It increasingly appears that Amazon has chosen to split its second headquarters between Long Island City, NY and Crystal City, Northern VA — essentially locating a large portion of their upper management closer to the political and cosmopolitan classes (DC and NYC respectively).
My favorite internet and business raconteur Scott Galloway – the author of the excellent The Four — had opined that it would always be New York.
How did I do with my prediction? Earlier this year, my own guess was Nova/DC/Maryland area (although I had also hedged it with North Carolina). Amazon’s next biggest challenge is in running their AI platform. The biggest challenge for all platforms is regulation, which makes locating in the DC area as the perfect thing to do.
Internet coverage has been mixed, with interspersed lukewarm concerns about Amazon moving to rich cities. But, it is the precise locations that I found as very curious. Boston Globe called the choice of Crystal City as boring, corporate and perfect.
In my Operations Strategy Class, I have long argued Long Island City as a perfect location for setting up a central warehouse focusing on same-day deliveries for Amazon, but it is entirely intriguing as a location for corporate HQ – even though the reasoning behind the choice of LI City is still the same: the cost of NYC real estate.
This is Road to Many HQs?
I am not sure what to think of the curious choice of splitting between two second headquarters, (therefore, splitting among three HQs overall). But Citylab argues that it’s a great idea:
Splitting it between the two cities is especially clever. For one, it gives Amazon a location in the nation’s and the world’s most important global city, New York—the foremost place for high-level business, management, financial, and marketing talent; and a second location in the deep-talent pool that is the nation’s capital. Both cities are part of a large mega-region and connected by frequent train and air service. Not to mention having two finalists gives Amazon the opportunity to continue to negotiate a better deal and more incentives,[…]
I think that this is a starting point of a long road to many regional HQs like many global firms. Amazon is increasingly global, now. Eventually, these sites and cities will be among the many regional HQs in future. I am thinking of Miami and Toronto, and may be even Austin.
This essentially led my thoughts back to why Amazon engaged in this proposal competition, as all observers claim to have known that they will land up in DC or NY, i.e., the perspective of …
Innovation Tournaments.
The biggest advantage for Amazon from the whole elimination dance process in choosing HQ2, was to learn more everyone’s willingness to “pay”, which is better for their current negotiations with the cities, and better information for future planning.
I had mentioned in my earlier post that the best way to think about the process was as an Innovation Tournament, where Amazon could compare “out of the box” ideas from cities, that Amazon team may not have themselves come up with.
An excellent theoretical framework to think about Amazon’s choice process for HQ2 is the idea of Innovation Tournaments. A good resource to learn more is the wonderful book Innovation Tournaments (by my Wharton colleagues Christian Terwiesch and Karl Ulrich), which I highly recommend.
Update [November 13]: It appears that the reactions to The Decision and revelation of subsequent details on What NYC and DC have “given up” have been stronger than my characterization as lukewarm concerns. For instance, per Amazon Day One Blog, Amazon will receive performance-based direct incentives of $1.525 billion based on the company creating 25,000 jobs in Long Island City.
I have not read the details carefully yet, but along the lines of innovation tournament (a) some winners will invest more than optimal “to win” and (b) Organizer of the tournament will have an information advantage. The concerns are valid socio-economic concerns, which we will see play out over the next few years.