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No Mercy No Malice

Moats and Prey

October 6, 2017

Excerpt from my first book, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, out this week from Portfolio / Penguin. Wired UK called it “a bareback ride” and “much more than a business book.”
(Chapter 3, p. 89)

Moats and Prey

Firms try to build higher and higher walls to keep enemies (upstarts and competitors) from invasion. Business theorists call these structures “barriers to entry.”

They are nice in theory, but increasingly, traditional walls are showing cracks, even crumbling — especially in tech. The plummeting price of processing power (Moore’s law again), coupled with an increase in bandwidth and a new generation of leadership who have digital in their DNA, has produced bigger ladders than anyone ever expected. ESPN, J. Crew, and Jeb Bush . . . all unassailable, no? No. Digital ladders (over-the-top video, fast fashion, and @realdonaldtrump) can vault almost any wall.

So, what’s a ridiculously successful firm to do? Malcolm Gladwell, the Jesus of business books, uses the parable of David and Goliath to make a key point: don’t fight on other people’s terms. In other words, once you’ve made the jump to light speed as a tech firm, you need to immunize yourself from the same conquering weapons your own army levied on befuddled prey. There are several obvious examples: network effects (everyone is on Facebook because . . . everyone’s on Facebook); IP protection (every firm in tech over $10 billion is suing, and being sued by, every other $10 billion tech firm), and developing an industry standard, monopoly, or ecosystem (typing this on Word because I have no choice).

However, I’d argue that digging deeper moats is the real key to long-term success.

The iPhone will not be the best phone for long. Too many firms are struggling to catch up. However, Apple has a key asset with a stronger immune system: its 492 retail stores in 19 countries. Wait, a marauder could just put up an online store, no? No. vs. the Apple Regent Street Store in London is like bringing a (butter) knife to a gunfight. And even if Samsung decides to allocate the capital, nine women can’t have a baby in a month, and the Korean giant would need a decade, at least, to present a similar offering.

Brick and mortar’s troubles have been laid at the feet of digital disruption. There is some truth to that. However, digital sales are still only 10–12 percent of retail. It’s not stores that are dying, but the middle class, and the stores serving them. Most stores located in, or serving, middle-class households are struggling. By comparison, stores in affluent neighborhoods are holding strong. The middle class used to be 61 percent of Americans; now they are the minority, representing less than half the population . . . the rest being lower or upper income.

So, Apple, recognizing that ladders will keep getting taller, opted for more analog moats, expensive in terms of time and capital. Google and Samsung are both coming for Apple. But they are more likely to produce a better phone than to replicate the romance, connection, and general awesomeness of Apple stores. So, every successful firm in the digital age needs to ask: In addition to big, tall walls, where can we build deep moats? That is, old-economy barriers that are expensive, take a long time to dredge, and are hard for competitors to cross. Apple has done this superbly, continually investing in the world’s best brand, and in stores.

Tom Petty and Bad Timing

Tom Petty’s passing hit me as much as any passing of a celebrity since Robin Williams. While we don’t know celebrities, they transport us back to a time in our life that we usually feel good about. Death is not airbrushed or shot in a soft light, so we see them as more human, empathize, and register our own mortality.

Tom Petty takes me back to freshman year at UCLA. As a fraternity pledge, I was thrust into a four-man, 300 sq. ft. room in the fraternity with my “brothers” (total strangers):

— Marty was a big kid from Seattle who rowed in high school and wore polo shirts. He drove a new Accord and was more ambitious than us, at an earlier age. Senior year, he essentially stopped going to class so he could work full-time at a real-estate firm. He traded smoking a shit‑ton of pot and watching Planet of the Apes with friends during the day for the chance to get a nine-month professional jump on us.The rest of us opted to spend 60, vs. 61, years working and spend a year with Charlton Heston, cannabis, and each other. So. Worth. It.

— Pat was from a farm on Visalia. He was also the most creative and likable person we’d all met. He was hilarious and outrageous in a fearless way, writing songs and scripts, and then having us sing and read them, usually very high. Pat and I bonded, as, unlike most of our brothers, our families were not affluent. We were always broke … always.

— Carl was from the Valley and also had a nice innocence about him. Carl was artistic and was soon designing all the shirts and swag for social events and constantly doodling. Claiming it was his psych homework, Pat would put on the theme from Jaws and pin Carl to the ground, and tickle him until he passed out. He would then wake us all up in the middle of the night, and put on the theme from Jaws so we could watch Carl, hearing the music, wake from a deep slumber and scream “NO!” This still stands as the hardest I’ve ever laughed.

The soundtrack to all of this in 1983 was Tom Petty’s Damn the Torpedoes album, which we literally wore out.

Hearing of Tom Petty’s death took me back to freshman year. We started a group text around the shock of Tom Petty’s passing. I was reminded Pat had died several years ago from what were believed to be complications from AIDS.

Years ago at a friend’s rehearsal dinner Pat captivated the table with stories of him being kicked out of his church-sponsored “re‑education” camp, since their attempts to turn him straight weren’t getting traction. By this time, early nineties, American society was slowly becoming more accepting of gay people. But at UCLA in the eighties, there was no acceptance whatsoever of gay people or their lifestyle. I couldn’t have told you a single gay person at UCLA, though several of my closest friends, unbeknownst to me, were gay.

So much about who we are, and the lives we get to live, is a function of where and when we are born — out of our control. I have no choice over my sexuality. Being born a straight man in California in the sixties was the luckiest thing that could have happened to me. But being born a gay man in the sixties was the worst thing to happen to Pat.

Born 20 years earlier, Pat likely could have been in a committed relationship and had a much longer adult life. Born 20 years later, science would have caught up with Pat and made living with HIV manageable. We are in our fifties now, and four brothers have died: one from suicide, one from colon cancer, and two from complications due to AIDS.

Most of us have had the chance to do many of the things we dreamt of in college. Many of those things (material items, exotic experiences, relevance) have been meaningful. But as you get older, the relationships you have with people you love and who love you overwhelm everything else in your life. It’s not something easily explained to a young person. And, unlike most things, we get better at this as we get older. At a minimum, we appreciate it more. Pat was more talented and likable than all of us, but was robbed of the time to achieve much, nor have loving relationships wash over those achievements.

I heard about Tom Petty and was sad and nostalgic. I remembered Pat and was just sad. Very sad.

Life is so rich,


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