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An Interview by Motley Fool: Congratulations, Amazon -- the Party's Over
I received this email this morning from Motley Fool.
It was an interview by Motley Fool with NYU professor Scott Galloway
I know it's long, but well worth reading.
I found the answer to the couple of questions very enlightening, that I felt I had to post them.
I agree with the NYU professor, and it's one of the reason I don't shop at Walmart or Amazon except for extreme emergencies.
(3 years running)
Chris Hill: You've called for breaking up big tech — but not because you think that they're evil, or that they destroy jobs, or anything like that. You've said, let's break them up because we're capitalists. Can you explain what you mean by that?
Scott Galloway: A normal part of the economic cycle here in the U.S. is that we realize that through luck, timing, and incredible execution, occasionally a firm becomes an invasive species. That is, it becomes so dominant that it's able to perform infanticide on small companies and prematurely euthanize larger companies, which tend to be good employers and good taxpayers.
And we've realized this on a regular basis, since we broke up the railroads, AT&T, aluminum companies. And it seems as if we've lost the script, and basically the FTC and the DOJ have decided to go dormant the last three years.
I think the number of actual antitrust actions filed is literally a fraction or a shadow of itself, and it's largely because of the Bork-Chicago viewpoint. The test is consumer harm, and it's difficult to decide to break up a company whose products are free. But:
- Amazon can take the value of a stock down 30% by announcing an acquisition in the same category
- Google and Facebook are responsible for two-thirds of all digital marketing growth
- Amazon controls 50% of the most valuable channel in the world, e-commerce, while it can use a highly profitable group, AWS, to subsidize that retail platform at below cost.
It's similar to what the Chinese did in the steel market or tried to do in the '80s. We called it dumping when the Chinese were pricing steel below costs. When Amazon does it, we call it innovation.
So the great companies — love them, own their stocks, they hire my kids out of school. Tremendous respect for them. Great. Congratulations. It's time for you to be broken up.
Scott Galloway: A normal part of the economic cycle here in the U.S. is that we realize that through luck, timing, and incredible execution, occasionally a firm becomes an invasive species. That is, it becomes so dominant that it's able to perform infanticide on small companies and prematurely euthanize larger companies, which tend to be good employers and good taxpayers.
And we've realized this on a regular basis, since we broke up the railroads, AT&T, aluminum companies. And it seems as if we've lost the script, and basically the FTC and the DOJ have decided to go dormant the last three years.
I think the number of actual antitrust actions filed is literally a fraction or a shadow of itself, and it's largely because of the Bork-Chicago viewpoint. The test is consumer harm, and it's difficult to decide to break up a company whose products are free. But:
- Amazon can take the value of a stock down 30% by announcing an acquisition in the same category
- Google and Facebook are responsible for two-thirds of all digital marketing growth
- Amazon controls 50% of the most valuable channel in the world, e-commerce, while it can use a highly profitable group, AWS, to subsidize that retail platform at below cost.
It's similar to what the Chinese did in the steel market or tried to do in the '80s. We called it dumping when the Chinese were pricing steel below costs. When Amazon does it, we call it innovation.
So the great companies — love them, own their stocks, they hire my kids out of school. Tremendous respect for them. Great. Congratulations. It's time for you to be broken up.
How We Can Return to Responsibility
Chris Hill: In terms of regulatory actions, Facebook has set aside $3 billion to $5 billion to pay for a fine from the FTC. I get the strong sense that you think that that number should be doubled — and then possibly doubled again.
Scott Galloway: Well, look. There's an algebra of deterrence, and it's simple. It's that you take the likelihood of getting caught doing something wrong, times the potential penalty, and that amount is a deterrent such that that amount is greater than the upside of continuing to engage in that behavior.
And what we've done with big tech is we've put a parking meter in front of your house that costs $100 an hour, but if you break the law, the ticket is 25 cents. So when Facebook does the math — and they have — and they can continue to violate privacy or not put in place safeguards, such that their platform isn't weaponized by bad actors, they get fined $3 billion to $5 billion, which is seven days of income or seven weeks of cash flow. So any calculus, and any algebra, is the smart thing — the shareholder-driven thing for these firms to do is to continue to break the law.
So it's not their fault. They're doing the smart thing. It's our fault for not electing leaders that hold these firms to the same scrutiny and standards as we've held every other company for the past century.
Chris Hill: In terms of regulatory actions, Facebook has set aside $3 billion to $5 billion to pay for a fine from the FTC. I get the strong sense that you think that that number should be doubled — and then possibly doubled again.
Scott Galloway: Well, look. There's an algebra of deterrence, and it's simple. It's that you take the likelihood of getting caught doing something wrong, times the potential penalty, and that amount is a deterrent such that that amount is greater than the upside of continuing to engage in that behavior.
And what we've done with big tech is we've put a parking meter in front of your house that costs $100 an hour, but if you break the law, the ticket is 25 cents. So when Facebook does the math — and they have — and they can continue to violate privacy or not put in place safeguards, such that their platform isn't weaponized by bad actors, they get fined $3 billion to $5 billion, which is seven days of income or seven weeks of cash flow. So any calculus, and any algebra, is the smart thing — the shareholder-driven thing for these firms to do is to continue to break the law.
So it's not their fault. They're doing the smart thing. It's our fault for not electing leaders that hold these firms to the same scrutiny and standards as we've held every other company for the past century.
This last part, about it being our fault, is exactly what I tell kids coming out of college being expected to work 60 hour work weeks, because we let it happen. We allowed companies, especially tech companies, to run roughshod over our workers right, removing benefits, little by little, to the point, where if we complain about anything, their attitude is "quit or you're fired, there are 100 people waiting to take your job."
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