An excerpt from Peter Thiel’s new book “Zero to One” (written with Blake Masters) appeared in Saturday’s Wall Street Journal – entitled “Competition Is For Losers” – making the hard to believe argument that monopolies are good not only just for the people running them, but for society. Thiel could not be more wrong.
While I respect Peter’s keen intellect, and his provocations toward the education establishment to reform, arguing for the social benefit of monopolies is absurd. Yes, securing a monopoly position is a great thing for founders. Who wouldn’t want a dominant market position, which enables strong profitability? But, as Teddy Roosevelt argued better than any American leader, monopolies are terrible for consumers and for society. Roosevelt’s reforms broke apart trusts in railroads, steel, and banking (see Ken Burns’ short new series on ‘The Roosevelts’ on PBS).
More recently, monopolies in cable TV (Comcast & Time Warner) lead to terrible customer service, electricity (PG&E) has led to lax controls and terrible spikes in pricing, and computer operating systems (Microsoft) has lead to a company that is dependent on cash cows and not innovative (at all), and 10 years of a flat stock price. Need more? I could keep going.
I’m as big a believer in entrepreneurial capitalism as anyone, and want to see winners rewarded, but for those who favor innovation, there are many negative structural consequences to monopolistic power, rooted mostly in human nature.
In the WSJ, Thiel features Google as his exemplar to support the value of monopolies. As I wrote on TechCrunch several years ago, Google went through a very difficult part of its history when it was becoming overly political and fat. The company, in fact, according to insiders and close observers risked becoming the next Microsoft until Larry Page stepped back in. Page stripped away a lot of waste, and brought back into the company the mindset of an inventor and entrepreneur. That said, large swaths of Google employees are paid a LOT and are not making any experiments or innovating. I know several senior Google leaders who fear that the company has lost its edge, and has lost the culture of experimentation that made the company.
This decline of an innovative culture is very typical for monopolies. I’ve spent countless hours with executives from companies with monopoly positions, and there’s a common pattern: they know they need to become more innovative, yet they have no incentive to change. They are so profitable, they have little incentive to change things up and don’t really take risks. If they do, they have fancy R&D labs that are often more for show. Customers and society ultimately lose.
Closer to home, Facebook, a company where Thiel is on the board, has played with fire with respect to privacy, and risks losing trust with not only a generation of teens that don’t use Facebook, but also all us old fogies who now watch it like a hawk. I want more alternatives to Google, Amazon, and Facebook so that they don’t screw with me.
Sorry Peter, I don’t buy your argument, but thank you as always for provoking thought.