January 11, 2019
Why Did Amazon Really Pass Over Chicago For HQ2?
When Amazon chose the markets of New York and northern Virginia for its HQ2 company headquarters, a number of cities on the short list asked the same question: “Why not us?”
Based on the chatter around town, Chicago was no different in asking this, especially since it appeared at one point that the city might actually get HQ2 with multiple visits from Amazon representatives.
I’ve heard plenty of reasons for these selections, such as an easy commute back and forth to Seattle by air (call me skeptical since LaGuardia’s airport is one of the worst airports to get in and out of).
Instead, let’s look at a fundamental issue at the heart of any decision this monumental for a company: The availability of certain talent, specifically technology talent as well as advertising and marketing talent. Now, we know that there is a good level of both tech and marketing talent in markets like our own. However, Amazon isn’t just seeking software developers or DevOps people. They likely want the top 5-10% of that talent pool, of which the numbers get small very, very fast.
As such, if Amazon were to look at Detroit, it’s doubtful that Detroit has that many software developers. They might have looked at Pittsburgh, but Pittsburgh is a small town. So it made sense for them to look at areas where there would be a larger quantity of this high caliber talent.
The successful city recipient of HQ2 needed to not only have the highest quality talent but also be able to attract talent from outside of that area. In fact, Amazon grew in Seattle not so much because there was an enormous level of tech talent already present in Seattle. It was because they were able to bring the talent to Seattle.
So availability of talent and ease of attracting/relocating talent to the area surely was high on the list of factors to consider for Amazon.
Third, Amazon needs to be able to compete for talent in the area effectively. For example, Amazon probably couldn’t go into Silicon Valley because while the region obviously has a lot of talent, the competition for that talent is going to be fierce – which means devoting a lot of dollars for prime talent.
In northern Virginia, Amazon should be able to compete more effectively, attracting highly capable people at a more cost-effective rate. In addition, Amazon will probably pursue government business in the region, so connecting with people in Washington, D.C. and the surrounding area makes sense.
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So…why not Chicago?
After all, couldn’t Chicago meet much of the above criteria?
In terms of Chicago, let’s take a look at the availability of talent in terms of 50,000 people. How easy has it been for Facebook and Google to recruit people here in Chicago? Not as easy as you might expect.
Yes, those companies are hiring but we are not seeing software developers, at least over the last year, going to either Google or Facebook. That's because the talent that these companies are competing for have ultimately gone to financial trading companies – and that makes the competition very tough.
It’s challenging to compete with financial trading companies because they’re smaller, very technology intensive and they pay very well. So this may have been a significant consideration for Amazon – if Google and Facebook have been having such difficulty attracting specific tech talent, how would Amazon fare?
See, there is not enough of an appreciation of how fierce the competition is for a certain kind of technology talent. It's not just a matter of dollars and cents. Some people are not going to move just because of an opening. Consequently, if you’re going to hire 10,000 or more of a particular high caliber of individual, you can't do it very quickly. And if you're fishing in a barrel, you're not going to get a ton of fish out of one barrel. It just doesn't happen. You need to have a big ocean to fish from. Even then, it could take several years to build up a significant group of technological talent.
With this in mind, Amazon splitting its HQ2 company headquarters makes perfect sense. It’s simple arithmetic that they don’t have to find and fit in 50,000 technology people in one location. They can aim for 25,000 people in one location instead. So if Amazon is striving to attract the top 10% of tech talent in the area and there are 250,000 people in that talent pool in the area, it’s a bit more manageable.
Of course, they probably won’t get the whole of the top 10% talent and may attract a portion of it. But, in practical terms, they can still have pieces of their business that function more or less in different locations. And by the way, when we talk about different locations, it’s not just New York and Washington, D.C. for Amazon. They have very substantial presence in a lot of other cities, including Chicago, Boston and Silicon Valley. So they’re not actually putting all of their eggs into three baskets. They’ve got many, many baskets.
The Ability To Handle Amazon’s Footprint And Impact
Let’s face it: No matter how big the list of contenders for HQ2 seemed to be, you could count on one hand the number of cities that could legitimately handle Amazon on so many levels, from its real estate footprint to impact on other businesses.
If Amazon were coming into a smaller metro area such as Indianapolis, for example, it would potentially create dramatic shortages for other companies and suck a lot of oxygen out of the area.
If there was any city I might’ve seen as an alternative to these awarded locations for Amazon, it was Boston. While not the largest city, Boston is very tech heavy, has substantial research capabilities and offers talent that can grow in that particular area. If Amazon wanted somebody to concentrate on machine learning, for example, they’d look no further than MIT. But again, few cities could handle Amazon quite like New York and the Washington, D.C. area, where the impact won’t be as severe. New York can comfortably accommodate millions of people in its metro area and a variety of industry hubs, from finance to advertising.
Plus, both of these areas have significant infrastructure for building and for hiring talent as there’s a much larger pool of individuals they need to pursue.
Naturally, there’s another important factor that people don’t mention all that much, but let’s not pretend that it doesn’t matter – we know Jeff Bezos has an affinity for Washington, D.C. as an owner of the Washington Post. So with a house there and a background in finance (people forget that this is where Bezos got his start), New York and the D.C. area make sense as two places that are quite comfortable for him to live. So that “in-house” advantage of these markets was probably very tough to beat too.
We will surely learn even more reasons in the days to come as to why Amazon passed over Chicago, but the city has nothing to be ashamed of in being one of the runner-up locations for HQ2. With a continuing steady stream of tech companies coming to the city and expanding their existing space such as Salesforce adding 1,000 new jobs over the next five years at a new 57-story office tower, Chicago is still very much in the conversation as a growing tech hub.
From New York to Chicago, Roy Talman & Associates is as excited as ever to call upon its 30+ years of experience to bring top tech talent into these ever-thriving markets. If your plans call for significant growth and an influx of talent, the timing couldn’t be better to talk to Talman first.