Amazon’s model for American cities

Everyone’s got a theory about where Amazon should put its second North America headquarters. I came up with a list of six cities, and both Brookings and the New York Times offer well-thought-out lists of contenders. There are perhaps a dozen or more cities that would plausibly work. That fact alone is revealing.

That Amazon has such wide latitude shows the end of the “installation age” of technology, when innovation was the goal and proximity to tech peers was key. An epochal shift to the “deployment age,” when established technologies become more established, will have big implications for cities and the U.S. economy.

The installation age of tech is mostly what we’ve seen in Silicon Valley over the past 25 years: the creation of new technologies like the internet, smartphones and social media. Creative destruction and disruption. Companies founded by college dropouts that became huge, seemingly overnight. Widening economic inequality. Extreme geographic clustering of innovation and economic activity -mostly in the San Francisco Bay Area, with a secondary node of activity in Seattle.

In the past few years, the “rules” of the installation age have ceased to apply. While there are a lot of experimental technologies that show promise -- autonomous vehicles, artificial intelligence and machine learning, and augmented and virtual reality, among others -- most of the recent economic growth of the technology sector has been powered by the expansion and maturation of existing technologies. Perhaps the epitome of this is the upcoming iPhone, which will retail for over $1,000 and represents incremental more than revolutionary change.

And along the same lines as the $1,000 iPhone, while Silicon Valley celebrates startups and disruption, the story of the past few years has been about the big getting bigger rather than transformational new companies. Google and Facebook have become a digital advertising duopoly. Amazon’s clout in e-commerce, and increasingly all commerce, continues to grow. The next Facebook, Google and Amazon? Well, they might just be Facebook, Google and Amazon.

That dominance by a handful of powerful companies changes the economic rules of the technology sector. When innovation by small firms was more robust and the future was seen as more uncertain, the network effects of geography were more important. Better to be in close proximity with other entrepreneurs and investors if you don’t know where the next winning lottery ticket will come from. If you think you might be able to found the next Instagram, a billion-dollar startup powered by a handful of employees, then no price is too high to pay for housing and office rents.

But when decision-making shifts to powerful incumbents rather than an organic network of entrepreneurs and investors, it signals a shift to a “deployment age.” Amazon’s approach to creating a second headquarters is one symptom.

Amazon now has the clout and resources to think about its future over the next decade or more, quite unlike startups that are trying to survive until their next round of funding. Because Amazon has already achieved some economies of scale and maturity, as an organization it’s more cost-conscious. It’s also more confident that it can work outside of established innovation hubs.

In its request for proposals, the company lays out the conditions for cities where they believe they can deploy their model. Among them: a large and educated workforce, proximity to educational institutions, an international airport, and walkable, transit-adjacent commercial nodes. The company has written the economic development blueprint for 21st-century cities. Only one city will land the next Amazon headquarters, but all cities will most likely move toward an Amazon-friendly development model as a result.

Whereas the installation age was defined by innovation, the deployment age is defined by maturation. Consolidation and expansion will replace creative destruction and disruption. Economic growth will become more geographically decentralized, broadening out from a handful of cities to a dozen or more. Over time, this should help to reduce economic inequality, and make growth feel more inclusive and broad-based.

This is great news for the “second-tier cities” that have aspired to be new innovation hubs, but perhaps the beginning of stagnation for higher-cost hubs that may start to find themselves competing with secondary places for talent and jobs. There are always winners and losers. Watch closely, because the game is changing.