Chicago’s bid for Amazon HQ#2

Here are a few details of what Chicago is offering Amazon to attract its second headquarters:

“Chicago offers unparalleled potential for future growth for businesses of all sizes and is the ideal place for Amazon to build its HQ2,” Emanuel said in the news release. “This bid will demonstrate to Amazon that Chicago has the talent, transportation and technology to help the company as it reaches new heights and continues to thrive for generations to come.”

Developers of four Chicago sites have provided details of their Amazon bids to the Tribune. Those sites are Lincoln Yards, the planned redevelopment of the former A. Finkl & Sons steel plant and other land along the Chicago River in Lincoln Park and Bucktown; the vacant old main post office along the river and Congress Parkway; 37 acres owned by broadcast company Tribune Media along the Chicago River near Chicago Avenue and Halsted Street; and the former Michael Reese Hospital site and nearby land in Bronzeville.

Chicago’s bid highlighted Chicago’s transportation network, talent pool, diverse economy, airport access, quality of life and proximity to research centers, according to the news release…

On Sept. 7, the day Seattle-based Amazon announced plans to invest $5 billion on creating a second headquarters, Emanuel told the Tribune the city planned to make a bid, and said he’d already spoken with Amazon CEO Jeff Bezos multiple times about bringing HQ2 to Chicago.

No word on the tax breaks and incentives the city and state are offering. I’m guessing they are plentiful.

At the same time, why wouldn’t Chicago have a good chance at this?

  1. Chicago is a top #10 global city.
  2. A central location. I know we are in the Internet/social media age and all but location still matters.
  3. A strong transportation network with multiple airports, rail connections, highways, and shipping.
  4. While the city may be losing residents, the region is still growing slightly and has plenty of workers.
  5. An wild card factor: if President Trump continues to use Chicago as an example of a (Democratic) city with problems, would Bezos and company like to stick it to him and show they are committed Chicago? Lots of cities can offer land and other incentives but Amazon could claim to be a significant part of turning Chicago around. (Whether a single headquarters could do this is another story but there are business considerations as well as political narratives at play here.)

Now to see how long it takes Amazon to announce a decision.

New possible Georgia city just for Amazon

The race is on between cities and communities to put forward an appealing pitch to Amazon regarding its second headquarters. One Georgia community has a unique approach: make a new city just for Amazon.

The Stonecrest City Council voted 4-2 on Monday to de-annex 345 acres of land if the e-commerce giant picks the area for what the company calls HQ2, a corporate hub where Seattle-based Amazon says it will one day house 50,000 jobs…

“There are several major U.S. cities that want Amazon, but none has the branding opportunity we are now offering this visionary company,” said Stonecrest Mayor Jason Lary. “How could you not want your 21st century headquarters to be located in a city named Amazon?”

Amazon is seeking a 175-acre site located near an international airport, public transit and high quality of living. Lary said he hopes MARTA expands rail service to Stonecrest.

The proposed city of Amazon could enter into an agreement with the city of Stonecrest to provide city services, he said.

This would indeed present a unique opportunity for any large company. I could imagine a few stumbling blocks:

  1. Naming a community after your company could have some cool features but also might have drawbacks. If something goes wrong in Amazon, Georgia, is it automatically the company’s fault?
  2. Would Amazon want its own community that is still beholden to its neighbor for city services? Providing all of your own infrastructure could be very expensive but working out deals for essential needs is not necessarily easy.
  3. Would Amazon want the perception of running a company town? This has tended not to work out well in the past. See Pullman as an older example or Facebook as a more recent effort.

I imagine there will be additional creative options proposed by other cities and places. Stay tuned.

The suburban expansion strategy of Sears in the 1920s

In an intriguing article comparing the rise of Sears and Amazon, Derek Thompson explains how Sears expanded from a mail-order business to physical stores:

In the early 1920s, Sears found itself in an economy that was coming off a harsh post-World War recession, according to Daniel M. G. Graff and Peter Temin’s essay “Sears, Roebuck in the Twentieth Century.” The company was also dealing with a more lasting challenge: the rise of chain stores. To guide their corporate makeover, the company tapped a retired World War I general named Robert Wood, who turned to the U.S. Census and Statistical Abstract of the United States as a fount of marketing wisdom. In federally tabulated figures, he saw the country moving from farm to city, and then from city to suburb. His plan: Follow them with stores.

The first Sears stores opened in the company’s existing mail-order warehouses, for convenience’s sake. But soon they were popping up in new locations. Not satisfied with merely competing with urban department stores like Macy’s, Wood distinguished new Sears locations by plopping them into suburbs where land was cheap and parking space was plentiful….

The company’s brick-and-mortar transformation was astonishing. At the start of 1925, there were no Sears stores in the United States. By 1929, there were 300. While Montgomery Ward built 90 percent of its stores in rural areas or small cities, and Woolworth focused on rich urban areas, Sears bet on everything—rural and urban, rich and poor, farmers and manufacturers. Geographically, it disproportionately built where the Statistical Abstract showed growth: in southern, southwestern, and western cities.

So what is the equivalent today of the burgeoning suburbs of the 1920s in terms of locations? The end of the article hints at one option:

Amazon, too, will thrive as long as it uses American demographics as a roadmap and takes advantage of new personal technology, like mobile phones for shopping and AI assistants for the home. In the last six months, Amazon has spent $13 billion to buy Whole Foods and its upscale urban locations. At the same time, it has offered discounts for low-income shoppers to become Prime subscribers.

Locating in wealthy communities is an interesting strategy. Other major popular retailers today are following such a model: think of Apple stores (perhaps another reason they cannot truly be town squares if they are primarily in wealthy areas) and Starbucks locations (less exclusive than Apple but still located within reach of wealthier customers or along well-trafficked roadways – see all 11 locations in the wealthy suburb of Naperville). Could we end up with a bifurcated retailing model where the wealthy (and those who can travel to these locations) can shop at a bricks and mortar store while the majority of Americans primarily shop online? This might be an overlooked edge for Walmart at this point: Amazon may rule online but Walmart stores, like Sears, are where many more typical Americans are and it may take some time to switch loyalty.

Roll out the tax break bidding war for Amazon HQ#2

Amazon want to build a second headquarters with some 50,000 workers. Expect the tax break war to begin:

Amazon is seeking proposals from local, state and provincial government leaders, and says it is focusing on metropolitan areas with more than 1 million people. It is also looking for areas that can attract and retain technical workers and “a stable and business-friendly environment.”

News of the search has unleashed a wave of speculation about where the world’s largest online retailer could set up shop. But experts say the company’s decision is likely to be as much about politics as it is about logistics and incentives. Bezos has been a vocal opponent of President Trump’s immigration bans, and earlier this week was among hundreds of tech leaders who urged him to reconsider his stance on the “dreamers” immigration program…

Among the criteria it will consider, Amazon says, are tax exemptions and other incentives, including relocation grants and fee reductions. “The initial cost and ongoing cost of doing business are critical decision drivers,” the company said in its request for proposals.

It added that the location does not need to be in an urban or downtown location, or a development-prepped site. The site should, however, be within two miles of a major highway and have access to mass transit. Amazon said it will give priority to existing buildings that are at least 500,000 square feet and undeveloped sites that measure about 100 acres.

Here is the actual language from page 6 of the RFP:

AmazonRFPp6

This may seem like a perfect scenario for locations (cities and states) to offer tax breaks: the company is growing, it is a major player, and it comes with a large number of jobs. Headquarters are a status symbol for areas but this one includes real jobs and a high-status company.

However, I would still argue a tax break war is a bad idea. Here are a few reasons why:

  1. There will be one winner and a lot of losers. Those who do not win may just offer even deeper breaks to the next possible company. When does this stop?
  2. A massive tax break will offset at least some of the benefits of the headquarters. While it is hard to pass up 50,000 jobs, significant tax breaks mean local governments and residents get less than they might otherwise.
  3. A bidding war puts Amazon in the driver’s seat and may have local governments begging for this. A victory would wipe out groveling but going all in on an offer and losing may reduce the status of a location. (Think of unsuccessful Olympics bids in the past.)

The locations involved could be many but this will not turn out well for many or maybe even all.

Let Amazon’s big data tractor trailer drive to you

Americans like big trucks and hard drive space so why not put the two together?

Amazon announced the new service, confusingly named Snowmobile, at its Re:Invent conference in Las Vegas this week. It’s designed to shuttle as many as 100 petabytes–around 100,000 terabytes–per truck. That’s enough storage to hold five copies of the Internet Archive (a comprehensive backup of the web both present and past), which contains “only” about 18.5 petabytes of unique data...

Using multiple semis to shuttle data around might seem like overkill. But for such massive amounts of data, hitting the open road is still the most efficient way to go. Even with a one gigabit per-second connection such as Google Fiber, uploading 100 petabytes over the internet would take more than 28 years. At an average speed of 65 mph, on the other hand, you could drive a Snowmobile from San Francisco to New York City in about 45 hours—about 4,970 gigabits per second. That doesn’t count the time it takes to actually transfer the data onto Snowmobile–which Amazon estimates will take less than 10 days–or from the Snowmobile onto Amazon’s servers. But all told, that still makes the truck much, much faster. And because Amazon has data centers throughout the country, your data probably won’t need to travel cross-country anyway.

One could make a strong case that semis make America go. And all the money that the government has put into highways and roads certainly helps.

The massive traffic generated by an Amazon fulfillment center

Labor practices in Amazon’s warehouses may be one issue but another issue for nearby residents is the traffic around the facilities:

Traffic grinds to a halt for miles when the fulfillment center’s more than 4,000 employees are going in and out of the facility during rush hour.

Robbinsville Mayor Dave Fried is threatening to sue  Amazon over the traffic that’s clogged area roads after a senior official failed to show at a meeting to discuss the problem…

The company’s fulfillment center, called the “busiest warehouse on the planet” is located on New Canton Way in the township…

In a statement on the township website Fried says:  “Children cannot get to school, residents cannot pull out of their driveways, and this has become a very serious public safety issue.  According to police department crash data, there have been 25 accidents that can be attributed to workers coming to and from the Amazon warehouse over the past six weeks, compared to just one accident over the previous six weeks.”

A common NIMBY concern about new developments is the traffic generated. Nearby residents complain about the traffic associated with schools, churches, shopping centers…basically, any sort of new development, particularly in more residential areas. Sometimes, these concerns seem like a stretch: a smaller church is really going to disturb local streets all week long? Yet, traffic can truly be an issue for an area is the roads can’t handle all the new volume. This Amazon facility in New Jersey is a good example: all the sudden, thousands of vehicles are now flooding local roads at relatively short periods. This is why the staggered start and stop times might be a good solution; roads are often constructed to handle rush hour type flows but they typically only happen twice a day and the roads sit emptier for much of the rest of the day. (Carpooling might be another good suggestion – how many Amazon workers drive solo? – but getting Americans to do this consistently is quite difficult.)

This is also a good reminder of the physical world footprint of an online company like Amazon. The products may come through the mail but all the infrastructure happens somewhere and affects various communities.

New cultural gatekeepers: paid online reviewers

After recently discussing buying Twitter followers, the New York Times explores another new online realm: paid online reviewers who only give extremely positive reviews.

In the fall of 2010, Mr. Rutherford started a Web site, GettingBookReviews.com. At first, he advertised that he would review a book for $99. But some clients wanted a chorus proclaiming their excellence. So, for $499, Mr. Rutherford would do 20 online reviews. A few people needed a whole orchestra. For $999, he would do 50…

“The wheels of online commerce run on positive reviews,” said Bing Liu, a data-mining expert at the University of Illinois, Chicago, whose 2008 research showed that 60 percent of the millions of product reviews on Amazon are five stars and an additional 20 percent are four stars. “But almost no one wants to write five-star reviews, so many of them have to be created.”

Consumer reviews are powerful because, unlike old-style advertising and marketing, they offer the illusion of truth. They purport to be testimonials of real people, even though some are bought and sold just like everything else on the commercial Internet.

Mr. Liu estimates that about one-third of all consumer reviews on the Internet are fake. Yet it is all but impossible to tell when reviews were written by the marketers or retailers (or by the authors themselves under pseudonyms), by customers (who might get a deal from a merchant for giving a good score) or by a hired third-party service.

I am most intrigued here by the possible change in relationship between a reviewer and an author. The article suggests there is some sort of “sacred” distance between the two: the reviewer is free to criticize the work without recrimination. Some reviewers have attained elite cultural gatekeeper status, people who guide decision-making for millions of people. Think of critics like Siskel and Ebert and Robert Christgau who are seen as authoritative figures. Hence, people are upset when they learn that a positive review they saw wasn’t an “honest” opinion but rather a business transaction.

However, let’s not forget that these reviewers also make careers out of their thoughts – they may not have sold out to a corporation or a product but they do have a financial interest. I would argue that this distance between reviewer and author/creator has never really been so sacred and there are plenty of areas where we are used to paid reviewers. If you follow a reviewer enough, you can often learn what they do or do not like. Indeed, some reviewers have become outspoken proponents of certain movements and not others. Is this based on a completely rational, detached perspective? Of course not. Don’t many reviewers interact with the people who are producing the products they are reviewing? Think of blurbs on the back of books: are these truly unsolicited comments or from people who are truly judging the merits of the book? More crassly, commercials often present “reviewers” or “real people” or people made to sell certain products. Perhaps this is simply a sign of our times and will become normal as there is clearly a market for good reviews.

It will be interesting to see how websites like Amazon, heavily dependent on user reviews, works through this issue. I always try to read both the five star and one star reviews when considering a product. Additionally, there are other issues: the ratings can be about the product itself or a particular aspect of the product or about people’s expectations for the product or the shipping or the customer service or something else. I think Amazon could include a few extra questions, as other websites do, that would help one sort through the variety of reviews. Overall, the system is not perfect and we should be aware that we may not be getting the “unvarnished truth,” but at least it is better than going off anecdotal evidence from a friend or two…right?