How Amazon Is Benefitting From Losing Cities' HQ2 Bids

True to form, the information generated by the process may be worth far more than the short term effect of locating another office, however sizable it may be. JL

Nick Wingfield reports in the New York Times:

Its search contest is about more than a second headquarters. (It has) generated genuflection from politicians, and a lot of glowing news coverage, at a moment of heightened scrutiny about Amazon’s market power. The hundreds of applications (also) gave Amazon a hidden benefit: free research that the company can mine when picking spots for future warehouses and satellite offices. Amazon has gotten insight into the accommodations that places are willing to make. “It’s a broader locational strategy."

The other week, 218 cities and states lost in the sweepstakes to be the home of Amazon’s second headquarters, failing to make the list of 20 finalists.

But Amazon thanks them for playing.

That is because the hundreds of applications gave Amazon a hidden benefit: free research that the company can mine when picking spots for future warehouses and satellite offices.

Amazon asked every city and state applying for its second headquarters for details about local resources, like available talent and transit options. Local officials were also prodded for tips on local education programs and tax incentives.

The answers — most of which have not been released publicly — essentially do Amazon’s homework for it, providing valuable information that the company otherwise would have needed to dig up on its own or obtain through one-on-one negotiations.

The application from the Kansas City, Mo., region detailed a program for teaching technical skills to preschoolers through 12th graders, according to a person briefed on the submissions, who would speak only anonymously because the discussions were private. A local coalition that helps military veterans make the transition to civilian jobs, which could help Amazon’s efforts to recruit veterans, also caught the company’s eye.The company did not realize until it saw the application from Louisville, Ky., the person said, that there is a large pool of technical talent within 200 miles of the city and a local public-private partnership that helps train students to become entry-level software developers.

The Montreal submission stood out, the person said, with its thinking about attracting foreign talent to the region.  Amazon alluded to the upside of

Amazon alluded to the upside of the information last week when Holly Sullivan, its head of economic development, said the rejected locations could receive a consolation prize of sorts.

“Through this process we learned about many new communities across North America that we will consider as locations for future infrastructure investment and job creation,” she said in a statement.

Amazon’s plans are another illustration of how its search contest is about more than a second headquarters, or HQ2, as the company calls it. The winning location, Amazon says, will get up to 50,000 high-paying jobs and billions of dollars in construction. Those promises have generated extraordinary genuflection from politicians across North America, and a lot of glowing news coverage, at a moment of heightened scrutiny about Amazon’s market power.

By getting 238 communities to give their best pitch, Amazon has also gotten insight into the kinds of accommodations that places are willing to make to bring it to town.

“This is not just about HQ2,” said Richard Florida, an authority on urban development and a professor at the University of Toronto. “It’s about a broader locational strategy. HQ2 is the carrot. That’s the only thing that makes sense.”

The proposal from Detroit, which did not make the final 20, offers another peek into the sort of incentives that Amazon has received from the HQ2 bids, and how the inducements could factor into Amazon’s planning for other projects.

The city offered to let Amazon operate for 30 years without paying real estate and personal property taxes and a variety of other local taxes, according to a report in Crain’s Detroit Business. Ari B. Adler, a spokesman for Gov. Rick Snyder of Michigan, confirmed the report’s accuracy.

Mr. Adler said Amazon’s bidding process would make Detroit a stronger contender for any company looking for a new or expanded location. Amazon already has other facilities in the state, and Michigan welcomes more of them, he said.

“We heard from Amazon that some of the key things in our favor during the review process were our commitment to partnerships, the creativity of our proposal and the investments being made in the region’s growth,” Mr. Adler said.

Only about 40,000 of Amazon’s 540,000 global employees work in Seattle, its home base. Its work force is largely spread across warehouses and other parts of the logistics network that deliver the billions of items Amazon ships every year.

There are more than 300 warehouses and other shipping centers in the United States alone, according to estimates by MWPVL International, a supply chain and logistics consulting firm. The company is adding new ones at a fast clip.

Amazon warehouses are often close to metropolitan areas so orders can be delivered to population centers as quickly as possible. A company site selection team scouts potential locations.

The company also has more than a dozen satellite offices focused on research and development — Amazon calls them “tech hubs.” It has a large robotics unit near Boston, a machine translation team in Pittsburgh and a video game development group in San Diego.

State and local officials have been enthusiastic about the jobs at the warehouses, offering tax breaks and raving about Amazon’s arrival in news releases. Since 2000, Amazon has received over $1.1 billion in public subsidies for its facilities and other operations, according to estimates by Good Jobs First, a non-partisan research group.

Mark Williams, president of the Strategic Development Group, a site selection consulting firm, said available tax breaks, like those offered by Detroit, could be one of the most important pieces of information for Amazon.

“There are discretionary incentives that aren’t on the books that come in the heat of a deal,” Mr. Williams said. “In most cases, those are the most valuable incentives.”

But he said the bids could also show a community’s willingness to offer other benefits.

“There are special grant funds, special bond funds, naming of roads,” he said. “It’s not like you can acquire these through a data search.”

Mr. Florida, the urban studies professor, advised Kansas City (an also-ran) and Toronto (a finalist) on their bids. He believes Amazon also “has something in mind” for the 20 places still in the game — including Indianapolis, Miami and Columbus, Ohio. The company is talking to all 20 and getting even more information from them.

“What is a better distribution hub than Columbus or Indianapolis?” Mr. Florida said. “What is a better Latin America headquarters than Miami?”

One of the finalists, Denver, whose bid has been made public, provided Amazon with elaborate breakdowns of the number of students who graduated from Colorado from 2014 to 2016 with degrees in computer engineering, computer graphics, information technology, tax law and human resources management.

The city boasted about the large number of faculty at the University of Colorado, in nearby Boulder, focused on computer science. Denver also suggested a handful of possible development sites for Amazon, though those locations were redacted from the public material.

“There is no better place for Amazon’s second home than Colorado,” John W. Hickenlooper, the state’s governor, said in a cover letter with its application addressed to Jeff Bezos, Amazon’s chief executive.