Move fast and break things. The idea is to push beyond what experts believe is possible.
This is a great motto for innovation. Unfortunately, right now it is under attack.
Amazon.com (AMZN) and Alphabet (GOOGL) got hammered last Friday. Both companies had disappointing quarterly financial results. Those didn’t help. But they are under attack for a different reason. Critics are weaponizing their strengths.
It’s political, and it hurts American innovation.
Amazon is an intriguing company. Started by Jeff Bezos in the early years of the commercial Internet, the online retailer is the archetype of American ingenuity. Bezos, an ex-Wall Street investment analyst, understood longer-term capital is the lifeblood of innovation.
He began using free cash flow to invest in data centers and infrastructure software long before the true vision of Amazon.com was realized. Analysts scoffed. The investment was so outsized it meant no profits for investors for as far as the eye could see.
Slowly, investors began to see the outline of his vision. Amazon had the potential to sit in the middle of commerce. Unlike brick-and-mortar retailers, the giant distribution business didn’t really have inventory.
What it did have were legions of happy customers. It had relationships with sellers, who very often competed fiercely on pricing, to the benefit of customers.
The company became a phenomenon because Bezos broke things. He turned retailing upside down, to the direct benefit of customers. And he is still pushing. He’s still investing free cash flow in the new businesses of the future.
Bezos, Larry Page at Alphabet (GOOGL), Satya Nadella at Microsoft (MSFT) and Mark Zuckerberg at Facebook (FB) know that the future of all commerce depends on investment in data-dependent software. These companies sit on mountains of information, the product of creating massive, popular networks.
That data is now being mined. It is the basis for innovative new products and services that will redefine commerce at both the enterprise and consumer levels.
And that scares the living daylights out of the status quo.
Last week Tim Cook, chief executive at Apple (AAPL), was in Brussels. He was talking about privacy, casting big tech as arch villains. Forget the fact Apple is the biggest tech company by market capitalization. Forget that it is enthusiastically (and hypocritically) invested in China, the largest abuser of privacy in the developed world.
Cook’s plan is to weaponize the discussion about data around privacy. He knows Apple can’t win the race toward smart software, so he wants to undermine his American competitors.
It’s not fair. Political campaigns rarely are. It is also dangerous.
Related story: Apple’s superficial jihad for data privacy is a cynical joke
Cook is selling a set of falsehoods. He wants consumers to believe butterfly keyboards and Animojis represent the pinnacle of American ingenuity. He wants politicians to believe his competitors have nefarious intentions.
He is willing to sacrifice American innovation to serve the needs of Apple.
Apple is a wonderful business. It has loyal customers and tremendous network effects. However, since the original iPhone, it has focused completely on near-term profitability. Its depressingly iterative products take few chances. Apple is more Verizon (VZ) than Amazon.
The next great innovation is not coming from Cupertino.
For 20 years, Bezos has been relentlessly focused on the future. He noted in a September 2018 Forbes interview that, when friends congratulate him on a great quarter, he explains the numbers were baked-in years previously.
Take note: Cook says he is working now on quarterly results due in 2021.
That type of vision takes fortitude. It also requires access to cheap capital.
Like a startup, Amazon has prospered because investors have faith that Bezos is making good long-term choices. They are willing to be patient as he plans for the next big thing.
We know from a Palm Springs, invitation-only gathering in March 2018, Bezos believes that thing is Mars.
He is building the future of Amazon around the data-hungry fields of machine learning, automation, robotics and space exploration.
Cook, and his allies in media, are waging a nascent propaganda campaign against data. It means innovation is under attack. It means companies like Amazon might not get cheap access to capital. It means valuations will suffer.
I have been a committed Amazon bull since 2009. The stock is up 3,100% since then. Given the recent decline, a bounce is likely. However, longer-term investors need to be more careful.
Data critics are intent on breaking innovation.
Best wishes,
Jon D. Markman
