After much national fanfare, Amazon, the second firm to join the trillion-dollar club, has announced the new homes of its much sought after HQ2. Not one home, but two, as the search for a single single city has in fact split with Long Island City, New York and Crystal City, Virginia (now recast as National Landing), in the greater Washington, D.C. area, claiming victory. While there are certainly a number of disappointed city leaders throughout the country, from places as far flung as Puerto Rico to Miami, how Amazon’s two new homes prepare for the arrival of a trillion-dollar behemoth in some respects requires an Amazon Survival Guide. This will help ensure that smiles are not only on Amazon’s ubiquitous packages and at fawning ground-breaking ceremonies, but on the faces of job seekers, business and community leaders who must contend with a new market-making and market disrupting neighbor over the long term.
The D.C. region playing host to half of HQ2 is no surprise, in no small measure because Amazon’s CEO (the world’s richest man), Jeff Bezos, has already planted a substantial personal flag in the region, buying D.C.’s largest (and most expensive) private residence. Like all self-respecting billionaires, the allure of political power and perhaps even presidential aspirations, is a good reason to lay a foundation in the nation’s capital. In Amazon’s case, Bezos is slated to become one of the region’s largest employers after the Federal government and adds to the Washington Post, which is the other regional asset he owns. The business logic is clearer still, especially as Amazon vies to expand its lucrative government and defense contracting business, along with the attendant logistical and market proximity benefits of establishing two hubs on the east coast. It is already being reported that the regional move opens a pathway for Amazon to win a $10 billion defense contract. In one fell swoop this would net out the direct investment cost of $5 billion, which was the promised investment in HQ2, not counting the subsidies both host cities provided in the vicinity of $2 billion. Like when Amazon bought Whole Foods for $13 billion only to have this sum netted out by share price increases, it is very likely Amazon’s gains in subsidies, government contracts and increased valuation will quickly net out the direct investments in HQ2.
No stranger to home market unrest and negative externalities, Amazon and firms of its size and clout have grown accustomed to being lightning rod neighbors, including in the communities where they were founded. Recognizing this and the lingering impact large tech firms have had on distorting affordable housing markets, Jeff Bezos, through his philanthropic efforts, has allocated $2 billion to improving affordable housing and early schooling options. Addressing adverse market responses in this manner aims to turn frowns upside down reverting back to the smile on Amazon’s packages. Similar largess may be needed in its new host cities, which are both plagued by affordable housing and other social issues.
The other considerable advantage that will accrue to Amazon from its bifurcated east coast HQ2 is the ability to more directly influence and inform national policymaking, particularly as it relates to emerging business models where Amazon is staking its claim. For example, the prospect of nation-wide drone deliveries means the drones must take off with FAA approval. A platform in the capital region playing home to Jeff Bezos will be more amenable to allowing delivery drones to fly in lower, currently unregulated airspace. Seeing as helipads were thrown into the mix to sweeten site selection inducements, Amazon clearly intends to fly more than helicopters from these new locations – with National Landing in line of sight of D.C.s Reagan National Airport.
Similar market entry is taking place in healthcare especially as the triumvirate between Amazon, JP Morgan and Berkshire Hathaway evolves into a yet to be named company with considerable leadership in Dr. Atul Gawande at the helm. This health insurance platform that pools a combined 1 million employees from the three firms into a new insurance structure represents a major broadside to all industry participants. Nationalizing this framework into more direct competition with private health insurance and state or government-backed healthcare programs is more likely to receive a regulatory blessing with an influential east coast Amazon, notwithstanding the ructions between Jeff Bezos and President Trump, which took a turn for the comical on Saturday Night Live.
Beyond Amazon and the triumvirate leading a mass private health insurance opt out, the prospect of direct competition to health insurers from a tech titan, a banking titan and an insurance titan, could very well be the death knell to underperforming insurers. The jury will remain out on whether this is good for markets and consumers. What is true of the companies and employers operating in Amazon’s shadow is that they now face a major double jeopardy, where they only have a few years to begin preparing. On the one front, no public or business leader wants to unfurl the “unwelcome mat” to an investor that stands to hire a combined 50,000 employees in host cities – or at least this much was asserted in pre-investment promises. To this welcoming committee, getting into Amazon’s value chain and gaining the economic competitiveness that Amazon represents can be a boon. On the other hand, Amazon’s 50,000 new hires, especially in the highly competitive and already costly D.C. market, will come at the substantial expense of regional employers, who are already involved in a fierce hiring and retention knife fight for top technical talent. Indeed, one of the insidious aspects of the D.C. area job market, is that many facets of the Federal government and national security apparatus are in fact already privatized.
As with all economic growth, market displacement is the attendant consequence. For this, the first chapter of an Amazon Survival Guide, would outline business scenario planning for what the possible positive and negative impacts are likely to be. Like with all risk management, you cannot buy insurance when your house is on fire, no more than you can respond to Amazon poaching your top talent or your lucrative government contract the moment it happens. Risk favors the prepared. Similarly, firms that try to get into a spending war with Amazon on employee compensation and benefits risk engaging in a fool’s errand. Instead, the value proposition of employment in these firms and government agencies must hinge on qualitative matters where more money is not a proxy for higher employee engagement, satisfaction and, critically, loyalty.
The other known and expected negative externality of a friendly neighborhood Amazon is depletion of affordable housing stock and rapid appreciation of existing inventory. In both homes for HQ2, the lack of affordable housing is already an endemic issue. In national terms, the greater Washington area is rivaled only by Hawaii in terms of rental costs. Would-be urban dwellers – those who want to avoid the region’s nightmarish traffic – need to earn at least $33.58 an hour in order to afford the rent for a 2-bedroom apartment. In New York, the same figure is $28.08, not to speak of challenges in home ownership in both markets, let alone nationally. While these issues are not directly Amazon’s fault, and no one should begrudge Amazon’s success, policymakers, particularly those who care about affordable housing and containing the unintended side effects of unbridled gentrification, balanced measures will matter.
If the first chapter of an Amazon Survival Guide is about what market and regional leaders can do to prepare, the second chapter would shift the onus to Amazon and outline ways the firm and its patron can become locally engaged citizens. In both of its new homes, Amazon moves into highly stratified regions along economic, social, educational and ideological lines. Deploying Amazon’s considerable social and financial capital into ameliorating these issues including in the second city in the D.C. mega-region, Baltimore, can not only bend the arc of many of these young lives, it can bend the arc of the region toward long term economic competitiveness. This much was Amazon’s chief motivation for moving eastward. While improving regional economic competitiveness is not singularly Amazon’s burden to carry, what will soon become the region’s largest employer after the Federal government, Amazon has a unique opportunity and, some may argue, an obligation, to make all ships rise in its wake.
