HQ2: How Amazon Made Governments Do Their Bidding for Free

It wasn't just about financial breaks and subsidies. Cities gave up all sorts of data the giant can use for its own market advantages.


Amazon HQ
Ina Fassbender/dpa/picture-alliance/Newscom

There were many problems with how Amazon's search for the site of its new "HQ2" corporate offices went down.

There were the over-the-top subsidies that state and local governments offered to entice the tech giant to their borders. Then there was the general lack of transparency for the taxpayers footing the bill. And who could forget the sometimes-nauseating press for this torrid competition in corruption, as if an extension of government privileges to a favored mega-firm was some kind of fairy tale love story.

All of this has served Amazon quite well. The downsides, when they did crop up, were minimal.

There was a good amount of criticism over how public officials slavishly courted Amazon with favors and favoritism. No matter: the company merely leveraged its position to muzzle officials of the 20 regions that made the shortlist.

What have gone less discussed are the many indirect ways in which policymakers were unknowingly deputized to bolster Amazon's bottom line. It really was ingenious on Amazon's part. They have been able to not only have their pick of the nation's plum and primed office space, they will be able to monetize the resulting data too.

On the simplest level, consider the company's last minute decision to split its satellite offices (are they really "headquarters" anymore?) between two cities.

Despite the dramatics of its national sweepstakes, Amazon reportedly is about to announce it has selected two early-anticipated locations: Queens, N.Y. and Crystal City, Va. (located right outside D.C.). This puts the company close to the levers of financial and political power.

Choosing two locations benefits Amazon more generally. First, the company can enjoy two incentive packages at the same time. This maximizes the company's taxpayer-funded benefits while possibly minimizing taxpayer-lodged complaints.

How? Well, fear of increased resident costs was a big NIMBY argument against any HQ2 move to their town, subsidized or not. The tens of thousands of jobs that Amazon would bring might be a feather in officials' caps, but they would not all be manned by locals. An incoming horde of highly-paid techies would raise rents and stress local infrastructure.

Splitting the offices could split the pressures, and therefore take some heat off Amazon. Leaders in Queens and Crystal City may be disappointed to not be the "only" HQ2. But they are not exactly in a place to complain. To save face, they may end up promoting Amazon-preferred public narratives. And it is doubtful that they will amend their incentive package to reflect the new reality.

The double-dipped tax goodies and dispersed costs for these two towns are just the start. Really, each of the 238 regions that participated in the search was taken for a ride.

The Amazon HQ2 search was not about HQ2: it was market research.

The mayors and governors and councilmen and commissioners and local developers of America handed priceless information about their plans, investments, and reserve prices to Jeff Bezos for free.

What could Amazon do with this data?

For starters, Amazon now knows exactly what each area is willing to pay for a shot at some sweet tech investment. This gives the company a nice, fat Rolodex for the next time it needs to open a suite. And we can be sure they'll be jonesing for more treats on the next round.

There is a competition angle as well. Think about what Amazon does. It is an e-commerce company, responsible for almost half of all online retail in the US. This means it is also a logistics company, and may soon specialize further in innovative transport methods. It is a cloud computing provider, powering some 40 percent of application workloads with its global server network. And it is a consumer product company in its own right, offering branded merchandise, gadgets, media, and even credit as part of its sprawling empire.

Amazon is now privy to information about where different municipalities are going to direct investment and infrastructure in the near future. The company can exploit this information.

Use your imagination. Maybe Amazon just happens to purchase a new fulfillment center right around a soon-to-be-developed locale which would see increased demand for Amazon products. Maybe it simply decides to squat on land for a while, knowing that it will soon be smack dab in a hive of activity. A new brick-and-mortar store? They'll have the option. Or maybe knowing where news roads will be built will make it easier for Amazon to plan transit routes. There's profit to be extracted from this data that you and I could not even conceive.

This can be defensive, too. Perhaps Amazon knows something that Wal-Mart does not, so it makes a loss-leading move in that area just to knock the other guy out.

The possibilities are as imposing as Amazon's ambitions.

Perhaps most remarkable is how Amazon's gambit pushed government functionaries to do all of this for free. Actually, it was sometimes better than free: Officials tried to shower Amazon representatives with gifts and even vanity names. All Amazon had to do was dangle the promise of an already-needed office park before public officials, who then scrambled to deliver the goods. Fear of missing out lead officials to offer more than they otherwise might have, and Amazon ended up picking two cities (and two sweeteners) anyway.

Other mega-corporations are surely studying this affair closely. Will they follow Amazon's lead? It must be very tempting. Of course, not everyone is an "Amazon," able to make people divulge how high they can jump before even being asked. But for those who can—why not?

A very destructive kind of precedent is being set here that might exceed the potential damage to municipal budgets and market competition. We apparently find ourselves in a culture that is not only okay with the idea of a corporate hunt for data and privilege—it is downright cheered on.

Our recourse looks scant, and Amazon can't exactly unlearn what policymakers fell over themselves to reveal. So the task is to prevent this from happening again.

We cannot rely on corporations to not push for government perks where they can be gleaned. Nor can we apparently rely on our politicians to abstain from costly and counterproductive toadying. They must be tied to the mast: An interstate compact against these arrangements may be just the ticket.

Unfortunately, coordinating these leaders to cooperate for everyone's eventual benefit is easier described than achieved. The unceremonious conclusion of the HQ2 con will ideally give impetus for reform.

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  1. It sure was entertaining to watch all these cities sell their souls for this dubious honor. Lately I’ve been wondering if this was just an expensive practical joke by a billionaire with too much time on this hands.

  2. I doubt Amazon got any more or better information than is provided by state business development offices to just about any business that hints they’re willing to establish a presence in that jurisdiction. Put another way, Amazon couldn’t get information the state doesn’t possess, and states don’t hold anything back when a business is looking at moving/growing in a particular state.

    Now maybe Reason doesn’t like this, but it’s nothing exclusive for Amazon’s search.

    The subsidies, however, that’s a different subject.

    1. Same thought here. I bet Amazon already had far more data from its customers’ buying habits than any local government could provide, and seeing as the only “secret” data would be what the current crop of local elected officials had planned, that “secret” data is probably worth less than a cold bucket of spit, especially come the next election.

      Tax subsidies, that’s what they got out of it.

      1. I disagree. The plans government has about building out cities, roads, zoning, water, etc., usually isn’t published until they’re fully ready, and have the money, to do so. Further, who in government is willing to sell out their citizens and what they’re willing to offer of great benefit to companies looking to expand. Next time, it won’t cost Amazon so much to get government funded goodies. This is all in addition to the value of the data they have on their customers.

    2. +1, the argument for this being some kind of valuable research that was uniquely done for Amazon is silly. Regions do this all the time every year on a continuous basis.

  3. It’s not collusion if the government does it? Not a fan of high tax states having any conversations with low tax states about tax rates.

  4. Amazon is big and only getting bigger, so how exactly are less resourced retailers supposed to meet its constantly evolving challenge head on? Is that even possible? Just consider what the company’s been up to recently.

    1. It’s near its peak.

    2. “Amazon is big and only getting bigger, so how exactly are less resourced retailers supposed to meet its constantly evolving challenge head on? Is that even possible? Just consider what the company’s been up to recently.”

      The SKY is falling!
      Heard the same crap regarding GM, GE, Microsoft, etc. etc. Somebody comes along with a better idea, or the leader gets lazy.

      1. Right. And look at GE stock today.

  5. I don’t understand this piece at all. Wouldn’t greater transparency be a better end state goal than an interstate compact to not let anyone know what’s going on in city halls? It’s like I don’t even know you anymore, Reason.

  6. “nice, fat Rolodex”. At some point, we’re going to have to come up with a replacement word, but I’m too old to do the job myself. Also, this move is a boon to Amtrak. Another dozen Acelas, please!

    1. Also, this move is a boon to Amtrak. Another dozen Acelas, please!

      Or more likely, Amazon will get Amtrak (read US taxpayers) to build a maglev/hyperloop between DC and NYC to connect its 2 HQs.

  7. I have no problem with what Amazon did. It’s nice to see a company exploiting governments for a change.

    Far too many politicians see businesses as an unending source of free money.

    1. “I have no problem with what Amazon did. It’s nice to see a company exploiting governments for a change.”

      The better point: if it weren’t for corrupt people in government, businesses would be treated equally and wouldn’t be getting government favors at their competitor’s expense. People in business will always take advantage of corrupt officials, but the problem is that people believe offering such incentives is a good idea and elect officials who then engage in this corruption.

      It’s not a “company exploiting governments”, it’s a company exploiting taxpayers because of the corrupt officials they’ve elected. Those subsidies make the businesses and workers paying for them, more likely to go out of business and lose jobs compared to locations not paying for those subsidies.

  8. Bribes are bribes whether give to or by government officials.
    Will the subsidies be cut in half since only half the “benefits” will show up?
    Does Amazon carry torches and pitchforks?
    (got curious; pitchforks, yes, torches, only tiki and welding types, none suitable for storming castles)

  9. So, Amazon has decided to not even put half of its “HQ2” within fifty miles of a state with even one member of the Senate’s majority party.

    Talk about being near the “levers of power” all you want; Amazon is clearly not considering political influence in its selections.

    1. The Senate’s current majority party. The Republican will not control the Senate forever.

  10. How does a tax preference square with “equal protection of the law?”
    Bill Drissel
    Frisco, TX

  11. All I know is that they BLEW IT big time by not picking at least one of the two spots being somewhere more affordable.

    I live in Seattle. I know a million people who do work for Amazon (or other big tech companies) or have in the past… Almost everybody I know who has lived here for any length of time is getting REALLY sour on how garbage their standard of living is here now, even making solid money. I’m moving for the same reason myself soon!

    They should have picked Austin, Dallas, Atlanta, Miami, or one of their other low cost of living places. All the places they picked were ALSO shitty weather locations. Having one being in a low tax state (good for them and employees), with low cost of living, and warmer weather… There’s just no world in which that doesn’t make good business sense.

    DC really seems pointless as far as having a major office. A big lobbying office? Sure. But you don’t need code monkeys there. NYC or Boston or somewhere would have been fine for another hip/cool/trendy spot, but the other should have definitely gone to a different type of city. Idiots.

  12. I think the nation’s cities and states should bargain collectively with
    businesses, including Amazon. How about if they form a union?


  13. Thank you so much for this useful article!

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