Scott Galloway, a professor and former entrepreneur, sees an uncertain future for Amazon.com, Apple Inc., Facebook Inc. and Alphabet Inc.’s Google in his new book on the powerful tech giants.
Galloway, who now teaches marketing at New York University’s Stern School of Business, dissects the success of Amazon
in “The Four,” a book released this month by Portfolio. Galloway was a serial entrepreneur before teaching at NYU, founding nine companies including L2, a research company, and Red Envelope, an online gift-giving site that was one of the e-commerce busts of the first dot-com era.
In a phone interview with MarketWatch, he talked a bit about what he sees in the future for these companies, which he refers to as the “Four Horseman.” The book also speculates on what companies in the future have the potential to become the Fifth Horseman, and has a chapter on what lessons business leaders and individuals can learn from their strategies and the ascent of this mega tech companies.
This interview has been edited for brevity.
MarketWatch: Can you talk about how you got interested in this topic and what inspired you to write “The Four?”
Galloway: It kind of goes back to education my goal is to create an economic security for my students and their families… So this is the new discipline understanding these companies and the ecosystem they operate in and how they have managed to amass so much influence.
In your book you talk a bit about companies that once dominated tech and how they no longer are kings anymore. Do you think that is inevitable for the Four Horsemen of your book?
Galloway: Of the Dow 100 from 100 years ago, only 11 have survived. With the business life cycle getting faster and faster, a child born today will outlive all of these firms. Do I see them getting more and more powerful? Yes. Do I see all of them dying within our lifetimes? Yes. The fatality rate among our species, and firms, is 100%.
Do you think that will be in the next few decades or too hard to predict?
Galloway: Too hard to predict. Ten years ago, we were all talking about Myspace. It’s very hard to tell. The only thing I am comfortable saying is they will all go out of business, all disappear within 50 years.
Is there one company that could outlast the others in this group?
Galloway: If you are trying to pick the one, the good money right now is on Amazon. Out of the other three, Amazon is winning. Amazon competes with Google in several areas, including search, and while Google dominates search as a whole, in the key area of product search, Amazon’s share of product search has gone from 44% in 2015 to 55% in 2016.
Where they bump up against Google and Facebook in digital marketing, competing for digital marketing dollars among brand builders and consumer companies, Amazon Media Group is now growing faster than Google and Facebook. Now, it’s a fraction of their size…[but] it’s growing faster than Google or Facebook.
Where it butts up against Apple in computer hardware, the most innovative tech hardware of 2016, it wasn’t the Apple Watch or it wasn’t the Apple Pods, it was the Amazon Echo. If you look at where they are competing against Apple in voice, Siri versus Alexa, Alexa is putting a serious beat on Siri. So in any area where these guys overlap, Amazon is winning.
Will Amazon end up acquiring any of its rivals or put them out of business?
Galloway: These are so big and so dominant, that I don’t see a major acquisition. What I see is Amazon getting to a trillion in market cap first and logically I think it should be Apple, because Apple is the largest and the closest, unless there is some regulatory intervention.
Is there a bigger chance of regulatory intervention in the near term?
Galloway: I think it is a distinct possibility or a very real possibility for all of them. But I don’t think it will come out of Washington. I think it will come out of Brussels.
If you think about these companies, they register a lot of benefits…[for example] Amazon is the largest recruiter in my class…There is some serious downside in privacy, job destruction, and potentially these are platforms for foreign adversaries. Europe registers all of the downside without a fraction of the upside. There are very few hospitals named after Facebook millionaires in Europe.
Amazon recruits hundreds, if not thousands, from the top universities of America, it doesn’t recruit nearly as many people from the Bocconi [in Milan] or University of Cologne. All the downside with a fraction of the upside have stiffened the backbone of EU regulators, and you will likely see the mother of all fines come out of Europe against one or more of all of the four in the next month. I think we will see our first $10 billion fine coming out of Europe. I would not be surprised if a nation in the EU outright bans one of these companies from doing business in their country.
Why next month? This is in addition to fines already imposed against Google this year?
Galloway: I don’t know enough to put a timeline on it.
A fine against one or all of them?
Galloway: I don’t know, I just don’t know, somebody is going to get hit hard.
You talk about a potential Fifth Horseman, where is Netflix in the future in your opinion? You did not mention Netflix in the chapter on a potential Fifth Horseman.
Galloway: The true Fifth Horseman if you are talking about big tech is already there, it is Microsoft
I didn’t mention them because I think of them as a B-to-B company. But the good money right now for the Fifth Horseman is Netflix.
What’s interesting is that they are kind of setting up the mother of all celebrity death matches. But the impending collision that will be the Ali and Frazier [fight] of the ages, could be Amazon versus Netflix
. They realize that original content creates tremendous purchasing power and growth so they [Netflix] are spending $6 billion on content.
Amazon is spending $4.5 billion on original TV content this year, [they are] No. 2 to Netflix in spending, and the only reason Netflix…increased their budget to $6 billion is because they heard Amazon’s footsteps behind them.
Since you were involved in a startup during the last big boom-and-bust cycle in tech, what do you think is different this time around?
Galloway: What we have is a winner-take-all environment. It’s created this sort of lottery economy. In the ’90s, there were three or four search engines, three or four e-commerce companies.
Because we read about them every day on the front page of every magazine and newspaper, we are under the impression that [these four companies] are creating more jobs than they are. The entire workforce of all four of these companies is the entire Lower East Side of Manhattan, yet they have the market capitalization equivalent to the GDP of India.
So its great to be a homeowner in Palo Alto, it’s great to own a car dealership in Palo Alto, it’s great to work for one of these companies, to be a shareholder…but it is great for society? That is the big question to wrestle with.
Also to have so much of our data being used by these companies, is that scary too? Especially after the Equifax hack?
Galloway: I am a member of the beach club, they were profitable if there was never a life guard, but bad things can happen. And that is on a very simple level what we are seeing here.
That is these business models that are not supervising content creation, not providing any human discretion, re: the ads. The result is massively profitable firms that have ceded control of their content and, to a certain extent, businesses.
They absolutely need to fix this problem. We are not talking about the realm of the possible, we are talking about the realm of the profitable because it would reduce their profit margins by deploying a feature all other media firms employ: human discretion.