Why Amazon's move to split HQ2 between New York City and Northern Virginia makes sense

Amazon bake-off for new locations for its new headquarters has concluded with a decision to go with two cities. Here's how the move plays into Amazon's business.
Written by Larry Dignan, Contributor

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Amazon will pick New York City and Northern Virginia as its second and third headquarters to conclude a long-running bake-off among cities.

The company said in a statement that it will go with Long Island City in Queens and Arlington County's National Landing as new locations for its headquarters. The news was first reported by the Wall Street Journal. Amazon said it will invest $5 billion in the locations and hire 50,000 evenly split between the locations. In addition, Amazon selected Nashville as a center of excellence for its operations such as fulfillment, transportation and supply chain.

Nashville is 212 miles from Memphis, home of FedEx and a lot of fulfillment and operations talent.

Here's a look at some of the perks of going with two locations instead of two.

Spread the tax break love. By splitting HQ2 into two cities, Amazon lowers its total operation costs. New York and Virginia will give Amazon tax breaks. And by having an open interview process Amazon did advance scouting for other locations, which will incidentally have a tax break template for the future. Amazon gets $1.525 billion in tax incentives to create 25,000 jobs in Long Island City. Virginia will give Amazon $573 million in direct tax incentives to create 25,000 jobs. Nashville, Davidson County and Tennessee will provide $102 million in direct tax incentives to create 5,000 jobs.

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Each location plays into Amazon's growth areas. Long Island City has easy access to Manhattan and the ad tech companies as well as advertising and media firms that come with it. Advertising is a big growth area for Amazon's "other" revenue category. Northern Virginia gives Amazon Web Services more proximity to the government agencies moving to the cloud. And oh yeah, Jeff Bezos owns the Washington Post. Nashville adds a distribution and operations base. Hiring will begin in 2019, said Amazon.

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Amazon will be neighbors with FreshDirect and that could make an acquisition much easier. With its Long Island City location, Amazon will have a front-row seat to observe FreshDirect, an online grocer that's popular in New York City and has expanded to Philadelphia. FreshDirect would make an interesting purchase for Amazon and perhaps proximity matters.

Also: Amazon will expand its Boston tech hub with 2,000 new jobs | Amazon narrows list of candidate cities for HQ2 to 20

Location diversification only makes sense. Seattle only has so much talent and Amazon's growth has led to skirmishes with the city. By diversifying its headquarters, Amazon gets more access to talent and cultures. There is quite the cultural difference between the east and west coasts. Average wage assumptions for the three locations are $150,000.

Amazon everywhere. The reality is that Amazon's distributions centers are all over the U.S. AWS data center regions are also widely dispersed. The HQ2 bakeoff may even lead to HQ3 in a few years. Amazon has the east and west coasts covered, but don't be surprised is some of the runners up in the HQ2 bakeoff get play later. Places like Austin, Texas and Chicago may also become expansion areas in the future.

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