Peter Thiel is an American entrepreneur and venture capitalist, co-founder of PayPal, Palantir Technologies and Founders Fund talked about strategy and competition. His business side is that if you’re starting a company, company you always want to aim for monopoly and you want to always avoid competition.
To create a valuable company, you have to basically both create something of value and capture some fraction of the value of what you’ve created.
There are two kind of businesses: perfect competition (non-monopolies) and monopolies.
Perfect competition
Advantages Disadvantages
Easy to model Psychologically unhealthy
Efficient in a static world Irrelevant in a dynamic world
Politically sociable Preempts of value
Monopoly
Advantages Disadvantages
Incentive to innovate Lower output, higher prices
Stable, long-term planning Price discrimination
Deeper project financing Stifle innovation
Symptomatic of creation Tying
Google which is a dominant in the search market, so it’s like an incredible monopoly, it’s a bigger monopoly than Microsoft. When we observe the Google as an advertising or technological company, we saw that it occupies a small part of the market comparing with Apple, Amazon, Facebook etc… So, the nature of market is so important for understanding the type of business.
If you’re a startup, you want to get to monopoly. You start with a really small market and you take over the whole market and then over time you find ways to expand that market in concentric circles. If you take Amazon, you start with just a bookstore, It’s online, there’s things you can do that you could not do before, and then it includes all sorts of different forms of e-commerce.
Ebay is an American multinational e-commerce corporation that facilitates consumer-to-consumer and business-to-consumer sales through its website. PayPal Holdings, Inc. is an American company operating a worldwide online payments system that supports online money transfers. All these companies are starting such a small market.
Characteristics of monopoly
- Proprietary technology -It about create a product unique or innovative. In the case of PayPal, Bill Turner was using checks to send money on Ebay PayPal could do it fast.
- Network effect – the value of a product or service increases according to the number of others using it. Facebook went dominant and getting more and more people talk about the product.
- Economics of scale – something with very high fixed costs and very low marginal costs give a chance to growth fast.
- Branding – it’s about creating real value and mark for separation.
Competition does make you better at whatever it is that you’re competing at because when you’re competing you’re comparing yourself with the people around you.
Competitions as validation
- Education
- Career path
- Investments
- Business decisions
Competition is important for business to increase sales and acquire more customers by regularly adjusting to market needs and demands. The more the consumers, the higher the market share; the more the sales the higher the chances of making more profit. It is, therefore, of great importance to stay ahead of your competitors. Competition makes people innovative. Innovation is crucial to the progress of any business. In the beginning it would be better to start in a small market and then planning a strategy for growing.
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