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Venture Predation

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Re: Venture Predation

#121

Post by gmd63 »

brookst wrote: post #33
glutamate wrote: post #17

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

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.

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.

Re: Venture Predation

#122

Post by lazide »

pixl97 wrote: post #97
xp84 wrote: post #62

Earlier quoted context omitted.

*Citation needed-- ABNB is so expensive these days, although they won't disclose half the cost until the final phase of checkout!

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 w…

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.

Re: Venture Predation

#123

Post by snake_doc »

degreesoffun wrote: post #78

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 d…

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.

Re: Venture Predation

#124

Post by cheschire »

throwaway290 wrote: post #100
degreesoffun wrote: post #78

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 d…

> 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.

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.

Re: Venture Predation

#125

Post by confoundcofound »

degreesoffun wrote: post #78

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 d…

Amazon can finance at virtually interest-free rates due to their negative working capital.

Re: Venture Predation

#126

Post by rurp »

abigail95 wrote: post #87
degreesoffun wrote: post #78

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 d…

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 produ…

> 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.

Re: Venture Predation

#127

Post by nradov »

xp84 wrote: post #65
maerF0x0 wrote: post #39

Earlier quoted context omitted.

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 hol…

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 Ca…

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.

Re: Venture Predation

#128

Post by lotsofpulp »

paulddraper wrote: post #92
abigail95 wrote: post #87

Earlier quoted context omitted.

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 produ…

> Who cares what he did to some diaper companies. Going out on a limb here, but I'd say the diaper companies.

What happened to the diaper companies? Feel like I see the same brands of diapers still. Procter and gamble, Kimberly Clark, etc.

Re: Venture Predation

#129

Post by dumbfounder »

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?

Re: Venture Predation

#130

Post by throwaway290 »

cheschire wrote: post #124
throwaway290 wrote: post #100

Earlier quoted context omitted.

> 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.

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.

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.
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