GAFA (Google, Apple, Facebook and Amazon) as these highly valued tech-giants are called, are in an exceptional race towards a $1 trillion valuation. Whoever gets there first will exercise ineffable influence over our economy, public policy, and consumer behaviour. So who will hit the Trillion Dollar mark first?
The current Market Capitalization of the four as on 27 Oct 2017 (source: Yahoo Finance)
Google: 711.42 B
Apple: 842.19 B
Facebook: 516.60 B
Amazon: 528.87 B
Going by the current market cap, Apple is the favourite contender as it is very close to the trillion dollar mark.
I recently read this book “The Four: The Hidden DNA of Amazon, Apple, Facebook and Google” by acclaimed NYU/Stern Professor Scott Galloway, in which he places his bet on Amazon. The book is an excellent read, and he brings refreshing answers to- How did these four become so successful? How high can they continue to rise? Does any other company stand a chance of competing? He uses more cuss words than we normally expect an academician to use, but f*#&, I agree with him wholeheartedly. Here are his arguments with suitable value-additions (/deletions) by yours truly :).
Argument 1: Even Google is getting Amazoned
How many of you have observed that while searching for a product in Amazon, the first thing you see is a “Sponsored Product”. Isn’t this the same model that Google followed when it went about monetizing its search? Amazon is Google’s largest customer, but it’s also threatening Google in search. 55% of product searches start on Amazon (vs. 28 % on search engines including Google). In the days to come, this number will only go up. Here’s why. Amazon has deep pockets to leverage Google to its advantage by making sure that for all product searches that you make on Google, the very first result (the ad) is of Amazon. And soon, the “logical” person would conclude that if a product search on Google only leads me to Amazon, then why not I do the product search directly on Amazon.
Argument 2: AI as a Bridge between the Digital and Physical World
While all the four (GAFA) are big on Analytics and AI, Amazon is rolling it on ground literally. Amazon’s AI’s got mojo. Be it Alexa (Amazon’s voice technology), Amazon Go (Cashier-less convenience store), where no Amazon employee goes :), Kiva Robots in their warehouses, or their cloud offerings. Amazon is practically AI personified.
Argument 3: Who is the cutest, most likeable (or the least dis-likeable?)
In trust rating, Amazon is rated highest among the four. In recent years, Google, Facebook and Apple have faced many regulatory challenges over antitrust, privacy and tax matters. The biggest threat for these four apart from each other are the regulators. When you are likable, what you gain is that the 800 pound Gorilla which is the US Govt. and its regulators (even with Trump heading it) will not go after you first. That makes the importance of being likeable, even cute. Who the regulators go after first is dependent on the public perception of the likability. Amazon’s relentless mission, to be the “Earth’s most customer-centric company” makes it the most likable. In my view, each one of the four should be picked up, drawn and quartered. But Amazon will be the last to be hit by the regulators, if ever.
Argument 4: Access to Cheap Capital
All the four (GAFA) get access to cheap capital. If we compare the market capitalization of GAFA against net income and price-earnings ratio, it is evident that Amazon makes wafer thin profits, but has the highest Price-Earnings ratio.
Source of data for the above: http://www.macrotrends.net/ and Yahoo Finance.
We all know that all these four are formidable opponents to anyone who wants to take them on. But, how do you take on a company that does not care to make profits? Who has got access to the cheapest capital? Amazon has had more access to cheaper capital for a longer period than any firm in modern times.
In summary, Amazon has got all the pieces in place- AI (Alexa- Zero Click Ordering), Kiva Robots in warehouses, Millions of SKUs, access to cheapest capital, owns largest cloud/big data service, over 450(soon thousands) brick and mortar stores and more importantly, world’s most trusted consumer brand. That is why Amazon will be the first $1 trillion market cap company.
Amazon has the most compelling story and for the reasons above is on its way to be the first $1 trillion market cap company. The best part about the whole thing is that if enough people believe this, it will become true. The trillion dollar market cap will be hit by the company which people believe is worth a trillion dollars (remember Keynes beauty contest analogy).
Scott Galloway puts it better than me. ‘The (Amazon) stock will become a anti gravity matter and triple to a trillion dollars in value. Facebook and Google own media; Apple owns the phone; and Amazon is about to molest the entire retail ecosystem,” he says.
So Jeff Bezos will achieve what his fictional look-alike could not- World Domination!