I have been reading Zero to One by Peter Thiel recently in which he writes extensively about technology and monopolies versus the ideology of competition. In Chapter 5, he writes about what he calls the last mover advantage. As I read this chapter, my mind kept coming back to Zoom.
Thiel states that many entrepreneurs think only about short-term growth when really, they should be asking themselves, “will this business still be around a decade from now?” To answer this question, Thiel argues that one must think critically about the qualitative characteristics rather than just the numbers.
Thiel then goes on to write about four characteristics of a monopoly. I will list these below and give my thoughts on them as they relate to Zoom.
- Proprietary Technology - According to Thiel, “proprietary technology is the most substantive advantage a company can have because it makes your product difficult or impossible to replicate.” As a rule of thumb, Thiel argues proprietary technology must be at least ten times better than its closest substitute.
Many people might argue that Zoom has no advantage as it relates to its technology, but I would strongly disagree. I just got off a Zoom call with my 88-year-old grandfather and my siblings and he was the one who organized it and sent the meeting invite. The call went flawlessly. You mean to tell me this is the same as FaceTime or Skype or whatever else you want to compare it to? I don’t think so. The product just works. I firmly believe Zoom is more than ten times better than any of its closest competitors.
Network Effects - The product becomes more useful as more people use it. I would also argue Zoom is building a strong network effect. Pretty much everyone I know now has the Zoom app downloaded on their phone. Zoom is now a household name and used as a verb. If you want to set up a video call today, you use Zoom. This network is in the early innings in my opinion, and has a lot more room to grow.
Economies of Scale - A business gets stronger as it gets bigger as the fixed cost can be spread out. Zoom is already profitable and enjoys the benefits of being a software company. Thiel writes that “a good startup should have the potential for great scale.” Zoom certainly has this, but I will come back to this in a bit.
Branding - This one is pretty self explanatory, and as mentioned earlier, Zoom has already become a verb and one of the world’s most recognizable brands. As branmin just pointed out, Zoom is not taking its foot off the gas as Zoom ads are appearing all over the world in front of thousands of eyeballs. The reason Zoom has been so successful in buildings its brand, is because it has the fundamentals to support it. As I mentioned in the first bullet point, Zoom is an incredible product.
These are the four characteristics of a monopoly, according to Thiel, and I would argue Zoom checks all four boxes. However, it doesn’t stop there.
As the chapter concludes, Thiel writes that it is actually better to be the last mover than the first mover in a market. To be a last mover, “the business must make the last great development in a specific market. The way to do that is to dominate a small niche and scale up from there, toward your ambitious long-term vision.”
Zoom has made a great development in the videoconferencing market and in my mind, dominates this niche. Where it gets really exciting, however, is the ability to scale up towards its ambitious long-term vision. We are already seeing this with Zoom Phone and Zoom Rooms. Muji already did a better job than I could do describing this next stage from Zoom when he wrote, “Zoom just aced the land. Now comes the expand.” → https://discussion.fool.com/zoom-q121-recap-34529119.aspx
When I read this chapter, a lightbulb went off in my head. I immediately thought of Zoom and how it has become what Thiel calls the last mover. Time will tell whether or not this turns out to be true, but I can’t help but think we are getting to witness the construction of what might become one of the world’s most valuable businesses.