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Faking Market Share

I enjoyed Peter Thiel’s Zero to One which he wrote with Blake Masters. Thiel seems more interesting than most business leaders. The book spews out ideas in a slightly haphazard, but never boring, fashion. (To be clear I’m pretty sure I disagree with him on an awful lot of issues, but still think it is worth reading people you don’t agree with). One thing he pointed out that I will especially note is the problem of faking market share.

Some Controversial/Some Clearly Wrong Comments

Thiel is unafraid to think out loud. While I didn’t agree with many of his conclusions he was clearly willing to say things that might be controversial. He went well beyond the business as war metaphors that business leaders like to offer to puff themselves up. (For the record Thiel’s most egregious error was on page 123, he explained his team “preferred the capitalist Star Wars to the communist Star Trek”. Ignoring his overenthusiastic political labeling he doesn’t explain how intelligent people can prefer Star Wars to Star Trek.)

Competition Isn’t Typically Welcomed By Business People

Thiel has views that would be classed as right-of-center. Despite this, he isn’t shy about highlighting what he sees as a contradiction between competition and capitalism. He sees the aim of capitalism as trying to ensure that you aren’t competing away profits. This isn’t necessarily bad for consumers. For instance, you can avoid competition by simply offering something much better for your consumers than any potential rival. Still, it is important to bear in mind that business people aren’t always super keen on unfettered competition.

Competitive Lies: Faking Market Share

My favorite section is when he details competitive lies. He argues non-monopolists claim to be “in a league of our own” (page 28) despite being the same as other firms. On the other hand, monopolists, hoping to avoid government oversight, claim to be just a small player in a big market. Google thus liked to claim to be a medium-sized advertising firm — not the only search engine worth thinking about.

What allows both sets of firms to lie? Of course, it is market share. This metric can be massaged to say whatever you want it to say. Thiel talks about how you can always own a market. Market share is a problem when you can choose how you define the market. Define the market really narrowly, such as British food in Palo Alto and anyone can have a massive market share. Define the market really broadly, and almost any company can look like a plucky underdog in need of public support.

Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets…. Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.

Thiel and Master 2014, page 30

Few have explained the problems with market share as clearly as Thiel.

Faking Market Share: Choose Your Own Market Allows Share To Be Manipulated

For more on market share see here, here, and here.

Read: Peter Thiel with Blake Masters, 2014, Zero to One: Notes on Startups, or How to Build the Future, Crown Business, New York.

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