Ever since it was announced last fall that Amazon would establish a second headquarters away from Seattle, speculation about HQ2 has been rampant. That nearly every major North American city put in a bid has made it more than a challenge to guess the eventual winner. Or maybe it hasn’t.
One way to perhaps develop a better sense of Amazon’s plans is to consider a high-profile acquisition completed by Jeff Bezos in 2013. While it was pretty small relative to some of Amazon’s bigger deals, it was arguably the most consequential.
Specifically, Bezos acquired a struggling Washington Post. And while the $250 million purchase price was a rounding error for Bezos even then, it’s safe to say that it was the best deal he's ever entered into.
To understand why it was such a brilliant move, readers must first travel back in time to 1998. It was then that the U.S. Department of Justice (DOJ) sued Microsoft for “illegally thwarting competition.” Translating all this for readers, Microsoft was sued for going out of its way to meet the needs of its customers. In doing so, it was properly acting as though its “monopoly” profits were anything but eternal.
If anyone doubts the above assertion, as in if they believe Microsoft had an impregnable technology monopoly, they need only ask how this giant was ultimately late when it came to internet search, social media, smartphones, etc. Giants stumble all the time.
Explicit in the ridiculous charge that Microsoft was “illegally thwarting competition” was that it uniquely understood where technology was going such that it would enjoy first-mover advantage by virtue of entering markets ahead of the competition. Except that it couldn’t, and didn't. Google and Facebook are but two of many booming companies whose prosperity is a reminder of just how tenuous Microsoft’s dominant hold on the technology market was.
Yet Microsoft’s truly inexcusable mistake by backwards, slow-growth Washington, D.C. standards was that it lacked a “man” in Washington. It lacked an “old hand” as it were to placate a political class that never produces, but always takes. One of the most valuable companies in the world lacked a D.C. lobbying presence, and that surely offended a political class that likes to be kowtowed to. At which point Microsoft was charged with “illegally thwarting competition” just as its dominance was about to be exposed as more than ephemeral.
None of this should surprise readers. For antitrust ankle biters to really and truly arrest actual commercial dominance ahead of time would be for them to see into the future of commerce in ways that the world’s greatest investors routinely fail to. Since they can’t see into the future, they always strike the “powerful” just as market forces are about to expose them as something "less than a much" (an I Love Lucy reference).
What does all this mean for Amazon? Oh well, the speculation here is that Bezos always knew Amazon would eventually be big and powerful. At the same time, he didn’t want to be distracted by the inevitable federal harassment. The latter is particularly critical in light of the fact that the feds invariably strike when a company’s dominance is about to be tested. The speculation is that Bezos chose to preempt any harassment.
He did so with his acquisition of the Washington Post. While the Post surely registers as a highly prominent newspaper outside of Washington, D.C., within D.C. it’s much more than prominent. It’s THE newspaper. How bureaucrats, regulators and political types are covered within its pages matters to them. A great deal. In acquiring the Post for a pittance, Bezos was saving himself hundreds of millions in legal fees, tens of billions in lost opportunities, and potentially trillions in market capitalization. Washington can’t build companies, but it can certainly wreck them. In buying the Post, Bezos was ensuring that market forceswould eventually take out Amazon, not government.
For readers to understand the genius of Bezos’s newspaper acquisition, they need only contemplate Amazon's purchase of Whole Foods last year. The $13 billion deal was announced on June 16, 2017, and was completed on August 28, 2017. The speed with which this combination took place was nothing short of stunning.
It all occurred without any of the routine harassment that comes with multibillion-dollar acquisitions. About the lack of harassment, good. Very good. Antitrust shouldn’t exist. Mergers should take place with great speed, and without government oversight. Still, what’s right and what happens in Washington couldn't be more different. Politicians and regulators don’t enter politics and regulation so that they can oversleep big combinations. They once again want to be kowtowed to. Yet Amazon’s acquisition of Whole Foods sailed through without the normal harassment from the feds. Of course it did. Jeff Bezos owns the most important newspaper in all of Washington, and one of the most important in the world. A wise move by a businessman known for them.
All of which brings us to the question about where Amazon will locate its second headquarters. The speculation here is that it won’t be a traditional “major city” á la New York, Los Angeles, San Francisco, Chicago or Atlanta. Bezos has a tendency to surprise. One aspect of his genius is that he does the unexpected.
More important, his Washington Post acquisition speaks to a strong understanding within the hyper-focused CEO that Washington once again can’t build companies as much as it can wreck them. In that case, Bezo’s move will please the political class.
The above in mind, northern Virginia or Washington, D.C. itself are logical choices. Plentiful airports, culture, lots of well-regarded colleges and universities, not to mention all the bright young things who move here after college. All that, plus a D.C. presence would further render Amazon immune from federal scrutiny.
Yet despite the many positives of a D.C. area move, the speculation here is that it won’t be Amazon’s choice. Political types won’t want to compete with Amazon employees for housing, schools and other baubles embraced by the well-heeled, plus Washington, D.C. is already prosperous. It doesn’t “need” Amazon the company so long as Bezos owns the city’s company paper, the Washington Post.
Instead, it says here Bezos will choose between Detroit and Pittsburgh. Each city has a well-developed airport, plus Detroit’s airport is a hub for Delta. Detroit is near the University of Michigan and Michigan State, while Carnegie Mellon annually graduates some of the U.S.’s top technological minds. Pitt is nationally known with all that the latter presumes in terms of student body quality. Pittsburgh is also in the process of developing a strong technological base as the presence of Facebook, Google, Uber (its driverless car operations are there) attests. And owing to the grand industrial past of each city, there are impressive museums and other cultural aspects that will appeal to the well-educated employee demographic Amazon seeks.
What’s important politically is that each city is better known for its past compared to the present. Getting right to the point, each city brings to mind “rust belt.” Crucial here is that the arrival of Amazon in either would quickly erase “rust belt” from any modern description. Bezos and Amazon have the potential to save a past monument to prosperity, and in doing so, Amazon would be further insulated from the jackals in Washington, D.C. ever in search of ways to pry tribute from the truly productive. They're not going to take out a company that revives what was was fallen.
About all this, how sad in a very real sense. Profits and the creation of future profits should be the only consideration for any move by any company, and this includes Amazon. But the world isn’t perfect. Because it isn’t, as in because political types are prone to getting in the way of natural market developments, CEOs must be crafty. The speculation here is that Jeff Bezos will be crafty too, and revive Pittsburgh, PA.