Analysis: How Amazon WeWorked Its New York City Expansion Strategy

February 18th, 2019

Just WeWork it.
— Luke Bujarski

Amazon’s cancelation of the Long Island City, Queens campus project may have had less to do with grassroots opposition, and everything to do with available alternatives to growing the company’s presence here in New York. The affirmative decision had already appeared strained, evidenced by the unexpected call to split the original 50,000 employee mega campus between NYC and Crystal City, Virginia. The dynamics of New York’s tech and real estate scene have also evolved in recent years, with the rapid rise of flexible work space options mixed with tighter labor market dynamics.

Google doubles down on Manhattan

Google announced its billion-dollar Manhattan campus expansion just weeks after Amazon publicly chose New York. The new offices are expected to double its NYC headcount to 14,000. The new space, just south of the West Village, is prime real estate and a dream office location for commuters in key bedroom communities in and around New York City.

Did this tip Amazon’s final decision? Perhaps a factor if not a wake-up call. The New York labor market is vast but so is the demand.

Talent war brewing

Google and Amazon are increasingly butting heads competing on core applications in artificial intelligence, digital advertising, and cloud computing. That competition also includes the war for talent.

A key motivator for Amazon’s stretch beyond Seattle was to gain access to world-class computer and data scientists but also senior management. Our analysis (see below) shows that while New York techies earn on average 15 percent less than counterparts in Seattle, talent concentration levels are lower overall.

Better pay, better commute

Google also has better rankings as an employer, according to glassdoor.com. The Google Manhattan extension would also have better connections to key commuter routes including New Jersey, Brooklyn, and up north in Westchester in the bedroom communities where senior executives tend to live.

Our sense is that the Google expansion would have challenged Amazon’s ability to fill the jobs that it promised, without incurring significant acquisition costs. Add to that a tax incentive structure that depended on its ability to fill a promised 25,000 jobs.

Google now has room to grow; it owns a bunch of real estate in Manhattan including the building that houses Chelsea Market. Offering more money and a shorter commute may have impacted Amazon’s ability to build out its vision in Queens.

Achievable but not critical

New York is an exciting tech market but has not traditionally been a technology center of excellence. This is also an expensive and saturated city. The plan was to fill 25,000 high-skilled jobs, half of which would have been senior leadership and skilled coding and deep analytical talent.

The revised plan for a smaller campus in Virginia and a bulk-up of staff in existing offices, including New York, will likely serve the company well. Amazon already employs 5,000 in the Big Apple and it will continue to grow, perhaps with the help of WeWork or some other more flexible office arrangements.

The Google Talent Vortex

LUFT

LUFT

Big commitment

The Queens build out would have required deep investments and talent cultivation and everything that goes with it e.g. gentrification, working with already skeptical grassroots opposition. Google’s first-pick position on talent would have compounded the challenge.

It’s not just Google. Apple is expanding. Facebook and Uber also want in. Salesforce.com is already here plus every other massive company or bank with deep pockets and in-house tech requirements fits into the demand equation. The new Cornell school on Roosevelt Island will help, but a lot of the talent will need to come from the outside to meet that demand. This clearly adds to the overall cost of doing business factoring relocation costs etc.

Workforce Competitiveness Analysis

The following data suggest that a smaller D.C. campus and the bulking up of its regional offices may have simply been the right decision from the get-go.

We ran city rankings to shed light on New York’s relative competitiveness in terms of advanced technology talent e.g. coders and data scientists, exactly the types of workers that would have been critical to Amazon’s Long Island City Campus.

The cities analyzed are those where Amazon already has operations. Here we consider three variables: Workforce concentration, specialization, and relative labor costs of filling computer and math-heavy positions.

Concentration

The following figure shows the share of residents working in computer and mathematical occupations. It’s a rough metric that hints at overall talent concentration. Washington D.C. had a significantly higher concentration compared to New York City. New York is on par with Chicago when it comes to ratio between advanced technical occupations and rest of population.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Wages

The following figure looks at median wage compared to the national average. We see that New York’s tech talent is cheaper than cities out west and D.C. This could be due to various factors including the relative seniority of technical positions filled. New York is also expensive compared to other major urban hubs where Amazon already operates - including Austin, Chicago, and Minneapolis.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Specialization

The location quotient is a common calculation used in economic development research. It’s a comparative statistic that looks at relative share of workforce in a given occupation (or industry) compared to the nation. Is speaks to the overall maturity of a city’s industries. Here we see that the New York City metro area fares better than the national average (equivalent to 1.0). but San Jose (Silicon Valley) and Seattle are off the charts.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Source: Bureau of Labor Statistics 2017 data; LUFT calculations.

Conclusions

Amazon clearly did its diligence before moving on New York. And yet its decision to trash the project suggested that the company likely struggled with it, and that various factors pushed the project over a ledge. Google’s bold expansion plans may have factored into it. Moving on New York in a big way at the tail end of a nine-year economic cycle also like impacted the decision. Likewise, corporate growth is no longer tied to big commitments in capital expenditures and binding real estate investments. Companies like WeWork and CBRE have graciously assumed that risk. Local opposition was both reason and scapegoat in light of the public spectacle made in the selection process.

Amazon is a major technology player and could have made a New York campus work, but at what price and to what end? Remember, the company already has a strong presence in New York. 5,000 employees according to a statement. Amazon’s strategic push into digital advertising is also now likely central to its New York growth initiatives. WeWork and Hana by CBRE will suit these purposes.

New York can be a great place to live, and there are big things happening in tech. Data suggest that the city has a ways to go on workforce development compared to places like San Jose or Seattle, or Asia for that matter. We should expect Amazon to push aggressively to markets like India and China.


LUFT is a research firm helping communities, business leaders, and investors validate opportunity in today’s fast-paced digital visitor economy.