When Different Words Mean Different Things to Different Writers, Readers Feel the Pain
On Friday, September 12, 2014, the Wall Street Journal featured an article by Peter Thiel on competition and monopolies. The Journal supported the article with a video interview with Thiel about his notion.
In the second paragraph of Thiel’s article he contrasts the financial performance of Google, in the year 2012, to the performance of the entire airline industry: “But in 2012, when the average airfare each way was $178, the airlines made only 37 cents per passenger trip. Compare them to Google, which creates less value but captures far more.” But what does “value” mean, and for whom? Unfortunately Thiel includes neither a definition of “value” nor much of any description, whatsoever, of just how Google “captures far more”.
One may argue Thiel’s failure to support his thesis with these points of detail is trivial. But, in this writer’s opinion, the lack of detail is, thematically, consistent with the rest of the “atmosphere” of this article, and, actually, a very important indicator of some “snake oil in the wine”. So neglecting to include any notion of what “value” means, Thiel proceeds further, and presents the core of his thesis: businesses should make best efforts to achieve monopolies in their industries, and avoid reacting to competitive pressure as much as possible.
Leaving aside, for a moment, the decidedly non free market capitalism at the core of an argument for monopolies, this writer would prefer to focus back on Thiel’s construct of Google vs the airlines as the preferred method of demonstrating, ultimately, a lack of connection between building a business plan to prosper by delivering value to a market, rather than building a business plan to prosper through some other means.
We are choosing to refer to the method Thiel evidently presumes Google implemented to make “100 times the airline industry profit margin that year ” as simply “some other means” for a reason. In this writer’s opinion, there is no other way for a business to prosper than by delivering “value”. Google made a lot more profit than the entire airline industry because customers paid them, proportionately, more money for a product much less costly to develop than the cost of flying a jet plane, with hundreds of people on board, anywhere. They paid more money because they thought they received something more valuable from the product purchased from Google. They would not have paid this price had they thought otherwise.
Further, we would argue, airlines have failed to deliver any more value to customers other than a lowest possible price of a flight at a most convenient time because of market pressure, where consumers have come to expect essentially the same product to be delivered from any number of sources. Flights are, for better or worse, commodities. Back in 2012, click ads on Google were not.
We would recommend readers read Thiel’s article very closely and be wary of semantic stretches.
Ira Michael Blonder
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