I picked up “The Four: The Hidden DNA of Amazon, Apple, Facebook and Google”.
A while ago I read “The internet is not the answer”. About the beginnings of winners take all. Google, Facebook, Apple and Amazon are now near monopolies. You need to think about that. Power corrupts.
The good, the bad and the ugly
These four technology giants have inspired more joy, connections, prosperity, and discovery than any entity in history. But they also have refused to pay sales tax, invade privacy, have treated their employees poorly, created lethal addictive behaviour and have destroyed hundreds of thousands of jobs. In a nutshell, the big Four borrow (steal?) your information, only to sell it back to you.
Between 2007 and 2015, Amazon paid only 13 per cent of its profits in taxes, Apple paid 17 per cent, Google paid 16 per cent, and Facebook paid just 4 per cent. In contrast, the average tax rate for the S&P 500 was 27 per cent.
Google’s extraordinary market cap is equal to the next eight biggest media companies combined. Google commands a 92 per cent share of a market, internet search,76 that’s worth $92.4 billion worldwide. How would we feel if one company controlled 92 per cent of the global construction and engineering trade?
- There are 3.5 billion search queries a day, so in essence, the search algorithm gets one three-billionth better every time you search.
- Facebook owns a torrent of content created by its 2.2 billion monthly active users.
- Four hundred hours of video are uploaded to YouTube every minute,92 which means Google has more video content than any other entity on earth.
- Fifty-five per cent of product searches start on Amazon.
Amazon controls a 71 per cent share in voice technology. Customers are allowing the company to listen in on their conversations and harvest their consumption data. This will give Amazon a deeper penetration into the private lives and desires of consumers than any other company.
As part of their bid for Amazon’s second headquarters, state and city officials in Chicago proposed to let Amazon keep $1.3 billion in employee payroll taxes and spend this money as the company sees fit. That’s right: Chicago offered to transfer its tax authority to Amazon and trusts the Seattle firm to allocate taxes in a manner best for Chicago’s residents.
Studies show that today’s teenagers are on the brink of the worst mental-health crisis in decades, and much of the degradation can be traced back to their phones. We’ve now seen abundant research indicating that social media platforms are making teens more depressed. If studies found that Coca-Cola was making teens prone to suicide, would we shrug and seat the CEO of Coca-Cola next to the president in meetings with industry leaders?
It was recently uncovered that Apple had been purposely slowing down performance on outdated iPhone models, a strategy that is likely to entice users to upgrade sooner than they would have otherwise. This is the confidence of a monopoly.
Together the horsemen employ about 780,000 employees—the population of Charlotte, North Carolina.19 If you combine the value of the Four Horsemen’s public shares of stock, it comes to $2.7 trillion. That means our 2.0 version of Charlotte contains nearly as much wealth as the gross domestic product of France, a developed nation of 67 million citizens.
Thanks to artificial intelligence they now can track behaviour at a level and scale previously unimaginable. In the last decade, the world’s most important companies have become experts in data its capture, its analytics, and its use.
Capability and purpose
Each of the horsemen dwarfs both the Manhattan and Apollo projects in intelligence and technological capacity. Their computing power is near limitless, and ridiculously cheap. So what is the endgame for this, the greatest concentration of human and financial capital ever assembled? What is their mission? Cure cancer? Eliminate poverty? Explore the universe? No, their goal: to sell another fucking Nissan.
How did they get there?
In one word; storytelling. The Four have entrenched their services, products, and operating systems deeply into our psyches. The Four promote an image of youth and idealism, coupled with evangelising the world-saving potential of technology. The sentiment is sincere but mostly canny. The big tech’s tinkerer-in-the-garage mythology taps into an old American reverence for science and engineering, one that dates back to the Manhattan Project and the Apollo program.
Among the Four, these factors are prevalent: product differentiation, visionary capital, global reach, likability, vertical integration, AI, accelerant, and geography.
If you don’t have a product that is truly differentiated, you have to resort to an increasingly dull, yet expensive, tool called advertising. Nearly every product in the world, even products and services that appear to have been commoditised, have forged new dimensions and consumer value, enabled by cheap sensors, chipsets, the internet, networks, displays, search, social, and so on. A worthwhile exercise is to map out the value chain of your product or service from the origin of the materials through its manufacture, retail, usage, and disposal and identify where technology can add value, or remove pain or friction from the process/experience.
The second factor among the Four is the ability to attract cheap capital by articulating a bold vision that is easy to understand. Particularly Amazon can afford this at a scale that no one else can match, as it has cheaper capital. The ultimate gift, in our digital age, is a CEO who has the storytelling talent to capture the imagination of the markets while surrounding themselves with people who can show incremental progress against that vision each day.
The third factor is the ability to go global.
If you are perceived as a good actor, a good citizen, caring about the country, its citizens, your workers, the people in your supply chain that get you the product, you have created a barrier against bad publicity. Image matters, a lot. Perception is a company’s reality. That makes the importance of being likeable, even cute, the fourth factor.
Completely control the customer experience
The fifth factor is the ability to control the consumer experience, at purchase, through vertical integration. The ROI of investing in the pre-purchase process (advertising) has declined. Brands are forward integrating, owning their own stores or shopper marketing.
The sixth factor is a company’s access to, and facility with, data. A trillion-dollar company must have technology that can learn from human input and register data algorithmically. A Himalaya of data that can be fed into algorithms to improve the offering. The technology then uses mathematical optimisation that, in a millisecond, not only calibrates the product to customers’ personal, immediate needs but improves the product incrementally every time a user is on the platform for other concurrent and future customers. The new marketing is behavioural targeting. And it works: nothing can predict your future purchases like your current activities. Owning such a proprietary data set is the Chilean Gold Mines or the Saudi Oil Reserves of the information age.
The seventh factor is a company’s ability to attract top talent.
Geography matters. The ability to develop and lubricate a pipeline with the best engineering talent from one of the best schools in the world is the eighth factor in the T Algorithm.
Branding, pricing, distribution and psychology
The Four are also master classes in branding, pricing, distribution and psychology. From the perspective of evolutionary psychology, all successful businesses appeal to one of three areas of the body, the brain, the heart, or the genitals. Each is tasked with a different aspect of human survival.
Brain, heart, genitals
Google speaks to the brain, and supplements it, scaling up our long-term memory to an almost infinite degree. Google has become the nerve centre of our shared prosthetic brain. If Google represents the brain, Amazon is a link between the brain and our acquisitive fingers, our hunter-gatherer instinct to acquire more stuff. Facebook, by contrast, appeals to our hearts. Not in the manner that brands appeal to your maternal instincts of love, but in that it connects us with friends and family. Only by addressing our procreative needs could Apple exact the most irrational margins, relative to peers, in business history and become the most profitable firm in history.
Frictionless hunting, sex, god and your best friend
In other words, Amazon is frictionless hunting and gathering. Apple is sex, Google is god, the source of all knowledge, and Facebook is your friend that registers fifty minutes of your typical day. Each day.
What are the effects?
Brands are disappearing
The insights into consumer behaviour Google gleans from a billion queries each day make this horseman the executioner of traditional brands and media. Brands are disappearing. Fewer and fewer searches contain a brand name. In 2004, 47 per cent of affluent consumers could name a favourite retail brand; six years later that number dropped to 28 per cent. Brands are shorthand for a set of associations that consumers use for guidance toward the right product. However, when shopping habits migrate online, the design and feel of a product matter much less. Voice even further circumvents attributes that brands have spent generations and billions to build. With voice, consumers don’t know the price or see the packaging and are less likely to include the brand in their request. Finally, AI, when it will go shopping for you, has no brand preference.
You don’t own your customers
Hundreds of brands invested hundreds of millions on Facebook to aggregate enormous branded communities hosted by Facebook. Making those brands dependent on Facebook (it is one of the reasons we created SmallBusinessCan for Ulster Bank/RBS). For example, Nike paid Facebook to build its community, but now less than 2 per cent of Nike’s posts reach that community unless, that is, they advertise on Facebook.
If you carry a cell phone and are on a social network, you’ve decided to have your privacy violated. When you have the Facebook app open on your phone in the United States, Facebook is listening and analysing. Anything you do involving Facebook is likely to be gathered and stored. Facebook tracks and records your browsing history, including after you’ve logged off its app. It also tracks your location history, based on wifi networks your phone has accessed. Even if you turn off your wifi, your telco knows what tower you are near and can sell that data to companies.
Even if you delete Facebook, it has Pixels on other sites you go to that will keep adding to its data set. Together with other aggregates, Facebook knows the stores you go to, what you purchase, and what apps you download. It will keep gathering data on you through its subsidiaries Instagram and WhatsApp, unless you’re determined to uninstall both of those, too.
The posts that get the most clicks are confrontational and angry. Those clicks drive up a post’s hit rate, which raises its ranking in both Google and Facebook. That draws even more clicks and shares. So, Facebook, and the rest of the algorithm-driven media, barely bothers with moderates. That is how these algorithms reinforce polarisation in our society.
A disturbing aspect of today’s media duopoly, Facebook and Google, is their “Don’t call us media, we’re a platform” stance. This abdication from social responsibility, enabling authoritarians and hostile actors to deftly use fake new. Respectable companies in the news business recognise their responsibility to the public and try to come to grips with their role in shaping the worldview of their customers. The greatest threats to modern civilisation have come from people and movements who had one thing in common: controlling and perverting the media to their own devices in the absence of a fourth estate that was protected from intimidation and expected to pursue the truth.
Weaponising social platforms
The most innovative thing of 2016 wasn’t the Apple Watch or Alexa, but Russia’s weaponisation of Facebook. A Trojan horse is a great idea. The platform has been weaponised; our faux outrage hasn’t translated to any tangible action, and it’s going to get worse.
The aggregation of power has resulted in firms that have so much political clout and resources that they can bring their effective tax rates well below what midsize companies pay, creating a regressive tax system.
Destroying middle class
The author believes that the primary purpose of the economy, and one of its key agents, the firm, is to create and sustain the middle class. The American middle class financed, fought, and won good wars; took care of the aged; funded a cure for polio; put men on the moon; and showed the rest of the world that self-interest, and the consumption and innovation it inspired, could be an engine for social and economic transformation.
Yet the productivity boost and the elevation of the consumer to modern-day nobility have created a dystopia in which we’ve traded well-paying jobs and economic security for powerful phones and coconut water delivered in under an hour.
I am fascinated by Amazon.
Most boards ask management: “How can we build the greatest advantage for the least amount of capital/investment?” Amazon reverses the question: “What can we do that gives us an advantage that’s hugely expensive, and that no one else can afford?” And they can, because they have unparalleled access to cheap capital (read “WTF” if you want to read how cheap capital has been an accelerant for the large unicorns).
Their formula is an unparalleled investment in last-mile infrastructure. Amazon’s highest objective is to reach more and more households in less and less time. With an unwavering focus on making consumer purchases increasingly frictionless.
Amazon’s greatest expense is shipping. Amazon’s fulfilment costs have grown 50 per cent since Q1 2012. Between drones, 757/767s, tractor trailers, trans-Pacific shipping, and retired military generals (no joke) who oversaw the world’s most complex logistics operations (try supplying submarines and aircraft carriers that don’t surface or dock more than once every six months), Amazon is building the most robust logistics infrastructure in history. Supported by IoT and the cloud and soon Alexa.
The final brick in Amazon’s strategy for world domination is its use of shitloads of assets piled up online to conquer the retail landscape offline. The 460 Whole Foods stores have become Amazon’s supply chain—a delivery hub for Amazon Fresh and a transit hub for its other operations.
All the pieces
Amazon now has all the pieces in place for zero-click ordering. AI, purchase history, warehouses within twenty miles of 45 per cent of the U.S. population, millions of SKUs, voice receptors in the wealthiest American households (Alexa), ownership of the largest cloud/big data service, 460 (so soon thousands) brick-and-mortar stores, and the world’s most trusted consumer brand. Owning the complete value chain. Distribution as a platform.
Some numbers about Amazon
- Sixty-four per cent of US households have Amazon Prime.
- Wealthy households are more likely to have Amazon Prime than a landline phone.
- Half of all online growth and 21 per cent of retail growth in the United States in 2016 could be attributed to Amazon.
- When in a brick-and-mortar store, one in four consumers check user reviews on Amazon before purchasing.
- U.S. retail grew 4, and Amazon Prime increased 40 per cent plus
- In the all-important holiday season (November and December 2016), Amazon captured 38 per cent
- Though Amazon carries several brands of batteries, its private label, Amazon Basics, accounts for a third of all battery sales online.
Amazon will soon meet your need for stuff, without the friction of deciding or ordering. Your order will arrive with an empty box; you’ll put the stuff you don’t want in the return box, and Amazon will record your preferences. Next time, the return box will get smaller.
Even Google is getting Amazoned
Amazon is technically a search engine with a warehouse attached. Each year, Google and brand.coms lose product search volume to Amazon (6 to 12 per cent for retailers for 2015 to 2016). It’s pretty clear where Amazon is headed:
1) Take over the retail and media sectors, globally; and
2) Replace the delivery of all these products (goodbye UPS, FedEx, and DHL) with its own planes, drones, and autonomous vehicles.
Steve Jobs’s decision to transition from a tech to a luxury brand is one of the most consequential—and value-creating—insights in business history. The Cupertino firm controls 19.2 percent of the smartphone market, but captures 87 percent of global smartphone profits, by focussing on storytelling (iconic founder), retail (walk up Fifth Avenue or the Champs Élysées, and you see Vuitton, Cartier, Hermès, and Apple), pricing (premium) and design (artisan and craft).
I think that iTunes as a whole owned content distribution channel, cybersecurity and seamless integration between Apple products also has something to do with it. But I am an Apple fan.
Facebook has a meaningful relationship with 2.2 billion people. Each of Facebook’s 2 billion users has created his or her own page, with years’ worth of personal content. You dedicate thirty-five minutes of each of your days to Facebook. Facebook gestates intent better than any promotion or advertising channel. Facebook, by analysing every bit of data about us, might come closer to understanding us than our friends. If advertisers want to target an individual, Facebook collects data on behaviour connected to identities. That is its advantage over Google—and why the social network is taking market share from the search giant.
Facebook benefits from the ultimate jujitsu move: it will likely become the largest media company on earth, and it gets its content, similar to Google, from its users. In other words, 2 billion customers labour for Facebook without compensation.
Google is undertaking one of the most ambitious strategies in business history: to organise all of the world’s information. As a result, Google has made itself into a public utility. Google answers every question. Google’s algorithms, a work of divine intervention in the eyes of most of us, summon compilations of useful information. The difference is Google makes money exacting a toll from anybody (Nespresso, Long Beach, Nissan, Nike) that wants to eavesdrop on our hopes, dreams, and worries and present us with ideas on how to address them.
The author talks about potential other Horseman. Namely Alibaba, Tesla, Uber, Walmart, Microsoft, Airbnb, IBM and Verizon, AT&T, Comcast, Spectrum. The last ones own the (current) data pipes, IBM has Watson as a platform, Airbnb is the exemplar in sharing economy, Walmart has the distribution on the ground, Tesla has the image and the integration of hardware, data and software (Apple on wheels), Uber is not going to make it. Alibaba is Chinese and potentially part of the Chinese establishment. And I think Microsoft has become the fifth and is worth more than Apple because of their cloud strategy (and Cortana in the future).
He gives some career tips to survive the big four job destruction:
- Work on emotional maturity, have a strong sense of their own identity, remain poised under stress, and learn and apply you learned.
- Curiosity is crucial to success.
- Be an owner, in every sense of the word—your task, your project, your business. You own it.
- Winners, first and foremost, have to be competitors. If you can row 2,000 meters after throwing up at 800 and beginning to lose consciousness at 1,400 meters, then you can manage a difficult client and summon the will to push something from good to great.
- Get to a city. Wealth, information, power, and opportunities have concentrated, as innovation is a function of ideas having sex.
- Stay loyal to people, Not organisations
- Take responsibility for your own career, and manage it.
- Don’t follow your passion, follow your talent. Determine what you are good at (early), and commit to becoming great at it. No kid dreams of being a tax accountant. However, the best tax accountants on the planet fly first class and marry people better looking than themselves—both things they are likely to be passionate about.
- If you are seeking justice, you won’t find it in the corporate world. You will be treated unfairly and will be in unworkable situations that are not your fault.
- Nothing is ever as good or as bad as it seems. All situations and emotions pass.
- When beaned in the face, the key is to get up, dust off, and swing harder.
- Sectors are asset classes, the cool ones are overinvested, driving down returns on human capital (compensation for working there). If you want to work for Vogue, produce films, or open a restaurant, you had better get an immense psychological reward from your gig, as the comp, and returns on your efforts will likely suck.
- Job stability counts if you want to have kids.
- You don’t want to be forty-five and worried about your prospects. Join a band on weekends. Learn photography at night. Work on it a little at a time, until you have a nest egg to unleash it fully.
- Commit to being strong physically and mentally. Walking into any conference room and feeling that, if shit got real, you could kill and eat the others gives you an edge and confidence. If you keep physically fit, you’ll be less prone to depression, think more clearly, sleep better, and broaden your pool of potential mates. On a regular basis, at work, demonstrate both your physical and mental strength—your grit.
- Ask for and give help others. You need to ask for help if you plan on being successful.
- It is better to work for Google than a niche search player; but conversely, it’s better to work for a craft brewery than Miller. Small players can get global reach and instant credibility without the massive ad budgets and distribution networks that their larger competitors once used to limit the market.
- There are people who are successful professionally while managing a food blog, volunteering at the animal shelter, and mastering ballroom dance. Assume you are not one of those people.
- If you want the trajectory to be steep, you’ll need to burn a lot of fuel. The world is not yours for the taking, but for the trying. Try hard, really hard.
Break up big tech
The author concludes that America is on pace to be home to 3 million lords and 350 million serfs. He thinks it is time to break up big tech. I am an optimist, but in a world where winners take all, you need to be really worried about the big five owning the most powerful AIs, namely Cortana, Alexa, Siri, Deepmind and FAI.
Amazon as the ring that binds us all
What happens when ultimately one company owns all AI, cloud, voice, data and distribution? Throw in space and robotics. Imagine Amazon as the Tyrell (Bladerunner) or Cyberdyne Systems Corporation (Terminator) and Jeff Bezos as the modern day Lex Luthor (DC comics) or Sauron (to stay with “Lord of the rings”).