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Venture Predation

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Re: Venture Predation

#161

Post by qwytw »

tomatocracy wrote: post #114
HDThoreaun wrote: post #108

Earlier quoted context omitted.

Uber's moat is its network. Can't get any drivers if there are no riders and can't get riders if there are no drivers. This means you need to start by offering drivers more money than you make in order for them to use the app. An open source solution wouldn't be able to get off the gorund.

The direct fix for this (which I believe has happened in some countries) is to ban them from asking drivers to enter into exclusivity or minimum volume agreements with them. Then drivers can work for multiple networks.

> Then drivers can work for multiple networks.

They already can do that? (and very often do)

Re: Venture Predation

#162

Post by Nevermark »

NumberWangMan wrote: post #85

This feels related to the idea in "Billionaires, Surplus, and Replaceability" (1) Basically, if, say, Jeff Bezos never existed, it seems likely that someone else would have created Amazon, perhaps a few years later, and maybe not quite as good. "Big online retailer" is sort of a natural niche, with a bit of a natural monopoly. So while the classic argument for letting people keep most of their wealth gained in the fr…

Amazon is a series of several businesses created in succession, with synergy between them.

It is highly unlikely that the same path would have been taken by someone else, or that they could have the repeated same results with any combination of those businesses.

Re: Venture Predation

#163

Post by rossdavidh »

brookst wrote: post #32
nico wrote: post #20

In international trade this is called “dumping”, and it’s often considered illegal and most definitely unfair It’s usually used as a reason for regulating imports/exports https://www.investopedia.com/terms/d/dumping.asp#:~:text=Dum... .

Eh, there is alot more nuance here. Dumping is typically when an established company attacks a competitor with temporarily low prices. If you squint right, sure, VC backed low costs could be seen as dumping. But the problem is that also means virtually every startup is dumping, even bootstrapped garage efforts. And I guess any company that reports a quarterly loss is also dumping. So I think it probably makes sense t…

I have heard "dumping" used typically when a foreign company is trying to gain market share by driving domestic competitors under. So, while they are typically established companies, they're not established in that market.

Anyway, the essence of it is that running at a loss for a while in order to drive your competitors out of business, then raise the prices, is widely recognized as the kind of market practice that the government is justified in taking action against.

Re: Venture Predation

#164

Post by revelio »

wmf wrote: post #135
revelio wrote: post #109

Earlier quoted context omitted.

I recall that it wasn't seen that way when Microsoft used Windows revenues to push IE and crush Netscape. It was called product tying back then. You don't hear much about it anymore.

Chrome and IE did not have the same business model. If we look back at Netscape vs. IE they both had predatory nonexistent business models.

Netscape was payware in the beginning? Not sure how that's non-existent? Even after they were forced to go free by Microsoft, they were selling servers which are the compliment of browsers.

Re: Venture Predation

#165

Post by revelio »

HDThoreaun wrote: post #110
revelio wrote: post #91

Easy to criticize but to be consistent you'd also have to consider non-VC-backed products dumped at below price by regular companies too, and that would get uncomfortable real fast: - Chrome - VS Code - LetsEncrypt - Everything open source etc. Sometimes I wonder how much this practice distorts the software industry, preventing new innovations from happening. The industry settled on this approach without being forced…

Chrome and vscode are integral parts of Google's and Microsoft's strategy and absolutely make them tons of money via increased usage of their main product(search and enterprise productivity suite).

How does VS Code increase usage of Office?

Re: Venture Predation

#166

Post by rossdavidh »

liorben-david wrote: post #152

Losing money while you grow isn't neccesarily bad. Venture Capital at its best allows a company to take losses until it can achieve economies of scale. I'd say it turns predatory when even after achieving scale(Like Uber or Amazon) a company still runs an unprofitable business to choke out competitors. How can you prove this in court? No clue. Maybe the company has to articulate the explicit economy of scale it hopes…

I think the difference between legit and illegit is whether or not your competitors have to go out of business for you to become profitable. If you burn through some cash to get off the ground, eventually driving your per-unit costs down so that your prices become profitable, that's legit.

If on the other hand your current prices are never going to be profitable (looking at you, Uber), and your business plan requires that your can raise them a lot without losing sales (because your competitors are gone), that is not legit.

The third factor in all of this is that many companies like Uber weren't really ever likely to become profitable in any scenario, and this was really about taking the cheap VC money while it was cheap. Blitzscaling was just a way of pretending that you would someday become profitable.

I think higher interest rates will get rid of a lot of this.

Re: Venture Predation

#167

Post by junofan »

snake_doc wrote: post #123
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…

Yeah negative cash conversion cycle is Amazon’s legendary advantage. A country could compete by being as efficient with working capital as Amazon.

Re: Venture Predation

#168

Post by AndrewKemendo »

anonu wrote: post #101

I'm part of the problem. I always suspected my Uber ride was financed with venture money. So i always went with Uber. But i didn't think ahead to the fact that it would kill off the competition. What i don't get it is what the Uber moat is? Why does this need to be centrally planned and controlled? Would an open source and free platform work where drivers got near 100 percent of the sale instead of the 75% they get t…

No cause the entire point is that it’s a finance game that just happens to build products

Re: Venture Predation

#169

Post by s1artibartfast »

qwytw wrote: post #155
conjecTech wrote: post #43

Earlier quoted context omitted.

No, there isn't much nuance here. Accounting has notions of fixed costs and marginal costs. The startups you are referring almost all lose money on fixed costs, but sell things at per-unit economics which make sense at scale because they are below marginal cost/COGS. Things like Uber are a typical dumping cases. For years, they charged below their COGS and eventual profitability depended on driving out competition an…

> Accounting has notions of fixed costs and marginal costs. The startups you are referring almost all lose money on fixed costs, but sell things at per-unit economics which make sense at scale because they are below marginal cost/COGS. Well yes, because they are selling software or other products which require a very high investment into R&D and have minimal marginal cost... Other markets don't work like that so I do…

The same phenomenon takes place in traditional Industries as well without VC investors. If an established company comes out with the new product, say a medical device, it might not be profitable until they get their sale volumes up.

I think the key difference is how the price for the sold good changes over time, not the net profit for sales. If Your business model is to hold price relatively constant, but only see a profit when you hit your target market share, that's not dumping. It becomes dumping if your business plan is to capture Market share at a low price, and then ratchet up your price once you have displaced competitors.

Re: Venture Predation

#170

Post by lazide »

daveguy wrote: post #145
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…

> Diapers.com example: "When Bezos’s lieutenants learned of Wal-Mart’s counterbid, they ratcheted up the pressure, telling the Quidsi founders that [Bezos] was such a furious competitor that he would drive diaper prices to zero if they sold to Bentonville. How is this not a serious anti-competitive monopolistic practice? Did the Dept of Justice get involved?

It wouldn’t result in a monopoly or near monopoly in any real sense, and it’s also hard to say it would meaningfully result in a restraint of trade. It’s also hard to say the consumer would be hurt by free diapers, at least in any concrete way, and if he didn’t add in ‘and raise the prices later when you’re dead’, it also wouldn’t be an easy thing to provide it wouldn’t just be wasting money out of spite. Which is purely legal.

Is it a strong arm/shitty tactic? Sure. Welcome to the real world.

[https://www.ftc.gov/advice-guidance/competition-guidance/gui...]

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