Earlier in the week I mentioned Amazon’s short list for its second headquarters. The finalists are Atlanta, Austin, Boston, Chicago, Columbus, Ohio, Dallas, Denver, Indianapolis, Los Angeles, Miami, Montgomery County, Md., Nashville, Newark, New York City, Northern Virginia, Philadelphia, Pittsburgh, Raleigh, N.C., Toronto and Washington, D.C.
I’ve already expressed my opinion that the selection of any of them has implications about Amazon and how its managers think of the company and its future. Selecting Chicago, for example, would be potent evidence that they had taken leave of their senses. I’ve mentioned that I think the most likely winner is Atlanta but what would that mean? I think it would mean that Amazon sees itself as a global company and wants to be more connected to Europe, Africa, and South America than it presently is with its headquarters in Seattle.
Lots of people are touting Washington, DC as the eventual favorite. What would that say about the company? I think it would say that Amazon sees its primary business as rent-seeking.
I think it’s really more about real estate prices. My guess is Amazon is having significant difficulties recruiting people to Seattle at Amazon’s payscale given how expensive renting or buying in Seattle is.
Through DC has a really good shot since 3 of the 20 candidates DC or a suburb.
If their primary motivation is real estate prices, DC and the DC suburbs are out. As are Boston, New York City, Philly, Los Angeles, and Miami.
Real estate prices also dictate Toronto and Newark are out.
So really I see a list of 10.
Real estate prices can be made up with incentives from state and local government. The reason Amazon is so public about this process is that it knows that communities are bidding.
How would that work; the city government gives money to Amazon employees to rent / buy housing?
The problem is not Amazon needs cheap land; it’s Amazon employees need cheap land or at least not so expensive land that it makes relocating for Amazon an attractive financial decision.
If Amazon needs to pad it’s bottom line with state and city incentives they could just blackmail Seattle and Washington state. But no blackmail can lower real estate prices in Seattle.
Seattle Real Estate prices are less of an issue for Amazon employees than they are for everyone else living in Seattle who has to compete with all of the highly paid people being brought to Seattle by Amazon. Starting salaries for a software engineer right out of college are over $100k, and Amazon is a little stingy. Average income for a family in Seattle is well below that.
Amazon also has a high attrition problem (most engineers leave before the two year mark), so other companies spring up to hire former Amazon engineers in Seattle, because that’s where the talent is. It means Amazon becomes a multiplier, not just creating N high paying jobs, but creating a continuous pipeline of employees for startups and satellite offices of other big companies. That won’t happen overnight in HQ2, but there’s no reason to think it won’t happen there too.
Amazon hires a *lot* of foreign workers, and is having problems bringing them into this country, due to limits on the H1b lottery, and recent efforts by the Trump administration to require more documentation that these workers really are unique specialists. I would be very surprised if this was not a major consideration.
My money is on Toronto. The rest of it is just a game, looking for someone to give them a deal they can’t refuse, or trying to make Toronto compete more.
Also, what are the current big software cities? San Francisco, New York, Seattle and Boston. Seattle is the cheap one.
The desire for HQ2 isn’t driven by real estate costs, but by the simple fact that every man, woman and child in Seattle has interviewed at Amazon, and knows people who worked for Amazon (very bad reputation, by the way). They’ve tapped out that talent pool without importing people.
That said, I would not be surprised to see Amazon create HQ2 and HQ3 (or Major Outpost) simultaneously, with both Toronto and either Austin or Atlanta “winningâ€.
While I agree with you about Austin and Atlanta, don’ t discount Raleigh-Durham’s Research Triangle Park as an attractor. Raleigh has an existing talent pool, affordable housing, a reasonably benign climate, and proximity to other lifestyle features.
However, I continue to think that the pick for its second headquarters will tell us something about the company’s self-identity and view of the future.
I think my view actually aligns with yours, Gustopher.
https://www.seattletimes.com/business/real-estate/seattle-area-homebuyers-needed-11000-pay-raise-in-past-year-to-keep-up-with-rising-prices/
The article cites figures of 140K – 170K to afford a house in Seattle or on the Eastside, which accords with the median house price of 1 million. Amazon engineering payscale is a bit above that, so existing engineers can afford it. But for someone not from Seattle, between Amazon or another company say in Austin paying 100K but housing prices 2/3 or less, it’s not a clear cut decision.
As for Toronto, I personally would benefit so I hope so. However Americans treat Canada like the 51st state but it is another country; which means Canada has limited draws for people who live in the US, especially if when they discover housing is even more expensive then Seattle. As a hotel for folks who cannot work in the US, other software companies have tried with very mixed success. Plus the PR blowback would be fun to observe…
@CuriousOnlooker, there seems to be some disconnect btw/ what kinds of jobs these are. The initial announcement said they will pay close to $100,000, but the fine print makes this vague, and all presentations require any clawbacks on incentives to be clear (i.e., the means by which a community may seek to measure its subsidy against promises). Also, while I haven’t seen any actual language, the word “average” salary seems to be used a lot in the news, suggesting the distribution may fall well below $100,000 for most employees.
I would love to see someone like Nate Silver take the 20 finalist and rate them on the stated preferences and compare it with what happens. Frankly, I don’t have any reason to believe everything Amazon is saying about this, and it would be interesting to compare expectations with outcomes.
I’m not familiar with the properties Chicago offered, but I was under the impression that some were owned by the City outright? Others held by some sort of non-profit development organization. Also, the state is trying to unload the Thompson center (for out-of-staters, the center of state government [in Chicago] that has been allowed to dilapidate)
A lot of headquarters have relocated to Chicago in the last 10-15 years, and it seems to meet a number of criteria. It doesn’t provide connections to national politics, nor any particular connection to Europe or Africa.
PD, the Amazon software engineers payscale starts over 100K and that’s the headline. There’s great crowdsourcing information on that. But in truth every tech company requires a great number of support staff at HQ (sales, accountants, hr, lawyers, secretaries, etc) – those have a different payscale. I imagine Amazon has a great number of staff related to ecommerce (buyers, supply chain experts, etc).
I conjecture that is where the difference between a development office vs HQ, Amazon already has development offices all over the world including NYC, Austin, and Toronto.
@CuriousOnlooker, a number of companies have relocated HQ to Chicago in the last 15 years, starting with Boeing. Today’s HQs don’t necessarily employ that many people because of outsourcing and how decentralized global businesses are with just a very small fraction at the top of the pyramid constituting HQ.
What I see in the actual Amazon request for proposals is a promise to bring up to 50,000 jobs with total compensation averaging $100,000 over the course of several years. It identifies compensation is being a high-benefits package. Our health insurance for a family of four costs $24,000 per year, most of which is picked up by wife’s employer.
After looking at the criteria, most of which could be discovered by Amazon’s analytical department, it all seems like discovering what package the city will provide.
As a rule of thumb benefits are about a third of total compensation. That means an average wage of around $65,000. Higher than the Chicago metro median but not by a lot.