The Four

Amazon link

Scott Galloway mounts a passionate, reasoned attack on the tech companies (Facebook, Amazon, Google, and Apple) that are increasingly dominating our live these days. Thematically, he writes in the same vein as Franklin Foer's World Without Mind (notes link), and turns the tide of popular opinion against Silicon Valley. 

The Four (Horsemen, like of the Apocaplyse) are characterized by two sins: (1) theft and (2) profiting from assets built by somebody else. With regards to the first of these, Galloway traces an interesting history of theft in American industry in the story of Alexander Hamilton who encouraged the development of a textile industry in America by poaching European entrepreneurs by offering bounties to them, and subsequently modifying US patent law to limit patent protection to only US citizens.

He also traces tech company decisions to skirt laws to clear logic: the smart choice is always to break the law when regulation can't keep up (and so benefits >> costs). For example, Facebook was fined 110M Euros — 3 years later — for lying about potential data sharing between WhatsApp and Facebook during acquisition talks. What a small price to pay.

On the growing consolidation we're witnessing Galloway offers some meaty quotes:

"We used to admire firms that created hundreds of thousands of middle- and upper-class jobs; now our heroes are firms that produce a dozen lords and hundreds of thousands of serfs."

"America is on pace to be home to 3 million lords and 350 million serfs. Again, it's never been easier to be a billionaire, but never been harder to be a millionaire."

And throughout the later half of the book, he uses the analogy of the body to typify The Four: "Google speaks to our brain, our thirst for knowledge. Amazon is the link between our brain and our acquisitive fingers. Facebook appeals to our heart in that it connects us with friends and family. While Apple's self-expressive luxury brand appeals to our need for sex appeal."

In concluding, Galloway writes that The Four are successful because of 8 characteristics: (1) product differentiation — namely the removal of friction in UX, (2) patient capital, (3) global market, (4) likeability, (5) ability to attract talent, (6) geography — SV and Stanford/UCB, Amazon and UWash, (7) vertical integration, (8) AI — especially behavioral targeting. However, of these, (4-6) can be collapsed into generalized likeability for both employees and customers, and (8) is the most interesting but least developed in this book. It is covered lightly in the context of journalism in Franklin Foer's World Without Mind (notes link)

He also draws up some potential candidates for Fifth Horseman status (potential problems in parentheses): Alibaba (limited access to patient capital) / Tesla (not global) / Uber (lack of likeability) / Microsoft (LKND seems most positioned to accelerate growth) / Airbnb / IBM (lack of likeability).

In the chapters on each of companies, some points Galloway made stood out to me. I've added them below: 

Amazon

"The wealthiest man in the twentieth century mastered the art of minimum-wage employees selling you stuff. The wealthiest man of the twenty-first century is mastering the science of zero-wage robots selling your stuff."

Ocean freighting: "The market to ship stuff (mostly) across the Pacific is a $350B business, but a low-margin one. Shippers charge $1.3K to ship a forty-foot container holding up to 10,000 units of product (13c per unit). It's a down-and-dirty business, unless you're Amazon. The biggest component of that cost comes from labor: unloading and loading the ships and the paperwork. Amazon can deploy hardware (robotics) and software to reduce these costs. Combined with the company's fledging aircraft fleet, this could prove another huge business for Amazon… Amazon is building the most robust logistics infrastructure in history."

  • Amazon started leasing 20 cargo planes in 2016, link, and in 2017 announced construction of a $1.5B airline hub, link
  • Amazon China registered as a freight forwarder in Jan 2017, link

Voice interface: "in key categories like batteries, Alexa will suggest Amazon Basics, their private label, and play dumb about other choices even when there are several other brands available. With voice, consumers don't know the price or see the packaging and are less likely to include the brand in their request. The death of brand, at the hand of Amazon, and in particular Alexa, can be foreshadowed in search queries."

Apple

"The iPhone is the clearest signal that you are closer to perfection and have more opportunities to mate."

"Apple's stores sell nearly $5K/sf. Next in efficiency is a convenience store, which lags by 50%. Retail stores, initially thought of as a mistake are what define Apple's success. Apple's 492 stores, draw more than 1m visitors a day, the Magic Kingdom only drew 20.5m total in 2015."

Galloway always makes the seemingly out of left field suggestion that Apple should break into education — given its immense offshore cash position — which given Sebastian Thrun's hypothesis that by 2050 there'll only be 10 institutes of higher education left in the world, actually sounds incredible reasonable.

Facebook

People spend more time on the platform (FB/WA/IG) than any behavior outside of family, work, or sleep.

Facebook nurtures relationships, and these connections are what make us happier and feel more fulfilled.