Nov 5, 2018

Amazon, HQ2, and a breakup threat

Illustration: Sarah Grillo/Axios

As Amazon narrows the finalists to host its much-sought second headquarters and its tens of thousands of new, high-paying jobs, a little-remarked-upon factor may be playing a large role in its thinking — the company's vulnerability to antitrust action by an activist White House.

In a new development, Amazon has decided to split HQ2 between two cities, scoops the WSJ's Laura Stevens. Whether there are one or two new headquarters, the antitrust threat could favor the D.C. area, since a big local jobs creator may be less likely to be charged by the Justice Department. The same thinking could lead CEO Jeff Bezos to rule out the only finalist on foreign soil — Toronto.

Driving the news: In an interview with Axios that aired on HBO last night, President Trump said his administration is "very seriously" considering antitrust action against Amazon, along with Google and Facebook.

  • Amazon declined to comment. But Bezos has publicly welcomed scrutiny, saying that "all big institutions of any kind ... should be inspected."

Why it matters: Amazon has faced intensifying critical attention — expanding into industry upon industry, accounting for half the money spent on U.S. online shopping, and at one point this year having a $1 trillion market cap.

  • Trump has accused the company of profiting on the back of cheap U.S. Postal Service rates.
  • He has singled out the Washington Post for special derision, routinely calling it the "Amazon Washington Post." Bezos personally owns the paper.

Timing: This war of words has come as Amazon conducts its high-profile search for the site of what it calls its "second headquarters," in addition to Seattle. In January, it disclosed 20 finalists, culled from a list of 238 cities that applied to host HQ2.

In recent days, a series of scoops has roiled the search:

  • In a story on Saturday, the Post reported that Amazon is in advanced talks with Crystal City, a northern Virginia neighborhood 4 miles from the White House.
  • The WSJ followed with its own scoop today, reporting that Amazonis in advanced talks with Crystal City, but also New York City and Dallas.
  • Then, this afternoon, came the added WSJ report that Amazon had decided to build two new headquarters.
  • The New York Times later reported that the company is nearing a deal to put the other half of HQ2 in Long Island City in Queens, New York.

In terms of why D.C., a number of analysts tell Axios that it's — not surprisingly — about politics.

  • "I assume moving to D.C. is partly based on Amazon’s need to lobby the government. It’s much easier to lobby when you have an office near D.C.," says Keith Hylton, a professor of antitrust law at Boston University.
  • Scott Galloway, an Amazon critic and professor at New York University, said a D.C.-area headquarters would be "a prophylactic against regulation. ... No one's going to regulate the local boy."

For the same reason, Bezos may decide to avoid Trump's ire by striking Toronto off the list. Trump has conducted a long Twitter war against companies that, in his view, send American jobs overseas.

Citi's Mark May is even arguing that Amazon break itself up preemptively: "By separating the retail and [Amazon Cloud] businesses, Amazon could minimize or avoid the risk of increased regulatory pressure," he wrote in a note to clients today.

The bottom line: Even if setting up shop close to D.C. and keeping jobs in the U.S. don't end the antitrust debate, they will undoubtedly present advantages, experts say.

  • "At a minimum, [a DC headquarters provides] a window and a mindset for potential regulatory or law enforcement action relevant to its future," Tim Wu, a law professor at Columbia University and author of the forthcoming "The Curse of Bigness," tells Axios.
  • "A corporate mailing address in the D.C. area isn't going to save Amazon from any blatant violation of antitrust. But proximity to elected officials could buy it more time or maybe even help alter the rhetoric around any controversial business tactics," says Cooper Smith, an analyst at Gartner.

Editor's note: This story has been updated to reflect the New York Times report on Amazon choosing Queens as a second location for HQ2.

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