Amazon’s HQ2 Decision Is Out of Touch With Reality

Amazon HQ2 - Amazon’s HQ2 Decision Is Out of Touch With Reality

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While Amazon (NASDAQ:AMZN) stock is still up 45% over the last year, and operations are firing on all cylinders, the Amazon HQ2 process has been a disaster that should make investors question whether tech companies have any clue about their corporate responsibility.

After Amazon decided, in September 2017, to decentralize away from Seattle, it set a process in motion for building a second headquarters, which it hoped would be transformative, for itself and the cities that won the derby.

But Amazon’s decision isn’t transformative at all. Adding new office workers to New York City and Washington D.C. saves the company little and changes nothing for Amazon stock.

Like the other tech giants — Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) — Amazon remains centered in just a few places while the rest of the country suffers, and resentment builds.

The political wildfire spawned by this ignorance is going to get worse, which is unhealthy for Amazon stock.

A Collection of Pieces

Amazon’s HQ2 is going to increase its centralization problems, not decrease them. While Amazon is tied together by a network of cloud data centers and warehouse infrastructure, it’s also a collection of discrete businesses, each of which deserves its own headquarters. Alexa development is already centered around Boston, Amazon Studios in Los Angeles, the cloud in Virginia.

Centralizing store operations in Chicago or Dallas, with third-party operations in the losing city, and perhaps moving the studio to a state with existing tax incentives, like Georgia or Louisiana, would spread Amazon’s wealth into lower-cost areas, and deliver it political benefits on the state level.

Financial back-office operations don’t have to be in New York, either. The New York Stock Exchange is owned by Intercontinental Exchange (NYSE:ICE), in Atlanta.

Spreading the Wealth

If 2018 proves anything, it’s that there remains enormous resentment of tech’s economic power, increasingly reflected in political pushback. The answer to that is to decentralize operations so that pushback is eased.

Just how divorced the Big Tech corporations are from reality can be seen in a proposal by Rep. Ro Khanna, who represents Silicon Valley, to spread the wealth. Based on the Morrill Act, the 1862 act creating land-grant colleges, Khanna’s proposal is to spend government money inside “opportunity zones” of smaller cities around the country, creating a workforce that can make things like the iPhone. It’s based on an idea from West Virginia University president Gordon Gee.

But research universities are already the nation’s chief economic engines, and not just in big cities. Iowa City is rapidly becoming as large as nearby Cedar Rapids, and Lincoln, Nebraska may soon become bigger than Omaha.

Creating workforces to assemble hardware is also dumb. The universities are rightly focusing more on software, and biochemistry, the industries of tomorrow rather than yesterday.

Research help is the kind of incentive Amazon needs, not the real estate and sales tax breaks the losing HQ2 cities were offering. All Amazon did in its HQ2 process was show just how rich it was, and how out of touch it is with the pain beyond its doors.

Wasting Money and Goodwill

Between them, the aforementioned Big Tech stocks have a market capitalization of $3.5 trillion, even after a hard fall in October. The money, and power, is centered in just a few places — northern California, Seattle, Washington, D.C. and New York. This defines the country’s political divide.

Among all the technology players, Amazon was already the least centralized. Google, Apple, Microsoft and Facebook, are far more centered around their economic bases, because their products are mostly software, virtual.

That’s the irony. An economic world built around the internet doesn’t have to be centralized. The whole nature of the internet is that it’s decentralized.

Until the Big Tech giants fully grasp that concept and act upon it, stock in companies like AMZN will remain under pressure.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL, MSFT and AMZN.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/amazon-hq2-is-out-of-touch/.

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