Friday, October 3, 2014

Peter Thiel on proprietary technology

Proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate. [e.g. Google's search algorithms] 
...As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market. [e.g. Amazon offered at least 10 times as many books as any other bookstore.] 
The clearest way to make a 10x improvement is to invent something completely new. If you build something valuable where there was nothing before, the increase in value is theoretically infinite. 
...Or you can radically improve an existing solution: once you're 10x better, you escape competition. [e.g. PayPal made buying and selling on eBay at least 10 times better.] 
...You can also make a 10x improvement through superior integrated design. [e.g. iPad vs. all the previous versions of the tablet]