‘In the church of our nation’s religion, innovation, we’ve been brainwashed,’ says Professor Scott Galloway on big tech’s growing product monopolies
- “We’ve been brainwashed to believe big tech’s cultures are so unique, their leaders so visionary, that only they can produce disruptive voice, cloud, and wearable products,” Galloway says of Apple’s growing product monopoly.
- He points out the unparalleled ability of companies like Apple, Microsoft, and Amazon to outspend competitors and acquire threatening startups guarantees that the “next big thing” will be theirs.
Seminal: of a work, event, moment, or figure strongly influencing later developments.
I love this word. It sounds elegant and speaks to actions that echo louder and louder. Several events this week may prove to be seminal moments in business, maybe history.
I Azure you, we’re a duopoly
The most valuable firms build things (stuff) and non-things (software). Wearables and the cloud are creating massive stakeholder value, and the same monopolies/duopolies seem to be the only firms able to capture tens or hundreds of billions in these categories. Why?
Apple’s ability to grow their services and wearables business speaks to Tim Cook’s management acumen — the firm is now getting nearly half their revenues from something other than the iPhone. Apple’s wearable group (YOY growth of 37%) is now bigger than McDonald’s and would be a Fortune 150 company. If spun, which it should be (if we had an FTC or DOJ), the business would likely be one of the 20 most valuable firms in the world.
Microsoft’s Azure group grew 62% YOY vs. 34% at AWS, a signal that the original Seattle gangster, Microsoft, is in spitting distance of seizing the lead.
Wearables and cloud are adjacent (not core) businesses for these behemoths. But to forget that their success is a function of the companies’ monopoly power is to fall into a CNBC-induced coma. AirPods Pro and Azure are great products. However, Bose, Cloudflare, and Sonos are also great products — from firms that will either be acquired or begin leaking value to the Four, as they are outgunned.
In the church of our nation’s religion, innovation, we’ve been brainwashed to believe big tech’s cultures are so unique, their leaders so visionary, that only they (the chosen ones) can produce disruptive voice, cloud, and wearable products.
Another theory: It’s big tech’s control of the rails and their ability to outspend competitors, acquire upstart threats, and overwhelm regulators and media that ensure the next great thing/non-thing is theirs.
The US economy will grow by 2.2% this year, representing approximately $472 billion in additional goods and services produced. In the last 12 months, Amazon, Apple, Facebook, Google, and Microsoft have added $1.6 trillion to their market cap combined. Note: apples to oranges, but you get the point.
Much of this capture comes at the cost of small and medium-size firms. Small business formation is at a multi-decade low despite the NASDAQ melting up 30% in the last 12 months. The fastest-growing sectors receive scant funding from investors, who know better than to compete with unregulated monopolies.
As the big five breach nearly 20% of the value of the S&P, we risk our economy not only becoming fragile (vs. robust), but a small number of firms coopting government and media. What could go wrong?
Amazon stock was up 13% in after-hours trading, five minutes post the release of their quarterly earnings. So, in 300 seconds Amazon added the value of Amgen and Airbus, and Jeff Bezos’s net worth swelled by $12.8 billion, the value of Pinterest.
Bezos will not pay taxes, as he will borrow against his stock, at 1.8%, versus sell it. The average tax rate on big tech is now 12%. Coincidentally, the Congressional Budget Office this week reported government expenditures of $4.5 trillion and tax revenues of $3.5 trillion … yielding a deficit of almost $1 trillion. Deficits aren’t necessarily bad, since investments (infrastructure, education, recession stimulus) can spur growth. Each of these is a bet, similar to a CEO deciding where to best allocate capital.
What is our trillion-dollar bet — where are we spending the trillion our kids will be saddled with? Simple: rich people. Lower tax rates on the wealthy and corporations (84% owned by the top 10% income earning households) were supposed to inspire growth and investment. They haven’t.
“The tax cut will pay for itself.” — Steve Mnuchin
If it feels as if there is a connection between idolatry of innovators, monopoly power, tax avoidance, Jeff Bezos being worth more than the GDP of Morocco, and your indebted grandkids … trust your instincts. We. Have. Lost. The. Script.
SEE ALSO: Scott Galloway’s predictions for 2020: Mayor Pete vs Mayor Bloomberg, bye bye to Hulu and Uber Eats