The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google

by Scott Galloway

Echo is the speaker-like cylinder, and Alexa is its artificial intelligence, named after the library of Alexandria.42 Alexa is designed to operate like a personal communicator, enabling the user to call up music, search the web, and get answers to questions. Most of all, it takes gathering to the next level by ordering through powerful speech recognition software. Say, “Alexa, add Sensodyne to shopping cart” or (such a pain) push a Trojan Condoms Dash button43—and in an hour or less, it’s go time. And Alexa gets smarter every time you use it. That’s what the customer gets. For Amazon, the reward is greater: Amazon’s customers trust it so much that they’re allowing the company to listen in on their conversations and harvest their consumption data. This will give Amazon deeper penetration into the private lives and desires of consumers than any other company. In the short term, Go and Echo suggest that the company is headed toward zero-click ordering across its operations. Leveraging big data and unrivaled knowledge of consumer purchasing patterns, Amazon will soon meet your need for stuff, without the friction of deciding or ordering. I call this concept Prime Squared. You may need to calibrate every once in a while—less stuff when you go on vacation, more when you’re having people over, less Lindt Chocolate when you fall out of love with it—but everything else will operate on retail’s equivalent of fly-by-wire. Your order will arrive with an empty box; you’ll put the stuff...

Amazon has had more access to cheaper capital for a longer period than any firm in modern times. Most successful VC-backed tech companies in the nineties raised less than $50 million before showing a return to investors. By comparison, Amazon raised $2.1 billion in investors’ money before the company (sort of) broke even.46 As the company has shown, Amazon can launch a phone, invest tens, maybe hundreds, of millions of dollars on development and marketing, have it fail within the first thirty days, and then treat the whole disaster as a speed bump. Now that is patient capital. If any other Fortune 500 company—be it HP, Unilever, or Microsoft—launched a phone that proved DOA, their stock would be off 20 percent plus, as Amazon’s stock was in 2014.47 But as shareholders screamed, the CEO of another company would blink and pull in its horns. Not Amazon. Why? Because if you have enough chips and can play until sunrise, you’ll eventually get blackjack. This cuts to Amazon’s core competence: storytelling. Through storytelling, outlining a huge vision, Amazon has reshaped the relationship between company and shareholder. The story is told via media outlets, especially those covering business and tech. Many of them have decided tech CEOs are the new celebrities, and they give Amazon the spotlight, center stage, and star billing anytime. Until now, the contract companies have with shareholders is: give us a few years and tens of millions of dollars . . . and then we’ll begin return...

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Thanks to a rate of growth that reflects a steady march toward this vision, the market bids Amazon stock higher and provides the firm with exceptionally cheap capital. Most retailers trade at a multiple of profits times eight.48 By comparison, Amazon trades at a multiple of forty.49 In addition, Amazon has trained the Street to hold them to a different standard—to expect higher growth but lower profits. That enables the company to take the (substantial) incremental gross margin dollars it earns each year and plow more capital back into the business—and avoid that whole tax thing. And that in turn funds the digging of deeper and deeper moats around the business. Profits are to investors what heroin is to an addict. Investors love profits, I mean really love them. Yes, invest, grow, and innovate, but don’t dare get in the way of me getting jacked up on skag (profits). Amazon’s revolutionary timeline of capital allocation is what has been preached for generations in business school—total disregard for the short-term needs of investors in pursuit of long-term goals. A company that does this is as rare as a young adult who skips prom to study. Normal business thinking: If we can borrow money at historically low rates, buy back stock, and see the value of management’s options increase, why invest in growth and the jobs that come with it? That’s risky. Amazon business thinking: If we can borrow money at historically low rates, why don’t we invest that money in extraordinarily exp...

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Walmart wants to impress its parents, and is earnestly investing for the long term. But the markets don’t buy this maturity from the Bentonville firm. On Walmart’s Q1 2016 earnings call, management informed the Street that the company would be substantially increasing technology capital expenditures to “win the future of retail.”50 This was the correct, and only, choice for Walmart. However, the strategy meant a reduction in projected earnings. Cue the withdrawals and vomiting. Within twenty minutes of the opening of trading the following day, Walmart’s market value shed the equivalent of 2.5 Macy’s—$20 billion.51 Being an investor in Amazon is growing up in Mitt Romney’s house: you’re just not going to get access to heroin (profits). Through earnings call after earnings call, Amazon reinforces its vision of growth, downplays profits, and reminds its shareholders that it doesn’t ever pay dividends. The ointment is a vision of world domination, complete with cool new technologies (drones), content (movies), and Star Trek tricorders (Amazon Echo) that have more adoption and buzz than any consumer hardware product since the iPad. It’s storytelling, but in a Harry Potter way, where the next story is better than the original.

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Bezos, like any great leader, has the ability to explain a crazy idea in a way that makes it seem not just less crazy, but practical. Wait, that’s obvious—how did we not think of that? The really crazy shit isn’t stupid, it’s “bold.” Yeah, a floating warehouse sounds crazy the first time you hear of it. Now, ponder the cost of leasing and running a traditional terrestrial warehouse. What are its biggest expenses? Proximity and rent, respectively. Now, think again about a floating warehouse. Not so crazy, right? Bezos’s perpetual message is that it’s Amazon’s nature to swing for the fences on a regular basis. But the analogy is wrong: in baseball, a grand slam only scores four runs. By comparison, the home runs of Amazon Prime and AWS produced several thousand runs when the Seattle firm connected with the ball. As Bezos wrote in Amazon’s first annual letter, in 1997, “Given a 10 percent chance of a hundred times payout, you should take that bet every time.”53 Needless to say, most CEOs don’t think this way. Most won’t even take risks that have less than a 50 percent chance of success—no matter how big the potential payoff. This is a big reason why old-economy firms are leaking value to new-economy firms. Today’s successful companies may have the assets, cash flow, and brand equity, but they approach risk differently than many tech firms that have seen their death. They live for today and acknowledge that great success only comes with significant, even existential, risk.

and there you have it

There is a survivor bias that plagues old-economy CEOs and their shareholders. My nightmare job is the “invisible until you fuck up” position. These jobs are everywhere: IT, corporate treasurer, auditor, air traffic controller, nuclear power plant operator, county elevator inspector, TSA officer. You’ll never be famous, but you have a small, and terrifying, chance of being infamous. CEOs of successful old-economy firms have a similar bias—they are “rich until they fuck up.” CEO pay has become so crazy that on a risk-adjusted basis, you’re better off staying out of traffic, logging your six to eight years, and retiring rich. However, if you google “biggest mistakes in business history,” the majority of results are risks that firms failed to take, such as Excite and Blockbuster passing on acquiring Google and Netflix, respectively.

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History favors the bold. Compensation favors the meek. As a Fortune 500 company CEO, you’re better off taking the path often traveled and staying the course. Big companies may have more assets to innovate with, but they rarely take big risks or innovate at the cost of cannibalizing a current business. Neither would they chance alienating suppliers or investors. They play not to lose, and shareholders reward them for it—until those shareholders walk and buy Amazon stock. Most boards ask management: “How can we build the greatest advantage for the least amount of capital/investment?” Amazon reverses the question: “What can we do that gives us an advantage that’s hugely expensive, and that no one else can afford?” Why? Because Amazon has access to capital with lower return expectations than peers. Reducing shipping times from two days to one day? That will require billions. Amazon will have to build smart warehouses near cities, where real estate and labor are expensive. By any conventional measure, it would be a huge investment for a marginal return. But for Amazon, it’s all kinds of perfect. Why? Because Macy’s, Sears, and Walmart can’t afford to spend billions getting the delivery times of their relatively small online businesses down from two days to one. Consumers love it, and competitors stand flaccid on the sidelines.

exactly

History favors the bold. Compensation favors the meek. As a Fortune 500 company CEO, you’re better off taking the path often traveled and staying the course. Big companies may have more assets to innovate with, but they rarely take big risks or innovate at the cost of cannibalizing a current business. Neither would they chance alienating suppliers or investors. They play not to lose, and shareholders reward them for it—until those shareholders walk and buy Amazon stock. Most boards ask management: “How can we build the greatest advantage for the least amount of capital/investment?” Amazon reverses the question: “What can we do that gives us an advantage that’s hugely expensive, and that no one else can afford?” Why? Because Amazon has access to capital with lower return expectations than peers. Reducing shipping times from two days to one day? That will require billions. Amazon will have to build smart warehouses near cities, where real estate and labor are expensive. By any conventional measure, it would be a huge investment for a marginal return. But for Amazon, it’s all kinds of perfect. Why? Because Macy’s, Sears, and Walmart can’t afford to spend billions getting the delivery times of their relatively small online businesses down from two days to one. Consumers love it, and competitors stand flaccid on the sidelines.

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The Four are all disciplined about getting out in front of their skis, taking big, bold, smart bets, and tolerating failure. This failure gene is at the heart of Amazon’s and, more broadly, the U.S. economy’s success. I’ve founded or cofounded nine firms and I’m, generously, 3-4-2 (win-loss-tie). No other society would tolerate, much less reward me. America is the land of second chances, and even if Jeff Bezos is predictably globalist, the culture at Amazon is distinctly red, white, and blue. Most uber-wealthy people have one thing in common: failure. They’ve experienced it, usually in spades, as the path to wealth is fraught with risks, and often those risks end up being . . . well, risky. A society that encourages you to get up after being beaned in the head, dust off your pants, step back into the batter’s box, and swing harder next time is the secret sauce for printing billionaires. The correlation is clear. America has the most lenient bankruptcy laws, attracts risk takers, and, as you might guess, has most of them. Twenty-nine of the fifty wealthiest people on the planet live in the United States, and two-thirds of unicorns (private companies with $1 billion–plus valuations) are headquartered here.56,57 Sell the Picks

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Most e-commerce firms can never get to profitability and, at some point, investors tire of a vision that’s “reheated Bezos.” The firm gets sold (Gilt, Hautelook, Red Envelope) or shutters (Boo.com, Fab, Style.com). A combination of a winner-take-all ecosystem, accelerating customer acquisition, last-mile costs, and a generally inferior (online) experience, makes pure-play e-commerce untenable. Amazon doesn’t escape this fact. But even if Amazon’s core business (pure-play e-commerce) is a difficult one for turning a profit, the immense value Amazon has delivered to consumers has created the most trusted and reputable consumer brand on the planet.59,60 Amazon has dominated e-commerce sales volume, but its business model isn’t easily replicated or sustained. These days, it’s easy to forget that Amazon did not turn its first profit until Q4 2001, seven years after its founding,61 and has dipped in and out of profitability ever since. In the past few years, Amazon has traded on this brand equity, leveraging it to extend into other businesses, and has expanded into other, simply better (more profitable) businesses. Looking back, Amazon’s retail platform just may have been the Trojan horse that established the relationships and brand later monetized with other businesses. While year-to-year

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In early 2016, Amazon was given a license by the Federal Maritime Commission to implement ocean freight services as an Ocean Transportation Intermediary. So, Amazon can now ship others’ goods. This new service, dubbed Fulfillment by Amazon (FBA), won’t do much directly for individual consumers. But it will allow Amazon’s Chinese partners to more easily and cost-effectively get their products across the Pacific in containers. Want to bet how long it will take Amazon to dominate the oceanic transport business?72 The market to ship stuff (mostly) across the Pacific is a $350 billion business, but a low-margin one. Shippers charge $1,300 to ship a forty-foot container holding up to 10,000 units of product (13 cents per unit, or just under $10 to deliver a flat-screen TV). It’s a down-and-dirty business, unless you’re Amazon. The biggest component of that cost comes from labor: unloading and loading the ships and the paperwork. Amazon can deploy hardware (robotics) and software to reduce these costs. Combined with the company’s cargo fleet, this could prove another huge business for Amazon.73 Between drones, 757/767s, tractor trailers, trans-Pacific shipping, and retired military generals (no joke) who oversaw the world’s most complex logistics operations (try supplying submarines and aircraft carriers that don’t surface or dock more than once every six months), Amazon is building the most robust logistics infrastructure in history. If you’re like me, this can only leave you in...

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Jet.com shows that the difference between a dot-bomb and a unicorn is a huckster vs. a visionary, respectively.82 How can you tell the difference? One has had an exit/liquidity event. Marc Lore, Jet’s founder, is that visionary/huckster. Mr. Lore is Jeff Bezos’s brother by another mother. Or, if you’re a retail worker, they are the spawn of Ayn Rand and Darwin, raised by Darth Maul. Lore is also a banker who turned to e-commerce and chose a low-consideration category that, even better than books, had replenishment built in: diapers. In 2005, Lore started diapers.com and launched several other categories for parents under the corporate umbrella Quidsi.83 When Bezos toured the firm, he must have felt at home, recognizing the warehouses close to urban centers staffed by Kiva Robots standing behind a site run by algorithms. Bezos fell hard and in 2011 paid $545 million for Quidsi.84 For half a billion dollars Amazon bought momentum in key categories, got some great human capital, and took a competitor off the market. But Lore didn’t want to work for Jeff Bezos. He wanted to be Jeff Bezos. Twenty-four months later he bolted and, with his new wealth, started Jet.com. This must have felt like a half-a-billion-dollar divorce settlement to your husband, who then moves into the house next door and starts fucking your friends.

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The ex is still pissed off. In April 2017 Bezos closed Quidsi and laid off many of its employees. Hey, if you leave me, your brother needs to move out of the basement. Maybe Quidsi should have been shut down. But my bet is this was Jeff saying to Marc, “and fuck you too.” We forget most of the world’s major organizations are run by humans, middle-aged humans, who have enormous egos that ensure they, on a regular basis, make an emotional/irrational decision. Jet uses algorithms to encourage you to increase the size of your basket by lowering the price based on cost of shipping and how profitable the bundle is. It started out with an annual membership fee of $50, similar to wholesale club Costco. It was the first company that had the balls to take on Amazon head-to-head and in its first year raised a quarter of a billion dollars. But there was a glitch: the firm and offering made no sense. Jet.com announced soon after launch that they were scrapping the membership model, as business was so strong without it. This is the PR equivalent of turning chicken shit into chicken salad. At the time of Walmart’s acquisition, Jet.com was spending $4 million/week on advertising and needed to get to $20 billion in annual sales—more revenue than Whole Foods or Nordstrom—to break even.85 As traditional consumer marketing wanes in importance at the hands of digital, and better products emerge that consumers can discover using new tools of diligence, entrepreneurs’ ability to spin lemons into...

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Jet.com was not worth $3 billion, but it was worth more than $3 billion to Walmart. Online sales were up over 50 percent each quarter of 201786—this alone is worth more than $3 billion to a $300 billion dollar firm. However, online sales tanked again in early 2018, igniting concerns about whether the juggernaut can keep pace as more and more retail spending shifts to the web.87 While Walmart attempts to bolt on an e-commerce operation to its existing physical retail infrastructure, Amazon is building and acquiring stores to complement its robust online retail—and is likely to win as a result. Consumers increasingly prefer a channel-agnostic experience, where digital (specifically your smartphone) serves as the connective tissue between consumer, store, and site. The consumer always wins, and she has a choice: Door 1, a great e-commerce experience; Door 2, a great in-store experience; or Door 3, a great site and store experience connected by her mobile phone. The ability to reserve something on her phone, pay later on mobile or desktop, pick it up in store, and never have to wait in a checkout line is damn near unbeatable. Sephora, Home Depot, and many department stores already have this kind of multichannel integration. The future of retail may currently look more like Sephora than Amazon in its current form. However, Amazon has the assets—capital, technology, trust, unrivaled investment in last-mile fulfillment—and 460 stores/warehouses in affluent areas (Whole Foods) to ...

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On the front end of the e-commerce channel, the cost of customer acquisition continues to rise as consumers’ loyalty to brands erodes. You have to keep reacquiring them. In 2004, 47 percent of affluent consumers could name a favorite retail brand; six years later that number dropped to 28 percent.89 That makes pure e-commerce play increasingly dangerous. Nobody wants to be at the mercy of Google and disloyal consumers. Amazon has decided it wants off the merry-go-round of high-price acquisition coupled with zero loyalty. That’s why the company, via pricing and exclusive content and products, is asking people either to join Amazon Prime or leave. Prime members represent recurring revenue, loyalty, and annual purchases that are 40 percent greater than non-Prime members.90 If Prime continues to grow at its current rate, and people continue to cut the cord, within the next two years more households will have Amazon Prime memberships than cable television.91 In addition, the cost to build out a robust multichannel offering—which is rapidly becoming the table stakes for survival in retail—is painfully difficult and expensive. Cue Amazon, whose infrastructure is, effectively, building the cable pipe of stuff into the world’s wealthiest households. Eighty-two percent of U.S. high-income households have Prime.92 Amazon’s storefronts will effectively be warehouses that support Amazon’s, and other retailers’, last-mile problem. The cost to get you that little black dress from a wareh...

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On the front end of the e-commerce channel, the cost of customer acquisition continues to rise as consumers’ loyalty to brands erodes. You have to keep reacquiring them. In 2004, 47 percent of affluent consumers could name a favorite retail brand; six years later that number dropped to 28 percent.89 That makes pure e-commerce play increasingly dangerous. Nobody wants to be at the mercy of Google and disloyal consumers. Amazon has decided it wants off the merry-go-round of high-price acquisition coupled with zero loyalty. That’s why the company, via pricing and exclusive content and products, is asking people either to join Amazon Prime or leave. Prime members represent recurring revenue, loyalty, and annual purchases that are 40 percent greater than non-Prime members.90 If Prime continues to grow at its current rate, and people continue to cut the cord, within the next two years more households will have Amazon Prime memberships than cable television.91 In addition, the cost to build out a robust multichannel offering—which is rapidly becoming the table stakes for survival in retail—is painfully difficult and expensive. Cue Amazon, whose infrastructure is, effectively, building the cable pipe of stuff into the world’s wealthiest households. Eighty-two percent of U.S. high-income households have Prime.92 Amazon’s storefronts will effectively be warehouses that support Amazon’s, and other retailers’, last-mile problem. The cost to get you that little black dress from a wareh...

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On the front end of the e-commerce channel, the cost of customer acquisition continues to rise as consumers’ loyalty to brands erodes. You have to keep reacquiring them. In 2004, 47 percent of affluent consumers could name a favorite retail brand; six years later that number dropped to 28 percent.89 That makes pure e-commerce play increasingly dangerous. Nobody wants to be at the mercy of Google and disloyal consumers. Amazon has decided it wants off the merry-go-round of high-price acquisition coupled with zero loyalty. That’s why the company, via pricing and exclusive content and products, is asking people either to join Amazon Prime or leave. Prime members represent recurring revenue, loyalty, and annual purchases that are 40 percent greater than non-Prime members.90 If Prime continues to grow at its current rate, and people continue to cut the cord, within the next two years more households will have Amazon Prime memberships than cable television.91 In addition, the cost to build out a robust multichannel offering—which is rapidly becoming the table stakes for survival in retail—is painfully difficult and expensive. Cue Amazon, whose infrastructure is, effectively, building ...

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If you’re raising prices faster than inflation, without any underlying innovation, you’re ripe to be disrupted.

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The biggest loser? Easy: Walmart. Walmart’s e-commerce growth hurdle reaches beyond Seattle: a workforce that’s both underpaid and lacking the skills to close the multichannel circle. Many of their customers are that group you’ve wondered about, who don’t have broadband or a smartphone. The wealthiest man in the twentieth century mastered the art of minimum-wage employees selling you stuff. The wealthiest man of the twenty-first century is mastering the science of zero-wage robots selling you stuff. The same day that Amazon bought Whole Foods, Walmart bought Bonobos,113 an online menswear retailer that had acquired brick-and-mortar stores. Bonobos has a strong multichannel model—customers are fitted on site, and clothes are later mailed. Similar to the Jet acquisition, Walmart hopes to derive e-commerce ethos from the smaller retailer, so as to compete against Amazon. Unlikely that Bonobos will make much of a difference, given the scale of the juggernaut. Even with the Jet.com and Bonobos acquisitions, Walmart’s share of online sales in 2017 was 1.9 percent, while Amazon’s was 36.2 percent.114 It’s hard—or impossible—to compete with a giant who doesn’t need to make money,115 and who reinvests earnings into deeper moats against the competition.116 Walmart is the largest grocery retailer in the United States, and the Whole Foods acquisition is a major escalation in its grocery wars with Amazon.117 Walmart has ten times the number of grocery stores than Whole Foods, but Amazo...

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So . . . Is Every Retailer (and Its Employees) Screwed? The short answer is no. There is a rebel force of innovative retailers out there who are fighting the empire: Sephora, Home Depot, and Best Buy, to name a few. These firms are zigging as Amazon zags and investing in people—beauty associates, blue shirts, geek squads, and gold canvas aprons. They couple this investment in human capital with a deft investment in technology. Consumers no longer go to stores for products, which are easier to get from Amazon. They go to stores for people/experts. Bureau of Labor Statistics. Will their strategy—or Amazon’s—eventually emerge victorious? Or will they somehow accommodate each other and carve out a separate peace? The answer will not only decide the fate of companies, but millions of workers and households as well. What’s clear is that we need business leaders who envision, and enact, a future with more jobs—not billionaires who want the government to fund, with taxes they avoid, social programs for people to sit on their couches and watch Netflix all day. Jeff, show some real fucking vision.

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Over the next week, I was on Bloomberg TV twice to discuss the issue, and a strange thing happened. I started getting hate mail regarding my view that Apple should comply with the court order. A lot of hate mail. Wherever you stand in the debate regarding Apple and privacy, the more interesting question is: Would we have endured this hand-wringing if the shooter’s phone had been a BlackBerry? No? Why? Because the FBI-inspired court order to unlock the phone would have had a different reception at the door of the Waterloo, Canada, headquarters. My guess is that if the Canadian firm didn’t unlock the phone within forty-eight hours, several dozen congressmen and congresswomen would threaten a trade embargo. Pew surveyed the U.S. public on the issue and found it mostly split. However, there was a huge skew between cohorts. In sum, young Democrats were on Apple’s side, and old Republicans, government.3 That wasn’t what you might expect from either side, the former being for expanding the power of big government, and the latter for protecting the prerogatives of big business. But Apple, and the other horsemen, play by a different set of rules. Put another way, anybody who matters in the consumer world is for Apple. Young Democrats (millennials with college degrees) didn’t just inherit the Earth, they conquered it, led by engineering grads from MIT and Harvard dropouts. They are growing their income, spending it irrationally, as young people do, and have a facility with technolog...

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Their, and Apple’s, arguments: Apple, by creating a new IOS that allowed the FBI to open the phone with brute force, would create a back door that could not be contained and could end up in the wrong hands (SPECTRE?); and The government cannot conscript firms into surveillance upon private citizens. My response to the first claim: If Apple was creating a back door for others to use, it was a pretty unimpressive door. More like a doggy door. Apple estimated that it would take six to ten engineers a month to figure this out.5 That ain’t the Manhattan Project. Apple also maintained this key could end up in the wrong hands and prove hugely dangerous.6 We aren’t talking about the microchip that gave rise to the Terminator, which travels back in time to destroy all humanity. And the FBI even agreed to let the work take place on the Apple campus, ensuring it didn’t become an app we can download from FBI.gov.7 Again, these aren’t G-men with itchy trigger fingers lurking in doorways and alleys outside the Biograph Theater. Their second argument, that a commercial firm shouldn’t be enlisted in government fights against its will, is a marginally better one. However, does this mean if Ford Motor can construct a car trunk the FBI can’t unlock, where it believes there is a kidnap victim suffocating, then the Bureau can’t ask Ford to help them get in? Judges issue search warrants every day. They comply with search-and-seizure laws that prevent indiscriminate searches, and order homes, ca...

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Apple has always found inspiration from others (Latin for stealing ideas). The sector that has inspired Apple’s modern-day strategy is the luxury industry. Apple decided to pursue scarcity to achieve outsized, irrational profits that are nearly impossible for new-money, gauche tech hardware brands to imitate. The Cupertino firm controls 19.2 percent of the smartphone market, but captures 87 percent of global smartphone profits (2016).11,12 Sumra, Husain. “Apple Captured 79% of Global Smartphone Profits in 2016.” MacRumors.

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To grasp the power of Steve Jobs as the icon for innovation, think of young Elvis. If he had died in his twenties after the Sun Studio sessions and before he left for the army, we never would have seen him waddling across Las Vegas stages in white-bangled bell bottoms. Elvis exited before he hit forty. If he had hung around a few decades longer, he’d be doing oldies acts on retirement cruises, and Graceland would be a mobile home park. Dying removes the icon from the inevitable judgment of everyday existence, including aging, and elevates persona to legend—ideal for a brand. Imagine what the Tiger Woods brand would be worth to Nike if, instead of fading into mediocrity, the once-iconic golf star had been run over by his wife that night she discovered he couldn’t keep his putter in his bag. That’s arguably one of the few upsides to a public figure passing away—it inoculates them from foolish acts that destroy their reputation and, worse, aging. We know that the Founding Fathers of this country were quietly relieved when George Washington shuffled off this mortal coil—because he was then past the risk of tarnishing his sterling reputation.

A key component would be flipping the business model in education, eliminating tuition, and charging recruiters, as students are broke, and the firms recruiting them are flush. Harvard could foster the same disruption if they take their $37B endowment, cancel tuition, and quintuple the size of their class—they can afford to do this. However, they suffer from the same sickness all of us academics are infected with: the pursuit of prestige over social good. We at NYU brag how it’s become near impossible to gain admission to our school. This, in my view, is like a homeless shelter taking pride in how many people it turns away.

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No other media firm in history has combined Facebook’s scale with its ability to target individuals. Each of Facebook’s 2 billion users has created his or her own page, with years’ worth of personal content.9 If advertisers want to target an individual, Facebook collects data on behavior connected to identities. This is its advantage over Google—and why the social network is taking market share from the search giant. 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 irony is that Facebook, by analyzing every bit of data about us, might come closer to understanding us than our friends. Facebook registers a detailed—and highly accurate—portrait from our clicks, words, movements, and friend networks. By comparison, our actual posts, the ones designed for our friends, are mostly self-promotion. Your Facebook self is an airbrushed image of you and your life, with soft lighting and a layer of Vaseline smeared across the lens. Facebook is a platform for strutting and preening. Users post about peak experiences, moments they want to remember, and be remembered by—their weekend in Paris or great seats at Hamilton. Few people post pictures of their divorce papers or how tired they look on a Thursday. Users are curators. A study found that on Facebook, the top descriptors to complete the phrase “My husband is ...

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No other media firm in history has combined Facebook’s scale with its ability to target individuals. Each of Facebook’s 2 billion users has created his or her own page, with years’ worth of personal content.9 If advertisers want to target an individual, Facebook collects data on behavior connected to identities. This is its advantage over Google—and why the social network is taking market share from the search giant. 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 irony is that Facebook, by analyzing every bit of data about us, might come closer to understanding us than our friends. Facebook registers a detailed—and highly accurate—portrait from our clicks, words, movements, and friend networks. By comparison, our actual posts, the ones designed for our friends, are mostly self-promotion. Your Facebook self is an airbrushed image of you and your life, with soft lighting and a layer of Vaseline smeared across the lens. Facebook is a platform for strutting and preening. Users post about peak experiences, moments they want to remember, and be remembered by—their weekend in Paris or great seats at Hamilton. Few people post pictures of their divorce papers or how tired they look on a Thursday. Users are curators. A study found that on Facebook, the top descriptors to complete the phrase “My husband is ...

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Some digital companies also lag. Twitter, for example, doesn’t know much about its customers. Millions of them have fake names, and as many as 48 million (15 percent) are bots.16 The result is that while the company can calculate changing moods and appetites in different areas of the planet, it struggles to target individuals. It aces humanity but gets a C in humans. This is the reason Twitter’s relevance, similar to Wikipedia or PBS, will always outpace its market value. Good for the planet, bad for Twitter shareholders.

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Much of this enormous beast is Instagram. Facebook bought the photo-sharing site in 2012 for $1 billion. It’s proving to be one of the greatest acquisitions of all time. In the face of ridicule (“A billion for a company with nineteen people?”), the Zuck was steadfast and pulled the trigger on an asset that’s worth fifty-plus times what he paid for it. Whether or not you believe Instagram is the premier platform in its market, it’s less of a stretch to acknowledge that it may have been the best acquisition of the last twenty years. (And Zuckerberg wasn’t as lucky two years later—he paid twenty times that for WhatsApp, which had about the same number of employees.)

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One way to appreciate the brilliance of this acquisition is to look at Instagram’s “Power Index,” the number of people a platform reaches times their level of engagement. This social index reveals Instagram as the world’s most powerful platform, as it has 800 million users, a third of Facebook’s, but garners fifteen times the level of engagement.

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Less celebrated, but just as important, is Facebook’s willingness to quickly back off when it gets pushback from users or the federal government. Facebook knows that its hold on users remains tenuous. Despite the considerable effort those users have put into constructing and maintaining their pages, a sexier competitor could still draw them away by the millions—just as Facebook did to Myspace. So, when its endless monetizing initiatives piss off users—as did Beacon—the company quickly withdraws, waits, then probes somewhere else with some other innovation. Jeff Bezos highlighted in one of his famous investment letters that what kills mature companies is an unhealthy adherence to process. Just ask United Airlines CEO Oscar Munoz, who defended his employees who dragged a passenger off a plane, as they had “followed established procedures for dealing with situations like this.”

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If you carry a cell phone and are on a social network, you’ve decided to have your privacy violated, because it’s worth it. It still is, to most Facebook users. But the Cambridge Analytica scandal in March 2018 revealed that most of us were unaware the extent to which our personal data was being used. It’s one thing not to mind if Facebook knows who your sister is, where you live, and what car you drive. But it’s a different ballgame if, by downloading the most popular apps, your friends not only sent you dozens of annoying Words with Friends invites, but unwittingly gave third- and fourth-party companies, which you don’t use, access to your personal data set. Using data mined from the Facebook accounts of millions of Americans, Cambridge Analytica, a data firm that worked on Brexit and the Trump campaign, created a “psychographic profile” of voters ahead of the 2016 election. The company used behavioral microtargeting to deliver specific pro-Trump messages that resonated with specific voters for highly personal reasons.31 With knowledge of 150 likes, their model could predict someone’s personality better than their spouse. With 300, it understood you better than yourself.32 Consumers, seduced by the ease and network effects of Facebook—the fact that all their friends are on it—willingly gave up personal details. Why would a cool, progressive company like Facebook ever misuse our data? Because Facebook’s interests are increasing its user base and time spent on the site. Th...

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they fight for market dominance, both Facebook and Google can be expected to make bold bets on the future. One especially expensive route leads to virtual reality, and that’s where Facebook stole the march on the industry. In 2014, Zuck paid $2 billion for Oculus Rift, the leading VR headset company.37 Following that acquisition, he raved, “VR will open up new worlds.” Spoiler alert: it hasn’t. People were envisioned strapping on headsets to attend virtual work meetings. Surgeons in New York and Tokyo could operate in the same virtual theater. Grandparents would spend virtual time with their far-flung grandkids. In this way, Facebook would get into our heads. It would usher in a new platform—not just for communication, but for spending time together in virtual worlds. The business opportunity was immense. Following Zuckerberg’s lead, venture firms poured hundreds of millions into VR start-ups. Soon, other tech companies, including the Four, were plowing research into the technology. Nobody wanted to sleep through the Next Big Thing. Virtual reality is the mother of all head fakes. The most powerful force in the universe is regression to the mean. Everyone dies, and gets it wrong along the way. Mark Zuckerberg has been (very) right about a lot of things and was due to make an enormously bad call. And he has. Technology firms do not (yet) have the skills to shape people’s decisions on what to wear in public. People care (a lot) about their looks. Most don’t want to look like...

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A devouring beast, Facebook will continue with more of the same. With its global reach, its near-limitless capital, and its ever-smarter data-crunching AI machine, Facebook, in combination with Google, will lay waste to much of the analog and digital media worlds. A decent proxy for what will happen globally to the media business is what has taken place down under, with traditional media being eaten alive by tech media. In sum, old media isn’t going away; it will just be a shitty place to work or invest.

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A few will hold on. Outfits like the Economist, Vogue, and the New York Times may benefit, at least for a while, because their weaker competitors will die. That, and a sudden recognition that “truth” is a thing again, will give them momentary gains in market share. But the operative word is “momentary.” In the meantime, Facebook will steadily neuter traditional media. For years, the New York Times, for example, got about 15 percent of its online traffic from Facebook.38 The Times agreed to let Facebook post its articles natively on the platform. That means you can read the whole article without leaving Facebook and stepping onto the Times’ site. The quid pro quo was that the Times gets to keep the ad revenues. Sound familiar?

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what about all the people who don’t express their politics so clearly? How do you sell political stories to them? Many of them are probably moderates, because most people in America are. And they’re a lot harder to figure out. For each one, the Facebook machine would need a much more sophisticated algorithm to analyze their friend network, movements, zip code, the words they use, and the news sites they visit. It’s a lot of work, and it’s less profitable. Moreover, after all the work, it’s still not a sure thing, because each bucket of moderates to sell to advertisers is based not on direct signals from those individuals, but instead from a host of correlations. Those always come with mistakes. My neighborhood in Greenwich Village is as blue as they come—only 6 percent voted for Trump.43 Pretty sure that means I’m not just living in a bubble, but a windowless, padded cell. However, as far as windowless, padded cells go, it’s pretty nice. Moderates are hard to engage or predict. Picture a video with some guy in a cardigan sweater discussing, in a balanced tone, the pros and cons of free trade with Mexico. How many clicks would that get? Marketing to moderates is like fracking for gas. You only do it if the easier alternatives aren’t available. Thus, we are exposed to less and less calm, reasonable content. So, Facebook, and the rest of the algorithm-driven media, barely bothers with moderates. Instead, if it figures out you lean Republican, it will feed you more Republican ...

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Forty-five percent of Americans, and much of the world, turns to Facebook for its news.44 Yet Facebook doesn’t want to be seen as a media company. Neither does Google. The traditional thinking in the market is that they resist this label because of their stock valuations. Why? Because media companies only get a mildly insane valuation, and the Four are addicted to iconospheric valuations—hundreds of billions. That way everyone in their small and select work forces can be not just comfortable, or prosperous, but filthy rich. And that’s a retention strategy that is always en vogue. Another reason they don’t want to be positioned as media companies is more perverse. Respectable companies in the news business recognize their responsibility to the public and try to come to grips with their role in shaping the worldview of their customers. You know: editorial objectivity, fact-checking, journalistic ethics, civil discourse—all that kind of stuff. That’s a lot of work, and it dents profits.

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In the case I’m most familiar with, the New York Times, I saw that editors not only wanted to get the news right; they tried to achieve a balance in the stories they edited. If there was a bunch of news that seemed to appeal to the left—say, Dreamers being deported or big chunks of Antarctica breaking off and melting—they’d try to get some conservative balance, maybe a David Brooks column attacking Obamacare. Now people can argue forever about whether the shrinking ranks of responsible media actually achieve balance and get it “right.” Still, they try. When the editors are debating which stories to feature, they at least consider their mission to inform. Not everything is clicks and dollars. But for Facebook, it is. Sure, the company tries to hide this greed behind an enlightened attitude. But basically it’s the same MO as the other winners in the tech economy, and certainly the rest of the Four—foster a progressive brand among leadership, embrace multiculturalism, run the whole place on renewable energy—but, meanwhile, pursue a Darwinian, rapacious path to profits and ignore the job destruction taking place at your hands every day. Don’t kid yourself: Facebook’s sole mission is to make money. Once the company’s success is measured in clicks and dollars, why favor true stories over false ones? Just hire a few “media watchdog” firms to give you cover. As far as the machine sees it, one click = one click. So, entire editorial operations hatch all over the world to optimize p...

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How can Facebook exert some form of editorial control? A good place to start is with hate crimes. It’s easy to be on the right side of that one. And numerically, the number of people who want to commit hate crimes is not that high. Facebook will raise its hand and say, “No more hate postings!” This way, similar to the rest of the Four, company executives can wrap themselves in a progressive blanket to mask rapacious, conservative, tax-avoiding, and job-destroying behavior that feels more Darwin than (Elizabeth) Warren. Fake news stories are a far greater threat to our democracy than a few whack jobs wearing white hoods. But fake stories are part of a thriving business. Getting rid of them would force Facebook to accept responsibility as the editor of the world’s most (or second most) influential media company. It would have to start making judgments between truth and lies. That would spark outrage and suspicion—the same kind that mainstream media faces. More important, by trashing fake stories, Facebook would also sacrifice billions of clicks and loads of revenue.

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Facebook attempts to skirt criticism of its content by claiming it’s not a media outlet, but a platform. This sounds reasonable until you consider that the term platform was never meant to absolve companies from taking responsibility for the damage they do. What if McDonald’s, after discovering that 80 percent of their beef was fake and making us sick, proclaimed they couldn’t be held responsible, as they aren’t a fast-food restaurant but a fast-food platform? Would we tolerate that?

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Facebook representatives testified on Capitol Hill in March 2017 about their role in the Russian disinformation campaign. Zuckerberg also testified before Congress after the Cambridge Analytica scandal. Here are the questions I’d have asked if I were at a hearing: 1. Please raise your right hand and tell me if you are a media company, and if tobacco is addictive. 2. You appear to have embraced the celebrity, influence, and margins of a media firm, but not the responsibilities. Why? 3. Facebook’s response to the accusation of being a vehicle of foreign interference has progressed from a “crazy idea” to admitting to “millions” of ads, then to “hundreds of millions.” How much worse will it get? 4. If a firm, wittingly or unwittingly, becomes weaponized by Russian intelligence, isn’t the responsible thing to do to shut the firm down? 5. The average age of the Cleveland Cavaliers is twenty-nine. The Detroit Lions, also twenty-nine. A Facebook employee’s average age is twenty-eight. Is it possible Facebook management doesn’t have the historical context for understanding the important role of the fourth estate in our society? 6. When you claim it’s impossible to ensure no weaponization of your platform, don’t you mean “unprofitable”? It could be stopped, but at substantial detriment to your free cash flow. Haven’t you chosen profits over country? 7. If the New York Times can prevent weaponization with $100 million in free cash flow, why can’t Facebook with $16 billion? 8....

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religion in mature economies is dying. Over the last twenty years in the United States, the number of people who claim no religious affiliation has increased by 25 million. The strongest signal for disbelief is internet usage, accounting for more than a quarter of America’s drift from religion.3 Access to information and education has done a number on belief. People with graduate degrees are less likely to turn to religion than high school graduates.4,5 You are also less likely to believe in God if you have a high IQ. Only one in six people with an IQ above 140 (uber-smart) report deriving satisfaction from religion.6 When Nietzsche proclaimed God is dead, it wasn’t a victory cry but a lamentation on the loss of moral compass. As we survive and prosper at greater rates worldwide, what is the glue that holds us together as a human family? What helps us live a better life? How do we learn more, discover more opportunities, find answers to the questions that fascinate and plague us?

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In Q3 2016 results, Google had a 42 percent increase in paid clicks. However, the revenue captured (cost per click) declined 11 percent. Analysts mistook this as a negative. Declining prices are typically a reflection of loss of power in the marketplace, as no firm ever willingly drops prices. However, what we missed is that Google was able to grow revenues 23 percent that year and—here’s the key part—lower cost to advertisers by 11 percent.15 Whether you’re the New York Times or Clear Channel Outdoor, a competitor lowered its prices 11 percent. And word is it’s great at what it does and isn’t desperate at all. What if BMW was able to improve their cars dramatically each year while lowering prices 11 percent annually? The rest of the auto industry would have trouble keeping up. And, yes, the rest of the media industry, sans Facebook, is having trouble keeping up with Google. Google found $90 billion in the collection plate in 2016 and commanded $36 billion in cash flow.16 Several times Congress has debated an incremental tax on firms in sectors that appear to vastly outperform the S&P. Yet nobody has ever suggested extra taxes on Google. In many religious faiths, to not avert one’s eyes from God’s face is certain death. The same fate would probably befall the career of any congressman attempting to interfere with Google’s progress. Similar to other horsemen, Google tends to drive prices down, not up. Most consumer firms push in the other direction. They spend a lot of time...

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Few people can explain how Google works. Or what Alphabet exactly is. Alphabet incorporated in 2015, and Google is one of its subsidiaries, in addition to Google Ventures, Google X, and Google Capital.18 People have an idea about Apple: it builds beautiful objects around computer chips. People understand Amazon: you buy a bunch of stuff at a low price, then people (robots) in a big warehouse pick, pack, and get it to you, fast. Facebook? A network of friends linked to ads. But few people understand what happens inside a holding company that happens to “hold” a gigantic search engine.

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If Google is the god of information in the internet age, the closest thing we had in the old economy, with maybe the exception of the evening news, is the New York Times. Its longtime motto—“All the News That’s Fit to Print”—says what the paper aspires to. Every day it renders judgment on what’s important, on what we should know. Of course, the Times has its prejudices—every human institution does. But Times journalists pride themselves on keeping these judgments (somewhat) in check. They see themselves upholding progressive Western values—and steer us away from the news that’s not fit to print, whether porno or propaganda or advertising disguising itself as news. The editors at the Times curate our view of the world we inhabit. When Times editors choose the stories for their front page, they set the agenda for TV and radio news, for the whole mainstream view of the world. The stories circulate across the Old World (40 percent of the leaders of nations receive some version of the New York Times each morning) and the New (Facebook and Twitter). Journalism is hard, sometimes dangerous, work that pursues truth vs. just the commercial. The New York Times does it better than any media firm in the world. However, increasingly, the paper is not good at extracting value from the skills and risk taking demonstrated in the newsroom. In fact, Google and Facebook do a better job extracting value from Times journalists than the management of the Times. I believe if the Times had refuse...

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Arthur Sulzberger and I took an immediate, almost visceral, disliking to one another. We saw the world differently and approached it from entirely different angles. My whole life has been a quest to gain relevance and fear of never achieving it, whereas Arthur’s biggest fear (I believe) was losing it. And to be clear, he was the CEO. He gave Janet Robinson the title just so he wouldn’t have to do the shit-work of a CEO—firing people, earnings calls, etc. However, he made the big decisions and collected CEO-level compensation. The Sulzbergers, like many media families, employ a dual-class shareholder structure to keep them in control. The thinking is that media plays a special role in our society and should not be subject to the short-term thinking of shareholders. Most use this (Google, Facebook, Cablevision) as a ruse for the families to maintain control of the company while diversifying their stake (that is, selling shares). The Times is not one of these companies. The family is deeply committed to journalism. And it was clear, after getting to know Arthur, that the financial health of the Times was meaningful, but only in the pursuit of the profound—the Times’ form of journalism. I imagine Arthur wakes up in a cold sweat frequently, fearing he could be the cousin that loses the New York Times. So, the Sulzbergers, like many newspaper families, owned a minority of the equity, 18 percent, but controlled ten of fifteen seats on the board. That meant that agitators like me ...

Google is a whole lot cuter than Microsoft. And Sergey and Larry are more likable than Bill and Steve. Immigrants, nice-looking guys, a great story. Marissa Mayer: very compelling. Wisconsin, engineer, blonde, future Vogue photo feature. It’s no accident Google sent Ms. Mayer to Senate hearings to opine regarding the slaughter of newspapers at the hands of Google . . . Oops, I mean the future. When faced with tough questions like “How is the fourth estate going to survive if Google kills the newspaper classified business?” Ms. Mayer responded: “It’s still early.”8 Early? It was the two-minute warning in the fourth quarter for newspapers. The gray-haired senators ate it up. Who wants to be the insurance salesman elected to Congress (the most prevalent career of the House of Representatives)9 who raises his hand and says, “I’m the guy who does NOT get it. I don’t like Apple.” Apple is the largest tax avoider in the history of U.S. business,10 but Apple is hip, and everyone wants to be friends with the cool kid. Same with Amazon, because e-commerce is hip and cool vs. lame and old, traditional retail. In March 2017 Amazon decided to pay sales tax in every state.11 Here’s a company now worth more than Walmart that until 2014 was only paying state sales tax in five states. The benefit of the subsidy has eclipsed $1 billion. Did Amazon need a $1 billion government subsidy? By purposefully managing their business at breakeven, Amazon has built a firm approaching half a trillion d...

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The Four, by contrast, have managed to preserve their monopoly-like powers without heavy regulation. I describe their power as “monopoly-like,” since, with the possible exception of Apple, they have not used their power to do the one thing that most economists would describe as the whole point of assembling a monopoly, which is to raise prices for consumers.