Amazon HQ2 – The Uber Test

Let me start off by saying I have no non-public information about Amazon’s search for a second headquarters, aka HQ2.  And I have no idea how Amazon’s senior leaders will ‘score’ proposals and make a decision.  But I have a couple of observations I’d like to make based on how Amazonians think.

Yesterday’s big news on the HQ2 front was how Newark was offering $7B in incentives if Amazon chose it for HQ2.  The $7B was composed of $5B over 10 years from the State of New Jersey and $2B over 20 years from the city.  Nice.  But cities that think Amazon will make its decision based on short term, and 10 years is short term, incentives are sadly mistaken.  Incentives are going to be a tie-breaker, not the primary driver of a decision.  Amazon thinks long-term, so senior leadership is going to be thinking about picking a location that they believe will be the right one for 2030, 2040, and 2050.  Incentives that mostly run out in the 2020s won’t mean much if it means having 50,000 people in the wrong place in 2035.  So they will narrow things down based on other criteria, get to a few finalists, then start weighing the value of the incentives.  At least IMHO.  I’ll get back to Newark later.

On Facebook a friend, who grew up in Memphis, suggested that city for Amazon HQ2.  This was in response to the New York Times’ analysis saying HQ2 would go to Denver.  Memphis isn’t an obvious choice, and I don’t know how it lines up with the official criteria.  So how can one quickly weigh if Memphis, or any other location, would be a good choice for Amazon?  Amazon is a company where it is always Day 1.  Amongst other things that means it tends to pursue disruptive ideas, such as using drones for deliveries.  Amazon would want HQ2 to be in a location that is supportive of a Day 1 company, if not outright still in Day 1 itself.  What I needed was a simple test for Day 1 type disruptions, and the last decade presented us with a perfect one.  Ride Sharing, and more specifically Uber.  Another interesting test would be AirBnB, but I haven’t pursued that one.

Uber has been disruptive in applying technology to an urban transportation system (taxis)  that hasn’t changed significantly in almost a century, and has deeply entrenched interests.  Moreover, that system had become highly regulated with substantial public bureaucracies and government revenue streams linked to them.  So wherever Uber (or Lyft or…) went it was going against “the system” and friction was to be expected.  What you could measure, very quickly thanks to Google and Bing, was just how much friction (or support) Uber ran into with local government.

So I did a search on Memphis and Uber and discovered that in 2013 the city of Memphis has sent its police force to arrest Uber drivers.  That seemed like a pretty extreme case of being unfriendly to Day 1 type disruptions, and played that back to my friend.  He pointed out that was 2013, so I did a search on Denver and Uber and discovered that in 2013 the Colorado Legislature became the first in the country to explicitly legalize ride-sharing.  What Colorado Governor John Hickenlooper said at the time was “Colorado is once again in the vanguard in promoting innovation and competition while protecting consumers and public safety.”  And when there was some friction in the city of Denver after that, the Police Chief acted quickly to resolve it.  Which makes more sense to locate the HQ of a Day 1 company in, a place that sent the police to arrest Uber drivers or one that acted quickly to accept and encourage the disruption?

So let’s get back to Newark.  There are many reasons I could think of for picking Newark as HQ2.  In particular the close proximity to New York City and all its benefits, with much better housing costs.  Making the reverse commute from Manhattan to nearby New Jersey cities has even become reasonably common in the last 20 years.  The incentives being offered are nice, but again they are a short-term benefit in a long-term play.  So I applied the Uber test to Newark, and it failed miserably.  Newark was still trying to force Uber into their Taxi regulatory scheme as recently as 2016, banning them from Newark Airport and train station in February and planning to enact further regulation in April.  Uber was planning to abandon the city when a last minute deal was reached.  Compare what Newark Mayor Ras Baraka said about Uber, “Just because they have a great idea, doesn’t mean they have an exemption from rules and regulations that have been in existence for decades” with the earlier quote from Colorado Governor Hickenlooper.  I was particularly caught by the “rules and regulations that have been in existence for decades” part.  That doesn’t read like a Day 1 supportive location to me.  It is quite possible that those words will come back to haunt Mayor Baraka when Amazon is evaluating the HQ2 proposals.

The Uber test isn’t perfect for a couple of reasons.  One is that pretty much no locality that regulates Taxis and Limousines won’t try to put some regulatory regime around ride sharing.  The other is that Uber itself has valued confrontation with local governments and agencies over reaching an accommodation, and that in some cases has raised the heat significantly.  For example, I know of airports where Lyft was able to pick up months before Uber, because they negotiated a deal while Uber was still trying to fight the local airport authority.  But in most cases Uber fights the regulatory fight, and gets painted as the bad guy, then Lyft and other competitors benefit.  So the Uber test isn’t black and white, it is varying shades of grey.  But compare the light grey of Denver to the very dark grey of Newark and it, at the very least, gives an indication of which city would be more accommodating to a company where it is always Day 1.

 

 

 

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7 Responses to Amazon HQ2 – The Uber Test

  1. Donza says:

    Enjoyed the post and agree that Amazon is looking for a place that benefits them in 2050 not 2020. However, I am not sure your Uber “Day 1” test is that applicable. It is indicative of the view five years ago and potentially five years from now, but is it relevant in 2030? Not sure what a better proxy would be, but agree Amazon is looking at long-term benefits, just not sure gauging the current political climate in a city gives a view into the long-term.

    • halberenson says:

      It’s a test of attitude towards disruptive change. One could create a “disruptive change index” and then use that to better measure overall attitude towards those changes. A locality that fought ride-sharing, fought AirBnB, fought Wal-Mart building stores, fought… isn’t going to suddenly become accommodating to the next disruption. Some cities will say “let us help you figure out how to make deliveries with drones” while others will hand you the regulations for landing a 747 in the high school parking lot and tell you the drones must conform to those regulations. You want the former.

      • Donza says:

        Agree. My question, more clearly, is: did municipalities that fought WalMart (insert some trend 20 years ago) also fight Uber. Logically, it seems they would, but if municipalities fluctuate in their views every 5-10 years then this test wouldn’t be that applicable.

  2. Tatil Sever says:

    I guess Vancouver would fail your Uber or a generic ride-sharing test, but it would win on the “openness to immigration” test. The latter might be more important for an engineering and IT company planning to hire the best and brightest from around the world.

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