Ama­zon’s model for Amer­i­can cities

The Register Citizen (Torrington, CT) - - FRONT PAGE - Cour­tesy of Bloomberg View

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.

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