Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

On-Demand Startups Are Hemorrhaging Tens of Billions a Year

bloomberg.com

Post reply on HN
Print view View original

101–110 of 191 posts

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

#101

Post by Johnny555 »

dragonwriter wrote: post #53
staybythebay wrote: post #9

Earlier quoted context omitted.

The article hints at it. “all these companies are deliberately spending profligately now to build their brands and win over dense populations of customers, so that in the future they can be more efficiently served. This is the exact playbook that once worked for Amazon.com” I can’t count how many free Uber/Grubhub promo codes I’ve seen. How much they subsidize their orders, etc.

It's also the the exact model that's failed for countless companies you've never heard of, because they failed. Amazon was (at least for a long time, maybe this has been forgotten) been noted for being unusually, perhaps uniquely , successfully at both the customer side and investor side when it came to executing on this.

Though I wonder how successful they'd have been if they didn't discover a goldmine (AWS) that helps fund the retail side.

It'd be a lot harder to compete against entrenched retailers like Walmart if they didn't have the money from the AWS side (not to mention essentially unlimited compute power to handle shopping traffic spikes).

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

#102

Post by rossdavidh »

In addition to the many excellent points raised by other commenters, I would like to add: Amazon is raking in a ton of money from Lyft, and probably many other on-demand startups. When they (all? mostly?) go bust, a lot of VC-fueled business to Amazon will disappear, perhaps rather abruptly. Not that I think Amazon will go away or anything, but there may be a step function in their profitability whenever the bust in money-burning startups comes.

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

#104

Post by darawk »

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…

This is how the economy is supposed to work. The people pouring billions into these companies are taking a calculated risk. It might work, it might not. If it does, we'll all get a bunch of cool new services. If it doesn't, those people will be out billions of dollars and we'll have gotten some cheap services for a while on their dime. They're taking a risk to create something new, and if it works, they'll be handsomely rewarded. If it doesn't, they'll lose all their money. That's ok, that's the system working.

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

#105

Post by dawhizkid »

tomnipotent wrote: post #60
dawhizkid wrote: post #23

Earlier quoted context omitted.

You’re conflating profitability, growth, sustainability etc. you’re also conflating what is bad for Uber vs what is bad for drivers It is sustainable to do that if by sustainable you mean have a profitable long term business that is cash flow positive It would likely massively hurt share prices because you’re trading growth for profitability

I'm not conflating anything, you're just mixing subjects. You said that gig jobs would get better or there would be more, and I countered that was not the case since a business cannot sustain that number of people if it's not profitable.

I don’t think you understand how Uber/Lyft think about their drivers. They aren’t employees. In fact, drivers are their customers. There’s no “sustaining” drivers because they aren’t paying their drivers anything...they are just making a commission off of the driver’s own earnings. Uber and Lyft can’t and won’t “fire” drivers since, again, they aren’t employees.

The best way to think of drivers is that they are customers who are licensing Uber/Lyft software for lead generation for their own business. In a recession a seller of lead generation software (Uber/Lyft) is not going to turn customers (drivers) away. It just might not be profitable for you as a customer of lead generation software to buy it if there aren’t leads, but I don’t think anyone knows what will really happen to rideshare demand if the economy tanks. I think it will go down, but it might not go down as much as one might think.

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

#106

Post by darawk »

goatgate wrote: post #85
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

But these companies are funded by VCs. The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher. If there wasn't so much capital consolidated in the hands of so few, this model wouldn't work as you need an ungodly amount of money to sustain 99 failures. Investments should be more constrained by real balance sheets and the needs of real people. Th…

> The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher.

It has nothing to do with wealth inequality. Whether you're pooling $100 from a million people, or $20 million from 5, the economics of venture capital are the same. Wealth inequality has nothing to do with this.

The purpose of venture capital (for investors) is diversification. It is an uncorrelated, positive (hopefully) return stream. Investors want to combine uncorrelated return streams as much as possible, due to the AM-GM inequality. The geometric mean of a series with a given arithmetic mean is higher when that series is less volatile.

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

#107

Post by dawhizkid »

b_tterc_p wrote: post #56
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…

Maybe, but I think not. If there’s a recession, it becomes harder to get cash. If it is hard to get cash, you probably can’t afford to keep burning it in hope of building your competitive moat, especially if people are more conservative to the idea that the moat will never happen. So what does Meituan do about its annual $18B deficit? It can try to raise prices and lower wages (maybe you’re right and supply of labor…

Drivers are customers of lead generation software licensed by Uber and Lyft. When you think that way, you’ll realize why it doesn’t make sense to think that Uber or Lyft would have any reason or incentive to “fire” drivers during a recession.

You wouldn’t “dispose” of your customers in a recession.

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

#108

Post by Tomminn »

Marazan wrote: post #68
vkou wrote: post #37

Earlier quoted context omitted.

> Where does the money go for Lyft/Uber? Mostly into customer discounts and driver incentives. Both companies are burning billions of dollars on selling people a $10 taxi ride for $5, while paying the driver $12. Once they stop spending their way to market-share, customer demand, and driver supply will drop. There's a price point where they are a viable, profitable business (After all, taxi firms have existed for cen…

Taxi firms don't have massive IT departments. That is the key to the "Uber will never be profitable" brigade. Taxi firms are way, way leaner than Uber/Lyft.

They have phone operators. Each of which has to sit somewhere. And have some kind of manager.

Uber coordinates 15 million rides per day [1], which assuming a phone operator coordinates 20 rides an hour (unrealistically efficient-- in reality, I'm sure plenty are playing candy crush waiting for a call), that 160 a day, or an army of 100,000 phone operators to coordinate those rides. This is ususally done using local office space.

Just to pay them a salary of $40,000/yr is $4B/yr. That's ignoring the army of people needed to logistically support a 100,000 ground troops, the office space and the expenses required to so.

Uber currently has an army of 16,000 people total performing this coordination [2]. That's 1000 rides coordinated per day, per employee at current efficiency. And it's not difficult to imagine them pushing this efficiency 10x or even 100x. That's a fundamental value proposition that stands the scrutiny of even a hard-nosed conservative investor.

[1] http://www.businessofapps.com/data/uber-statistics/

[2] https://en.wikipedia.org/wiki/Uber

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

#109

Post by olefoo »

darawk wrote: post #106
goatgate wrote: post #85

Earlier quoted context omitted.

But these companies are funded by VCs. The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher. If there wasn't so much capital consolidated in the hands of so few, this model wouldn't work as you need an ungodly amount of money to sustain 99 failures. Investments should be more constrained by real balance sheets and the needs of real people. Th…

> The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher. It has nothing to do with wealth inequality. Whether you're pooling $100 from a million people, or $20 million from 5, the economics of venture capital are the same. Wealth inequality has nothing to do with this. The purpose of venture capital (for investors) is diversification. It is an…

It does have a relationship to wealth inequality. On the one hand you have money seeking returns and getting caught up in zero and negative sum games while doing so. On the other you have a lack of small investors with lower risk tolerance. Both of these are results of wealth inequality.

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

#110

Post by [deleted] »

dawhizkid wrote: post #105
tomnipotent wrote: post #60

Earlier quoted context omitted.

I'm not conflating anything, you're just mixing subjects. You said that gig jobs would get better or there would be more, and I countered that was not the case since a business cannot sustain that number of people if it's not profitable.

I don’t think you understand how Uber/Lyft think about their drivers. They aren’t employees. In fact, drivers are their customers. There’s no “sustaining” drivers because they aren’t paying their drivers anything...they are just making a commission off of the driver’s own earnings. Uber and Lyft can’t and won’t “fire” drivers since, again, they aren’t employees. The best way to think of drivers is that they are custo…

[deleted]
Post reply on HN