In "The Four: the Hidden DNA of Amazon, Apple, Facebook, and Google" NYU Stern professor and entrepreneur Scott Galloway hails and indicts arguably the four most dominant tech platforms on the planet. The French branded them the GAFAs, from fear, resentment, and awe.
Jeff Bezos’s uber-retailer and logistics platform Amazon is Galloway’s favorite to be the first to reach a trillion-dollar valuation. It stands apart, relentlessly pursuing growth rather than profits. Thanks to its masterful storytelling – the ongoing pitch to retail investors – it has plenty of cheap capital and license to go whole-hog for growth.
He applauds Amazon’s culture of relentless experimentation and can-do attitude as distinctively “red, white and blue.” Amazon is an exemplar of American entrepreneurial culture, and has a willingness to try new ideas, and a tolerance for failure as part of the process. In contrast, European businesses are more likely to prefer the sins of omission to the sins of commission.
The Stern professor believes Amazon’s burgeoning and costly physical infrastructure is a defensive moat. While the marginal cost of delivering bits planet-wide is close to zero, we live in the physical world where infrastructure and capital to build it matter. Bezos has stores, warehouses, drones, trucks, and planes and delivery systems.
Amazon’s AI and robotics boost productivity. Yet Galloway bemoans the destruction of less efficient retailers and jobs. Would the world be better off if Amazon employed legions of laborers to guide customers, pack and ship, and had higher prices?
Apple’s cut from a different cloth. It’s a fabulous mobile platform but its defining difference is it’s “cool.”
Economist Thorstein Veblen’s theory of conspicuous consumption holds some products have negative elasticity of demand. Up to a point, the more they cost, the greater demand. Demand for Rolex watches, Gucci bags, and iPhones is higher because everybody knows they’re pricier. Galloway contends “Apple’s business today is to sell to people goods, services, and emotions – being closer to God and being more attractive.” Apple products signal status.
Galloway worries because Apple is cool it’s held to different standard. For example, it refused to help the FBI break into a San Bernardino jihadist shooter’s iPhone. Palo Alto and Manhattan gentry were four-square with Apple. If, however, it had been Smith & Wesson not cooperating with law enforcement, the din of outrage from the same quarters would have been deafening.
The Stern professor lambastes legendary Steve Jobs as a decidedly unpleasant man, which by all counts he was, and for “stealing” Xerox Park’s GUI. Jobs commercialized something lots of people had seen. Hurrah for him, in this instance.
The wizards of Cupertino control 14.5% of the smartphone market, but capture a whopping 79% of the profits (2016). Not surprisingly highly-profitable Apple, not Amazon, is the most valuable company on the planet.
Galloway detours, railing against the caste system of prestigious universities, among which his NYU Stern numbers, and suggests Apple could upend it. But why would it want to? Galloway himself makes the case Brahmins signal others they’re Brahmins by using Apple. The hoi polloi use Samsung, Life’s Good and feature phones.
Amazon and Apple sell goods and services. Facebook and Google are two-sided markets with consumers and businesses using generally free services on one side, and advertisers on the other, paying. Galloway worries Facebook and Google are a news duopoly, a duopoly that vigorously resists being held to the same standards as traditional news organizations. A Gresham’s law of news is at work, where sensationalist blurbs and stories too-good-to-be-fact-checked drive out objective news.
Galloway implies they should police news disseminated over their platforms. Maybe, but their impartiality would be a concern. Neither Facebook’s nor Google’s founders and management are politically neutral. They lean left.
For Facebook the greater the number of and more engaged the users, the more valuable the platform is to other users and to advertisers. Given to hyperbole, Galloway declares Facebook may be the most successful thing in the history of mankind. To be sure, it’s a phenomenally successful social network and advertising platform. Yet has it been more successful than agriculture, industrialization, free-market capitalism, Christianity, banking, electricity, antibiotics and payment-card networks?
Google search, maps, video, email, browsers, and mobile OS have enormous utility. Hyperbolically Galloway describes Google as “a modern man’s god,” and “a religion,” and accurately as a public utility.
Its advertising platform has been voraciously monetizing content created by others. Galloway and Harbinger Capital tried ultimately unsuccessfully to persuade old-media dowager the NYT to more vigorously defend its content.
Amazon, Facebook and Google are marketing nirvanas which early evangelists of one-on-one marketing and authors of "Enterprise One to One" Peppers and Rogers could only dream of.
Galloway graphically revels in body metaphors to capture each of the four’s appeal, contending Amazon and Google appeal to the brain, Facebook to the heart, and Apple to the genitals.
He’s provocative and edgy, making him more quote-worthy and, presumably, boosting book sales. His more outrageous comments, however, are of a piece with what he criticizes Facebook and Google for doing, rewarding more incendiary and polarizing articles because people are more likely to click on them, generating ad revenue.
And, Galloway laces the book with gratuitous profanity, detracting from otherwise interesting and insightful commentary.
He’s simultaneously awestruck by and hypercritical of the four tech horsemen. He worries about their enormous market caps, relatively small number of employees, and implied job destruction. Facebook employs 17,000 whereas GM and IBM employed hundreds of thousands. Farming used to employ more than 90% of the workforce. Surely Galloway wouldn’t suggest society was therefore more prosperous.
The Stern professor conjures a straw man of the four tech horsemen creating a world with a few million lords and hundreds of millions of serfs. Yet technological progress is about delivering more with fewer people, thereby, improving their standard of living. Was agriculture using hand ploughs better because it employed more people? People migrate to new jobs and industries. That’s called progress. Galloway would do well to sip from futurologist Herman Kahn’s cup of boundless optimism about the proven capacity of free-market capitalism and technology to deliver mass prosperity.
Galloway decries the GAFAs organizing their businesses to minimize corporate taxes. Representing shareholders it is management’s job to do just that, legally. Perhaps Galloway should pen an op-ed for Bezos’s Washington Post urging reducing America’s corporate taxes from the highest in the developed world to zero, thereby eliminating the incentive to move business activities to more favorable tax climes offshore.
Do America’s tech oligarchs feel guilty? Forbes scores Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg as the third and fifth richest men respectively on the planet. Both call for a minimum income, penance to be paid by Joe and Sally taxpayer.
Galloway seems to believe the GAFAs’ powerful platforms are eternal and that they’re vulnerable to each other, noting a majority of product searches are originated on Amazon not Google.
He takes a peculiarly static view. In their day, AT&T, IBM and Microsoft all were viewed as enjoying market power and invincibility. The US government brought antitrust actions against them, yet only AT&T enjoyed a state-sanctioned monopoly.
IBM lost its place because mainframes became relatively less important and it fumbled PC OS and desktop applications. In 1981 Big Blue launched PCs using MS-DOS, an operating system to which Microsoft retained the rights. It’s also worth recalling IBM and BellSouth in 1994 birthed the first smartphone: Simon. It sold 50,000 units. Simon was too early. The first iPhone wasn’t introduced until 2007.
Microsoft was indomitable until it wasn’t. First it was first beaten by Intuit in personal-finance software. Then Apple and Google crushed Mister Softie in the mobile OS space, and Google thrashed it in search.
Nobody knows what might displace any one of the four or when, but assuredly something will. None of the potential fifth horsemen Galloway analyzes however seem plausible.
There will be government challenges.
Brussels is viscerally hostile to US tech titans. It’s likely Facebook’s and Google’s data-drive-advertising business model will come under assault from the European Commission.
Of the four only Apple has survived its founders passing the baton.
Lastly, Galloway offers the reader career advice, provocatively as is his wont. If one is not aware of the tradeoffs pursuing a career as an investment banker versus saving the rain forest, pay attention. The Stern professor urges the ambitious to seek their fortunes in major cities. For those pursuing careers in the fours’ ecosystem that’s sensible. But neither NYC nor London is the best place to start a career in fracking, cattle or winemaking.
The four horsemen of technology have had a huge impact on commerce, social intercourse, and the news industry. Galloway’s "The Four" provides a framework for thinking about them, and is an eminently topical and worthwhile read.
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Maybe just watch his speeches on YouTube.
Reviewed in Australia 🇦🇺 on February 10, 2020
Grant Katz
An insight into the competive advantages of Apple, Facebook, Amazon and Google
Reviewed in Australia 🇦🇺 on February 13, 2018
