Peter Thiel’s four characteristics of monopoly

You know, a second sort of. There's sort of several different characteristics of these monopoly businesses that I like to focus on, and there's probably no sort of single formula to it. And I always think that in technology, there's always a sense that, you know, the history of technology is such that every moment happens only once. And so, you know, the next Mark Zuckerberg won't build a social network. The next Larry Page won't be building a search engine. The next Bill Gates won't be building an operating system. And if you're copying these people, you're not learning from them, but it's. And so there is always these very unique businesses that are doing something that's not been done before end up having the potential to be a monopoly. The opening line in Anna Karenina's that all happy companies. Sorry, all happy families. All happy families are alike. All unhappy families are unhappy in their own special way. And the opposite is true in business where I think all happy companies are different because they're doing something very unique. All unhappy companies are alike because they fail to escape the essential sameness that is competition. And so one sort of characteristic of a monopoly technology company is. Is some sort of proprietary technology. My sort of crazy, somewhat arbitrary rule of thumb is you want to have a technology that's an order of magnitude better than the next best thing. So Amazon had over 10 times as many books. It's maybe not that high tech, but you figure out a way to sell ten times as many books in an efficient online way. PayPal. The alternative for PayPal was using checks to send money on eBay. Took seven to ten days to clear. PayPal could do it more than ten times as fast. So you want to have some sort of very, very powerful improvement in some order, maybe an order of magnitude improvement on some key dimension. Of course, if you actually come with something totally new, it's just like an infinite improvement. So I would say the iPhone was the first smartphone that worked. And so that's. That's like, maybe not infinite, but it's sort of definitely an order of magnitude or more of an improvement. So I think the technology is designed to give you a massive delta over the next best thing. I think there often are network effects that can kick in that really help the thing that's very. And these lead to monopolies over time. The thing that's very tricky about network effects is they're often very hard to get started. And so even though everyone understands how valuable they are, there's always this incredibly tricky question, why Is it valuable to the first person who's doing something? Economies of scale. If you have something with very high fixed costs, very low marginal costs, that's typically a monopoly, like business. And then there's this thing of. Of branding, which is sort of like just this idea that gets lodged in people's brains. I never quite understand how branding works, so I never invest in companies where it's just about branding. But it is, I think, a real phenomenon that creates real value. I think one of the things. I'm going to come back to this a little bit towards the end, but one of the things that's very striking is that software businesses are often are, for some reason, very good at some of these things. They're especially good at the economies of scale part because the marginal cost of software is zero. And so if you get something that works in software, it's often significantly better than the existing solution. And then you have these tremendous economies of scale and you can scale fairly quickly. So even if the market starts small, you can grow your business quickly enough to stay at the same size as the growing market and maintain the sort of monopoly power.