Should you avoid competition?

Businesses are on a spectrum from a perfect competition to monopoly. If you could decide where your business was on the spectrum you should choose the monopoly. Companies make revenue but the margin that is left for the owner differs and the margin is the part that creates value. But people feel more comfortable knowing that other people are doing the same things making coopetition somewhat attractive. It is hard doing something new and being afraid of uncertainty in is people’s nature. When starting a startup you should aim for monopoly, the uncertainty can really pay off. Look at Apple, Google, Microsoft and Amazon that operate on the narrow market in the tech industry. All very successful businesses that have accumulated so much cash that they do not know what to do with it. If you are the only one on the market you set the price and decide the margin. In monopoly you can grow your company faster and it is less expensive to get into the market than in perfect competition.

Of cores no one wants to advertise that their company is a monopoly because of government regulations, so they tell lies. They tell us that the market they are competing on is much bigger than it really is and pretend they are in incredible competition. Peter Thiel, co-founder of PayPal and early investor in Facebook, took google as an example in his lecture at Stanford University. Google has around 66% market share in the search engine market which makes it dominant on that market. But google hardly describes its self as a search engine company any more, even though the majority of their revenue comes from the search engine. You can think of google in many ways, it is a search engine, an online advertisement agency, a technology company among other things. If you describe google as advertisement agency the US online search advertisement market is around $17 billion. If you make the description of the market a little bit wider, the online advertisement market is twice as big or around $37 billion making the competition look more fears. Going even further, the total US advertisement market is around $150 billion and the total global advertisement market is around $495 billion making goggle’s market share only a fraction of what it is if you describe it as a search engine company.

But how do you build your own monopoly? You should focus on a small markets, make your product better and take over that market. You should not focus on what the competition is doing, find your own way and create value for the customer. Once you are dominant on the market you should focus on how to expand that market. If you go into a large market the competition is much greater and it is harder to differentiate your company from other companies. The very unique businesses, that are doing things differently, are more likely to create their own monopoly. Peter emphasized on the last mover advantage, the idea does not have to be something completely new but it can be an improvement on a key dimension for something that is already on the market.

If you have an idea that is different and you create your own monopoly you might want to take ethics into account and social responsibility when deciding your margin.