Capturing value

• Create $X of value and capture Y% of X

Perfect competition

• Pro's: easy to model, efficient, "good for society"
• Con's: lowers profits

Monopoly

• People who have monopolies pretend not to have monopolies — claim to be a part of a much larger market
  • Google claims to be an Global Ad company not a US search company
• People who operate in perfect competition claim to have monopolies to attract customers and investors
• The something of nowhere is the nothing of somewhere — Stanford of North Dakota
• Start with a small market and monopolize —> then expand the market (Amazon starting with books)
  • Go after markets that other people think are too small to ever have any value — establish a foothold here then grow
• People boast about having large TAM's, this means they have a lot of competition — i.e. restaurant industry

Characteristics of monopolies

• You want to have a technology that is an order of magnitude better than the second best on some dimension — i.e. could process checks in 2 days vs the existing 10 days
• Economies of scale — marginal cost is extremely low —> scale quickly
• Network effects — becomes more valuable as user-base grows, monopoly grows over time
• Be the last mover —> have a monopoly that lasts, no one tries to compete with you at a certain point
• 80% of the enterprise value comes from the terminal value many years down the road —> the most important aspect is durability, making sure the company still exists down the road
• Lots of innovation in a space isn't good, it means you will become obsolete in the near future — you must be the last innovation for a while or be able to keep up with market innovation trends
• The person who flies the first plan is rarely the one who makes the most money — Wright brothers made no money — their Y was 0