Disruptive business: Paypal’s Peter Thiel on technology entrepreneurs


Jim: Good afternoon, everyone. Please take
your seats. I’m Jim Glassman, and I’m a visiting fellow here at the American Enterprises Institute,
where I work with the Center for Internet Communications and Technology Policy, which
was launched about a year ago, now includes, I believe it’s 13 or 14 fellows. We put out
“Tech Policy Daily.” We do conferences like this one. This is the first in a series and we’re extremely
happy to have Peter Thiel as our first interviewee. Let me introduce Peter before we get down
to the questions and of course, we want to hear from you, of course, when we’re finished. Peter Thiel was born in Germany. His family
moved to united stated when he was an infant. He was a great young chess player. He was
a big reader of science fiction. He went to Stanford got a bachelor’s degree in philosophy
and then to Stanford Law School and the as he relates in his new book “Zero To One” – which
is a terrific book. He was luckily turned down as his desire to be a Supreme Court clerk.
He then did work in a law firm, then went to Wall Street, and then in late 90s he co-founded
PayPal, which was eventually sold to eBay. He became the first outside investor in Facebook
where he is on the board. He founded a macro-hedge fund and then several venture funds including
Founders Fund. And through Founders and by himself, he has invested in such tech companies
as SpaceX, LinkedIn, Yelp, and Spotify. He’s also the co-founder and the largest investor
in Palantir, which is one of the leading big data companies that provides platforms for
financial companies and the U.S. intelligence community, and we’ll talk about that as well. Peter is deeply involved in causes around
the general subject of freedom, including the Committee to Protect Journalists, including
marijuana legislation or anti-legislation. He’s a pro-marijuana legislation. He’s the
largest financial supporter although, as he’ll tell you as he says in the book, he doesn’t
necessarily partake himself. He’s the largest financial supporter or was at any rate of
Ron Paul. Tyler Cowen, who many of us know and respect, calls Peter one of the leading
public intellectuals of our time. He’s rated a master in chess; he’s co-produced
a film, Thank You for Smoking. As I said he just published an excellent book. Also people
say he’s the model for Peter Gregory the somewhat eccentric billionaire on “Silicon Valley”
on HBO. I don’t know whether it’s true or not. I do want to say before he starts that we
will be distributing his book to all of you and he has generously agreed to sign our books
afterwards, although he does have a kind of a hard deadline, so we’ll get there really
quickly. So, Peter we’re really happy to have you here there is a lot of… you can tell
there is a lot of excitement in the air. You’re the first interviewee of a series that we
call The Disruptors. But I have to say that in reading your book, I was really trying
to be with it like we know what is going on so we called it The Disruptors. But I read
your book and in your book you say that you’re not crazy about that term. In fact you have
one chapter heading “Don’t Disrupt.” I thought that might be a good place to start. So, are
we wrong to talk about you as disruptor? Peter: Well, I’m always skeptical of all this
sort of standard categories people put in. Let me just back up, one of the challenges
of writing a business book or in teaching about entrepreneurship, is that I think there
is two normal ways people write these books. One of them is that you sort of you tell it
idiosyncratic, autobiographical story. This is what I did at PayPal in 1999, and that’s
not really that interesting to people. So, it may be exciting war stories, but you can’t
really learn that much from it because you’re not going to be able to do the same thing
today. And then I think the other, the other mode
for business books tends to be sort at the other end the spectrum and it’s basically
a pseudo-scientific formula, where you follow these five steps and you’ll have a successful
company. And I’m also very skeptical of that because I think, I think there is actually
no formula for great businesses. Every moment in business only happens once and so the next
Bill Gates won’t start an operating system company. The next Mark Zuckerberg won’t start
a search engine. If you’re copying these people, you’re in some sense not learning from them. And so, what my book tries to sort of do something
where you do neither the anecdotal story, nor the pseudo-scientific formula and instead
really think about how do you do these sort of one of a kind things. So, one other thing
I’m skeptical of throughout the book are this sort of banal, somewhat banal-sounding categories
people use. So the disruptor category is one such thing where, I think that’s sort of like
a disruptive kid in elementary school gets sent to the principles’ office, a disruptive
person is someone who looks for trouble and finds it, most of the time. And disruptive companies do get noticed, but
they normally don’t succeed. Sort of a classic disruptive company in Silicon Valley in the
late 90s was Napster, which set out to disrupt the entire music industry. They were on the
front page of Time Magazine one year, the next year they were shut down by the government.
And you know if you have a name like Napster, you know, you nap some music, you nap a kid.
I mean you’re certainly a disruptive sort of person, but that’s not what you actually
want to be doing. The idea of disruption as an issue goes back
to Clayton Christensen wrote this book “The Innovator’s Dilemma,” which I think it was
a really good book, but it was written with a perspective of big companies where big companies
need to worry about the problem of disruption. And somehow it got sort of transmogrified
into this thing that startups should try to do in one way or another, and I think that
that’s always a problem. The general touch point in my book is you
should try to things that are unique, you should build monopolies, you should not be
competing with other people, and if you’re disrupting then you’re already defining yourself
buy an existing industry, by trying to be close to someone else. And you’re ready to
define yourself in an overly competitive way. You don’t want to be building the fourth online
pet food company; you don’t want to be the tenth thin film solar panel company; you don’t
want to open a restaurant in Washington DC or anywhere else. And you want to build unique
one of a kind businesses. And so disruption, I think automatically relegates you into the
wrong frame of mind. Jim: But you do agree with Christensens’ idea
that you try to find some kind of small, especially low cost kind of niche, to start up. And I
think you’ve point out in the book, Amazon decided – Jeff Bezos wanted to take over the
world, certainly. That was his plan, but he started small with books. He thought that
would be a good, little niche. Peter: I think you always want to start with
I would say not necessarily low cost, but I would say small markets. So, if the goal
is to have a monopoly, when you start a small company, you get to a monopoly quickly by
taking over a small market fast. It’s very hard for a small company to take over a big
market fast. And so, as a for example I know Facebook had
an auspicious start. Its initial market was 10,000 kids at Harvard; it went from 0 to
60% market share in 10 days. That’s a good start. PayPal started with eBay power sellers,
which was not that big a market in late ’99 or early 2000, about 20,000 power sellers.
We got to about 30% market share in about three months. One of the things… this monopoly perspective
leads me to think that one of the most common mistakes people make is to go after really
big markets. And I have a whole chapter on everything that went wrong with the clean
tech companies in the last decade, and I think it’s sort of the failure was very over determined.
There are sort of seven different types of mistakes, that companies make. You should
get seven out of seven right and you’ll have a good chance of succeeding. They mostly got
zero out of seven. So, it they’d even gotten one of the things right, they would have still
made six other like nearly fatal mistakes. But one of the fatal mistakes they almost
made was the markets were too big. Every PowerPoint presentation with clean tech company you saw,
started first slide, “We’re in the energy market, this is the market measured in trillions
or hundreds of billions of dollars. It’s a really big market,” and then you’re a minnow
in a vast ocean, and you’re competing, not just with the other ten thin foam solar panel
companies, but with the other 90 solar panel companies and then with wind and with coal
and then fracking comes out of right field, and Chinese manufacturing comes out of left
field and you go out of business. So you want to start with really small markets. Jin: What you did with PayPal, you wanted,
your goal was to create a new currency for the United States, so wasn’t… that’s a pretty
big market, right? Peter: It’s I think you want to have, you
want to have… it’s very good to have an ambitious sense of mission, to have some transformative
goal, to be focused on some important substantive question. So it’s very interesting the question
of crypto-currency. Could one change the nature of money? And even though our T-shirt had
the slogan, “The New World Currency,” we did not quite succeed in building it. It was all
still just dollars and other standard fiat forms of money. But, it was a set of, by thinking
about some deep problems linked to the nature of money, it got us to building a payment
system that worked much better than some of the other things that people had built. So, I do think a substantive focus where you
think really hard about some of these bigger things is very inspiring and very powerful.
I don’t know, my colleague from PayPal, Elon Musk, started SpaceX. The goal is to get people
to Mars, and it may take a while to get there but in the meantime they are building a fantastic
rocket business. Jim: And you pointed out in the book, just
on PayPal, that the six co-founders, four of them were 23 or under. Three of them…
or four, I guess four of them– Peter: Five were 23 or under, four built bombs
in high school. Jim: Right, four built bombs. Peter: Two of them were living in [00:11:26
crosstalk] Jim: They didn’t actually test the bombs did
they? Peter: We didn’t really get into that many
details on it. Jim: But four of them were born in other countries? Peter: Yes. Jim: Three of them in communist countries. Peter: Two were… yes, three from communist
countries. So, we had sort of… it’s always a question when you start this companies,
you have this often fairly extreme personalities that drive them. And I do think that starting
one of these businesses is not something people conventionally do in all these ways. I think
there are both some benefits and some risks to having these extreme personalities drive
these companies. I’m a big fan of founder-led businesses. I
think there’s always a risk that as companies get bigger, they become more bureaucratic,
more sclerotic, and I’m sort of more libertarian politically, so I always think there’s this
vast gulf between the private and the public sector. But I do think that there are points
where large corporations sometimes seem to be much like the government, and I think that’s
something you always want to try to resist. I think the founder-led companies are able
to continue to stay focused and push the envelope. If you look at the founder-led Internet companies
like, Amazon, Google, Facebook, I think they are somehow far more innovative than the non-founder-led
ones, which might be say eBay, or Yahoo or . . . Jim: Microsoft. Peter: . . . Microsoft at this point. Jim: So do you think it was a mistake for
Bill Gates to leave Microsoft? Peter: It’s hard to know if it’s a mistake,
but my interpretation of it of it would be that it’s like an insider telling us that
he’s out of ideas and that there is nothing fun left to do. Maybe there was nothing fun
because the government had come after Microsoft in the 90s, but I think Gates sort of voted
with his feet and was sort saying that there was… that he didn’t have that much many
exciting things left to do. And I think that’s what that accurately signaled. That he was
going to have more fun with philanthropy than with technology. Jim: You know one of the interesting things
I find with your book is even though you’re a libertarian and a crockery breaker; you’re
a big believer in planning. And that’s kind of a myth that you shatter in the book, that
oh, we just start a company and see what happens? Peter: Yes, there is a lot to say on this
but I certainly think that one of the most critical things in all this technology companies,
is that much of the value exists quite far in the future. We did this exercise at PayPal,
in March of 2001, what’s the discounted cash for valuation of the business? We’d been in
business for only 27 months. We had sort of very high growth rate, there was pretty high
discount rate. But it turned out that three-quarters of the market cap of the value of PayPal came
from profits we were going to be earning in years 2011 and beyond as of 2001. And this is sort of the math that’s true of
all these companies. If you look at Alibaba, Facebook, Twitter, three-quarters or more
of their market capitalizations come from profit streams they will be earning in the
mid-2020s and beyond. And so, one of the things is that we always
tend to be I think overweight in Silicon Valley, either as investors or founders of these companies
is the growth rate, which is the part you can measure. Whereas the variable that is
actually much bigger is the durability. The question, will this company still be around
a decade from now, two decades from now? People always talk about having been the first mover;
I think it’s more important to be the last mover. If you get into the chess analogies if you’re
the first mover you play white, you get an advantage of about one-third of a pawn. The
last mover you say check-mate, you win, game over. The World Champion [inaudible 00:15:27]
had this line, “You must begin by studying the end game.” So I think with all these businesses
always an important question, what does the end game look like? And then if you say, well,
no idea what the end game looks like. The future is so far and the future, everything
is changing so fast in technology, you can’t know, then that’s sort of I think setting
you up for things going wrong. It’s certainly like the clean tech companies
would say;” We had no idea we were going to be beaten by China.” And you know maybe that
was a very hard thing to figure out, but I think if we’re sort of lazy and don’t try
to think about it then we end up saying it’s all random and all chance. So, I do think a bad plan is always better
than having no plan, and it’s something, worth thinking about. On the… yeah. So I could
go on that but . . . Jim: No, I was just going to say one more
thing about planning because we also do National Security and you wrote in your book, “If you
think political leaders have plans and are thinking about the future, well it may be
true of Putin – “or actually I think this was in an interview. “It may be true of Putin
and the Chinese leadership, but that’s about it. The shocking thing is that there is no
plan at all.” Peter: Yes and so there is always an ideological
libertarian cut on this, which is that government can’t plan things, and shouldn’t plan things.
I’m sympathetic to that in some way, but I think it’s always worth keeping in mind a
certain historical perspective where this is not an eternal truth, and there was a time
when our government actually was able to plan things better. You were able to get a Manhattan
Project and in three and a half years you could build a nuclear bomb. Or in the 1960s
you could do Apollo and you could get to the moon within a decade. And whereas today we’re sort of living in
a time when you sort of get the sense that a letter from Einstein to the White House
would get lost in the mail room. And I realize we say ideologically the government can’t
do anything, but even as a hardcore libertarian I would not have thought that the Obamacare
website wouldn’t work. That was not something I predicted, and I think building a website
that works is much easier than building a functioning nuclear bomb. Jim: I want to get … Peter: And you know it was the New York Times
op-ed a few days after Hiroshima said you know-and I’m going to paraphrase this, but
it was basically, “For all those, this shows how much science can achieve when it’s organized
by the government and led by the Army. For those who say that it’s true that maybe if
we’d left prima donna scientists up to themselves they could have figured this over 50 years,
but you knew as a result of the army telling the scientists what to do, we got this invention
in three short years? They don’t write op-eds like that at the New York Times anymore. Jim: I want to get to your discussion in the
book of, “Definite Optimism: Indefinite Pessimism” because I think that it is fascinating, but
you brought the government so let me bring up a topic that we’re very concerned about
here at AEI and especially at the Center, and that is net neutrality, so you said this
the other day. “We’ve had these debates about net neutrality for over 15 years. It hasn’t
been necessary so far and I’m not sure anything has changed to make it necessary right now.
And I don’t like government regulation. We need the U.S. government to regulate the Internet
as much about as much as we need the EU to regulate Google. I suspect the cost greatly
outweigh the pros.” So, do you have any more comments on the government’s role vis a vis
the Internet? Peter: Well, I think that sort of summarizes
my views pretty well. I think that there are all these theoretical arguments for regulation.
There is an argument that Comcast, Verizon, maybe they are sort of monopolies of not a
good sort, of a bad sort. The monopolies are just acting as toll collectors or rent collectors.
These are the classic kinds of things where you do want the government to step in. But the history of the government involvement
with technology has been quite bad, and I think the whole antitrust thing against IBM
with 20/20 hindsight I think was completely unnecessary because things were shifting to
software and away from IBM already in the 70s and definitely by the early 80s. The Microsoft
antitrust thing, I suspect was kind of actually unnecessary because I think Microsoft would
have lost ground in the age of the Internet with or without the government doing it. So, because technology has been… there’s
been enough dynamism and enough change in computer technology that we don’t need to
worry about this. If you were to have sort of a bad monopoly for the next 100 years,
nothing was going to change, and we knew this for certain, maybe you could get the government
to come in. But I don’t think that-the history has been much more dynamic than that, and
so I think they’ve gotten it wrong many times before. Even more generally I have often said that
over last 45 years in the U.S. we’ve had a lot of innovation in the world of bits, computers,
Internet, mobile Internet, that whole lump ensemble things. We’ve had much less innovation
in the world of art, energy, transportation, space travel, underwater cities. All the kinds
of things that people in 1950s and 60s would have thought would have happened. The question of why have their sort of dualistic
economy where there is innovation in a world of information, but not in the world of matter,
is I think a really important one for us to think about. The straightforward explanation
I would give is we live in a world in which bits of relatively unregulated and which atoms
are very heavily regulated. And so w… Jim: Jeff Eisanack [SP] smiling back there,
because that’s his line. Peter: So, if you had, for example the FDA
decided that it was going to start looking at video games and seeing whether they did
damage to peoples brains, and were they addictive, and what sorts of effect do they have on your
brains. You would have far less innovation in video game technology than you’ve had before.
So, I have always suggested that counterfactual thought experiment is think about what would
happen if the FDA was regulating video games. Jim: In general you’re not a big fan of the
FDA? Peter: Yeah, I think it’s… I think that
there are probably other things that have gone wrong with the biotech industry in recent
decades, but certainly when it costs on the order of a billion dollars to bring a new
drug to the market, that creates a barrier entry that is very different from say 120,000
dollars which is what it costs to start a software company through Y Combinator. And
so, we can have something that is four or five orders of magnitudes more expensive I
think that does materially change the dynamics of what people do in business, [for that]
magnitude. Jim: So actually, this is probably a good
time to talk about your concept of optimism and pessimism because I think it relates to
innovation and our attitudes toward innovation. So could you just lay that out for us? Peter: Well, I have got sort of a lot of different
ideas around this, but I think that there sort of-I draw this out as a two by two matrix.
You can be optimistic or pessimistic, and then you can have sort of definite or indefinite
ideas of the future. And I think that for many decades we’ve been in this sort of what
I would describe as this optimistic, indefinite quadrant in the U.S where we think the future
is going to get better, but we can’t precisely describe how it gets better. And that’s the
world that gets dominated by law and finance, what matters is the processes that you have,
and it does not involve any sort of concrete ideas about how to actually make the future
better. For a variety of reasons that I go through
my book, I think it sort of indefinite optimistic paradigm has sort of run into a dead end of
sorts. And the most natural way it sort of devolves is towards what I call, indeterminate
pessimism, where people become pessimistic about the future, but don’t know what to do.
And i think this sort of characterizes Japan, Western Europe where people think that the
future will get worse, but have no idea what to do. And what I would like to find a way to get
back to more definite optimism where we think about what do we want the future to look like?
How do we accomplish that? I don’t think this something we do on a governmental level, but
I think it is something you do in the context of starting new businesses and new ventures
of one sort or another. One sort of financial way to get out the some of the paradoxes around
indefinite optimism is that in a world of indefinite optimism people tend to end up
valuing money more than anything they can possibly do with it. People are sort of out
of ideas, so you try to get money, you try to always have liquidity and then money is
pure optionality, you can do anything you want with it. And I think one of the very odd things that
is going on, is that you have this interest rates that are zero, -2%, and all this corporations,
all the institutions still don’t know what to do with their money. I had this debate
with Erick Schmidt, the Google Chairman, two years ago, and in Aspen and you know Google
normally gets critiqued for having too many weird flaky projects of one sort or another. And I sort of took the opposite tact with
…where you have 50 billion in cash…Bernanke, now Yellen is giving you -2% real interests
on your cash. They are begging you to do something with money. Just do anything with it. Innovate,
do something more, and the fact that you’re sitting on 50 billion dollars in cash is proof
that you’re out of ideas. And since Google gets attacked for having too many ideas, by
transitivity it’s sort of proof of how badly we’re out of ideas across the board. And so I do think, there was this conservative
critique of the deposits in the quantitative easing in ’09, 2010, that I think we really
need to think about it a lot harder why it didn’t realize. The critique was you’re going
to have interest rates go through the roof. It’s going to be this enormous crowding out
of money. The governments borrowing a trillion dollars a year, it will crowd out all this
money from the private sector. The interest rates are going to go up like crazy and this
has not happened over the last five years. And the somewhat disturbing answer that I
would give as to why it has not happened. It’s that people don’t have any ideas of what
to do with their money. And maybe there is a micro-regulatory problem that a lot of ideas
that would work are actually illegal, so you can’t invest in all sorts of things. Maybe
it’s a cultural problem, where we sort of think of the future as a problem that other
people solved and we’ve been trying not to have any ideas about it, but I think it’s
some combination of this legal-cultural context where one of the big predictions conservative
made that interest rates are going to go through the roof because of QE and the government
borrowing have not happened. I would say the reason it hasn’t happened is because we’re
sort of weirdly out of ideas. Jim: And you said part of this is cultural.
One of the things you say is that the line of demarcation was like 1971 or ’69 or something…
so Woodstock. Was Woodstock and putting the man on the moon? Peter Thiel: We landed on the moon in July
’69, Woodstock started three weeks later and with the benefit of hind sight we could perhaps
say that that’s sort of one progress ended and hippies sort of took over the country
or something like that. And … Man: [inaudible 00:28:02] right? Peter: Well it’s… look, I’m in favor of
it as a civil libertarian. I don’t like it as a reflection of our society, so I think
that you know, Prohibition was a good thing to end Prohibition in the 1930s. But Prohibition
ended in the 1930s because people were unemployed; there was nothing better for them to do than
to get drunk all the time. And that was in the 1920s, there was a lot of great work to
be done and so you couldn’t have a hangover in the morning. And I think if you look at this sort of the
drug war ….the last 100 years-Nancy Reagan, “Just say no to drugs.” That happened in the
1980s when people were very optimistic. You legalize marijuana in a society where people
are more pessimistic. So, I’m in favor of favor of it as libertarian, but I don’t like
what it says about the general pessimism of our society. Jim: You talk in the book about self-medication
or something. That the way that we ended up at legalization or almost legalization of
marijuana was through medical marijuana and that’s apt because people are using it . . . Peter: It’s not a [fig leaf]. It’s all medical. Jim: Right good point. So, let me just ask
about one more thing since we’re already having questions shouted out from the audience so
obviously people want to ask questions. But I just did want to talk a little bit about
the Thiel Fellows, where you offer young people 100,000 dollars to drop, some people say to
drop out of college and start a business, and you’ve been criticized for that. This
is subversive. Why shouldn’t everyone just stay in college like Bill Gates did, I guess?
But why don’t you tell us about the concept behind the Thiels Fellows. Peter: Well, we had some discussions, talking
about why are not more people not going into these innovative businesses, starting new
things, and I think one of the big challenges is a lot of people who graduate from college
end up with very large amounts of student debt and so there is.. Student debt has surpassed
a trillion dollars in the last few years, and once you start life with that much debt,
it often constrains the kinds of things you can do, so we thought that we’d offer this
alternative program. We’re in our fourth year. We’ve had about
20 people a year, 83 total that have gone through the start of this two-year program.
They have raised about 60 million collectively in venture capital. Three or four of the business
are tracking toward a solid 100-million-plus valuations and I think the program as a whole
has triggered a much bigger debate about education. I initially thought that it was a very narrowly
conceived program, but it’s sort of hit a very raw nerve because there is some sense
that we’ve so put all our eggs in one basket. And it’s again a form of indefinite optimism
about the future. We have no idea what the future will be, we have no idea what we’re
going to do. So you’ll get a degree, what will you do with the degree? You don’t know.
You have options. What are the options? You don’t know, but there will be lots of good
options. Can you be any more specific? And so I do think that we have education bubble
today that is as distorted and crazy as the housing bubble of the last decade. It may
be even more hidden. The housing bubble was at its core sort of a middle-class phenomenon
and the elite media and the institutions that inform thinking in our society are sort of
upper middle class. And so throughout the housing bubble there was some coverage about
the insanity of people in Phoenix, and Las Vegas and, “Look at all those dumb people
buying those houses.” There was always a war of anti-housing bible narrative. It’s inconceivable for the media to give an
anti-education narrative, because the upper middle class is at the core of this education
bubble. So, there is absolutely no credible distance from this. And it certainly, I went
to an elite university; Stanford undergrad, Stanford Law, and it’s hard to understate
how much of our identity gets wrapped up in the universities we went to. It’s this tournament
you win early on. One of my friends went to Yale, at the freshman orientation the dean
told them, “Congratulations, you got into Yale, you’re set for life.” It’s probably
not true, if you believe it, but I think we have to do better than this, you know you
go to Yale or you jail, mindset that we currently have. Jim: Great. Okay we’re opening the floor to
questions and so if you have a question raise your hand. Somebody will come to you with
a microphone and tell us who you are and I will get to you don’t worry. Todd: I’m Todd Fox. I work for Visa, and my
question is do you with vertical progress and crypto-currencies? Bitcoin is that, does
that mean your definition of vertical progress? Peter: Bitcoin is sort of an extraordinary
breakthrough innovation, and so it definitely, definitely meets that criterion. The question
of whether it will work yet or not I think is still a little bit up in the air. At PayPal
we thought about creating a new currency, and we ended up creating a new payment system.
Our t-shirt said “The New World Currency.” Bitcoin I think you’ve actually succeeded
in creating a new currency at least on the level of speculation, but the payment system
part of it does not work that well. And so it’s kind of hard to use it a transactional
context. And so I think that the thing that I would
like to see develop over the next year or two for me to become more bullish on the bitcoin
will be the payment system really starting to work for not just really crazy illegal
transactions, but for everyday, legal payments. Jim: Back there. Charles: Sorry I should have. My name is Charles
Warl [SP] I work with Jim over at PAE. and my question was going to be on bitcoins also.
And it was going to be how do you think that they’ll survive with all the various levels
of government and international government regulating in different ways? Peter: Well the bearish, yeah, the bearish
argument on bitcoin is that it will get outlawed by the government eventually. One of the sort
of crypto-currencies that I encountered early on at PayPal was something called E-gold,
which has these anonymous encrypted gold so that you could just redeem anywhere in the
world. It was sort of somewhat of scam-like company that people used stolen money to buy
the gold certificates. We connected them up to PayPal, we realized that all the money
was stolen; we disconnected them three months later. They sued us for libel, which was sort
of a little bit attenuated when I said they were a sketchy company, so then we got sued
for libel in late ’01. I settled the libel suit in ’02, for a few
hundred thousand dollars. And then in ’08 the FBI arrested all of them and they all
went to jail. And so . . . Jim: Did you get your money back? Peter: No, of course not. So the moral of
the story is and I think bitcoin has gotten a lot further than e-gold has or than any
of these things have. But I think the… if we had a well-functioning government in this
country, then you could draw a lot of reassurance from the fact that the government has not
yet gone after bitcoin. You can say, “Well, if it’s bad, we shut it down.” But I think
we have a very poorly functioning government and so it’s quite possible they will sort
of decide slowly over the next 10 or 15 years to do something, and so I think you’re on
the zone of incredible uncertainty as to what’s going to happen. Jim: Okay, one, two, three. Yeah Man 1: So speaking of libel suit, you said
about Twitter, they have a lot of potential. It’s a horribly managed company. Probably
a lot of pot smoking going on down there. Did you get much of a reaction? Peter: Well, the- Man 1: By the way I agree with you. Peter: I didn’t blame the management for smoking
pot, and I didn’t get any push back on the accuracy of the statements. Costolo, the CEO
and which I thought was actually quite funny, just tweeted that he couldn’t comment he was
busy eating a large bag of Doritos. Jim: But the horribly managed company part
… Peter: Now look you have… there is always
some nuance to these things, the nuance gets lost. The nuance on this is it’s a fantastic
business model. And so when you have these fantastic business models, you can often get
away with it being horribly mismanaged. You know if you’re opening a restaurant, you have
no margin for error. You have to do everything right. You have to be on top of every penny,
how it gets spent. If you have this fantastic idea, that’s very
hard… that once you have it, it grows really fast, it’s hard for anyone to copy, and ever
catch up with you, then there is a lot more range of how well or badly the company gets
run internally. And so Twitter is sort of on the end of pretty badly run and it oddly
doesn’t matter. Man 1: That actually reminds me of something
Warren Buffet said a long time ago which was that you want to invest in a company that
is such a great idea, such a great business that any idiot can run it because someday
an idiot will, and I’m not saying that about Twitter but okay-so go ahead. Seaton: Yeah, my name is Seaton Motely [SP],
I run a joint called Less Government. My question to you regard to once upon a time the government
could martial their forces and accomplish a big thing and now they can’t. My question
is, one, to a lesser degree, it was the military that was in charge which I think organizes
out of chaos better than most other arms of the government. Two, do you think it is because
the government is trying to do so many things now? Compared to 50 years ago when they said
okay we’re going to the moon. That they get dissipated and distracted, and they can’t
marshal their forces around a single project like they could back then? Peter: Yes, I definitely think there is the
sort of military push for innovation that is an important thread in the history of innovation
that tends to be given I think somewhat short shrift. I think it played an enormous role
obviously in Manhattan, you could say that Apollo was driven by the need to figure out
faster ways to deliver the nuclear bombs to the other side. And that perhaps it’s sort of-maybe you could
sort of date it collapsed in 1975 when you had the Apollo [inaudible 00:29:06] If we’re
just going to be friends with the Soviets why should we be working around the clock
to build a more effective weapons. I do think that there is something about the nuclear
issue which had this very strange, delayed effect. And so one of the reasons I think people have
sort of turned against science and technology, is that starting in 1970s there was a sense
that nuclear weapons were quite bad. Can you motivate people to build more effective weapons
if we already had thermonuclear bombs? And so even though I think historically that was
a big motivator, I don’t know if it will motivate us in the future. So the syllogism, I would
say is that working on the future requires you to make sacrifices in the present. To
make-certainly war, extreme circumstances are things that motivate extreme amounts of
sacrifice, so that’s sort of how you have this link. But once you have nuclear weapons, maybe this
whole thing breaks down. We have to find a way for people to make sacrifices for the
future, that not directly motivated by war. And we don’t know how to do that. Jim: You know I have got to interrupt the
question for one second because I promised to talk about Palintir and I don’t want to
miss it. So, Palintir is a big data company, much, much praised and among other things
you can-according to your website-military customers can piece together fingerprints
on artillery shell fragments, location data, anonymous tips, and social media, to track
down Afghani bomb makers. Palintir supposedly had something to do with
tracking down Osama Bin Laden, and I think you said a few days ago that it helped in
thwarting a terrorist attack. But you-I don’t know if you want to talk about that-but before
that you are critical of the notion that there is debate over government-and in the debate
over government access to personal information, that it’s really a tradeoff. Everybody talks
about it’s a tradeoff between security, and civil liberties. And you say, as a libertarian, it is critical
to develop technology like this, meaning Palantir-type technology, actually in order to protect civil
liberties. So, could you just expand on that concept? Peter: Yeah, people are constantly talking
about this. They always frame it as a trade off on security verses privacy, and I think
we should really push hard against that sort of a language. Certainly I think as a result
of 9/11, you know we have, we got The Patriotic Act passed. We have sort of in many ways passed
fewer civil liberties than we had before. And so had we have the technology to detect
and stop 9-11 before it happened that would have been a very good thing from a civil liberties
perspective. So I think that is like a very big picture.
And certainly as a libertarian, if we ever had nuclear bomb go off in a city in the U.S,
I mean this would be the end of all civil liberties in this country. Period. And so
I think it is really imperative for us to try and find ways to prevent this things from
happening, actively before they happen. On a more granular level, you know, I always
think of the definition of technology: technology is doing more is doing more with less. So,
in this national security context, you could define technology as more security with less
privacy invasion. And so that’s what we’re trying to do. And when you don’t have technology,
when you do not innovate, then you end up with the debate of well we have more security,
but you have less privacy or we have more privacy and you have less security. You get
more of one and less of the other. And it’s only when we develop better technology
that you avoid this sort of trade off, and that’s why we need to develop them. And certainly
I think a lot of the responses that have happened have been extraordinarily low tech where I’m
not sure the adequate security we have, it sort of minimal security, lots of privacy
tradeoffs. There are probably are ways we get a little bit more privacy, much less security,
so I think it’s worth thinking really hard about how to get this trade off right. I have been… this sort of all this libertarian
critics of the NSA as Big Brother, and sort of having… and I think that it’s the more
accurate the critique of the NSA is it’s more like Keystone Cops. It’s sort of the first
thing a spy agency is supposed to do is to counter-intelligence. It’s supposed to figure
out is there anybody inside the spy agency who is spying on them, and if you have somebody
in the IT department downloading all the files, that normally gets people’s attention. This
would never happen in Facebook, Google. Any Silicon Valley company; this would never happen. And then once somebody had downloaded all
the files and you say, okay, they ran away to Russia and what did they take? You should
be able to figure that out really quickly. And I think one way to think about the evolution
of what’s happened with things like the NSA, is that because they they’re not that good
at figuring out what’s going on, there’s constantly this sort of bureaucratic push to get more
and more and more data. I don’t, you know, should we be listening
to Angela Merkel’s cellphone calls? I don’t know. I strongly suspect Obama; it was news
to Obama that we were doing that. I’m sure he hadn’t got any transcript of this or anything.
So, I think we just have this process where you Hoover up all this data all over the world,
but you don’t know what to do with it. Jim: Okay, other questions. Where’s the microphone?
Okay, go ahead? Blake: Peter, I want to thank you for sharing
your thought with us today. My name is Blake Hall and along with Matt Thompson here, we
cofounded [ID dot me], and we’re essentially trying to do for identity what you did for
currency with PayPal. The idea being that, citizens don’t have a way to assert their
identity to another party, through like an online equivalent of the driver’s license.
Nor, could you say, take your reputation on eBay over the Craigslist and prove that you’re
a trusted seller or buyer in a transaction. So, we’re providing credentials that do that
across the network. Last year we were given a three-million dollar
grant for the Department of Commerce, they are part of the President’s National strategy
for trusted identities in cyberspace to make online transactions more secure. I would love
to get your thoughts on the future of digital identity. How you think it’s going to evolve
and the role that the government plays in the evolution of that ecosystem certainly
as a traditional credentialing body through the DMVs and even through like the IRS could
attest that you’re an accredited investor for instance, but citizens can’t access that
data today. So without going into deep in the weeds, I would just like to get your thought
on how digital identity will look in the future? Peter: I don’t have any really strong thoughts
on this off the top. I tend to think it’s… I’m skeptical of the idea that there is going
to be some complex, coordinated process where the government will figure this out across
the board. And what’s probably worth exploring is are
there some very specific versions like maybe, there is a state where the DMV actually works
really well. I’m not sure which one that would be, but maybe there is some specific version
where something like this can happen. I think you always for the adoption of any
new technology, it’s always necessary… it’s rarely enough to have something that is slightly
better for lots of people. I think it’s often much more critical for it to be intensely
better for some small number of people to at least the initial adoption going. And I
think one of the questions always how can one do this in the identity security space?
If you take surveys on this people will say, they’d like this, but in practice, I think
it is always a question of how intense is the demand for it that would really drive
consumer behavior to change. Jim: Okay, other questions? Will: Hi, I’m Will Riner [SP]with the American
Action Forum. So, excuse my naivety because I haven’t read the book it’s actually next
on my list. But you mentioned the 1970s as an inflection point, which has been a huge
kind of point that a number of other economists, specifically Tyler Cowen has talked about
as part of the stagnation model And he has said that essentially it isn’t just the United
States, it’s basically all the Western world that has really had this downtick and it’s
been an inflection point essentially in the 1970s with total factor productivity. So, it seems to me that the entire conversation
at this point is something along the lines of innovation at the frontier is very, very,
costly as we’ve seen in a number of different contexts. Do you think it is the innovation
is costly or do you think that there are other restrictions? I mean you talked about the
government and people obviously in the policy room are very interested in the government.
But do you think that it is something that is just a structural point and that we need
to get our policies right to make sure that you know we’re at the upper bounds of that
or is it actually something that is being caused by outside forces? Peter: Well I think… I do think I’m sympathetic
to the stagnation thesis. I actually gave Tyler sort of idea for it, so he dedicated
his great stagnation book to me because I sort of had given him the idea for it seven
or eight years ago. I do think there is something that really slowed down the 1970s. The question
of what caused it. We already had like change in the military, change in the culture, more
risk averse, more egalitarian. You have government regulations in all sorts for other areas. I think the stagnation is probably very over-determined.
So I think it’s actually it’s probably like a whole set of different things that has gone
into it and it’s probably a mistake to sort of think of one single overarching thing that’s
really big. I think one of the big things that happened
in the 70s was that we had this oil shocks, and in some sense, if you look at the oil
prices today we still have not recovered from the oil shocks of the 70s. And so I think
certainly the question of innovation energy specifically is always an extremely important
one, and it should be measured by how much cheaper the energy is getting. And that is
the fundamentalist market perspective I would have is I’m going to measure progress energy
not by what people say, but are the prices going down? And they’ve actually not yet been
going down even with the enormous fracking revolution of the last a few years. I think one place where there is sort of a
left versus right dichotomy on the stagnation thing and I think we should be doing more
on the center right to own this issue is Summers, Larry Summers, has started to articulate a
version of the secular stagnation thesis. But on the left it’s always being articulated
from the demand side. And so it’s oh the credit system is broken, people have less demand
of one sort or another. And I think the real cause for this stagnation
is on the supply side, and we need to be focusing on it as a supply-side problem that we’re
not creating new technologies; we’re not creating supply of new goods. That is what is driving
the stagnation. I think there is no demand problem whatsoever.
People in this country are drenched with advertising. They are spending way more money than they
should be. They should be saving way more than they’re saving. So, you’re out of your
mind if you think we have a demand problem in this country. We have a supply problem
and it’s a supply-side problem and we need to reframe the secular stagnation as fundamentally
a problem of supply. Jim: One other question over here. David: Peter, I’m David Fenstermaker with
Raymond James. Thank you for just a really nice talk. I just want to sort of circle around
at that issue of stagnation and look at monetary policy, and the ideas that you’re pushing
demand forward to try to get the economy going. You’ve lowered interest rates and that’s been
great for the people in the money business or for people like yourself who have money. For the 80 to 90% of the people who aren’t
there, who don’t participate enough in that and all they see is perhaps that their bank
no longer provides them any interest. You have sort of an economy here and you say you
are trying to increase demand, but what you’ve really done is tae the air out of the room
for 90% of the public. And my perception here is we’ve been trying to manipulate monetary
policy for some end for so long, that the medicine doesn’t work, and it’s actually destroying
demand. Because people don’t have any sense of cushion, and they don’t get any return
on their savings and they need to save more, but the whole system is manipulated by government.
Your response? Peter: Let’s see. I share I think the general
critique where I think we’ve been doing too much QE in this country, if I had to replay
it I think maybe there was an argument for the first two rounds of QE in ’09 and 2010,
when you had enormous volatility and there was something to be said for trying to dampen
down the volatility. QE Infinity, which started in the fall of
2012, just in time for the presidential election, was probably completely unnecessary. There
was no volatility left in the market. The spreads had been narrowed. So, I think that
was wildly excessive what we’ve had over the last year and a half. I do think that the problem is not primarily
on the level of monetary policy though, so even though I’d be in favor of a slightly
more restrictive policy, I think that the main issues are all these micro-regulatory
issues and so… and when we abstract it on the level of monetary policy, I wonder if
we’re actually-we’re sort of falling into a mistake to think that it’s all about the
manipulation of money versus what the money stands for in the underlying economy. And so I think there was line I think Bloomberg
had, a year ago, where there was no shortage of money, you could just print an infinite
amount if you had to. And obviously that’s true. but kind of irrelevant as well because
the question is not how much money can you print in the fiat system, but it’s what does
the money stand for in the underlying economy. And it’s a sort of a dualist system where
we have a world of bits, a world of money where you could print infinite amounts, but
in the world of atoms we’re not producing enough, that’s the disconnect we should overcome. I don’t think we should go back to gold standard,
but I think one of the virtues of the gold standard was that it always maintained this
length between goods and the economy and the monetary system where scarcity in the real
economy and there is fundamental scarcity to money, and so there is natural mapping
between money and the underlying economy. I think that’s sort of a frame we should always
come back to. The core problem is always how do you overcome
scarcity? And we obscure that problem by shifting the debate onto the level of monetary policy,
and we should always be thinking about how do you overcome scarcity? And I think that
the much larger issue is are all these micro-regulatory things, it’s like zoning laws you can’t build,
you can’t change your house even one tiny bit in San Francisco where I live, all these
sort of things that you just can’t do, and that’s the kind of stuff we should be focusing
much more. Mike: I had one question… Peter, I’m Mike
Galvan [SP] from [inaudible 00:55:52] Capital. I was wondering where you think leadership
and innovation is likely to originate in the future? Will America and the West continue
to lead albeit at a diminished pace, or do you see other countries and cultures beginning
to catch up to or surpass America and the West in terms of technological and business
leadership and innovation? Peter: Well, yes, I think the U. S. is still
very much in the lead, and in some ways I would say the business model of the U.S, this
is the country where people do new things. And this is sort of our comparative advantage
relative to the rest of the world. People come here to do new things. It was a frontier
society and I think we’re still in many ways at the frontier of innovation. To the extent we lose that, I think we lose
something very essential about the character of this country, and we should really try
to resist that. I don’t see competition for innovation per se emerging that quickly in
the developing worlds. So I think in places like China, all you need to do is copy things
that already work. You don’t, there is so much low-hanging fruit by just copying things
that work, you don’t really need to innovate. The place we will need to do new things are
in the so called developed world, U.S., Western Europe, Japan, and I think that’s the place
where people need to be doing more, and that’s the place where I look to invest, so it’s
Israel, Scandinavia, Canada, Australia, New Zealand, U.S. It’s the developed world where
we need to do more. I always think the developed developing dichotomy
that we use to describe is a pro-globalization dichotomy, you know the developing world will
copy the developed world and it will sort of converge. But it’s also an anti-technology
dichotomy because when we say that we’re living in the developed world, we’re implicitly saying
that we’re living in that part of the world which is done, finished, nothing new is going
to happen, it’s stagnant. Younger generations should have lower expectation than their parents.
And I think that’s something that we should push against really hard, and we should always
come back to asking this question how do we go about developing the developed world? And
we should not accept that we’re living in a developed nation. Man 1: Speaking of China, what do you think
of Alibaba? At 93 dollars this year or whatever it is. I don’t know, I don’t know what it
is. Peter: Well, I think China thinks of the Internet
in a way very different from the U.S. They think of information technology, as somewhat
less important than we do economically, and more important politically. And so these companies
are fundamentally political investments. They are protected by the government. They will
not face competition from Western companies. And investment in Alibaba is fundamentally
a bed on Jack Ma staying on the good graces of the Chinese Communist Party. I suspect
that’s a good bet, but it’s not the sort of thing, not the sort of place where I feel
like I have a comparative advantage and evaluate. Jim: Okay, I’m going to take the privilege
of asking the last question. In a very good article, in The Telegraph, the British newspaper,
it says that almost the first thing you do when introduced is to ask; what are the three
most interesting things the person you’re introduced to has encountered in the last
year? So let me ask that of you. And you can limit it to one. Peter: There is always so much in this category.
There is, I’m trying to think of . . . Jim: Okay, you can go for three if you want. Peter: . . . of a good example of the top,
but
there are all these are… I think one of the things that is actually very inspiring
about Silicon Valley generally, and we have all these sort of ways we’re often pessimistic
about some of this trends, but there is actually a lot that is still happening. There are a
lot of really great ideas out there. It’s always tricky, how they are hard to implement,
why they don’t quite translate in the ways in which they seemingly should be able to. But when you actually look at the underlying
things there are sort of a lot of really cool things. We’ve been looking a lot at some of
the biotech areas. There is one company that we’ve invested in, that is still in this quasi-stealth
mode, but it looks like they’ve come up with a whole platform approach to curing a whole
set of cancers that have not yet been cured. We’ll see of the early results hold up, but
it was this very methodical approach that is a slightly different paradigm and they
sort of pulled all the details together. So, there are things like that that you see enough
of. This is sort of the indomitability of the human spirit all this gives you hope to
the future. Jim: Great. So we are… I always think when
I go to Silicon Valley, it’s a way to recharge your batteries and I think that that’s something
that people in Washington should be doing all the time or maybe AEI should open a branch,
or move the whole thing there, David. I don’t know. Thank you so much Peter, this has been fabulous.
Peter, as I said, will sign books. This is the first in a series which we’ll continue
to call The Disruptors, although we’ll probably have a little foot note-we don’t mean that
kind of disruptor, and next is October 8th. October 8th is Jeff Pullver the great Voice
Over Internet Protocol pioneer, and then November 6th is Walter Isaacson to talk about his new
book about Silicon Valley. Again thank you so much, Peter Thiel.

One thought on “Disruptive business: Paypal’s Peter Thiel on technology entrepreneurs

  1. 51:34 Thiel just goes on a tirade that this is a "supply problem" and that anyone has to be nuts to think this is a demand problem (ie — the consumer is saturated in ads, spending too much, spending more than should with saving non-existent in the US); the guest on the very next question, in the next second then goes on to ask about what to do, since this is a demand problem?!

    that was bizarre…

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