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Amazon, Google, or Apple: Which one (if any) will go kaput?


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I recently attended a talk given by Nassim Nicholas Taleb (Black Swan) in support of his new book, "Antifragile: Things that gain from Disorder."  During the talk, he mentioned - almost as an aside - that he strongly believes that one of the above named companies is not going to survive in the long term (but wouldn't say which one).

 

Any thoughts on this?  If I were to guess, I'd say Apple because technology has a clear history of laying waste to former device kings.  Think Sony Walkman, Palm Pilot, etc.

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rimm never sleeps said: "he doesn't know which one. in all likelihood he's simply doing a simple statistical analysis."

 

Taleb made it clear when making this remark that he had observed something about one of the three companies and, based on this, he was confident that this particular company would go the way of the dinosaur.

 

valueinv said: "Technology has laid waste to search engines too: Alta Vista, Yahoo"

 

That is for sure.  The list is quite long: Lycos, Webcrawler, Excite, Askjeeves, etc.  The only difference between the search engine examples and the tech devices example is that none of these search engines were ever the category killer.  Google clearly is now, so maybe they are at risk.  But in tech devices, there has often been a company that makes the "must have" item.  In the 80's, people wouldn't consider owning a personal tape player if it wasn't a Walkman.  With PDA's, you had to have the Palm Pilot.  Today, people line up for days to buy an iphone.  My gut tells me that we'll look back at this and laugh. 

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Over the "long-term," most companies on the S&P500 and Nasdaq will not exist.. so to answer your question, i'm guessing that over the next 50 years, all three will not exist

 

50 years is a long time to be thinking out. The question to ask is " What isnt going to change in ten years ?". This quote is from bezos and i think its one of the most profound questions because people are so wrapped up in everything changing in tech.

 

Amazon= In ten years will customers want books at the highest prices and will they want it to arrive as late as possible. Amazon's core business wont change.

 

Apple= Will customers want the ipad, ipod, and iphone in 10-15 years. Probadly not so apple has some short term and long term pressure. They have massive brand loyalty and "as of yet" there products are the most superior

 

Google= Will people still want to navigate the web via search? Yes short term and  probadly not in the long term. Also google pisses there customers off by constantly changing there algorithms.

 

So in order safest business model to least

 

1.) Amazon

2.) Apple

3.) Google

 

I can easily flip google and apple so 2 + 3 is debateable.

 

 

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It's not just a random guess. You have to understand the basic concept he's getting at - institutions that have disorder inherently built into them are far more stable and long lasting than organizations that try to resist change and stay in a "stable state".

 

Best example is a dictatorship - a dictatorship is at face value, very stable, as it is ruled with an iron fist. But in the long term, it is very unstable as there is no mechanism that allows it to change with the times and shifting political opinion, and as a result it always lives in fear of uprising (Syria, Libya, Egypt etc.). A republic on the other hand, has that mechanism built in, so while it may be more unstable in the short term with multiple leaders over many years (Japan), it has regular elections that allow it to constantly reinvent itself. The end result is that you get an institution that is very stable in the long term, as many of its processes, policies, and goals are institutionalized.

 

I personally think he meant Apple, but I can see the case for Amazon. Not Google though IMO, Google has change built into the firm's inherent structure.

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It's not just a random guess. You have to understand the basic concept he's getting at - institutions that have disorder inherently built into them are far more stable and long lasting than organizations that try to resist change and stay in a "stable state".

 

Best example is a dictatorship - a dictatorship is at face value, very stable, as it is ruled with an iron fist. But in the long term, it is very unstable as there is no mechanism that allows it to change with the times and shifting political opinion, and as a result it always lives in fear of uprising (Syria, Libya, Egypt etc.). A republic on the other hand, has that mechanism built in, so while it may be more unstable in the short term with multiple leaders over many years (Japan), it has regular elections that allow it to constantly reinvent itself. The end result is that you get an institution that is very stable in the long term, as many of its processes, policies, and goals are institutionalized.

 

I personally think he meant Apple, but I can see the case for Amazon. Not Google though IMO, Google has change built into the firm's inherent structure.

 

Good stuff. So in the internet world things that appear stable are really unstable.

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While Amazon makes the least money, I think it is the safest of the 3. Nobody else can recreate their distribution network without a ridiculous investment. Apple is probably the most vulnerable (despite being the most profitable right now) of the three. Their products become outdated very quickly. Remember when iPods were extremely popular? I don't know many people who carry MP3 players any more, it's all embedded into phones (which Apple happens to dominate too). Stuff changes so fast in tech hardware. Five years down the road, Apple's #1 product probably will be something that is not the iPhone or iPad. Google's data centers are some of the most advanced in the world. It's not cheap or easy to replicate. But it is possible for their search business to lose dominance, but I think they will find products that dominate due to the fact that they can do more computing than anybody else, although those products might not be nearly as profitable as search.

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While Amazon makes the least money, I think it is the safest of the 3. Nobody else can recreate their distribution network without a ridiculous investment. Apple is probably the most vulnerable (despite being the most profitable right now) of the three. Their products become outdated very quickly. Remember when iPods were extremely popular? I don't know many people who carry MP3 players any more, it's all embedded into phones (which Apple happens to dominate too). Stuff changes so fast in tech hardware. Five years down the road, Apple's #1 product probably will be something that is not the iPhone or iPad. Google's data centers are some of the most advanced in the world. It's not cheap or easy to replicate. But it is possible for their search business to lose dominance, but I think they will find products that dominate due to the fact that they can do more computing than anybody else, although those products might not be nearly as profitable as search.

 

I agree. Apple is the one.

 

In 10 years, google might be a car company that does search on the side, I think they have incredible business opportunities ahead.

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Honestly, who cares which one Taleb thinks it is, he's a good mathematician but mediocre investor. Forecasting the death of one of those 3 companies in 10 years is ludicrous, it's statistically probable that one of them will die within 10 years, but knowing which one of the three is impossible with the current available information.

 

Keep searching for the secret Pabrai elephant, it has more chance of making you rich!

 

BeerBaron

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Guest valueInv

While Amazon makes the least money, I think it is the safest of the 3. Nobody else can recreate their distribution network without a ridiculous investment. Apple is probably the most vulnerable (despite being the most profitable right now) of the three. Their products become outdated very quickly. Remember when iPods were extremely popular? I don't know many people who carry MP3 players any more, it's all embedded into phones (which Apple happens to dominate too). Stuff changes so fast in tech hardware. Five years down the road, Apple's #1 product probably will be something that is not the iPhone or iPad. Google's data centers are some of the most advanced in the world. It's not cheap or easy to replicate. But it is possible for their search business to lose dominance, but I think they will find products that dominate due to the fact that they can do more computing than anybody else, although those products might not be nearly as profitable as search.

 

I agree. Apple is the one.

 

In 10 years, google might be a car company that does search on the side, I think they have incredible business opportunities ahead.

 

Let me see. Apple had transitioned from pcs to MP3 players to phones to tablets. Now they are going to enter the TV market. Google started out as a search / advertising company and still makes 90+ revenues from search/advertising. They haven't been able to succeed and scale any other business during their entire life.

 

Amazon has probably made less money during its life than companies a quarter it's size and is not even profitable.

 

Yeah, Apple is the one:-)

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During the talk, he mentioned - almost as an aside - that he strongly believes that one of the above named companies is not going to survive in the long term (but wouldn't say which one).

I think you're missing the point?  He's simply saying that most companies won't survive over the long run.

 

If you look at him as an investor, I don't believe that he would involve himself in the common stock or options on the three companies.  His investment track record has consisted of buying the cheapest (extremely-)out-of-the-money options.  It's highly uncertain what their values are but he is betting on the options being extremely underpriced.  So he'll have long strings of bad years and hopefully every once in a while something crazy happens and he makes a killing.  It's happened a few times so far.

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I strongly disagree, I think he's hinting towards his point of "built in instability" versus "stable" systems. Especially given the idea behind the talk - "Things that gain from disorder".

 

Apple's corporate structure at least under Jobs, was sort of like North Korea, and makes me believe that is the one he was referring to. Although same could be said for AMZN under Bezos.

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I strongly disagree, I think he's hinting towards his point of "built in instability" versus "stable" systems. Especially given the idea behind the talk - "Things that gain from disorder".

 

Apple's corporate structure at least under Jobs, was sort of like North Korea, and makes me believe that is the one he was referring to. Although same could be said for AMZN under Bezos.

 

You really compared Apple to North Korea? I get your point...Apple is a very process and policy driven company, but North Korea tortures and executes its citizens who try to express their own freedom.

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itsavaluetrap said: "I think you're missing the point?  He's simply saying that most companies won't survive over the long run."

 

No, as I said in reply to rimm_never_sleeps, "Taleb made it clear when making this remark that he had observed something about one of the three companies and, based on this, he was confident that this particular company would go the way of the dinosaur."

 

beerbaron said: "Honestly, who cares which one Taleb thinks it is...Forecasting the death of one of those 3 companies in 10 years is ludicrous...knowing which one of the three is impossible with the current available information."

 

Taleb may be right, he may be wrong.  Who knows?  But he's certainly no run of the mill thinker.  And for that reason alone, it may be worth thinking about given the size of each of these three companies and their meaningfulness to the stock markets and to their industries.  If the #1 rule of investing is to not lose money, then thinking about whether companies may go extinct is a useful exercise.  I have no investment in any of the three, but I do find this an interesting subject to ponder given that most lay people would think it unfathomable that any of the three will face demise from their current standing.

 

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Guest rimm_never_sleeps

I guess what a lot of us are trying to say is that making a judgement today about something that could happen many years down the line for these companies operating in rapidly changing industries, is impossible for us, him, anybody. why? because things change fast. apple goog and amz are all going to make lots and lots of decisions and changes that would render any prediction like that made today, silly. he has no idea what future decisions these companies are going to make, one to make themselves extinct, or two, survive and thrive.

 

as is often the case, it's helpful to try to figure out what buffett would say on this subject. And I think I know what he would say. That is He has No idea, with the slight possible exception of Amazon, where any of these companies are going to be in 10 years. In fact he has already said that about apple I believe.

 

Think of all the massive, unpredictable changes that have already happened to Apple since it was formed. Let's say it was Apple that he was thinking about. Well what if next year Apple decided to buy Twitter or Facebook and it became a massive financial success for them? That one decision changes everything. Each of these companies have access to enough capital to change the entire character and trajectory of their current businesses.

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I don't think you understand Taleb's argument then. It is obvious that "things change fast". But his point is, some institutions can rapidly embrace change, and understanding the drivers that underlie these institutions help us to think about what will happen in the future.

 

WEB can throw his hands up in the air and be like, "I have no idea", but if you can think through the facts and make an educated guess, you should do that. That's a big part of investing.

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I think he was talking about Apple, but I think all three companies will likely be around in 10 years.

 

1) Amazon is a retailer which specializes in running a low margin business.  As long as Bezos is around and willing to run it like this it will remain a powerhouse of retail.  There will always be stuff to sell, whatever that stuff happens to be 10 years from now Amazon, will be selling it; will most likely have a larger share of the retail market than it enjoys today; and probably not making much profit doing so.  At some point investors may grow tired of the low margins and the stock price may suffer, but that shouldn't have that much of an impact on its operation.  Although it may mean increasing salaries to retain talent and increasing prices slightly or reducing R&D, but it shouldn't kill the business entirely.

 

2) Google does a ton of stuff and always innovating hoping something will catch on, which is why I'm sure Taleb isn't thinking it will go anywhere in 10 years, nor do I.

 

3)  Apple's dominance rests on it always coming up with the next best thing.  It did it with the iPod, then the iPhone, now the iPad.  With greater and greater success each time:

 

http://www.technologyreview.com/sites/default/files/styles/view_body_embed/public/images/MeekerIPad.jpg

 

 

Can it continue this indefinitely?  Probably not, but for the next 10 years?  I think it probably can.  They have a huge opportunity to do to the TV what the iPhone did to the telephone (fundamentally change what it is, how we interface with it, and what we use it for).  If they can pull it off then Apple will be a multi-$Trillion company in 10 years.  If not, Apple might not end up as big as it could have been, but I think you can make a good profitable business selling handheld gadgets for at least the next 10 years if you're Apple.

 

In short I think, unless Bezos gets hit by a bus and his successor destroys the company, Taleb is wrong.

 

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