Amazon HQ2: How startups in Washington DC feel about the headquarters

Amazon founder and CEO
Jeff Bezos delivers remarks at a White House event in
2016.
Chip Somodevilla/Getty
Images

• Amazon is close to announcing the location of its second
  North American headquarters, and many suspect that DC will be the
  winner.
• We asked Washington, DC startups whether they were fearful or
  enthusiastic about Amazon’s possible arrival.
• While many of them value the company’s ability to attract
  talent, they shared a few
  concerns.

In September 2017,
Amazon revealed its plan to build a second North American
headquarters. The new location, known as HQ2, is
expected to bring 50,000 new
jobs and $50 billion in economic impact to its host
city. But
urban economists have pointed to problems in its current
home, Seattle, as an indication of what’s to come. 

With Amazon
on the brink of announcing
HQ2’s location,
many have speculated about which city is equipped to
handle an influx of tech workers and new development.

All signs point to the Washington, DC metro as Amazon’s
preferred choice. Not only does the metro represent three of the
20 locations on the company’s shortlist — Montgomery County,
Maryland; Northern Virginia; and DC proper — but Amazon has
also begun to expand its presence in the area. The
company recently
located its cloud business, Amazon Web Services, in
Northern Virginia — less than ten minutes away from a plot
of land where it intends to build a 600,000-square-foot
data-center campus.

While cities wait for an announcement, local startups have
begun to brace for Amazon’s arrival. For companies just starting
out in the DC tech ecosystem, the presence of Amazon could
disrupt many aspects of their business, including their ability
to afford office space and ensure easy commutes and reasonably
priced housing for their employees. Data from Zillow
suggests that DC’s median rents could rise by $138 per month
over the next decade as a result of HQ2.

To gauge the level of fear or excitement in the Washington,
DC startup community, we asked a few budding tech companies: Will
Amazon be a bully or a big brother?  

Amazon’s previous urban takeover 

When Amazon relocated its headquarters to Seattle’s South
Lake Union in 2010, the company was far from the behemoth it is
today. City planners
estimated that the company’s 1.6 million square
feet of office space would bring around 6,000 new
employees to the area — a number that has

since risen to around 45,000.

While the new location is located just 15
minutes away from the old one, the
economic impact was almost immediate. Apartments began
springing up in place of smaller buildings, low-rise offices gave
way to towering skyscrapers, and crumbling roads transformed into
pristine walkways and green spaces.

These changes didn’t just benefit Amazon workers. Seattle

now exceeds every other US city in terms of wage increases
over the last ten years. While this is partly due to the city’s

$15 minimum wage law, it’s also the result of increased
competition among local businesses. 

But as Amazon began introducing a new pool of
high-tech workers to South Lake Union, something else
happened: Traffic increased, housing costs skyrocketed, and the
number of homeless people on the streets reached
crisis levels. Recent years have seen
a string of cafés, bars, restaurants, and local retail
shops shutter their doors amid rising rents. A sign
outside Pike Place, a former antique shop
that closed after 25 years of business, symbolized the
downturn: “The rent is too high,” it read. “It is time to say
goodbye.”

Why some startups aren’t concerned

Amid changes in their neighborhoods, many Seattleites have
taken to warning residents of the future HQ2 city. “The notion
that Amazon is going to be your ticket to a glorious future,
absent all the other things that a place like Seattle has to
offer — that’s delusional,” Ed Lazowska, a scientist at the
University of Washington,
told Politico
 in October.

These warnings have generated some concern among DC natives
and lawmakers. In a comment to The Washington Post,
Washington, DC council member Robert White
predicted “a lot of potential negatives” from Amazon’s
arrival, including a rise in already-troubling levels of
gentrification and displacement.

But local entrepreneurs aren’t convinced that Amazon will do more
harm than good. 

Like many residents, Ajit Verghese was initially
worried about the company locating in Washington, DC. “I
pretty much thought, ‘This is going to be bad,'” he said. Having
witnessed the deleterious effects of the first internet wave on
DC’s congestion and infrastructure, Verghese feared that an
Amazon headquarters would once again place a strain on local
resources. 

He has since changed his tune. As a general partner
at humble ventures, a
venture cooperative that connects startups to large
companies, Verghese has found that many startups are
optimistic about the arrival of Amazon. If the company does move
to DC, he said, it could add a number of smart, driven employees
to the tech ecosystem.

He’s also not particularly concerned about Amazon poaching
local talent. “
You’ll have
people cycling into Amazon and people cycling out,” he
said.

Param Jaggi, the CEO
of Hatch
Apps — a
 platform that enables businesses to
deploy apps without having to write code — thinks it
will be tough for small companies to wrest employees from
Amazon’s grasp. Instead, he anticipates that Amazon will
encourage an influx of tech workers who aren’t affiliated with
the corporate giant. 
In the short term, he said, the Amazon
headquarters could establish the Washington, DC metro as a
leading tech center, and bring further credibility to
companies in the area.

His opinion is shared
by Scott Case, the
president of Upside Business Travel, a booking and
itinerary-tracking startup. As
the head of a travel company, Case is enthusiastic about the
potential increased traffic at Washington, DC’s three major
airports. “We see [the Amazon headquarters] as bringing more
customers closer to us,” he said. While
the Dulles and Ronald Reagan airports
already rank among the top 25 busiest airports in the US, their
air traffic pales in comparison to that of Atlanta, LA, or
Chicago.

In Case’s mind, Amazon will most
likely develop a symbiotic relationship with DC startups.
“Businesses are already competing with Amazon for talent on a
national, and even global, level,” he said. “While they’ll
be recruiting in the same pools, I actually think they’ll enhance
the ability for some folks to take the leap into startup
land.”

In the future, Case anticipates,
new companies will form with the express purpose of
supporting
 the Amazon
ecosystem. For now, he thinks Washington, DC has both the
commercial and residential capacity to support new
workers. 

Like Jaggi, Case also sees Amazon
as way to augment Washington, DC’s burgeoning reputation as
a global tech hub. This will have positive repercussions for
Upside, he said, since more people will be inclined to work
there if there are backup options available. But Verghese worries
it’ll be tough to compete with DC’s political renown.
“
People will always assume
that, if you’re in DC, you must be engaged in some type of
political work,” he said. 

Amazon could increase pressure on local
transit 

One concern acknowledged by each
of these entrepreneurs is the pressure on local
transit.

Even without the presence of Amazon, the Washington, DC subway
system, or Metro, is notoriously lousy. From 2011 to
2016, its ridership fell by 19%, while cities like Boston,
Chicago, New York, and San Francisco
saw an increase in riders. Metro customers have

become accustomed to long delays, fare hikes, system
failures, and even the occasional death. 

The Washington Metropolitan Area Transit Authority
estimates that upgrading and repairing the Metro system will
require an annual sum of around $500 million.

The district may need even more funding if Amazon
arrives — though most
local startups don’t see the company as a drain on a broken
system. The challenge of
infrastructure repair exists whether Amazon comes or not, said
Verghese. In fact, he predicts that HQ2 may shine a spotlight on
infrastructure problems and motivate the WMTA to make
necessary improvements. Already, lawmakers
have cited the possible arrival of Amazon as a reason
to secure more funding for Metro upgrades.

Local startups may even be inspired to help out. “As an entrepreneur, you always see it as an
opportunity for new companies to solve that problem,” said Jaggi
of the possibility of rising congestion and housing
prices.

Not all startups are optimistic

Not all startups are unflinchingly optimistic about HQ2.
According to Verghese, a
number of the companies he’s talked to are concerned about getting the same
support from their local government that’s already been given to
Amazon. As part of the
bidding process, Montgomery County, Maryland proposed $8.5
billion in
tax breaks and infrastructure incentives for the tech
company — the biggest publicly known incentives
package of any HQ2 city. Though Washington, DC and Northern
Virginia have yet to reveal their incentives packages, the sums
are bound to be competitive with
those offered up by other locations. 

While many startups fear they
won’t receive the same preferential treatment
, others feel it’s a small price to pay
to gain access to new pools of talent. 

“It’s like putting a large tree
into a garden that’s still trying to flower,”
said Verghese. “It sucks in a bunch of
nutrients … [but] g
ood
things can happen when that tree gets planted. Acorns fall and
things take root. Different types of ecosystems will grow and
build around it.”