In all the comment around Amazon’s decision to cancel their “HQ2” in New York, I’m surprised to see some salient questions un-asked.
- After such an exhaustive public search, why didn’t Amazon just pivot to the #2 choice? If New York didn’t work, why not just call the runner-up? It is obvious there wasn’t a credible #2. So was the search itself just a sham PR exercise? An attempt to shake down New York for concessions?
- What business units were to go to Amazon’s new headquarters?
- Northern Virginia is an obvious location for a unit that could use some structural breathing room – the Amazon Web Services Public Cloud. It is already a stand-alone organization with its own compensation plan. It has a huge government presence already. With massive data centers located in Ashburn Virginia (just outside the blast radius of nukes hitting DC). And AWS is the likeliest candidate for the DoD’s $10b over 10 years “JEDI” contract.
- New York would be an obvious location for….? My best guess is Media and Advertising. Two New York industries and two major Amazon initiatives. In that case, the HQ2 search was always a sham and Amazon ends up building a similar sized presence in NYC (without all the fun subsidies).
- To what end all this separation? A spin-off of AWS and Media as separate stocks seems the most likely answer. Eliminate the conglomerate discount, eliminate conflicts of interest, and fend of the anti-trust authorities.
- The original HQ2 justification was talent diversification. That no longer holds water given Amazon’s chosen locations were equally bad “war for talent” labor markets with equally bad traffic and growth-related challenges.
- AWS, in particular, would benefit from more formal separation from Amazon’s other businesses. AWS wants to sell to all comers. But Amazon’s ambitions in retail, health care, financial services, and transportation push a lot of potential clients into the arms of Microsoft’s Azure and Google’s Cloud Platform. The two arms are already separate in practice. A wider, more formal separation would eliminate a drag from AWS and give it a proper (probably astronomical) valuation.
- Media and Advertising don’t seem to suffer similar negative drag from linkage to Amazon proper. It might be the simple (and probably valid) valuation argument. Advertising business are generally worth more than an agglomeration of warehouses and grocery stores.
- Lurking behind all of the above could be a preemptive action on the anti-trust front. If you see a potential break-up threat, why not do it yourself on lines of your own choosing?
I might circle back to these later. Although, having written this, the itch seems pretty well scratched. As always, any thoughts, feedback, or comments are deeply appreciated.