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On-Demand Startups Are Hemorrhaging Tens of Billions a Year

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

#181

Post by HillaryBriss »

ABCLAW wrote: post #66
solotronics wrote: post #51

Earlier quoted context omitted.

Is it bad though? I would think new innovative services would be a better place for money to go compared to sticking into some long term bond. At least this way a bunch of people get jobs and servers/compute/CPU/whatever get bought. For every Uber there are dozens if not hundreds of Slack/Splunk/Softlayer type companies that end up with some of that money and employ people. This is somewhat related to how I perceive…

>Is it bad though? Yes. Hence the 'mal' part. Investment should be going towards enterprises which produce actual value. If the only way you can produce value is by throwing away money through predatory pricing, then you aren't creating value. And so without any value to create, eventually you blow up and lose a bunch of people their money. When enough people lose enough money, people stop lending their money so free…

> When enough people lose enough money, people stop lending their money so freely and the business cycle starts the contraction phase.

But the business cycle is not a bad thing. One important feature of the cycle is that as investment seeks new opportunities nobody knows with certainty what will succeed and what will fail in advance. The down part of the cycle clears out the losing investments.

If the free market business cycle has any strengths, surely this is one of them: allowing big money to be both smart and stupid, allowing the wealthy to take dumb risks and lose to those who are more nimble, more insightful, more industrious.

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

#182

Post by HillaryBriss »

roenxi wrote: post #94
afarah wrote: post #83

Earlier quoted context omitted.

Of course they're creating value, Uber and the like is of great value for its users. The service is merely being subsidized by investors who believe in such practice. Is it a bad investment? Maybe, their investors did not think so and they were free to compare it with other options you deem obviously better, considering you're even saying Uber and the like are stealing these other business would-be money...

If they aren't making a profit they aren't creating value. They are destroying some value and transferring other value from investors to customers. The difference here is when you add everything up you have less, when for a good investment the total should go up. In principle, in a fair market economy, that is OK because someone has to take the risk of being wrong about what is a good idea. The concern being voiced i…

> The concern being voiced is that monetary policy is diverting resources away from people who are known to make good long term decisions and towards people who have access to loans from the central bank.

A very interesting statement. I'd like to understand this cash path. Can anyone describe the flow of cash from the central bank to Silicon Valley VC firm? How exactly does this work?

Also do low central bank rates guarantee the kind of money losing VC investments we're seeing? Are their other central banks outside the US with low rates but no accompanying flurry of money-losing investments?

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

#183

Post by HillaryBriss »

soVeryTired wrote: post #118
patmcc wrote: post #116

Earlier quoted context omitted.

>>If they don't make back this money, it will represent a huge waste of resources. Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that.

> Hardly; it'll just be a transfer from VCs with too much money to everyone else in the economy. We could probably use more of that. The VCs are gambling with someone else's money though. They raise money from institutional investors: pension funds and insurance companies. Ultimately the little guy will pay via government bailouts, pension reductions, and higher insurance premiums.

IMO, pension governance would be a better place to reform policy, as opposed to at the central bank level. I mean, should economy-wide monetary policy be changed just because of the arguably foolish behavior of some VC funds in SV?

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

#184

Post by mlinsey »

jammygit wrote: post #158
mlinsey wrote: post #26

Earlier quoted context omitted.

From what I've seen at other on-demand co's, the three most likely culprits are: 1- User acquisition costs (discounts, marketing, etc - for both sides of the platform). this gets more expensive in the face of competition, and there's some hope that if you can "win" the market then eventually these costs will be reduced sharply. 2- Money as a band-aid for reliability/support issues. Frequently, an Uber driver refuses…

$5 to apologise for somebody trying to steal from you and leaving you without a ride? That's not a great deal imo

Eh, while I was pretty upset in the moment, I could get a ride eventually, and it wasn't enough to make me stop using Uber/Lyft, since in the specific scenario where this would always happen (late on Friday/Saturday nights after going out in SF headed back to MTV), I had very few options besides Uber anyway with Caltrain service stopped and no designated driver lined up. And looking at it from the drivers' perspective, you're asking them to miss out on one of the most valuable times of the week by taking them out of the city, often taking them much further from their home (often East Bay or even Sacramento, where drivers sometimes come all the way to SF for the weekend evening rush specifically).

Add into it how easily this could be abused on the passenger side if there was an even bigger incentive, and quick $5 from the app and finding another driver (there were always enough drivers so that even if half of them would pull this trick, I'd find one eventually) wasn't too bad. Much worse would be having to do something more like talking to a rep on the phone or having to go through a lengthy appeals process.

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

#185

Post by darawk »

quadrangle wrote: post #165
darawk wrote: post #120

Earlier quoted context omitted.

> As others emphasized, it's totally possible for investors to get some exit before a bust, hoisting off the risk onto more naive later investors. Yes it is possible. But people consistently overestimate how easy it is to do this. Would you bet billions of dollars on being able to fool other managers of billions of dollars? I wouldn't.

It's not that this is itself a straightforward strategy. It's that the possibility of this, even if odds aren't great are something that adds to the list of possible exits and thus reduces the total risk of an investment that isn't consciously intended to go this way.

Sure, but how much is that influencing decision making? If the probability of that is relatively small, you still need to plan to have a successful business.

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

#186

Post by lkrubner »

lkrubner wrote: post #170

I've been working with Avis Rental Car. The CEO recently went to see the CEO of Uber. The vibe was that of a pauper begging from a King, which is odd because Avis is profitable and Uber is losing insane amounts of money. You'd think it would be the other way around, but everything nowadays is dominated by future expectations.

Why would this be downvoted?

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

#187

Post by jpetso »

digitaltrees wrote: post #148
b_tterc_p wrote: post #97

Earlier quoted context omitted.

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'.

If we only had a meta search engine for taxi rides that enabled you to get the quickest ride from any service! Somehow that's a thing in the airline sector but (for now) not in the on-demand ride business.

Or at least not on the client side. Cab drivers appear to have no problem using several apps at the same time and picking the best option.

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

#188

Post by quadrangle »

darawk wrote: post #185
quadrangle wrote: post #165

Earlier quoted context omitted.

It's not that this is itself a straightforward strategy. It's that the possibility of this, even if odds aren't great are something that adds to the list of possible exits and thus reduces the total risk of an investment that isn't consciously intended to go this way.

Sure, but how much is that influencing decision making? If the probability of that is relatively small, you still need to plan to have a successful business.

I don't know how conscious people are, but in general there's surely awareness that as long as a business seems to be on track to success, investors have the possibility of some exit regardless of whether the business succeeds in the long-term.

For the most extreme variant of this, VC investors in Dropbox or YouTube or whatever don't need to care about whether those companies eventually go bankrupt.

So, investors might believe that Uber can actually make it, but as VC goes they are just looking at Uber being on track up to their exit. They don't actually worry about the deep long-term. So, there's less difference than you might think between consciously creating a false appearance and exiting versus believing (though perhaps wrongly) that the business will be viable beyond the exit. The VC folks are focused on the period up to their exit either way.

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

#189

Post by taxicabjesus »

HillaryBriss wrote: post #182
roenxi wrote: post #94

Earlier quoted context omitted.

If they aren't making a profit they aren't creating value. They are destroying some value and transferring other value from investors to customers. The difference here is when you add everything up you have less, when for a good investment the total should go up. In principle, in a fair market economy, that is OK because someone has to take the risk of being wrong about what is a good idea. The concern being voiced i…

> The concern being voiced is that monetary policy is diverting resources away from people who are known to make good long term decisions and towards people who have access to loans from the central bank. A very interesting statement. I'd like to understand this cash path. Can anyone describe the flow of cash from the central bank to Silicon Valley VC firm? How exactly does this work? Also do low central bank rates g…

The grandparent comment's specifics are off a bit, but I think the general principle --it takes money to make money -- concisely explains a good portion of the underclass' economic predicament.

I'm going to have a blog post about the economic situation that led me to taxi driving. The tl/dr is basically that they loaned me a car for 12 hours at a time. In the beginning I made enough to make it worth my while...

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

#190

Post by chansiky »

darawk wrote: post #104
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 handsom…

> we'll all get a bunch of cool new services

And what if they win out in building a monopoly?

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