CityLab talks to Scott Galloway, author of The Four, about why the world’s biggest tech companies depend on cities.
CityLab has long chronicled the back-to-the-city movement of startups and technology companies. As that trend has come to full fruition, many voices on this site, including my own, have argued that it’s high time for big tech companies to invest in inclusive prosperity in the cities where they are located and do business.
So it’s only natural that we’d want to talk with Scott Galloway, a serial entrepreneur and marketing expert who is my New York University colleague and author of the much-talked-about new book The Four, which takes a realistic and critical look at the world’s four largest tech companies: Amazon, Apple, Google, and Facebook.
The Four have a combined workforce of more than 400,000 people and a combined market capitalization of $2.3 trillion, roughly equivalent to the GDP of France. In the book, Galloway systematically outlines the strategies The Four have used to dominate markets, industries, and the economy writ large, as well as the potential consequences of such a dramatic concentration of wealth, power, and information.
Galloway and I spoke on the phone recently about how The Four are using and reshaping our cities.
Of The Four, three are located in Silicon Valley, and one is located in Seattle. What do you think this kind of geographic clustering means?
There’s just no getting around it, there’s something in the water on the West Coast: an optimism, a risk-taking, a land of second chances, combined with the fact that it has some of the best engineering universities in the world. It’s Berkeley or Stanford or Caltech; even the UW [the University of Washington in Seattle] has come a long way. I don’t think you can find a company that’s built more than $10 billion in shareholder value in a three-year period that isn’t a bike ride away from a world-class engineering university.
Lots of people talk about “the rise of the rest.” Do you think there are any cities that can compete with San Francisco or Seattle in generating one of these big companies?
Find the universities that are gaining the most traction in engineering or STEM and you’re going to find an ecosystem that can produce a unicorn. My money would be on St. Louis, because of Washington University, which is starting to attract the finest human capital in the nation. Whoever gets the smartest 18-year-olds, 10 years later, they get a unicorn. Pittsburgh is also a great candidate because of Carnegie Mellon. You know how they say “follow the money”? I say follow the university rankings, specifically for engineering schools.
Three of the big four, Apple, Google and Facebook, have suburban campuses. But in your book, you talk about the advantages of being located in the urban center, like Amazon is in Seattle. Looking to the future, which of these two models—the suburban campus, or the urban headquarters—will prevail?
One hundred percent, urban. It’s like a reverse blast zone: Everyone’s being sucked to the epicenter. Even Facebook has acquiesced. Kids are getting sick of being on these buses from San Francisco and commuting down to Facebook or Google. All of the large tech companies that didn’t have campuses in San Francisco are building them.
With that preference for urban environments, do you think cities like New York or Boston might have an increasing advantage in producing leading tech companies?
New York is going to boom with the introduction of a third world-class university. There’s NYU, there’s Columbia, and now there’s Cornell Tech on Roosevelt Island. Within a long bike ride of each other you have three of best universities in the nation—and that concentration is intoxicating for companies.
Michael Bloomberg’s objective with the Cornell Tech project was to get more engineering talent into New York. Do you think that will provide a lasting benefit to the city?
It’s a stroke of genius. It’ll be his legacy. We’ve had a fantastic startup culture in New York for the past 15 years, but it’s been mostly focused on media. We’re about to start pumping 300 to 500 25-year-old, world-class engineers and computer scientists into the ecosystem in Manhattan, with a bunch of venture capitalists chasing them around funding their crazy ideas.
In your book, you describe how you advised Nike to get out of Portland. Why?
If you’re a CEO or a shareholder, and you aspire to have a company worth half a trillion dollars in market capitalization, full stop, you have to be within a bike ride of a world-class engineering educational institution. Nike has two choices: They can either move to one, or fund one. Otherwise, they will never get close.
The way I see it, the university is a necessary, but by itself insufficient condition for these companies. You also need these other ecosystem characteristics—a city with the right scale, with the right amenities and qualities. With all of that in mind, where do you think Amazon’s going to put their second headquarters?
Three possibilities: New York, New York, and New York. This entire bidding thing is a ruse. The most important thing for them is the ability to attract and retain the best talent in the world. And the best young tech talent in the world wants to live in either New York or San Francisco. Every other city is a distant third. Maybe L.A. and Boston.
In your book, you extoll Amazon’s purchase of Whole Foods as well as Apple’s decision to open stores. Many people are talking about the “retail apocalypse,” but you say having a physical presence is an important advantage for these companies.
The rumors of the death of stores are greatly exaggerated. We’re going through a cyclical, not structural, downsizing in stores, simply because the square footage of malls grew at double the rate of the population from 1970 to 2015. In the United States, we have three times more square footage of retail space than Britain, and 50 percent more than Canada. But the strategic role stores play in a company’s health—its brand health—is only increasing in importance. The decision that created more shareholder value than any decision in the history of business was Apple’s decision to forward integrate into this dying medium called “stores.”
The purchase is the handshake, the kiss, the consummation of the relationship between consumer and brand. And buying something from an Apple store is like kissing Tom Brady or Gisele. It’s a wonderful experience. Whereas if you buy a Samsung phone at an AT&T or Verizon store, you’re kissing a guy named Joe under bad lighting.
What do you think Whole Foods gives Amazon?
Whole Foods will be to Amazon what Instagram was to Facebook. This will be the best acquisition of the last 10 years. They could have shut down the stores and justified the $13 billion purchase price, with 500 well-lit, well-staffed warehouses that had preexisting relationships with all the leading food brands, and could set up a fulfillment network that puts them within two to three miles of 40 to 60 percent of the wealthiest refrigerators in the nation.
You mention a number of companies that have a shot at becoming the fifth leading tech company, including Uber, Airbnb, Tesla, and others. So who has the best chance?
The one I believe is in striking distance is Netflix. At the end of the day, all of these companies have become operating systems for information, operating systems for retail, operating systems for media. Netflix is now the operating system for the second most important screen in your life, and that’s the television. Millennials spend more time watching Netflix than the rest of TV combined. You can imagine there’s a lot of different businesses they could go into if you begin interacting with this portal.
Airbnb also has a shot. I think Airbnb is going to be more valuable than Uber in 24 months. What you’re seeing with Uber is the emergence of a bunch of regional competitors in China and India; they weren’t able to outspend Lyft into oblivion. Whereas Airbnb really has no competitors.
Increasingly, the big tech companies are getting kind of a villain reputation. Do you think that’s going to hurt them?
We’re going to see the first $10 billion-plus fine come out of Europe. There’s a one-in-three chance a European nation could outright ban one of these companies. They’re going to look at a country like Italy that let Google in; look at the media business, look at the employment, look at the tax base. And then they’re going to look at China, which propped up a local competitor and captured all that value domestically. I think you’re going to see some Western nations break ranks and go the Chinese way.
So you think there’s real risk in terms of that likability factor for these companies. Or do you think some have avoided that kind of scrutiny more than others?
I think they’ve been masterful at avoiding it. If The Atlantic had been weaponized by a foreign government, I think there would be a real discussion about shutting it down. Why aren’t we talking about shutting Facebook down?
Is there a new era of regulation coming to these companies?
I think they’ve stuck their chins out; I don’t know what the fist of stone will look like. It’s either going to be regulation, or it’s going to be fines, or it’s going to be outright bans. What I do know is that the war against big tech will break out where all of the huge conflicts of the 20th century have broken out, in continental Europe. In the U.S. we register a lot of upside from these companies—and we also register downside, and we’re talking about it—but in Europe they register all of the downside with hardly any of the upside.
We’re starting to see people in cities like Seattle come out against the prosperity bomb, or inequality bomb, unleashed by big tech. Do you think there might be a backlash from some of these local governments in the United States?
No, they just have too much tax revenue and too many donors. What you might see is a red state have a district attorney think that the fastest route to the governor’s mansion is to make a populist argument against those “liberal heathens.” These companies wrap themselves in a progressive blanket to create an illusion that they’re nicer than they are. When Microsoft was perceived as being conservative, the regulators moved in. Tech companies today wrap themselves in this progressive clothing, which could come back to haunt them when a DA in Kansas decides there’s more upside to going after these guys than downside.