Leading Roles and Supporting Actors

Commerce explained by Evolutionary Biology

    In a short-term world, where we live quarter to quarter, program to program, and month to month, we bob on the ebb and flow of the emotional up and downs of valuations. Even our body weight fluctuates from day to day, and from morning to night. In this kind of world, everything seems to have leading role importance.

    Anyone with a little bit of experience has seen this fluctuation over years and decades rather than just over months. When our work takes a long-term horizon there's a more defined sense of what and who is in leading roles and what and who are supporting actors. This is a world where small actions are part of a system.

    The difference between the two mindsets is that the second allows us to build a body of work and the experience that goes with it. When we adopt the longer term horizon as a standard operating mode we do see the short-term advantages, but we learn to trade them off against a long-term canvas. We see better when we look over time.

    In an interviews with Stephen Levy at Wired, Jeff Bezos, founder and CEO of Amazon, discusses the benefits of having a long-term horizon:

If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.

Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.

    But why can Amazon do that when so many other organizations are tied to the ebb and flow of market valuations? Scott Galloway, Professor of Marketing at the NYU Stern School of Business and Founder of L2 says the traditional rules of business don't apply to Amazon#. Together with Google, Facebook, and Apple, Amazon is one of the Big Four companies that combined are worth more than $2.3 trillion.

    By virtue of their business model, these companies and particularly Amazon continue to grab share from media companies, brands, and retailers. To understand why that is happening, we need to study more evolutionary biology, because that explains how they got to where they are:

  • Google as the brain has replaced God who do we ask for help when we have a problem? We search for answers
  • Facebook as the heart, our ability to love and be loved our connections are helping us love at scale
  • Amazon is about consumption, our desire for more 96% of things in our lives is accessed beyond what we need, yet we keep wanting more because it's safer than having less
  • Apple is the next second most powerful basic instinct  our desire to propagate is what prompts us to signal intelligence. Because it's about irrational behavior, which translate into margins that deliver shareholder value (operating margins between Hermes and Ferrari)

    The Four Companies have dis articulated who we are ― God, love, consumption, sex are part of us as individuals in different ratios. Galloway says each of those companies captures commercial value based on who we are. The good news is that that The Four hate each other and are starting to encroach on each others territory.

    According to Galloway, Amazon is winning ― Alexa is innovating in hardware over Apple, and the company has taken a lead in voice. to all effects, Amazon is a search engine with a warehouse attached to it. The fastest growing commercial day is now by far Prime day. Amazon is the equivalent of WWII 38-gallon supply of gasoline over better engineered panzer tanks ― they can take a market by brute force.

    They can do that because technology has figured out a way to create recurring revenue, Prime, and a better business model. Which is how Amazon is the most profitable cloud company and despite its mandate to reinvest in growth, it's making money with it. The company also has a healthy revenue from digital marketing.

    These companies' well-oiled PR machines hog the news cycle as well and create an ongoing perception of innovation. Storytelling is the new competence to master; leadership and vision have replaced profits. “Losses are the new black,” companies that invest in growth and leadership are valued more by investors.

Losses are the new black

    Galloway says profitability is like heroin and companies become addicted. That's how we have companies that are not investing in innovation or the business and sitting on a pile of money. Neflix is part of this new world that continuously reinvests in the business via original content.

    L2 has long used Amazon as a lens through which to view the rest of the market ― the company impacts retail, logistics, digital marketing, media, and cloud computing because it leverages behaviors and in not concerned with losses. Consumption is a more powerful human urge than intellect and connection. When we add convenience like voice as a direct line to the Amazon system, we can see how other brands have a hard time competing.

    The reason why Amazon wins is also because it invests in customer experience ― we pay less and become accustomed to easy transactions with Prime. Fast customer response time, like Amazon's Mayday at 9.75 seconds, actually creates a positive impression. Our heart rate increases when we think we'll receive good customer service, another lever of influence over our purchase decisions. This is how Alexa ends up in the driver seat.

    For a comparative narrative using Apple as a lens, Horace Dediu at Asymco makes a compelling case for the attractiveness of epoch-making technology on par with electricity, telegraph, radio, or TV#. He says:

They shape the fiber of society and the definition of quality of life. They obsolete entire economies and change the balance of political power. They shift the center of gravity of society.

    Dediu believes future historians will say the iPhone was “the technological product that defined the 21st century.” Apple is another company that excels for customer experience and advocacy. It's a company that stands behind its products even when they're vintage by their own classification (as happened recently to me), and will take a stand on creating a system-wide vulnerability that could expose customers' data.

     Prof. Galloway used the iPhone unlocking story to illustrate how Apple is untouchable, but he did not include the bit about how law enforcement had the ability to open one device without compromising the whole system through a permanent back door. After experiencing an iPhone or smartphone many of us would not own a BlackBerry today.

    There's a dark side to the power The Four have on us, and that is negligence. Because of the Power of Aggregation, more people get their news from Facebook and Google and because Facebook and Google deny accountability these two platforms commit “voluntary manslaughter of the truth.” Amazon is getting very big and may get too big (see recent acquisition of Whole Foods, which the market paid for.)

    The Four are where they are because they figured out how to parse leading roles and supporting actors. They where not born that way, but what we see today are the compound effects of decisions that created the type of services and experiences on which we've come to rely (including the many other organizations that have built on them.)

How do we avoid the short-term trap?

    Technology platforms have us on our back heels, reacting, rushing to conclusions, and wanting the quick fix. But we reach better results when we take the long view. The long view helps us see the big picture and operate at a higher level. This includes avoiding the ebb and flow of the news cycle and opinion vs. fact-based information.

    In Megatrends, John Nasbitt says that each new technology, to be successful, must be coupled with a compensatory human response like:

  • spending more time with people face to face and practice networking ideas
  • making things and investing in hand-made things
  • thinking globally and acting locally to understand what happens here and the possibilities of expanding our horizons and trading all over the world

    Long-term is a behavior play. Good ideas take time to develop and execute ― Apple 1977 and relaunch 1997, Amazon 1994, Google 1998, Facebook 2004. The Four leverage aspects of our identity to increase their power over us. If we want to improve our position on understanding what plays a leading role and what and who are supporting actors, we take that power back with habits and a system.


[image source: Scott Galloway, L2]