WEBVTT - Interview With Scott Galloway: Masters in Business (Audio) 0:00:00.160 --> 0:00:02.960 Masters in Business is brought to you by proper Cloth, 0:00:03.520 --> 0:00:08.080 the leader in men's custom shirts, with proprietary, smart sized 0:00:08.119 --> 0:00:12.520 technology and top rated customer service. Ordering a custom shirt 0:00:12.600 --> 0:00:16.319 has never been easier. Visit proper cloth dot com to 0:00:16.520 --> 0:00:22.279 order your first custom shirt today. This is Masters in 0:00:22.360 --> 0:00:27.400 Business with Barry Ridholts on Bloomberg Radio. This week on 0:00:27.480 --> 0:00:30.520 the podcast, we have a repeat visit from one of 0:00:30.560 --> 0:00:34.640 our most popular guests. His name is Professor Scott Galloway. 0:00:34.760 --> 0:00:38.760 He teaches digital brands and marketing at the n y 0:00:38.920 --> 0:00:43.040 U Stern School of Business. I first kind of came 0:00:43.080 --> 0:00:47.200 into contact with Professor Galloway h through a famous video 0:00:47.320 --> 0:00:53.760 he did called the Four Horsemen of the Internet about Facebook, Amazon, Google, 0:00:54.240 --> 0:00:58.360 and Apple. And he is one of those people who 0:00:58.560 --> 0:01:03.320 is just a fast sating study, a person who does 0:01:03.400 --> 0:01:06.160 deep dives into the things we kind of take for 0:01:06.240 --> 0:01:11.640 granted about technology, about marketing, about how we interact with 0:01:11.720 --> 0:01:14.560 some of our favorite products. And he does it in 0:01:14.600 --> 0:01:17.399 a way that's not purely academic. He formed a number 0:01:17.440 --> 0:01:23.119 of companies um L two red envelope profit and and 0:01:23.319 --> 0:01:26.520 sold them for uh tons of money. And and so 0:01:26.600 --> 0:01:31.120 he's more than just a theoretician. He's an actual practitioner. 0:01:31.760 --> 0:01:35.240 He's always fascinating. We always have a delightful conversation every 0:01:35.240 --> 0:01:37.840 time I I have him in the studio. UH. He 0:01:37.880 --> 0:01:39.880 has a new book coming out next year, so we'll 0:01:39.880 --> 0:01:42.760 have an excuse to bring him back when that UH 0:01:42.880 --> 0:01:46.319 comes out. In the meantime, with no further ado, my 0:01:46.480 --> 0:01:53.280 conversation with Scott Galloway. This is Masters in Business with 0:01:53.360 --> 0:01:58.800 Barry Ridholtz on Bloomberg Radio. My special guest today is 0:01:58.880 --> 0:02:02.000 Professor Scott Alloway. He hails to us from n y 0:02:02.080 --> 0:02:05.600 U Stern School of Business. He is the author of 0:02:05.640 --> 0:02:09.600 the Digital i Q Index, a global ranking of prestige 0:02:10.280 --> 0:02:13.840 digital competence. He has been ranked one of the world's 0:02:13.840 --> 0:02:19.320 fifty best business school professors. He founded several companies, red Envelope, 0:02:19.680 --> 0:02:23.880 Profit l two. He has also been recognized by the 0:02:23.919 --> 0:02:28.080 World's Economic Forum as one of the Global Leaders of Tomorrow. 0:02:28.360 --> 0:02:32.000 Professor Scott Galloway, Welcome back to Bloomberg. Thanks very good 0:02:32.000 --> 0:02:34.320 to see you. What brought you to my attention a 0:02:34.320 --> 0:02:36.919 few years ago was a video that you had done. 0:02:37.200 --> 0:02:41.240 It was a conference appearance about the four horsemen and 0:02:41.320 --> 0:02:45.240 they were Amazon, Apple, Facebook, and Google. So so why 0:02:45.240 --> 0:02:49.000 don't we start with those. Let's talk about Google. In 0:02:49.040 --> 0:02:51.480 a recent L two video you did, and you also 0:02:51.600 --> 0:02:54.760 speak every year at the Digital Brands Conference d l 0:02:54.800 --> 0:02:59.880 D I think conference. Um, you talked about Google low 0:03:00.000 --> 0:03:04.920 its price eleven percent and yet it increased its total 0:03:05.240 --> 0:03:10.840 ad revenue. They seem to really be dominating online advertising. 0:03:10.840 --> 0:03:13.440 Can imagine how difficult all those whether you're competing with them, 0:03:13.480 --> 0:03:17.920 your clear channel, outdoor, uh, you're the New York Times, 0:03:17.919 --> 0:03:20.160 your hearst, and you have a company that's able to 0:03:20.400 --> 0:03:24.359 a competitor's able to increase its revenues and lower its 0:03:24.400 --> 0:03:27.120 prices eleven percent, And initially the analysts thought that was 0:03:27.160 --> 0:03:29.320 a sign of weakness because their cost per click was 0:03:29.360 --> 0:03:32.520 going down, but effectively, Google every year gets more and 0:03:32.520 --> 0:03:34.280 more competitive. It's like, how do you know if an 0:03:34.320 --> 0:03:37.640 industry is right to be disrupted? They raised their prices 0:03:37.680 --> 0:03:40.400 faster than inflation when they'll underlying increase in innovation. You 0:03:40.400 --> 0:03:43.520 could argue that media or television is incredibly right to 0:03:43.520 --> 0:03:46.240 be disrupted and increase the prices much faster than inflation 0:03:46.600 --> 0:03:51.040 while viewership has gone down, whereas Google is probably the 0:03:51.160 --> 0:03:55.040 least disruptible business right now in media because every year 0:03:55.080 --> 0:03:57.640 it gets substantially better, and they keep loaning their prices. 0:03:58.000 --> 0:04:02.600 So the other um leader in digital advertising is Facebook. 0:04:03.800 --> 0:04:05.600 Are they ever going to be able to give Google 0:04:05.600 --> 0:04:07.240 a run for their money? Oh? They already are. I 0:04:07.240 --> 0:04:08.960 mean between the two of them, and it really is 0:04:08.960 --> 0:04:12.040 a duopoly if you look at all a digital marketing. Uh, 0:04:12.320 --> 0:04:15.040 Facebook and Google accounted for a hundred and three percent 0:04:15.120 --> 0:04:17.159 of the growth. Now what does that mean. It means 0:04:17.200 --> 0:04:19.839 that if you aren't Facebook or Google and you're in 0:04:19.839 --> 0:04:24.880 digital marketing officially, the industry is in structural decline. So 0:04:24.920 --> 0:04:27.520 if you work for anyone who's attach platform, search engine 0:04:27.560 --> 0:04:30.839 optimization and agency doing media planning online, your business like 0:04:30.920 --> 0:04:33.600 newspapers and magazines is in decline. So let's talk a 0:04:33.640 --> 0:04:37.159 little bit about Facebook. You said their pivot to mobile 0:04:37.720 --> 0:04:40.839 was one of the greatest shifts of a large corporation 0:04:41.279 --> 0:04:43.920 in history, arguably the most agile company in the world. 0:04:43.920 --> 0:04:46.240 Three years ago, zero percent of the revenue from mobile. 0:04:46.520 --> 0:04:48.320 Mark Zuckerberg said he did not believe in kind of 0:04:48.320 --> 0:04:50.599 the app economy, thought it was all gonna be about browsers. 0:04:50.920 --> 0:04:54.200 And he was wrong and pivoted and turned the fire 0:04:54.240 --> 0:04:57.800 hose of great management, great engineering talent, and now I 0:04:57.839 --> 0:05:01.920 think about eighty center the revenue comes from mobile. It's 0:05:02.240 --> 0:05:05.039 it's it's hard to imagine a pivot. We all saw 0:05:05.120 --> 0:05:07.080 mobile coming, but yeah, who wasn't able to get The 0:05:07.680 --> 0:05:11.320 New York Times This is this is the most impressive 0:05:11.600 --> 0:05:13.880 agile pivot I think in the history of business. Now 0:05:13.920 --> 0:05:16.160 you've also previously called them one of the greatest s 0:05:16.200 --> 0:05:19.200 bait and switch set ups of all time. Why is 0:05:19.240 --> 0:05:24.240 that so? The general the general promise from Facebook was 0:05:24.360 --> 0:05:27.280 invest in your Facebook page, Nike, and you're gonna have 0:05:27.320 --> 0:05:29.960 this incredible asset. You're gonna have a captive marketing or 0:05:30.000 --> 0:05:32.120 a captive asset, which will be people who have raised 0:05:32.120 --> 0:05:34.800 their hand and said I have an affinity for Nike, 0:05:34.839 --> 0:05:36.640 and then you'll be able to communicate directly to them 0:05:36.680 --> 0:05:39.800 that you'll have an asset. In order to build this asset, 0:05:39.800 --> 0:05:42.039 you had to advertise, and Nike know the firms spent 0:05:42.200 --> 0:05:44.919 millions of dollars advertising to build their fan community. And 0:05:44.920 --> 0:05:47.359 it was nice because it had this vanity metric of 0:05:47.360 --> 0:05:49.719 how many fans you had. It became a symbol of 0:05:49.720 --> 0:05:52.440 whether a company got it or not based on how 0:05:52.480 --> 0:05:55.200 many how many fans you had on Facebook. And then 0:05:55.320 --> 0:05:58.800 once kind of that, that hundreds of millions of spending 0:05:58.839 --> 0:06:01.159 to build these communities with sort of done. Facebook turned 0:06:01.160 --> 0:06:04.039 around and said, just kidding. If you want to reach 0:06:04.080 --> 0:06:07.560 these people, you've got to advertise and organic reach. That 0:06:07.680 --> 0:06:10.680 is the percentage of Nike's messages that reach their end 0:06:10.800 --> 0:06:14.920 fans went from a down to eight, five or three. 0:06:15.000 --> 0:06:18.239 It's tantamount to you building a house, putting the finishing 0:06:18.240 --> 0:06:20.000 touches on it, putting the lock on the door, and 0:06:20.040 --> 0:06:21.960 then the county shows up and says, chess kidding, you 0:06:22.040 --> 0:06:23.880 don't own the house. We do. I think this was 0:06:23.920 --> 0:06:26.680 one of the greatest bait and switches in corporate history. 0:06:26.760 --> 0:06:29.720 What did that do to the trust factor of corporations 0:06:29.720 --> 0:06:32.840 wanting to advertise on Facebook? I think it was temporary 0:06:32.880 --> 0:06:36.000 because there's so much momentum. It's such an outstanding product. 0:06:36.279 --> 0:06:39.040 They have such power that and h and quite frankly, also, 0:06:39.080 --> 0:06:40.800 I think they've done such a great job managing their 0:06:40.839 --> 0:06:43.320 image because I think their management team is likable, which 0:06:43.320 --> 0:06:46.800 I think is incredibly important. People have largely overlooked it. 0:06:47.240 --> 0:06:48.760 If you want to, if you want to figure out 0:06:48.760 --> 0:06:51.000 a way to like somebody, you figure it out. What 0:06:51.080 --> 0:06:53.919 about a fatigue? Is something that certainly is an issue 0:06:53.960 --> 0:06:57.080 these days. Yes, so the the engagement levels, the percentage 0:06:57.080 --> 0:07:00.000 of people interacting with a piece of content on Facebook 0:07:00.160 --> 0:07:04.560 or of their posts are sponsored, meaning they're basically advertising. 0:07:04.880 --> 0:07:07.279 And he started right into your right into your feed. 0:07:07.279 --> 0:07:10.320 One of six pieces of content is someone's paying to 0:07:10.360 --> 0:07:13.559 get in front of you, interrupting, interruption advertising no different 0:07:13.560 --> 0:07:17.040 than television. However, the interaction or the percentage of people 0:07:17.120 --> 0:07:19.640 are liking, sharing or commenting on that comment on that 0:07:19.720 --> 0:07:22.920 content has declined in the last nine months, so you 0:07:22.960 --> 0:07:25.600 are seeing what you would call ad fatigue glow now. 0:07:25.600 --> 0:07:28.400 Having said that, they have other properties and tons of 0:07:28.400 --> 0:07:31.920 different ways to monetize, but the core platform does does 0:07:31.920 --> 0:07:36.000 seem to be experiencing ad fatigue. And what about Facebook 0:07:36.040 --> 0:07:39.360 Live and Facebook Native Stories? Is that going anywhere or 0:07:39.440 --> 0:07:43.160 what's the outlook on that? So I I personally believe 0:07:43.160 --> 0:07:46.880 that the biggest innovation or the most the thing to 0:07:47.000 --> 0:07:50.160 watch right now is from our one of their properties, Instagram, 0:07:50.240 --> 0:07:54.720 specifically Instagram Stories, because it is squarely going after Snapchat 0:07:54.920 --> 0:07:57.120 and what's interesting and I think the most interesting piece 0:07:57.120 --> 0:07:59.760 of data in the world of media right now is 0:07:59.800 --> 0:08:03.960 to look at snapchats user growth and daily active users 0:08:04.520 --> 0:08:07.680 once Instagram launched Story as a direct competitor, and what 0:08:07.680 --> 0:08:13.000 you've seen a Snapchat's growth has decelerated dramatically since Instagram 0:08:13.080 --> 0:08:16.960 launched Stories. So people think Snapchat is the Facebook of video. 0:08:17.720 --> 0:08:20.400 My thesis is that, in fact, Facebook is the Facebook 0:08:20.400 --> 0:08:23.960 of video, and it's coming after Snapchat. And it's fun 0:08:23.960 --> 0:08:26.680 to speculate, but I think Snapchat goes public, goes crazy 0:08:26.760 --> 0:08:28.760 on first day of trading because people haven't had access 0:08:28.800 --> 0:08:30.720 to a unicorn in a while. But I think it's 0:08:30.720 --> 0:08:33.360 gonna be ground zero for ringing the bell at the 0:08:33.400 --> 0:08:36.000 top and be one of the greatest. I think we're 0:08:36.000 --> 0:08:38.400 setting ourselves up for something that might be the spark 0:08:38.480 --> 0:08:41.800 that torches the market with Snapchat. I'm Mary rid Hilts. 0:08:41.840 --> 0:08:45.160 You're listening to Masters in Business on Bloomberg Radio. My 0:08:45.200 --> 0:08:48.520 special guest today is Professor Scott Galloway of n y 0:08:48.640 --> 0:08:52.120 U Stern School of Business. He is an expert on 0:08:52.760 --> 0:08:57.640 Internet technology, digital marketing, branding, and let's talk about one 0:08:57.640 --> 0:09:02.880 of the biggest companies in that base. Amazon. Last time 0:09:02.920 --> 0:09:06.040 you were here, we talked about why you thought the 0:09:06.040 --> 0:09:10.200 stock was overvalued, wouldn't go anywhere. You very famously issued 0:09:10.200 --> 0:09:13.720 a mia Kalpa Online said pretty much that marked the 0:09:13.760 --> 0:09:17.280 start of the next major leg up um. What do 0:09:17.320 --> 0:09:20.280 we think of Amazon today? So first off, yeah, I 0:09:20.800 --> 0:09:23.080 was a hundred and ten percent wrong on that. My 0:09:23.120 --> 0:09:26.480 initial thought was that the futures about multi channel retail. 0:09:26.600 --> 0:09:29.199 Their fulfilming costs were escalating, and I thought that they 0:09:29.200 --> 0:09:31.120 were going to need to buy a multi channel retailer. 0:09:31.280 --> 0:09:34.480 The delivery costs also had had hats going up in billions. Yeah, 0:09:34.520 --> 0:09:36.440 it continues to but now now people see it as 0:09:36.440 --> 0:09:39.120 an asset, not a liability, and there's some some merit 0:09:39.200 --> 0:09:42.760 to that. So at the time, I thought, okay, Apple 0:09:42.760 --> 0:09:44.920 would be the first trillion dollar company because somebody's going 0:09:44.960 --> 0:09:47.520 to get there, And what Apples pulled off is exceptional 0:09:47.800 --> 0:09:50.520 lowest price or low cost provider because of their supply 0:09:50.600 --> 0:09:53.400 chain power. But at the same time the margins premium 0:09:53.400 --> 0:09:56.319 price products, so the volumes of Toyota with the margins 0:09:56.320 --> 0:09:58.800 of Ferrari, which makes for the most profitable company in history. 0:09:58.840 --> 0:10:02.320 Now Amazon, Amazon is the most disruptive company and the 0:10:02.360 --> 0:10:04.560 largest economy in the world. And if you look at 0:10:04.559 --> 0:10:06.720 the moats and a number of distinct businesses they would 0:10:06.720 --> 0:10:09.840 have that would probably be greater than a hundred billion 0:10:09.840 --> 0:10:12.360 dollar businesses on their own, they have the most apples 0:10:12.480 --> 0:10:16.160 right up there. But now you have aws, um, you 0:10:16.240 --> 0:10:19.840 have the core platform itself. It looks as if Amazon 0:10:19.880 --> 0:10:22.959 Prime and their media properties are turning into a juggernaut. 0:10:23.360 --> 0:10:25.480 Possibly the brill growth business for them is that they're 0:10:25.520 --> 0:10:28.040 going into the business of selling picks as opposed to 0:10:28.040 --> 0:10:32.840 mining for gold, leasing planes, leasing tractor trailers. Um, they're 0:10:32.880 --> 0:10:37.520 going after FedEx and UPS twillion in market cap between DHL, 0:10:37.600 --> 0:10:40.440 FedEx and UPS, and I think Amazon's decided they want 0:10:40.480 --> 0:10:42.000 most are all of it. I think most of us 0:10:42.040 --> 0:10:45.960 are who have e commerce companies or brands are going 0:10:46.000 --> 0:10:48.640 to start using Amazon not only as a as a 0:10:48.679 --> 0:10:52.240 platform with Amazon Marketplace, but using Amazon to deliver the 0:10:52.320 --> 0:10:54.720 last mile when you say a ws' referring to the 0:10:54.720 --> 0:10:58.760 cloud services that they offer. I have a funny Amazon story. 0:10:59.120 --> 0:11:01.440 So I have a treadmill in my basement and I 0:11:01.440 --> 0:11:04.880 have a tele flat panel TV which have plummeted in 0:11:04.920 --> 0:11:08.720 price smart TVs inches four hundred dollars. I want to 0:11:08.720 --> 0:11:12.120 hang it. You know. It sits there for a week 0:11:12.240 --> 0:11:14.800 with the drill for a month. Finally I'm like, I'm 0:11:14.800 --> 0:11:16.600 gonna go back to the store. I got it and 0:11:16.640 --> 0:11:18.720 have them hang it. They want more to hang the 0:11:18.720 --> 0:11:22.480 TV than the TV cost, and so I start looking 0:11:22.480 --> 0:11:25.160 on let me find a place to look online and 0:11:25.200 --> 0:11:28.719 I never even heard of Amazon Home Services. What is this? 0:11:29.360 --> 0:11:32.760 It's sixty nine dollars that one of the local stores 0:11:32.800 --> 0:11:35.520 wanted four fifty to hang it. So I set up 0:11:35.520 --> 0:11:38.120 an appointment. The guy shows up, He hangs the TV 0:11:38.320 --> 0:11:40.440 for sixty nine bucks. I say, who else do you 0:11:40.440 --> 0:11:43.680 work with? And he reels off everybody, and I said, 0:11:43.760 --> 0:11:46.439 those are all wildly disparate price points because I get 0:11:46.440 --> 0:11:49.400 paid the same. It's the same drill, it's the same stuff. 0:11:49.720 --> 0:11:51.840 He goes, I've done three houses on a block where 0:11:51.840 --> 0:11:54.320 the costs are sixty nine dollars, three hundred dollars, and 0:11:54.320 --> 0:11:57.320 five hundred dollars. It's me. And then I start looking 0:11:57.360 --> 0:12:00.640 at the Amazon services that are offered. It pretty much 0:12:00.640 --> 0:12:04.079 everything for your house. Where are they going to stop growing? 0:12:04.120 --> 0:12:07.120 Where do they draw the line or are they just 0:12:07.400 --> 0:12:11.400 completely no market is too far for them. I think 0:12:11.400 --> 0:12:13.960 when it comes to your low consideration purchases or your 0:12:14.000 --> 0:12:17.839 high consideration purchases that you don't enjoy auto insurance, I 0:12:17.880 --> 0:12:20.920 think Amazon wants all of it. And what's interesting about 0:12:20.960 --> 0:12:25.400 Amazon and one of the incredibly impressive things the hardware 0:12:25.440 --> 0:12:28.240 innovation of two thousand and sixteen, even though it came 0:12:28.240 --> 0:12:30.360 out earlier in that was the Echo. And if you 0:12:30.400 --> 0:12:32.280 have do you have an Amazon Echo? I do not. 0:12:32.760 --> 0:12:34.360 So you get one of these things and it literally 0:12:34.440 --> 0:12:36.040 kind of blows your mind because you get a glimpse 0:12:36.040 --> 0:12:38.520 into what the future of retail and commerce might be. 0:12:39.080 --> 0:12:41.280 You could you put these things around your house and 0:12:41.400 --> 0:12:44.120 literally at this void, at this volume, you know, you 0:12:44.120 --> 0:12:46.880 see Alexa and it says yes, and you make a 0:12:46.920 --> 0:12:50.640 request order an Uber add tied to my shopping basket. 0:12:50.720 --> 0:12:53.560 And when you start thinking about the frictionless nature of voice, 0:12:54.160 --> 0:12:56.720 you start thinking about Amazon's purchase history, the fact they 0:12:56.760 --> 0:12:59.160 have your credit card one click ordering, the reputation for 0:12:59.240 --> 0:13:01.760 value they have, the fact that they have a warehouse 0:13:02.160 --> 0:13:05.640 within twenty miles of the population, which is miss it's 0:13:05.720 --> 0:13:08.480 misleading because it's really eighty percent of the disposable income 0:13:08.480 --> 0:13:11.240 of the US. You have what I believe, and by 0:13:11.280 --> 0:13:13.439 the way, I don't know this. I don't work directly 0:13:13.480 --> 0:13:16.120 with Amazon. I believe that they're headed is something called 0:13:16.160 --> 0:13:18.959 Prime squared or some something similar to that, they'll announce 0:13:18.960 --> 0:13:21.040 a test area and they'll say, Barry, we know a 0:13:21.040 --> 0:13:23.439 lot about you. We're gonna install these echoes all over 0:13:23.440 --> 0:13:26.400 your house. Whenever you need anything, you calibrate up or down. 0:13:26.920 --> 0:13:29.319 We send you two boxes three times a week, ones 0:13:29.360 --> 0:13:31.680 with your stuff, the second you put stuff that you 0:13:31.720 --> 0:13:34.080 don't want back in the box, and we calibrate some more. 0:13:34.480 --> 0:13:37.880 And over time, we're gonna take your entire retail ecosystem 0:13:38.640 --> 0:13:42.800 off the table from everybody else, and of everything you 0:13:43.000 --> 0:13:45.079 order in your life that you don't enjoy order and 0:13:45.160 --> 0:13:47.400 you enjoy looking for cars, you want to go, You 0:13:47.400 --> 0:13:49.840 want to go buy that bmw z A, your wife 0:13:49.840 --> 0:13:52.600 wants to buy that pair of Christian lebutan's the other 0:13:53.480 --> 0:13:56.640 cent of stuff you don't enjoy buying. Amazon is going 0:13:56.679 --> 0:13:59.079 to do for you automatically. They're going to do a test, 0:13:59.240 --> 0:14:01.400 most likely in a college town. They're gonna announce the're 0:14:01.400 --> 0:14:04.440 gonna take prime from dollars a year to eight thousand. 0:14:04.480 --> 0:14:06.920 The stock is going to be per per user. Perhaps 0:14:07.000 --> 0:14:09.040 all the stock is gonna become anti gravity and go 0:14:09.040 --> 0:14:11.160 to a trillion dollars. I think Amazon is the first one. Again, 0:14:11.200 --> 0:14:13.560 So here's why I haven't gotten the Echo. I have 0:14:13.720 --> 0:14:18.839 two experiences, three experiences with voice recognition software. One is 0:14:18.880 --> 0:14:23.960 Google Voice, which is sort of hilarious garbled thing. The 0:14:24.040 --> 0:14:27.760 second is Siria, which, if you read the Demnuota correct, 0:14:27.800 --> 0:14:30.640 is one of the funniest collection of of typos. And 0:14:30.640 --> 0:14:34.240 we've all experienced really embarrassing things because of the way 0:14:34.280 --> 0:14:37.400 that works. So I looked at Echo as just another 0:14:37.560 --> 0:14:42.040 mediocre voice recognition product. You're telling me that's not true. Well, 0:14:42.520 --> 0:14:45.800 they're trying to Google an Apple trying to it's probably 0:14:45.800 --> 0:14:49.800 more ambitious. They're trying to do it more around utility. 0:14:49.800 --> 0:14:53.000 Find find me an Applebee's, or how do I get here? 0:14:53.160 --> 0:14:57.960 Or call Barry. Alexa is alright, get me information, use 0:14:58.000 --> 0:14:59.880 it for search engine. My son does it to test 0:15:00.080 --> 0:15:03.920 geography skills and capital skills. But they're positioning it around commerce. 0:15:04.280 --> 0:15:06.960 And when you think about the easiest place to make 0:15:06.960 --> 0:15:12.160 decisions around commerce, seamlessly saying Alexa, you know, barbecue eight 0:15:12.280 --> 0:15:15.320 people Friday night, and it immediately goes into your purchase history, 0:15:15.320 --> 0:15:18.560 your preferences, your brand preferences, and puts together a package 0:15:19.040 --> 0:15:23.160 of additional additional ribs imported beer. But I p A 0:15:23.200 --> 0:15:25.400 because that's what you like and then a selection of stuff, 0:15:25.400 --> 0:15:27.960 and it begins to calibrate and can get it there 0:15:28.000 --> 0:15:31.400 within two hours. Because of their fulfillment network, you at 0:15:31.440 --> 0:15:33.360 some point to sort of throw in the towel and 0:15:33.360 --> 0:15:36.840 realize that Amazon is the only retailer that matters, is 0:15:36.880 --> 0:15:39.280 the only retailer I need in my life. And as 0:15:39.280 --> 0:15:41.400 we get more, we get busier and busier and suffer 0:15:41.400 --> 0:15:44.080 from more and more time poverty. The opportunity for voice 0:15:44.160 --> 0:15:48.560 artificial intelligence, an incredible investment they've made in fulfillment infrastructure 0:15:48.920 --> 0:15:51.600 will result in a value proposition where you might decide 0:15:51.760 --> 0:15:54.320 all the shopping and decisions I make around commerce in 0:15:54.360 --> 0:15:56.440 my life, except for the ones I love, I am 0:15:56.440 --> 0:15:59.720 just going to outsource to Amazon. You also have an Amazon. 0:16:00.320 --> 0:16:03.200 To a certain extent, the game is sort of already over. 0:16:03.240 --> 0:16:05.920 I play I Play Texas holding poker every every few 0:16:05.920 --> 0:16:08.120 weeks with a bunch of guys, and at some point, 0:16:08.160 --> 0:16:11.360 when one player has most of the chips, he or 0:16:11.440 --> 0:16:14.040 she's already won because they can muscle everybody out by 0:16:14.080 --> 0:16:17.280 just going all in until they finally win. Amazon basically 0:16:17.360 --> 0:16:20.520 is at that point their access to capital is probably 0:16:20.560 --> 0:16:23.520 they've had access to cheaper capital for longer than probably 0:16:23.520 --> 0:16:26.160 any company in modern history, and as a result, they're 0:16:26.160 --> 0:16:29.960 basically muscling everybody out. I'm Barry Ridholtz. You're listening to 0:16:30.040 --> 0:16:33.560 Master's in Business on Bloomberg Radio. My special guest today 0:16:33.720 --> 0:16:37.479 is Scott Galloway. He is a professor of brand strategy 0:16:37.520 --> 0:16:40.760 and Digital Marketing at the n y U Stern School 0:16:40.760 --> 0:16:43.120 of Business. He is the author of the Digital i 0:16:43.280 --> 0:16:47.040 Q Index, named one of the world's fifty best business 0:16:47.040 --> 0:16:51.240 school professors. He's founded and sold a number of of companies. 0:16:52.040 --> 0:16:55.440 We were talking about Amazon before and how they had 0:16:55.440 --> 0:17:01.960 a clearly defined mission. What is the problem with Apple's 0:17:02.160 --> 0:17:05.760 mission description? Well, there there isn't one. The others have 0:17:06.240 --> 0:17:09.760 various succinct and compelling missions that are the the investment 0:17:09.800 --> 0:17:12.960 the investment community understands and demands. Apple does not. It's 0:17:13.000 --> 0:17:16.160 not entirely clear what Apple is trying to achieve long term. 0:17:16.240 --> 0:17:19.000 So as a result, Apple has become a what have 0:17:19.080 --> 0:17:21.200 you done for me lately? In the investment market, it's 0:17:21.200 --> 0:17:24.080 evaluated in the context of every product release, and if 0:17:24.080 --> 0:17:27.720 that product doesn't revolutionize the world, which many have, the 0:17:27.760 --> 0:17:31.119 stock gets taken down. So you have you have the 0:17:31.160 --> 0:17:35.600 other horsemen, Facebook, Amazon, and Google trading it anywhere between 0:17:35.680 --> 0:17:38.720 kind of twenty and sixty times, and you have Apple 0:17:38.760 --> 0:17:41.880 trading at seven to ten. So you could argue Apple 0:17:41.960 --> 0:17:44.640 could be the first trillion dollar company if it just 0:17:44.760 --> 0:17:47.280 got a story, if it just said this is what 0:17:47.320 --> 0:17:49.480 we're about and where we're headed. So I'm a mac 0:17:49.560 --> 0:17:53.680 head going dating back to my nine classic Mac Classic, 0:17:54.119 --> 0:17:57.760 and to me, the Apple story was always it just works. 0:17:58.480 --> 0:18:05.000 When the competition was Compact, HP, IBM, dell Um, they 0:18:05.000 --> 0:18:07.760 didn't just work windows back in those days. Was it 0:18:07.880 --> 0:18:13.240 was a nightmare. And we've seen a variety of innovations, 0:18:13.720 --> 0:18:17.480 starting with the iPod. There was nothing new about that technology. 0:18:17.520 --> 0:18:19.560 It was all off the shelf stuff. They put it 0:18:19.600 --> 0:18:23.399 together in a way nobody else did iPod, iPhone, iPad, 0:18:23.960 --> 0:18:28.080 I Watch. Have they run out of innovation or or 0:18:28.240 --> 0:18:31.679 are we still milking the last five major products? So 0:18:31.720 --> 0:18:33.080 that seems to be the key question. A lot of 0:18:33.080 --> 0:18:36.240 people would say our air pods really the design breakthrough, 0:18:36.280 --> 0:18:39.679 the you know, the wireless earpieces. Is the Apple Watch 0:18:39.840 --> 0:18:43.880 really kind of the legacy of the most creative industrial 0:18:43.880 --> 0:18:45.880 engineers in the world. So a lot of people would 0:18:45.880 --> 0:18:48.680 say that. I would say that Apple was theoretically suffering 0:18:48.680 --> 0:18:52.159 from low te It appears as if it's it's lost 0:18:52.200 --> 0:18:56.000 its mojo. Having said that, you know, it just has so. 0:18:56.080 --> 0:18:59.040 It has such an incredible brand, It has so much 0:18:59.040 --> 0:19:03.600 credibility around anything, you know, any item, and quite frankly, 0:19:03.640 --> 0:19:06.199 it's trading it. It's still trades it. You know, it 0:19:06.240 --> 0:19:09.160 feels you're you're in this business right. It doesn't feel expensive. 0:19:09.200 --> 0:19:11.560 It feels like, I mean, basically bury It's up in 0:19:11.600 --> 0:19:14.240 the last couple of months because people just with no 0:19:14.359 --> 0:19:17.639 real catalyst. So here's here's the crazy data point we 0:19:17.800 --> 0:19:21.720 pulled together when we were doing research for for this show. 0:19:22.240 --> 0:19:26.400 You take the Apple cash hoard, just the cash dollars 0:19:26.400 --> 0:19:29.920 it has. There are only thirteen companies in the SMP 0:19:30.080 --> 0:19:35.639 five that their entire worth is greater than Apple's cash 0:19:35.760 --> 0:19:40.080 ord That that's astonishing data point, which which raises the 0:19:40.160 --> 0:19:42.280 question what they should do with all that cash. But 0:19:42.400 --> 0:19:44.600 let's come back to that. I want to talk about 0:19:44.680 --> 0:19:48.440 the Apple Watch, which people have called kind of a failure. 0:19:48.520 --> 0:19:51.080 But when you look at the numbers and you look 0:19:51.119 --> 0:19:55.280 at what they've done to the Swiss watchmaking group, let's 0:19:55.320 --> 0:19:57.560 let's talk about it. That is the Apple Watch a 0:19:57.640 --> 0:20:00.399 successor failure. I notice you're not wearing one. I'm not 0:20:00.640 --> 0:20:04.439 so the And this goes back to what Apple strength 0:20:04.560 --> 0:20:07.080 is This thing on my wrist. I haven't wound it 0:20:07.320 --> 0:20:10.320 in five years. If I'm honest with myself, it's my 0:20:10.359 --> 0:20:14.680 attempt to signal masculinity and success to the opposite success 0:20:14.680 --> 0:20:17.280 opposite sucks. I think men who wear expensive watches are 0:20:17.280 --> 0:20:20.560 basically trying to communicate two women. If you mate with me, 0:20:20.640 --> 0:20:22.480 your kids are more likely to survive than if they 0:20:22.480 --> 0:20:24.919 mate with someone wearing a swatch. So this is a 0:20:25.600 --> 0:20:29.119 door winnie or feathers period to feathers, they have no 0:20:29.320 --> 0:20:33.040 very little utility, and Apple's genius has been figuring out 0:20:33.080 --> 0:20:35.159 a way to make a tech item feathers. Apple has 0:20:35.200 --> 0:20:38.800 effectively decided they want out of the technology hardware business, 0:20:38.800 --> 0:20:40.680 which trades at a multiple of EBITA, and they want 0:20:40.680 --> 0:20:42.280 to be in the luxury business, which trades at a 0:20:42.440 --> 0:20:45.560 multiple of revenues. It's a far superior business. The only 0:20:45.600 --> 0:20:48.080 way they can sustain their margins is by having what 0:20:48.119 --> 0:20:51.240 we would refer to a self expressive benefit. Apple has 0:20:51.320 --> 0:20:55.160 become the ultimate display of wealth. If you do a 0:20:55.200 --> 0:20:58.679 heat map by operating system Android versus iOS. It is 0:20:58.720 --> 0:21:02.280 a heat map of wealth. Manhattan lights up iOS, You're 0:21:02.280 --> 0:21:06.440 going to the suburbs. It's Android, the new feather. If 0:21:06.480 --> 0:21:09.600 you have an iPhone, it means you're more likely to 0:21:09.720 --> 0:21:13.920 be successful, educated, and have a random sexual experience. This 0:21:14.080 --> 0:21:16.399 is this is the reason that they have the highest 0:21:16.440 --> 0:21:18.760 margins in that industry. And the iPhone is the first 0:21:18.800 --> 0:21:22.439 technology product whose margins have not eroded. Is the product 0:21:22.520 --> 0:21:25.320 is matured because they've figured out it's a luxury brand, 0:21:25.359 --> 0:21:27.880 it's not a technology brand. So one of your presentations 0:21:27.920 --> 0:21:31.320 you talk about the mobile phone as the defining technology 0:21:31.359 --> 0:21:38.359 of our age. Apple captures the profits Samsung captures, which 0:21:38.400 --> 0:21:41.679 includes some overlap because they're a big supplier to Apple. 0:21:42.160 --> 0:21:45.439 The rest of the industry or negative fights the losses. 0:21:45.480 --> 0:21:48.600 And Apple versus Samsung is illuminating because they've taken different 0:21:48.600 --> 0:21:52.280