Amazon's Tale of Two Cities and Saying Goodbye to the Rabbits

Posted by Richard Harrington on Nov 15, 2018 6:00:00 AM
Richard Harrington
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So there it is. Amazon’s year long quest for its second headquarters has finally ended with an announcement that the will be shared by two cities, Long Island City, New York and Arlington, Virginia. When Jeff Bezos first announced the plan for HQ2, he promised to scour the nation for the right candidate, soliciting bids from cities across that nation outlining their plans on infrastructure, education and, of course, the tax breaks they were willing to give to have the honor of hosting Amazon’s second home and the jobs and prosperity that would bring.

Loyal readers of the Holden Advisors' newsletter will recall a blog I wrote September 2017 arguing that Amazon was playing most of these cities as rabbits, to use a term from Negotiating with Backbone. Here, the buyer already has a short list of sellers they intend to purchase from, but at the last minute, invites others to submit a bid, giving strong hints that price will be a big factor in the decision. 

Amazon's new home - Long Island, NY

Excited by the opportunity, sales works to submit the lowest bid they can, only to be disappointed when the incumbent matches their price and is awarded the contract. In reality, the late bidder never stood a chance; they were simply part of a well known procurement tactic to gain a lower price from a high value seller. All sellers are played and end up blaming each other while procurement makes plans to do exactly the same thing next year. Why? Because it works and because we fuel the insanity of it.

So Amazon chose New York and Virginia. While both have excellent schools and good infrastructure, neither is a traditionally low tax state. It’s not clear what tax breaks local government gave Amazon to locate there, but these are areas that Jeff Bezos has homes, leading some critics to speculate that the deal was evaluated on something other than tax breaks while rival cities were being used to get more concessions from the likely candidates. Had they read the Holden Advisors blog, maybe they would have come to that conclusion 12 months ago.

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Topics: Negotiating with Backbone