Dr. Scott Galloway, author of The Four: The Hidden DNA of Amazon, Apple, Facebook and Google, is a professor at NYU with an impressive track record as an entrepreneur: Galloway founded nine firms and appears on the weekly YouTube series Winners and Losers. His book on the so-called GAFA (Google, Apple, Facebook, Amazon) group is an easy read with many relevant examples, anecdotes, and excellent graphics.
When this book was written three years ago, these four companies bore quite positive opinions from the general public. In contrast, all four companies face strong criticism today. Facebook is perhaps in the lead in regards to public criticism. Through the power of its global reach, the company is blamed for having contributed to the current rise of populism, political interference in elections, and more.
But despite this significant degradation of the perception of the so-called “Four Horsemen,” the book provides an excellent exposé about what constitutes a successful strategy in today’s digital age:
Going asset-light, with a focus on investing in a scalable web-based business model instead.
Obtaining rapid growth through free (or almost free) use (e.g., virtually nobody wants to pay for content), and then charging for advertising and add-on services.
Establishing flexible, network-based organizations to allow for ultra-rapid growth.
The book begins with a thorough discussion of Amazon, focusing on its e-commerce strategy that drives an impressive 20% yearly growth. Galloway digs into how Amazon competes against established retailers, especially in sectors subject to substantial fragmentation. Obviously, much of Amazon’s strategic advantage derives from the company’s scope and economy of scale.
The chapter on Apple is an opportunity for Galloway to discuss in detail the company’s luxury good strategy. Five factors stand out here:
An iconic founder (Steve Jobs)
Artisanship (simple luxury!)
Vertical integration (China is key in this integration)
Global focus (again, China constitutes a crucial market)
Price premium (high price often signals a luxury good’s high quality, driving more sales through the so-called “negative elasticity”).
As Galloway points out, Apple’s strategy seems to work – it is five-and-a-half times more profitable than Samsung in the smartphone segment, although Samsung has a slightly higher market share. However, the firm’s significant exposure to China for its production and sales might constitute an excessive source of risk going forward.
Facebook is the topic of the following chapter. Mark Zuckerberg’s firm essentially collects individuals’ behavioral data to offer highly targeted advertising. This strategy has been successful, although controversy around such a model has grown lately. One example is the Cambridge Analytica scandal, which sold and made use of a great deal of personal data without authorization and for dubious purposes. Moreover, the recent shootings in New Zealand and in El Paso, Texas, revealed how extremists have used Facebook to promote violence.
Google is the archetype of the online advertising firm, despite Facebook being a strong contender. The content shown on Google is basically free, and the company makes some additional revenues by charging its many clients for add-on services.
Galloway then discusses how these four iconic firms essentially steal information from individuals to later sell it to corporations. Beyond personal data, Galloway also highlights several instances in which these companies “borrowed” innovations from other firms. Admittedly, their competitive advantage also derives from scale, and Galloway spends a chapter highlighting how scale implemented by cloud computing and similar technologies yields lower costs. Beyond the obvious benefit of scale, Galloway identified eight other factors that drive these firms’ competitive edge:
Product differentiation
Access to risk-willing capital
Global reach
Likability (i.e., the product is liked although senior management may not be)
Vertical integration (we have already mentioned Apple’s heavy dependence on manufacturing in China, as an example)
Artificial intelligence
“Accelerants” based on being able to attract the best talent and thus growing even faster
Geography – in particular, being located near well-established, world-leading universities.
Is there a chance that a new firm might join the GAFA group and become a fifth Horseman? Galloway identifies seven strong contenders:
Alibaba
Tesla (which is trying to hold off Google in the race towards self-driving cars)
Uber
Walmart (not likely to give up yet in its competition with Amazon)
Microsoft (which dominated in the 1990s)
Airbnb
IBM (the darling of the 1970s)
Galloway even considers adding to this list Verizon, AT&T, Comcast, and Time Warner together, as each is probably too small to become a fifth horseman, but collectively could still exert sufficient market power to compete against the GAFA companies.
The three years since the publication of this book demonstrate how unexpected developments may occur and change the course of any of these companies. Galloway also points out organizational complacency as a significant risk for each of these firms.
So how should individuals map out their careers in the age of these asset-light, high-tech, networked firms? The author provides pivotal pieces of advice to answer this question; I shall highlight seven of them here:
Understand the difference between plainly “good” and truly “great” (and always aspire to be in the latter category).
Be curious.
Separate oneself from the rest (i.e., building upon one’s unique capabilities).
Be willing to go for jobs externally as opposed to staying in one company. The author points out that one can benefit from switching firms often, including receiving significant increases in salary.
Be loyal to people rather than to firms. It is people who have the ability to remember!
Manage one’s career so as to always be learning, and thus never stay too long in one specific position nor in the same firm.
Galloway also comes up with an interesting definition of what might be an entrepreneur in this day and age:
Someone with a high propensity to take risk and tolerate failure.
Someone with strong selling skills – without revenue there is no success.
Someone with an aversion to working in large firms (i.e., someone disinterested in serving a hierarchy or adhering to specific values within a given corporate culture).
In his parting chapter, Galloway revisits the question of whether the enormous concentration of economic power associated with the “Four Horsemen” might have negative social consequences. He concludes with a resounding no, based on the fact that change in the meta-system shall always lead to new and shifting conditions for being successful, such as technological changes, new political/regulatory moves, global shifts in economic power, and new winning versus losing nations. I recommend this book. More than anything else that I have read, this book discusses what business success in this digitally based day and age is about.
Comments