As City Observatory predicted in January, Amazon will select multiple locations for HQ2

The Wall Street Journal is reporting that Amazon’s much ballyhooed headquarters contest  will choose not one winner, but two. Inc. plans to split its second headquarters evenly between two locations rather than picking one city for HQ2, according to a person familiar with the matter, a surprise decision that will spread the impact of a massive new office across two communities.

Some are calling it a surprise, but not us.  It’s exactly what we predicted in our January 22 commentary “Two things everyone has missed about Amazon’s HQ 2 decision.”

As we wrote at the time, much of the coverage about Amazon missed the point that it was very much in Amazon’s interest to have multiple locations rather than choose just one winner; we said:

Amazon is very likely to choose multiple locations (HQ2, HQ3, HQ4) to tap different city specializations, to minimize its negative effect on housing markets, and to continue to its negotiating leverage over “winners.”

But like any reality-TV show, there’s nothing that stops the producers from injecting a late-in-the-game plot twisting rule change. Don’t be surprised if later this year, Amazon announces that its going to have more than one HQ2

Our prediction was based on a careful analysis of the business implications of expanding beyond Amazon’s current Seattle headquarters, especially the challenges of operating multiple locations. We argued that Amazon would select cities that had the necessary base of talent, and whose industrial or knowledge specializations matched strategic directions the company was pursuing. Rather than duplicating its Seattle operations, we predicted Amazon would want its new headquarters locations to diversify its geographic and technological base. Once it crossed the Rubicon of moving some functions out of Seattle, we argued, there was little reason to restrict themselves to expanding in just a single location.

As current news reports have mentioned, having multiple locations also has the benefit of mitigating some of the negative effects of Amazon on local labor and housing markets.  Again:  exactly what we foretold in January:

Having several smaller HQ2, HQ3, and HQ4 locations would also work to Amazon’s advantage in minimizing its impact on housing affordability. Much has been made of a likely “winner’s curse:”  in addition to giving away substantial public subsidies, a city that suddenly got 50,000 highly paid jobs would likely see a substantial escalation of housing prices.  Splitting HQ2 among several different cities would lessen housing market dislocations . . .

In addition, choosing two cities keeps the “game” alive and maximizes Amazon’s negotiating leverage to secure incentives and concessions from the “winning” cities.  We wrote:

There’s another good reason to pick multiple cities. If a single winner is announced, and its competitors are dismissed, then Amazon’s negotiating position becomes much weaker. A city may not be able to deliver everything that’s promised (especially over time), and local political demands for Amazon to provide compensating benefits to the community in exchange for its subsidies are likely to escalate. Having multiple winners will allow Amazon to continue to keep each of them honest. This has been a lucrative game for Amazon: there’s no reason to end it now.

What this savvy seller has learned over the last year or so:  Pitting cities one against another to please its corporate whims has been a great move for Amazon, and it looks like it will be for some time to come.