A Blog by Jonathan Low

 

Oct 11, 2017

The Reason Consumers Can't Say No To Apple, Google, Facebook and Amazon

They have brilliantly designed and employed technology to relentlessly target human desire. JL


Tom Upchurch reports in Wired:

Fundamental to the success of these four companies is how they have used technology and strategy to understand and appeal to basic human desires. Driven by technology and capital, they have thrived within a hyper-consumer, de-regulated capitalist culture, declaring war on what entrepreneurs refer to as “friction.” It turns out that “friction” includes every obstacle in the way of satisfying a given desire.
Scott Galloway’s The Four is a bareback ride upon the four horses of the economic apocalypse – Apple, Amazon, Facebook and Google. It is a timely exposition of the nature and concentration of power in the world today and, as a result, is much more than just a business book. Contrary to wishful thinking, size does matter, and nowhere is this more apparent than with the quadropoly of these giants. For example, did you know that from 2013 to 2017, their combined market capitalisation increased in size by the GDP of Russia ($1.4 trillion) and by next year, it will surpass the GDP of India? Or that more Americans have Amazon Prime (52 per cent), than go to Church (51 per cent) or own a gun (44 per cent)?
In his new book, The Four: The Hidden DNA of Amazon, Apple, Facebook and Google, Galloway, an entrepreneur and professor at NYU Stern, provides a perceptive analysis of the four-horse race to become the first trillion-dollar company. In a casually incisive style, he uncovers how each of these companies have deployed iconic leadership, technology, storytelling, fearless innovation, lightning execution - and blatant plagiarism- to devastating effect.
Yet, lurking beneath the business analysis, Galloway demonstrates that despite their brilliance, The Four have not achieved dominance by themselves. Driven by technology and capital, they have thrived within a hyper-consumer, de-regulated capitalist culture. Starting in America, then rapidly scaling throughout the world, The Four are the product of a Faustian bargain between weary institutions, an evaporating middle class, attention-seeking media and profit-hungry markets.
The book contains more insights and provocative ideas than Amazon has Boeing 767s. However, there are three core ideas which illustrate that the era of The Four is not just business as usual.

The total war on friction

Fundamental to the success of these four companies is how they have used technology and strategy to understand and appeal to basic human desires. In Galloway’s thesis, each of The Four appeal to a specific human organ. Google targets the brain and our thirst for knowledge. Facebook is trained on the heart and our need to develop empathetic and meaningful relationships. Amazon targets the guts, satisfying our hunter-gatherer impulse to consume. And Apple, with its sleek, sensual products, has its focus firmly on our genitals.
With our desires in their sights, The Four have gone about declaring war on what entrepreneurs euphemistically refer to as “friction.” It turns out that “friction” includes every obstacle in the way of satisfying a given desire. Everything from the synaptic connections in the brain responsible for decision-making processes, to the rules issued by regulatory and tax authorities - all the way down the supply chain, to those making products in the developing world. Galloway shows that it is The Four that have been the most able at circumventing these barriers; making it as easy and rewarding as possible for people to engage with a platform, enter a search query and click for a product.
Throughout the book, we are reminded that this is not all bad news. After all, the war on friction has been an undeniably positive development for consumers. Products are cheaper and levels of customer service have reached new heights. The system is so successful that people grant The Four unprecedented access into their lives. Amazon’s Echo, the Facebook Messenger App, Apple’s iPhone and Google Search sit within most households and pockets, achieving a degree of intimacy and intelligence that few organisations can match.


The new economic rules of The Four

The Four are also creating new economic rules. Take for example Amazon, an organisation which has marshalled more cheap capital than any firm in history and yet only started turning a profit in 2002. Galloway argues convincingly that through simple and consistent storytelling, Jeff Bezos has reshaped investor expectations, providing Amazon with an ocean of long-term capital, at the expense of the rest of the industry.
In creating their media duopoly, Google and Facebook have also re-written economic models. By creating products and platforms that improve with use, Galloway describes how a “Benjamin Button Economy” is emerging in media. Network effects strengthen their targeting algorithms and drive down the cost of their advertising products. Unsurprisingly they now constitute 103 per cent of growth in digital media advertising revenues (meaning the rest of the industry is in structural decline.)Their success has come at the expense of entire industries. In the age of The Four, investors are rewarding a small band of companies and punishing the rest. Combine this with a committed drive towards automation, and Galloway concludes that major job destruction is not just around the corner, it has already arrived.
And how is the competition responding? Galloway has little faith in incumbent firms proclaiming, “History favours the bold. Compensation favours the meek.” In Galloway’s analysis, CEOs are simply too addicted to their own compensation to respond with any bravery, flair or imagination.
There will be new competitors, to which Galloway devotes a chapter exploring who might become the Fifth Horseman. Yet despite the agility of these new contenders, they will have their work cut out for them as The Four work furiously to cement their place in public life.

The Four as public utilities

Not content with their position as major brands, The Four are attempting to cement their dominance by becoming providers of public infrastructure.
In this regard, Amazon is leading the pack. It is marshalling a global logistics operation that is the envy of most nation-states, including a fleet of Boeing 767s, drones, thousands of tractor-trailers and Trans-Pacific shipping. Google has server farms and is launching blimps into the atmosphere that will beam broadband down to Earth. And whilst Apple and Facebook may lag behind, even the latter has announced that it will be laying cable across the floor of the Atlantic. These organisations are committed to becoming a permanent fixture of the future.

The future of The Four

From anti-trust authorities, through to disenfranchised citizens and opportunistic competitors, The Four undoubtedly face threats. In fact, what is so timely about Galloway’s book is that the conflict between platform companies and authorities is only just beginning. Google’s ongoing confrontation with the European Commission, Uber’s recent dispute with Transport for London and Facebook’s continual struggles over fake news, suggest that regulators are beginning to wake-up to the frictionless future posed by technology companies.
For the foreseeable future, however, Galloway suggests that The Four will continue to reign supreme. That is, if they don’t attack each other. History tends to show that Gods don’t share power. And on current figures, Amazon seems the most pugnacious and effective at stealing market share. They are even out-doing Google in Search, with 55 per cent of product searches starting on Amazon, against Google’s 28 per cent. One suspects that if Galloway was to write a sequel to this book it would be called The One.
Understanding that they are a fixture of our future, Galloway has successfully written a book for young people. The analysis has been broken up into short and accessible sections. The writing style is casual, sometimes rude and frequently funny. There is even a chapter dedicated to career advice in the age of The Four.
So where does this book fall-down? It is intensely US focused and rife with Americanisms, which is excusable, as America still has the world’s largest and most advanced internet economy. Alibaba is included but there is little mention of other rapidly growing Chinese companies.

The greatest omission is in the lack of policy suggestions on how to manage The Four. In uncharacteristic style, Galloway suggests that this subject is better left to policy-makers. As a commentator renowned for throwing punches, it is a surprise to see him pull this one. And it begs the question, why fail to address the most fundamental question regarding monopolies?
His reluctance suggests a degree of fatalism - there is no easy answer. This historic quadropoly is not just the creation of Jeff Bezos, Steve Jobs, Eric Schmidt and the class of entrepreneurs creating this frictionless future. Rather it is a creation of a society predicated on consumption and accelerated by technology and capital.
Any meaningful change to The Four, will likely require change to this system - something people don’t necessarily want. After all, the success of The Four is now bound to the satisfaction of our own desires.
My recommendation is to walk down to your local book store and buy this – or more likely, buy it on Amazon.

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