On-Demand Startups Are Hemorrhaging Tens of Billions a Year • Hacker News Board

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

#141

Post by luckydata » Wed, Apr 03, 2019, 1:59 AM UTC

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…

There's no way I can do any work with my 4yo around the house, daycare is simply not going away.

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

#142

Post by repsilat » Wed, Apr 03, 2019, 2:16 AM UTC

mlthoughts2018 wrote: post #140

repsilat wrote: post #135

Earlier quoted context omitted.

It's a lossy transfer, though. Profitable companies are typically win/win/win for customers, employees and investors. Unprofitable companies are win/win/lose at best. Take all the money the investor had lost, and if you had simply paid the employees the same for doing nothing and given the rest to the customers it would be a Pareto dominating outcome. The difference is destroyed wealth -- it's how much worse off soci…

This assumes two things (at least) that are reasonably questionable: - that alternative investments with predictably better profitability characteristics existed - that customers would have preferred wealth transfer in the form of cash or financial assets instead of in the form of goods or services. For example, maybe I don’t mind forgoing a direct cash transfer from Lyft investors because what I really need is on-de…

I fully agree with your first point. The investors aren't doing this out of the goodness of their hearts, they think it's positive expectation in the long run.

The second point makes sense too. I think a weaker argument along those lines still works, though -- Something like, "If they couldn't become profitable by raising prices they're burning that money."

Ford is a profitable company, and if they set their prices to zero they would deliver more value than their cash hoard before they went bankrupt.

If Lyft upped their prices to juuust below your marginal utility for a ride and still weren't profitable, the Pareto argument (plus a penny) is pretty solid.

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

#143

Post by subjectHarold » Wed, Apr 03, 2019, 2:18 AM UTC

b_tterc_p wrote: post #133

subjectHarold wrote: post #122

Earlier quoted context omitted.

I am confused. Is Meituan's ticker 3690? This looks like the company referred to and the actual operating loss is 11bn RMB (so about ~$1.5bn)...which is a lot but revenue doubled, and this is kind of a scale-ish business...so? The number quoted by Bloomberg (quoting from Nikkei) is comprehensive income including the conversion of pre-IPO securities...so not really reflective of operations. What is kind of staggering…

Are you sure? https://www.bloomberg.com/quote/3690:HK This says net income was -137B HKD or about 17b usd

Yeah buddy, that isn't right. That is comprehensive income (most of the financial websites just report the simple line items, which are usually right but very wrong when they are misleading).

For HK stocks, you get the press releases/filings from: http://www3.hkexnews.hk/listedco/listconews/advancedsearch/s... - and this is the annual report, http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0311/L...

As said though, I have no idea if I am looking at the right company (you sometimes find that there is a holding company or a stock with a similar name or something). Pretty sure it is the same Meituan...but maybe not (and if it is, I still don't understand the losses they booked to equity).

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

#144

Post by CalChris » Wed, Apr 03, 2019, 2:22 AM UTC

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 feels like pets.com all over again.

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

#145

Post by camdenlock » Wed, Apr 03, 2019, 2:51 AM UTC

solotronics wrote: post #100

ben509 wrote: post #71

Earlier quoted context omitted.

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!

"Blockchain proof-of-strudel" is a fantastic little phrase. Well done. I'd use the :joy: emoji if HN would let me.

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

#146

Post by digitaltrees » Wed, Apr 03, 2019, 3:08 AM UTC

b_tterc_p wrote: post #99

digitaltrees wrote: post #84

Earlier quoted context omitted.

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

I agree, that's why, despite understanding the investment thesis, as I point out in my last sentence, I am skeptical.

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

#147

Post by digitaltrees » Wed, Apr 03, 2019, 3:13 AM UTC

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…

Platform liquidity is more powerful than you are giving it credit for. Any two sided marketplace has network effects by definition because the value to buyers increases with the number of sellers as does the opposite.

Airlines are not a two sided marketplace; they own the fleet. I agree Uber is more a commodity than facebook, but almost no product ever has been as sticky as facebook.

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

#148

Post by digitaltrees » Wed, Apr 03, 2019, 3:15 AM UTC

b_tterc_p wrote: post #97

AlexandrB wrote: post #89

Earlier quoted context omitted.

> 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

Loyalty comes from a large pool of drivers. How many times would you jump between random apps, and wait 20 min for an available driver before you just decide to stick with one? I have a lot of friends that travel internationally; they strongly prefer Lyft but have to use Uber because it is available more widely. They all talk about how they could look for a local app...but say 'who cares, Uber is evil, but whatever'.

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

#149

Post by digitaltrees » Wed, Apr 03, 2019, 3:33 AM UTC

subjectHarold wrote: post #131

digitaltrees wrote: post #79

Earlier quoted context omitted.

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…

Monetary policy is everything. Read financial history. VCs aren't some unique species that have cracked investing. Human nature is the same as always: people will do stupid stuff. If someone turns up with a check for $100m, you don't check to see whether you can invest it safely. You become a true believer, you gather assets, and if you weren't a true believer at the start you will be after you make enough...it alway…

I studied financial history extensively. I wrote a paper in law school about the origins of the financial crisis and studied most economic and financial panics for 200 years. Monetary policy is rarely the most important factor. Trade policy, Fiscal policy (government spending across national, state, local and community), Regulatory incentives, technological changes whose importance is overestimated or underestimated, Social demographics, and human psychology are all way more important than monetary policy both in contributing to bubbles and fixing the crisis that follows.

Your answer itself hints at how important human psychology is. 'People do stupid stuff'. Robert Schiller won a Nobel price and said basically that.

Go look at the interest rates every year in the 90s and tell me that they causes the dot com bubble. Then ask yourself if maybe investors overestimated the possible success of many business and were willing to pay crazy multiples above earnings because the 'normal rules of business don't apply to internet firms'. When the stock was skyrocketing, psychology and greed take over as it feels like confirmation that the original thesis is correct. Bitcoin recently followed a similar dynamic. In neither case was monetary policy the major driver.

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

#150

Post by digitaltrees » Wed, Apr 03, 2019, 3:44 AM UTC

cimmanom wrote: post #91

digitaltrees wrote: post #80

Earlier quoted context omitted.

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.

I totally agree. Monopolies are destructive. Markets to work with monopolies; there is no competition to allow for optimal price discover that matches supply and demand. I am just reacting against the urge to blame monetary policy and government itself. I find this to be a common response that keeps being disproven and yet doesn't go away.

I am definitely not a fan of Uber, Amazon, and the like. I really don't like this model that is being pursued in much of SV. I understand Peter Thiel and others reason for wanting monopolies; it is rational from the perspective a firm and investors, but it is highly irrational from the perspective of that firm within society, and an investor as a citizen within a country. The more monopolies exist the smaller the economic pie will be over time. The more they concentrate resources to extract outsized profits, the less space there is for innovative startups. The more they abuse pricing power, the less customers they have.