Winners and Losers in the Age of Amazon With Scott Galloway | Feedvisor

it's great to be here at the Marriott in Brooklyn my name is Scott Galloway I teach at NYU and I appreciate your time this morning I'm going to take you through winners and losers in 2017 probably the most important thing you can do in this or any lifetime is to buy my book so please PLEASE preorder it it's my first book and it's going to be out in October I worked for a firm called l/2 we basically marinate in a lot of data we had developed an algorithm at NYU this is an accidental business it in academia you can't get very far without doing research and I decided to try and assess the branch digital footprint across twelve hundred and fifty data points or four dimensions site ecommerce social digital marketing and mobile and then we apply that algorithm those 1,250 data points to the 2,500 largest lands in the world put out a ranking of 100 brands and then about 40 100 brands called us and said who are you and why are you doing this and so we thought that was commercial opportunity raised some money from a great firm called General Catalyst who's also the backers a fee advisor as is the reason I'm here today so we're at the end of the day where train spotters or bird watchers not as we sit in data and then we like to think we see patterns and trends around not only where brands and retailers are investing their finite capital but where they're divesting and it's interesting to talk not only about the winners about 98% of the oxygen in the room at conferences like this we sit on to talk about amazing winners what's just as interesting and informative is who are the losers because in a zero growth economy which on a placement adjusted basis is kind of where we are right now every time we talk about a company increasing its revenues there's someone on the wrong end of that and it's interesting to talk about okay who's doing well and who's getting hurt in this quote-unquote era of disruption so the first thing we want to do is we want to reverse engineer into who's doing well and then understand what do they have in common where the winners have in common so if you look at the private markets the general algorithm if you will for value is you look at the number of users times how engaged they are in the platform of the technology and that gives you a proxy for the value in the market it's not even money anymore because people assume if you have a large user base that's growing and they're actively engaged in your product that will figure out a way to monetize it so the traditional or the value in the private markets is these things now let's look at public companies there are only thirteen companies in the S&P 500 that have outperformed the S&P 500 five years in a row so on average the SP over the last five years has gone up five percent a year and there's only 13 companies that have been able to go up more than 5% each of the last five years so the first observation is this has become a winner-take-all economy when there's only two percent of the companies can outperform the standard of the base case for five years in a row it means that there's just a small number of companies killing it and everyone else is fighting over the scraps which is scary but it's another presentation now let's look at what these thirteen have in common nine of the 13 are algorithmically driven that means they have similar to what Victor was saying a machine taking in data from their user experience and then figuring out a way to process it and then spit it back and improve the product I think of these companies as Benjamin Button companies for the most part won't invest or don't want to get involved in a company that isn't aging in Reverse now what does that mean if you think about the Titans of yesterday the Unilever is the General Motors did anyone else do that I'm having a stroke I think that's a good omen anyways if if you're able to suspend the natural order you're going to grow shareholder value estee lauder and General Motors in a car or a bottle of Estee Lauder advanced night repair comes off the production line it immediately starts declining in value it immediately starts aging if I were to go back to graduate school to really understand business I would get a master's in evolutionary biology not business I think to understand biology is to understand business every business we're going to talk about today is going to die if you're having a kid or any of you just recently had kids you live in a wealthy educated cohort I would imagine your child's life expectancy is a hundred if you go back a hundred years and look at the Dow 100 100 most important companies in the world only 11 are still alive there's an 89 percent mortality rate among he's getting to 100 we're about to pass that more than 11% of our populace is going to make it past 100 so in some every company we talk about here today your kids are going to outlive all of these companies are going to die some of them however have figured out at least temporarily is kind of this Botox there this this testosterone supplement that sawed the aging process and that is every time I turn on waves which I did this morning because I didn't know where I was going it informs the product and the product that moment gets better for everyone else using it it doesn't actually decline in value it increases in value with the use so these companies have suspended the natural order and are like Benjamin Button in their aging and reverse and when I think about my own stock market purchases I think is this company figured out a way to use data implicit and explicit data to reverse the aging process and nine of the thirteen I would argue have done this two of them are infrastructure companies building the stuff or the companies that are aging in reverse two of them are outsourcing companies so say you aren't aging in Reverse what happens when you get old what happens to every other tech company HP IBM when they stop when they stop they haven't figured it out right they start cutting cost like crazy and they need great firms to bring them in and cut costs the largest services firm in the world right now my market cap is Arthur Andersen and they say we're Accenture strategy and they have creative and they have they have all sorts of different offerings the bread-and-butter their business is coming into companies and cutting costs zero they call it zero based budgeting wherever your January when you start with the company and say do we need your assistant do we need to spend this much on advertising do we need this desk do we need this confidence and they literally start at zero so in sum the winners in our economy right now are either aging in Reverse or palliative tech care taking care of the dying and it doesn't seem to be an in-between and then there's a pharmaceutical company farm Oh is as a biotech goes as one company that hits a big with a drug it goes crazy and the interesting thing here I think the most interesting thing about the slide other than that Benjamin Button observation is there's only one brand Under Armor and Under Armor just fell off the list their stock price in 2017 but if we did this analysis every year since World War two it would be littered with brands the algorithm for success in our economy or massive shareholder value used to be come up with an average product come up with these incredibly compelling brand codes whether it's American whether its European and elegant whether its hot and young you can feel young you can be more like Mike if you drink this drink or wear the shoes you can be hot and have ripped ads if you drink this light beer you can be funny and irreverent if you buy this car you're signaling to the world something take that average product stuff it everywhere in the channel make sure the channel doesn't totally Road those associations and pound away at the consumer with these associations and get incredible margins on this product that you're selling at a premium price it's really an average product and that margin is going to drive a ton of shareholder value and the economic times of yesterday whether it was Unilever or Nike basically followed this algorithm since World War two I would argue that the era of brand if you will the Sun has passed midday and be clear I make a nice living or I've made a nice living preaching these associations of an average product times the only point of differentiation is these associations and you build brand equity my basic rap for 20 of the last 25 years has been brand is really the only way to achieve above market ROI and I've now decided to that air I think is over and we're entering what I would call this algorithmically driven era and this reflex reaction around build a brand that's the right business strategy I think that's muscle memory there's no longer true I'm not sure brand building is in fact the right strategy and these great companies that have this confidence around the brand building are going to have to figure out new tools so if we were trying to break it down into four quadrants and two axes on one axes we would have the number of receptors how many people are using a product and then what do we do with the data they provide us how intelligent are we with it so magazines neither have a lot of receptors nor do they have much intelligence when I read anity Fair over the weekend is not a lot of us theoretically it's Lance several hundred thousand people reading it and me reading it there's nothing to the experience for other readers there's no intelligence their television still has ten and millions of people watching but they purposely have kept the computer the CPU on top of the TV dump there's a saying that when you're paid not to understand something it's easy not to understand it right tobacco companies were paid not to understand the link between tobacco and carcinogens so they became very good at not understanding that TV companies in the advertising industrial complex have been paid not to understand think about how difficult it is I was trying to find better call saw last night I fly in from Florida I get it around midnight and the way I relax as I watch this Vince Gilligan shows I do watch Breaking Bad or I watch better call Saul and even though I watch this thing every week it took me two or three minutes to find it you know 583 584 585 I can find an aerial view of the house of the gaffer on that show within about 20000 5 5 seconds and yet TV is purposely decided to dumb down the technology of the CPU on top of your desk because there's no way to increase that intelligence without informing advertisers about who is watching when or not watching specifically commercials so as a result if they've been paid not to understand and they purposely dumb down the intelligence we have the most nun an unintelligent box in the world sitting on top of our TVs because the fear has been if we give advertisers the ability or the intelligence to figure out which 50% of their advertising is not being watched it'll be bad for us so we're going to have this incredibly stupid processor on top of the one screen that more people watts and any other screen until 24 months ago now the mobile phone has more time for the television the companies that are killing it are the ones that get tremendous volume of data and then turn it into intelligence and have billions of inputs every day people say data is a new oil if that's true than oil then we are literally swimming or drowning an oil I find that companies have no shortage of data with a shortage of his intelligence to figure out what to do with it what data to apply and then how to bill an algorithm that can automatically take all of this data velocity and then turn it into something better for the consumer that sounds easy there's a handful of firms in the world that can do it it's super difficult so people say well mass customization this hits that those indicators right take data from the end consumer and the design your own shoe that's not really what we're talking about there's a small segment of people about 50% of them live here in Brooklyn who want to design their own Nikes and the power of Nike the power of algorithms is someone's ability with basically the Portland forms ability to track your implicit behavior on Nike calm on the internet off the internet and then serve you the perfect shoe at the right time that's intelligence as opposed to asking you do you want to yellow stripe what kind of what kind of insole do you want that's not really that intelligent so some of the winners uber is a perfect example this right I've noticed I'm sure you have too when I find a Velarde at midnight on a Sunday night it immediately pre-populates in the destination column my home address you can see what this is going it's going to start figuring out a if you're going to a certain address it'll start helping you figure out what you want to buy there so when you put in the address of a restaurant I'm fairly certainly going to start letting you preorder and if you put in the address of a retailer they'll give other retailers or that retailer the opportunity to advertise to try and drive traffic recognizing that you are seem to be in a buying mood heading somewhere where there's a lot of retail purchasing going on as a result this company that's aging reverse we'd never had a transportation company age in Reverse the moment a 787 comes off the Boeing assembly line it starts declining in value 100 to 200 thousand dollars a month at least whereas uber technically is aging in Reverse and as a result it's now worth more than Porsche Audi and Volkswagen I actually think goober is going to be the mother of all right down to the next 24 months but as it sounds right now it's worth more than these humble ebrill brands have taken a better better part of a century to build a Spotify ages in Reverse every time you add a song on your playlist it updates and makes the experience better for your friends that similar tastes its Aging in Reverse and over 40 have you tried the GMC award-winning innovation designed to invigorate your body and increase your libido if you're experiencing lower sex drive general sluggishness and decreased performance you need me Genesis so I'm what's the term I'm about relates to audio I have the lamest thing in the world I have ad supported Pandora and I can't figure out it's either very good or very bad intelligence but a quart pandora has decided I have massively low tea and every commercial is encouraging me to take some sort of supplement and I can't figure out if it's really good intelligence or really bad intelligence but literally every ad I get on Pandora is talking to me about the lack of manhood I have has almost nothing to do with what we're talking today about today so TripAdvisor for those who use TripAdvisor a lot it begins figuring out kind of your economic weight class where you travel a lot and will begin immediately sort of merchandising opportunities in your price range for the areas you go to most its Aging in Reverse and it has obviously an incredible market cap greater than a lot of people who've invested in these sort of old economy things called traditional traditional ad assets now it doesn't mean you have to be a new economy company to do this there are old economy companies that are taking advantage of this basic Benjamin Button philosophy around the incredible shareholder value that it can drive Under Armour has been about a half a billion dollar anza billion dollars on fitness apps it encourages people to share their workouts with their friends and create these small cohorts and you inspire each other and you gamify it and you challenge each other and you communicate the mile you did that morning it shows them the route it shows your time which shows your average minutes per mile calories burned and then challenges the rest of your core cohort to beat it it's attempting to take a technology and encourage people that if you use this product under we all get better our product gets better and we begin to age in Reverse fast fashion fast fashion if you will is a form of intelligence and that is they send out these receptors specifically phone cameras to high-density fashion areas all over the world mostly fashion shows they take a ton of pictures and they're able to get it to a design studio to a cutting room to a manufacturing facility and on their shelves within seven or eight weeks versus seven or eight months Brigit a traditional apparel manufacturers when you think about this this is really receptors and intelligence to absolutely collapse the supply chain people like to blame Amazon in apparel I sit on the board of some apparel companies I'm fairly involved with apparel companies men a lot of board meetings and people talk about Amazon the way they talk about their genetics now we really mean by that the likelihood of you making it to a hundred years of age has several factors number one mA going reverse number three is your genetics people think genetics is number one when you ask people what are the primary reasons what's the biggest reason to indicate how long you're going to live if it's my genetics Uncle Bob lived to 105 it's actually not your genetics are a lot less important than you likely think they are in terms your longevity why do we think that it gives us comfort think that that die have been cast and regardless of how poorly we treat our bodies it somehow it's predetermined how long we're going to live it's not number two is life style in some don't be obese and don't smoke and you screen out two-thirds of premature cancers and cardiovascular disease but the number one signal of whether or not you're going to make it to triple digits how social you are or specifically how many people you take care of and how many people do you love if your parents move in with you your life expectancy goes up three to five years the act of caregiving requires a certain nuanced physical and mental activity it sends out a hormone that clears out the bad cholesterol new mothers don't die reason I bring this up every apparel company in America right now is talking about Amazon the way they talk about genetics is really so longevity and that is they want to blame Amazon for everything if you look at apparel retailers and you look at the echo system the company of the sector that's disrupting them is actually fast fashion fast fashion has grown its top-line revenue more in the last five years than Amazon has gone their apparel offering so these companies are being disruptive but they're being disrupted by their own who are just better than they are that of taking this intelligence receptive and collapse the supply chain so everybody says oh it's Amazon thing now it's you it's you you're just not as good as other people doing the same thing and doing it better so we talked about winners will talk about losers I think the biggest loser in an algorithmically driven economy or world is reason and the reason why reason is a loser is that the algorithms job is to figure out if you're a zero one binary is still the most efficient way to process data so all the algorithms in my life and I would argue all the algorithms in the lives of people who live in Manhattan their job the algorithms job is to figure out if you're a conservative or progressive you spend a lot of time reading the news on politics websites which I do I'm bit of the political junkie it immediately the algorithms immediately okay it just kind of conservative or progressive and its clicking on articles about Hillary or Bernie Sanders or Obamacare as is okay and then it goes oh we see that Scott on Facebook's profile went to Berkeley okay Treehugger right and then it starts serving me more progressive articles because the idea of the algorithm is to figure out a way to get me to click on more stuff such as it can serve me more ads and the people who own the algorithm can make more money . i get more progressive articles and i become more progressive and I begin clicking on more and more progressive stuff and slowly but surely I would argue the algorithm does this job figures out who I am and as a function of trying to get more advertising pushes me further and further to one pole I was on the board of the New York Times for a couple years and we took a lot of pride in on a regular basis offering a conservative viewpoint we heard really thoughtful conservative journalists because we thought it was important and people would benefit from some balance in their lives at NYU we force kids to take classes they don't want to take especially as undergrads because we think some once an exploration in the life is a good thing the algorithm isn't care isn't concerned with your balance it isn't concerned with your perspective it moves you to one pole or the other as quickly as possible and we are becoming more polarized this is an adjustment or an assessment of how polarized these three candidates were just ten years ago if you look at their views ten years ago all three of these people were actually considered moderates and then as you track their speeches and their policy the rhetoric if this happens now have they really become more polarized or is it because they realize in order to get elected in order to resonate with people they have to go to one pole or the other because I believe algorithms are driving all of us from one pole or the other at in the last election 89 percent of the people who live on the island of Manhattan voted for Hillary Clinton and that wasn't the amazing thing although I do think that's amazing what's amazing is among the 89% and I was one of them I was literally a hundred percent sure she was going to win I would speak a lot I travel a quarter million miles a year I'll speak in front of about a hundred and thirty five thousand people this year and I was telling everyone in Europe last year in September and October everyone in Q&A would go what how you're a lexington they would literally say this with fear in the voice and I would say don't worry just don't worry we got this I'm reading a ton about this I'm super into the election there's just no way no way she's not going to win and then being in Europe they'd all erupted an applause I literally feels if I can't go back there because I promise something that wasn't delivered and I generally believe that because the algorithm if you will and to a certain extent my own projection around how I want the world to turn out put me in a bubble that convinces a reasonably intelligent person of something it's an impossibility when in fact it's a reality so I think these algorithms push us to the polls and if you will create bubbles for each of us where we can sit in these very insular environments and not be exposed to anything that offends us subscription services are not intelligent they get a they get intelligent to one point and then they continue serving you products at the same caves and oftentimes in the same dosage and you had to put a lot of stuff in your house you don't want I don't think subscription services yet work recurring revenue super powerful but only when it adapts to your needs write down or a fairly big write down in retail I think it's going to be Dollar Shave Club at a billion dollar acquisition by Unilever if you look at it they paid about 300 bucks per customer which is a lot of money and they paid about six and a quarter million dollars per employee one of the reasons they would purchase was supposedly they have this new economy way of acquiring customers right they could acquire consumers more intelligently at the time of the acquisition Dollar Shave Club was spending more on television than to let with spending so this company was more old economy than I'd like to think by the way the key to valuation other than what we're talking about this user growth is engagement times intelligence is really storytelling and it's your ability to to communicate or be perceived as the leader based on new economy skills that's the key to a multiple on your valuation and they used to be a multiple Andy but they've been absent multiple on revenues and Dollar Shave Club was able to talk Unilever into that however I think the largest write down in retail and I've been saying this for a few months and beginning to think I might have got this wrong because I think they're doing actually pretty well and I'm not afraid to say I'm wrong we get wrong all the time our hearts in the right place I thought and I still think there's a good chance that the largest write down is going to be jet comm this acquisition made no sense to me this is an aqua hire oh my god talk about an expensive acquire they pay twelve and a half million dollars per employee and that's crazy multiple on revenues times six it was spending five million a week on advertising I just can't even imagine what those board meetings were like just sitting there and saying okay we're spending a quarter of a billion dollars here on advertising when do we break even anyone on the board and I'm sure somewhat as simple Windows is coming breakeven just just for fun let's talk about that based on their current trajectory they were going to break even when they got to twenty billion dollars in sales the difference between a fraud and a visionary is a successful exit as an entrepreneur so who are the winners in retail is everyone's going to die in the hands of Amazon they're not there are some companies they're doing it okay a lot are doing poorly but some are doing well and I would argue that the companies in traditional brick-and-mortar retail that are doing well are zigging while everyone zagging everyone's trying to take people out of the equation and insert it with technology but if you look at the guys that are doing pretty well the Sephora has a cast that's by the blue shirt apples employees are very well trained Home Depot has a golden aprons I think there's a gang and is that they're making a huge investment in what I would refer to as organic intelligence people no longer go to stores for products they go for people specifically than what expertise or they want navigation of they want great customer service and if you're not offering that in the form of the most sophisticated processor by far still around specifically the gray matter between your two ears the EQ the intelligence that connection we fill with people the ability to immediately pick up on cues and get people to the right answer if a retailer brick-and-mortar isn't investing in that I don't think they can out Amazon Amazon for sure and I think they're not taking advantage of people's desire to a congregate and get very fast answers from the still the best processor in the world and that is another individual so false prophets some people making we and in our society I believe that we have a huge need for a super being or soup or Jesus Christ like figures as we've developed more modern-day anxieties more successful more anxiety as a as a nation becomes wealthier or more educated you go to church less there's less of a reliance on a traditional God but at the same time these modern-day anxieties continue to grow right we have just as much stretch this as many unanswered questions around the things that happen in the world so we need we need sort of these gods we need this jesus christ life figures who we trust that anything they say anything they say has got to be right and i would argue that the new religious figures are the CEOs of successful innovation economy companies we give them way too much credibility we assume everything they say is the future that they could see into the few I think we're Beezus has taken us is with one store amazon go he said that basically artificial intelligence obviates cashiers there 11 million cashiers in the u.s. more cashiers in the US and there are teachers think about that take everyone you know as a teacher there's more cashiers of the 11 million I bet 3 or 4 million lost their jobs and that one Amazon ghost still was open because they're not going to test to this personally every boardroom of a retail company in America now is trying to figure out a way to optimize their retail which is Latin for fire cashiers the other Jesus Christ and where I think he's got it hugely wrong I think this is the biggest headache in technology and it's going to wreck that your capital firms across the US and Europe and also be rid the result about hundreds of millions and write-ups from some huge technology and media companies I think the biggest head fake in technology over the last few years is virtual reality this is how many VR oculus rifts have been sold versus and other items any of you using VR at home it's got to someone that was one gamer no one anyone using VR it's off someone someone was that this is ridiculous and what technology firms is there a success they it's easy for successful translate to arrogance the decisions you make around what you wear are really complicated and really emotional and based in instinct and text never understood that one tech company kind of gets it and that's Apple Apple is the only one that's ever figured out a way to get someone to put something on their person and you look and I look ridiculous at VR and it immediately takes 90 to 95 percent of us will never wear one of those because we don't want to look stupid and there aren't that many applications that are as many as we think in the narrative around this technology is the same narrative of any great multimedia technology it starts up here it's going to change everything that's where the narrative was about 24 months ago we're already out of that narrative and I'm saying what's going to change business we've moved beyond that narrative and this is where we are right now going to change niche commercial applications in the running articles about how someone in India can do can warm hip surgery at the Mayo Clinic they're trying to come up with reasons why this actually works it's going to change education will be the next narrative and it's going to end up where every narrative ends up and great media technology that fails it's going to change porn usually gets a bigger loss Google consciously decided to send this out another headache wearables there's only one wearable this is it every other wearable is going to be like a tech lock it's going to be in your drawer you're going to pull it out it's going to take you back to an era when you've had a Nike FuelBand or a jawbone or Fitbit wearables and another huge head sake 3d printing remember when we used to be kind to years ago you go to a conference and there'd be this might what looked like a microwave oven burning gel and it would sit there in fascination for eight or ten minutes and it would be a yoda and this was going to change the world 3d printing and it's a and it's an exciting vision anything you want anywhere for less money right you have to land in Nova Scotia because your propeller has been bent or hit by a bird you can land at a facility and they take a picture of your Cessna and on the spot produce the propeller and put it on for less money than it would cost to get it from Textron or Cessna alright here's the thing and there are some applications of that but for the most part the idea that a technology that we could produce a lot of stuff really inexpensively and get it really quickly the world specifically the US has this unbelievable 3d printer called China and our ability to invent a technology that is going to be a more robust printer 3d printer than China has been totally overestimated and this is another technology that has stubbed its foot in a big way some companies some of the most overvalued companies and this is the slide that always gets me into trouble and people from these companies reach out to me and invited me in to update my thinking they'll see that word update my thinking I think we work is totally overvalued that's just ridiculous we work right now is valued at twenty billion dollars and I'll sling snapchat is still massively overvalued and this data is dated it's problem I think it's a twenty two billion dollar market cap based on we works twenty billion dollar valuation it means every person that goes into we work and spends one hundred two hundred eight hundred dollars a month to office in these wonderful spaces is worth five hundred and fifty thousand dollars trying to imagine that they have to figure out a way to monetize every current customer to about five hundred and fifty thousand dollars by the way I think the guys I know the guys that we were I think it's an amazing concept I think it's a great management team I think it's worth maybe a billion dollars which is incredible twenty billion look out below Twitter these are some of the people who do not work at Twitter I think the board of Twitter is negligent and should be removed by shareholders I think to say to somebody she is better than you at twenty five hours a week than you are at 50 hours a week was negligent and can can not there is no way that cannot create negative morale in a management team and send absolutely the wrong signal at everybody I've been a CEO before I come to you with 110% in certain certainty it is not a part-time job especially when thousands of people are relying relying on you for the livelihood intended tens of thousands of people have decided to put their hard-earned money into your stock and you are literally competing in what is probably the highest stakes game in history and that is who wants custody to consumer in social media and yet they have a part-time CEO that is just negligent and outrageous now why why does it happen because if someone is talented which their CEO is if someone is really impressive which their CEO is and that person happens me in their 30s and wear a beard and a turtleneck we think oh it's Jesus Christ risen again it's Steve job we have this idolatry of innovators it is really unhealthy and unrealistic and damaging to basic common business sense and business maturity around shareholder value so I made this big speech about Twitter being where 10 bucks a share when it was it's fifty five bucks and I'm almost there my prediction this does not you don't need to watch me watching me speak when I'm right here on videos like on a salad so we'll avoid that I think the biggest winner in 2017 is Netflix if you think about the four and what I refer to the four Amazon Apple Facebook and Google and I will get to Amazon I know that's why everyone is here they're basically operating systems for a different component of our lives Amazon is operating system for consumption Apple's operating system for media Google's operating system for information I think effectively Netflix has a shot at becoming an operating system of joy in our lives and that is when we're sitting down and really enjoying ourselves in front of television I do think this is a golden age of television I think television is amazing I think it fastest way the fastest way to be you know to be happier is to exercise the second fastest way is to watch more television I think television is wonderful I think we're in a golden age of TV largely brought on among the competition among the big four to spend more on original content and not literate with that advertising Millennials spend more time watching Netflix and they spend watching all of broadcasts and cable TV so if net if no aniele's are the future in terms of a disposable income then technically Netflix should be worth more than the entire broadcast echo system because more they control more of it more Netflix is consumed and all of TV all other TV combined by Millennials and this stock has gone crazy and I think Netflix if I were to bet who has a chance of joining the four I would say that it's probably going to be Netflix I own sorry incredible metrics continue to grow users also when we're talking about intelligence I think the most genius form of this intelligence is that Netflix has an algorithm and it knows if you're watching season 4 episode 7 of house of cards and based on kated intelligence it goes we think you would like to watch season 4 episode 8 and we're going to start playing it in 10 9 8 7 think about how basic and common sense that feels right now and how powerful it is who among you has ended up on a Wednesday night with an 8 a.m. meeting at 4:30 in the morning going well I only got 3 more hours to watch I only have 3 more I got to keep going but it's that kind of basic intelligence and just simple used and because it's streaming they can offer you the product ABC can't do it linear TV you can do it I think to bring up your Netflix home screen is sort of an x-ray into your soul this is my Netflix home screen that usually gets a laugh - so this is all war this means I'm seriously screwed up and I have issues I have trouble sleeping at night which I realized might come as a shocker to you but I find only two things relax and I like to watch shows about animals and shows about crimes against humanity that kind of puts me into and just puts me out to sleep alright so let's talk about the game of for a business school the first year we have marketing operations finance and marketing operations finance and management those are the four pillars of the first year business school and their outstanding disciplines and we bring together a group of people and real estate and resources and admissions and recruitment groups and within about twelve months we can take someone who's making seventy five thousand dollars a year and we can turn them into someone who's making one hundred and ten and that's what the marketplace tells us the second year is mostly a waste it's mostly a set of electives and courses on leadership and ethics and courses that no one needs to be held accountable for because they're impossible to measure and because we have to satisfy the teaching requirements of what is probably the most wasteful employment compact in the world and that's tenure we have tenured professors so we have to give an excuse to exist and pay and so we create a second year and we so need an excuse to charge kids 128 thousand dollars in tuition instead of 64 but realistically we could punch them out in a year with no loss in value to really their currency in the marketplace in my view and I propose this the four pillars of the second year should be Amazon Apple Facebook and Google I think to understand these companies is to understand retail media connection biology and understand the intersection between value creation our new economy so I spend the majority of my waking hours thinking about these four firms and what it means for us what we can tell about ourselves and what it what inside it brings about our economy so let's talk about Google Google is the Original Gangster around this intelligence idea every time you search Google gets 1 3 billions of a percent better if you search hotels in Brooklyn the algorithm is listening and we'll see what information you click on and let me say ok if this person was searching for information on hotels in Brooklyn and found this information useful that increases intelligence the algorithm and we have a little bit better idea of what to serve what information to serve other people what's relevant to other people with similar queries now what is the role that Google plays in our life Google is effectively a modern man's god this void decrease in religion increase in increase in desire for answers the void is being filled by Google for those of you have kids you have your planet of stuff you have your planet of friends you have your planet of work and then you have your planet of kids and when one of your kids isn't doing well it becomes the Sun and you're flying three miles from the Sun and there's just nothing but your kid specifically your kid not doing well everything else is kind of literally goes away you know will my kid be alright I mean what is praying praying is sending information up into the atmosphere hoping that there's some divine intervention some processing and you get an answer in an action back will my kid be ok now it's symptoms and treatment of croup and you get back an answer Google is our modern man God 1/5 of queries on Google or to Google have never been asked before in the history of mankind what rabbi cleric priest coach professor has so much credibility that one in five questions posed to that individual have never been asked before in the history of mankind google is hands-down the most credible super being that's ever existed in history of mankind as a result it's an incredibly powerful business and when you combine it with Facebook you have a company that is essentially controlling media all the growth in media especially online media which continues to be the growth engine across all media globally it's controlled by two companies if you look at Facebook and Google they control 103 percent of last year's digital marketing growth their kids come to my office hours they never want to talk about brand strategy or digital marketing I want to talk about jobs and making a huge investment and they want to be thoughtful about their careers a lot of want to go into digital marketing I'm a very straightforward digital marketing is an outstanding career as long as you work for Facebook or Google if you don't work for Facebook or Google and you're in digital marketing you are now in an industry that is in structural decline about 3,500 companies are very 10 million or more in venture capital in the digital marketing ecosystem and they join newspapers and magazines and that their business is in decline this is what I think the marketplace looks like the digital marketing if you're not Facebook or Google so one of those shows I was talking about on Animal Planet one of my favorite episodes is about these this Indian family who lives in rural India and they're snake farmers and they go out onto their property and you see these little kids literally like this like it's not even thinking grabbing snakes out of the bushes and a little 6 to 12 inch snakes that have no commercial value and they collect eight or nine thousand of these things in a little bucket and then they go back and dad puts all the buckets of these snakes writhing around into one giant chest and dad puts a padlock on the chest and they go away and they come back several months later and they open the chest and there's two enormous snakes that is the world that is the echo system of digital marketing over the next 24 months anxiety humidity and death I'm not here with a message of hope Facebook Google is God I think Facebook is love I think one of the one of the things about our species is we not only have a need to be loved we have a need to love others and love is a function of empathy and empathy is a function of the amount of interaction intimacy points of contact you have with other people what's the most powerful form of communication in terms of establishing an emotional connection with someone it's imagery if five someone says there's a lion on the screen and get out of the hallway it takes a certain amount of time across for you to process it if you could get up and make a decision and run to the hallway if you see a lion you're up and out you know immediately what to do imagery is super powerful and Facebook figured this out and Facebook is making more connections creating more empathy and I do think Facebook is satisfying this instincts will need to connect with people stand their lies and to love people and it's a very powerful value proposition now Facebook strategy this is Mark Zuckerberg outlining their new strategy we believe a camera will be the main way that we share wow that's really unique isn't it I'd never heard him say that before where did he come up with that two months earlier snapchat is a camera company it's not a social company it's a camera company I don't know what went down between Mark Zuckerberg and Evan Evan Spielberg's bets Gilman I was guy's name right Evan Spiegel somebody correct me what is it Evan what Evan Spiegel I've never seen an individual in business hate another individual as much based on shareholder and capital allocation Facebook Inc is incorporating snapped like features into every single product they have even when it doesn't make any sense I believe that Mark Zuckerberg wakes up and goes kill snapchat and then as he's drifting off to sleep the last thing he thinks is kill snapchat and unfortunately I think he's going to be successful I think Facebook is one of the most I wanted a j'l well resource companies in the world and when you have that company totally focused on putting another company out of business I think they're probably going to do it and I think this already advantageous because already borrowed yeah I think they're already evidence they are doing this if you look at some we do we spend a lot of time looking at a different data and content and kind of resonance that gets this Nike data was on both Instagram stories and snapchat and as you can see the same the same content it's getting about 16x the views on Instagram stories and it is on snapchat and we're starting to see this data across a lot of our consumer member brands but the content they put on stories the content that going on snapchat is getting more and more traction on Instagram stories Instagram now have Instagram stories now has more daily users than snapchat anacs nap chat we are in the midst I think we're in inning four or five of snapchat being wiped from the face of the planet Instagram is trying to get into the algorithm business right there now for trying to figure out rather than it just being a hundred percent organic reach and you see what your friends put up when they put up their instituting an algorithm which is code for we're going to start putting in front of you advertising and we'll put just enough of your friends content in front of you to keep you interested but we're going to start pimping the algorithm around how we can make money which is reasonable but we knew it was coming Facebook does paid I think 150 million dollar fine to the EU because they gave them false information about the WeChat acquisition they claimed it would be technologically impossible to share data from WeChat to Facebook and then a few months later shocker a breakthrough we can now inform the Facebook algorithm and the WeChat algorithms and begin taking user data from WeChat and using it to sell more advertising on Facebook and vice-versa and the EU said hey you lied to us you have to be us 150 million bucks and what I would say is Facebook's an immense winner this is a company that was four hundred and fifty billion dollars if they can lie to a regulator I mean an outright lie and it costs them 150 box so they can apply er something that strategic isn't that just a ridiculously good deal for them there's some advocate on the Facebook platform 14 percent of your content is now sponsored which means it's an advertisement and people are starting to integrate they're starting to engage with the ads less which means that it looks like the Facebook core platform is a little bit run out of steam in terms of existing users and in terms of ability to serve them more ads the Facebook is fine because they have this incredible growth vehicle called Instagram which I would argue is the most valuable platform in the world right now if you take the user base times the level of engagement as indicated by the percentage of the population that life shares or comments on a piece of content Instagram is already the most powerful platform in the world because it gets 15 times the engagement of Facebook and 15 to 25 times the engagement of Twitter Facebook several months ago talked about miscalculated metrics they overestimated the organic reach of their pages the referral traffic to websites and mobile apps and by the way I have to give them some credit they try to get out ahead of the curve on this stuff and announce when stuff is wrong and try and fix it the only thing that I find unusual about this is that they call these mistakes and I don't if you've ever in a relationship but if all the mistakes or omissions always tend to benefit one person if all of your mistakes tend to benefit you I would argue they're not mistakes that their lives Apple what is Apple's role so Facebook is love Google is God Apple is sex our ability to communicate to other people our strengths our sophistication how attractive we are how good our genes are is a number two instinct your number one instinct number one is a man number one is survival that's it most of us have that box checked most of us are not worried every day about survival so men go to the second instinct and the second instinct is to appropriate and near every man in this room feels it in his responsibility and has been told this for tens of millions of years that my responsibility is to spread my seed to the four corners of the earth because I am so awesome I owe it to the world so this is not an eleven thousand dollar watch it's a $2,800 amalgam of movement steel plastic and glass that I pay $11,000 for because if I'm very honest with myself I'm trying to signal to all the women in this room that if you mate with me your children are more likely to survive than if you mate with someone wearing a swatch watch if you don't think you spend a ridiculous amount of high-margin dollars trying to signal this to the other sex I would argue you're just not in touch with your own motivations and your own emotions you may be in a monogamous relationship and you still want a Ferrari because for millions of years you've been told it's so important to be in a position to procreate with the strongest of smartest and the fastest now it's fine to be politically incorrect about men but it's just as interesting to be politically incorrect about women woman's number one job number one instinct same as men survival number two is procreation that they go about it a different way their job is to wear $700 ergonomically impossible shoes which make no sense at all so they can solicit or catalyze more inbound opportunities for seed than anyone else and put up there much finer filter and select the strongest smartest and fastest seed so it's different one side is trying to spread their seed to the four corners of the earth the other side is trying to pick the smartest and strongest and fastest see the majority of the men in this room especially if there's alcohol involved would sleep with the majority of the women the majority of the women in this room would sleep with none of the men these are the new feathers when you have the Apple iOS in your pocket versus Android you're communicating to potential mates you are smarter you're stronger you are better educated and you're more likely to have a random sexual encounter if you look at a wealth map of America by operating systems if you're in Manhattan it is literally all iOS you go out into the suburbs with household income drops it lights up Android you want to live on the coast in California you better have an iPhone you move into South Central or the inland area Empire or Ontario it's all Android there's only one signal right now that's global and it's Apple Apple with sex apples suffering a little bit from loti they seem to have lost some of their mojo greatest product company in the world revolutionize revolutionizes the world every 36 months it's really hasn't revolutionized the world not a failure it's not a success of somewhere between best design in the world varies concentration of design talent and history is this it is this what we expect from Apple so you argue like Apple is an amazing company but their latest product innovation is sort of have been met and what Apple has pulled off is unprecedented because these procreation appeals to the most irrational Oregon right most tech companies appeal to the brain they're actually smart buying a faster processor to lower prices a smart decision you're competing with the brain the brain will starch most margin out of business I would say to my kids there's three organs there's the brain there's the heart and the genitals you don't want to compete with the brain brain will start out all marred rational purchases are awful business used to be in grocery fuel terrible PG figured this out and said wait choose Imams choose Jeff you love your kids more they tap into the heart heart is much more rational in the brain and resulted in a series of products where detergents and basic basic liquids get seventy percent seventy percent margin because they tapped in the heart the wait there's more there's more outside of the big for the companies are data the most shareholder value in the world populate the list of the wealthiest people in the world luxury luxury appeals to the genitals those are the most irrational organs right those products have seventy or eighty percent margins Apple has the operating margins of Ferrari or mez and LVMH we've never seen that in technology at the same time it's the Glo cost producer best-selling iPhone - the best selling phone in the world of the iPhone so imagine a company that had the margins of Ferrari and the production volumes of Toyota and that's what you have with Apple we've never had a company that's profitable this quarter Apple will make twice the profits that Amazon has made since its founding it was Apple is sex and I've gotten my five minute mark so I'm going to skip Apple had the lead in this reverse aging around music remember you could go on Apple iTunes and just by seeing what songs have been downloaded most you could find the two songs that represented the 18 dollars and values suspend for an entire CD you could get 95% of the value of an album by just buying two songs based on what other people downloaded which is a form of intelligence Amazon and I apologize for this last because I know a lot of people are Amazon is the most disruptive firm in the largest economy in the world I think it's going to be the first trillion dollar company I think the only thing stopping Amazon at this point is a regulator in Washington or Brussels I think they're literally unstoppable at this point more retail bankruptcies in 2017 year-to-date than when they're all of 16 the reckoning is finally happening Amazon's only one factor stagnant middle-class wages over snoring of America changes and consumer preferences it's just the perfect storm of bad things for most retailers malls are getting hammer these are the companies on the left side showing that are closing I wanted to put stores that are opening because there are some people who are still doing all right but it is a pretty ugly environment in retail right now what's interesting about Amazon from an investor's standpoint is it separated from the rest of companies and that is every time a retailer goes down and provides Amazon goes up usually companies in the same secular trade in sympathy but now people would assume what's good for retail it's bad for Amazon and what's good for Amazon is bad for retail so what Macy's announces a bad quarter Amazon stock goes up because everyone assumes it's Amazon's fault or that Amazon is benefiting from the rest of the retail industries pain 44% of households on a gown 49% on a landline song 51% attend church every month I think these are the same people via glass on the coast with that Cincinnati not so much not so much 52% of households have Prime now think about how technology has changed more people have opted for a technology that gets them their stuff within 48 hours inept landline phone 55 percent earn over 50 K by the way the prime users in those households are the same prime users are typically wealthy household they look more like a Mason shopper than a Walmart shopper 55% voted in the election in 78% on a Christmas tree Amazon has changed the relationship between companies and investors and this is probably the biggest impact that Amazon's had in my world I work in startups and that is Amazon has replaced profits with vision and growth they said profits don't matter it's all about vision and growth and this has worked its way all the way back into the ecosystem and companies are now encouraged to pursue growth leadership and vision at any cost and your losses really don't matter companies are no longer evaluated on EBIT a-- or even on their losses but on their growth and their vision and the perceived leadership it key is to be perceived as the leader and continue growing and amazon has recognized this and very smartly is never profitable force all its money back another company has paid almost no taxes didn't pay sales that taxes to two or three years ago and as a result has a lot more Capital than anybody else the whole ecosystem is going this way now most recently we work breakeven snapchat 400 million in top-line revenue 500 million in losses uber five and a half billion dollars in revenues three billion in losses if you want to go big or you want to go bigger it appears you got to lose more and more money and just keep growing these companies are tremendously efficient with their capital we have huge job destruction because they can just do more with less and like I spent a lot of time there but some of the really incredible things or scary things about Amazon is Amazon can go to a second degree sector when they're not not even a core business and they can show up and say we're going to spend more money on original content this year than ABC NBC and HBO this isn't even our core business the only company spending more on original content this year as Netflix and they just upped it because they hear Amazon's footsteps so this is just how incredible it is I told you I was a fan of military history at the end of World War two the Germans had better equipment their soldiers were better trained they had better leadership at better morale but we have 38 gallons of gasoline for every one gallon of gasoline they had Amazon is now the retailer that shows up with 38 gallons of gasoline they can literally overwhelm any sector and almost any competitor Amazon Media Group I'm going to skip through this I think their next big category is going to be CPG and specifically grocery as Victor talked about I don't think grocery has innovated a great deal I think this is literally the grim reaper of brands of the brand age I think Google started it Amazon user reviews have helped killed it brand used to be this is vessel to get us from the unknown to the known around products alright a brand used to be shorthand I don't know if it's a great beer but it's from anheuser-busch so it's probably okay so I'll try it I don't know if the Four Seasons is the best hotel but I know they'll give me at least an eight on a scale of one to ten now you can go on TripAdvisor Hotels tonight or on your own social graph and you can find at the ham yard or the Soho Hotel is probably a better hotel for you in London and have the confidence to book things that are not traditional brands the longtail has me growth and the traditional brand and the I used to getting for this shorthand is being starched out and it's being starched out by Amazon Google and I think voice is going to be incredibly powerful most people are not using voice for consumption but they will that's how Amazon makes money Amazon will start subsidizing products and getting people to buy stuff your voice right now when you ask for gain on Alexa it's cheaper than if you get it on the Amazon platform so it looks as if they're starting to subsidize purchases on Alexa by the way full disclosure I went on yesterday we went on yesterday we're barking at Alexa thousand times a day in our office to try and get information it was more expensive I don't know what that means but most of the time it's less in this instance it was a full thirty three percent less via voice when you try and buy batteries on Amazon and makes two recommendations and then it says it's out of ideas Alexa is not out of ideas there's a bunch of different brands on Amazon they've just decided if you can't see what's available they can be a little bit more generous in terms of proposing what they want so think about a frightening this is for CPG brands they've spent billions of dollars in generations on ilvl in a nice young talented graduate of UCLA or University of Michigan going in who's nice and attractive establishing a rapport with the shop owner and getting them to put tide at eye-level they spent tens of millions if not hundreds of millions on packaging on price optimization on design all of this literally on end caps there's Tom Brady or Tom Brady school I love Bud Light right all of that with voice goes away all their traditional levers of brand equity disappear with voice and the number of brands being used as a prefix for a Google search or a voice query every day goes down and the number of people who can name their favorite brand across luxury retail jewelry hotels is declined between twenty and forty percent just in the last three years we are experiencing the death of brand Amazon is conspiring with five hundred million consumers fanatical investors that give it infinite capital to starch all the margin from brands and give back to consumers it's great for consumers it's great for Amazon shareholders and it's terrible for CPG and manufacturers brands where do I think Amazon's headed I think they're going to launch something called prime squared I have no inside information here this is just pure conjecture what I would be doing if I were Amazon and that is I would be leveraging the fact that I have this fulfillment infrastructure that has a warehouse within 20 miles of 45% of the US population I have more Purchase History than anyone on the planet I have an incredible brand known for value and I'm going to start saying to people tell you what enter prime squared and we're going to send you two boxes twice a month one box is going to have the stuff in it we think you want second box is going to be empty you put the stuff you don't want back in the second box and the algorithm will start learning and every week the box you put stuff back in will get smaller and smaller and we're going to use Amazon Alexa to calibrate Alexa BBQ for six people Alexa going on vacation for two weeks Alexa three quotes for auto insurance rota Camry 2014 and I think Amazon is basically going to say you don't need any other retailers you only need one and they're going to take these prime squared households from $1,300 a year which is a prime gets to seven or eight thousand the stocks are going to become anti-gravity and we're going to have our first trillion dollar company so my last thing here I think the pecking order is going to change in terms of value my kids will lure me into their room they love Alexa anyone doesn't Alexis you get it and they will ask Alexa who is Scott Galloway and look at me to get my reaction because this is what we get boy space technologies are taking over the world Alexa who is Scott Galloway Scott Robert Galloway is an Australian professional football player who played as a fullback for Central Coast Mariners in the a-league really this never gets old my kids I pretend to be massively disappointment and I disappointed my six of my nine-year-old literally rise on the ground in joy I think it's the funnest thing in the world and I did this video and a kid showed up at 17-year old I tracked him down said this is my gift to you love you and he created a Wikipedia page for me and now and let this happen three weeks ago this is the most rewarding thing about what I do my kids lure me in for their big Amazon Alexa joke before they go to sleep on a Sunday night and this is what happens Alexa who is Scott Galloway everyone has their own views on that question that is so true not the answer I was expecting Alexa who is Scott Galloway Scott Galloway is a clinical professor of marketing at the New York University Stern School of Business public speaker and entrepreneur oh my name is Scott Galloway I teach at NYU and I appreciate your time today [Applause] [Music]

Channel: Feedvisor

Views: 88,478

Rating: 4.8138747 out of 5

Keywords: amazon scott galloway, future of retail, amazon, retail, future of retail stores, amazon marketing strategy, digital marketing strategy, amazon seminar, ecommerce, e-commerce, feedvisor, nyu stern professor, scott galloway

Id: R8HPnysZ3us

Length: 64min 16sec (3856 seconds)

Published: Mon Jun 19 2017

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