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Today’s correction isn’t much like the dot-com bubble

theatlantic.com

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Re: Today’s correction isn’t much like the dot-com bubble

#31

Post by hn_throwaway_99 »

The article touches on this, but I don't think it really addresses the root cause of the difference between 2000 and now. IMO the main difference is really just timing. Companies are staying private much longer than they did in the .com bubble. Back then, the IPOs still occurred during the "only thing that matters is eyeballs" phase, and when markets eventually expected profitability, the emperor was shown to be pantsless.

Now, though, companies that are going public are already large and have gobbled up a lot of their market due to VC funding. What's happening is that they are at the point where that profitability signal has to be in view - you can no longer say "it will be just around the corner". This flamed out most spectacularly with WeWork, but it's a bit of just desserts that private investors wanted to gobble up all the big early gains, only to find that the additional time just gives public investors more reason to be skeptical.

Re: Today’s correction isn’t much like the dot-com bubble

#32

Post by daxfohl »

One could argue the cloud services companies aren't really pure software as alluded to in the article, but a software veneer over a gig economy for the underlying hardware. This perspective would allow for a bit deeper of a comparison between what's working and what's not.

Re: Today’s correction isn’t much like the dot-com bubble

#33

Post by mdorazio »

firasd wrote: post #9
jacquesm wrote: post #5

Earlier quoted context omitted.

SpaceX is real. Uber, AirBnB, WeWork and all the other 'lawbreaking as a service' and 'subsidizing transactions with massive VC' companies are not.

I think the word 'subsidy' is kinda questionable here. (This writer's previous article used the same word to discover many companies[1]) If a company is not losing money on gross margins--if they are losing money in total 'unit economics' because the customer acquisition cost is high--does it really mean they are subsidizing usage? An example is Casper, the mattress company. They are still selling mattresses to consu…

In my opinion, customer acquisition cost should be baked into your effective margin calculations. If you're selling things "for a profit", but it costs you more than the entire profit on the sale to make the sale, your business model still sucks and is being subsidized by something, debt or otherwise. This is a common trap online sellers fall into - gross margins are kind of useless if your selling costs are through the roof.

Re: Today’s correction isn’t much like the dot-com bubble

#34

Post by wbronitsky »

daxfohl wrote: post #32

One could argue the cloud services companies aren't really pure software as alluded to in the article, but a software veneer over a gig economy for the underlying hardware. This perspective would allow for a bit deeper of a comparison between what's working and what's not.

I don’t understand this argument at all; it seems to be only buzzwords.

What is the relation of the gig economy to a cloud hosting service, other than most gig economy apps are built on cloud servers? Also, how does looking at the problem this way enlighten us?

Re: Today’s correction isn’t much like the dot-com bubble

#35

Post by ghaff »

mdorazio wrote: post #33
firasd wrote: post #9

Earlier quoted context omitted.

I think the word 'subsidy' is kinda questionable here. (This writer's previous article used the same word to discover many companies[1]) If a company is not losing money on gross margins--if they are losing money in total 'unit economics' because the customer acquisition cost is high--does it really mean they are subsidizing usage? An example is Casper, the mattress company. They are still selling mattresses to consu…

In my opinion, customer acquisition cost should be baked into your effective margin calculations. If you're selling things "for a profit", but it costs you more than the entire profit on the sale to make the sale, your business model still sucks and is being subsidized by something , debt or otherwise. This is a common trap online sellers fall into - gross margins are kind of useless if your selling costs are through…

See also Blue Apron et al. If you're selling something to a customer base that is almost certainly going to have a lot of churn, that acquisition cost has to be built into your business model. Maybe if churn is low and the main cost is initial acquisition you can sustain losses for a time but not if it's ongoing.

ADDED: And a mattress is an example of a product that people buy very rarely so the marketing/advertising to acquire a customer is mostly a cost of a unit sale. Yes, maybe they get some residual word of mouth but it's mostly effectively part of the product cost.

Re: Today’s correction isn’t much like the dot-com bubble

#36

Post by jacquesm »

wisty wrote: post #8
jacquesm wrote: post #5

Earlier quoted context omitted.

SpaceX is real. Uber, AirBnB, WeWork and all the other 'lawbreaking as a service' and 'subsidizing transactions with massive VC' companies are not.

Uber has a market cap of like 50 billion. It's real. It's no Apple or Google though.

Market cap is just a representation of what the market thinks a company is worth as applied to a relatively small fraction of the stock.

Compare to a casino: people think that the ball will land on black and are willing to put their money down based on that. That doesn't mean they are right. In this case there is much more of a casino mentality at work that determines Ubers stockprice than that the underlying fundamentals are solid and sound enough to compute a price that is reasonable.

In that sense you can't lump everything on the stockmarket on one pile. 37signals had a funny bit about marketcap: https://signalvnoise.com/posts/1941-press-release-37signals-...

Re: Today’s correction isn’t much like the dot-com bubble

#37

Post by rossdavidh »

wbronitsky wrote: post #34
daxfohl wrote: post #32

One could argue the cloud services companies aren't really pure software as alluded to in the article, but a software veneer over a gig economy for the underlying hardware. This perspective would allow for a bit deeper of a comparison between what's working and what's not.

I don’t understand this argument at all; it seems to be only buzzwords. What is the relation of the gig economy to a cloud hosting service, other than most gig economy apps are built on cloud servers? Also, how does looking at the problem this way enlighten us?

I think the idea is that a cloud company is primarily renting hardware. Therefore, it doesn't scale like a software company; as its number of customers goes up, its number of employees and amount of capital equipment has to go up as well. This would mean it should not have a multiple like a pure-play software company, where the costs go up little if any as the number of customers goes up, because almost all of the software's development costs are up front.

Re: Today’s correction isn’t much like the dot-com bubble

#38

Post by jacquesm »

hn_throwaway_99 wrote: post #31

The article touches on this, but I don't think it really addresses the root cause of the difference between 2000 and now. IMO the main difference is really just timing. Companies are staying private much longer than they did in the .com bubble. Back then, the IPOs still occurred during the "only thing that matters is eyeballs" phase, and when markets eventually expected profitability, the emperor was shown to be pant…

Punting a risky investment is a fine line between the dream still being alive and the bad news starting to roll in. For some investors - and sadly, even for some founders - this is during the earlier stages, which is why it is a huge red flag if founders or early investors insist on cashing out during later rounds.

Re: Today’s correction isn’t much like the dot-com bubble

#39

Post by PopeDotNinja »

corporateslave5 wrote: post #11
mtts wrote: post #3

“ The problem with tech today isn’t so much that software failed to eat the world, but that the most celebrated unicorns weren’t actually software companies. They have struggled to achieve liftoff because their feet are stuck in the mud of the physical world” This sums it up nicely. Investors got deluded enough to think that if they threw enough money at a non-software company it would magically start making software…

The thing is I don’t think investors got deluded, I think investors new exactly what they’re doing. They were hoping some greater fool would take the investment off their hands

I remember VCs investing in Cash4Gold when that was being hyped, presumably because it was growing stupid fast. [1] I think that qualifies as a we-are-a-tech-cuz-website company. What VCs mostly look for is growth. Some silo themselves into niches (e.g. enterprise software), but I reckon that any company with high growth potential would be fair game.

[1] http://www.nagellen.com/2009/12/high-tech-venture-capital-fi...

Re: Today’s correction isn’t much like the dot-com bubble

#40

Post by ghaff »

NeedMoreTea wrote: post #18
wisty wrote: post #8

Earlier quoted context omitted.

Uber has a market cap of like 50 billion. It's real. It's no Apple or Google though.

That makes it a large bubble. Market cap in and of itself is useless. How long do you see customers staying loyal after VC money stops subsidising every ride?

It will be interesting to see what happens when subsidies end. There are likely to be both first order and second order effects.

The first order effect is just price sensitivity. People will decide to take public transportation, drive, take a conventional cab (which now has an app)--or just skip going out for the evening--if prices, say, double.

The second order effect is that there will be fewer passengers which will lead to fewer drivers. This probably doesn't matter much in a big urban core. But in marginal areas, such as where I live, it may be the difference between a viable service and an unviable one.

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