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

by Scott Galloway

People lament the job-destroying machine that is Amazon. But Walmart was the original gangster.

Because we live in a culture of consumption, the natural trajectory of retail is up. So, when the planets align and a new concept works, it can scale rapidly and create tremendous value for consumers and shareholders.

Brands are two things: promise and performance.

An industry—book reviewing—emerged to identify what books were worth eating/reading, bypassing the diligence of curation offered by a store. Bezos realized reviews could do the hard work of retailing for him. Customers do the marketing, for free.

Amazon appeals to our hunter-gatherer instinct to collect more stuff with minimum effort.

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 expensive control delivery systems? That way we secure an impregnable position in retail and asphyxiate our competitors. Then we can get really big, fast.

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.”

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.

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.

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?”

In 2015, Amazon spent $7 billion on shipping fees, a net shipping loss of $5 billion, and overall profits of $2.4 billion.54 Crazy, no? No. Amazon is going underwater with the world’s largest oxygen tank, forcing other retailers to follow it, match its prices, and deal with changed customer delivery expectations. The difference is other retailers have just the air in their lungs and are drowning. Amazon will surface and have the ocean of retail largely to itself.

As Bezos also wrote in that first annual letter: “Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.”55

Brands are shorthand for a set of associations that consumers use for guidance toward the right product. Consumer packaged goods (CPG) brands like Tide and Coke have spent billions and decades building brand via messaging, packaging, store placement, price, and merchandizing efforts. But when shopping habits migrate online, the design and feel of a product matter much less. There is no visual merchandising, no endcaps with carefully displayed products. Voice even further circumvents attributes that brands have spent generations and billions to build. With voice, consumers don’t know the price or see the packaging and are less likely to include the brand in their request. Fewer and fewer searches contain a brand name.94 Consumers are willing to price-compare several brands, and Amazon gives them just that opportunity. The death of brand, at the hand of Amazon, and in particular Alexa, can be foreshadowed in search queries.

Importance of brand-building diminishes as ecommerce and automated price comparison/subscription rise

What we learn on the social network, and especially on Facebook’s subsidiary Instagram, creates ideas and desires. A friend posts an image wearing Gucci sandals in Mexico, or drinking an Old Fashioned on the rooftop of the Soho House Istanbul, and we want to own/experience these things, too. Facebook gestates intent better than any promotion or advertising channel. Once in pursuit, we go to Google or Amazon to see where to get it. Thus Facebook is higher up the funnel than Google. It suggests the “what,” while Google supplies the “how” and Amazon the “when” you will have it.

Where should you work or invest? Simple: Benjamin Buttons. Look back at the graph. In the upper right quadrant are the winners, including the three platforms: Amazon, Google, and Facebook. Registering, iterating, and monetizing its audience is at the heart of each platform’s business. It’s what the most valuable man-made things ever created (their algorithms) are designed to do.

Newspapers can reach millions, and many more if you consider how their stories pop up on the three platforms. But they gain almost no intelligence from this contact. Thus, while the three dominant platforms—search, commerce, and social—know me upside down, the New York Times has only skeletal details, starting with my address and zip code.

Jeff Bezos highlighted in one of his famous investment letters that what kills mature companies is an unhealthy adherence to process.

Facebook benefits from the ultimate jujitsu move: it will likely become the largest media company on earth, and it gets its content, similar to Google, from its users. In other words, 2 billion customers labor for Facebook without compensation. By comparison, the big entertainment companies must spend billions to create original content. Netflix is shelling out more than $100 million for each season of The Crown and will spend $8 billion on content in 201821

Much of marketing is the art (disguised as science) of how to best change behavior. It wants to make us buy this and not that, think of this as cool and that as lame. Google leaves the hard, expensive stuff to others and just gives the people what they want after they’ve raised their digital hand and said, “I want something like this.”

After brands built this expensive house, and were ready to move in, Facebook barked, “Just kidding, those fans aren’t really yours; you need to rent them.” The organic reach of a brand’s content—percentage of posts from a brand received in a fan’s feed—fell from 100 percent to single digits. Now, if a brand wants to reach its community, it must advertise on—that is, pay—Facebook. This is similar to building a house and having the county inspector show up as you’re putting on the finishing touches. As she changes the locks she informs you, “You have to rent this from us.”

As Paul Newman explained in The Sting, the key to a great con is that the victim never realizes he was conned—indeed, he believes he is about to be a big winner right up until the last moment.

Cartier has caught, or possibly surpassed, Rolex’s brand equity by making a big bet on its in-store experience. It turns out that where and how you buy a watch is as important as which tennis player wears that watch. Maybe more.

The ROI of investing in the pre-purchase process (advertising) has declined. That’s why successful brands are forward integrating—owning their own stores or shopper marketing. I believe P&G will begin acquiring grocery retail, as they must develop distribution that’s growing, and not depend on Amazon, who is their frenemy . . . minus the friend part.

Future of major CPG brands?

Marketing historically can be parsed into three major shifts regarding how potential customers were targeted. The first era was demographic targeting. Thus, white forty-five-year-old guys living in the city, in theory, will all act, smell, and sound alike, so they must all like the same products. That was the basis of most media buying. Then, for a hot minute, it went to social targeting, in which Facebook tried to convince advertisers if two people, regardless of their demographics, “like” the same brand on Facebook, they are similar and should be grouped/targeted by those advertisers. That turned out to be total bullshit. All it meant was they all shared the action of clicking “Like” on a Facebook brand page, and that was about it—they didn’t aspire to the same products and services. Social targeting was a failure. The new marketing is behavioral targeting. And it works: nothing can predict your future purchases like your current activities. If I’m on the Tiffany website, and I have searched for engagement rings, and I have set up an appointment to purchase such a ring at a certain boutique, that likely means I am about to get married. If I’m spending a ton of time on the Audi site configuring an A4, then I am in the market for a $30,000 to $40,000 four-door luxury sedan. Thanks to artificial intelligence we now can track behavior at a level and scale previously unimaginable. It’s no accident when I start getting served Audi ads all over the web. Behavioral targeting is ...

Marketing evolution: 1. Demographic 2. Social 3. Behavioral 4. Predictive through AI (mine)

it’s never been a better time to be exceptional, or a worse time to be average.

Curiosity is crucial to success. What worked yesterday is out-of-date today and forgotten tomorrow—replaced by a new tool or technique we haven’t yet heard of.

Another standout skill is ownership. Be more obsessed with the details than anybody on your team and what needs to get done, if, when, and how. Assume nothing will happen unless you are all over everybody and everything, as it likely won’t. Be an owner, in every sense of the word—your task, your project, your business. You own it.

The Accomplishment Habit People who achieve goals in one area achieve them in all areas. Whether it’s making the finals in Division 3 field hockey, winning your elementary school spelling bee, or having an oak leaf cluster pinned on the shoulder of your army uniform, accomplishment is a habit that can be cultivated and repeated. Winners, first and foremost, have to be competitors. You cannot win without stepping on the field, and it’s only by taking that risk (you may get beaned in the face), exposing yourself to failure, that real accomplishment is achieved. Competing requires bravery and action-orientation.

Achievement habit - driven by competitiveness

Pimp Your Career Okay, so you’re emotionally mature, curious, and have grit, but you’re not the only one. How do you separate yourself from all the other bright young things? First, you need to push the limits of your comfort zone by consistently pimping your attributes. First question: What’s your medium? For beer, it’s TV; for luxury brands, it’s print. What environment is ideal to express “you”? There’s Instagram, YouTube, Twitter, firm sports teams, speeches, books (we’ll see), YPO, alcohol (yes, it’s a medium if you’re good at it—fun/charming), or food. You need a medium to spread your awesomeness, as the path to under-compensation is doing good work that never gets explicitly pimped or attached to you. Yes, it’s unseemly, and your work and achievements should speak for themselves. They don’t.

Some people are better at words, some at images. Invest aggressively in your strength(s) and spend modest effort to get your weaknesses to average so they don’t hold you back. Everyone from employers to coworkers to potential mates is looking you up. Make sure what they see is the best of you. Google yourself, and if your feeds can be cleaner, stronger, and more fun, make improvements.

Familiarity breeds contempt. External hires are paid nearly 20 percent more than company veterans at the same level, despite receiving lower performance evaluations and still being more likely to quit.

If a conversation turns to an attractive offer, be transparent with your current boss—you’ve been a loyal employee, you like where you are, but you have an offer that is better on xyz dimensions. You are attractive to strangers, as evidenced by the feedback received from the marketplace. Don’t bluff. The truth has a nice ring to it. Often your external offer will make you much more attractive to your current firm without having to leave. If your firm does not counter, that means there was limited upside, and it’s time to leave. If, on the other hand, this walk on the wild side turns out, settle on the best thing for your next three to five years, then repeat the process.

Tips for seeking new opportunities

Stay Loyal to People, Not Organizations

Be loyal to people. People transcend corporations, and people, unlike corporations, value loyalty. Good leaders know they are only as good as the team standing behind them—and once they have forged a bond of trust with someone, will do whatever it takes to keep that person happy and on their team. If your boss isn’t fighting for you, you either have a bad boss or you are a bad employee.

Truth

Don’t follow your passion, follow your talent. Determine what you are good at (early), and commit to becoming great at it. You don’t have to love it, just don’t hate it. If practice takes you from good to great, the recognition and compensation you will command will make you start to love it. And, ultimately, you will be able to shape your career and your specialty to focus on the aspects you enjoy the most. And if not—make good money and then go follow your passion. No kid dreams of being a tax accountant. However, the best tax accountants on the planet fly first class and marry people better looking than themselves—both things they are likely to be passionate about.

Great advice to come back to. Following your passion is bs.

Nothing is ever as good or bad as it seems. All situations and emotions pass. When you have a big victory, pull in your horns and be risk avoidant for a period. Regression to the mean is a powerful force, and the good luck (and a lot of it is luck) will cut the other way at some point.

Go Where Your Skill Is Valued Within your organization, figure out what the company is good at—its core functions—and if you want to excel there, have a bias toward one of those categories. Google is all about engineers: the salesmen don’t do as well (though it’s still a great place to work). Consumer packaged goods companies are brand managers: engineers rarely make it to the C-suite. If you’re in the discipline that drives the company, what it excels at, you will be working with the best people on the most challenging projects, and are more likely to be noticed by senior management. This doesn’t mean you can’t be successful in a cost center, or that you have to make the thing the company sells. Look at the resumes of the senior executives—if they mostly came from sales, then the company values sales. If they are operational people, that’s the heart of the firm, whatever it says in the ads.

Sexy Job vs. ROI Sectors are asset classes—the cool ones are overinvested, driving down returns on human capital (compensation for working there). If you want to work for Vogue, produce films, or open a restaurant, you had better get immense psychological reward from your gig, as the comp, and returns on your efforts, will likely suck. Competition will be fierce, and even if you manage to get in, you’ll be easily replaceable, as there are always younger, hipper candidates nipping at your heels. Very few high-school graduates dream of working for Exxon, but a big firm in a large sector would give you a career trajectory with regular promotions a sexy industry won’t. Job stability counts if you want to have kids. You don’t want to be forty-five and worried about your prospects. Join a band on weekends. Learn photography at night. Work on it a little at a time, until you have a nest egg to unleash it fully. The sooner you start earning good money, the less you’ll need to earn, thanks to compound interest. In a sexy industry, rent due can drive you to desperation, and you’ll have neither a career, a stable future, nor recognized genius.

I don’t invest in smoothie bars, new fashion lines, or music labels. My greatest success has been a research firm. When I have someone smart in front of me excited about a SaaS platform that offers hospitals a better scheduling solution (so boring I want to put a gun in my mouth), I smell money.

Strength A decent proxy for your success will be your ratio of sweating to watching others sweat (watching sports on TV). It’s not about being skinny or ripped, but committing to being strong physically and mentally. The trait most common in CEOs is a regular exercise regime. Walking into any conference room and feeling that, if shit got real, you could kill and eat the others gives you an edge and confidence (note: don’t do this). If you keep physically fit, you’ll be less prone to depression, think more clearly, sleep better, and broaden your pool of potential mates. On a regular basis, at work, demonstrate both your physical and mental strength—your grit. Work an eighty-hour week, be the calm one in face of stress, attack a big problem with sheer brute force and energy.

Physical fitness begets mental toughness