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WeWork and Counterfeit Capitalism

mattstoller.substack.com

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Re: WeWork and Counterfeit Capitalism

#241

Post by pdonis »

CitizenKane wrote: post #208
legitster wrote: post #35

> WeWork then used this cash to underprice competitors in the co-working space market, hoping to be able to profit later once it had a strong market position in real estate subletting or ancillary businesses. > This is of course Amazon’s model, which underpriced competitors in retail and eventually came to control the whole market. This is wrong, wrong, wrong. The difference is Amazon saw what the marginal costs coul…

I hope this doesn't get entirely buried at this point, but I think you bring up something interesting with driving marginal costs down. Ostensibly both Uber and Lyft are doing the same thing, but with the item that will bring the marginal cost down being self-driving cars. They've both bet big in order to capture the market, because it's likely that whoever owns the market before that transition will own it afterward…

> Ostensibly both Uber and Lyft are doing the same thing, but with the item that will bring the marginal cost down being self-driving cars.

The key factor in the Uber/Lyft business model is not so much anticipating self-driving cars, as offloading the overhead costs of inventory (who owns and maintains the cars) onto someone else, so they can focus on just being a service broker and not have to get into all the messy details of large, expensive physical objects. From that viewpoint, self-driving cars really improve things more for the car owners, by decoupling having the car provide a service from having to drive the car yourself, thus reducing the overhead to the car owner.

Re: WeWork and Counterfeit Capitalism

#242

Post by unreal37 »

WalterBright wrote: post #205
streetcat1 wrote: post #187

Earlier quoted context omitted.

The only difference between wework and amazon is the way they finance their money-losing ventures. Wework does that via the private market, hence the game is up when it needs access to the public markets. Amazon does that via AWS. AWS is the money that fuels the eCommerce side. The game will be up when: 1) Kubernetes will move AWS customers back to on-prem, or at least turn clouds into a commodity. Amazon knows that…

AWS did not become a product until Amazon had been around for several years.

But today, AWS is hugely profitable and hides the money losing parts of the business.

Re: WeWork and Counterfeit Capitalism

#243

Post by rossdavidh »

short_sells_poo wrote: post #234
40acres wrote: post #74

For me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who read the S-1 was mortified and wouldn't touch the company with a 10 foot pole. If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors -- perhaps this will lead to some reform in the…

I think it also shows the stunning level of mass delusion in the SV VC space. To this day I don't know whether the people who throw around and parrot the valuations actually mean it. I mean, take the price of a small portion of an asset that is illiquid and in short supply, and assume the same price would apply for valuing the whole? This sort of crap wouldn't fly amongst kids in kindergarten, so I'm astounded that i…

Two possibilities: 1) Jamie Dimon and Softbank/Saudi Arabia are the only idiots here, and everybody else just chipped in relatively small amounts; neither could be considered classically "SV VC". 2) Similar to many people deciding to all buy the same stock at the same time, bidding it up far beyond it's real value but hoping to sell before everyone else realizes it, the VC money was thinking that the sheer size of their investment would make everyone else get on board, allowing them to cash out. A sort of "pump and dump" before it technically went public, such that it is (perhaps) not illegal, except that they did it too late in the cycle so people spotted a bad deal before buying.

Re: WeWork and Counterfeit Capitalism

#244

Post by nemothekid »

blueboo wrote: post #175
jamiequint wrote: post #40

> This is of course Amazon’s model, which underpriced competitors in retail and eventually came to control the whole market. This is false. First, Amazon is far from controlling the whole market. They control close to 50% of e-commerce which itself represents less than 12% of total retail sales. Second, Amazon didn't predatory price, or if it did, it didn't for long, certainly not long enough to achieve its current m…

Or, it’s true. Amazon did predatory price for several years, subsidising sale and delivery with venture capital. I’m baffled by the nonsense point about reinvesting profit from a lack of profit. AWS doesn’t excuse the years of cynical predation. 50% of a market is easily enough to dominate and control one, of the other players aren’t the same order of magnitude of influence.

>Amazon did predatory price for several years, subsidising sale and delivery with venture capital.

Amazon was founded in 1994 and went public in 1997, and sold more than books in 1998. Where does "several years of subsidy with venture" factor into this?

It's also hard to believe that Amazon weathered the dotcom crash while losing money.

Re: WeWork and Counterfeit Capitalism

#245

Post by anongraddebt »

clairity wrote: post #110
legitster wrote: post #89

Earlier quoted context omitted.

This is a big topic in business school - never compete on price for that exact reason. Although things like Uber may be a different beast. They basically got big enough that cities were willing to push aside all of these special interest rules that kept the taxi industry crappy. So by dumping their product and acquiring customers, they were able to change the legal environment and infrastructure around them. But they…

> “This is a big topic in business school - never compete on price for that exact reason.” no. business school teaches you that you can compete on price (cost strategy), or on value (differentiation strategy). if you compete on price, you’re betting that you are, or will be, the most efficient provider in the market (e.g., walmart and its supply chain dominance). it’s completely viable/acceptable to compete on price.…

Technically it's not competing on price. It's competing on cost, a result of which is often, but not necessarily, a lower price point. Business strategy courses explicitly teach you that simply competing on price (that is, simply lowering prices in hopes that you'll beat the competition), will blow up in your face.

A classic example (presented to my MBA class) was the two adjacent pizza parlors in NYC competing on price and driving the selling price of a pizza down to less than a dollar, whilst a shop a block away and around a corner was able to keep normal pricing.

Re: WeWork and Counterfeit Capitalism

#246

Post by unreal37 »

crumpets wrote: post #225
Wowfunhappy wrote: post #138

Earlier quoted context omitted.

> When you return prices to market value wouldn't competitors just appear again. No, because at this point the barrier to entry is substantial. And, if a competitor does come in, the incumbent with a huge warchest can just drop the price again temporarily to drive them out.

>No, because at this point the barrier to entry is substantial. Not really. Unless the product has a powerful network effect, people can easily enter. If that weren't the case, starbucks would have run every coffee shop out of business by now.

OK, well then go open book store. Online or brick and mortar.

There's no money in it, because Amazon has such as HUGE advantage in mindshare, pricing and delivery that you can't compete.

Does a book store have a network effect? No. But it's hard to sell something for more than the dominant competitor without a compelling reason.

Re: WeWork and Counterfeit Capitalism

#247

Post by tener »

short_sells_poo wrote: post #234
40acres wrote: post #74

For me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who read the S-1 was mortified and wouldn't touch the company with a 10 foot pole. If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors -- perhaps this will lead to some reform in the…

I think it also shows the stunning level of mass delusion in the SV VC space. To this day I don't know whether the people who throw around and parrot the valuations actually mean it. I mean, take the price of a small portion of an asset that is illiquid and in short supply, and assume the same price would apply for valuing the whole? This sort of crap wouldn't fly amongst kids in kindergarten, so I'm astounded that i…

To be fair public company valuations are not that different. Sure, the price discovery is more efficient, but still if you were to sell any significant part of the stock it would lower the value of the company.

Re: WeWork and Counterfeit Capitalism

#248

Post by buboard »

Sounds more like a cargo cult than counterfeit. And he describes it as a social problem. After Theranos, everything is possible, investing seems faith based. And incidentally, Tech is faith-based too , with some bets failing, like VR/AR, self-driving.

Re: WeWork and Counterfeit Capitalism

#249

Post by Hongwei »

short_sells_poo wrote: post #234
40acres wrote: post #74

For me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who read the S-1 was mortified and wouldn't touch the company with a 10 foot pole. If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors -- perhaps this will lead to some reform in the…

I think it also shows the stunning level of mass delusion in the SV VC space. To this day I don't know whether the people who throw around and parrot the valuations actually mean it. I mean, take the price of a small portion of an asset that is illiquid and in short supply, and assume the same price would apply for valuing the whole? This sort of crap wouldn't fly amongst kids in kindergarten, so I'm astounded that i…

Anecdotally, no one in SV ever believed in WeWork except Softbank. I couldn't find anyone to take the Bull case on WeWork, whereas at least some people could argue Uber had a real business model that depended on self driving cars.

WeWork, and Theranos before it, are not really the norm in SV. But SV and the tech ecosystem in general has a culture of "money talks," so when Softbank and Kissinger start backing these ridiculous companies, people think "well, good for them?" and move on. Skepticism towards WeWork's model has been the conventional position since Day 1, but no one is going to argue about the validity of Masa Son's dollars.

Re: WeWork and Counterfeit Capitalism

#250

Post by hk__2 »

munk-a wrote: post #224
WalterBright wrote: post #204

Earlier quoted context omitted.

I'm pretty sure Amazon was profitable all along - it's just that the profit was all spent on expanding the business. Hence, there was no taxable profit. Amazon was also able to make money selling products at little or no markup by taking advantage of the float. They'd collect money from the purchaser immediately, and would pay the vendor after 90 days. Then, Amazon would make interest on that money for the 90 days. I…

Bookstores provide a lot of service value, a decent bookstore will allow you to find similar material, allow you to browse as you please (instead of the skimpy sample pages), usually contain an expert that can offer advice and allow you to walk out with your purchase. Additionally it's common to see a heavy effort at investing in the atmosphere. Amazon has succeeded at beating bookstores in none of these categories -…

> Bookstores provide a lot of service value, a decent bookstore will allow you to find similar material, allow you to browse as you please (instead of the skimpy sample pages), usually contain an expert that can offer advice and allow you to walk out with your purchase. Additionally it's common to see a heavy effort at investing in the atmosphere.

The key part is “decent”. Outside of the “walk out” part, none of these advantages apply if you don’t have a bookstore that matches what you’re interested in, which can be pretty difficult outside of mainstream subjects and the latest-Summer-novel-everybody-buys. There’s no discovery system that I know of that would allow you to find a bookstore near you based on what you like or want to read.

This is why I use Amazon so much: I have a half-dozen wishlists and bought my books here for years, so its suggestions are often relevant. I like to be able to compare prices between new and second-hand books from third-party sellers. Reviews may not always be great, but that’s still better that what you’d get in a bookstore: one single review from the owner, if they did read the book.

Note: I live in France, where the law requires that books are sold the same price in bookstores and on Amazon (you’re allowed to do go down max -5% on the public price). You can also ask any bookstore to get any book for you, most often free of charge. However, this means they get very little profit from it since they have to pay the shipping cost themselves.

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