Why Highly Successful Companies are Different?

 The business version of our antagonist question is: Which kind of company is nobody building?

This question is harder than it looks because your company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create.

This means that even very big businesses can be bad businesses. For example, some of the airline

companies serve millions of passengers and create hundreds of billions of dollars of value each year.

but some of them make just a few per passenger trip.

Compare them to Google, which creates less value but captures far more. Google brought in $50 billion in 2012 (versus $160 billion for the airlines), but it kept 21% of those revenues as profits—more than 100 times the airline industry’s profit margin that year. 

Google makes so much money that it’s now worth around three times more than most of the big airline combined.

To understand their strategy you need to understand the difference between perfect competition and monopoly.

Perfect competition

“Perfect competition” is considered both the ideal and the default state in Economics. So-called

perfectly competitive markets achieve equilibrium when producer supply meets consumer demand.

Every firm in a competitive market is undifferentiated and sells the same homogeneous products. Since no firm has any market power, they must all sell at whatever price the market determines.

If there is money to be made, new firms will enter the market, increase supply, drive prices down, and thereby eliminate the profits that attracted them in the first place.

If too many firms enter the market, they’ll suffer losses, some will fold, and prices will rise back to sustainable levels.

Under perfect competition, in the long run, no company makes an economic profit.

Monopoly

The opposite of perfect competition is a monopoly. Whereas a competitive firm must sell at the market price, a monopoly owns its market so it can set its own prices. Since it has no competition, it produces at the quantity and price combination that maximizes its profits.

To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a license from the state, or innovates its way to the top.

Alibaba is one of the known example monopolies by govt. favoritism.  But there are monopoly companies that are so good at what it does that no other firm can offer a close substitute. Google is a good example of a company.

it hasn’t competed in search since the early 2000s, when it definitively distanced itself from Microsoft and Yahoo!

Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity

business.