The Choices of Jeff Bezos

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Amazon’s choice to expand in New York City and the Virginia suburbs of Washington DC reminded me of a story I did on the company in January 1999, when I was a business reporter for the Seattle Post-Intelligencer. Amazon was three and a half years old and was approaching $1 billion a year in revenue — an amount it does now in two days. Back then Amazon was operating out of an old building near the Pike Place Market above a cheap Indian restaurant and across the street from the Green Turtle youth hostel.

Its employees there worked from desks that were made from interior doors the company bought for $135 each and equipped with legs. “We have a carpenter who makes a hundred of these at a time,” Jeff Bezos told me. Bezos made a point of showing me his CEO’s desk was made from a door, too. It was a matter of priorities, he said. Amazon could not afford to piddle away its cash on fancy office furniture.

Bezos was 35 then. On paper he was worth $9 billion, though the company had not yet earned a nickel’s worth of profit.

Back then Amazon was operating out of an old building above a cheap Indian restaurant and across the street from the Green Turtle youth hostel.

In those days I wrote a lot of company features, which included an interview with the CEO and a walk around the plant. I always included the story of the founding, which in Amazon’s case was about how Bezos chose Seattle. Bezos wasn’t from here; he was from New York, where he’d been working on Wall Street. His idea for Amazon was an internet business to sell books, which were standard products, easy to handle, cheap to ship, and didn’t require after-market service. You might think such a business could be set up anywhere, but the location was important. It had to have good airline connections, for example.

The biggest thing, he told me, was the labor market. In order to grow, it had to have a deep pool of computer-savvy talent. The deepest pool on the West Coast was in Silicon Valley, but he avoided that place because the competition for talent was too fierce. He didn’t want to have to bid against Hewlett-Packard, Intel, and Apple. Microsoft had created its own talent pool in Seattle, and he was happy to dip into that.

When the movers came to his apartment in New York, he said, he still hadn’t decided where to start his company. He had narrowed it down to four Western cities: Boulder, Colorado; Reno, Nevada; Portland, Oregon; and Seattle. Portland and Reno, he decided, were too small; Boulder was near Denver, which was big enough. Well, he chose Seattle, which is now packed with 40,000 Amazon employees.

In order to grow, Amazon had to have a deep pool of computer-savvy talent.

Some commentators noticed that Bezos chose one of the seven states with no income tax, and suggested that when he went looking for “HQ2,” he would choose one of the others — Texas, maybe, perhaps Austin. If he had chosen Austin, the anti-income-tax people would have made hay over that.

A columnist in the Seattle Times, Danny Westneat, writes that by choosing New York City and suburban Washington DC, Amazon has thrown in with “two of the most expensive, high-tax environments in the nation,” places that have personal and corporate income taxes, including a city income tax in New York. Such a choice puts paid to the notion that a company like Amazon will go to the place with the best “tax climate.”

I have no objection to Amazon accepting subsidies—government’s offering them is another matter.

Was Amazon chasing subsidies? It was offered big ones by New York and by Virginia — but then, it was offered even bigger ones by other jurisdictions, and it turned them down. I have no objection to Amazon accepting subsidies (government’s offering them is another matter); Bezos owes it to his shareholders, including himself, to get the best deal he can. But he also owes them, and himself, the discipline not to be bribed into making a bad decision.

I note in the news reports that Amazon says it chose New York and metro Washington in search of the best pools of tech talent — which is the same thing Bezos told me about Seattle 20 years ago.

None of this is to say that a state’s tax and regulatory climates are not important. Texas has been growing faster than New York, and one of the obvious reasons is that Texas has fewer regulations and taxes. But to Bezos, that difference is not the most important one, and not enough to tip the balance in favor of Texas.

All of which assumes he is making a good decision.




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Comments

BT Reynolds

I once worked for a regional retailer. At a company meeting a long-time employee asked why the company wasn't opening new locations as quickly.

The CEO answered in a matter-of-fact manner: "It's because the regulations mean that it takes us a minimum of two years to do what used to regularly take us only nine months. The upside of it is that we don't have as many small competitors. We have an entire legal department to deal with the regulations. They don't."

Maybe it is all about the talent. At this point, Amazon is large enough that it can handle the regulations and can navigate the taxes.

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