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On-Demand Startups Are Hemorrhaging Tens of Billions a Year

bloomberg.com

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Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#11

Post by loganfrederick »

As both a startup programmer and having worked in the financial industry, it's really hard to know how companies like these will be viewed by history.

The technologist argument is: we are enduring losses, even large ones, in the short term so that we can bring inevitable future tools forward in time (i.e. "Of course everyone can get anything delivered on-demand in the future, so why not now!?")

The value-based investor argument: This is a gross subsidy to "tech" companies that is distorting/subsidizing markets and creating huge opportunity costs where all these billions could have been invested in better, even more fundamental technologies.

There is a third argument which is what's really giving these companies legs: they do genuinely have a lot of users who love the services. Who wouldn't want a VC-subsidized meal brought to your door?

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#12

Post by supernova87a »

My summary of where all the money goes:

-- Every on-demand service struggles with the problem of peaky demand, variation of >50% in peak to average traffic / demand

-- Peaky demand is inherent in our consumer / passenger / people behavior, not going to change any time soon -- think of the daily hours typical for commuting, eating, etc.

-- These services make their money / entire value prop on serving peaky demand quickly, but you need labor willing to match those times, otherwise people are sitting around underutilized

-- Until you have automated cars / labor, you have a really hard time recruiting people who are happy only to be paid part-time

-- Drivers / labor have to be paid pretty much on a full time basis to keep people working for you (whether overtly or implicitly through promotions, marketing, sign up bonuses), otherwise they sign up with hopes of steady income, and then quit. ("I love being able to set my own hours", etc is the exception, not the imaginary bulk of people working for a living)

As long as these conditions prevail, this is where those companies' cash is hemorrhaging to.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#13

Post by koolba »

b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

> The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs will get a lot worse if not disappear.

It'll be a double whammy hit. As the unsustainable businesses collapse and prices rise back to reality, it'll cause an even larger drop in net sales due to consumer's reluctance to pay the full cost of their poke bowls. Combine that with a bunch of gig economy workers having their only income source dry up and you've got a financial mess at a large scale.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#14

Post by dawhizkid »

b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

Why would “gig economy jobs” get worse?

If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from places, maybe especially if their car gets repossessed.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#16

Post by ghaff »

thorwasdfasdf wrote: post #3

i would've appreciated a bit more breakdown on where all the spending was going. i mean, the user acquisition cost, will eventually go away for the most part once they reach a certain size. After that it's all about operations. the question is how do the scalability of providing service fundamentals look like, long term cost vs revenue.

In the case of Uber/Lyft while I'm generally expensing it when I rarely use them and don't care about price much, I expect a lot of people who use them day-to-day would drop them in a heartbeat if they could use cheaper options. I'm not sure I understand why "rideshare" should be cheaper than cabs. I think it's mostly better than cabs which is why I use them. But that's maybe not the majority view.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#17

Post by tomnipotent »

dawhizkid wrote: post #14
b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from…

This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#18

Post by doctorpangloss »

supernova87a wrote: post #12

My summary of where all the money goes: -- Every on-demand service struggles with the problem of peaky demand, variation of >50% in peak to average traffic / demand -- Peaky demand is inherent in our consumer / passenger / people behavior, not going to change any time soon -- think of the daily hours typical for commuting, eating, etc. -- These services make their money / entire value prop on serving peaky demand qui…

The trends in future of work, particularly remote / non-office work, would favor people being more economical and de-peaking usage.

Working at home saves you daycare. It takes a commuter off the road and off public transport. It lets people eat lunch at 11am or 2pm. It lets you build houses instead of empty office buildings. It lets you spend a lot more time with your partner. It keeps you cleaner and healthier. It makes you care about your local community a lot more.

Peaky demand will still exist for longer cycles, like school enrollment, housing, vacations, entertainment. It will settle down a lot for our office day. This is the condition where subsidizes can decrease and the way our time is squeezed will change favorably for everyone.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#19

Post by dawhizkid »

tomnipotent wrote: post #17
dawhizkid wrote: post #14

Earlier quoted context omitted.

Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from…

This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.

Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.

Re: On-Demand Startups Are Hemorrhaging Tens of Billions a Year

#20

Post by _hardwaregeek »

b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

I guess Silicon Valley's Sliceline plot line really was accurate
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