September 21, 2017

My Prediction For Amazon’s HQ2

From 1971, a billboard joked about the decline in population in Seattle:

Spoiler alert for those who don’t want to read ahead: ‘Seazon’ will continue. No one else will win the bid for HQ2, although satellite offices will continue to grow.

Amazon has shaken the business world, the heads of chambers of commerce and municipal planners around the globe by suggesting that they are going to open what’s being called ‘HQ2’, or a second headquarters for this massive company in North America.

(Note: I’m ignoring for a moment the ethical and legal questions about asking cities as well states/provinces to itemize tax and other incentives, given the limitations imposed by NAFTA and the WTO).

Here are some basic numbers on Amazon:

  • $460 BILLION market capitalization
  • Jeff Bezos bounces back and forth with Bill Gates as the world’s wealthiest person
  • 340,000+ employees
  • Amazon ships 1 billion+ packages per year, or 35 per second!  Most arrive within 24 hours
  • The warehouses have more square footage than 700 Madison Square Gardens
  • The company is diversifying, while also focusing on its core: online delivery (be it products, streaming, books, etc)
  • The company represents roughly 10% of the online market, with the following 7 largest companies making up the next 10% of market share

It’s a big company.

But like all new ventures, it wasn’t. It started with one book being sold online, the quintessential suburban garage, frugality (there are tales of ‘door desks’ – look it up), a handful of partners and a change in name (from ‘Cadabra’ to ‘Amazon’ because the former sounded like ‘cadaver’).

It grew … and grew … and grew to the Amazon we know today.

From what I’ve read, the Seattle that was is not so different than the Seattle that is.  It’s still only about 700,000 people, or just 200,000 more people than what it was in 1994 (of course, the Sea-Tac area is now about 3.6 million residents and is America’s fastest growing large urban areas).

Grunge music is still probably heard in the halls of many clubs in the area.

Growing pains are being felt everywhere.

According  to some sources, the process of finding a second HQ is related to Seattle’s inability to grow with Amazon. The company occupies a staggering 20% of ‘Class A’ real estate in Seattle. Amazon now occupies more than twice as many square feet as any company in any US city.

There are many other negative factors at play, which is why the company has initiated this process.

The RFP calls for many things, including:

  • A ridiculously tight timeline (ie. proposals are due Oct 19). Those cities that are debating doing a proposal: stop.  You’re wasting your time because you won’t have enough time to do this properly.
  • North America only. Sorry everyone else.
  • As many as 50,000 new hires. This isn’t a fixed number, but for about 95% of cities that are just starting to find their ‘tech legs’, a number like this will suck the air out of any momentum they have.  It will drive up wages, it will result in a lot of vacant dot-com offices and people will prove to be as equally disloyal as Amazon appears to be with Seattle. For many smaller communities, 50,000 people represent anywhere from 100 to 1000% (and more) of an available literate, technical population of prospects.
  • About $5 billion (US) investment in up to 33 new or refurbished buildings and structures.  A winning bidder will likely have to show anywhere from 2-3 times this kind of investment to balance Amazon’s commitment. The building and real estate requirements are substantial:
  • One million + population.  Optimists in smaller communities read this as ‘we can pool together 10 communities and call ourselves 1 million +’.  No, I don’t think that’s what they mean.  Millions of people in any major intensified and gentrified urban centre provide tax stability and is a solid indicator of popularity.
  • An international airport. Again, something that only major metropolises can offer.
  • Up to 8 MILLION square feet, to be built on a greenfield site of roughly 100 acres.  This is where rural communities actually have a chance.  Those that are surrounded by farmland can expropriate efficiently and with minimal impact on their urban core.
  • Fiber.  This is where the wheat gets separated from the chaff.  Which cities have already invested substantially in internet infrastructure over the last 2 decades?  Very few, including Seattle, Las Vegas and a small town in North Carolina . (In the ‘I told you so’ department, this is something I’ve been advocating for years instead of building more roads.)

I’ve read through some of the guesses of many other people and truly want to believe that a city like Toronto has a chance (particularly given their waterfront build which could easily accommodate the required office space), but the right play will be an American, medium-sized city or collection of cities that have a great vibe to it/them poised on the edge of greatness.

When I remind myself about the ‘door desk’ (seriously, look it up), I think of rust-belt cities like Detroit. Given the relatively recent bankruptcy of this sprawling metropolis, cheap land and potential for being able to steam-roll the parts they don’t like and rebuild the areas they do like, it’s a contender.  Add the idea that Windsor is involved with the bid and it’s the only ‘international’ opportunity for HQ2.

Richard Florida – municipal planning ‘guru’ – makes a compelling argument that Washington, DC is a contender, but we’re back to the availability of cheap land.

Do a Google search for HQ2 and you’ll find thousands of possibilities, dreamers and local planners playing footloose and fancy free with taxpayer dollars.

My ultimate prediction is that Amazon will look no further than its own backyard and help Seattle grow to accommodate a new campus, more buildings for Amazon and – most importantly – better infrastructure for Amazon employees.

We’ll see the modern-day equivalent of an entire town being rebuilt to accommodate a company, with the company taking the lead in a progressive and productive way.  An old example is Ford, which shaped Detroit versus the other way around.

Seattle/Amazon – or what I’ll call ‘Seazon’ (you heard it here first) will continue to exist as a single entity.

For both organizations, I believe they will continue with ‘the Devil you know’ scenario.  Seattle can’t afford to lose Amazon or have the management be ‘distracted’ by someone that could ultimately steal them away and Amazon has an opportunity to shape its hometown into something that it can grow into. The main clue in all of this: the timing of the schedule. October 19, 2017 is just a few weeks away.  Hardly enough time to generate a bid that’s worth tens-of-billions of dollars.

Last thought about this: it will still play into the ‘door desk’ theme.

And for those hundreds of other cities vying for the opportunity:  take the RFP, use it as a playbook for how to grow your city to appeal to the millions of other companies and go get them! They’re feeling neglected with all the crazy talk about attracting Amazon!

Categories: Random Thoughts , Things Are Good , Uncategorized

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