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Amazon vs. Apple: A Tale of Two Corporate Expansions

The Street logo The Street 16/12/2018 Annie Gaus
a sign on the side of a building: Amazon vs. Apple: A Tale of Two Corporate Expansions© TheStreet Amazon vs. Apple: A Tale of Two Corporate Expansions

Not one, but two tech giants could be putting down roots in a U.S. city near you.

Weeks after Amazon announced plans to split its second headquarters between Queens, Ny., Crystal City, Va. and a smaller third site in Nashville, Tenn., Apple announced a major U.S. expansion of its own. The iPhone maker revealed plans this week to build a major new campus in Austin, Texas, in addition to new sites in Seattle, San Diego and Culver City, Calif., and expansions in Pittsburgh, Pa. New York and Boulder, Colo.

For anyone who's ever muddled through the Silicon Valley real estate market, the advantages of building outposts outside of traditional West Coast tech hubs are obvious: Access to new talent pools, lower living expenses and lower costs of doing business, to name a few.

In Austin for example -- the site of Apple's new campus, which may accommodate 15,000 workers eventually -- the cost of living is 3.4% lower than the national average according to CompTIA, an association of tech professionals that tracks emerging tech hubs. That's an attractive climate for tech companies like Apple, with the number of tech jobs in Austin expected to surge 15% over the next five years (non-inclusive of Apple's planned expansion).

"As remote work locations become more feasible, factors like cost of living, climate and lifestyle options come into greater play," said Nancy Hammervik, executive vice president at CompTIA.

As they each expand their U.S. workforces, Apple and Amazon may have shared some of the same goals in broadening their reach -- but their ways and means show a stark contrast between how the tech titans do business.

Amazon's HQ2 search, which kicked off in September 2017, was a PR frenzy that dragged on for more than a year. After Amazon announced that Queens and Crystal City would serve as a split headquarters -- with Nashville as a surprise third pick -- the commerce giant faced a backlash. Some critics accused Amazon of taking advantage of the process, and seeking excessive tax breaks that may not work out well for residents.

Even Apple CEO Tim Cook dismissed Amazon's HQ2 search as a "beauty contest" in an March interview with Recode, quipping: "You wind up putting people through a ton of work to select one, that is a case where you have a winner and a lot of losers...that's not Apple."

Notably, Amazon's search amounted to more than just publicity. It also served as a data grab of sorts. Each of the 230 locations that filed bids for the HQ2 had to submit extensive information about possible incentives offered, city programs, economic data and more. New York City's proposal showed just how meticulously detailed the proposals had to be. Published online after the contest was over, New York City's's 253-page proposal covered everything from the number of engineering graduates per local college and commuting patterns to the average price of dry cleaning in the area.

In a November interview, Amazon's Jeff Bezos summed up Amazon's decision-making process thusly: "The decision will be made with intuition after gathering and studying a lot of data...the best way to make it is you collect as much data as you can, you immerse yourself in that data, but then you make that decision with your heart."

Ultimately, Bezos' heart led Amazon to two major population centers on the East Coast, plus Nashville, which collectively offered Amazon more than $2 billion in incentives. As for Apple, the company first hinted at a U.S. expansion in January 2018. At the time, Apple said that it would make $10 billion in capital expenditures, as well as other investments in U.S. data centers and domestic manufacturing initiatives, creating 20,000 new jobs over five years.

It isn't known what perks Apple may have received in totality for the new U.S. sites, but reports suggest they were likely smaller than what Amazon received. The Dallas News reported that for the Austin site, Apple is due to receive $25 million from the Texas Enterprise Fund and annual grants covering a portion of its property taxes from Williamson County if it meets job creation and investment goals.

Tim Cook is also known to hold up Apple's philosophy towards user data in contrast to other tech giants. The CEO has thrown shade at Facebook's reckless handling of personal data, and has often reiterated Apple's comparatively strict policies regarding customer information: for example, limiting third-party access to data and encrypting content by default on Apple devices.

Amazon, meanwhile, has made little secret of its voracious appetite for data, and not just in Bezos' candid comments around the HQ2 search. Amazon Go -- Amazon's cashierless convenience stores wired to the gills with cameras, sensors and computer vision software -- are one example of Amazon's willingness to leverage vast troves of data in cooking up new services.

In due time, the pros and cons of either approach could crystallize further as lawmakers and the public reconsider the role of data, in the U.S. and elsewhere. If there was one lesson to be learned from Facebook's scandal-ridden 2018, it was that data is a touchy subject, even if it's still insufficiently understood. In Facebook's case, the lesson was that abusing data runs the risk of sinking a company's reputation and its stock.

At this point, it's hard to imagine either company suffering a similar reckoning. Then again, no one expected Amazon to move to Queens, either.

Amazon, Facebook and Apple are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.

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