[HN Gopher] Venture Predation
___________________________________________________________________
Venture Predation
Author : miiiiiike
Score : 262 points
Date : 2023-05-19 15:28 UTC (7 hours ago)
(HTM) web link (papers.ssrn.com)
(TXT) w3m dump (papers.ssrn.com)
| james-revisoai wrote:
| A flipside effect to this is advertising and PPC which has
| trended up so high overtime, especially in education.
|
| Strategies viable in 2019 are largely useless to bootstrapped
| businesses in 2023: the costs of ads even to acquire customers
| with low spending power is two to three times what it was (e.g.
| students)
|
| As someone working on a NLP product for education, the pricing
| and subscriptions are also dropping rapidly, lead by the funded
| companies entering this niche (the founders almost entirely are
| non technical recently). The combination of the two is like a jaw
| - it's unclear what to do when your technology becomes a trend,
| other than grab and deploy your own funding and use marketing
| strategies and technical efficiencies to outlast your
| competition.
| maerF0x0 wrote:
| This rise of PPC should be matched with targeting efficiency
| through tools like Segment etc that are aimed in increasing the
| ROI on adspend. It's a resource allocation strategy that drives
| the limited supply (ad space above search) to the highest
| bidder (ie highest return usage).
|
| Just like a competition for any other limited resource in a
| capitalist market driven society.
| nico wrote:
| In international trade this is called "dumping", and it's often
| considered illegal and most definitely unfair
|
| It's usually used as a reason for regulating imports/exports
|
| https://www.investopedia.com/terms/d/dumping.asp#:~:text=Dum....
| brookst wrote:
| Eh, there is alot more nuance here. Dumping is typically when
| an established company attacks a competitor with temporarily
| low prices.
|
| If you squint right, sure, VC backed low costs could be seen as
| dumping. But the problem is that also means virtually every
| startup is dumping, even bootstrapped garage efforts. And I
| guess any company that reports a quarterly loss is also
| dumping.
|
| So I think it probably makes sense to treat VC-subsidized
| startups as a different economic phenomenon that needs
| different rules than if e.g. Goodyear sells tires at far below
| cost in California until competitors leave and then they raise
| the price.
| lazide wrote:
| Hahahaha, 'everyone does it therefore it isn't what it
| obviously is' is..... pretty funny.
|
| I get why you're saying it, we're profiting from it (kinda?),
| but a spade is still a spade when it's shaped exactly like a
| spade, used for digging, etc. regardless of what label
| marketing slapped on it.
|
| There is a bit of a difference here in that it is private vs
| gov't backed (kinda, unless you count fed printing money as
| gov't backing, which it wouldn't require much squinting to
| do).
| rossdavidh wrote:
| I have heard "dumping" used typically when a foreign company
| is trying to gain market share by driving domestic
| competitors under. So, while they are typically established
| companies, they're not established in that market.
|
| Anyway, the essence of it is that running at a loss for a
| while in order to drive your competitors out of business,
| then raise the prices, is widely recognized as the kind of
| market practice that the government is justified in taking
| action against.
| waboremo wrote:
| Not sure how you reach the conclusion that bootstrapped
| garage efforts would equate to dumping under these
| conditions. Bootstrapped garage efforts, unlike VC backed,
| have very little if any runway. They can't afford to.
| lesuorac wrote:
| I don't think you have to squint very hard to see VC as
| dumping. It's why they all follow that common trend of low-
| price growth hacking and immediately follow up by raising
| prices.
| derefr wrote:
| > It's why they all follow that common trend of low-price
| growth hacking and immediately follow up by raising prices.
|
| The key difference is that startups are rarely selling the
| _same_ product, to the _same_ people, for different prices
| at different phases of growth. They 're more often selling
| _different_ products, with _different_ positioning, to
| _different_ market segments at different times in their
| growth; where they just happen to _call_ those products
| "editions" of the same thing.
|
| A common startup lifecycle:
|
| 1. get seed capital to build an MVP targeting one distinct
| market (usually consumers or individual professionals);
|
| 2. market (or give away) your consumer-product MVP to
| price-sensitive _early adopters_ (which is where the
| initial look of "giving it away" comes from -- that's what
| this market segment _demands_ );
|
| 3. wait for those early adopters to _educate_ the rest of
| the market about what 's cool about the product and the
| brand;
|
| 4. meanwhile, use the "social proof" (rather than earnings
| reports) from these early adopters, as leverage to get a
| Series A investment; and use it to build a separate, more
| polished product targeting the _enterprise_ market;
|
| 5. use your _enterprise_ product, in combination with a
| bunch of new sales staff, to reach the non-price-sensitive
| late adopters. (While continuing to sell /give away the MVP
| consumer version!)
|
| 6. At some point, after achieving traction in both product
| lines, you can also "trickle down" the benefits of the
| enterprise product -- and integrate process, saving OpEx --
| by building a new version of the MVP [now "consumer/SMB"
| product line] using the enterprise product's technology.
| (It's still a separate product, though, not just a feature-
| limited version of the enterprise product -- there are a
| lot of things enterprises want that actively _get in the
| way_ for consumers.)
|
| This is less like Goodyear charging less for tires until
| they monopolize the market; and more like Goodyear starting
| off selling car tires, achieving brand recognition there,
| and then making all their real money by selling semi-truck
| tires.
|
| A clear example of all six phases (but with bootstrapping
| in place of VC investment): Microsoft built initial
| versions of Windows for consumers, at retail prices (or
| "given away" via OEM channel-partners with steep volume
| discounts); achieved reach; then reinvested the revenue
| from that to build a more polished and robust Windows NT
| for enterprises, and made big money from _non-_ discounted
| enterprise volume licensing; then "trickled down" the
| technology from Windows NT to create Windows XP, with the
| consumer/SMB product now just an "edition" of Windows XP.
| winphone1974 wrote:
| This history is a pretty convenient interpretation. MS
| mad big money on their OEM deals and this is after they
| were all ready being paid for each IBM machine. They were
| also 10-15 years old at this point
| [deleted]
| dboreham wrote:
| That analysis of Windows history is fiction. Plausible
| business school fiction but fiction nevertheless.
| paulddraper wrote:
| What part is incorrect?
| Eisenstein wrote:
| I am not the person who replied to you and I don't know
| to what extent that tale is fiction, but MS was
| enormously profitable selling Windows to OEMs and
| consumers before NT became a major force. NT was more of
| a response to OS/2 than it was some grand plan at
| grabbing the enterprise market that was hatched years
| earlier.
| winphone1974 wrote:
| Analysis without facts can be refuted without facts.
| fakedang wrote:
| There's a clear difference in trade economics between eating
| initial losses as a risk to acquire customers (which every
| company does, including the one man food truck by your
| street), and doing it with a fat war chest backing it with
| the only goal being to wipe out the competition. Garage
| startups aren't looking to wipe out the competition (yet),
| unlike the likes of Google and Uber.
| nathan_compton wrote:
| "even bootstrapped garage efforts" this doesn't seem to
| follow. Bootstrapped efforts don't have the funding to absorb
| a lot of loss to get market share. They have to make a
| product people will pay for, typically.
| CTmystery wrote:
| Your parent is confused. There's a difference between
| absorbing losses to stay alive while you try to get a
| product to market and deliberately losing money per sale
| because you want to drive the competitor out of business.
| No squinting required.
| potatolicious wrote:
| Ehhh I dunno if it's really that nuanced. Companies that are
| unprofitable, but who sell goods/services above direct costs,
| are relatively (though of course never totally) safe from the
| accusation of dumping.
|
| i.e., if you sell a widget for more than it costs to
| manufacture, but unprofitable after you account for indirect
| costs like R&D and other corporate costs, it may or may not
| be dumping.
|
| The VC-backed companies like Uber weren't doing this. They
| were unprofitable even under the standard of price > direct
| cost. That's pretty cut and dry dumping.
|
| "Scale until you become profitable" in the traditional (and
| IMO defensible and sound business) sense is about scaling
| until your margins cover your fixed and indirect costs like
| R&D (see: Google, Facebook), but that's not the Uber model.
| ethbr0 wrote:
| > _different economic phenomenon that needs different rules
| than if e.g. Goodyear sells tires at far below cost in
| California until competitors leave and then they raise the
| price._
|
| What's the end game to VC subsidies?
|
| There are many VC-backed businesses where 'Scale until you
| become profitable' is the end goal.
|
| But there are also many where 'Outlast until competitors
| leave and then raise the price' is the only plausible
| profitable future.
| Aunche wrote:
| > What's the end game to VC subsidies?
|
| I don't think VC's give a damn about long-term
| profitability. All they want to do is to trick later
| investors into buying them out. I can't think of a single
| one of these types of companies that has had a profitable
| year* let alone make enough profit to recoup their losses.
|
| *I'm excluding AirBNB because their prices are cheap by
| operating in a legal gray-zone.
| xp84 wrote:
| *Citation needed-- ABNB is so expensive these days,
| although they won't disclose half the cost until the
| final phase of checkout!
| pixl97 wrote:
| That's two slightly different things...
|
| Not showing you the price actually makes it more
| profitable for the end user, not directly for Abnb. By
| showing price in this way Abnb attracts you, then the end
| user scams you for a higher price.
|
| But this is different from the 'legal grey zone' OP was
| talking about. The Abnb hosts should likely be paying
| local taxes/fees for operating as a short term rental, in
| which if they were doing so the final costs to rent an
| Abnb would be higher in most jurisdictions.
| lazide wrote:
| Also, the hosts should be meeting a number of zoning
| rules (if we're being honest), meeting building codes for
| safety, etc, etc.
|
| If they put a sign on the side of the road or in front of
| their place, they'd get shut down post haste, but because
| it's online it's easier to turn a blind eye and ask
| forgiveness, not permission.
| [deleted]
| conjecTech wrote:
| No, there isn't much nuance here. Accounting has notions of
| fixed costs and marginal costs. The startups you are
| referring almost all lose money on fixed costs, but sell
| things at per-unit economics which make sense at scale
| because they are below marginal cost/COGS.
|
| Things like Uber are a typical dumping cases. For years, they
| charged below their COGS and eventual profitability depended
| on driving out competition and raising prices.
| SOLAR_FIELDS wrote:
| Circa 2015, Uber charged roughly $30 USD for a trip to the
| airport from my house. Now it is usually between $60 and
| $70. There has been significant inflation, but $30 in 2015
| is only worth about $38 today.
| jeffbee wrote:
| The source of Uber's dumping wasn't chiefly VC funds,
| though. Uber's ability to price below market was mostly
| funded by the residual value of their drivers' vehicles.
| mrguyorama wrote:
| Uber was charging riders less than they paid drivers for
| a long time. That's not "residual in the drivers car",
| that's subsidizing their drivers
| dboreham wrote:
| It's both because they also weren't paying drivers enough
| to cover their (actual) costs.
| winphone1974 wrote:
| That doesn't make sense. If the drivers were operating at
| a loss they were subsidizing Uber, not the other way
| around.
| ninkendo wrote:
| No, these can both be true. Uber can charge users less
| than they pay the drivers (losing money on rides) while
| _still_ paying drivers less than the drivers ' total
| costs. Like if I take an Uber somewhere, Uber charges me
| $10, pays the driver $15, and the driver's actual costs
| are $20 (gas, wear/tear, whatever.)
|
| Not saying whether or not this actually happened, only
| that it's mathematically totally possible.
| tshaddox wrote:
| Eh, the money is fungible though. It's still VC funding
| the massive growth of the company in order to "disrupt"
| (which actually means "extract value as fast as possible
| from drivers' vehicles, insurance impropriety, etc.").
| [deleted]
| qwytw wrote:
| > Accounting has notions of fixed costs and marginal costs.
| The startups you are referring almost all lose money on
| fixed costs, but sell things at per-unit economics which
| make sense at scale because they are below marginal
| cost/COGS.
|
| Well yes, because they are selling software or other
| products which require a very high investment into R&D and
| have minimal marginal cost...
|
| Other markets don't work like that so I don't think this is
| particularly relevant especially considering the a huge
| proportion or the majority of those startups (which
| received the most VC money) are yet to turn a profit (until
| they do it's still 'dumping' in this sense).
| s1artibartfast wrote:
| The same phenomenon takes place in traditional Industries
| as well without VC investors. If an established company
| comes out with the new product, say a medical device, it
| might not be profitable until they get their sale volumes
| up.
|
| I think the key difference is how the price for the sold
| good changes over time, not the net profit for sales. If
| Your business model is to hold price relatively constant,
| but only see a profit when you hit your target market
| share, that's not dumping. It becomes dumping if your
| business plan is to capture Market share at a low price,
| and then ratchet up your price once you have displaced
| competitors.
| TuringNYC wrote:
| >> Things like Uber are a typical dumping cases. For years,
| they charged below their COGS and eventual profitability
| depended on driving out competition and raising prices.
|
| Even these things get played. Sometimes driver/rider
| subsidies get classified as "Marketing expense" rather than
| cost of goods sold.
| jjeaff wrote:
| The only issue is that companies like Uber are lying to
| themselves and their investors that costs will go down
| significantly in the future. Both through scale and
| advances in technology. Which is true. But rarely true to
| the extent to which they believe it.
| hgomersall wrote:
| Uber aren't selling taxi rides, they're selling shares in
| Uber, which is actually what the investors care about.
| The bezzle will continue as long as they can convince
| people there's a path to profitability.
| pydry wrote:
| It's a bet not a lie, theyre betting that they can
| squeeze out competition and jack up ride prices and jack
| down wages.
|
| It's a rather sickening bet though. One would hope they'd
| lose.
| bananapub wrote:
| > The only issue is that companies like Uber are lying to
| themselves and their investors that costs will go down
| significantly in the future.
|
| did you not read the article? the entire thing premise is
| that is not true and there are negative externalities and
| incentives even if the company doesn't ever make a
| profit.
| qwytw wrote:
| Well to be fair Uber is almost profitable at this point
| (just -1.78% net margin) so if they actually wanted to
| they could be profitable in a quarter or two..
| nobody9999 wrote:
| >The only issue is that companies like Uber are lying to
| themselves and their investors that costs will go down
| significantly in the future. Both through scale and
| advances in technology. Which is true. But rarely true to
| the extent to which they believe it.
|
| Uber and other folks who sell whatever it is they sell at
| a loss -- with no real expectation (other than driving
| their competition out of business so they can then hike
| prices well beyond where those who can actually make a
| profit charge) always reminds me of this[0].
|
| The ridiculous part is that the link below was a _parody_
| when created. Now it 's a "business model." Sigh.
|
| [0] https://www.youtube.com/watch?v=KodqIPMbyUg
| 8ytecoder wrote:
| They don't even hide this fact. That's pretty much the
| unstated goal behind funds like SoftBank funding startups
| at well above what the startups even ask for.
| danielmarkbruce wrote:
| There certainly is nuance. There is nothing magical about
| marginal costs - if someone is pricing something at break
| even or 1% gross margin and never have any hope of running
| a profitable business at that price because of their fixed
| costs, it's not different from a competitive perspective -
| the price is unsustainable.
|
| On top of that, there is nuance as to what goes into fixed
| v variable, how fixed fixed really is, how good your
| management accounting system is, how good you are at
| predicting things like product recalls, or insurance
| losses, or loan recoveries, or whatever other variables are
| part of your particular business.
| guywithahat wrote:
| I agree, I think dumping makes more sense when a government
| is helping and industry produce temporarily low priced goods
| to kill competitors, as would sometimes happen with China.
| Even a big company like Amazon has a much more finite amount
| of resources than a government
| paulddraper wrote:
| The difference between dumping vs not-dumping is the
| _permanence and sustainability_ of the price.
|
| If widgets costs you $12 to make and you sell them for $10,
| you are currently running at a loss.
|
| If you plan to continue selling them at that price and reduce
| your costs to $8, that's okay.
|
| Whereas if you plan to later raise your price to $15, you're
| dumping.
|
| Though if you plan to develop super-widgets and sell those
| for $15, that's okay.
|
| ---
|
| Hopefully that makes sense.
|
| That said, a frequent issue is overestimating margins
| (intentionally or unintentionally). Uber underestimates their
| fundamental costs, so (intentionally or unintentionally) are
| dumping.
| wslh wrote:
| Startups play the game of customer acquisition costs above the
| revenue all the time. If we want to discuss this issues we need
| to skip cherry picking.
| nickpp wrote:
| Fascinating story of how Dow fought a dumping competitor:
|
| "In 1905, German bromide producers began dumping bromides at
| low cost in the U.S. in an effort to prevent Dow from expanding
| its sales of bromides in Europe. Instead of competing directly
| for market share with the German producers, Dow bought the
| cheap German-made bromides and shipped them back to Europe."
|
| https://en.wikipedia.org/wiki/Dow_Chemical_Company
| tootie wrote:
| We also call it "selling dollars for fifty cents"
| eastbound wrote:
| "We lose on every item but we make it up with scale." -- the
| show "Silicon Valley"
| loa_in_ wrote:
| Which doesn't really make sense unless you interpret it as
| "we make it up with growth."
| maxk42 wrote:
| Funny to see nobody's mentioned Cloudflare yet. They're not
| making any money: This is presumably their exact plan: Offer CDN
| services and other web infrastructure services at a loss for a
| prolonged period of time until the competition is destroyed, then
| jack up rates and eat the market.
| teaearlgraycold wrote:
| Aren't there other CDN providers like AWS that are pretty
| stable?
| dceddia wrote:
| This coupled with their device attestation stuff scares the
| hell out of me. Once enough of the internet is shielded by
| Cloudflare, and they only allow access to authorized (read:
| uniquely identifiable) devices (or else you have to answer a
| captcha on every request)... I just don't see a very good
| future for the free internet.
| refulgentis wrote:
| +1, they really made my eyebrows raise recently. They're
| absurdly overaggressive on flagging requests as scraping...and
| will sell you a CORS proxy for scraping, with a big fat "I'm a
| scraper" tag on it. They get two customers and the web-as-
| commons and the scraper are both worse off.
| cs702 wrote:
| From the abstract:
|
| "A venture predator is a startup that uses venture finance to
| price below its costs, chase its rivals out of the market, and
| grab market share. Venture capitalists (VCs) are motivated to
| fund predation--and startup founders are motivated to execute it
| --because it can fuel rapid, exponential growth. Critically, for
| VCs and founders, a predator does not need to recoup its losses
| for the strategy to succeed. The VCs and founders just need to
| create the impression that recoupment is possible, so they can
| sell their shares at an attractive price to later investors who
| anticipate years of monopoly pricing."
|
| Everyone on HN knows this is _exactly_ the playbook of many fast-
| growing VC-backed startups. No need to mention names.
| dghlsakjg wrote:
| I think the problem is that making a user or service provider
| create an account on an app isn't the moat that they think it
| is. A lot of these market domination moves only last as long as
| the VC money then the competitors are more than happy to swoop
| back in.
|
| Consumers are super fickle, and I will happily check a
| different app to see if I can save a dollar on a $10 car ride
| dumbfounder wrote:
| You aren't the norm. If you were then Lyft would be doing
| much better. How many rideshare apps do you check? 5? 10? My
| guess is maybe once in a while you check Lyft if uber seems
| high. That's what I do.
| zeroxfe wrote:
| It's the playbook of any well funded organization trying to
| break into a new market. This is the entire premise of loss
| leaders, and they're effectively risking their entire capital.
| senko wrote:
| Yes, but: for a profitable organization a loss-leader is
| expected to enable profit-making elsewhere in the org, so a
| total sum ought to be positive.
|
| For example, console hardware is loss leader for console
| makers because they make up for it for every game sold.
| Google Chrome and Android are loss leaders for Google, but
| are strategic assets protecting its revenue business.
|
| In both cases, these companies can continue to do that
| indefinitely (as long as it makes business sense).
|
| Venture-backed companies that are burning cash, on the other
| hand, are pursuing an unsustainable strategy of predatory
| pricing to kill off competitors and grab the most of the
| market.
|
| (obviously, it's not either-or, you can easily name examples
| from long standing companies or startups doing either)
| boringg wrote:
| Theres no difference between what you just described just
| that one has an umbrella where its funded by revenue
| elsewhere and the other is on VC dollars on the promise of
| long term ability for market share and raise prices or
| someone else buys organization and continues it as a loss
| leader for its ability to get market share.
|
| Ones higher risk but quite similar.
|
| Not sure what your point is to be honest
| mdorazio wrote:
| They are completely different financially. Look at this
| way: in a single quarter, the cash flow for a company
| with a loss leader strategy will still be positive
| because the loss product is offset by other revenue. The
| venture predation company will have a massive negative
| cash flow no matter what because there is no near-term
| revenue to offset the loss.
| eastern wrote:
| This paper is not about grabbing most of the market etc and
| eventually making a profit. As the abstract quoted above
| says, it's about creating an illusion that this can be done
| so as to sell stock to a greater fool. Uber was quite
| successful at this, as were many others.
|
| Really, from the pov of Travis Kalanick and the original
| funders, Uber is a fabulously successful business.
|
| The original founders and the venture predators made their
| money. The professional execs at the top running the
| business now are also making lots of money. It doesn't
| matter to any of them what happens to competitors,
| employees and current shareholders.
| senko wrote:
| > about creating an illusion that this can be done so as
| to sell stock to a greater fool.
|
| Yup, that's the entire point of the paper (and it's
| really clearly written and approachable by non-experts!)
|
| Parent was equating predatory pricing (in general) with
| loss-leaders, which have nothing to do with the subject
| of this paper.
| wyre wrote:
| That's a bit of an exaggeration right? Facebook sold their
| headsets at a loss and seem to be doing fine, Uber and
| doordash entered into markets without charging fees and look
| to doing fine, OpenAI is currently doing that with ChatGPT
| and we will see how it goes for them.
|
| Surely, selling at a loss is a risky endeavor, but we see it
| time and time again that companies selling at a loss get more
| funding due to their inflated numbers from selling at a loss.
| Or, it's only those companies that make headlines and we
| don't hear about all the companies going bankrupt selling
| their services at a loss.
| stubybubs wrote:
| > Uber and doordash entered into markets without charging
| fees and look to doing fine
|
| These companies are not profitable. They are still in the
| loss-making market share acquisition phase. They might be
| profitable at some point, but that would likely be by
| increasing pricing to something far less desirable to
| consumers, negatively impacting growth. AirBnb recently
| turned a profit but is now more expensive than hotels with
| often worse service, and they're being regulated out of
| some markets, so we'll see how it works out for them. Would
| DoorDash with a minimum $15 delivery fee survive? Uber if
| it's more expensive than a cab?
|
| Don't get me wrong, I'm happy living large off of VC fund's
| money. But I'm not brand loyal to any of this stuff.
| vharuck wrote:
| >This is the entire premise of loss leaders
|
| I thought "loss leaders" were specific products sold below
| cost so customers would buy accessories or subscriptions that
| have nice profit margins. Like selling cheap printers but
| expensive ink.
| bombcar wrote:
| The technical term for "loss leader" usually refers to a
| place like a grocery store selling some necessity like milk
| at or below cost, because they know if you compare milk
| prices and decide to buy there, you'll get other things
| once you're in the store.
|
| That's different from "sell a dollar for fifty cents until
| all competitors are dead".
|
| There's also loss leader applied to things like consoles,
| where they lose money (at first) but make it back on the
| games.
| hnburnsy wrote:
| Are there any examples of successful companies doing this?
| Uber and Wework only cost the IPO bag holders. Have any
| Venture Predation companies actually reached supracompetive
| pricing levels and recouped the predatory losses enough to
| have overall harm to consumers?
|
| IPO bag holders, too bad, and I don't see any regulatory need
| to protect them.
| anonu wrote:
| I'm part of the problem. I always suspected my Uber ride was
| financed with venture money. So i always went with Uber. But i
| didn't think ahead to the fact that it would kill off the
| competition.
|
| What i don't get it is what the Uber moat is? Why does this need
| to be centrally planned and controlled? Would an open source and
| free platform work where drivers got near 100 percent of the sale
| instead of the 75% they get today.
| HDThoreaun wrote:
| Uber's moat is its network. Can't get any drivers if there are
| no riders and can't get riders if there are no drivers. This
| means you need to start by offering drivers more money than you
| make in order for them to use the app. An open source solution
| wouldn't be able to get off the gorund.
| tomatocracy wrote:
| The direct fix for this (which I believe has happened in some
| countries) is to ban them from asking drivers to enter into
| exclusivity or minimum volume agreements with them. Then
| drivers can work for multiple networks.
| qwytw wrote:
| > Then drivers can work for multiple networks.
|
| They already can do that? (and very often do)
| bogwog wrote:
| It isn't the consumer's responsibility to solve this problem.
| That's the government's job.
| cheapsteak wrote:
| The open source and free platform be able to handle the
| patchwork of regulations that are now in place that differ
| between city to city
| AndrewKemendo wrote:
| No cause the entire point is that it's a finance game that just
| happens to build products
| EamonnMR wrote:
| Uber's moat is the inertia of its massive customer and not-
| employee base making it difficult to enforce the regulations it
| has historically flaunted. In that way, it's similar to why
| Mastodon can't kill Facebook.
| liorben-david wrote:
| Losing money while you grow isn't neccesarily bad.
|
| Venture Capital at its best allows a company to take losses until
| it can achieve economies of scale.
|
| I'd say it turns predatory when even after achieving scale(Like
| Uber or Amazon) a company still runs an unprofitable business to
| choke out competitors.
|
| How can you prove this in court? No clue. Maybe the company has
| to articulate the explicit economy of scale it hopes to achieve
| and how?
| rossdavidh wrote:
| I think the difference between legit and illegit is whether or
| not your competitors have to go out of business for you to
| become profitable. If you burn through some cash to get off the
| ground, eventually driving your per-unit costs down so that
| your prices become profitable, that's legit.
|
| If on the other hand your current prices are never going to be
| profitable (looking at you, Uber), and your business plan
| requires that your can raise them a lot without losing sales
| (because your competitors are gone), that is not legit.
|
| The third factor in all of this is that many companies like
| Uber weren't really ever likely to become profitable in any
| scenario, and this was really about taking the cheap VC money
| while it was cheap. Blitzscaling was just a way of pretending
| that you would someday become profitable.
|
| I think higher interest rates will get rid of a lot of this.
| revelio wrote:
| Easy to criticize but to be consistent you'd also have to
| consider non-VC-backed products dumped at below price by regular
| companies too, and that would get uncomfortable real fast:
|
| - Chrome
|
| - VS Code
|
| - LetsEncrypt
|
| - Everything open source
|
| etc. Sometimes I wonder how much this practice distorts the
| software industry, preventing new innovations from happening. The
| industry settled on this approach without being forced to, so I
| wouldn't want legal changes to prevent it either, but it's worth
| a bit of self-reflection on how much we all love free stuff.
| HDThoreaun wrote:
| Chrome and vscode are integral parts of Google's and
| Microsoft's strategy and absolutely make them tons of money via
| increased usage of their main product(search and enterprise
| productivity suite).
| revelio wrote:
| How does VS Code increase usage of Office?
| arcticbull wrote:
| Recovering your costs through advertising isn't really dumping.
| Chrome definitely makes Google way more money than they put
| into it.
| revelio wrote:
| I recall that it wasn't seen that way when Microsoft used
| Windows revenues to push IE and crush Netscape. It was called
| product tying back then. You don't hear much about it
| anymore.
| wmf wrote:
| Chrome and IE did not have the same business model. If we
| look back at Netscape vs. IE they both had predatory
| nonexistent business models.
| revelio wrote:
| Netscape was payware in the beginning? Not sure how
| that's non-existent? Even after they were forced to go
| free by Microsoft, they were selling servers which are
| the compliment of browsers.
| wmf wrote:
| Did anyone actually pay for Netscape?
| Andrex wrote:
| Also, outside of Opera, all browsers (that I know of) have
| been free for over two decades.
| bityard wrote:
| This is essentially how Carvana has decimated the private used
| car market in my area. Only instead of low product prices, they
| offer well-above market value for used cars to private sellers so
| that Carvana becomes the only source for a car that fits your
| criteria.
| WaitWaitWha wrote:
| I think Zillow tried to do something like this with properties
| in Florida in 2021, and ended up holding the proverbial bag.
| busseio wrote:
| Still?
| maerF0x0 wrote:
| if their theory holds true that means private sellers were
| massively under negotiating, or that there is a large arbitrage
| value between when a seller wants to sell and the days on
| market.
|
| ie assume seller is willing to pay $50 a day to have car sold
| today (and not have to field calls etc). That means selling a
| car a month faster is worth $1500. Carvana can borrow the $25K
| car value at ~5% to pay $100 interest to hold the asset for a
| month playing the time arbitrage.
|
| I'm finding one thing that seems to be happening generationally
| (or just in my experience) is that folks are far more willing
| to pay for convenience/now. That means they'd rather have the
| $25k and car sold today than have the $1500 in their pocket a
| month later (and field calls etc).
| xp84 wrote:
| I agree completely and totally see why people do it. I am
| keenly aware of the big spread between trade-in value and
| what the dealer will turn around and sell it for -- and yet,
| having sold a vehicle a couple of times, I will probably
| never do it again. Especially when you consider the risk of
| getting scammed somehow in the money transferring process, a
| lot of people will eat the few thousand bucks. I don't know
| if Carvana will stick around, but definitely see myself going
| to them or Carmax instead of Craigslist next time I am done
| with a car.
| nradov wrote:
| Right, the CarMax process is pretty painless and the prices
| they pay aren't much lower than what you could get in a
| private party sale. I think some HN users might not
| appreciate how risky selling a car on Craigslist has
| become; there have been many high profile news stories
| about sellers being scammed or robbed. Plus with the
| increasing levels of violence in many cities more people
| (especially women) are simply afraid to meet random
| strangers or give out their contact info.
| 62951413 wrote:
| I sold my old car via CarMax and enjoyed the experience. I'll
| go back to them once my car gets old enough regardless of
| potential peanuts I might save theoretically.
| lotsofpulp wrote:
| I do not see Carvana lasting long, at least not if their only
| strategy is to pay above market for used cars and getting in
| the crosshairs of multiple state regulators.
|
| https://www.macrotrends.net/stocks/charts/CVNA/carvana/net-i...
|
| https://www.macrotrends.net/stocks/charts/CVNA/carvana/marke...
|
| https://en.wikipedia.org/wiki/Carvana
| asah wrote:
| yyy "cornering the market" is exceptionally difficult to
| execute. In used cars for example, other companies could make
| a fortune trucking in used cars from elsewhere and selling
| them to Carvana...
| davepeck wrote:
| I assume this is showing up in part because it was discussed
| recently in Matt Levine's Money Stuff [0]; it's an amusing (if
| short) discussion.
|
| [0]
| https://www.bloomberg.com/opinion/articles/2023-05-18/tether...
| burkaman wrote:
| It was also today's topic on Cory Doctorow's blog:
| https://pluralistic.net/2023/05/19/fake-it-till-you-make-it/
| wslh wrote:
| I don't know why this is catching now since it was already
| obvious long time ago. I usually hate conspiracy theories but
| could only think that a new meme or agenda is catching up.
| For Cory, Matt, et al this should be obvious since the dot
| com era and in every investment cycle. The greater fool
| theory explained part of this.
| yieldcrv wrote:
| Stop the presses! /s
| [deleted]
| joshe wrote:
| For academics I think this is fine, the whole job is to look for
| new extensions of the law. But it shows how very far we are from
| any kind of basis for "stopping tech."
|
| Gonna be hard to achieve consensus around "raising fares and
| lowering driver pay" which is the opposite of what Uber did.
|
| "Uber showed that venture predation works. Uber raised around $24
| billion from private investors and used it to subsidize cheaper
| fares for riders and higher pay for drivers. Uber quickly crushed
| the taxi companies and acquired a dominant share of the combined
| taxi-and-ridehailing market.27 But it never developed a superior
| product or cost efficiency. Lyft, other ridehailing startups, and
| even taxi companies developed similar apps. Uber had to keep up
| its below-cost pricing to maintain its market share. In each of
| the three years before its IPO, Uber racked up losses of $3
| billion or more.29 Uber reassured investors by explaining that,
| once it became dominant, it would be able to raise prices and
| recoup its losses. In its IPO roadshow, Uber's executives told
| investors that they expected the company to earn an adjusted
| profit." ... "We concede that the "millennial lifestyle subsidy"
| was fun." ...
|
| Then a lot of handwaving. But no victims other than bad high
| margin businesses. (There's a theoretical driver that doesn't
| realize the high pay won't last forever and buys a car, but he
| can sell it no? And he could read the news about his livelihood
| and learn that his high pay is at risk).
|
| Btw, you can still take taxis. It'll cost more and pre uber they
| were very surly or wouldn't show when you called them. The only
| "regulate Uber" consequence will be higher ride costs and lower
| paid drivers.
|
| Amazon operates on very tight margins in it's retail business.
| The ideal case is lots of competition, which would lead to uh...
| very tight margins among competitive firms. Amazon is just smart
| enough to get ahead of that. And I think their long term goal has
| been to operate at such a low cost structure that they have a
| durable advantage in cost. And then to pour back all their
| capital back into lowering their cost structure.
|
| So why stop them? In order to subsidize the higher cost company,
| their private jets and sexual harassment lawsuits?
|
| Capital is very easy to get in 2023. We are not in the time when
| capital is so difficult to get that you'd need a 2 generation
| family firm just to build a single factory. At that point
| spending 5 years to crush your competitor might have made sense.
| But now it's limited to monopoly markets like cable, and cell
| phone service. And it might indeed be useful to create more
| competition there.
|
| Unlike Amazon I think Uber isn't likely to be a great business.
| There is just no cost structure advantage being built. So they'll
| either operate on low margins forever or they'll raise prices and
| we'll get competition in the space of a few years. In either case
| I would not want to hold Uber stock right now.
| degreesoffun wrote:
| And don't forget Amazon. They aren't venture backed but they have
| access to capital at cheaper rates than most countries due to
| their position as a stock market darling. They use ultra-cheap
| money and a willingness to run negative margins which they refer
| to "reinvesting in the business" to bleed competitors dry. Few
| other companies on the planet have the ability to run negative or
| break-even margins the way Amazon does.
|
| Diapers.com example: "When Bezos's lieutenants learned of Wal-
| Mart's counterbid, they ratcheted up the pressure, telling the
| Quidsi founders that [Bezos] was such a furious competitor that
| he would drive diaper prices to zero if they sold to Bentonville.
| The Quidsi board convened to discuss the possibility of letting
| the Amazon deal expire and then resuming negotiations with Wal-
| Mart. But by then, Bezos's Khrushchev-like willingness to use the
| thermonuclear option had had its intended effect. The Quidsi
| executives stuck with Amazon, largely out of fear. The deal was
| announced Nov. 8, 2010."
|
| https://slate.com/technology/2013/10/amazon-book-how-jeff-be...
| snake_doc wrote:
| Amazon isn't unique in this case. Your example is a bit of
| cherry picking. These tactics are common in retail
| (demonstrated by the fact that WMT, AMZ, and COST are the top 3
| retailers in the world).
|
| > access to capital at cheaper rates than most countries due to
| their position as a stock market darling
|
| Last I recall, AMZ uses an internal WACC of 8-9%. That's really
| only marginally "cheaper" cost of capital than most other mega-
| cap firms, it's not really a big advantage.
|
| Its cost of capital advantage mostly comes from its access to
| cheap short-term credit in its retail cash cycle, not the
| equity market (like you suggest).
|
| > "reinvesting in the business" to bleed competitors dry. Few
| other companies on the planet have the ability to run negative
| or break-even margins the way Amazon does.
|
| Costco regularly runs negative or break-even margins in its
| merchandising. Its language for this is "reinvesting in value"
| or "reinvesting in price". It can do this, similar to Amazon,
| because of their membership business.
|
| Walmart also regularly runs break-evens/negative margins in
| select merchandising lines depending on geography and
| competition.
| [deleted]
| peyton wrote:
| Yeah negative cash conversion cycle is Amazon's legendary
| advantage. A country could compete by being as efficient with
| working capital as Amazon.
| daveguy wrote:
| > Diapers.com example: "When Bezos's lieutenants learned of
| Wal-Mart's counterbid, they ratcheted up the pressure, telling
| the Quidsi founders that [Bezos] was such a furious competitor
| that he would drive diaper prices to zero if they sold to
| Bentonville.
|
| How is this not a serious anti-competitive monopolistic
| practice? Did the Dept of Justice get involved?
| lazide wrote:
| It wouldn't result in a monopoly or near monopoly in any real
| sense, and it's also hard to say it would meaningfully result
| in a restraint of trade. It's also hard to say the consumer
| would be hurt by free diapers, at least in any concrete way,
| and if he didn't add in 'and raise the prices later when
| you're dead', it also wouldn't be an easy thing to provide it
| wouldn't just be wasting money out of spite. Which is purely
| legal.
|
| Is it a strong arm/shitty tactic? Sure. Welcome to the real
| world.
|
| [https://www.ftc.gov/advice-guidance/competition-
| guidance/gui...]
| peyton wrote:
| Threatening to compete harder is anti-competitive?
| willcipriano wrote:
| When China makes threats to dump steel at below cost in the
| US, politicians call it anti-competitive.
| nonethewiser wrote:
| You mean when China does dump steel? Literally subsidized
| by the government. Thats not really analogous to Amazon.
| confoundcofound wrote:
| Amazon can finance at virtually interest-free rates due to
| their negative working capital.
| throwaway290 wrote:
| > And don't forget Amazon. They aren't venture backed but they
| have access to capital at cheaper rates than most countries
|
| If we are talking about non-venture cases, OpenAI+Microsoft is
| doing the same with ChatGPT.
| cheschire wrote:
| There's a nugget of an interesting concept here. I would like
| to know more, but I would also like to know more from the
| folks downvoting you as to why they disagree.
|
| Could you please expand on your thought? I know some recent
| conversation has been had about the potential that open
| source models have to "win" against Big Tech, so I'd love to
| know how your thought accounts for that as well.
| throwaway290 wrote:
| It seems obvious, they are burning through Microsoft's
| money for now (it was said these chatbots cost way more to
| run than they make profit) to capture the market and be
| able to get thick margins later.
| qwytw wrote:
| > it was said these chatbots cost way more to run than
| they make profit
|
| Well if it's running on Azure and using massively
| overpriced Nvidia data center GPUs I can't imagine
| anything else would be possible. Then again it's not like
| there any incentive for OpenAI to increase efficiency as
| long they get 'free' Azure credits (and it's not like the
| real cost for MS is anything close to what they are
| supposedly investing into OpenAI. IRRC that 10 billion
| was mainly not in actual money)
| boeingUH60 wrote:
| Quidsi founder Marc Lore sold his next company, Jet.com, to
| Walmart for $3.3 billion [1]. Both Quidsi and Jet.com were
| never profitable, meaning Lore was also playing the game of
| venture predation, so hardly any pity from me.
|
| To add, Lore's current startup is a premium food delivery
| service called Wondery that raised $350 million at at $3.5bn
| valuation last year [2], and it's not profitable too. None of
| Lore's companies have ever turned profits but he's made enough
| money to buy the Minnesota Timberwolves...he's the perfect
| example of venture predation, lol
|
| 1- https://corporate.walmart.com/newsroom/2016/08/08/walmart-
| ag...
|
| 2- https://techcrunch.com/2022/06/17/marc-lores-food-
| delivery-s...
| pyrale wrote:
| > Both Quidsi and Jet.com were never profitable, meaning Lore
| was also playing the game of venture predation
|
| I don't know about the books in this specific case, but
| losing money doesn't mean you're into venture predation. You
| could very well be losing money but also have sound unit-cost
| to price.
| ilrwbwrkhv wrote:
| Being a business owner with actual profits from technology by
| selling a useful product, I can never understand the bizarre
| emergent properties of our current financial system that lets
| folks like Marc Lore to exist.
| post-it wrote:
| > Lore's current startup is a premium food delivery service
| called Wondery
|
| A brilliant strategy! Amazon already owns a Wondery[0] so
| they can't acquire his.
|
| [0] https://en.wikipedia.org/wiki/Wondery
| psadri wrote:
| I think his strategy is to exit to Amazon/Walmart/...
| abigail95 wrote:
| They have money because of AWS, which is a fantastic product in
| an extremely competitive market, competing against players who
| lose money like GCP and Azure.
|
| Amazon.com as a store makes next to nothing as profit.
|
| Who cares what he did to some diaper companies. Are consumers
| paying more or less because of amazon? Much less.
|
| They basically run amazon.com for no profit and consumers get
| fantastic deals and cheaper products and more reliable service
| than ever before.
|
| How much would you have to charge for same day delivery for
| that many products? Could you get close to Amazon? You would
| have to rip off you customers so badly just to stay alive.
| qwytw wrote:
| > who lose money like GCP and Azure
|
| Really? First time I'm hearing Azure is unprofitable. In fact
| "Intelligent Cloud" which I assume is mainly Azure is their
| most profitable business...
|
| If I understand it correctly (probably not) they actually
| have higher margins than AWS?
| paulddraper wrote:
| > Who cares what he did to some diaper companies.
|
| Going out on a limb here, but I'd say the diaper companies.
| lotsofpulp wrote:
| What happened to the diaper companies? Feel like I see the
| same brands of diapers still. Procter and gamble, Kimberly
| Clark, etc.
| degreesoffun wrote:
| > Who cares what he did to some diaper companies. Are
| consumers paying more or less because of amazon? Much less.
|
| They are probably generally paying less but Amazon isn't the
| surefire low-cost provider on the internet the way they used
| to be. I don't expect the trend of them raising prices to
| reverse as they gain market power.
|
| > How much would you have to charge for same day delivery for
| that many products? Could you get close to Amazon? You would
| have to rip off you customers so badly just to stay alive.
|
| It's not "ripping off" it's just charging customers the
| actual cost of the service they are getting.
| nonethewiser wrote:
| > I don't expect the trend of them raising prices to
| reverse as they gain market power.
|
| Except their competitors have followed suit with cheaper
| shipping and online shopping. They are the best, but not a
| monopoly.
| rurp wrote:
| > consumers get fantastic deals and cheaper products and more
| reliable service than ever before.
|
| This hasn't been true for many years IME, and will almost
| certainly get worse over time. Companies like Amazon don't
| fight tooth and nail to monopolize industries because they
| want to be nice to people, they do it because it results in
| power they can use to increase profits over the long term.
| Less competition means that they can ratchet up prices for
| customers and squeeze sellers/suppliers more. There are only
| a handful of general stories online these days, largely due
| to Amazon's actions.
| otikik wrote:
| I care because once Amazon kills all their competitors then
| they are the only ones selling diapers. And then they can
| charge 10 bucks per diaper.
| dynrzk wrote:
| And then someone sees that people are buying diapers for 10
| bucks and starts selling them for 5.
| edmundsauto wrote:
| The latency between the observation of a market
| opportunity, and actually realizing lower prices at the
| consumer level, is significant. Millions of people would
| be charged monopolistic prices for the year it would
| take.
|
| This also assumes Amazon doesn't buy any competitor early
| on, such as happened with Warby Parker.
| winphone1974 wrote:
| Except Amazon has the the diaper production locked up,
| and we're back where Amazon temporarily sells them for 2
| bucks while you try and get your diaper factory off the
| ground.
| nonethewiser wrote:
| Yet here we are in reality where they did kill the diaper
| competitor and we have MORE retailers shipping diapers at a
| competitive cost.
| joefourier wrote:
| How on earth do GCP and Azure lose money when they (just like
| AWS) are ridiculously expensive? Like frequently >3x the
| competition for VMs and for bandwidth egress, I've sometimes
| seen 10x, or charging for things that competitors don't.
| qwytw wrote:
| Well they don't. Azure doesen't in fact it's the complete
| opposite. Not sure about GCP though, but I'd also be
| surprised...
| DolceVita wrote:
| [flagged]
| satvikpendem wrote:
| Are there any that are actually successful with this strategy?
| Uber and Lyft, for one, but they still don't make profit and
| aren't really that sticky, honestly, given that people will use
| other services if they're cheaper, like Waymo and some new ride
| sharing upstarts I've seen around recently.
| seanhunter wrote:
| I can't escape the feeling that it boils down to the old
| classic 3 stage business model:
|
| 1. collect underpants
|
| 2. ?
|
| 3. Profit
|
| Uber and Lyft are great examples. They haven't established
| long-term stickiness with drivers or passengers. So if either
| of those groups get offered a better deal they will switch.
| Therefore it's just a relentless race to the bottom with no
| sustainable business in sight.
| satvikpendem wrote:
| Exactly. Well, I'm not complaining at my VC funded rides
| though, it's a great transfer of wealth from the rich to the
| poor, ie me, lol.
| version_five wrote:
| There's an interesting article somewhere about a pizza
| place that iirc arbitraged VC subsidies by ordering pizza
| from itself through some delivery app that was buying the
| revenue by selling the pizza below the actual price.
|
| Edit: https://www.readmargins.com/p/doordash-and-pizza-
| arbitrage
| satvikpendem wrote:
| This was satirized in Silicon Valley too, funnily enough:
|
| https://www.youtube.com/watch?v=LYu-d6y5HRo
|
| https://www.youtube.com/watch?v=rdJifVNEKnE
| mustacheemperor wrote:
| I wonder what the relative scale of that wealth transfer is
| compared to the transfer of wealth involved with leveraging
| the motor vehicle equity of drivers into profits for
| wealthy investors.
|
| Edit: per reply, "income" would be a better word
| satvikpendem wrote:
| It's not profits though. Investors are paying more than
| the value of the ride to the driver. Now whether that
| offsets the depreciation of the vehicle over time, I
| don't know the numbers on that.
| ClumsyPilot wrote:
| > just a relentless race to the bottom with no sustainable
| business in sight.
|
| Isnt it ironic that the main thing they teach to the general
| public is benefits of competition in free markets. But the
| first thing they teahc to MBA types is to avoid competition
| by any means possible.
| lotsofpulp wrote:
| Not ironic because buyers and sellers have opposing
| interests.
| anigbrowl wrote:
| I think Google is like that. Imagine going from such a lofty
| initial mission to running an advertising spot market.
| pixodaros wrote:
| As long as the founders get to borrow lots of other people's
| money to use this strategy, they have won. Even if the company
| goes bankrupt or is bought at a low valuation, they collected
| big wages and benefits for years and get to put their startup
| experience on their pitches for their next project.
|
| Subsidizing a project to make it grow and drive competitors out
| of the market has been fundamental to the US 'tech sector'
| since 2008 (eg. YouTube).
| fnord77 wrote:
| amazon did this early on
| fnord77 wrote:
| I remember a game on the Apple ][ that was basically a simulation
| of the bicycle manufacturing business
|
| you could tweak various "fair" parameters like quality and price
|
| but I guess the makers of this were naive and never considered
| any "unfair" practices like getting cheap cash and wiping out the
| competition
| spaceman_2020 wrote:
| I'm so jaded by modern startups and venture industry. There are
| people who've built entire careers building unprofitable
| companies that only sell products to other unprofitable startups
| and eventually get acquired by other unprofitable startups.
|
| It's a gigantic game of hot potato that swallows up a gigantic
| pool of human talent, all for producing stuff that really adds
| little to no positive to the world.
|
| If they're not disrupting (read: destroying) local economies,
| they're breaking all local rules and regulations. And despite
| playing fast and loose with any sense of ethics or legal
| compliance, they _still_ can 't be profitable.
|
| Just end this ponzi.
| mdgrech23 wrote:
| This is our world right now. My wifes father was a plumber. She
| said as actual plumber, you know someone who provides water and
| ensures your shity is sanitarily drained away he didn't make
| really good money. He got a job working for the auto industry
| running pipes for hydraulics to the machines on the factory
| floor and made way more money. How is that worth more to our
| society?
| spaceman_2020 wrote:
| These startups aren't even making pipes in a factory. They're
| building absolutely dumb stuff that offer marginal life
| improvements ("15-minute delivery") or no improvements at all
| (crypto).
|
| Literally tens of billions have flowed into startups in just
| the above two categories. If both were to disappear from the
| face of the Earth tomorrow, you'd miss them for about 5
| seconds.
| MichaelZuo wrote:
| Why wouldn't factory machine hydraulics for the auto industry
| be more important then an individual's toilet?
| wslh wrote:
| Also, a Zen monk will have a different perspective about
| value. There are people who value the entertainment from
| TikTok while others prefer to read a book.
| frithsun wrote:
| I believe a lot of this was driven by fed rate shenanigans
| creating far more investment wealth than there were organic
| opportunities for investing it. All of these market-distorting
| startup deals were just symptoms of that broader systemic
| monetary policy error.
|
| While the mom and pop taxi companies and others impacted by it
| have my sympathy and support, all the regulatory alternatives
| other than waiting until they achieve a monopoly and then
| breaking them up seem to cause as many problems as they aim to
| solve.
| JumpinJack_Cash wrote:
| > > I believe a lot of this was driven by fed rate shenanigans
| creating far more investment wealth than there were organic
| opportunities for investing it. All of these market-distorting
| startup deals were just symptoms of that broader systemic
| monetary policy error.
|
| The Fed is not distorting anything. It's an anomaly that you
| can "invest with Uncle Sam" , for the longest time if you
| wanted to see your money grow you had to take it from your
| fellow American somehow.
|
| The ability to passively invest with the government is
| alienating, unsatisfying and creates growth problems to the
| country that allows it because it subtracts participants from
| the creative destruction process.
| abigail95 wrote:
| Classic zero sum thinking with no evidence or even an
| overarching thesis on the neutrality of money.
|
| You need to back this up with some serious economic citations
| JumpinJack_Cash wrote:
| > > Classic zero sum thinking
|
| All the stuff that gives the most satisfaction is zero sum.
|
| Only one team wins the Super Bowl, only one NBA team wins
| the Finals and only one franchise gets to claim the World
| Series.
|
| You can see it when you look at investors, even the
| notorious ones, they are rich but mentally they are not
| stoked or feeling as powerful as athletes who won such
| trophies.
| kneebonian wrote:
| Like having children or helping another person.
|
| Totally 0 sum.
| abigail95 wrote:
| What the fuck are you talking about?
| revelio wrote:
| Interesting perspective, thank you for that, but the issue is
| not merely driving bond rates to zero. The money created by
| central banks also flows into VC funds and the stock markets
| via various indirect paths and from there into the startup
| ecosystem.
| JumpinJack_Cash wrote:
| That's a problem of trust, money flows to startups because
| the so called capital allocators don't trust themselves
| with such amount of money, otherwise they'd be investing
| all into companies where they are at the helm.
|
| The whole family office concept is something new, back in
| the day if someone had money they'd just invest in
| themselves by expanding their own business.
| source99 wrote:
| There are two kinds of VC funded startups - Those that give money
| to customers and those that give money to employees.
| web3-is-a-scam wrote:
| Isn't this more or less just loss leading?
| ivansmf wrote:
| You. don't. say. Really?!? OMG, what an insight! What are they
| going to say next? That startups also use the good will of the
| internet to create their IP to then take it private as a way to
| get free labor? I'm shocked! And because this is also the
| internet, that was sarcasm.
| ohgodplsno wrote:
| [dead]
| cactusplant7374 wrote:
| Normally it is described as a positive practice because
| consumers get lower prices for an extended period of time.
|
| I personally benefited from this but I can see the drawbacks.
| zomglings wrote:
| Wasn't this dressed up and sold to the masses as blitzscaling
| just a few years ago?
|
| I like the term "venture predation" better.
| dbmikus wrote:
| Yeah, Uber was a classic case study for blitzscaling and the
| Uber v Lyft battles are a case study of blitzscaling by using
| VC subsidies to try to price out competition.
| cm_silva wrote:
| Reminds me of the game Capitalism[0] where the player was
| incentivized to achieve monopoly in markets by selling below-
| cost, subsidized by the other parts of the business. Vertical
| integration was also highly encouraged.
|
| [0] https://en.m.wikipedia.org/wiki/Capitalism_(video_game)
| exabrial wrote:
| Unfortunately before regulators have time to react, the intended
| effect: Driving out small businesses, has already taken place.
| huitzitziltzin wrote:
| The response from regulators should be: Let VCs waste their
| money.
|
| This is an extremely weak analysis from an economics point of
| view. The regulator has several options to deal with monopolists
| if and when they emerge.
|
| If consumers realize benefits in the meantime in the form of
| cheap products subsidized by VC money that's a good thing.
| dumbfounder wrote:
| Very often the unit economics at smaller scales doesn't work, but
| then works great at a large scale. I don't think it's immoral to
| gamble on achieving the high scale later and investing in the
| company to shoot for that scale. If no one can achieve profitable
| unit economics early on and you aren't allowed to have
| unprofitable unit economics then no one will make the product. I
| think this is bad for innovation. Is this the same as "venture
| predation"? It sure seems that way. How could you tell it apart?
| kashkhan wrote:
| Don't airlines do this all the time to prevent new entrants? How
| is this not provable?
| WaitWaitWha wrote:
| Best part in my opinion?
|
| One of the requirements in the RFP was "Windows to View Our Home
| Planet and the Moon".
|
| The last sentence is "They must be present and cannot be
| substituted".
| NumberWangMan wrote:
| This feels related to the idea in "Billionaires, Surplus, and
| Replaceability" (1)
|
| Basically, if, say, Jeff Bezos never existed, it seems likely
| that someone else would have created Amazon, perhaps a few years
| later, and maybe not quite as good. "Big online retailer" is sort
| of a natural niche, with a bit of a natural monopoly. So while
| the classic argument for letting people keep most of their wealth
| gained in the free market is that they provided a lot of value,
| maybe that doesn't make as much sense when you consider that if
| they hadn't done it, somebody else probably would have soon
| after.
|
| It's obviously impossible to gauge exactly how much excess value
| someone provided compared to the world in which they never
| existed, but to round it up to 90% or doesn't seem very accurate.
|
| So it seems like in our current world, there's a winner-take-all
| effect that a lot of venture-backed startups are trying to
| exploit. If we were a lot more aggressive in taxing companies
| like Amazon, my intuition is that it would go a long way toward
| reducing this effect.
|
| (1) https://astralcodexten.substack.com/p/billionaires-
| surplus-a...
| Nevermark wrote:
| Amazon is a series of several businesses created in succession,
| with synergy between them.
|
| It is highly unlikely that the same path would have been taken
| by someone else, or that they could have the repeated same
| results with any combination of those businesses.
| wslh wrote:
| I don't think you can play the alternative universe easily.
| Will there be another Apple? Will there be another Microsoft?
| There is some uniqueness in Amazon execution that didn't enable
| a competitor to survive, even when they were a startup.
| mdgrech23 wrote:
| seems more of a problem that we let monopoloies exist. hell
| even oligopolies. we do have laws but we all know they don't do
| shit.
| balozi wrote:
| Wait, it's predatory pricing traditionally understood to be aimed
| at consumers/customers. Applying the term to sketchy pricing
| practices aimed at competitors is a bit novel in my book. I feel
| like words are being misused here.
| Robotbeat wrote:
| Pricing below costs is the opposite of a problem for consumers
| (in the short term...). "Predation" in this case refers to
| competing businesses, who often have enjoyed a long period of
| monopoly rents.
| likeclockwork wrote:
| As you said "in the short term". Once the competition is
| destroyed the consumer is at the predator's mercy.
| pixodaros wrote:
| Sometimes that is true, but if the barrier to entry is low
| (eg. ridehailing services), as soon as the predator raises
| prices, competitors will appear. If the barrier to entry is
| high (eg. telecommunications), there is usually some
| antitrust regulation.
| glutamate wrote:
| Other thing we need to talk about is when funded startups run
| customer service that is not sustainably financed. Everybody
| apparently loves this and celebrates that the great service and
| listening to its customers.
|
| But it is just the same thing: predatory pricing applied to a
| product delivered with high-end customer service.
|
| Edit: Example: $5/month Todo list SaaS that has a 24h customer
| support telephone helpline
| brookst wrote:
| I don't see the problem. They apparently believe in a low
| margin, high volume play with support being a volume driver.
| They might be right or wrong, but I wouldn't want it to be
| illegal as a business model. Investors and companies have to be
| free to lose money or else we've just got a centrally planned
| economy where every business has to offer the same product at
| the same price.
| gmd63 wrote:
| The problem is society is witnessing races between Tortoises
| and Hares, where the Hares are doped with venture backing.
|
| A healthy society progresses slowly like a tortoise,
| encountering actual tradeoffs that aren't masked by mountains
| of cash only to ensure cancerous returns for already rich
| people at the expense of skilled business owners who are
| actually designing their businesses to handle endgame
| stressors.
|
| In any healthy competition you have rules around the gear you
| can use, how many people are allowed in your pit crew, what
| dimensions your fencing saber can be etc. so that rich people
| cant buy their way to success to cover up lackluster
| execution and skill.
| miiiiiike wrote:
| I get your meaning, but not all competition is sport. You
| don't have to go horse to horse with your competition if
| you have an F-35.
| dghlsakjg wrote:
| If your product is good enough, this might not actually be a
| money loser. If I never have to call support then its a win for
| everyone.
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