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Keith Naughton

Is Pittsburgh or Philly Ahead in Amazon Derby?

by Keith Naughton

The New Year always brings new promise. This year one of the biggest promises in new investment is the Amazon HQ2 decision. Locals in Pittsburgh and Philadelphia are hopeful and perhaps have even convinced themselves their city is going to win. But are these cities really in the running? And, which city is in the lead?

First off, let’s understand that Pittsburgh and Philadelphia are both underdogs. With 238 hopefuls nobody is a favorite. But more to the point, there are likely only a few genuine contenders. The whole competition is something whipped up by Amazon for a combination of publicity and to gin up a bidding contest. Even before the competition started Amazon had a pretty good idea of the winner. The list of true competitors is maybe three or four cities (or even one).

The puzzle is figuring out what Amazon has already decided. And Pennsylvania’s largest cities present an interesting contrast. Philadelphia checks off many of the boxes in the list of publicly released requirements. But, Pittsburgh possesses a set of qualities that sets it apart in ways that Amazon hasn’t made public.

Going by Amazon’s public press release, Philadelphia has a good claim as a top contender. Philadelphia is a large metropolitan area with several highly ranked universities, a robust public transit system and international air links. The region is cheaper than its east coast competitors. Considering Seattle’s rocketing housing costs and its general struggle to accommodate growth, a reasonable cost-of-living is likely a big deal for Amazon.

But, once you move away from the “headline” requirements, Philadelphia’s case gets trickier. The city is notoriously corrupt and its sky-high wage tax isn’t going anywhere. More importantly, the city’s universities are not major centers for advanced software development. And maintaining a technological edge in artificial intelligence, voice recognition and machine learning is key to Amazon’s future competitiveness. Locating in a region that provides a labor supply advantage in those areas would seem critical to Amazon.

And then there’s Comcast. Comcast dominates the city. Amazon will never admit it publicly, but it’s hardly a stretch to think that the company would like to be the big kid on the block politically. Certainly Comcast has brought a great deal of media and technological talent to Philadelphia �" but does that really outweigh the politics (and is it the right kind of talent for Amazon)?

Pittsburgh is in many ways the opposite of Philadelphia for Amazon. The region fails on the public requirements, but has a distinct advantage in Amazon’s hidden, but potentially far more important, preferences. Pittsburgh is smaller, has a weak mass transit system and poor international air links. It does have a lower cost-of-living advantage.

Where Pittsburgh has the advantage is in technology. The city is a major research center for artificial intelligence and machine learning. Amazon bought up a Pittsburgh voice recognition startup and turned it into one of Amazon’s few research centers outside of Seattle. If Amazon views co-location with a strong supply of software talent as an important competitive advantage, then Pittsburgh has a significant leg up.

Politically, Amazon would be able to get just about anything it wanted from the Pittsburgh region. There is no Comcast-type competitor. The ability of Amazon to bend local land use and regulatory decisions should not be underestimated. In other cities (like Philadelphia) with stronger political competition from other economic interests (or growth cities with less need to placate newcomers), Amazon would have to be more concessionary.

In the end, Pittsburgh’s chances are likely dependent on Amazon’s current experience with the city. Amazon has 6 research centers outside Seattle. These cities have had what amounts to a tryout for HQ2. If the company has found the Pittsburgh center easy to staff with qualified people who want to stay in the city, then Pittsburgh has a huge advantage. Alternately, if the Pittsburgh center is just viewed as a brief stop on the way to California or Seattle, then the city is out.

In the end, I doubt very much the public list from Amazon counts for much. Labor supply matters the most, followed by the politics. Between Pittsburgh and Philadelphia, the ex-Steel City has a better shot. But, if Pittsburgh has struck out in its “tryout” then the city has already been waived �" they just don’t know it yet.

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