Amazon “Swipes Left” On New York City


This post is by Semil Shah from Haystack.vc


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Start spreading the news, indeed. Today, Amazon announced it will entirely abandon its plans to build its second headquarters (a/k/a “HQ2”) in Long Island City, a residential neighborhood in the borough of Queens, New York City. There’s no need for me to mince words here: This is a huge, huge development. It is shocking, really. I believe this will be talked about for months, which in today’s news cycle is saying something. But, it happened, and we have to step back for a moment and reflect on what got us here. So, here is my attempt to do that — for the record, I believe NYC made a huge mistake, but also that Amazon should’ve picked a different (and smaller) city to begin with. Here is what I take away from this breaking news:

1/ “The Decision” was not a great look for LeBron nor Amazon. I like LeBron now, it always wasn’t the case. Back when he left his hometown Cavaliers for a new team in free agency, he branded his announcement as “The Decision.” That backfired on him, a stunt perceived by many to be the opposite of humble. In searching for its next HQ2, Amazon frankly evoked memories of “The Decision,” which is not a compliment. Going down a path like this is bound to engender some ill will and hurt feelings — feelings that could be suppressed for a while but will eventually bubble up and spill over into something greater and more intense.

2/ The power of persuasion is the most valuable currency. A long-time financial reporter based in NYC, Andrew Ross Sorkin, stipulated that, after analyzing the deal given to Amazon, that the State and City (of New York) would effectively give Amazon about $3B in tax breaks, but that the resulting economic effects of that investment in the form of future tax revenues and economic activity might have totaled $27B over time. What?! That’s a 9x return on investment for the region, which could’ve used the proceeds to improve infrastructure, services, and other things across the city. However, that message may not have had its own singular champion — rather, a vocal minority of residents (minority here is meant to be statistical) who opposed HQ2 (and their representatives) signaled they’d rather have those $3B of tax incentives instead funnel directly and immediately into said infrastructure and services. To be fair, the NYC MTA, among others, needs massive upgrades, especially on well-document, troubled lines. Those who banded together to oppose HQ2 won the war of persuasion, and they in turn wielded the most potent currency.

3/ A powerful warning shot to technology brands. Before Facebook, Airbnb, and Uber spread like wildfire across the world, we as a society didn’t really, truly understand how high the stakes were. Now, in 2019, everyone knows how high the stakes are, and as a result, opponents to this kind of change mobile much quicker and with greater force. We must acknowledge that while the majority of NYC residents (across the boroughs) were very much in favor of having Amazon in their backyard, there were enough who did not. Those opponents have a sense of what comes with the “big tech” bundle — changes to the neighborhood, changes to rent, changes to the culture they have today. A good number of folks do not want that change. I can empathize a bit here. I used to live right by Stanford University, starting in 2011. I lived down there for a while. In that time, the network scale juggernauts like Facebook, Apple, and Google became so successful, the cost of living increases down there are rising incredibly fast. Similar effects are seen in Seattle and surrounding neighborhoods, home to Amazon’s main HQ and Microsoft. Now that Google is building data centers across various states (and I’d expect Facebook to follow suit), now that Facebook has big offices in Seattle, NYC, Pittsburgh, and so forth, and now that Apple has moved into Austin, communities are fully aware of “the stakes” associated with these new types of neighbors.

4/ Politicians need to become dealmakers for their constituents. Given how polarizing “the stakes” can be and how critical persuasion is to winning, it is now incumbent upon politicians to improve their own dealmaking skills and to effectively communicate their positions repeatedly to their constituents. Representatives in Queens (which hosts Long Island City) may have been more savvy and persuasive in their use of statistics, social media, and incisive messaging to convince enough people — including Jeff Bezos — that they were not welcomed here. NYC’s loss is now another city’s gain. Another mayor or governor should swoop in, cut a new deal, and start selling the benefits of a potential 5-10x investment could have on their community.

5/ Network-scale businesses often have more power and leverage over governments. The truth of the matter is, Amazon doesn’t need NYC in order to succeed. It doesn’t need any city in particular, it just needs one or maybe two more cities to build HQ2 and then HQ3. Like a prosecutor pursuing a case, Amazon just needs to flip one witness to make its mark. The proposed $3B-for -$27B trade could likely be attractive enough to solicit significant interest from other locations.

The (theoretical) beauty of the American system is that individual states (and their cities) can compete for this business. There are no standard rules in this game. And the citizens can fight back to oppose these advances. The issue for the majority of NYC residents today, however, is that they will lose out on this potential surplus. Now, NYC and NY State officials have to figure out how to answer the calls from both sides, those who want the $3B appropriated today as well as those who are wondering why they’d blow off the potential $27B windfall. Meanwhile, Jeff Bezos and Amazon is on to the next thing, scoping the next location, ready to find another city to wheel and deal with. One region’s loss will be another region’s gain.