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On-Demand Startups Are Hemorrhaging Tens of Billions a Year

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

#91

Post by cimmanom »

digitaltrees wrote: post #80
pitaj wrote: post #76

Earlier quoted context omitted.

In addition to what the other reply said, it's bad because - it's inefficient wasted energy and capital - it causes bubbles which eventually pop, resulting in booms and busts - it pulls resources away from other opportunities

It’s not bad if the short term losses lead to long term monopolies. You might not believe that WeWork will ever be a monopoly, or achieve positive unit economics, but that is the bet. In some ways, the ability to focus on such long term strategy is an excellent example of markets functioning rationally rather than a short term profit optimization that leads to long term stagnation.

It may not be bad for the investor if that’s be outcome, but it sure is bad for the market and the consumer.

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

#92

Post by raz32dust »

lordnacho wrote: post #33

It's a strange age to be living in. On the same day I've visited people in a WeWork, been driven around in an Uber, and had food delivered by Deliveroo. All of them blowing a huge load of money for the privilege. If they don't make back this money, it will represent a huge waste of resources. It's private money behind, but I still wonder whether this a reasonable way for the economy to run. For one, it means the litt…

Well investment is always a risk right? The investors aren't being fooled, they know what they're getting into but still believe in the business model.

I agree with the little guy can't compete problem though. But that has been around forever. E.g Amazon has driven many smaller companies out of business by just being able to sustain massive losses for prolonged periods.

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

#93

Post by narag »

lordnacho wrote: post #33

It's a strange age to be living in. On the same day I've visited people in a WeWork, been driven around in an Uber, and had food delivered by Deliveroo. All of them blowing a huge load of money for the privilege. If they don't make back this money, it will represent a huge waste of resources. It's private money behind, but I still wonder whether this a reasonable way for the economy to run. For one, it means the litt…

It's private money behind, but I still wonder whether this a reasonable way for the economy to run.

I'd say it is. On the one hand, it's good for you that receive a cheap service at the expense of VCs. On the other hand, the economy is far far better exploring multiple solutions, some of which will stick, than entering the dead way of what an experts comite consider sensible.

Once the capital is burnt, the survivors will be healthy businesses. As for the little guy can't compete (is that really always true?) I'd say it's the value for society that matters eventually.

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

#94

Post by roenxi »

afarah wrote: post #83
ABCLAW wrote: post #66

Earlier quoted context omitted.

>Is it bad though? Yes. Hence the 'mal' part. Investment should be going towards enterprises which produce actual value. If the only way you can produce value is by throwing away money through predatory pricing, then you aren't creating value. And so without any value to create, eventually you blow up and lose a bunch of people their money. When enough people lose enough money, people stop lending their money so free…

Of course they're creating value, Uber and the like is of great value for its users. The service is merely being subsidized by investors who believe in such practice. Is it a bad investment? Maybe, their investors did not think so and they were free to compare it with other options you deem obviously better, considering you're even saying Uber and the like are stealing these other business would-be money...

If they aren't making a profit they aren't creating value. They are destroying some value and transferring other value from investors to customers. The difference here is when you add everything up you have less, when for a good investment the total should go up.

In principle, in a fair market economy, that is OK because someone has to take the risk of being wrong about what is a good idea.

The concern being voiced is that monetary policy is diverting resources away from people who are known to make good long term decisions and towards people who have access to loans from the central bank. At some point the people who are borrowing money can't pay it back and the losses are revealed - not in and of itself a problem; those responsible take the hit. But in the mean time, the people who would have used the resources more sensibly to build infrastructure or sustainable logistics chains havn't been because they weren't being given the time of day by the markets.

The worry is that a dropping tide lowers all ships. If value is being systematically destroyed and the cause is government incentives then the potential for that to crop up in unexpected places is quite high. I'm always tempted to link monetary policy to the themes of pension issues, low real wage growth, poor infrastructure and rising inequality seen in the US.

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

#95

Post by nkrisc »

doctorpangloss wrote: post #18
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 m…

> Working at home saves you daycare.

Wow. Do you have kids? I guess it depends on your job but I have a hard time imagining this being possible with a kid under 5. Mine is 18 months and with my job this would not be possible to pull off and not end up getting fired.

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

#96

Post by narag »

skybrian wrote: post #88
AlexandrB wrote: post #81

Earlier quoted context omitted.

I think it's more interesting to look at it as a corruption of traditional supply/demand signalling in a market economy. By heavily subsidizing a service, investors are able to put their finger on the scale and choose winners despite what consumers would actually choose if competition was more fair. Previously, this kind of behaviour was considered "dumping" and anti-competitive. Yet, currently it's considered OK bec…

It's funny how sometimes setting a too-low price is considered competitive (such as a sale or loss leader) and other times it's considered anti-competitive.

That's called The Skybrian Paradox.

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

#97

Post by b_tterc_p »

AlexandrB wrote: post #89
digitaltrees wrote: post #82

Earlier quoted context omitted.

Google+ begs to differ. Network effects are real. A product needs to be 10x better than a network effect alternative to have a shot at replacing it. If Tesla is first to market by a year or two, maybe. But if Lyft hits the market within a few months; as a lift user, you’ll just stick to that app, why switch.

> A product needs to be 10x better than a network effect alternative to have a shot at replacing it. This isn't true, sometimes it's just fashion. At its inception Facebook wasn't 10x better than MySpace. Moreover, ride sharing doesn't benefit from the kind of network effects that social network do. I'm stuck on Facebook because that's where many of my friends are. I have no reason at all to care at all which ride-sh…

Uber’s answer to that is pretty clear and close to what you’re saying: airline style rewards program.

But I think you’re right. The breadth of offerings is too small and the margins are too tight to gain any real loyalty

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

#98

Post by roenxi »

digitaltrees wrote: post #79
pitaj wrote: post #43

Earlier quoted context omitted.

It's called malinvestment, and it's tied to monetary policy. When the central bank churns out money, the lower interest rates discourage banks from lending, making it harder for small businesses to collect capital that way. The lower interest rates simultaneously drive investment from bonds into the stock market and real estate. Look up Business Cycle Theory

This does not explain why VCs are willing to invest in business models tha light cash on fire for growth in the hope of reaching a dominant market share and establishing a moat around the business. VCs believe in network effects, VCs believe monopolies are worth burning cash to achieve, VCs believe operating businesses can achieve what software businesses like google and Facebook achieved. Question their belief but d…

> This does not explain why VCs are willing to invest in business models tha light cash

Lyft just IPOd with a market cap of ~20 billion on net income of minus 1 billion that is part of a 3-year down trend.

If monetary policy is causing inflated stock prices (and it isn't causing consumer inflation, so it probably is pooling in asset markets) then it seems quite rational for a VC to invest in Lyft for the sole purpose of having a stock to float without paying any attention to the other details. The evidence there is simply having a ticker and buzz is more valuable than details like returns and profits.

Lyft is basically employing its customers to make its revenue look good. It is difficult to see how they will translate that into a good idea.

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

#99

Post by b_tterc_p »

digitaltrees wrote: post #84
dragonwriter wrote: post #34

Earlier quoted context omitted.

> Only then, do these companies come out on top Only the ones that also own the automated vehicle/robotic hamburger flipper technologies—and if it's not one of the on-demand firms that does that key job automation piece, all the existing on-demand firms are worthless in the face of the firm that owns the technology that erases the big cost in their business, and therefore can partner with the whichever is willing to…

Everyone is assuming customers are price sensitive, it could be that the losses are designed to achieve monopolies and drive out competition while establishing a large two sided network and once achieved they use monopoly pricing power to extract value from price insensitive customers. It’s a reasonable thesis based on history. I just personally thing this class of company will never achieve positive unit economics b…

I’m pretty sure price sensitivity is already well studied and proven in this case given all of the surge pricing they already experiment with

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

#100

Post by solotronics »

ben509 wrote: post #71
solotronics wrote: post #2

man there goes my idea of uber for toaster strudels

Don't give up on the dream. Toaster Struberlder could be the next big thing!

You have given me hope! I will incorporate the latest hotness app tech stack, blockchain proof-of-strudel, drone delivery, and baking on-demand. Ycombinator here I come!
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