What is Avid Weekly Ideas?
Each week I publish an idea or two either from a book I am currently reading or from my backlog of book notes. 📚
Of course, this isn’t intended to replace book notes or reading the book itself. Instead the aim is to extract a key idea or two from a book that struck me as insightful and share-worthy. Then I package it into a bite-sized digestible chunk. I hope these little nuggets of insight will spark some inspiration or ideas in your own mind. 💡
This week’s key concept/idea/passage is from The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google (by Scott Galloway).
The “Moats” of “the Four”
Warren Buffett often talks about the importance of business’ building a “moat” (barriers to entry).
This is analogous to building higher and higher walls during medieval times to prevent enemies (upstarts and competitors) from invading.
With that in mind, I thought Scott Galloway’s application of this towards firms in the digital age (in particular, “the Four”) was interesting.
He argues that in the digital era, traditional walls and moats are showing cracks and even crumbling – especially in tech. That “digital ladders” can vault almost any wall.
But then the question becomes what happens when digital native startups build such “digital ladders” and vault over the walls of the incumbent powers that be?
What happens when they now become the new incumbents? Which is precisely the case today with “the Four” – Google, Amazon, Facebook and Apple.
Galloway argues that they turn to “analog” (time/capital intensive) means – a departure from the strategy that got them to their current position in the first place.
So, what’s a ridiculously successful firm to do?…I’d argue that digging deeper moats is the key to long-term success.
Here is some of his analysis on the “moats” that each member of “the Four” are “digging.”
Apple
Apple are continuously investing in expanding their premium flagship Apple stores around the world. A new startup cannot easily compete with that.
So, Apple, recognizing that ladders will keep getting taller, opted for more analog (time/capital expensive) moats. Google and Samsung are both coming for Apple. But they are more likely to produce a better phone than to replicate the romance, connection, and general awesomeness of Apple’s stores. So, every successful firm in the digital age needs to ask: In addition to big, tall walls, where can I build deep moats? That is, old-economy barriers that are expensive and take a long time to dredge (and for competitors to cross). Apple has done this superbly, continually investing in the world’s best brand, and in stores.
Amazon
One of Amazon’s strategies is to build hundreds of warehouses and fulfilment centers all around the globe.
Amazon, also going for moats, is building a hundred-plus expensive and slow-to-get-built warehouses. How old economy! A good bet is Amazon will open thousands before they are done.
Recently Amazon announced leases on twenty 767s and purchased thousands of Amazon-branded tractor-trailers.
Good luck to any new companies trying to compete with that.
Google is building server farms around the globe.
Google has server farms and is launching early twentieth-century aviation technology (blimps) into the atmosphere that will beam broadband down to Earth.
Facebook is investing in key internet infrastructure.
Facebook, among the Four Horsemen, has the fewest old-economy moats, making it the most vulnerable to an invading army with big-ass ladders. You can expect that to change, as Facebook announced they, along with Microsoft, are laying cable across the floor of the Atlantic.
TL;DR of key ideas
- Building a “moat” is necessary for a business to maintain competitive advantage
- However in the digital era, traditional walls and moats are showing cracks and even crumbling – especially in tech. New “digital ladders” can vault almost any wall.
- So what happens when digital native startups become the new incumbents (i.e. Google, Amazon, Facebook and Apple)?
- Galloway argues that they turn to “analog” (time/capital intensive) means and gives examples
Related Reading
If you liked this week’s idea, please consider reading the entire book to get the full context and meaning. Galloway goes through each member of “the Four” in more detail and deconstructs their strategies.
See Amazon page for book reviews.
See Goodreads page for book reviews.
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