Cuomo, to get the project. This gave Amazon 14 months to bolster their chances for government contracts with the support of politicians who thought their districts had a shot at HQ2. But there was never really going to be an HQ2.
Bezos is the richest man in the world for a reason. By dangling something in front of people that he never intended to do, he has gotten:
- Troves of free inside data across the US, which is something, in the age of big data, of inestimable value
- Subsidies for two large satellite offices
- Huge amounts of free publicity
- A death grip on politicians as Amazon seeks billion dollar DOD contracts.
Amazon wins, everyone else loses.