Scott Galloway Offers an Analysis of Silicon Valley

For decades, America – and the world – have worshiped at the feet of Silicon Valley and its mega-profitable innovations. But Scott Galloway says that these giants have rolled the dice, passed go, and collected the world, using what he terms “Jedi mind tricks” to convince us of a dubious reality.

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For decades America and the world have worshiped at the feet of Silicon Valley and its mega profitable innovations.

But our next guest says that these giants have rolled the dice past go and collected the world using what he dubs Jedi mind tricks to convince us of a dubious reality.

Scott Galloway is an entrepreneur business professor and author of 'The Four: The Hidden DNA of Amazon, Apple, Facebook and Google.' He told our Hari Sreenivasan how serious this is for everyone in the world.

Scott Galloway you've written a book before on the big four tech guys Google Facebook Apple Amazon.

We'll talk a little bit about your predictions coming up in 2019, but considering those names what just happened in 2018.

Yeah so you saw effectively these companies for the first time there was what I would call a sober adult conversation on the downsides of technology.

The only conversation we had in 15 16 and 17 which was which CEO was more Jesus like or going to run for president right and these were supposed to be the companies that were driving our economy, incredibly innovative they were going to cure death, put people on Mars and we've seen there's a real downside and it feels like 18 was a watershed year where for the first time we said there are some downsides here and I also think there's a recognition that for profit entities and companies aren't concerned with the condition of our souls they're not going to take care of us when we get older.

They're for profit companies and they will pretty much say and do anything to increase earnings and increase shareholder value and we're coming to grips with the fact that OK that means there needs to be checks and balances on these companies so I would say 18 was a year of recognition and an adult conversation around big tech.

For so long part of that idolatry or worship of tech came from the fact that we accepted that this is the price of innovation.

We are an unparalleled era of innovation and you say that's not really the case.

So key word, correct word there that you used, idolatry. We've come to maybe unfairly expect that technology plays a seminal role in humanity's progress.

Technology literally saved the world.

In 1944, my mother was a four year old Jew living in London who was shuttled to spend her nights in the tube because of the Blitzkrieg and we want a foot race with Hitler to split the atom.

Science literally saved the world so we've come to believe that technology actually has this benign key role in society so when we see these innovators we believe naturally they're going to play a more important role in our society and that they're more good if you will.

Now if you think about you talked about have we come to believe this is the era of innovation.

This is actually the era of non innovation.

There were more startups being started in the Carter administration there are now.

New business formation has been cut in half and I largely believe it's because we have monopolies that created an almost impossible atmosphere for small companies to get out of the crib.

So how do you get around those monopolies when they're so dominant in their spaces that they can prevent others from even entering it just because of size and scale and money that they have to spend.

So in the U.S. we have a long proud history of one when a company becomes an invasive species and starts performing infanticide on small promising companies and on the other side prematurely euthanizing big companies that tend to be bigger better tax payers and better employers we have a proud history of moving in and breaking them up.

The people at AT&T weren't bad people, the people that the railroads weren't evil, the people at Standard Oil were innovators but once through a combination of macro factors, great execution, luck one company become so dominant so powerful that again small companies can't survive, big companies get prematurely euthanized, we move in the DOJ and the FTC and we break them up and we seem to have lost the script and don't want to do that anymore, so my answer is simple, break them up.

The issues around Facebook this past year and to some extent Google and others have increased some understanding of the amount of data that these companies are transacting in.

Most consumers don't get it but how do we reframe this relationship where clearly all the information about me is worth something to these advertisers, to these other third parties that Facebook and Google are selling me out to.

How do I change that dynamic and say hey this is my information you should start paying me for it, not just giving me for email.

So people talk a big game about privacy and I think we're coming to terms with just how much data they have on us and we're becoming increasingly uncomfortable with it, but I think if you look at consumer behavior people are comfortable with their privacy being violated as long as there's a coupon or utility at the end of it, at least that's where the consumer behavior shows.

In my generation and you're a little bit younger than me, ut still your generation we're in we're more concerned than than millennials who are who advertisers are trying to reach right now they're comfortable with Uber knowing where every where they're going.

They're comfortable with basically posting selfies to the world even if their accounts aren't protected saying this is what I'm doing in every place that I'm at so I've always thought privacy is a little bit a little bit over rated in terms of consume actual consumer behavior.

What is I think a bigger issue is what we talked about the anti-competitive behaviour which hurts and suppresses our economy.

And also the notion that these platforms can be weaponized by bad actors.

The notion if you if the KGB tried to invent the ultimate surveillance platform in their wildest dreams they would come up with something a fraction as effective as Facebook.

This is a KGB dream come true and then what's even better, let's have American investors pay for it and let's have a management team that's incentivized not to put up the safeguards necessary such that we can't weaponize it.

The most innovative Act of 2017 and 18 was the weaponization of Facebook by the foreign intelligence arm of the Russian government and we paid for it.

This is the most innovative act of the last 10 years and a strange thing about humans as a species is we're easier to fool than convince we've been fooled.

We have been played like no nation has been played before but we refuse to admit it because it's embarrassing and the folks that didn't put in place those safeguards resulted in what is arguably the greatest dent or threat to our free elections in the last hundred years, should be held accountable and we should elect the people who will put in place the safeguards to ensure it does not happen again.

Do you think that there is any way that we take those steps.

I mean we aren't necessarily electing officials that understand tech and its place and how dominate it is now, right, and we've seen repeatedly in hearing after hearing where some of the questions coming out of these people's mouths indicate to you that they didn't get it.

You're exactly right, so four percent of our elected officials have a background in technology engineering and it appears that 96 percent always show up at those hearings.


It just, it was on full display and this is an ageist comment, but the reality is a majority of our elected officials are older and you know I feel this way now I'm having trouble keeping up with technology.

So it's hard to regulate something you don't understand, it's difficult.

We're also getting outgunned.

Amazon has 88 full time lobbyists in D.C.

It's much easier to seem innovative.

The fastest way to look older is to go after big tech.

You look like you don't get it.

It's like putting on mom jeans.

You immediately look ten years older and you don't want to that's a last thing you want to look after an elected representative who's already in your 70s is to look like you don't get it.

It's hard, you're outgunned, maybe you don't understand it.

So we don't have the firepower the human capital to go after these companies.

We're seeing more of it in Europe and I do believe you're seeing Congress and senators Senator Mark Warner Senator Bob Bennett from Colorado are starting to say this is such an important issue. We need to allocate the bandwidth.

We need to allocate the time and the effort and I do think we're starting to see or I'd like to see the beginnings of the pushback against these firms.

Let's talk a little bit about Amazon that you've looked at closely for the last couple of years.

Put in perspective the scale of their reach.

You have two thirds of U.S.

homes have a recurring revenue relationship with Amazon Prime.

No cable company no telco company has 66 percent share or a pipe into two thirds of households.

80 percent of wealthy households have Amazon Prime.

More households have Amazon Prime than a landline phone, own a gun or voted in the 2016 elections.

So you can go the largest market share of the fastest most profitable sector of technology, the cloud, who is it?


We have never seen a company like this so dominant across different key components of our economy.

It is a juggernaut I've been predicting for the last five years would be the most valuable company in the world.

But this company if I were going to write a sequel to 'The Four,' it would be called the one and it would be about Amazon.

Anywhere Amazon is bumping up against the other three it's winning.

Its media group, Amazon will do more money and media through Amazon media group than Snap, Twitter and Pinterest combined this year.

In three to five years it could be the third largest online media company in the world.

This is Amazon.

Everywhere, in voice Siri, Apple used to own voice.

Now Alexa has taken Siri behind the gym and kicked her butt.

Now Amazon owns voice.

What's the most innovative hardware company in the world. Well of course it's Apple.

Well is it?

Amazon's Echo may be the most innovative hardware products whether it's media whether it's e-commerce whether it's cloud all roads lead to the same place and it's Seattle.

You know you predicted correctly and early and often that this entire survivor competition between cities for HQ 2 was already decided ahead of time and you also predicted that they would buy Whole Foods.

What's your prediction for 2019 and how Amazon grows.

Amazon is about to become, I predict that they'd be the first trillion dollar company. I was wrong Apple got there first.

Amazon will be the first trillion dollar company and it will be on the backs of one industry. They will announce something more formidable and definitive, maybe an acquisition maybe an effort in health care which right now is the most disrupt the bowl space in the world.

It's pretty easy to understand if a sector is ripe for disruption, you look at its pricing relative to inflation and if there's a gap and they haven't filled that gap with innovation it's disruptable.

Amazon has the ability to essentially skim off the healthiest families in America, maybe insure them, maybe offer them better services and it'll create incredible havoc in the marketplace and health care. When they announced they were buying a 100 million dollar online pharmacy, the retail pharmacy sector, CVS and Walgreens shed 11 billion dollars.

When they announced they were looking at health care costs withJ.P. Morgan and Berkshire Hathaway, the next morning at the opening bell, the health care industry shed 31 billion dollars in value and this is based on a 100 million dollar acquisition and a press release and this is one of the reasons I think evidence of how powerful Amazon has become and it's become too powerful, Amazon can perform Jedi mind tricks on not only a company but entire sector. It can just think ill of a sector and begin choking it of the mother's milk of business and that's access to capital.

Amazon could take the value of any consumer a company down 30 percent in 30 days with 30 press releases.

It took the value of the largest pure play grocer Kroger down a third in 30 days just announcing it had acquired a grocer 1/11 the size of Kroeger's, Whole Foods.

So in 2019, my prediction as Amazon begins its ascent towards a trillion and 2 trillion in value by making a formidable move into the most disruptable sector in the world right now and that's us health care.

Does that mean that they're looking at my shopping patterns and all the other information that they have on me and then they say well you're buying quite a few M&Ms, maybe you should be insured differently for diabetes.

I think, I think you're exactly on to something. Amazon knows your body mass index.

They can look at the size your clothes.

They know your diet, most likely, so they know how healthy you're eating.

They know if you're in a monogamous relationship which is an indicator of how healthy you are.

They know your wealth which is also an indicator.

They know your zip code.

They know most of the markers and pretty soon they're going to probably know what pharmaceuticals you're taking.

So they can put together kind of the ultimate actuarial table and assess two thirds of households.

And what if you came in one day and Alexa said Would you like to hear would you like to cut your health care your health insurance costs in half, say Amazon tell me more about Prime insurance.

Amazon could literally skim off the 10 healthiest households in America and start insuring them and what does Amazon great at?

Amazon Is great at sitting on top of a data set and figuring out what businesses to go into and start deciding which components of health care they want to be in and which components they just want to outsource and say all right we will list the best orthopedists in your area but we don't want to be in a business we'll just charge them a fee to send them referrals.

When Amazon goes into that business and they also have it they have the key asset here and that is they have a willingness to hemorrhage money over the short and medium term.

This is going to be a massively expensive venture and Amazon has the capital they have the data set and they have the technology.

One of the things you point out is that as this search for the second headquarters happened, this was a significant transfer of wealth.

Cities gave away money that should actually be going to their schools and their police and their firefighters to lure Amazon. Yeah, HQ 2 wasn't a contest, it was a con.

And I realize I'm boasting here but I said back in the beginning of the year it's going to be one or two places.

It's going to be either D.C.

or New York.

And I was wrong, It was both.

And what we forget is these companies aren't run, the business is run by algorithms but the company is controlled by a 54 year old man who's the wealthiest man in the world and this is what it means to be the wealthiest man in the world.

It means you never have to commute.

It means you never have to, you become the master of no.

So query me this if you're a 54 year old man, the only thing you can't buy is time. You've got 30 more Christmases or holidays with your kids.

That's it.

Maybe 38 if you're really healthy.

So is the wealthiest man in the world with the most options in the world is he going to spend 14 days much less 14 weeks a year in Indianapolis.

This is human nature.

I've been running companies starting companies my whole life and I always tell my real estate broker we can have an office anywhere in the world as long as I can walk there.

Jeff Bezos was never going to spend a lot of time in Columbus, Ohio.

The Bezos have three homes, Seattle New York and D.C. and now the company has three headquarters that each averaged six point seven miles from their headquarters. This was a ruse, it was an abuse of the Commonwealth and to your point it was nothing but an elegant transfer of funds from municipal fire, school and police districts to the shareholders of Amazon.

It's in my opinion reflects poorly on the code and the character of the board that gamified these municipalities and ever gave them the impression they had any chance.

The game was over before it started.

Now I suspect Jeff Bezos would come back and say listen I'm going to employ 50,000 people, they're going to contribute to that local economy, the tax revenue's going to go up.

Sure and it's a question of it's a question of math and economics and I would argue that HQ 2 will go down in history in a similar vein as an Olympics.

There's a lot of ribbon cutting, there's a lot of discussion of economic growth and then ten years later academics and economists do the math and go was it really worth one point three billion dollars to bring those jobs to Queens and I don't know if you've ever been to a kid's auction and they do this in my kid's school, dinner with the headmaster and somebody gets excited and says 4,000, 5,000 8,000 and then someone bids nine and they say tell you what we're going to do two and they take 17,000, right.

This is exactly what they did.

They got everyone in a frenzied pitch, got them to a certain level and said to the two cities that had won all along, New York and D.C., where Jeff Bezos is building a palace, where they already have a beautiful home on the Upper East Side and said you need to match the term sheet that was given to us by Newark, you need to match the term sheet that was given to us by Chicago and if you do it's yours and no mayor can resist the temptation of detonating a prosperity bomb in their town square.

The way these guys got played, the way the Cuomo and the local officials got played in Queens was they were always going there and they should have known that and they should have said we'll give you some stuff.

They did not need to give Amazon shareholders one point three billion dollars for those jobs.

They were coming here regardless of the subsidies.

You know you just ended a series of video vodcast if you will that you were doing.

In the last one you had a sentence that kind of stuck out to me, it said, 'We no longer worship at the altar of character and kindness, we worship at the altar of innovators and billionaires.' That somewhere along the line this idolatry of tech and of the wealthy has kind of shifted our vision away from what you're talking about which is really just to care about other people.

This is also the topic that you're heading towards in your next book.

Marx said that the problem with capitalism is that you ultimately end up in an environment where there's a lot of a world of plenty, a world of poverty and a world of plenty and capitalism, the society we live in, the incentives are so dramatic to be focused on economic security.

If you're wealthy in this country you're going to live longer, your kids have more opportunity, you have a greater selection set in terms of mates.

I mean it's just incredible what you can get here, how much better your life can be. So it's very easy to get on a hamster wheel where you are totally focused on economic security and I think a lot of us fail to realize at the end of the day that economic security is a means of providing security for our families and strengthening and deepening our relationships and there's a lot of research that say all happiness kind of comes down to a very basic thing and that is the number and depth of your relationships.

Now we're capitalist society.

I think parents, men and women, have an obligation to create economic security for them and their kids.

Kids who live in low income households have higher resting blood pressure.

We have a responsibility to be economically viable, you're going to have a better life, but the correlation between economic success and happiness, there is a correlation but it tops out at a certain point once you can afford the basics, a nice home, education, vacation, which by the way is a ton of money in Manhattan, but at that point happiness levels off.

You don't get any unhappier.

It's also a myth that billionaires are less happier, but they're not any happier than millionaires and I think that our society puts us on a hamster wheel and it's important to check in and say at the end of the day this is the means, not the ends and the ends are deep meaningful relationships at work, right, with your friends and with your mate.

Scott Galloway, thanks so much.

Thank you. Thanks for having me.

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