MagicDiligence

About the Author MagicDiligence

MagicDiligence provides useful, simple, and effective stock screening tools inspired by Joel Greenblatt's Magic Formula® Investing methodology. Our Spells give value and growth investors a list of great stock candidates every day, and our advanced Spell Caster lets you create the Magic-style stock screen you've always wanted! Learn more about our exclusive set of investing tools today!

What Makes Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Facebook Inc (FB) and Alphabet Inc (GOOGL) So Special?


Few would argue that the four most successful companies of modern times – at least from an American perspective – are Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Alphabet Inc (NASDAQ:GOOGL) – better known as Google.

All four have market capitalizations of above $500 billion dollars, making them 4 of the top 5 largest publicly traded corporations in the world (Microsoft is the other one). All four continue to post impressive revenue growth, defying the laws of large numbers. All four are a big part of billions of users’ daily lives in a way that few companies in history have ever been. All four have immense competitive advantages that make competing with them directly in their target markets business suicide. And they represent 4 of the top 10 global brands.

They are some of the greatest business stories of all time.

But how did they get here? What makes them so special? Why do we come back, again and again, to give them ever larger amounts of our time and money?

And what are the risks of their continued market dominance?

These are the questions that business professor Scott Galloway sat out to answer in his recent book, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google.

MagicDiligence recently had a chance to read the book and wanted to share some thoughts on Galloway’s insights, how it might be able to help us in investing and, maybe, in life.

The Companies

At the heart of the book is an analysis of how each company got to their dominant position, the pros and cons of their dominance, and the risks and consequences to society of it.

All 4 of the profiles are quite interesting and thought-provoking, with a bit different perspective than you may have considered before. The author believes that each of these firms could eventually be the first to a $1 trillion market valuation. One notable takeaway from these are Galloway’s evaluation of these firms’ basic appeal to the basic natural behaviors and need of human beings:

  • Apple: Apple appeals to the sex drive. I kind of chuckled at first, but it is undeniably true. Apple’s products drive lust from consumers, driving them to pay irrational prices when there are essentially identical products available from competitors at far lower prices. Galloway notes that no other firm in history has been able to generate luxury margins at mass market scale like Apple has done in the past 15 years.
  • Amazon: Amazon appeals to the gut, the instinct to collect and consume. It strives to give its customers the greatest value for their dollar and – importantly – their time. Jeff Bezos has publicly stated that his goal for Amazon Prime is to make it “such a great value you’d be stupid not to join”. Customers can buy nearly anything on Amazon and have it delivered within 2 days for free, saving them substantial amounts of time and often, money, in the process.
  • Facebook: Facebook appeals to the heart, and our need to develop and maintain social relationships. Facebook succeeded where others failed due to its requirement to use a real identity, making it more “real” and less of a playground for harassers and other unsavory behavior enabled by anonymity. With almost 2 billion monthly active users, Facebook is the most successful product and the largest network in the history of the world.
  • Google: Google is God. This is another eye-rolling assertion – until you consider it. Humans need for God(s) traces back to needing an explanation to unanswered questions. Early humans had gods for the harvest, for the weather, for beauty. Today, people still turn to God to answer profound questions like “how should I live my life” or “what happens to me after death”. But Google aggregates the knowledge of the world and can answer most worldly questions we have. The search engine answers about 3.5 billion queries a day!

Galloway does a good job of enumerating the positives and negatives of each company. Amazon provides immense value and convenience – but at the cost of losing jobs to both robots and the ashes of industries it tramples. Apple satisfies our urge for beautiful things – but at the cost of irrational behavior. Facebook connects us with distant family or friends long forgotten – at the cost of giving up data about our connections, interests, life history, photos, etc. Google answers almost any question we have, instantly – at the cost of following us around and knowing basically everything we search for, read about, or watch on the Internet.

Galloway also talks about how each of the companies got to where they are today. Each took a slightly different path, and each are fascinating to hear about. I won’t go into too much detail and spoil the read. Suffice to say that Galloway’s chapters on each of these stocks individually were the best parts of the book.

The Rest

Aside from an intro chapter and chapters on each of the 4 companies, Galloway also devotes chapters to “what it takes to get to a trillion”, “who might be the next horseman”, and “how to position your skills in the age of the 4 horseman”.

Of these, I found the first 2 the most interesting. Galloway has 7 traits a company must have to reach a $1 trillion valuation (I won’t spoil them here). On the next horseman, he lists some potential other companies that may make it to $1 trillion, as they have the traits necessary. Some of the companies he mentioned you can probably guess, but some of them came as a surprise to me. As an example, Galloway does not think Microsoft has what it takes to reach $1 trillion (despite its current $600 billion valuation). However, he does believe that Elon Musk’s Tesla has many of the traits required to get there, over time. At first this sounds kinda silly, but the case is compelling.

The Bad

Overall, I enjoyed The Four. It is a good read for anyone interested in business, in investing, or in any of the 4 companies profiled.

However, there were things in the book that I didn’t like.

Galloway’s chapter “The Four and You” was intended as a road-map for young people to follow in order to “succeed” in the age of the 4. I found his advice rote, unimaginative, and very in-the-box. Read for yourself, but the advice here basically boils down to “join a lot of clubs, go to Harvard, and get straight A’s” – otherwise you won’t get a job at the 4, but some second-rate company, presumably where you will struggle to make ends meet.

This betrays Galloway’s world view of success as starting numerous companies and having “multiple million dollar exits”. Despite this, he himself admits that he remembers nothing but work from 24-32, lost his hair and his first wife due to it, and yet it was all worth it! Why? Who knows! Galloway clearly subscribes to the unfortunate myth that your bank account determines your level of success. Business professors may not make great life coaches.

Aside from that, The Four is an entertaining book and recommended.