Amazon will be the most valuable company
in the world with him 24 months if not
12 anywhere Amazon competes if I was
gonna write a sequel to the four it
would be called the one and it would be
bad Amazon show me chaos show me a lack
of faith in institutions and I’ll show
you big point of $20,000 the White House
takes on big tech its McGregor
mayweather part two and the redhead gets
the shit kicked out of them
hi I’m Nicola from data Trek research
right here in New York City and we’re
doing a video today with real vision
with Professor Scott Galloway of NYU
Stern and he’s got a bunch of really
great topics to discuss including why
big text read get broken up as well as
his perspectives on valuation for
everything from Amazon and Apple to
Facebook and even some Chinese tech
companies so Scott you’ve got a picture
that you show I think the first day of
class is it yeah every student that’s
ever been through your class yeah what
does that picture look like and how does
it inform your thinking about technology
generally sure so it’s it’s a tack in
the torso and the belief for the thesis
is that the only way you can scale a
company to hundreds of millions of users
and hundreds of billions in enterprise
value is to directly speak to an
instinct that that regardless of our
subscription to The New York Times or
graduate degrees we’re animals and to
really build a big business you have to
know exactly what instinct you’re going
after so in order goggle is God and
appeals to our need for a super being
our competitive advantage as a species
is our brain is so large that we have to
literally be expelled from the body
prematurely and the brain is robust
enough to ask very complicated questions
but not robust enough to answer them
creating a void of 3500 super beings all
competing to kind of be your favorite
your favorite your favorite God if you
will unfortunately as we get more
educated or fortunately and more
affluent as the society our reliance on
a super being and church attendance
declines dramatically but our questions
keep getting more and more unanswerable
if you will which creates a void for
more of an Information Age super being
and anybody who has kids has prayed will
my kid be alright that’s a pretty common
query and what is a prayer but a query
into the universe hoping there’s some
sort of divine intervention that
processes the query that sees everything
and then can return an answer that you
trust more than any answer you would get
from any priest rabbi scholar mentor or
boss that is Google will my kid be all
right
symptoms and treatment of croup if you
don’t believe Google is your god
think of your name and your face above
everything you have put in that dial
box and you’ll soon realize that you
trust Google more than any other entity
it knows if you’re about to get engaged
and knows if you’re about to get
divorced it knows your diseases it knows
what diseases you’re worried about
having been exposed to so Google is our
guide God moving further down the torso
one of the nice things about our species
is that we not only need to be loved
kids with poor affection and good
nutrition don’t have as good an outcomes
as kids with good affection and poor
nutrition we need to love others the
fastest-growing demographic group in
America centenarians we’re all gonna
have someone in our family who’s a
hundred years of age and the three
signals of the likelihood of you making
it to 100 are in reverse order number
three genetics it’s not as important as
we as we’d like to think number two is
lifestyle and some don’t smoke don’t be
obese you avoid a lot of early cars
carcinogenic and cardiovascular events
but the number one signal whether you’re
gonna make it to 100 is how many people
in your life do you love caretakers
literally the physical and mental strain
and nuance of caretaking releases a
hormone that clears out the bad
cholesterol and people who are taking
care of others get to stick around which
makes sense because those people are
most important in the species moving
further down the torso so Facebook is
love and I think it foot’s to our need
to want to love others and catalyze and
strengthen first and second order to be
relationships mostly with images and
pictures that create empathy moving
further down the torso I think Amazon is
our consumptive gut it is drilled into
us more again since we emerge from caves
the number one source of death across
our species has been starvation so it is
drilled into us more more more open your
cupboards open your closets you have
between ten and a hundred ex more than
you need and is immediately washed over
by the instinct of yeah but I’d still
like more the penalty for too much is
diabetes lethargy gluttony but these all
these all these things have huge lags
and that penalty is a fraction of the
penalty for too little which is
starvation so the economy that offers
more for less is usually a fastest
growing economy that’s China and the
company that offers more for less or
does the best job of more for less is
usually the most valuable company in the
world and the nineties it was Walmart
now accompanying that from a perceptual
standpoint offers the most for less is
Amazon which will soon be the most value
company moving to our final spot in the
torso the reproductive organs we
constantly make irrational decisions
irrational in the business world means
large margins a lot of irrational
decisions with our reproductive organs
this has resulted in a series of
products in a category that has grown
more shareholder value over the last
thirty years and even tech on a
risk-adjusted basis and that is luxury
where we signal to other people that we
have good genes I have high cheekbones
with Estee Lauder products which means
I’m less prone to infection that I Drive
a canary yellow Ferrari meaning I’m
strong like bull and have good DNA these
things have built more wealth more
billionaires on the Forbes 400 list if
you take out inherited wealth and
finance then intact are from luxury
wealthiest men in Europe Bernard Arnault
numbers two and three the signs of
Inditex Zara and H&M Apple the iPhone is
now the easiest way to signal our people
that you have good genes you can afford
it 268 dollar product would pay eleven
hundred dollars for you live in a city
you’re part of the creative class this
is the easiest way to say to someone
mate with me just as paying for dinner
with a Discover Card or having ad
supported Pandora or an Android phone
says do not have sex with me
Apple says I would be a good mate these
four companies the peeling of these
instincts have added the GDP of India to
the market capitalization since the
Great Recession the brain the heart the
gut and the genitals if we google your
name the number one video that comes up
and two and three and four and five are
all versions of the same message from
you which is it’s time to break up big
tech yeah it’s a very controversial
point of view because these are
companies at the top of the food chain
so walk us through how you got to that
conclusion but as obviously you’ve
looked at this for a long time
sure so wrote a book spend two years
kind of marinating in these companies
and reading about them and trying to
understand them and over the last ten
years work with these companies they’re
my clients or there’s a couple of them
are and work in the ecosystem with some
of the biggest companies in the world
we’re trying to figure out how to
compete in a digital age and the book
really started as a love letter I think
they’re incredible by the way I always
come use a lot didn’t know
unruhe croissants a number-one recruiter
of kids my class at stern more people
will go to Amazon than any other firm
that that recruits its turn they saved
my ass economically in 2008 I got run
over by a truck economically and took
what little dry powder I had and I
bought two stocks Amazon and Apple and
it’s kind of restored economic stability
to my household so I love these
companies I love the products I’m a
customer I have no intention of giving
them up but I think there’s a natural
part in the economic cycle where through
incredible execution a lot of luck
access to cheap capital we end up in a
situation where one company has so much
power that smaller companies have
trouble getting out of the crib and
competing and bigger companies are
euthanized prematurely and I think we’re
at that point and we tend to look at it
through the lens of well one is that a
socialist or a European thing there’s
sort of this macho test
I remember feeling reticent I kind of
knew that I felt that they had gotten
too powerful them should be broken up
but I found myself checking those
emotions at the door because I liked
that thing of myself as a dude and likes
competition and I’m an entrepreneur and
I like the full body contact sport of
business but part of a natural economic
cycle whether it was the railroads or Ma
Bell is occasionally you break a company
up and you exceed the marketplace and
the object of every innovators affection
Google would not be here if the DOJ
hadn’t moved in on Microsoft of 99 and
said stop putting small companies out of
business like Netscape we’ve got we’d be
all saying well let’s bang it right so
this is a natural part of the economic
cycle they haven’t got anything wrong
either these are for-profit companies
their job is to grow their earnings grow
their top line and create economic value
and security for the families of their
shareholders and employees and they’re
doing that in spades and every quarter
that is their sole mission regardless of
their claims to do no evil or connect
the earth they’re there to grow earnings
full stop so we have gotten to a point
where we have Google and 92% market
share to companies Facebook and Google
duopoly on two-thirds of all digital
marketing probably the most robust
business in the world Amazon is
pre-installed into 62% of US house
80% of wealthy households no cable
company no utility company has more than
15 or 20% and then there’s Apple which
is the most profitable company in
history so I don’t think they’ve done
anything wrong I don’t think they’re
evil I don’t think there’s anything
socialist or European I think a key
component of our society in our economic
cycle is to break companies up when they
get too powerful that’s part of
capitalism you know the worst system of
its kind except for all the rest is that
we need competitive markets and I think
the markets are failing
I think there’s examples everywhere
whether it’s Amazon that can take the
stock of any company down 30% in 30 days
with 30 press releases whether it’s this
idolatry of these companies where they
get the mother of all hall passes where
Starbucks has an unfortunate incident at
one of their stores and decides they’re
gonna close the store now for for a day
on May 29th we’re training what our
democracy has potentially been
subterfuge or weaponized by Facebook at
the end of day what are they really done
and we accept it and how many
advertisers have they lost they have 5
million advertisers playboy and pep boys
have head to the door oh well right a
conservative commentator on Fox mocks a
17 year old which is terrible and she
loses a third of her advertisers because
advertisers on TV have a lot of choices
but advertisers in digital have two
choices and there are a lot of very
patriotic civic minded people who are
advertisers who would like an option but
they don’t have any have anyone on top
of the funnel its Facebook bottom of the
funnel it’s Google so in some you know
sure they avoid taxes but we all avoid
taxes their job destroyers but we need
job destroyers they’re not evil they’re
no less and more evil than any other
company we break them up because we’re
capitalists and it’s time we are at that
point in the economic cycle so stroll
down a little bit on that how would you
break up a Facebook share of Google what
are the individual components look like
in that schema Facebook I think is
pretty easy Facebook Instagram whatsapp
a messenger and just to give you an
example I think a lot of these problems
so I I think regulation tends to be
ham-handed inexpensive and creates kind
of permanent government jobs so I’m not
I’m not actually in favor of regulation
other than some basic laws and they
should probably be regulated as media
companies meaning that
be sued for the content on their
platforms but I think the ants are the
most effective efficient way to kind of
unlock more value would be to break them
up similar with you know with Ma Bell
what we found is when we broke them up
there was a lot of innovation including
cellular technology fiber optics in Bell
Labs that hadn’t been unleashed because
they didn’t want to compete with their
monopoly business so I think breaking
these guys up probably Facebook into
four companies would create a lot of
interesting innovation and opportunities
for example I think one of them would
say how do we compete with the other
three guys I know let’s go to PNG let’s
go to Unilever both huge companies very
civic-minded and say you know we’ve done
we’re taking a bunch of our free cash
flow and we will guarantee you that our
platform will not be weaponized by bad
actors I think that would be very
appealing to advertisers I think one or
more of them would say you know what we
have a CEO who can actually be fired
I think that’s attractive to investors
and he got some tractive to employees
Castro took over Cuba when he was 33 and
oversaw an island nation of 11 million
people and we were all freaked out and
he was arguably the most powerful man in
the world because he lasted a half a
century right just out living people
it’s a pretty good strategy if you’re a
lot so who’s the most powerful person in
the world a lot of people say it’s Putin
he’ll probably be dead or lose his
faculties and you know 15 20 years max
we are cursed for a max with Trump for
another six and a half years
Mark Zuckerberg could oversee a
community larger than Christianity 2.1
billion people for the next 70 years and
he can’t removed from office in addition
getting into the head of this man this
is a guy that a year ago proposed a
third class a share such that he could
sell his entire economic stake have
nothing at risk and Facebook and still
control a population greater than the
size of the southern hemisphere plus
India what could go wrong you know we
need to break Facebook up into four
companies more competition more hiring
more venture capital more options in
terms of advertisers less weaponization
let’s bullshit delay an obfuscation when
senators get mad at them who clearly
don’t understand technology and they can
just say we’re sorry or senator this is
a serious issue and then
to say nothing breaking these guys up
would create more in my opinion more
civic responsibility
we better for the Commonwealth better
for our tax base better for hiring
better for the planet
so two-part question after that so it
sounds like you feel that breaking the
company up would actually create some
shareholder value if a shareholder got
those four companies in their portfolio
instead of just one is that accurate
yeah I want to be clear I don’t think
there’s ever a quote unquote free lunch
I think in the short term these
companies might lose their stock prices
might go down but I think there might be
you might be able to have your cake and
eat it too here look at Amazon and AWS
I’m not sure that if AWS has spun from
Amazon that the two independent
companies aren’t an aggregate worth more
than the company is now so you know an
eBay spun PayPal it was incredibly
accretive to shareholder value so I
don’t entirely acknowledge right away
that you would be economically ruined it
would be economically ruinous for the
shareholders but again having said that
I don’t know if there’s a free lunch
here I can see the stocks going down the
short run okay so let’s take that one
level further there I’m really intrigued
by the idea because the question that
pops up in my mind is what US companies
will compete with Chinese tech company
yep
like 10 cent Alibaba and Baidu that have
an entirely different relationship with
their government than these companies do
with us and our government and it seems
that if we break those companies up
they’re not gonna have the firepower to
build the AI the self-driving cars other
technology so who’s gonna step in the
void and how to avoid just losing out
entirely Chinese tech so that’s a very
compelling argument we need big football
players to compete against their big
linemen right so the first the first
responses is that the right premise
would Facebook Instagram whatsapp and
messenger in aggregate be better
competitors and scarier against Chinese
companies than one and if you look at
innovation coming out of China we in the
u.s. tend to be very narcissistic we
think that basically all innovation kind
of stems from the epicenter of the world
and that’s SFO International Airport if
you look at each of the platforms in
China in terms of product rollout in
terms of innovation their companies are
actually more innovative
and so I’m not sure I entirely buy the
premise that these companies as
individual speedboats wouldn’t be more
nimble and more powerful competitors
than then kind of big companies know but
let’s for a moment assume they are what
you have in China is a glimpse into a
little bit of a glimpse into the future
in that what happens when governments
let companies kind of grow unfettered
and you end up with very valuable
companies the question is is it is it
good for the ecosystem and a lot of
people would argue it is because much
more now venture capital investment in
China I would argue that over the long
term a group of small companies that
control so much wealth and influence it
ends up having a lot of negative impact
so just as an example I don’t think
there’s any way you can ignore the
decline in the growth of middle-class
wages and the rise of big tech when you
have one company with 24,000 employees
with a six hundred billion dollar market
cap Facebook and then you have the old
economic Titans of yesterday would
employ a hundred thousand no quarter of
a million people and have a hundred
billion dollar market caps you have this
this kind of winner-take-all economy and
a lot of people are saying well that’s
just a natural part of the evolution of
our economy and I would argue no the
world isn’t what the world is the world
is what we make of it and we’ve decided
to let these companies a gregarious
great if you own real estate in San
Francisco it’s great if you own the
Ferrari dealership in Portola Valley but
it’s not great for the middle class and
it’s not great for our society China is
a totally different animal because
there’s so many more I mean just the
echo system so much if in the
distribution of wealth is so much
different but the question is alright if
China is the model that’s you know
that’s who we’re competing against name
a great global Chinese brand so they
have three companies now in the top ten
in terms of market cap they’re
comfortable with natural or unnatural
monopolies but long term what Chinese
brand name a global Chinese brand can
you name one Huawei Huawei okay you
really think that’s a global brand you
didn’t do any our teenage kids know what
Huawei is
No do you use Huawei in your life and
your no way but I would say look at the
other side if we had asked the same
question about a Japanese company in
1960 I think we would have gotten the
same reason we might get there
a hammer son we ignore the Chinese the
Japanese threat you have to clean the
auto industry because of exactly this
logic and we pay for it it’s a great
point we didn’t have the Sony to have we
gonna have a Honda’s we don’t have the
Toyota Toyota’s it doesn’t appear so far
that the Chinese have been able to take
on any of our guys I’m not sure we talk
about them because they’re large market
cap and the Chinese have been quite
frankly smarter than I would argue a lot
of Western nations who openly and freely
trade with big tech so here’s the
Chinese model come in just long enough
for us to steal your IP and then we prop
up a local entrepreneur and we capture
the value domestically we call it IP
theft they call it innovation we did the
same thing in the 19th or the 18th
century with British and Irish textiles
if you want to grow your GDP faster than
5 or 6% a year your core competence of a
nation has to be theft and right now I
would say that China is moving from a
theft driven GDP economy to an
innovation based economy but make no
mistake about it Google come in long
enough PNG come in long enough to
educate mothers not to let their kids
pee in the streets the diapers make
sense that they’re there a signal of
upper-middle-class and affluence and
then BOOM
send in a local guy and that’s what they
did with Google and by the way are they
the dumb ones who stuff there’s the
Western Way Italy went the Western Way
let Google compete we’re macho let him
compete Western trade laws what’s
happened to their ad agencies what’s
happened in their newspapers what’s
happened to their tax base what’s
happened to their job base then look at
China would Baidu and by the way how
many Chinese platforms have been
weaponized by a foreign advertiser for
an adversary now you could argue they’ve
been weaponized by their own government
but they haven’t weaponized by the
foreign intelligence unit of another
nation but if there’s no democracy
there’s no need to weaponize it fair
enough I’m not saying it’s the right
system I’m saying economically I think
what you’re gonna I’m not gonna make a
value judgment just make a prediction a
European nation or a Latin American
Asian
nation is gonna go Chinese and they’re
gonna say we’re Arab why and we’ve seen
what letting Google and Facebook into
our ecosystem has done for our media
environment maybe we’ll just come up
with something that looks very similar
to Google and prop up a local
entrepreneur and capture the value
themselves we’re going Chinese because
to date I think if you look at the
Western nations that have adopted these
technologies and let these companies
come in unfettered yeah their consumers
can search and point oh oh five five
seconds they’re connected to their
friends in Europe but has it been good
for their societies because at the end
of the day these four companies have
been the most efficient fastest vessels
in the world of the transfer of wealth
from the rest of the world to the US and
then from the middle of the u.s. to the
coasts so Charles Schumer Dianne
Feinstein aren’t going to go after these
companies right but I do think you might
see a smaller Western nation say like I
said we’re going Chinese but your
original question around would these
companies be less able to compete with
these Chinese behemoths
I don’t know I don’t know why you
wouldn’t say that a group of smaller
companies all well capitalized keep in
mind Instagram on its own it’s probably
worth 150 billion dollars so they
wouldn’t want for capital to compete
some people would argue that the focus
and not being in a corporate structure
might make them more nimble a lot of the
companies that have been broken up have
gone on I mean when telco was broken up
it unleashed unbelievable shareholder
value it wasn’t like you know China sell
or Deutsche Telekom immediately seized
the US market because it was no longer
one big competitor so I’m not entire
thing kits a decent argument I think
it’s worth exploring what people who
have a much stronger background I mean
antitrust and you know a game theory but
I don’t entirely buy the premise that
they would immediately indicate that we
wouldn’t be as competitive okay thinking
through how the trajectory of the
pressure to break up tech might shape up
particular over the balance of the year
yeah we obviously had a huge catalyst
with a Zuckerberg testimony up a couple
of weeks ago what do you see for the
rest of the year what headlines perhaps
that investors aren’t thinking about you
you think are unlikely to happen well
just as we don’t know who the Democratic
nominee for president is gonna be we
just don’t know who’s gonna pop up
we don’t know where I’m pretty sure
regulation or trust-busting is going to
show up but it’s not going to be from
where we think it’s going to be the only
thing that the hearings of Zuckerberg
really solidified is that DC doesn’t
have the collective will or IQ to take
on big tech 4% of our elective elected
representatives have the background in
technology or engineering it was on that
ignorance was on full display even the
format let’s give everyone five minutes
so Mark Zuckerberg and Facebook were
very smart immediately registered the
flaw and in the glitch in the matrix and
said other idiots they’ve giving
everyone five minutes so nod your head
respond thoughtfully and nod and say
senator this is a serious problem
repeat the question pick one of 15
talking points if the second question is
difficult then say senator and look
around thoughtfully and say this is such
an important question I’m going to have
my team get back to you four three two
one
gavel next question they employed the
oldest strategy in the world of sports
burn the clock and they did it over and
over and over across five minutes you
would think that our elected
representatives would be adult enough to
get into a room and somebody maybe I
don’t know the Speaker of the House
would say are the head of the head of
the Judiciary Committee who here raise
your hand if you understand technology
one or two hands would have gone up and
they said I know why don’t we let you
Bob and you Lisa maybe have six or seven
minutes instead of having Orrin Hatch
who questions of sustainability the
Facebook of Facebook saying how do you
survive when you don’t charge for your
business I mean clearly this guy had no
idea what was going on or senator Nelson
my senator from Florida who was just
fascinated by the notion that if he says
he likes chocolate
he gets chocolate ads who would have
thunk it right so the notion that it’s
going to come out of DC is ridiculous
who would be I mean even think who in
the administration out of the White
House can take on big tech what was
interesting with Donald Trump’s comments
just a few weeks ago
or two weeks ago against Amazon Bezos in
the post is that he unwittingly
immunized Amazon from regulation how was
that came across as a partisan hack
attack it was ill informed immediately
started with Amazon doesn’t pay its fair
share of taxes true but then went on to
say they don’t pay any state taxes not
true they pay state taxes they don’t pay
any corporate income tax because they
run their business at break-even so
since the Great Recession Walmart has
paid sixty four billion in corporate
income tax the Amazon has paid one point
four despite the fact that Amazon has
been adding the value of Walmart to its
market cap about every eighteen months
for the last three years so it came
across as ill-informed it came across as
partisan which it is so immediately some
very powerful senators on the Left who
were starting to make noises about
Amazon’s and growing influence if all of
a sudden gone dark so he literally
alienated his allies and has immunized
his company and then what did Bezos do
or what did Amazon to start feeding the
media facts about everywhere he got it
wrong so in this war between DC and big
tech so far the shaping up between Trump
and Bezos one of them is acting
presidential one of them is president
this has been a his literally immunized
Amazon ultimately unwittingly in
addition you’re gonna have the first
pitch of the Washington Nationals season
2019 be thrown out by Jeff Bezos they’re
gonna headquarter in DC because this
will serve as a prophylactic for
regulation no one wants to regulate the
local guy he’s gonna be playing golf and
mahjong with senators and congresspeople
and it’ll it he’s gonna like DC on fire
there’s gonna be no momentum to go after
him so if DC or the White House if the
White House takes on big tech its
McGregor Mayweather part two and the
redhead gets the shit kicked out of them
this is this is not gonna come from DC
where it’s gonna come from this one or
two places Brussels margaery vestige
earth is going gangster on these guys
and you can understand why they register
all of the downside of big tech
weaponization of their elections or
platforms that undermine their elections
job destruction tax avoidance
anti-competitive behavior but they
register a fraction and amp side we
register a ton of benefit here
they do build it create a lot of
high-paying jobs there the object of our
affection national pride they build
these ecosystems
you know net-net we’re having an
important conversation around the
downsides but net-net in the u.s. we’re
we’re we’re winners from big tech in
europe all the downside fraction of the
upside there are very few hospital wings
and university buildings in europe named
after google or facebook billionaires so
this is stiff in the backbone of EU
regulators you’re about to see europe go
get like like all the major conflicts of
the 20th 20th century the war against
big tech is breaking out in continental
europe the other nonzero probability of
someone who might go after big tech is a
red state attorney general who says all
right missouri and kansas we have very
powerful phones we have this great
search engine but has it been good for
our economy is google hiring a lot of
people out of the university of missouri
how are ad agencies doing how’s our tax
base doing and i think you might see a
red state AG say look the fastest blue
line path between the attorney general’s
house and the governor’s mansion is to
make a populist argument against big
tech and go after them and if it
resonates a bunch of other AG’s will
pile on in some sort of class-action
suit basically a redo of what happened
in big tobacco so you could see that so
a red state AG or brussels DC it’s over
it’s done facebook 1dc zero you know one
reason yeah i watch all your videos and
read everything you write is because you
come across with these observations that
at first blush seem way out there like
breaking up big tech but you have a
really good track record of making
predictions that actually work out i
want to start on that vein with probably
your most famous most topical one which
was wholefoods yeah an amazon you know
can you walk us through how you got
there because you were out there a week
before i think that acquisition was
announced parrish wishers talking about
that exact transaction and it came to
pass so can you kind of unravel how you
got there yeah so is 50% luck 50% timing
and the rest was talent and inside it I
just got really lucky but it makes sense
looking back at it because the only way
let’s start what’s Amazon strategy
Amazon strategy is to own
all of your retail they’re not going
after I mean you could argue they’re
going after the niche which is wealth
they’re going after kind of the top top
median of households or the top half but
they’re primarily trying to cover all of
your basic retail needs or most of them
you can’t and key to intensity across
the prime relationship which is sort of
their key if you will tactical strategy
as prime is intensity and what do we
mean by intensity it’s affection and
it’s fluidity so if I if I can offer you
great programs the marvelous missus
Mizell or things that were or
transparent the create intensity of
affection for Amazon that’s key so we’ll
spend four and a half billion dollars on
original content but I have to have I
have to be selling you stuff not once a
month not once a week but two three
times a week and the mother of all
consumer categories a large consumer
category in the world is grocery you
can’t have an intense retail
relationship with someone it’s like the
way to you know my grandmother you say
the way to a man’s heart is through his
stomach the way to a consumers heart or
see their stomach its food grocery is
the largest consumer category in the
world US grocery it’s a seven hundred
billion dollar market you can’t be in
someone’s house two three times a week
unless you’re in grocery so Amazon had
to be in grocery in addition they’re
going on after wealthy households with
Amazon you get five hundred fifty
well-lit well staffed warehouses slash
distribution centers in the wealthiest
of codes in America and not just as nine
women can’t have a baby in a month
Amazon even with all the capital wasn’t
gonna be able to build out DC’s in
Manhattan in Costa Mesa right in in
trying to think of wealthier and
Buckhead Atlanta I’m trying to go
wealthy areas also the growth in
groceries in the long tail CPG actually
people are spending more money on food
categories but the top hundred brands
and CPG and food 90 of the hundred have
lost share and it’s because I’m sorry
ninety one hundred of lost revenue
two-thirds of lost share it’s because we
all want we used to want Dan and yogurt
then we want a true Bonnie now we want
some kefir curdled thing that we saw
Beyonce likes out of some place in
Brooklyn the long tail I saw the growth
so warehouses grocery
incredible distribution among the
wealthy the longtail all for what was
going to be a two percent Aleutian boom
it would be stupid not to acquire this
company so this one just made a ton of
sense and then the luck part was I
happen to be in media yes spouting off
the week before and then the week a week
later they announced it so that was just
a lot of luck no but it helps really
frame the discussion about how you come
to the conclusions what I’d love to do
now is talk about some of your 2018
positions a lot of which already begin
to work so I also want to get a sense
how much more is there left out story
yeah so let’s start with one that really
speaks to me
Amazon versus Apple a very simple
comparison sure which one should have
the bigger market cap yeah well you are
an Amazon
yeah Amazon will be the most valuable
company in the world within 24 months if
not 12 anywhere Amazon competes if I was
gonna write a sequel to the four it
would be called the one and it would be
about Amazon look at where Amazon butts
up against the other four in search
which is an incredible business and
Google it continues to own it but
there’s an e ship search that is really
powerful product search understanding of
being able to bid on keywords from
people looking for a car or a watch is a
great keyword and gets a lot of revenue
Amazon is now number one in Product
Search and has been for a while and is
actually growing pretty fast so Amazon
is building this incredible search
business their Media Group while small
only four or five billion is now growing
faster than Facebook or Google so in
media you would argue where they bump up
against Facebook or Google they’re
actually doing as well or better than
they’ve done in a while whether it bump
up against Apple and Hardware the most
innovative hardware company in the world
okay still Apple most innovative
hardware products of 17 and 18 or 16 was
it the watch was with the iPods no it
was the it was Alexa by far the most
disruptive product in our economy since
the iPhone who is that it’s Amazon well
let’s talk about streaming video and
streaming media
well that’s Apple right that’s iTunes
actually Amazon went from number seven
of share of primetime streaming to
number three in one year and are now is
now the second largest spender on
original television content in offline
retail
right Amazon we knows the dominant four
it’s an online retail 45% of the most
valuable channel in the world
Amazon 45% a third of the
fastest-growing most profitable sector
in technology in the world cloud Oh
Amazon offline retail who’s the number
one share there a grower there no it’s
not Walmart it’s now Amazon with Whole
Foods so you look at this company and
they are firing on all 12,000 cylinders
and then long-term they have the
ultimate gangster strategy and that the
market doesn’t seem to want or need them
to be profitable meaning they have a
cost of capital no one else can match at
the end of the world at the end of World
War two the Germans had better soldiers
better morale better tanks better
machine guns but the Allies had cut off
their supply routes and we have 38
gallons of gasoline for every one they
had so we would take our inferior
Bradlee tanks and zip around one Panzer
until we ran out of gas and then go
start banging on the thing with a hammer
until became unbearable for the people
and then they come up when killing or
taken prisoner Amazon is the company
that shows up with 38 gallons of
gasoline if I said to my clients who I
work with fortune 500 companies you
don’t you can work at breakeven for the
next 20 years and your stock will go up
they could be remarkably innovative so
the number one core competence of the
most valuable companies soon to be most
valuable company in the world is
storytelling which is created
unbelievable vision in this romanticism
and this fanaticism around the company
that has meant they have a hundred or
105 cents on the dollar to everyone
else’s ninety 80 or 70 when they invest
Amazon is gonna blow past Apple Apple
and unbelievable company will be for a
long time but Apple has been hovering
around 900 billion when Amazon was a two
hundred billion I said it was gonna be
the first trillion-dollar company it’s
now at 650 it has to go another 50
percent everyone looks at the metrics
the the key metrics around Amazon or
most stocks is EBIT growth there is no
you better than growth it’s not its
competitive advantage and when Amazon
starts going from 13 and 15 hundred
dollars per prime household and using
things like ring and Alexa and starts
going to five six seven thousand dollars
for per household with artificial
intelligence
the markets gonna go crazy and take this
thing over a trillion dollar so yeah
most valuable company in the world
within 24 months is Amazon perfect next
one which again already started to work
Facebook you said Facebook stock would
peak we saw a peak about of $190 a share
in January before the troubles broke
down yeah how do you feel about Facebook
now yep
more trouble to come actually in
Facebook right now in the short medium
term is a buy so the prediction was that
Facebook stock would peak due to
multiple contraction as the specter of
regulation would enter and I think we
got that right or it looks like we got a
ride it’s performed it hasn’t performed
as well as some of the other guys but if
you look at the stock relative to its
underlying business and this is what I
wasn’t expecting people are outraged by
what’s going on and where do they go to
express their outrage Facebook and
Instagram 5 million advertisers seven of
left there’s the business every every
single signal I see is that the business
has never been stronger
meanwhile the other guys are going up 20
30 40 Netflix up 60 80 % Amazon up 40 50
% Facebook has taken a breather because
everyone believes all this this huffing
and puffing it’s gonna have an impact
all the scrutiny all the anger is people
stamping their legs on cement floors a
little bit of sound
no movement the stock is a buy in the
short of the medium term long term I’d
like to think this might be idealistic
that tone-deaf management that is has
really poor judgment in my view they
might be geniuses but shows a total lack
of leadership I’d like to think that
comes back to haunt you also in terms of
how robust a business it is ninety
ninety-five percent of their business
comes from top of the funnel advertising
amazing brands and apps but probably a
less robust business and the other guys
you could argue all the other guys have
businesses there’s somewhat separate
from it YouTube it is a search engine
but it is a little bit different than
Google that’s core search engine Apple
probably has three or four public
companies Amazon has totally non related
businesses making very robust
Facebook is doesn’t seem as diversified
and has a 33 year old to my mind makes
an African dictator looks thoughtful in
terms of his view of the world his view
of what it means to have
responsibilities in power
I think this to class shareholder system
is a terrible idea and I think most
recently with both he and Cheryl
retreating to the caves of Conda Harr in
the face of crisis outs them as being
really weak leaders Disney fit what you
call the fifth Horseman yeah explain
what that means what it means for the
value of the stock so I’m not supposed
to make stock predictions so I say the
fifth Horseman is basically my covert
way of making a stock bike for the year
January 2017 I said the fifth Horseman
was gonna be Netflix I saw it as the
operating system for our the second most
valuable screen in the world which is
our television that was a great call
yeah I got again very lucky but it’s
skyrocketed right so January 1 I asked
what’s the fifth Horseman
and I think that the marketplace is
ready for kind of a gangster move by an
old economy company I think the only
company capable of a fat bundle right
now in terms of media is Disney and with
their acquisition of some of the Fox
assets they’re the only old economy
company that could go up against Netflix
and Amazon and offer an ad-free bundle
of sports kids content you remember
let’s call it Disney prime or Disney
flicks you get access to our cruises our
theme parks on on busy days you get Star
Wars 7 days before anyone else in your
home I think Disney you get commercial
free Disney and Pixar kids content
I think Disney is the only company that
could be a viable alternative to to
Amazon video or more importantly Netflix
and create the kind of the mother of all
recurring revenue prime like
relationships now they would have to
pull an Adobe move and take their their
revenues and profits down but I think
Bob Iger is one of the few people who
has the credibility to do that what I
would love to see what I’d love to see
is if the Time Warner AT&T merger gets
called off which it won’t but if it was
to get Jeffery bukas and Robert Iger in
the same room and get Disney and Time
Warner assets to create the ultimate
bundle
I think that would be really exciting
and a lot of fun but Disney on its own I
think Disney’s well position to do
really well yeah it’s amazing his
Netflix is about 140 billion dollar
market cap this is about a hundred and
fifty billion dollar mark yeah yeah so
if what you say comes together there is
a lot of potential energy in that stock
that can be unleashed right
yeah and just for your viewers before
they start think I’m some sort of like
you know
Nostradamus terms of stock I bought
Netflix at 80 bucks a share
it dropped to 70 I sold it it then split
seven for one and I think it’s gone up
thirty or forty fold since then so I get
it wrong all the time around stocks
maybe you’re just willing patience yeah
there we go thank you thanks for that
let’s talk about Twitter and snap
because you got some pretty interesting
thoughts there yeah so I I think I do
think again going back to the Zuckerberg
you know to class shareholder stock I
have been very critical of Twitter I
think a part time CEO is ridiculous I
think it’s almost impossible to keep
talented people when you say to them at
the end of the day that this guy at 30
hours a week is more talented than you
at 60 hours a week and you’ve seen you
know just an averaging of talent their
twitter has become more and more
relevant they have become such a part of
the National vocabulary I can’t think of
very many brands that have a banner
across almost every TV program every
news program they pop up the Twitter
logo Donald Trump is if the president
has made Twitter much more relevant the
issue for Twitter is just Twitter become
like the New York Times or the BBC or
PBS negative hugely relevant
organization that never creates a lot of
shareholder value so it’s an incredible
vehicle I use Twitter more than any
other social media platform more and
more relevance
poor corporate governance shareholder
returns have been okay the last year but
weak the three years before that
it smells like an acquisition of me it
feels like it feels like it’s gonna dip
to 25 and it get bought for 40 bucks
snap in my opinion is the walking dead I
know kids love it but and again this
goes to the power or the abuse of
monopolies one company owns the four
most trafficked or used apps in the
world that’s Facebook and they have all
in a coordinated attack turn their guns
on number five snap
we were all hoping Snap would be the
face with a video we need a third player
the Facebook of video is Facebook
specifically Instagram stories so I
think you’re gonna see the oxygen start
to suck out of the room for snap there’s
a lot of players whether it’s Google or
someone else that would love to own snap
and I think it’ll be acquired who’s the
ideal buyer of these assets who could
make the most of them particularly in
your framework of a big tech getting too
big who’s them right not just the
highest paying buyer who’s the right
buyer well I think Google’s probably the
right guy for both of them whether that
just creates more problems so this isn’t
this isn’t an argument around what
should happen it’s an argument on what I
think will happen I think these guys are
both gonna get taken off taking off the
table yeah so you also had a lot of
really interesting thoughts about crypto
currencies and their effect on financial
services yeah so let’s do the financial
services side first you have said that
it could take as much as a third of
value you know out of very large well
known financial services companies yeah
and it could happen in friendly in the
near term can you walk us through that
thinking sure I don’t know if it’ll take
a third of the revenue I don’t know if
it crypto to me is beginning to feel a
lot like an incredibly hyped technology
that’s gonna let a lot of people down it
has all the makings of for lack of a
better term a bubble but there will be a
lot of innovation and interesting
announcements around crypto technology
over the next 12 months because so much
venture so much human and financial
capital are being poured in to try and
figure out really cool things to do with
the blockchain right so the basic
narrative is is Bitcoin is speculative
I see OSR fraud but the underlying
innovation is blockchain and every VC
that wants our company corporate VC unit
that wants to invest in this stuff is
investing in the blockchain so you’re
gonna see a lot of interesting cool
technologies that threaten ledger based
businesses I spend what feels like a
half an hour a day approving wires
because fraud has gotten so bad and
supposedly the blockchain is going to do
away with a lot of that so even if these
can one of these companies manages to
get just ten basis points of share in
the wire industry or in the money
transfer business overseas or
credit-card feed transaction or whatever
it is block 10 is going after
the market is going to get very excited
about crypto and blockchain and
companies and very upset about
traditional financial services so a lot
of times the disruption is a
self-fulfilling prophecy so Amazon
acquires whole foods and the stock of
Kroger the largest pure-play competitor
declines 1/3 between the time they
announce the acquisition and when they
close it because Amazon is buying a
company 111th the size of Kroger there
would be it would be impossible for you
whereas a Kroger consumer to know that
Amazon had acquired Whole Foods it
didn’t change the business at Kroger but
the perception of the oncoming
disruption took the stock down a third
so will will crypto and blocking
blockchain technologies damaged or hurt
the financial services industry on a
tangible business level I don’t know
will they create a lot of havoc let’s
say the Americans in Southeast Asia are
we gonna win the war no but we’re gonna
chop a lot of napalm blockchain is gonna
drop a lot of napalm on the financial
services industry and damage it
regardless of whether they win or not
now tie that into perhaps where you see
Bitcoin going but there’s one of your
predictions was Bitcoin was gonna drop
you to the percent yeah check the box
that worked out great yeah as you said
it would if you had to do a prediction
now for the next 12 months yeah what’s
your thinking so I made two predictions
one was that it would drop 50% and that
happened within three weeks but the
other prediction which is a little scary
as I said it would also go past 20,000
dollars because at the end of day and by
the way I block chain I don’t I don’t
claim to understand it I’m shrill still
trying to figure out ripple I’m just ill
trying to understand these coins as far
as I can tell
I think Bitcoin is a is a proxy or for
chaos and that is as young people lose
lose confidence in our institutions that
trend that bubbles up to the Fed a loss
of confidence in the Federal Reserve and
the ultimate signal of trust in our
economies is our currency the dollar at
the end of the day is an indication of
trust in our system or the value we put
and what is a fiat currency right
so when people start to lose faith in
their institutions
I think they turn to this non non non
institution backed non Federal Reserve
length non-sovereign linked currency
that is Bitcoin so on the evening we
were about to see torque in within
thirty thousand votes of seeding in the
Senate a pedophile Bitcoin started to
rally and then when it became clear he
was gonna lose Bitcoin dropped in price
so show me chaos show me a lack of faith
in institutions and I’ll show you
Bitcoin a twenty thousand dollars so my
prediction around Bitcoin going to
twenty thousand is that this at some
point over the next twelve months
young people are again gonna see actions
on behalf of our leaders they create a
tremendous amount of our tremendous lack
of confidence in our institutions and
Bitcoin will skyrocket again and hit
twenty thousand so I got it half right
we’ll see about whether it hits twenty
thousand this year or not well thanks so
much for taking the time thanks for
having me great thank you well I hope
you enjoyed the discussion as much as I
did because I thought the professor’s
comments about everything from breaking
up big cap tech the direction of Apple
and Amazon and Facebook over the next
year and particularly that discussion of
Bitcoin at the end discussing where it
might go and what might drive that
particular asset was fascinating hope
you enjoyed it
this is Nikolas for real vision
you