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.
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] good things can happen when that tree gets planted. Acorns fall and things take root. Different types of ecosystems will grow and build around it.”