SCOTT GALLOWAY who will be the first trillion-dollar company?
An NYU Professor predicts which of ‘The Four’ will be the first to reach a trilliondollar valuation.
You have closely studied the companies you call ‘The Four’—google, Apple, Facebook and Amazon. Which do you predict will become the world’s first trillion-dollar company?
Most people would put their money on Apple, because it’s the closest to that valuation at the moment, but I actually think it’s going to be Amazon. To date, The Four have mostly gone after befuddled prey within their respective sectors; but over the last 24 months, they’ve started to encroach on each other’s territory. And, in every instance where there has been an overlap of competition, Amazon has beat the others.
Take the case of search. Some people describe Amazon as ‘a search engine with a warehouse attached to it’. So, despite the fact that it is Google’s largest customer, it also competes with Google. In 2015, 44 per cent of searches involving a product search began on Amazon; and by 2016, that had climbed to 55 per cent. Amazon’s growth of share of relevant search for products grew 25 per cent year-over-year.
In the hardware realm, they’re competing against Apple. If you ask any tech expert, ‘What was the most innovative hardware innovation of 2015 and 2016?’ most would say it was Amazon’s Alexa. So, a company that had almost no reputation for hardware innovation is now considered one of the most innovative in tech hardware.
If you look at where Amazon overlaps with Facebook and Google in digital marketing, Amazon’s digitalmarketing offering, Amazon Media Group — which sells
advertising on the platform — is growing from somewhere between 40 and 60 per cent per year. It’s now bigger than Snapchat and will probably be bigger than Twitter within two or three years.
Meanwhile, Amazon’s media market offering is now growing faster than Google’s or Facebook’s, and will start to impact their share; and Amazon is also competing against Apple in terms of video streaming. In 2015, they controlled two per cent of all video streaming time and were ranked seventh; in 2016, they controlled four per-cent — they doubled their share and jumped to number 3, just behind Netflix and Youtube. Whenever Amazon bumps up against one of the other Four, it wins.
In addition, with the acquisition of Whole Foods, it is about to become the fastest-growing offline retail company; and it’s also the dominant market share leader in the world of the Cloud, which is the most profitable and fastest-growing segment of technology. In a seemingly endless number of businesses or sectors, when Amazon issues a press release, it is viewed as a credible threat or player. Amazon has extraordinarily-cheap access to capital. This year it will be the second largest spender on original content at four and a half billion, second only to Netflix, at six billion.
We simply have never seen a company like this before, that is so well-positioned in so many categories. It is now in more U.S. homes than homes have landline phones — or that voted in the 2016 election. For all of these reasons, I believe Amazon will be the first trillion-dollar company.
Many believe that Amazon’s core assets are its operational capabilities, engineers and brand—but you disagree; please explain.
I would argue that Amazon’s core competence is storytelling. Amazon has reshaped the relationship between firms and markets in that it has replaced the traditional profit narrative with one of vision and growth. You can trace this all the way back to Jeff Bezos’ 1997 memo, where he said, ‘We’re going to invest for the long-term across things that we know will be important for decades to come’. In that memo, he mentioned speed, selection and price. The markets really warmed to this long-term vision, and Amazon has stayed true to it.
As long as that story remains compelling and consistent, the marketplace will put the value of Amazon in what can only be described as an ‘anti-gravity bucket’. Comparing it to other companies in similar spaces makes absolutely no sense. There is no way to fundamentally value this company, rationally.
People keep talking about a day of reckoning for Amazon, but that day has not come in 15 years. It has been able to create what is the ultimate competitive weapon: Access to cheap capital through a competence called storytelling. It has an ability to paint an extraordinary vision and then execute against it incrementally every single day, which results in cheaper and cheaper capital, which it can then reinvest — so, it becomes an upwards spiral.
In your view, why is Jeff Bezos so interested in talking about social issues, such as a minimum income and negative income taxes?
He is basically hinting that there are not going to be enough jobs for people in the future, so we should just start paying people to stay home and not work. I find this both frightening and disappointing. Work is very central to our identities and our culture. There’s a ton of evidence that when people work, they’re much happier, because we get a certain amount of our self-worth from work. The notion that one of the smartest business leaders of our generation has sort of ‘thrown up his hands’ on this is very troubling.
In 2015, Apple defied a court order mandating it to unlock a mass murderer’s iphone. Did it do the right thing?
I don’t think so, and this is further evidence of our idolatry of innovators. Just imagine if the terrorists in San Bernardino
In every instance where there has been an overlap of competition between The Four, Amazon has come out on top.
had used a Blackberry, and the FBI had issued a court order to unlock a Blackberry phone from Research in Motion in Waterloo, Canada. If they had disputed or refused the court order, within 48 hours, we would have had legislation in place to put a trade embargo on all of Canada. But, because it was an iphone, people saw it as sort of a religious object—somehow holy and untouchable. We treat these innovators and these objects with reverence and credibility that, in my opinion, is scary — and just plain gross.
You have suggested that Apple should launch the world’s largest tuition-free university. Tell us more about this idea.
All four of these companies have been strategically masterful at identifying sectors that are ripe for disruption. The way you do that is, you look at a sector that has raised prices faster than inflation, with no underlying increase in productivity or value. By these measures, cable television was a prime candidate for disruption. Its main offering has barely changed over the years, but prices have outpaced inflation. Whereas, if you look at the car industry, the price of a Mercedes S-class on an inflation-adjusted basis is actually the same — or a bit less — than it was 20 years ago, despite the fact that it is a totally different car on just about every dimension: performance, efficiency, mileage, materials. So, you could argue that cable is ripe to be disrupted, and the auto industry is not.
I would argue that the industry that is most ripe for disruption is education. If you look at the cost of tuition, in the U.S. at least, it has outpaced cable television and even healthcare. It has been extraordinary. On Monday nights this spring, I taught 160 kids who paid $6,000 each. That’s $960,000 in tuition; twelve nights at $80,000 a night. I teach for 180 minutes, minus a 20-minute break, so that’s 160 minutes, which means the class is worth $500 per minute. You know what? I’m good, but I’m not that good.
Apple could come in and launch a university with a mix of offline and online courses. It has the brand and the credibility to do this, and I think it could potentially spark a revolution in education that would force other institutions to lower their prices.
At $420 billion, many believe that Facebook is overvalued. What is your take?
I’m not an equity analyst, so it’s difficult for me to say, but I will say that Facebook is the most successful commercial product in the history of mankind. It has a meaningful relationship with almost two billion people on the planet. That is more than Communism, Capitalism and Christianity. The only thing I can think of that touches more individuals is soccer, which has three billion fans, globally. But soccer doesn’t have the economic relationships that Facebook does.
Why is it such a hit? Because it taps into our strong need to love and to be loved. It creates a lot of empathy and connections between people, and it has used technology to scale that. It also has fantastic targeting abilities that make it massively profitable. It has defied the laws of big numbers and continues to grow at 40 per cent per year, despite being a very large company.
Eighty per cent of our free time is now spent on a smartphone app, and five of the top 10 apps are owned by Facebook. If you think the mobile phone is really the biggest shift in our culture, some would argue that it’s essentially just a technology for Facebook.
You believe that several companies have the potential to become the fifth member of this succesful group, including Alibaba, Tesla, Netflix, Uber, Walmart, Microsoft, Airbnb and IBM. Which has the best shot at the moment, and why?
That’s a tough one. I would say either Microsoft or Netflix; Microsoft because of its B2B capabilities and its super
Eighty per cent of our free time is now spent on a smartphone app, and fifive of the top 10 apps are owned by Facebook.
robust business. It competes really well in a number of different areas, and it’s also a pretty big player in the Cloud. But my bet would probably be on Netflix. A lot of us are now spending a lot of time in front of this ‘operating system for joy in our lives’. And, if you believe that Millennials are going to own the future, they already spend more time in front of a Netflix screen than all other cable and television channels combined.
If the operating system for television and entertainment at home becomes Netflix — which seems to be happening—they should be able to monetize that in ways that are fairly extraordinary. So, I would bet on them to be number five, with an outside chance for Microsoft. And my third pick would be ‘TBD’ — because there are probably a couple of kids in a dorm room at MIT right now coming up with something we can’t even imagine. Scott Galloway is a Professor at New York University’s Stern School of Business. He is the author of The Four: The Hidden DNA of Amazon, Apple,
Facebook and Google (Portfolio/penguin, 2017).