Amazon is not a monopoly, but its dominance is based on users' love and its ability to listen to customers to decide what to do next, according to Social Capital CEO Chamath Palihapitiya.

Palihapitiya calls that a "natural product monopoly."

"You build something, and when it starts to work what happens is the usage tells you what the trail of breadcrumbs is [that] you should follow," the venture capitalist told CNBC's "Squawk Box" on Tuesday.

"So what Amazon has done elegantly is they built a product that has such a fantastic product-market fit, they watch how people use it, then they actually use that to distill what to do next," he said. "And what to do next becomes slightly easier and easier every turn and every time they do it."

The former Facebook executive told CNBC in March that Amazon could be close to a "natural monopoly" in both online retail and cloud computing via its Amazon Web Services division.

Palihapitiya has been bullish on Amazon for some time. In May, he said the internet retail titan will be worth $3 trillion in 10 years.

There have been questions from many corners of the business world and even the Oval Office about whether Amazon is a monopoly.

Billionaire investor Leon Cooperman, who runs the Omega Advisors hedge fund, told CNBC last week that President Donald Trump asked him that very question, twice, during a dinner this summer, weeks before federal regulators signed off on the e-commerce giant's acquisition of Whole Foods Market.

Cooperman said he told Trump that he does not believe Amazon is a monopoly. Amazon has "out-executed people," Cooperman said. "I think they've done a very good job."

In Tuesday's CNBC interview, Palihapitiya also praised the pace of Amazon's innovations, citing the "tens" of products that were released at the company's annual re:Invent conference.

"When you take a step back and say, wait a minute, the totality of what they did is unbelievable — and then you think they did that in a year, and then they did that at a velocity that you could imagine, at a scale, at an impact — then you think to yourself well what is next year going to look like?" Palihapitiya said.

At re:Invent, Amazon launched a number of cloud products that run on AWS that "likely hurt start-ups trying to do similar things, and also the venture capitalists that back them," Palihapitiya said.

"The things that [Amazon] did probably wiped out about $2 billion of equity value of VCs putting money into ideas that frankly made no sense in the first place," he said.