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Google and Facebook could seize the remaining revenues of the radio and print industries, and they’d still wake up hungry for more revenues within 24–36 months, based on investors’ expectations. The Four need to add nearly a trillion dollars to their revenue over the next five years. This requires entering new markets—and coming for one other.
Bezos and his team accomplished something unprecedented—they convinced investors not to expect short- or medium-term profits. While most firms’ profits are reevaluated every three months on their quarterly earnings call, Bezos has retrained investors’ Pavlovian mechanisms, replacing profits with vision and growth.
And the best way to make the future is to gain access to cheap capital to pull the future forward with extraordinary investments others won’t make, resulting in moats, which give you access to cheaper capital . . . and so on and so on.
While most firms look for competitive advantage via lowest cost, Amazon looks for sustainable advantage that requires gargantuan investment.
Mr. Bezos increased his wealth by approximately $35 billion in 30 days.
Amazon—first $3 trillion company by the end of 2023.
Between Prime, AWS, and the Marketplace, Amazon has the largest flywheel in the history of business.
One of Amazon’s arsenal of gangster moves is turning expense lines into revenue lines. It’s one of Bezos’s best tricks, and like so much else they do, it is made possible by a ...
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Amazon flips this around. It doesn’t pay someone else to run its data center. It takes advantage of its massive data center volume, and its ability to invest essentially unlimited capital, and the company builds the best data center management competency on the planet. That’s step one. Step two is Amazon turns around and starts selling that competency to other companies as a service. Thus is born AWS, the largest cloud services provider by a wide margin.
Amazon did the same thing with warehouse and distribution, first erecting the ability to deliver millions of products in 48 hours, then offering the service to other retailers through Amazon Marketplace. Now over 20% of Amazon’s revenue comes from Marketplace.
Since the launch of Amazon’s delivery service in February 2018, FedEx has lost $25 billion (39%) in value, despite the S&P’s 24% gain. Amazon has added $240 billion (33%). In less than two years, Amazon captured nearly one-fifth of the market for ecommerce deliveries in the U.S.
The big payoff for Amazon is healthcare. Here too, the pandemic has accelerated the company’s inevitable move into this space. One of Amazon’s core skills is that it sits on a massive collection of data,
Amazon is well positioned to address the financial cost of healthcare, and better positioned to reduce the non-financial costs—time, effort, and anxiety.
The source of this firepower (cheap capital) will arrive on the day they announce a healthcare service, and the stock increases over $100 billion that trading day.
By achieving a business paradox—a low-cost product that sells for a premium price—Apple became the most profitable company in history in 2014.
Apple owns the most profitable product ever made, the iPhone, and sells it through the highest per-square-foot retail business of all time, the Apple Store.
The recurring revenue bundles that get attraction are forced to be incredible value propositions from the outset. Recurring revenue bundles are expensive, hard, and enduring. As Apple ran up against the law of big numbers, the firm invested heavily in recurring revenue offerings—iCloud, Apple Music, Apple TV+, Arcade, etc. In Q4 2019, Apple’s services revenue was up 25% year over year to 23% of revenue.
We are likely entering into the mother of overdue global slowdowns. Every executive team needs to explore the limits of their comfort zone and imagine a business with 20% less revenue, that commands twice the value.
There is only one path to a dramatic increase in stakeholder value in the face of flat/declining revenues: The rundle—my term for “a recurring revenue bundle.”
The other big save that Cook and Company have made in recent years is how successfully Apple has disarticulated itself from the rest of big tech. In large part, this is due to their business model, which is blue/iOS.
Apple, he pointed out, had chosen not to turn its customers into products for data mining. “Privacy to us is a human right.”
The pandemic test for Apple will be in the supply chain—can they get new products to consumers?
The only thing better than recurring revenue is a recurring revenue bundle that could form a flywheel.
I believe there is a floor on Peloton stock, as there are few firms that are a more obvious/natural acquisition by Apple than Peloton.
Apple TV+ is distinguished by all-original content at $4.99 a month. For every $1 that you spend a month, the company spends $1 billion on content a year (about the same as Netflix).
Apple continues to be the benchmark of brand management.
Covid-19 has a mortality rate of around 0.5–1% among people, but the pandemic is going to have a fatality rate of 10–20% in traditional media.
Also, being trapped at home increases inventory for Facebook and Google advertisers. Yes, you are “inventory.”
Facebook and Google are simply more effective platforms for advertisers, and the truth will become increasingly apparent as even the biggest advertisers start cutting spend on traditional media.
No other platform can offer the combination of scale and granularity that Facebook and Google provide.
They are the most effective advertising vehicles in history and, at 8 million advertisers, Facebook has the most elastic, self-heali...
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With 8 million advertisers, and a model that creates immediate opportunity for others when one reduces spend, Facebook possesses the most robust (self-healing, even) customer base in the history of business.
The opportunity for disruption in an industry can be correlated to a handful of factors—a disruptability index. The key signal is dramatic increase in price with no accompanying increase in value or innovation. This is also known as unearned margin.
College tuition has increased 1,400% in the past 40 years.1 A red flag for disruption.
Another industry ripe for disruption: healthcare.
The consumer experience has not improved for most of us. Meanwhile, costs have exploded. The average premium for family coverage has increased 22% over the last five years and 54% over the last ten years, significantly more than wages or inflation.
Another factor of disruptability is a reliance on brand equity divorced from the quality of the product, its distribution, or support.
The transition from the Brand Age to the Product Age will erode the competitive advantage once possessed by many of the dominant firms of the twentieth century.
our experience with healthcare is mediated through insurance firms and regulation, which create obstacles between need and care. Much of the industry centers its operations on the insurance payer and the doctor/institution provider. Disruptive health clinics, including One Medical and ZOOM+Care, and online pharmacy Capsule, are centering on the consumer/patient.
Industries become ripe for disruption when existing players fail to adopt technological change to improve quality and value, as it may threaten their core business.
To survive, companies have scaled different dimensions of their business up or down with incredible agility.
Today’s tech “start-ups” are more often well capitalized, professionally staffed operations, with access to enough capital that, with some market receptivity, can become formidable forces in their sectors in months, compared to what used to take years or even decades.
in the late 1990s and early 2000s the power began to swing back toward founders.
Bill Gates and Steve Jobs. Bill Gates was the first to prove the same person could found a company and take it to $100 billion in value. Gates grew Microsoft to $600 billion over 14 years.
Twenty years after Jobs returned to Apple, the firm had increased in value by 200 times.
As they did in the ’90s, many of today’s unicorns have deployed massive capital to achieve the former while not demonstrating the value proposition to achieve the latter.
The pandemic finds the start-up world at a unique juncture. Never before has there been so much capital and so many built-out, well-positioned companies, just as the mother of all accelerants is creating disruption opportunities left and right. The difference this time is that most unicorns will survive in one form or another, but the value destruction may be greater, as the valuations have become so extraordinary.
Capital is in fact a weapon in private equity, where only a few firms can bid for the truly great, proven assets with enormous cash flows. However, in venture, and growth, the secret sauce is dislocation, a market ripe for disruption, and crazy genius founders who are too stupid to know they will fail. When your ability to deploy billions into a concept becomes the priority, as it does when you have $100 billion to deploy, your returns go down.
Good investors resist the temptation to “smoke their own supply” (lead multiple rounds) and require third-party, arms-distance validation of the firm’s value here and now.
The availability of capital is not correlated with the availability of good places to invest the capital. Good investments—disruptive start-ups with the potential to grow into sustainable multibillion-dollar enterprises—will always be scarce.
