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Competition for Losers
New businesses should aim to be monopoly rather than
competition because competition is neither advantageous nor profitable. On the
other hand, Monopolist businesses are more successful than others.
Two things make a company valuable. They are the value (“X”
dollar) which it created for world and capturing of “Y” percent of the value
that the company has created (“X”) .Also these are independent variables. Both
of them are necessary to create a valuable company.
Both perfect competition and monopoly have advantages and
disadvantages. Perfect competitions are modeled easily, they are efficient in a
static world and they are supported by governments. On the other side,
monopolies are more stable, long lived businesses and they have more capital.
There are actually two kinds of businesses, perfectly
competitive and monopolies, in the world but this is not understood clearly
because people are lying about their businesses. Monopolies lying because they
don’t want to be restricted by government so they behave like perfect
competition and show their market huge. Perfect competitions want to be seemed
different and unique because can’t make money and want to track capital and
show their market very small and they are only firm in the market.
Small markets may seem unimportant or worthless but to be
monopoly business, firms should start at small market because it is easier to
dominate and then they should find ways to expand that market in concentric
circles. Starting at big market is a huge mistake because big market means
there are too much competition there and sometimes firms don’t even know how
many firms in the market. It is too bad decision to start.
They are pioneer that do something different way. They
differentiate themselves from their competitors because they do something very
unique. Monopolists have some sort of characteristics. One of them is
proprietary technology. This technology should be at least ten times better than its
competitor or should be completely new and it means just like an infinite
improvement. Another one is network effects. This can be helpful to build a
monopoly but it’s very hard to get started. The third one is
economies of scale.
Monopolists generally have very high fixed costs, very low marginal cost. The
last one is branding. Branding is a kind of positioning as a well-known company
in the market. After firms have a monopoly, they should consider whether it
will last over time so to be last-mover may be better than to be first-mover.
This last-mover’s most of the value in these companies exists far in the
future. Therefore, companies should focus on whether the company will exist ten
(or more) year later because it certainly affects the value equation. Also
other characteristics depend on time. Time effect is beneficial for network
effect but proprietary technology is more sensitive so companies should make it
least ten times better than recent technology.
The whole world has amazingly developed technologies for
250, 300 years in the history of invention and technology and science but
people who developed them aren’t rewarded because people don’t realize that “X”
and “Y” are independent. In science history “Y” variable is generally zero
because scientists expect that they will be rewarded for their studies and
intention but it is just an illusion and they get nothing. Railways and textile
factories was very important businesses but they went bankrupt because of
competition. Competition prevented people from making money.
There are two broad categories which
enable people who come up with new technology to make money in the entire
history. First one is vertically integrated complex monopolies. It was very
complex and companies had to put a lot of different pieces in the correct
position. Thus, they provided a great advantage in their success but it was
required too much capital and was made seldom. Peter Thiel gives Space X and
Tesla examples. He said Elon Musk have integrated car dealers, they would not
steal all the money. Elon Musk didn’t do a great invention but he gets a great
advantage by using vertical integration. Second one is software. Software has
great scale of economy, low marginal cost and the fast adoption. The fast
adoption enables the software to capture small and medium size markets.
Competition for losers is a provocative title because people
define losers who can’ compete. Peter Thiel wants from people to rethink on
this definition and rethink on whether competition is possible. People can’t
understand that monopolistic competition atmosphere because firms are lying
and people find themselves in a competitive environment. People tend to imitate
others because of their beings. It is very problematic and they need to
overcome. Another problematic thing is competition is perceived as validation
by people. People follow crowds not for wisdom not for trying to do something
and it prove that it is valuable. Peter Thiel says that it is insane and he
gives example of Olympics, people who come to LA to be movie star and education
system. He indicates that there are too many competitors but few winners and it
is the definition of insanity. Then, he gives example form his own life, he
said he was a hyper sort of tracker and he paid attention to what people say or
do but eventually he noticed that it is not what he wants to do so he resigned.
Competition makes people better at what you compete on because people try to
beat people around them. Finally, Peter Thiel asks a question what is valuable
and truly important. Then, he advises that leave the crowd and follow your