Peter Thiel - Competition Is For Losers - Stanford CS 183B Autumn Quarter 2014-2015

0:02 all right good afternoon today's speaker is Peter Thiel Peter was the founder of PayPal and Palantir and Founders Fund and has invested in most of the tech companies in Silicon Valley and he's going to talk about strategy and competition thank you for coming here awesome thanks Sam thanks for inviting me thanks for for having me I I sort of have a I have a single-day Beeks that I'm completely obsessed with in on the business side which is that if you're starting a company if you're the founder entrepreneurs starting a company you always want to aim for monopoly and and that and you want to always avoid competition and so hence competition is

0:48 for losers something we'll be talking about today I'd like to I'd like to start by saying something about the the basic idea of when you start one of these companies how you go about creating value and there's this question what makes a business valuable and I want to suggest that there's basically a very simple very simple formula that you you have a valuable company two things are true number one that it creates X dollars a value for the world and number two that you capture Y percent of X and and the critical thing that that I think people always miss in the sort of

1:34 analysis is that x and y are completely independent variables and so X can be very big Y can be very small X can be of intermediate size and if Y is reasonably you big you can still get a very big business so to create a valuable company you have to basically both create something of value and capture some fraction of the value of what you've created and sort of just to just to illustrate this is a as a contrast there's if you sort of compare the US airline industry with a company like Google on search if you sort of measured by the size of these industries you could you could say that airlines are still more important

2:21 than search if you just measure it say by revenues there's 195 billion in domestic revenues in 2000 2012 Google had just north of 50 billion and this and so and certainly sort of on some intuitive level if you said you were given a choice and said well do you want to get rid of air all air travel or do you want to get rid of your ability to use search engines the intuition would be that air travel is something that's more important than search this is a course of just the domestic numbers you'd looked at this globally airlines are much much bigger than um then then then then searcher than Google is but but the profit margins are quite a bit less you know they were marginally profitable in 2012 I think the entire hundred year history of the airline

3:06 industry the cumulative profits in the u.s. have been approximately zero no companies make money they episodically go bankrupt they get recapitalized and you sort of cycle and repeat and this is reflected in you know the the combined market capitalization of the of the airline industries maybe something of the US airline industry something like a quarter that of Google so so you have you have a search engine much much smaller than than air travel but much more valuable and I think this this reflects these very different valuations on X&Y so you know if we look at perfect competition you know there are sort of there's some pros and cons to the world of perfect competition on a high level

3:53 it's always this is what you study in econ one it's always it's easy to model which i think is why econ professors like talking about perfect competition on it somehow is efficient especially in a world where things are static because you have all the consumer surplus gets captured by everybody and and politically it's what what we're what we're told is good in our society that you you want to have competition and this is somehow a good thing of course there are a lot of negatives it's it's generally not that good if you're you're you're involved in anything that's hyper competitive because you often don't make money I'll come back to this a little bit later so so I think at one end of the spectrum you have industries that are perfectly competitive and at the other end of the spectrum you have things that I would

4:38 say are monopolies and and they're you know they're much stable longer-term businesses you have more capital and and if you get a creative monopoly for inventing something new I think it's symptomatic of having created something something really valuable and so I do think this you know the the sort of the the extreme binary view of the world I I always articulate is that there are exactly two kinds of businesses in this world there are businesses that are perfectly competitive and there are businesses that are monopolies and there's shockingly little that is in between and this dichotomy is not understood very well because people are constantly lying about the nature of the businesses they're in and this is why this is in my

5:25 mind this is the most important it's not necessarily the most important thing in business but I think it's the most important business idea that people don't understand that there are just these two kinds of businesses and so let me say a little bit about the lies that people tell and so you basically on the basic if you sort of imagine that there was a spectrum of companies from perfect competition to monopoly the the apparent differences are quite small because the people who have monopolies pretend not to they will basically say you know and it's because you don't want to get regulated by the government you don't want the government to come after you so you will never say that you have monopoly so anyone who has a monopoly will pretend that they're in incredible competition and on the other end of the spectrum if you are incredibly

6:11 competitive and if you're in some sort of business where you will never make any money you will be tempted to tell a lie that goes in the other direction where you will say that you're doing something unique that is somehow less competitive than it looks because because you want it you will want to differentiate you want to try to attract capital or something like that so if the monopolist pretend not to have monopolies the NAM let's pretend to have monopolies the apparent difference is very small whereas the real difference I I submit is is actually quite big and so there's this distortion that happens because of the lies people tell about their businesses and the lies are sort of in these these opposite direction let me let me drill a little bit down

6:57 further on the the way these lies work and so you know the the the basic lie you tell as a non monopoly is that we're in a very small market the basic law you tells the monopolies is that the market you're in is much bigger than it looks and so and so typically if you want to think this in sort of set theoretic terms you could say that a monopoly tells a lie where you describe your business as the union of these vastly different markets and the anon monopolist describes it as the intersection so that in effect if you're if you're non monopolist you will

7:42 rhetorically describe your market as super small you're the only person in that market if you have monopoly you will describe it as super big and and there's lots of competition in it so some examples of how this how this works in practice so I always use restaurants as the example of a terrible business and there's always you know sort of my idea is that you know capitalism and competition are antonyms capitals someone accumulates capital world of perfect competition is a world where all the capital gets competed away so you're opening a restaurant business no one wants to invest because you just lose money so you have to tell some idiosyncratic narrative and you will say something like well we're the only British food restaurant in Palo Alto so it's British Palo Alto and and of

8:28 course that's too small a market because people may be able to drive all the way to Mountain View or even Menlo Park and there probably are no people who eat nothing but British food at least no people are still alive and so so that is that's that's a sort of a fictitiously narrow market there's there's sort of a Hollywood version of this where the way movies always get pet you know okay it's like a college football star you know joins an elite group of hackers to to catch the shark that killed his friend sorry and so that's now that is a movie that has not yet been made but but but the

9:14 question is is is that the right category or is the correct category it's just another movie in which case you know there are lots of those it's super competitive incredibly hard to make money no one ever makes money in Hollywood doing movies or it's really really hard and so you always have this question about does the intersection does is it real does it make sense does it have value that one should ask and of course there are startup versions of this where you and the sort of the bat really bad versions you just take a whole series of buzz word sharing mobile social apps you combine them and you have some kind of narrative and whether or not that's a real business or not is is a is it's generally a bad sign so it's almost this pattern recognition when you have this rhetoric of this sort

10:00 of intersections it generally does not work the something of somewhere is really mostly just the nothing of nowhere and it's like the Stanford of North Dakota one of a kind but it's not Stanford so let's look at the opposite the opposite lie is if you are let's say the the search company that's down the street from here and has about a happy 66 percent market share and is you know it's completely dominant in the search market Google has not just - almost never describes itself as a search engine these days um and instead it it describes itself in all these different ways so it sometimes says it's an

10:45 advertising company so if it was searched you'd say wow that's it's like its it has this huge market share that's really really crazy so it's like a incredible monopoly it's much bigger than its much a much more robust monopoly than Microsoft ever had in the 90s maybe that's why it's making so much money but if you if you say it's an advertising market you could say well there's search advertising at 17 billion and that's part of online advertising which is much bigger and then you know all US advertising is bigger and then by the time you get to global advertising that's close to 500 billion and so you're talking about three and a half percent so a tiny part of this much larger market or if you don't want to be

11:34 an advertising company you can always say that you're a technology company and so sorry and so the and and so and and the technology market is something like a one trillion dollar market and the narrative that you tell is Google in the technology market is well we're competing with all the car companies with our self-driving cars we're competing with Apple on TVs and iPhones we're competing with Facebook we're competing with Microsoft on on office products we're competing with Amazon on cloud services and so we are in this giant technology market where there's competition in every direction you you look and no we're not the

12:21 monopoly the government's looking for and we should not get regulated in any way whatsoever and so I think one has to always be super aware that there are these these very powerful incentives to to distort the nature of these markets one way or the other so um you know the the the evidence of narrow markets in the in the tech industry is is if you basically just if you look at sort of the some of the big tech companies Apple Google Microsoft Amazon they just um they've just been building up cash for year after year and you have these incredibly high profit margins and I would I would say that the that one of the reasons the tech industry in the US

13:07 has been has been so successful financially is because it's it's prone to creating all these monopolies like businesses and that's that's and it's reflected by the fact that these companies just a accumulate so much cash they don't even know what what to do with it beyond a certain point and so so let me say let me say a few things about about how to how to build a monopoly and I think I think that one of the sort of very counterintuitive ideas that comes out of this monopoly thread is that you want to go after small markets if you're a startup you know you want to get some monopoly you starting a new company you want to get to monopoly monopolies you

13:55 have a large share of a market how do you get to a large share of a market you start with a really small market and you take over that whole market and then and then over time you find ways to expand that market in in concentric circles and the thing that's always a big mistake is going after a giant market on on day one because that's typically evidence that that you somehow haven't defined the categories correctly that the and it's it normally means that there's going to be too much competition in one way or another and so I think almost all the successful companies in Silicon Valley had some model of starting with small markets and expanding and you know if you take Amazon you start with you start

14:41 with you know just a bookstore we have all the books in the world so it's it's a it's a it's a better bookstore than anybody else has in the world when it starts in the 90s it's online there's things you can do you can't do before and then you gradually expand into all sorts of different forms of e-commerce and other things beyond that you know eBay you start with Pez dispensers you move on to beanie babies and eventually it's it's all these different auctions for all these sorts of different goods and and what was very counterintuitive about what's very counterintuitive about many of these companies is they often start with markets that are so small that people don't think they don't think that they're valuable at all when when you get started the the PayPal version

15:30 of this was was when we started with with power sellers on eBay which was about 20,000 people when we first saw this happening in December of 99 January 2000 right after we launched there was a sense that that these were all it was such a small market it was terrible we thought these were terrible customers to have it's just people selling junk on the Internet why in the world do we want to be going after this market but but you know you there was a way to get a product that was much better for everybody in that market you could and we got to something like 25-30 percent you know market penetration in two or three months and you got some walking you got brand recognition and you're able to build the business from there so um so I always think these on these

16:15 these very small markets are quite underrated the Facebook version of this I always give is that you know the initial market at Facebook was ten thousand people at Harvard it went from zero to sixty percent market share in ten days that was a very auspicious start on the way this gets analyzed in business schools is always that's ridiculous it's such a small market it can't have any value at all and so I think the Business School analysis of Facebook early on or of PayPal early on or of eBay early on is that the markets were perhaps so small as to have almost no value and they would have had little value had they stayed small but it turned out there were ways to them grow them concentric Li and that's what made them that's what made them so valuable now I think the opposite version of this

17:03 is always where you have super big markets and and I there's so much so many different things that went wrong with all the clean tech companies in the last decade but but one one theme that ran through almost all of them was they all started with massive markets and every clean tech PowerPoint presentation that one saw in the years 2005 to 2008 which is sort of the clean tech bubble in in Silicon Valley started with we're in the energy market we're in a market that's measured in hundreds of billions or trillions of dollars and and then you know once you're sort of a a minnow in a vast ocean that's not a good place to be that means you have tons of competitors and you don't even know who all the competitors and so you want to be you know you want

17:50 to be a one-of-a-kind company where it's the only one in a small ecosystem you don't want to be the fourth online pet food company you don't want to be the tenth thin film solar panel company you don't want to be the hundredth restaurant in palo alto new restaurant industries a trillion-dollar industry so if you do a market size analysis you conclude restaurants are a fantastic business to go into and it's often large markets large existing markets typically mean that you have tons of competition very very hard to to differentiate so the first very counterintuitive into idea is is to go after small markets often markets that are so small people don't even notice them they don't think they make sense that's where you got to put hold and then and then if those markets are able to expand you can scale

18:38 into a big monopolies business you know it's um a second sort of there's sort of several different characteristics of these monopolies businesses that I like to focus on and there's probably no no sort of single formula to at night I always think that that in technology there's always a sense that you know the history of technology such that every every moment happens only once and so you know the next Mark Zuckerberg won't build a social network the next the next Larry Page won't be building a search engine the next Bill Gates when we're building an operating system and if you're copying these people you're not learning from them but it's it's and so there is always these very unique businesses that are doing something

19:24 that's not been done before end up end up having the potential to be a monopoly if you're you know the opening the opening line in Anna Karenina is that all happy companies sorry all happy families all happy families are alike all unhappy families are unhappy in their own special way and the opposite is true in business where I think all happy companies are different because they're doing something very unique all unhappy companies are alike because they fail to escape the essential sameness that is competition and so so one one sort of characteristic of a monopoly technology company is some sort of proprietary technology my sort of crazy somewhat arbitrary rule of thumb is you want to

20:09 have a technology that's an order of magnitude better than the next best thing so Amazon had over 10 times as many books and it's maybe not that high-tech but you figure out a way to sell 10 times as many books in an efficient online way you know PayPal the alternative for PayPal was using was using cheques to send money on eBay took seven to ten days to clear PayPal could do it more than ten times as fast so you want to have some sort of very very powerful improvement in some in some order maybe an order of magnitude improvement on some key dimension of course you know if you if you actually come with something totally new it's it's just it's just like an infinite improvement so I would say the the iPhone was the first smartphone that

20:54 worked and so that's you know that's like maybe not infinite but it's sort of definitely an order of magnitude or more of an improvement so I think the the technology is designed to give you a massive Delta over over the next the next best thing I think I think there often are network effects that can kick in that really help the thing that's very and these these leaked monopolies over time the thing that's very tricky about network effects is they're often they're often very hard to get started and so so even though everyone understands how valuable they are there's always this incredibly tricky question why is it valuable to the first person who's doing something economies of scale if you have something with very

21:39 high fixed costs very low marginal costs that's typically a monopoly like business and then then there's this thing of branding which is sort of like just this idea that gets lodged in people's brains I ever quite understand how branding works so I never invest in companies which just about branding but it is I think a real phenomenon that that creates a that creates real value I think one of the things I'm gonna come back just a little bit towards the end but one thing that's very striking is that software businesses are often are for some reason very good at some of these things they're especially good at the economies of scale part because the marginal cost of software is zero and so if you get something that works in

22:25 software it's often significantly better than the existing solution and then you have these tremendous economies of scale and you can scale fairly quickly so even if the markets start small you can grow your business quickly enough to stay on stay at the same size as the growing market and and maintain the sort of monopoly power now the critical thing about these monopolies is is it's not enough to have a monopoly for just a moment the critical thing is to have one that lasts over time and so you know in Silicon Valley is always the sort of idea that you want to be the first mover and I always think it's it's in some ways the better framing is you want to be the last mover you want to be the last company in a category those are the

23:13 ones that are really valid but Microsoft was the last operating system at least for many decades Google is the last search engine Facebook will be valuable if it turns out to be the last social networking site and and one way to one way to think of this last mover value is this idea that most of the value in these companies exists far in the future if you do sort of a discounted cash flow analysis of a business you look at you have sort of all these profit streams you have a growth rate the growth rates much higher than the discount rate and so most of the value exists far in the future I did I did this exercise at PayPal in March of 2001 we've been in business for about 27 months and and we sort of had you know the growth rate was

23:59 a hundred percent a year we were discounting future cash flows by about 30 percent and it turned out that about three-quarters of the value of the business as of 2001 came from cash flows in years 2011 and Beyond and and whenever you do the math on any of these tech companies you get an answer that's something like that so if you are trying to analyze any of the tech companies in Silicon Valley Airbnb Twitter Facebook on any emerging internet companies all the ones in combinator the math tells you that three-quarters eighty eighty-five percent of the value is coming from cash flows in years 2024 and beyond it's very very far in the future and and so one of the things that we always overvalue in Silicon Valley is growth rates and we

24:46 undervalue durability because a growth is something you can measure in the here and now and you can always track that very precisely the question of whether a company's still going to be around a decade from now that's actually what what dominates the value equation and that sort of is a much more qualitative sort of a thing and so if we if we went back to this idea of these characteristics of monopoly proprietary technology network effects economies of scale you can think of these these characteristics as ones that exists at a moment in time will you capture market and take it over but you also want to think about are these things going to last over time and so there's a time dimension to all these characteristics so network effects often have a great

25:32 time element where as the network scales the network effects actually get more robust and so if you have a network effect business that's often one that can become a bigger and stronger monopoly over time a proprietary technology is always a little bit of a tricky one so you want something it's order magnitude better than the state-of-the-art in the world today and that's how you get people's attention that's how you initially break through but then you don't want to be superseded by somebody else and so there are all these areas of innovation where there was tremendous innovation but no one made any money so you know describe manufacturing in the 1980s you could have you could do it better just build a better describe than anybody else you could take over the whole world

26:17 and two years later someone else would come along and replace yours and in the course of 15 years you got vastly improved disk drives so had great benefit to consumers but it didn't actually help the people who started these companies and so there's always this question about having a huge breakthrough in technology but then also being able to say explain why yours will be the last break through or at least the last breakthrough for a long time or will you make a breakthrough and then you can keep improving on it at a quick enough pace that no one can ever catch up so if you have a structure of a structure of the future where there's a lot of innovation and other people will come up with new things in the thing you're working on that's great for society it's

27:04 it's actually not that good for your business typically and then economies of scale where I talked about so so I think anyway so I think this last mover thing is is very critical I'm always tempted you know that I don't want to overdo the chess analogies but you know the first mover in chess is someone who plays white white is about a 1/3 of a pawn advantage so there's a small advantage to going first you want to be the last mover who wins the game and so it was the kappa blanka world champion a chess champion kappa blanka line you must begin by studying the endgame and and I do think that's why I wouldn't say that's the only thing you should study I think this uh the sort of perspective of asking these questions why will this still be the leading company ten fifteen twenty years from now is a is a really

27:50 critical one to try to think through let me um let me sort of I want to sort of go in to slightly other directions with this monopoly versus competition idea and I think so I think this is the the central idea in my mind for business for starting business or thinking about them and and there are some very interesting perspectives I think it gives on the whole you know on the whole history of innovation and technology and science because you know we've lived through we've lived through you know 250 300 years of incredible technological progress in you know many many different domains you know steam engine to Railways to

28:37 telephones refrigeration household appliances you know the computer revolution aviation all sorts of different areas of technological innovation and then there's sort of analogous thing that one can say about science where we've lived through centuries of an this amounts of innovation in in science as well and and the the thing that I think people always miss when they think about these things is is that because x and y are independent variables some of these things can be extremely valuable innovations but the people who invent them who come up with them do not get rewarded for this and and certainly if you go back to UM you need to create X

29:23 dollars in value you capture Y percent of X I would suggest that the history of science has generally been one where Y is zero percent across the board the scientists never make any money they're always deluded into thinking that they live in a just universe that will reward them for their work and for their inventions and this is probably the fundamental delusion that that scientists tend to suffer from in our in our society and and even in technology there are sort of many different areas of Technology where on where there were great innovations that create a tremendous value for society but but people did not did not actually capture that much of the of the value and so I think there is a sort of whole history

30:09 of science and technology that can be told from the perspective of how much value was actually captured and and certainly there are entire sectors where people didn't capture anything so you you're the smartest physicist of the 20th century you come up with special relativity you come up with general relativity you don't get to be a billionaire you don't even get to be a millionaire it just it just somehow doesn't work that way the railroads incredibly valuable most just went bankrupt because it was too much competition right brothers you fly the first plane you don't make any money and so I think there is sort of a structure to these industries that's that's very important and I think the the thing that's actually rare are the

30:55 success cases most so it's actually you really think about the history in this in this 250 years sweep it son you why is almost always zero percentage always zero in science it's almost always in technology and so it's very rare where people made money you know the early uh the late 18th early 19th century the first Industrial Revolution was the textile mills at the steam engine he sort of automated things and you had these relentless improvements that people improved efficiency of textile factories of manufacturing generally at a clip of five to seven percent every year year after year decade after decade you had 6070 years of tremendous improvement from 1780 to 1850 but even in 1850 most of the wealth

31:41 in Britain was still held by the landed aristocracy the workers didn't you know the workers didn't make that much the capitalists didn't make that much either it was all competed away there were hundreds of people running textile factories it was an industry that just the structure of the competition prevented people from from making any money and so I think there are in my mind there probably are only two broad categories in the entire history of the last 250 years where people have actually come up with new things and made money doing so one is these sort of vertically integrated complex monopolies which people did build in the Second Industrial Revolution at the end of the 19th and start of the 20th century and so this is like Ford it was the

32:26 vertically integrated oil companies like Standard Oil and what these are vertically integrated monopolies typically required was this very complex coordination you got a lot of pieces to fit together in just the right way when you assembled it you had a tremendous advantage this is actually done surprisingly little today and so I think this is sort of a Business Forum that when people can pull it off is very valuable it's typically fairly capital intensive we live sort of an in a in a culture where it's very hard to get people to buy into anything that's super complicated and takes very long to build but I you know when I sort of think about my colleague Elon Musk from PayPal success with Tesla and SpaceX I think

33:11 the key to these companies was the complex vertically integrated monopoly structure they had so if you sort of look at Tesla or SpaceX I guess you know was there sort of a single break and they certainly innovated on a lot of dimensions I don't think there was a single 10x breakthrough and battery storage or you know they may be working on some things in rocketry but they hadn't there was no sort of single massive breakthrough but what was really impressive was integrating all these pieces together and and doing it in a way that was more vertically integrated than most of their competitors so Tesla you also integrated the card distributors so they wouldn't steal all the money as has happened with the rest of the car industry in the US or SpaceX you basically pulled in all the

33:56 subcontractors where most of the large aerospace companies have single source subcontractors that are able to sort of charge monopoly profits to make it very hard for the integrated aerospace companies to make money and so vertical integration I think is sort of a very under explored modality of technological progress that people would would do well to look at more and then I think there is there is something about software itself that's very very powerful software has these incredible economies of scale these low marginal costs and there is something about the world of bits as opposed the world of atoms where you can often get very fast adoption and and the fast adoption is critical to capturing and taking over markets

34:42 because even if you have a small market if the adoption rate is too slow there'll be enough time for other people to enter that market and compete with you whereas if you have a small to mid-size market and have a fast adoption rate you cannot take over this market and so and so I think this is one of the reasons Silicon Valley has done so well and why a software has been of this phenomenal industry and what I what I would suggest what I would want to leave you with is there are sir these different rationalizations people give for why certain things work and why certain things don't work and I think these rationalizations always obscure this question of I'm creating X dollars in value and capturing Y percent of X so the science rationalization were always told is that the scientists aren't interested in making money they're doing

35:28 it for charitable reasons and that you're not a good scientist if you're motivated by money and I'm not even saying people should always be motivated by money or something like this but I think we should we should be a little bit more critical of this as a rationalization we should ask is this a rationalization to obscure the fact that y equals 0% and the scientists are operating in this in this sort of world where all the all the innovation is effectively competed away and they can't capture any of it directly and then the the software distortion that often happens is because people are making such a vast fortunes and software we infer that this is the most valuable thing in the world being done full-stop and so if people at Twitter make billions of dollars it must be the

36:15 Twitter is worth far more than anything Einstein did and and and what that sort of rationalization tends to obscure is again that x and y are independent variables and there are these businesses where you capture a lot of X and there others where you don't and so and so I do think on I do think the history of innovation has been this this history where the the microeconomics the structure of these industries has mattered a tremendous amount and when on and and and and there is sort of this this story where some people have made vast fortunes because they were in industries with the right structure and other people made nothing at all because because they were in these sort of very competitive things and we shouldn't just rationalize that way I think it's worth

37:00 understanding this better and then finally let me come back to this this this sort of overarching theme for this talk this competition is for losers idea which is always this provocative way to to title things because we always think of the losers as the people who are not good at competing we think of the losers as the people who are slow on the sports on the track team in high school or who do a little bit less well on the standardized tests and don't get into the right schools and so we always think of losers as people who can't compete and I want us to really rethink and and revalue this and consider whether it's possible that competition itself is off that we'd sort of it's not just the case

37:46 if we don't understand this monopoly competition dichotomy intellectually so so I've been talking about why why you wouldn't understand intellectually because people lie about it it's distorted we've all these the history of innovation rationalizes what's happened in all these very very strange ways but I think it's more than just an intellectual blind spot I think it's also a psychological blind spot where we find ourselves you know very very attracted to competition in in one form or another we find it reassuring if other people do things the word a poor reading the time of Shakespeare meant both primate and imitate and there is something about human nature that's deeply mimetic imitative ape like sheep like lemming like curd like and it's this very very problematic thing that we

38:32 need to always think through and try to overcome and and there is always this question about competition as a form of validation where we we go for things that lots of other people are going for and it's not that there is wisdom and crowds it's not when lots of people are trying to do something that that's proof of it being valuable I think it's when lots of people are trying to do something that is often that is often proof of insanity there 20,000 people a year who moved to Los Angeles to become movie stars about 20 of them make it I think the Olympics are a little bit better because you have a you know you can sort of figure out pretty quickly whether you're good or not so there's a little bit less of a deadweight loss to society you know you know you're you're

39:17 the sort of educational experience at a place the the the priest Stanford educational experience there's always sort of a non-competitive characterization way I think most of the people in this room had machine guns they were competing with people with bows and arrows so it wasn't exactly a parallel competition when you were in junior high school in high school there's always a question does the tournament make sense as you keep going and this is uh and so there is always this question if people go on to grad school or post postdoctoral education does the intensity the competition really make sense there's the the you know classic Henry Kissinger line that describing his fellow faculty at Harvard that the the battles were so ferocious because the stakes were so small scribing sort of academia and and

40:03 and you sort of think on one level this is a description of insanity you know why would people fight like crazy when the stakes are so small but it's also I think simply a function of the logic of the situation when it's important to differentiate yourself from other people when the differences are when the objective differences really are small then you have to compete ferociously to maintain a difference of one sort or another that's often more imaginary than real there's always sort of a personal version of this that I tell where I was sort of a hyper hyper track tie in my 8th grade junior high school yearbook when my friends wrote in you know I know you'll get into Stanford in four years as a sophomore sort of went into going to Stanford four years later the end of high school went to Stanford Law School

40:49 you know ended up at a big law firm in New York where from the outside everybody wanted to get in on the inside everybody wanted to leave and and you had and it was this very strange dynamic where after I sort of realized this was maybe not the best idea and I left after seven months and three days you know one of the people down the hall from me told me it's really reassuring to see you leave Peter I had no idea that it was possible to escape from Alcatraz which of course all you had to do was go out the front door and not come back but but so much of people's identities got wrapped up in in winning these competitions that they somehow lost sight of what was important what was valuable you know competition does make

41:35 you better at whatever it is that you're competing on because when you're competing you're comparing yourself with the people around you you're figuring out how do I beat the people next to me how do I do somewhat better at whatever it is they're doing and you will get better at that thing I'm not I'm not questioning that I'm not denying that but but it often comes at this tremendous price that you stopped asking some bigger questions about what's truly important and truly valuable and so I would I would say that don't always go through the tiny little door that everyone's trying to rush through maybe go around the corner and go through the vast gate that no one's taking thank you very much [Applause]