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Peter Thiel: Competition is for losers

133 points by foobarqux 12y ago

roffles 12y ago
Is google is the king of search, how do other competitors (bing/yahoo) stay in business and why do they want to try to fight google? Why don't they just focus their efforts on something else?
- rwmj 12y ago
  They barely do make money. Bing is heavily subsidised both financially by Microsoft and by what remains of Microsoft's desktop monopoly. Yahoo is a lot more than a search company, and hardly in the best of health. Is anyone making significant money out of search (apart from Google)? Does DDG? As for why they would want to be in search. For Bing it seems highly misguided. DDG probably would like to be even 1% as big as Google, so they could sell adverts and make $billions.
  - SoapSeller 12y ago
    Yandex and Baidu.
    - rwmj 12y ago
      Fair point, although I'm doubtful Baidu could survive if it had to actually compete with Google (which is banned or filtered in most of China).
      - coldtea 12y ago
        Actually Google failed to gain any market share in China, and "filtered" didn't play any role in that. If anything Baidu is equally filtered and monitored. Google just doesn't appeal much to the Chinese sensibilities, and especially earlier had very bad Chinese search results.
  - mbesto 12y ago
    Yahoo doesn't "barely" make money. $1.3bn to be exact.[0] You're right, Bing is subsidized, but it's not like their revenues are $0. I appreciated your effort to add to the conversation, but "They barely do make money." followed by "Is anyone making significant money out of search" doesn't add much to the discussion. [0]https://www.ventureharbour.com/visualising-size-google-bing-yahoo/ https://www.ventureharbour.com/visualising-size-google-bing-...
    - rwmj 12y ago
      That's 1/50th of what Google makes, from a broader range of products. Seems to back up my point.
lalos 12y ago
Basically, don't enter over saturated markets unless you offer something that makes you different. Google did it offering relevant results for search, Apple did with an iPhone that just works. The key of Thiel's reasoning is 'By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute'.
- anon808 12y ago
  Exactly. A company can have a monopoly on product quality, or manufacturing efficiency, not necessarily a monopoly on a vague, conventional definition of an industry. Another example is in-n-out burger. They don't have a monopoly on hamburgers, but they do have a monopoly on their kind of hamburger (high quality/freshness, low price at scale).
  - marknadal 12y ago
    You must not have had an In-N-Out burger, they hardly have high quality. I did a blind taste test study on 23 participants, between McDonalds meat and In-N-Out. There were no significant results - people were only able to identify the correct meat 53% of the time (and it was McDonald's, not In-N-Out's, indicating a slight preference towards McDonald's taste). Essentially, every time you ordered a burger, you could flip a coin and you wouldn't notice the difference in the meat. This was a small sample size, but I want to expand it with a more comprehensive study. Where most In-N-Out fans go wrong is that they compare a $1 McDonalds Cheeseburger that has no lettuce or tomatoes, etc. with a $4 In-N-Out burger that lots of garnish and Thousand Island Dressing. A more "accurate" comparison would be between one of McDonald's Quarter-Pounders, of similar price, and In-N-Out, but ultimately the dressing is going to cause the divide... not the "high quality/freshness" of the burger.
ekm2 12y ago
Imagine if Mark Zuckerberg would have heard this advice and been convinced that there was no point in competing with MySpace..
- rwmj 12y ago
  You're saying that MySpace was highly tuned? It was awful. It was a truly terrible experience, even compared to other social network sites (eg. mixi.jp had a far better experience back in 2004). It was obvious to everyone that you could make a better social network than MySpace -- I even suggested it to my co-founder back then.
- dredmorbius 12y ago
  But he wasn't competing with MySpace. Not when he started The Face Book at Harvard. Nor when he expanded that out over numerous other Ivys and Stanford, then additional selective universities. It wasn't until he'd created an existing, high-quality, attractive userbase, of interest to both advertisers and the general public, that he was competing with MySpace. Sometimes the monopoly is in where you define your market. Amazon took a similar tack, first going after book sales (an excellent market for online commerce), then a broader set of markets.
  - rthomas6 12y ago
    It's worth noting that Peter Thiel himself uses these two companies as examples of what he's talking about.
    - dredmorbius 12y ago
      Where? Not in the linked article. Do you have a reference?
      - rthomas6 12y ago
        http://blakemasters.com/post/21169325300/peter-thiels-cs183-startup-class-4-notes-essay http://blakemasters.com/post/21169325300/peter-thiels-cs183-...
mempko 12y ago
This is the secret of capitalists. Monopoly for them, and market discipline for everyone else. "Actually, capitalism and competition are opposites" This is why State capitalism or something like fascism to them is the ideal. Any democracy is the most HORRIBLE thing. Because after all, there are only a few capitalists, and then there is everyone else...
- deleted 12y ago
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- runaway 12y ago
  I think the idea is that in a capitalist competition we should assume all actors are trying to monopolize the industry and really only follow laws to avoid harming their bottom line. The same way you'd design any system by assuming any user might be malicious. The way to manage this is to eliminate corruption and strictly scrutinize the relationships between businesses and gov't entities.
  - mempko 12y ago
    oh to live in a world with which those relationships can't exist because the entities can't exist. But that might be too radical.
    - penprog 12y ago
      Sooo... you want a world without business or government entities? What?
      - coldtea 12y ago
        What "what"? This has been a standard aim for anarchists etc for ages...
      - mpyne 12y ago
        I think the thought seems to be that if we don't allow people to organize in any meaningful way (i.e. against the people) then the problem of organizations is solved. Never mind that said organizations would simply resort to setting up unofficial enforcement mechanisms, much like organized crime already does today. Other counter-examples aren't that hard to find either.
larrys 12y ago
Thiel fails to mention that at the time that air travel was regulated airlines did make money even though they weren't a monopoly and had competition. http://www.investopedia.com/stock-analysis/031714/why-airlines-arent-profitable-dal-ual-aal-luv-jblu.aspx http://www.investopedia.com/stock-analysis/031714/why-airlin... "The landmark event in U.S. commercial aviation history – as important as the incorporation of sound was to motion pictures, or the forward pass was to football – was the Airline Deregulation Act of 1978. Prior to its passage, the federal government set rates, fares and schedules, guaranteeing profitability to each oligopolistic airline but doing its best to thwart innovation. " So prior to about 1978 during certain stretches it was pretty good to be operating an airline.
- Spooky23 12y ago
  Thwart innovation? The only true change had been low cost carriers, who can use their late entry to the market to avoid things like collective bargaining and route networks. So now we have a dreadful airline industry that only survives by grace of the occasional direct investment by the government.
deleted 12y ago
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bjt 12y ago
Thiel is playing fast and loose with the definition of profit here. While it's true that "economic profit" will go to zero under perfect competition, that only means that the company's accounting profit is the same as the discount rate in the economy generally. It doesn't mean that there's zero accounting profit on the company's books. http://www.investopedia.com/terms/e/economicprofit.asp http://www.investopedia.com/terms/e/economicprofit.asp
- tim333 12y ago
  He's also playing fast and loose with the definition of monopoly. Oxford dictionary: Monopoly - 1) The exclusive possession or control of the supply of or trade in a commodity or service. There is no way Google is a monopoly by that definition. Bing or any other company can and do compete. Google dominates because they are better but that is a very different thing.
  - anon808 12y ago
    Maybe you could say that google has a monopoly on high quality/relevant search results?
    - marknadal 12y ago
      Again, you are mistaking "high quality" with consumer's "differing tastes". See my reply to your In-N-Out comment.
- pdonis 12y ago
  It also doesn't mean that nobody working for the company is making money. The workers' salaries aren't counted as "profits" (including salaries that the owners pay themselves). Thiel says at one point that a business that has to compete can probably only pay its workers minimum wage, but that depends on the market the business is competing in. Intel is in a competitive market for CPUs, but they don't pay their employees minimum wage.
spindritf 12y ago
He means a very particular type of monopolist To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state or innovates its way to the top. I'm not interested in illegal bullies or government favorites: By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute. which is simillar to Robin Hanson's "manic" monopolist One simple robust solution to the innovation problem would seem to be manic monopolists: one aggressively-profit-maximizing firm per industry. Such a firm would internalize the entire innovation problem within that industry, all the way from designers to suppliers to producers to customers – it would have full incentives to encourage all of those parties to put nearly the right amount and type of efforts into innovation. It's not about rent seeking, or some silly brand recognition narcissism, but about being able to coordinate and do stuff that would be widely beneficial but unprofitable for any of the participants on their own. http://www.overcomingbias.com/2014/04/rah-manic-monopolists.html http://www.overcomingbias.com/2014/04/rah-manic-monopolists....
- deleted 12y ago
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- rayiner 12y ago
  Maybe that's what he means, but there are numerous examples of very innovative monopolies that are "illegal bullies" (e.g. Microsoft) or "government favorites" (e.g. AT&T, Xerox). IBM is probably all three.
  - freedom123 12y ago
    Thats the exact point. There has never once, in human history, been a monopoly in a free market. They only exist via government controls. Just study American history between 1900-2000
- roel_v 12y ago
  "He means a very particular type of monopolist" That's a very kind way of interpreting what he's saying. I'd go as far as saying 'he's redefine common terms to fit a peculiar theory that is nice, simple and wrong". It's mostly populist (to a certain crowd) pandering: a bit of controversy (monopoly is good!), a bit of pseudo-intellectualism (look at me being all academic and worldly!), and some 'please validate my prejudices' (patents bad, government stupid, big business bad except for those I'd want to work for).
thrush 12y ago
I think an implicit point that Thiel is trying to make is that there are enough untapped opportunities out there that there is no point to compete. The startup world is not a zero-sum game. We can all win.
- analog31 12y ago
  True, but competing could be a successful short term strategy, if you can identify a target who are burdened with excessive costs for some reason, or can think of a cheaper way to make something.
  - thrush 12y ago
    I see what you mean, and this would probably be good for society (you are supposedly replacing something with a better version). Granted if you could identify a different undeveloped business, you may have more to gain individually. Imagine there is company A pursuing market A', if company B decides to pursue A', then A and B have to split the value of A'. Rather, B can pursue B', and if |A'| ~ |B'|, then there could be more to gain by not being competitive. If B(A') < |B'| then this still holds true (where B of A' is a function of how much value of A' that B can realize). In the finite world that we live in, there can only be so many A', B' or X', so this strategy may eventually much more in favor of competition. What I believe Thiel has identified is that we haven't reached that stage yet, or even that it's improbable that we will ever reach that stage.
3rd3 12y ago
Off-topic: Why do these kind of websites always have a stock price next to brand names? Is this useful Information? It looks a little bit scammy.
- penprog 12y ago
  This website is the website for the Wall Street Journal. Wall Street is pretty much used to describe the financial markets of the US as a whole. If you are reading an article about finance it's useful for the reader to have instant access to the stock price information. How anyone would find this to seem scammy I wouldn't understand.
- anthony_franco 12y ago
  Many times the articles reference some new, meaningful information about the respective company and seeing the change in stock price adds merit to the story.
  - SapphireSun 12y ago
    I don't know. Usually when I see this UI widget I think "correlation and causation" over and over. It's the rare story that definitively causes or reports on other news that causes a significant change in price. In a prestigious newspaper, showing the price inline with the article devalues the content. It emphasizes the "what's in it for me" angle rather than speaking to considered learning. If I were the designer, I'd rather include those metrics at the end of the article with more context and graphs (though I have a feeling this was carefully A/B tested). What's more is that even a few hours to a few days after a story is released, the stock price no longer has any relevance to the story since the widgets are not pegged to that point in time.
- danso 12y ago
  "these kind"? You mean news sources with a focus on the financial? (a few financial blogs do the same thing too). It's an automated parsing script(either client or server side). For mentioned companies that are publicly traded and named in a story, the script looks up their stock listing and adds it and a hyperlink to the story for context. In most cases, though, it's not very helpful. But easier just to have the script run on every story than to do the linking by hand for a few stories.
cromwellian 12y ago
Apple is a counter example. They have stiff competition, control a minority of the market, but make more than all the other players combined.
- qq66 12y ago
  That's true now, but it's a fairly recent development in Apple's history. It remains to be seen whether Apple can maintain its enviable position in the long term.
- elchief 12y ago
  A.k.a. "monopolistic competition" - a pretty bad term IMO
- prostoalex 12y ago
  It's not like they're not building a moat, with things like Facetime, iMessage and AppStore, which exist only within Apple ecosystem. Analogs of them exist outside of that ecosystem, but it's not like the apps you've bought through iTunes AppStore will magically work on Windows Phone, should you decide to switch.
  - cromwellian 12y ago
    I don't know anyone who cares one iota about Facetime. The AppStore is the only real moat because you pay all that money and can't take the apps out of the platform. Facetime and iMessage can be replaced with any number of cross platform third party alternatives, many of them better.
DominikR 12y ago
His comparison of Googles high margins to those of a monopoly seems wrong to me, because Google doesn't actually set any prices for advertisement. Its customers set those prices by bidding on keywords. Not the other way around.
dredmorbius 12y ago
A fascinating line of markets and competition that I've only learned of relatively recently, and is of interest in light of YC's first category in its request for startups,[1] is the role of the Texas Railroad Commission in US oil markets. I first ran across a reference to this in a paper from the Federal Reserve Bank of Philadelphia, written by Keith Sill, chief economist, "Macroeconomics of Oil Shocks": "From 1948 to 1972, the price of oil produced [that is: extracted] in the U.S. was influenced by the production quotas set by the Texas Railroad Commission (TRC). Each month, the TRC (and other state regulatory agencies like it) made forecasts of petroleum demand for the upcoming month and set production quotas to meet the forecasted demand."[2] A more complete history occupies most of Chapter 13, "The Flood", of Daniel Yergin's The Prize: The epic quest for oil, money, and power.[3] The short version: in the 1920s, an early abundance of oil which was proving hugely useful for automobiles and machinery looked to be iffy, until vast deposits were found in Texas and Oaklahoma in 1930. But that created a new problem: with no restrictions on drilling, oil prices collapsed to as little as $0.13/bbl. Government production controls were prohibited by Texas state law (lobbied for by independent oil producers), though they were permitted in Oklahoma. A target of $1/bbl. was set but there was no way to enforce it. Before this was resolved, Oklahoma's governor had mobilized the militia to take control of its oil fields in August, 1931, Texas mobilized the National Guard and Texas Rangers shortly after, an oil shutdown was enforced stabilizing prices. With the Depression settling in across the U.S. (and in the wake of the Teapot Dome scandal, itself over oil), Franklin Roosevelt appointed Harold Ickes as Secretary of the Interior, and established a number of measures including "certificates of clearance" for all oil shipments within the US -- oil without certificates wasn't salable. That regime remained in place until March of 1972, when peak oil extraction in the US meant that limits were no longer necessary -- slack demand was now being met through imports, not domestic production. Which left the U.S. vulnerable to a foreign oil embargo, experienced in October of 1973. There's a pretty strong argument to be made that stable oil prices, as the base of the U.S. economy, had a great deal to do with uniform economic growth in the post-WWII period, from 1945-1972. It's after that date that many of the "modern" crises of economics have been felt: stagflation, offshoring, wage stagnation, etc. There have been better and worse times, but those have tended to be driven by total global oil abundance (or shortages), with cheap oil beginning in the mid-1980s through the late 1990s, with few exceptions (1990 and the first Gulf War War notably). But yes, a noncompetitive controlled market can be a good thing. More: http://www.reddit.com/r/dredmorbius/comments/2akwjj/oil_and_the_free_market_or_not_so_much/ http://www.reddit.com/r/dredmorbius/comments/2akwjj/oil_and_... ________________________________ Notes: 1. http://www.ycombinator.com/rfs/ http://www.ycombinator.com/rfs/ 2. http://www.phil.frb.org/research-and-data/publications/business-review/2007/q1/br_q1-2007-3_oil-shocks.pdf http://www.phil.frb.org/research-and-data/publications/busin... 3. http://www.powells.com/biblio/7-9781439110126-9 http://www.powells.com/biblio/7-9781439110126-9
notastartup 12y ago
How do I create a monopoly with SaaS when we are constantly looking to undercut each other?
- aidenn0 12y ago
  Do something nobody else can do. Good luck.
- lazylizard 12y ago
  undercut all of them out of business. now you're a honest to goodness monopoly. http://dailycaller.com/2011/05/13/vindicating-standard-oil-100-years-later/ http://dailycaller.com/2011/05/13/vindicating-standard-oil-1...
  - notastartup 12y ago
    can we say a SaaS is a commodity business? Amazing history, I am blown away by Standard Oil, although I wonder if the same principles apply, continue to innovate and keep prices low.
bambax 12y ago
> All failed companies are the same: They failed to escape competition. This is absurd; most failed companies didn't face any competition because they didn't find a market; you can argue that they in some way failed to escape competition from alternative products to their own, that a firm is in competition with every other firm on the planet because they all fight for the money of their customers, etc., but this is specious. Failed companies failed to sell above cost, and most failed to sell at all. Not much to do with competition.
- biot 12y ago
  If you take this analysis one step further, one could argue that a company which fails to sell profitably before its death is not a company at all; it's a hobby or charity, redirecting invested time and money to its customers.
- buckbova 12y ago
  > This is absurd; most failed companies didn't face any competition because they didn't find a market You are saying the majority of companies that fail produce a product with no market? I doubt that's the case. There is a market, however small and a product that is similar or can be substituted for your product is still in direct competition.
  - bambax 12y ago
    Yes, I may be exaggerating but that's what I'm saying; -- many restaurants would still have no customers even if they were the only restaurant in the world.
- WalterBright 12y ago
  Many companies fail long before they even manage to create a product, never mind figure out how to produce it, distribute it, etc. There's a long list of reasons why, not many have to do with competition.
rayiner 12y ago
It's ironic how much people in the technology industry rail against monopolies, when you think how much of the fundamental technology we depend on today was invented by monopolies. Point 1. The world of technology as we know it today was invented at Xerox PARC: http://en.wikipedia.org/wiki/PARC_(company)#Accomplishments http://en.wikipedia.org/wiki/PARC_(company)#Accomplishments. The GUI, Ethernet, OOP. What wasn't invented at Xerox was invented at AT&T Bell Labs: http://en.wikipedia.org/wiki/Bell_Labs http://en.wikipedia.org/wiki/Bell_Labs. The transistor, major advances in semiconductors, UNIX, C. Point 2. PARC existed on the back of Xerox's patent monopoly on copiers: http://en.wikipedia.org/wiki/Xerox#1970s http://en.wikipedia.org/wiki/Xerox#1970s. Bell Labs existed on the back of the AT&T telephone monopoly. The government initiated action against both monopolies in the 1970's: forcing Xerox to license its patent portfolio to Japanese competitors, and breaking up AT&T. It's interesting to think about whether these actions were ultimately good or bad for innovation.
- Curmudgel 12y ago
  Transistors and semiconductor advances were far more important than UNIX or C. You can't have modern computing without the underlying hardware, but it's not hard to envisage an alternate reality where UNIX or its descendents never became popular.
- fnordfnordfnord 12y ago
  As sad as it makes me that Bell Labs no longer exists, I am glad that Bell was broken up. If it weren't for that we might still have only half a dozen different colors and two different shapes of telephone (rental only). It seems that people don't even start to rail against monopolists until long after they've become obnoxious tyrants. It also seems that there are plenty of other fine inventions in the world that weren't made by the benevolence of some monopolist.
- foobarqux 12y ago
  I think your list overstates the contribution of the private sector in many of those inventions. For example, the (semiconductor) transistor was patented elsewhere before IBM invented the way to produce it. OOP existed before Xerox Smalltalk. And while C and UNIX are widely used I don't think they were extremely innovative; they were instances of a class, not a new class itself. Finally, it is not clear how much state support was given to these labs. At least today, Xerox Parc gets 1/3 of its funding from the government.
mullingitover 12y ago
This is true of sports as well. True competition in sports is a lose-lose for teams--if teams don't compete, they can coordinate to maximize their gambling winnings, and everyone comes out ahead (except for fans, just as lack of competition in business makes consumers the loser).
- Double_Cast 12y ago
  This sort of reminds me of professional wrestling. [0] https://en.wikipedia.org/wiki/Kayfabe https://en.wikipedia.org/wiki/Kayfabe
analog31 12y ago
>>>>> The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits. This is missing an important detail: It still has to be a product that somebody wants to pay for. Even a monopoly could have a zero or negative profit. >>>>> By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute. i.e., the kind of company whose success can only be described thanks to hindsight.
marknadal 12y ago
Monopolies are indistinguishable from governments at the end of the day, as they become the enforcement agency. And if capitalism, by definition, is an economic and political system not controlled by a government, then Peter Thiel is flat out wrong. This quote by Thiel, in the article, contradicts his argument: 'By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute.' Even the mere presence of "other firms" implies there is something to compare against, and as a result, that comparison is the competitive nature of capitalism. Maybe he needs to review his economic theories, but he is in the wrong and inconsistent.
- adventured 12y ago
  Monopolies are easily distinguishable, at all times, from governments because they possess no legislative authority, no control over or enforcement of laws, and no authority over the use of force. It's an extraordinarily simple, and obvious, line of separation that nobody could ever confuse in a free market economy with constitutional protections on individual liberty.
  - marknadal 12y ago
    That assumes we do live in a free market economy and that our individual liberties are protected by the constitution. However, it looks like from the disclosures of people like Snowden, that that is not the case. The line gets blurred when the government meddles in the affairs of businesses (like wire tapping) and when businesses lobby enforcement laws into place. Over time, as entropy increases, things may become hard to distinguish.
mindcrime 12y ago
IMO, this is the most important bit in the article, and it also seems to be the piece that everybody is overlooking: So why are economists obsessed with competition as an ideal state? It is a relic of history. Economists copied their mathematics from the work of 19th-century physicists: They see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business. Yes, exactly. Pretty much all classical / neo-classical economic thought is rooted in the idea of equilibrium, but a strong case can be made that economic systems are not equilibrium systems. Eric Beinocker covers this ground very thoroughly in The Origin of Wealth[1]. I would personally recommend this book to everyone interested in economics. Beinhocker and the other "complexity economists" present a model of economic activity as an evolutionary system with periods of punctuated equilibrium as opposed to a strict equilibrium system. [1]: http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/dp/1422121038 http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/d... In business, equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won't matter to the world; some other undifferentiated competitor will always be ready to take your place. Bingo. Yes, the "goal" is to achieve a "monopoly" but even if you do achieve that, you don't get to set still and just collect limitless money for perpetuity... because evolution will eventually deliver a competitor in one form or another.
- roel_v 12y ago
  "Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business." I've had this debate dozens of times and strangely enough I find myself siding with the economists on this one. Yes, the 'end state' of most economic theories is equilibrium; that doesn't mean that all of a sudden everything in economics is wrong. If your end state is equilibrium but you acknowledge that at any moment in time you're converging towards equilibrium, but also that at any moment in time your convergence function is different, then your theory might still hold. This is then the point where I argue that a system dynamics approach is the way to do that, but apart from that: I found the theory in the article flimsy and arguing a straw man. No economist in the literature today argues what Thiel apparently argues in the article (and book). But probably that's just part of the spin to get people to buy the book.
graycat 12y ago
So, Thiel is interested in monopolies: "But the world we live in is dynamic: We can invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world." Okay, I'll try to understand this: I'll go back to the Al Capone "A person can get much farther with a kind word and a gun than with a kind word alone." Well, with a VC firm an entrepreneur can get much farther with "new and better things" and traction significant and growing rapidly than with "new and better things" alone. Or, with the traction, a VC might just assume there are "new and better things" in there somewhere?
glassdoor 12y ago
Peter Thiel, seems like people in YCombinator are taking on monopolies. That sort of means competing inherently, and competing is not necessarily is bad a thing. It is bad if you are behind though. For example AMD is 1.5 years behind intel in technology and would you like to buy an AMD chip now? of course not! But they were at some point much ahead of intel in terms of technology. If you want to win a competition especially when you space has already won by a search engine like google, you need to not compete directly. Yahoo could have still be in the business if they were making a good search engine that was giving more relevant results than google. My point is, in order to win any competition and therefore make a monopoly you need great idea and great people making great products, and that is what google has and Yahoo don't. If yahoo can inspire smart people to work for it and make great products believe me even the google empire will be falling down.
glassdoor 12y ago
Peter Thiel, seems like people in YCombinator are taking on monopolies. That sort of means competing inherently, and competing is not necessarily is bad a thing. It is bad if you are behind though. For example AMD is 1.5 years behind intel in technology and would you like a buy AMD chip now? no! But they were at some point much ahead of intel in terms of technology. If you want to win a competition especially when you space has already won by a search engine like google, you need to not compete directly. Yahoo could have still be in the business if they were making a good search engine that was giving more relevant results than google. My point is, in order to win any competition and therefore make a monopoly you need great idea and great people making great products, and that is what google has and Yahoo don't. If yahoo can inspire smart people to work for it and make great products believe me even the google empire will be falling down.
elchief 12y ago
Some random thoughts: - Economists don't like monopolies due to dead-weight loss. However there is only dead-weight loss if the monopolist cannot price-discriminate. If they can price-discriminate, it's simply of a transfer of wealth from customers/employees/suppliers to shareholders. So there is some room to argue against it on efficiency grounds (if they can't price-discriminate), and definitely room to argue against on equality grounds (if you care about such things). - Unregulated monopoly is the most profitable form of business. Abusive monopolies are probably more profitable than nice ones. Abusive monopolies are illegal (?). As a manager at a US public company, you are legally required to maximize shareholder value, ie try to create an abusive monopoly, ie break the law. - Monopolies are bad for everyone except the shareholders and probably management - Oligopolies probably do more R&D than monopolies, as monopolies don't have an incentive to spend money on research. Perfect competition leaves no profit to spend on R&D
- Tloewald 12y ago
  Perfect competition might assume R&D costs as an expense of doing business, so your last point is highly debatable. In general, technological change changes the boundary values within which economic analysis produces useful results, so the best economics can do is tell you what impact a technological change might have once that change is well-understood.
  - lazylizard 12y ago
    if the R&D were any good, then there won't be perfect information though...
QuantumChaos 12y ago
This article is shallow and misleading. Economists do indeed have models of perfect competition, and perfect monopoly. But these are not the only concepts that economics has. For example, the market for pharmaceuticals is competitive ex ante, but monopolistic ex post. Anyone can choose to put research into developing a drug. But having discovered a particular drug, they have a monopoly over it. Even though the monopoly is bad ex post, the promise of a monopoly is needed as an incentive to engage in productive activity ex ante. The same applies even more to company's like Apple and Google who maintain their monopoly by creating a unique product. So the article is completely wrong when it says "To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state or innovates its way to the top. I'm not interested in illegal bullies or government favorites" Every kind of monopoly looks the same ex post, but monopolies achieved through innovation and monopolies achieved through bribery or favoritism are completely different ex ante. The first kind of monopoly incentivizes inventing new things. The second kind incentivizes unproductive activity such as bribery.
michaelochurch 12y ago
True. I wonder if he realizes that he just made an argument for professionalization (or, worse, unionization) of software engineers. My guess is that he'd not like that can of worms. But it's open. Doing typical corporate programming, the stuff that any CommodityJavaDrone can do, is for losers. I'm not sure that managing that kind of work (which is the only way to make money in that world) is less loser-like. Right now, the less-savvy (or cornered) programmers do what their bosses ask them to do. The savvy programmers chase high-quality experience, read esoteric papers on company time, and only seriously work on the 10% of in-company projects that will help their careers. This arrangement is anarchic but there are always enough people who are cornered (family/financial pressures) and can be pushed into taking the less-savvy path and doing what they're told. And the personal-brand-definers have more fun and may get promoted faster early on, or get to strike out as consultants, but they're unlikely to get seriously rich (500k+) as they would if, you know, programmers were actually paid what they're worth. So the VCs and corporate executives and (to a lesser degree) software managers still make out like bandits. What if that changed, though? What if programmers collectively realized that we had allowed ourselves to be commoditized and were overcompeting and losing all over the place? Since I've been grappling with this issue for years, here's some further reading from my blog: [1] What’s a mid-career software engineer actually worth? Try $779,000 per year as a lower bound. ( http://michaelochurch.wordpress.com/2014/05/24/whats-a-mid-career-software-engineer-actually-worth-try-779000-per-year-as-a-lower-bound/ http://michaelochurch.wordpress.com/2014/05/24/whats-a-mid-c... ) [2] Why programmers can't make any money: dimensionality and the Eternal Haskell Tax. ( http://michaelochurch.wordpress.com/2014/06/06/why-programmers-cant-make-any-money-dimensionality-and-the-eternal-haskell-tax/ http://michaelochurch.wordpress.com/2014/06/06/why-programme... ) [3] Programmer autonomy is a $1 trillion issue. ( http://michaelochurch.wordpress.com/2012/11/25/programmer-autonomy-is-a-1-trillion-issue/ http://michaelochurch.wordpress.com/2012/11/25/programmer-au... ) [4] How the Other Half Works: An Adventure in the Low Status of Software Engineers. ( http://michaelochurch.wordpress.com/2014/07/13/how-the-other-half-works-an-adventure-in-the-low-status-of-software-engineers/ http://michaelochurch.wordpress.com/2014/07/13/how-the-other... )
- S4M 12y ago
  Can you explain what Thiel's article has to do with professionalizaton or unionizaton of software engineers? Thiel's thesis here is that you need to innovate to hold an at least temporary monopoly on something (you have the monopoly because you're the only one in the market yet), it has nothing to do with what you mention.
glibgil 12y ago
Cicada
oscargrouch 12y ago
Moral of story: Make some billions and say any shit you want, newspaper will create articles of whatever you say and people will think you are some kind of a genius Modern society is a funny thing
- thesteamboat 12y ago
  This has been known for some time: > And it won't make one bit of difference if I answer right or wrong. > When you're rich, they think you really know! - If I Were a Rich Man, from Fiddler on the Roof http://www.youtube.com/watch?v=Pl7BVr36bbs#t=225 http://www.youtube.com/watch?v=Pl7BVr36bbs#t=225
pdonis 12y ago
There's a bait and switch in this article. Thiel starts out arguing,correctly, that monopolies can generally capture more of the value they create. But he ends up arguing, incorrectly, that monopolies create more value. Why incorrectly? Because his own opening paragraphs say otherwise: he says airlines (competitive) create more value than Google (monopoly), although Google captures far more value than the airlines.
lazylizard 12y ago
so he's a joseph schumpeter fan!
hyp0 12y ago
Monopolists can afford R&D, without demanding products or papers. eg Xerox PARC labs, AT&T labs Today we have Microsoft Research and Google of course is funding lots of stuff that it's not really making money from.
jokoon 12y ago
it's true that patents create monopolies, but I don't think they're explicitly designed for that. Aren't patents there to allow a company to have a temporary monopoly, to benefit from its invention, which expires the day the patent expire ?
jacknews 12y ago
Thiel is correct that capitalism is more about monopoly, rather than competition, and of course the fact that innovative companies in newly emerging markets have managed to obtain locks on natural monopolies (eg in operating systems, telephone networks and so on) has led to huge success and profits. But he's completely wrong that this is a good thing, at least not for the overall economy in the long term, as opposed to individual companies in the short term. To extend his example, if the restaurant business were like search engines, you'd have a choice of just a few big chains (maybe macdonalds, and pizza hut) which would be on every street. Direct competition is absolutely vital, because it drives innovation. Innovation is how companies escape competition. Companies should perhaps enjoy some limited "monopoly" over their innovations, but they should not be allowed to milk them forever, and probably, for example, the current patent system awards much too much and too long a monopoly for much too little innovation. Introducing, encouraging, or even mandating competition by splitting companies up, is required in order to keep companies innovating, rather than dominating and then exploiting, and it is one of government's most important functions, sadly neglected in recent decades. Of course VC fund managers like Thiel would like you to believe that monopolies are good, since that's how they profit - invest upfront, and then reap huge rewards based on monopoly valuations.
known 12y ago
Monopoly leads to Hegemony

133 points by foobarqux 12y ago

Is google is the king of search, how do other competitors (bing/yahoo) stay in business and why do they want to try to fight google? Why don't they just focus their efforts on something else?

rwmj 12y ago
They barely do make money. Bing is heavily subsidised both financially by Microsoft and by what remains of Microsoft's desktop monopoly. Yahoo is a lot more than a search company, and hardly in the best of health. Is anyone making significant money out of search (apart from Google)? Does DDG? As for why they would want to be in search. For Bing it seems highly misguided. DDG probably would like to be even 1% as big as Google, so they could sell adverts and make $billions.
- SoapSeller 12y ago
  Yandex and Baidu.
  - rwmj 12y ago
    Fair point, although I'm doubtful Baidu could survive if it had to actually compete with Google (which is banned or filtered in most of China).
    - coldtea 12y ago
      Actually Google failed to gain any market share in China, and "filtered" didn't play any role in that. If anything Baidu is equally filtered and monitored. Google just doesn't appeal much to the Chinese sensibilities, and especially earlier had very bad Chinese search results.
- mbesto 12y ago
  Yahoo doesn't "barely" make money. $1.3bn to be exact.[0] You're right, Bing is subsidized, but it's not like their revenues are $0. I appreciated your effort to add to the conversation, but "They barely do make money." followed by "Is anyone making significant money out of search" doesn't add much to the discussion. [0]https://www.ventureharbour.com/visualising-size-google-bing-yahoo/ https://www.ventureharbour.com/visualising-size-google-bing-...
  - rwmj 12y ago
    That's 1/50th of what Google makes, from a broader range of products. Seems to back up my point.

lalos 12y ago

Basically, don't enter over saturated markets unless you offer something that makes you different. Google did it offering relevant results for search, Apple did with an iPhone that just works. The key of Thiel's reasoning is 'By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute'.

anon808 12y ago
Exactly. A company can have a monopoly on product quality, or manufacturing efficiency, not necessarily a monopoly on a vague, conventional definition of an industry. Another example is in-n-out burger. They don't have a monopoly on hamburgers, but they do have a monopoly on their kind of hamburger (high quality/freshness, low price at scale).
- marknadal 12y ago
  You must not have had an In-N-Out burger, they hardly have high quality. I did a blind taste test study on 23 participants, between McDonalds meat and In-N-Out. There were no significant results - people were only able to identify the correct meat 53% of the time (and it was McDonald's, not In-N-Out's, indicating a slight preference towards McDonald's taste). Essentially, every time you ordered a burger, you could flip a coin and you wouldn't notice the difference in the meat. This was a small sample size, but I want to expand it with a more comprehensive study. Where most In-N-Out fans go wrong is that they compare a $1 McDonalds Cheeseburger that has no lettuce or tomatoes, etc. with a $4 In-N-Out burger that lots of garnish and Thousand Island Dressing. A more "accurate" comparison would be between one of McDonald's Quarter-Pounders, of similar price, and In-N-Out, but ultimately the dressing is going to cause the divide... not the "high quality/freshness" of the burger.

ekm2 12y ago

Imagine if Mark Zuckerberg would have heard this advice and been convinced that there was no point in competing with MySpace..

rwmj 12y ago
You're saying that MySpace was highly tuned? It was awful. It was a truly terrible experience, even compared to other social network sites (eg. mixi.jp had a far better experience back in 2004). It was obvious to everyone that you could make a better social network than MySpace -- I even suggested it to my co-founder back then.
dredmorbius 12y ago
But he wasn't competing with MySpace. Not when he started The Face Book at Harvard. Nor when he expanded that out over numerous other Ivys and Stanford, then additional selective universities. It wasn't until he'd created an existing, high-quality, attractive userbase, of interest to both advertisers and the general public, that he was competing with MySpace. Sometimes the monopoly is in where you define your market. Amazon took a similar tack, first going after book sales (an excellent market for online commerce), then a broader set of markets.
- rthomas6 12y ago
  It's worth noting that Peter Thiel himself uses these two companies as examples of what he's talking about.
  - dredmorbius 12y ago
    Where? Not in the linked article. Do you have a reference?
    - rthomas6 12y ago
      http://blakemasters.com/post/21169325300/peter-thiels-cs183-startup-class-4-notes-essay http://blakemasters.com/post/21169325300/peter-thiels-cs183-...

mempko 12y ago

This is the secret of capitalists. Monopoly for them, and market discipline for everyone else. "Actually, capitalism and competition are opposites" This is why State capitalism or something like fascism to them is the ideal. Any democracy is the most HORRIBLE thing. Because after all, there are only a few capitalists, and then there is everyone else...

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runaway 12y ago
I think the idea is that in a capitalist competition we should assume all actors are trying to monopolize the industry and really only follow laws to avoid harming their bottom line. The same way you'd design any system by assuming any user might be malicious. The way to manage this is to eliminate corruption and strictly scrutinize the relationships between businesses and gov't entities.
- mempko 12y ago
  oh to live in a world with which those relationships can't exist because the entities can't exist. But that might be too radical.
  - penprog 12y ago
    Sooo... you want a world without business or government entities? What?
    - coldtea 12y ago
      What "what"? This has been a standard aim for anarchists etc for ages...
    - mpyne 12y ago
      I think the thought seems to be that if we don't allow people to organize in any meaningful way (i.e. against the people) then the problem of organizations is solved. Never mind that said organizations would simply resort to setting up unofficial enforcement mechanisms, much like organized crime already does today. Other counter-examples aren't that hard to find either.

larrys 12y ago

Thiel fails to mention that at the time that air travel was regulated airlines did make money even though they weren't a monopoly and had competition. http://www.investopedia.com/stock-analysis/031714/why-airlines-arent-profitable-dal-ual-aal-luv-jblu.aspx http://www.investopedia.com/stock-analysis/031714/why-airlin... "The landmark event in U.S. commercial aviation history – as important as the incorporation of sound was to motion pictures, or the forward pass was to football – was the Airline Deregulation Act of 1978. Prior to its passage, the federal government set rates, fares and schedules, guaranteeing profitability to each oligopolistic airline but doing its best to thwart innovation. " So prior to about 1978 during certain stretches it was pretty good to be operating an airline.

Spooky23 12y ago
Thwart innovation? The only true change had been low cost carriers, who can use their late entry to the market to avoid things like collective bargaining and route networks. So now we have a dreadful airline industry that only survives by grace of the occasional direct investment by the government.

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bjt 12y ago

Thiel is playing fast and loose with the definition of profit here. While it's true that "economic profit" will go to zero under perfect competition, that only means that the company's accounting profit is the same as the discount rate in the economy generally. It doesn't mean that there's zero accounting profit on the company's books. http://www.investopedia.com/terms/e/economicprofit.asp http://www.investopedia.com/terms/e/economicprofit.asp

tim333 12y ago
He's also playing fast and loose with the definition of monopoly. Oxford dictionary: Monopoly - 1) The exclusive possession or control of the supply of or trade in a commodity or service. There is no way Google is a monopoly by that definition. Bing or any other company can and do compete. Google dominates because they are better but that is a very different thing.
- anon808 12y ago
  Maybe you could say that google has a monopoly on high quality/relevant search results?
  - marknadal 12y ago
    Again, you are mistaking "high quality" with consumer's "differing tastes". See my reply to your In-N-Out comment.
pdonis 12y ago
It also doesn't mean that nobody working for the company is making money. The workers' salaries aren't counted as "profits" (including salaries that the owners pay themselves). Thiel says at one point that a business that has to compete can probably only pay its workers minimum wage, but that depends on the market the business is competing in. Intel is in a competitive market for CPUs, but they don't pay their employees minimum wage.

spindritf 12y ago

He means a very particular type of monopolist To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state or innovates its way to the top. I'm not interested in illegal bullies or government favorites: By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute. which is simillar to Robin Hanson's "manic" monopolist One simple robust solution to the innovation problem would seem to be manic monopolists: one aggressively-profit-maximizing firm per industry. Such a firm would internalize the entire innovation problem within that industry, all the way from designers to suppliers to producers to customers – it would have full incentives to encourage all of those parties to put nearly the right amount and type of efforts into innovation. It's not about rent seeking, or some silly brand recognition narcissism, but about being able to coordinate and do stuff that would be widely beneficial but unprofitable for any of the participants on their own. http://www.overcomingbias.com/2014/04/rah-manic-monopolists.html http://www.overcomingbias.com/2014/04/rah-manic-monopolists....

deleted 12y ago
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rayiner 12y ago
Maybe that's what he means, but there are numerous examples of very innovative monopolies that are "illegal bullies" (e.g. Microsoft) or "government favorites" (e.g. AT&T, Xerox). IBM is probably all three.
- freedom123 12y ago
  Thats the exact point. There has never once, in human history, been a monopoly in a free market. They only exist via government controls. Just study American history between 1900-2000
roel_v 12y ago
"He means a very particular type of monopolist" That's a very kind way of interpreting what he's saying. I'd go as far as saying 'he's redefine common terms to fit a peculiar theory that is nice, simple and wrong". It's mostly populist (to a certain crowd) pandering: a bit of controversy (monopoly is good!), a bit of pseudo-intellectualism (look at me being all academic and worldly!), and some 'please validate my prejudices' (patents bad, government stupid, big business bad except for those I'd want to work for).

thrush 12y ago

I think an implicit point that Thiel is trying to make is that there are enough untapped opportunities out there that there is no point to compete. The startup world is not a zero-sum game. We can all win.

analog31 12y ago
True, but competing could be a successful short term strategy, if you can identify a target who are burdened with excessive costs for some reason, or can think of a cheaper way to make something.
- thrush 12y ago
  I see what you mean, and this would probably be good for society (you are supposedly replacing something with a better version). Granted if you could identify a different undeveloped business, you may have more to gain individually. Imagine there is company A pursuing market A', if company B decides to pursue A', then A and B have to split the value of A'. Rather, B can pursue B', and if |A'| ~ |B'|, then there could be more to gain by not being competitive. If B(A') < |B'| then this still holds true (where B of A' is a function of how much value of A' that B can realize). In the finite world that we live in, there can only be so many A', B' or X', so this strategy may eventually much more in favor of competition. What I believe Thiel has identified is that we haven't reached that stage yet, or even that it's improbable that we will ever reach that stage.

3rd3 12y ago

Off-topic: Why do these kind of websites always have a stock price next to brand names? Is this useful Information? It looks a little bit scammy.

penprog 12y ago
This website is the website for the Wall Street Journal. Wall Street is pretty much used to describe the financial markets of the US as a whole. If you are reading an article about finance it's useful for the reader to have instant access to the stock price information. How anyone would find this to seem scammy I wouldn't understand.
anthony_franco 12y ago
Many times the articles reference some new, meaningful information about the respective company and seeing the change in stock price adds merit to the story.
- SapphireSun 12y ago
  I don't know. Usually when I see this UI widget I think "correlation and causation" over and over. It's the rare story that definitively causes or reports on other news that causes a significant change in price. In a prestigious newspaper, showing the price inline with the article devalues the content. It emphasizes the "what's in it for me" angle rather than speaking to considered learning. If I were the designer, I'd rather include those metrics at the end of the article with more context and graphs (though I have a feeling this was carefully A/B tested). What's more is that even a few hours to a few days after a story is released, the stock price no longer has any relevance to the story since the widgets are not pegged to that point in time.
danso 12y ago
"these kind"? You mean news sources with a focus on the financial? (a few financial blogs do the same thing too). It's an automated parsing script(either client or server side). For mentioned companies that are publicly traded and named in a story, the script looks up their stock listing and adds it and a hyperlink to the story for context. In most cases, though, it's not very helpful. But easier just to have the script run on every story than to do the linking by hand for a few stories.

cromwellian 12y ago

Apple is a counter example. They have stiff competition, control a minority of the market, but make more than all the other players combined.

qq66 12y ago
That's true now, but it's a fairly recent development in Apple's history. It remains to be seen whether Apple can maintain its enviable position in the long term.
elchief 12y ago
A.k.a. "monopolistic competition" - a pretty bad term IMO
prostoalex 12y ago
It's not like they're not building a moat, with things like Facetime, iMessage and AppStore, which exist only within Apple ecosystem. Analogs of them exist outside of that ecosystem, but it's not like the apps you've bought through iTunes AppStore will magically work on Windows Phone, should you decide to switch.
- cromwellian 12y ago
  I don't know anyone who cares one iota about Facetime. The AppStore is the only real moat because you pay all that money and can't take the apps out of the platform. Facetime and iMessage can be replaced with any number of cross platform third party alternatives, many of them better.

DominikR 12y ago

His comparison of Googles high margins to those of a monopoly seems wrong to me, because Google doesn't actually set any prices for advertisement. Its customers set those prices by bidding on keywords. Not the other way around.

dredmorbius 12y ago

A fascinating line of markets and competition that I've only learned of relatively recently, and is of interest in light of YC's first category in its request for startups,[1] is the role of the Texas Railroad Commission in US oil markets. I first ran across a reference to this in a paper from the Federal Reserve Bank of Philadelphia, written by Keith Sill, chief economist, "Macroeconomics of Oil Shocks": "From 1948 to 1972, the price of oil produced [that is: extracted] in the U.S. was influenced by the production quotas set by the Texas Railroad Commission (TRC). Each month, the TRC (and other state regulatory agencies like it) made forecasts of petroleum demand for the upcoming month and set production quotas to meet the forecasted demand."[2] A more complete history occupies most of Chapter 13, "The Flood", of Daniel Yergin's The Prize: The epic quest for oil, money, and power.[3] The short version: in the 1920s, an early abundance of oil which was proving hugely useful for automobiles and machinery looked to be iffy, until vast deposits were found in Texas and Oaklahoma in 1930. But that created a new problem: with no restrictions on drilling, oil prices collapsed to as little as $0.13/bbl. Government production controls were prohibited by Texas state law (lobbied for by independent oil producers), though they were permitted in Oklahoma. A target of $1/bbl. was set but there was no way to enforce it. Before this was resolved, Oklahoma's governor had mobilized the militia to take control of its oil fields in August, 1931, Texas mobilized the National Guard and Texas Rangers shortly after, an oil shutdown was enforced stabilizing prices. With the Depression settling in across the U.S. (and in the wake of the Teapot Dome scandal, itself over oil), Franklin Roosevelt appointed Harold Ickes as Secretary of the Interior, and established a number of measures including "certificates of clearance" for all oil shipments within the US -- oil without certificates wasn't salable. That regime remained in place until March of 1972, when peak oil extraction in the US meant that limits were no longer necessary -- slack demand was now being met through imports, not domestic production. Which left the U.S. vulnerable to a foreign oil embargo, experienced in October of 1973. There's a pretty strong argument to be made that stable oil prices, as the base of the U.S. economy, had a great deal to do with uniform economic growth in the post-WWII period, from 1945-1972. It's after that date that many of the "modern" crises of economics have been felt: stagflation, offshoring, wage stagnation, etc. There have been better and worse times, but those have tended to be driven by total global oil abundance (or shortages), with cheap oil beginning in the mid-1980s through the late 1990s, with few exceptions (1990 and the first Gulf War War notably). But yes, a noncompetitive controlled market can be a good thing. More: http://www.reddit.com/r/dredmorbius/comments/2akwjj/oil_and_the_free_market_or_not_so_much/ http://www.reddit.com/r/dredmorbius/comments/2akwjj/oil_and_... ________________________________ Notes: 1. http://www.ycombinator.com/rfs/ http://www.ycombinator.com/rfs/ 2. http://www.phil.frb.org/research-and-data/publications/business-review/2007/q1/br_q1-2007-3_oil-shocks.pdf http://www.phil.frb.org/research-and-data/publications/busin... 3. http://www.powells.com/biblio/7-9781439110126-9 http://www.powells.com/biblio/7-9781439110126-9

notastartup 12y ago

How do I create a monopoly with SaaS when we are constantly looking to undercut each other?

aidenn0 12y ago
Do something nobody else can do. Good luck.
lazylizard 12y ago
undercut all of them out of business. now you're a honest to goodness monopoly. http://dailycaller.com/2011/05/13/vindicating-standard-oil-100-years-later/ http://dailycaller.com/2011/05/13/vindicating-standard-oil-1...
- notastartup 12y ago
  can we say a SaaS is a commodity business? Amazing history, I am blown away by Standard Oil, although I wonder if the same principles apply, continue to innovate and keep prices low.

bambax 12y ago

> All failed companies are the same: They failed to escape competition. This is absurd; most failed companies didn't face any competition because they didn't find a market; you can argue that they in some way failed to escape competition from alternative products to their own, that a firm is in competition with every other firm on the planet because they all fight for the money of their customers, etc., but this is specious. Failed companies failed to sell above cost, and most failed to sell at all. Not much to do with competition.

biot 12y ago
If you take this analysis one step further, one could argue that a company which fails to sell profitably before its death is not a company at all; it's a hobby or charity, redirecting invested time and money to its customers.
buckbova 12y ago
> This is absurd; most failed companies didn't face any competition because they didn't find a market You are saying the majority of companies that fail produce a product with no market? I doubt that's the case. There is a market, however small and a product that is similar or can be substituted for your product is still in direct competition.
- bambax 12y ago
  Yes, I may be exaggerating but that's what I'm saying; -- many restaurants would still have no customers even if they were the only restaurant in the world.
WalterBright 12y ago
Many companies fail long before they even manage to create a product, never mind figure out how to produce it, distribute it, etc. There's a long list of reasons why, not many have to do with competition.

rayiner 12y ago

It's ironic how much people in the technology industry rail against monopolies, when you think how much of the fundamental technology we depend on today was invented by monopolies. Point 1. The world of technology as we know it today was invented at Xerox PARC: http://en.wikipedia.org/wiki/PARC_(company)#Accomplishments http://en.wikipedia.org/wiki/PARC_(company)#Accomplishments. The GUI, Ethernet, OOP. What wasn't invented at Xerox was invented at AT&T Bell Labs: http://en.wikipedia.org/wiki/Bell_Labs http://en.wikipedia.org/wiki/Bell_Labs. The transistor, major advances in semiconductors, UNIX, C. Point 2. PARC existed on the back of Xerox's patent monopoly on copiers: http://en.wikipedia.org/wiki/Xerox#1970s http://en.wikipedia.org/wiki/Xerox#1970s. Bell Labs existed on the back of the AT&T telephone monopoly. The government initiated action against both monopolies in the 1970's: forcing Xerox to license its patent portfolio to Japanese competitors, and breaking up AT&T. It's interesting to think about whether these actions were ultimately good or bad for innovation.

Curmudgel 12y ago
Transistors and semiconductor advances were far more important than UNIX or C. You can't have modern computing without the underlying hardware, but it's not hard to envisage an alternate reality where UNIX or its descendents never became popular.
fnordfnordfnord 12y ago
As sad as it makes me that Bell Labs no longer exists, I am glad that Bell was broken up. If it weren't for that we might still have only half a dozen different colors and two different shapes of telephone (rental only). It seems that people don't even start to rail against monopolists until long after they've become obnoxious tyrants. It also seems that there are plenty of other fine inventions in the world that weren't made by the benevolence of some monopolist.
foobarqux 12y ago
I think your list overstates the contribution of the private sector in many of those inventions. For example, the (semiconductor) transistor was patented elsewhere before IBM invented the way to produce it. OOP existed before Xerox Smalltalk. And while C and UNIX are widely used I don't think they were extremely innovative; they were instances of a class, not a new class itself. Finally, it is not clear how much state support was given to these labs. At least today, Xerox Parc gets 1/3 of its funding from the government.

mullingitover 12y ago

This is true of sports as well. True competition in sports is a lose-lose for teams--if teams don't compete, they can coordinate to maximize their gambling winnings, and everyone comes out ahead (except for fans, just as lack of competition in business makes consumers the loser).

Double_Cast 12y ago
This sort of reminds me of professional wrestling. [0] https://en.wikipedia.org/wiki/Kayfabe https://en.wikipedia.org/wiki/Kayfabe

analog31 12y ago

>>>>> The opposite of perfect competition is monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits. This is missing an important detail: It still has to be a product that somebody wants to pay for. Even a monopoly could have a zero or negative profit. >>>>> By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute. i.e., the kind of company whose success can only be described thanks to hindsight.

marknadal 12y ago

Monopolies are indistinguishable from governments at the end of the day, as they become the enforcement agency. And if capitalism, by definition, is an economic and political system not controlled by a government, then Peter Thiel is flat out wrong. This quote by Thiel, in the article, contradicts his argument: 'By "monopoly," I mean the kind of company that is so good at what it does that no other firm can offer a close substitute.' Even the mere presence of "other firms" implies there is something to compare against, and as a result, that comparison is the competitive nature of capitalism. Maybe he needs to review his economic theories, but he is in the wrong and inconsistent.

adventured 12y ago
Monopolies are easily distinguishable, at all times, from governments because they possess no legislative authority, no control over or enforcement of laws, and no authority over the use of force. It's an extraordinarily simple, and obvious, line of separation that nobody could ever confuse in a free market economy with constitutional protections on individual liberty.
- marknadal 12y ago
  That assumes we do live in a free market economy and that our individual liberties are protected by the constitution. However, it looks like from the disclosures of people like Snowden, that that is not the case. The line gets blurred when the government meddles in the affairs of businesses (like wire tapping) and when businesses lobby enforcement laws into place. Over time, as entropy increases, things may become hard to distinguish.

mindcrime 12y ago

IMO, this is the most important bit in the article, and it also seems to be the piece that everybody is overlooking: So why are economists obsessed with competition as an ideal state? It is a relic of history. Economists copied their mathematics from the work of 19th-century physicists: They see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business. Yes, exactly. Pretty much all classical / neo-classical economic thought is rooted in the idea of equilibrium, but a strong case can be made that economic systems are not equilibrium systems. Eric Beinocker covers this ground very thoroughly in The Origin of Wealth[1]. I would personally recommend this book to everyone interested in economics. Beinhocker and the other "complexity economists" present a model of economic activity as an evolutionary system with periods of punctuated equilibrium as opposed to a strict equilibrium system. [1]: http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/dp/1422121038 http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/d... In business, equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won't matter to the world; some other undifferentiated competitor will always be ready to take your place. Bingo. Yes, the "goal" is to achieve a "monopoly" but even if you do achieve that, you don't get to set still and just collect limitless money for perpetuity... because evolution will eventually deliver a competitor in one form or another.

roel_v 12y ago
"Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business." I've had this debate dozens of times and strangely enough I find myself siding with the economists on this one. Yes, the 'end state' of most economic theories is equilibrium; that doesn't mean that all of a sudden everything in economics is wrong. If your end state is equilibrium but you acknowledge that at any moment in time you're converging towards equilibrium, but also that at any moment in time your convergence function is different, then your theory might still hold. This is then the point where I argue that a system dynamics approach is the way to do that, but apart from that: I found the theory in the article flimsy and arguing a straw man. No economist in the literature today argues what Thiel apparently argues in the article (and book). But probably that's just part of the spin to get people to buy the book.

graycat 12y ago

So, Thiel is interested in monopolies: "But the world we live in is dynamic: We can invent new and better things. Creative monopolists give customers more choices by adding entirely new categories of abundance to the world." Okay, I'll try to understand this: I'll go back to the Al Capone "A person can get much farther with a kind word and a gun than with a kind word alone." Well, with a VC firm an entrepreneur can get much farther with "new and better things" and traction significant and growing rapidly than with "new and better things" alone. Or, with the traction, a VC might just assume there are "new and better things" in there somewhere?

glassdoor 12y ago

Peter Thiel, seems like people in YCombinator are taking on monopolies. That sort of means competing inherently, and competing is not necessarily is bad a thing. It is bad if you are behind though. For example AMD is 1.5 years behind intel in technology and would you like to buy an AMD chip now? of course not! But they were at some point much ahead of intel in terms of technology. If you want to win a competition especially when you space has already won by a search engine like google, you need to not compete directly. Yahoo could have still be in the business if they were making a good search engine that was giving more relevant results than google. My point is, in order to win any competition and therefore make a monopoly you need great idea and great people making great products, and that is what google has and Yahoo don't. If yahoo can inspire smart people to work for it and make great products believe me even the google empire will be falling down.

glassdoor 12y ago

Peter Thiel, seems like people in YCombinator are taking on monopolies. That sort of means competing inherently, and competing is not necessarily is bad a thing. It is bad if you are behind though. For example AMD is 1.5 years behind intel in technology and would you like a buy AMD chip now? no! But they were at some point much ahead of intel in terms of technology. If you want to win a competition especially when you space has already won by a search engine like google, you need to not compete directly. Yahoo could have still be in the business if they were making a good search engine that was giving more relevant results than google. My point is, in order to win any competition and therefore make a monopoly you need great idea and great people making great products, and that is what google has and Yahoo don't. If yahoo can inspire smart people to work for it and make great products believe me even the google empire will be falling down.

elchief 12y ago

Some random thoughts: - Economists don't like monopolies due to dead-weight loss. However there is only dead-weight loss if the monopolist cannot price-discriminate. If they can price-discriminate, it's simply of a transfer of wealth from customers/employees/suppliers to shareholders. So there is some room to argue against it on efficiency grounds (if they can't price-discriminate), and definitely room to argue against on equality grounds (if you care about such things). - Unregulated monopoly is the most profitable form of business. Abusive monopolies are probably more profitable than nice ones. Abusive monopolies are illegal (?). As a manager at a US public company, you are legally required to maximize shareholder value, ie try to create an abusive monopoly, ie break the law. - Monopolies are bad for everyone except the shareholders and probably management - Oligopolies probably do more R&D than monopolies, as monopolies don't have an incentive to spend money on research. Perfect competition leaves no profit to spend on R&D

Tloewald 12y ago
Perfect competition might assume R&D costs as an expense of doing business, so your last point is highly debatable. In general, technological change changes the boundary values within which economic analysis produces useful results, so the best economics can do is tell you what impact a technological change might have once that change is well-understood.
- lazylizard 12y ago
  if the R&D were any good, then there won't be perfect information though...

QuantumChaos 12y ago

This article is shallow and misleading. Economists do indeed have models of perfect competition, and perfect monopoly. But these are not the only concepts that economics has. For example, the market for pharmaceuticals is competitive ex ante, but monopolistic ex post. Anyone can choose to put research into developing a drug. But having discovered a particular drug, they have a monopoly over it. Even though the monopoly is bad ex post, the promise of a monopoly is needed as an incentive to engage in productive activity ex ante. The same applies even more to company's like Apple and Google who maintain their monopoly by creating a unique product. So the article is completely wrong when it says "To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state or innovates its way to the top. I'm not interested in illegal bullies or government favorites" Every kind of monopoly looks the same ex post, but monopolies achieved through innovation and monopolies achieved through bribery or favoritism are completely different ex ante. The first kind of monopoly incentivizes inventing new things. The second kind incentivizes unproductive activity such as bribery.

michaelochurch 12y ago

True. I wonder if he realizes that he just made an argument for professionalization (or, worse, unionization) of software engineers. My guess is that he'd not like that can of worms. But it's open. Doing typical corporate programming, the stuff that any CommodityJavaDrone can do, is for losers. I'm not sure that managing that kind of work (which is the only way to make money in that world) is less loser-like. Right now, the less-savvy (or cornered) programmers do what their bosses ask them to do. The savvy programmers chase high-quality experience, read esoteric papers on company time, and only seriously work on the 10% of in-company projects that will help their careers. This arrangement is anarchic but there are always enough people who are cornered (family/financial pressures) and can be pushed into taking the less-savvy path and doing what they're told. And the personal-brand-definers have more fun and may get promoted faster early on, or get to strike out as consultants, but they're unlikely to get seriously rich (500k+) as they would if, you know, programmers were actually paid what they're worth. So the VCs and corporate executives and (to a lesser degree) software managers still make out like bandits. What if that changed, though? What if programmers collectively realized that we had allowed ourselves to be commoditized and were overcompeting and losing all over the place? Since I've been grappling with this issue for years, here's some further reading from my blog: [1] What’s a mid-career software engineer actually worth? Try $779,000 per year as a lower bound. ( http://michaelochurch.wordpress.com/2014/05/24/whats-a-mid-career-software-engineer-actually-worth-try-779000-per-year-as-a-lower-bound/ http://michaelochurch.wordpress.com/2014/05/24/whats-a-mid-c... ) [2] Why programmers can't make any money: dimensionality and the Eternal Haskell Tax. ( http://michaelochurch.wordpress.com/2014/06/06/why-programmers-cant-make-any-money-dimensionality-and-the-eternal-haskell-tax/ http://michaelochurch.wordpress.com/2014/06/06/why-programme... ) [3] Programmer autonomy is a $1 trillion issue. ( http://michaelochurch.wordpress.com/2012/11/25/programmer-autonomy-is-a-1-trillion-issue/ http://michaelochurch.wordpress.com/2012/11/25/programmer-au... ) [4] How the Other Half Works: An Adventure in the Low Status of Software Engineers. ( http://michaelochurch.wordpress.com/2014/07/13/how-the-other-half-works-an-adventure-in-the-low-status-of-software-engineers/ http://michaelochurch.wordpress.com/2014/07/13/how-the-other... )

S4M 12y ago
Can you explain what Thiel's article has to do with professionalizaton or unionizaton of software engineers? Thiel's thesis here is that you need to innovate to hold an at least temporary monopoly on something (you have the monopoly because you're the only one in the market yet), it has nothing to do with what you mention.

glibgil 12y ago

Cicada

oscargrouch 12y ago

Moral of story: Make some billions and say any shit you want, newspaper will create articles of whatever you say and people will think you are some kind of a genius Modern society is a funny thing

thesteamboat 12y ago
This has been known for some time: > And it won't make one bit of difference if I answer right or wrong. > When you're rich, they think you really know! - If I Were a Rich Man, from Fiddler on the Roof http://www.youtube.com/watch?v=Pl7BVr36bbs#t=225 http://www.youtube.com/watch?v=Pl7BVr36bbs#t=225

pdonis 12y ago

There's a bait and switch in this article. Thiel starts out arguing,correctly, that monopolies can generally capture more of the value they create. But he ends up arguing, incorrectly, that monopolies create more value. Why incorrectly? Because his own opening paragraphs say otherwise: he says airlines (competitive) create more value than Google (monopoly), although Google captures far more value than the airlines.

lazylizard 12y ago

so he's a joseph schumpeter fan!

hyp0 12y ago

Monopolists can afford R&D, without demanding products or papers. eg Xerox PARC labs, AT&T labs Today we have Microsoft Research and Google of course is funding lots of stuff that it's not really making money from.

jokoon 12y ago

it's true that patents create monopolies, but I don't think they're explicitly designed for that. Aren't patents there to allow a company to have a temporary monopoly, to benefit from its invention, which expires the day the patent expire ?

jacknews 12y ago

Thiel is correct that capitalism is more about monopoly, rather than competition, and of course the fact that innovative companies in newly emerging markets have managed to obtain locks on natural monopolies (eg in operating systems, telephone networks and so on) has led to huge success and profits. But he's completely wrong that this is a good thing, at least not for the overall economy in the long term, as opposed to individual companies in the short term. To extend his example, if the restaurant business were like search engines, you'd have a choice of just a few big chains (maybe macdonalds, and pizza hut) which would be on every street. Direct competition is absolutely vital, because it drives innovation. Innovation is how companies escape competition. Companies should perhaps enjoy some limited "monopoly" over their innovations, but they should not be allowed to milk them forever, and probably, for example, the current patent system awards much too much and too long a monopoly for much too little innovation. Introducing, encouraging, or even mandating competition by splitting companies up, is required in order to keep companies innovating, rather than dominating and then exploiting, and it is one of government's most important functions, sadly neglected in recent decades. Of course VC fund managers like Thiel would like you to believe that monopolies are good, since that's how they profit - invest upfront, and then reap huge rewards based on monopoly valuations.

known 12y ago

Monopoly leads to Hegemony