Bidding war gives Amazon an info advantage

Katherine Peralta And Ely Portillo
The Charlotte Observer

CHARLOTTE, N.C. – this month narrowed down 238 applicants for its second headquarters to 20 cities, but experts say it got something even from the losing bidders: A rich trove of information that can benefit the company for years to come.

The Seattle-based retailing giant can now use that data when figuring out how to improve its supply chain, such as by building new distribution centers or adding fleets of planes or tractor-trailers, experts say. Amazon also gained detailed information on potential sites for new facilities and an in-depth understanding of how much taxpayer money cities and states are willing to offer — potentially an immense advantage in future negotiations.

And in addition to the huge load of data Amazon received virtually free of charge, the company also generated a frenzy of coverage in newspapers and TV stations across the U.S. for months leading up to its shortlist announcement.

“They have gotten incredible publicity out of this,” Charlotte-based consultant and development expert Michael Gallis said of Amazon’s open bidding process.

Public search: Amazon’s public search for its second headquarters was an unusual move in the normally secretive world of economic development. It sent cities around the North America scrambling to submit bids and put the best spin on their regions in hopes of landing thousands of jobs and billions in investment dollars.

Now the cities that made the cut, such as Raleigh, are pushing ahead to the next round, while others such as Charlotte are analyzing why they didn’t make the grade. The process has also raised questions about what bid information should be made public and how much it cost cities to pursue the project.

Scott Galloway, a marketing professor at New York University’s Stern School of Business, pointed to the cost of the effort, measured in ways such as the time economic development and elected officials spent assembling hundreds of bids, videos, tax incentive offers and detailed economic analyses for cities that almost certainly never had a shot.

“This stuff isn’t easy. It takes tons of time. This is hugely taxing,” he said. “I find this whole thing, in a word, abusive.”

While it’s possible that Amazon’s fresh collection of city-specific data could help inform its future location decisions, people shouldn’t read too much into that, said Mark Sweeney, senior principal at the Greenville-based selection consulting firm McCallum Sweeney.

Specific data: After all, much of the real estate data cities provided was specific to a headquarters-type project, he added. And in terms of workforce data, the tech jobs Amazon would look to fill at a headquarters differ greatly from the warehouse-type jobs required at something like a distribution center.

“Headquarters locations are typically not what you’d look at for something like a fulfillment center,” he said.

But the part of the proposals that might give Amazon the biggest advantage for future developments could be the taxpayer money each offered, Sweeney said.

“(Amazon has) an idea what 200-plus locations would be willing to put on the table from an incentives standpoint,” he said. “They could come back to Charlotte saying, ‘We want to do another fulfillment center, and we know how much you offered for HQ2.’”

Galloway compared the atmosphere Amazon has created for cities battling to lure the company to “The Hunger Games,” a competition he expects to continue with future projects.

Time invested: Ronnie Bryant, CEO of the Charlotte Regional Partnership, the group that submitted Charlotte’s proposal, said it’s hard to estimate how much of his group’s time was spent on Amazon in the six-week period preparing the bid.

But Bryant said the project consumed roughly half his own time. He recalls three days the 16-person organization spent at the office until midnight. Between all the groups with whom the partnership worked, Bryant said he estimates 100 people played some kind of role in the Amazon proposal.

Some cities are starting to reckon with the cost. The mayor of Pittsburgh, a finalist on Amazon’s shortlist, said his city’s bid could cost as much as $500,000.

Galloway, the NYU professor, pointed out Amazon’s ever-more-sophisticated algorithms that drum up lower prices for goods and track consumer preferences that have allowed the company to upend retail.

“This is another algorithm,” he said. “This one will transfer value from the taxpayers to Amazon.”

Next step: Next up for sites that made Amazon’s shortlist is “the next round of conversations with Amazon” according to Ryan Combs with the Research Triangle Regional Partnership, the group that submitted Raleigh’s bid.

Combs declined to comment on further discussions “due to the highly competitive nature of economic development projects, particularly this one.”

He would not say, for instance, how much his group has spent on the Amazon project, nor what exactly the next steps are for Raleigh, one of the 20 metros Amazon is still considering.

An Amazon representative could not be reached for comment.

A person familiar with the Amazon bidding process, who asked not to be named because of the sensitivity of the process, told the Observer that the company has now created one of the most extensive databases for community information in the country.

“Now,” the person said, “they’re going to get even more from 20 more (cities).”