Four companies are at the top of the pyramid for technology and digital media: Amazon, Apple, Facebook, and Google. Each one is very different, but there are many similarities that have helped these companies become so dominant.
Amazon’s reach is extraordinary, with 64 percent of people in the United States being subscribers to Amazon Prime. Apple, while far from being the leader in smartphones, commands one of the highest profit margins in the tech sector, currently around 38 percent. Facebook has two billion users, and four of the five most popular mobile apps are owned by the company. And Google owns 92 percent of the search market.
Much has been written about the successes of these companies, and of the unique qualities of their founders: Jeff Bezos, Steve Jobs, Mark Zuckerberg, and Google’s Sergey Brin and Larry Page. And much has also been written about how these companies strategically created or took advantage of sectors where they could disrupt existing companies.
Scott Galloway, professor at the New York University Stern School of Business, and longtime entrepreneur, looks at these “four horsemen,” as he calls them, in his book The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google. In his book, he highlights many of the negative aspects of their business models, and their effects on society.
Not all is rosy in Silicon Valley (and Seattle)
Much of this book is a screed about the things the author feels these companies do wrong. Apple‘s focus on high end (luxury) products; Facebook‘s refusal to except the mantle of being a media company, with the responsibilities that go along with that; Google’s appropriation and amalgamation of data; and Amazon’s destruction of retail infrastructure and distribution.
As I write this review, the stock markets have undergone the most serious correction in years, and Apple just announced its first profit warning in 15 years, with its stock plummeting nearly 10 percent. Facebook has just had a year with dozens of scandals about how it uses its customer data. Amazon has been criticized for its approach to and choice of a second (shared) headquarters. And Google is, well, spying on us and using our data to create profiles that it sells to advertisers.
Gone are the days of the mottos “Don’t be evil,” and “Think different.” We’re living in a period of unique concentration where four companies can control so much of what we do. And it’s not just the public faces of these companies; Amazon’s AWS holds around half of the public cloud market share (this is virtual servers that run much of the Internet); and Facebook, who looks like a homey place to share photos and videos, has around 20 percent of the online advertising market (though Google still reigns supreme at around 35 percent).
How do we measure success?
We measure the success of a company by its market capitalization, and if you look at the four in this way, they look more like three and a half. Apple was the first trillion dollar company, but at the time of this writing is worth less than $700 billion. Amazon, who hit that magical number shortly after Apple, is now worth about $740 billion, followed by Google at around $720 billion. But Facebook, in spite of its reach, comes in at about half the market cap of the big three, or around $380.
The only one of these four companies that makes most of its money from hardware is Apple, and the story of the company’s rise and fall and rise is well known. Galloway criticizes Apple for its aspiration to become a luxury brand, maintaining high prices for its devices, and controlling much of the sales channel through the brilliant decision to open its own stores in order to achieve an astounding profit margin. But Google is taking the opposite tack, becoming more of a public utility. Search isn’t sexy; it’s like electricity and water, and, given Google’s dominance, Galloway suggests that “Congress and the Justice Department might just decide the search engine is a public utility and regulate the firm as such.”
Is it time for a change?
Amazon’s ravaging of the retail section is another well-known story. But who among us doesn’t use the company to buy things that you won’t find on Main Street or in your local mall? In order to increase efficiency, Amazon has invested heavily in the last mile, that fragmented delivery system that gets your packages to you on time. Galloway says:
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.
Facebook is more insidious. “IF SIZE MATTERS (it does),” says Galloway, “Facebook may be the most successful thing in the history of humankind.” And “Powered by its mobile app, Facebook is now the world’s biggest seller of display advertising—an extraordinary achievement, given Google’s brilliant theft of advertising revenues from traditional media just a few years ago.” The concentration of this much power in advertising is unprecedented. “Google and Facebook are redrawing the media map. Eventually they will control more media spend than any two firms in history.”
These four big firms have a dampening effect on innovation. Galloway explains:
I’ve sat in dozens of VC pitches by small firms. The narrative has become universal and static: ‘We don’t compete directly with [Amazon/Apple/Facebook/Google] but would be great acquisition candidates.’ Companies thread this needle or are denied the requisite oxygen (capital) to survive infancy. IPOs and the number of VC-funded firms have been in steady decline over the past few years.
All of them avoid paying higher tax rates — “Between 2007 and 2015, Amazon paid only 13 percent of its profits in taxes, Apple paid 17 percent, Google paid 16 percent, and Facebook paid just 4 percent. In contrast, the average tax rate for the S&P 500 was 27 percent.” — they don’t have many employees, and their ability to suffocate competition is not good for the economy overall. As a result of this, Galloway suggests that they need to be broken up, like Bell Telephone back in the day.
Is this possible? It’s hard; these companies spend a great deal of money on lobbyists, and they are, in general, well liked. But they skew the economy; they stifle competition.
This isn’t an indictment of the Four, or retribution, but recognition that a key part of a healthy economic cycle is pruning firms when they become invasive, cause premature death, and won’t let other firms emerge. The breakup of big tech should and will happen, because we’re capitalists. It’s time.
Why read: The Four: The Hidden DNA of Amazon, Apple, Facebook and Google
This book makes a good case for treating these big companies differently than we have been since their inception. Many people don’t realize just how big they have become, and if you’re setting up a new business that may compete with even a part of these companies, it’s good to understand the implications of their control over essential markets.
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