How Can You Have A Monopoly Within A Competitive Marketplace?
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Paypal co-founder Peter Thiel, in his 2014 startup digest “zero to one”, argues that creating a game-changing company means going from zero to one – from nothing to something (instead of going from something to a slightly better something).
A zero-to-one company lays claim to an uninhabited stretch of market space in order to create a monopoly. A monopoly, in Thiel’s vocabulary, is not that bad thing that we associate with big bullies. It’s a good thing that opens up valuable market territory by doing something new.
Whether or not a monopoly is a good thing for the economy, it’s most certainly fantastic for investors. Investors are constantly seeking an unfair competitive advantage that will give the venture they are investing the capacity to generate superior returns. In Thiel’s perception, such a monopoly entails a virtual absence of competition.
Economists and anti-trust regulators share the same definition (albeit not Thiel’s view that it’s a good thing). Their basic unit of analysis is the market – and they are measuring market share.
But there’s another model.
A model that agrees (with Thiel) that competition is bad, but simultaneously shows that it’s possible to have no competition – within a competitive market. It’s called the RavingFans™ model.
While economists and antitrust regulators are looking for market share in a given category, and investors are analyzing companies (number of users, growth rates, etc.), the RavingFans™ model is looking at the user psychology.
How can a zone of no competition exist in a highly competitive marketplace? Firstly because we’re not looking at the market level – or at the business unit level – but at the user level. RavingFans™ is not a model of macroeconomics or statistics. It’s a model of behavioral psychology.
We strongly believe that once a user is hooked on a product or service, they move from the general market to the “no competition zone”. In other words, once users enter a RavingFans™ state of mind, it is extremely hard to get them to switch products. Just try to convince an Apple enthusiast to consider buying a Nexus (Google phone) and you’ll understand the concept.
Look at people obsessed with checking their emails, their social media accounts, their notifications; all the while making sure they take photos of themselves smiling so they can post it online later. (What’s the point of doing anything, if it’s not documented? Perhaps that’s their belief).
What’s obvious to us is that people are hooked to several products, services, applications and brands like their lives depend on them.
And it’s vitally important for us that we understand that obsessive, addictive and compulsive behavior is good for any business providing products and services. It gives them an emotional monopoly over users, even though the market is hyper-competitive.
The reason: People in a RavingFans™ state of mind do not even see an alternative. They are obsessed with the product; compulsively using it, totally addicted to it. There are only two industries that call their customers “users”: the computer industry and drug dealers.
Perhaps that’s not a coincidence.
