The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM
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The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM Get No Mercy / No Malice in your inbox. Your Email Address Subscribe The Fourth Great Unlock May 8, 2020 Scott Galloway @profgalloway 4-min read An unlock is the discovery of an accelerant for the brand, product, or service invisible in plain sight. The mold on cheese curing disease was a substantial unlock (penicillin). So is administering a small dose of a pathogen to immunize someone from the complete, more harmful pathogen (vaccines). In the last 20 years, there have been three unlocks in the business world that have created over $500 billion in shareholder value. I believe the fourth was revealed last week. So, the Hrst three, in chronological order: Temples Steve Jobs zigged when everyone was zagging. He reallocated billions from traditional brand building to distribution, opening stores — temples to the brand. Any great decision seems logical, even pedestrian, in the rearview mirror. But Apple’s move to invest in bricks and mortar Oew in the face of every trend. In 2001, stores were dead. Pundits predicted that e-commerce would take over. The iPhone is the most proHtable product in history, not because the product is tangibly superior (the Galaxy is better on many metrics), but because of where it’s sold. Buying a phone at an Apple store is sex with Tom Brady. Buying an Android at a Best Buy, AT&T, or Verizon store is having sex with a guy named Roy on a bad carpet https://www.profgalloway.com/the-fourth-great-unlock Page 1 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM under a neon light tube. Monogamy Married households aggregate wealth faster than those headed by a single person. Our superpower as a species is cooperation. When we agree to fully cooperate with someone … wonderful things can happen. In addition to building wealth (the means), you can achieve the ends, producing things that look, smell, and feel like you who are good citizens — why we are here. But I digress. Firms who are in transactions businesses, like retail, are serially dating. Being single, while it has its moments, is exhausting and expensive. Equinox, Tinder, vodka, and hangovers all tax your time and well-being. Firms that are single and constantly need to be attractive to strangers to repopulate their customer base, are valued at a multiple of proHts. Firms in monogamous relationships (recurring revenue) are valued at a multiple of revenues. In 2005, Amazon decided it wanted to get serious with its customer base and asked for our hand(s). But when they put a ring on it, they also brought a goose, as on the better tables of a Manhattan club, in the form of 48-hour free delivery. Amazon Prime https://www.profgalloway.com/the-fourth-great-unlock Page 2 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM now has a paying relationship with more households, representing more discretionary income (82% of US households), than any private entity globally. Since introducing Prime, Amazon has grown their market capitalization by $1.1 trillion — the value of the auto, CPG, and airline industries. The Empire Strikes Back Joe Frazier and Andre Agassi had the most aggressive counterpunch and service return in sport. This, times a 100, is what Walmart has accomplished with click and collect grocery. The retailer recognized that thinking of their stores as assets, while everyone had decided they were liabilities, gave them a strategic path Amazon couldn’t follow. In addition, the NPS on Walmart’s grocery is substantially higher than the in-store experience. Genius is obvious, only after it was crazy. Walmart realized they had 11,000 well-lit and staffed warehouses that could provide Walmart customers with all the great taste (Walmart grocery) with none of the calories (the in-store experience). The result was a service that might end up being the third biggest business in retail (behind just Walmart terrestrial business and Amazon) — Walmart click and collect grocery. Since introducing click and collect, Walmart has added $100 billion, or the https://www.profgalloway.com/the-fourth-great-unlock Page 3 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM value of the airline industry. The Fourth Unlock I believe last week the fourth unlock was revealed. Jeff Bezos, at the outset of their earnings call, warned shareholders they “may want to take a seat.” He has done this several times. “This” is snatching proHts from the jaws of shareholders to reinvest in the Hrm. With the exception of NetOix, no Hrm has been given this much runway. Bezos has used every foot of it to set aloft a vessel that nobody will likely catch. Imagine a Spruce Goose but at twice the speed of sound. https://www.profgalloway.com/the-fourth-great-unlock Page 4 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM Bezos told investors that the $4 billion in proHts they were expecting would be reinvested. The investment had a theme: Covid-19. SpeciHcally, Bezos outlined a vision for at-home Covid tests, plasma donors, PPE equipment, distancing, additional compensation, and protocols to adapt to a new world. Jeff Bezos is developing the earth’s Hrst “vaccinated” supply chain. The genius here is breathtaking. Walmart can’t follow, as they don’t own their distribution for last-mile commerce. Outside of Walmart, few Hrms have the balance sheet to pull this off. Maybe FedEx, UPS, or Prologis? But it’s unlikely they could make this sort of investment, this fast — it would be perceived as reckless. Great strategy cuts a swath between market conditions and a Hrm’s assets. Put more simply, strategy is a Hrm’s answer to the following question: What can we do that is really hard? Any customer, vendor, supplier or worker who wants a near-virus-free supply chain, a criterion that has gone from zero to light speed in 90 days, will have a selection set of one. It’s possible the largest new consumer category in history is testing for Covid-19 virus and immunities. Amazon may become the market share leader in this category. I believe Amazon will offer Prime members testing at a scale and eiciency that makes America feel like South Korea (competent). The “vaccinated” supply chain, as tested and safe as possible, will create a more muscular and https://www.profgalloway.com/the-fourth-great-unlock Page 5 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM immune fulHllment organism, offering stakeholders paramount value — real and perceived. Leadership is the ability to convince people to work together in pursuit of a common goal. Bezos’s decision to spend billions to ensure the safety of his supply chain stems from a vision that’s obvious only after being crazy/genius. Life is so rich, P.S. We’re doing a new two-week intensive Strategy Sprint, where you can get MBA insights without the MBA price tag. Starts June 16, and seats go fast. P.P.S. The Dawg is on TV! My weekly show premiered on VICE TV last night. You have a week to watch it free. And Josh Brown joined me on the Prof G Show to talk about the markets: by 2009 logic, the market should be down 100%. 47 Comments Your Name Your Email Address Add a new comment. COMMENT This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. Balasubramaniam • 8 days ago Glad to join Reply Bill Lee • 12 days ago Um, I must be missing something. Doesn't the market for all things COVID-19 have an https://www.profgalloway.com/the-fourth-great-unlock Page 6 of 15 The Fourth Great Unlock | No Mercy / No Malice 5/26/20, 8:50 PM Um, I must be missing something. Doesn't the market for all things COVID-19 have an expiration date--like around November 2021 (about the time we're expecting a vaccine)? Reply catherine james • 15 days ago i worship YOU! Question: To Hnd the unlock for my brand, do i Hrst need to identify what is locking me? Reply Scott Robertson • 15 days ago I see a big anti-Amazon backlash coming from American consumers and a huge MADE IN AMERICA and BUY LOCAL wave coming. Also adapting your entire business model for what is essentially an exaggerated cold virus is as big of an overreaction as our society's initial response to it. Reply ken. E • 15 days ago I don't think the anti-Amazon backlash is that big; it might be loud and attracts a lot of attention but the fact that Amazon has record revenues is more indicative. Same as the buy local sentiment; at the end of the day it is price and value that drives major consumer purchases. Reply Adam • 3 days ago @ken. E Exactly.... people want stuff as cheap as possible and they want it right now. The only backlash will come from the yahoos who are just looking to argue.... and then going online to order more summer yard gear for their home. Reply Larry • 15 days ago Examples given are correlations but I don't think they represent causation. Apple is successful due to its innovative and user-experience-based designs plus its marketing and not because of Apple stores. Their growth curve is not necessarily indicative of causation by store planting.