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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

#51

Post by solotronics »

pitaj wrote: post #43
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's called malinvestment, and it's tied to monetary policy. When the central bank churns out money, the lower interest rates discourage banks from lending, making it harder for small businesses to collect capital that way. The lower interest rates simultaneously drive investment from bonds into the stock market and real estate. Look up Business Cycle Theory

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 the economy of China working. Whenever I visit there I marvel at all the infrastructure projects and you realize it doesn't need to "make money" over there. The government just decides what to build and loans itself money to get it done.

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

#52

Post by lordnacho »

onlyrealcuzzo wrote: post #46
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…

> I wonder what would happen if there was a rule that you could only resell equity in a business whose financials had improved recently. How does that work with failing businesses? If a business turns into a shit-show, everyone on board is forced to ride the ship down to the seafloor?

Yeah hmm I hadn't considered the other side. What if the business had to have had a good year at some point?

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

#53

Post by dragonwriter »

staybythebay wrote: post #9
Johnny555 wrote: post #4

Where does the money go for Lyft/Uber? The software platform can't be that expensive amortized across a million+ drivers. It's not like the drivers are overpaid (and in many cases, they are barely (or not even) paid enough to cover costs) What else do they spend it on? Marketing? Bribing...err... lobbying politicians for favorable treatment?

The article hints at it. “all these companies are deliberately spending profligately now to build their brands and win over dense populations of customers, so that in the future they can be more efficiently served. This is the exact playbook that once worked for Amazon.com” I can’t count how many free Uber/Grubhub promo codes I’ve seen. How much they subsidize their orders, etc.

It's also the the exact model that's failed for countless companies you've never heard of, because they failed.

Amazon was (at least for a long time, maybe this has been forgotten) been noted for being unusually, perhaps uniquely, successfully at both the customer side and investor side when it came to executing on this.

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

#54

Post by onlyrealcuzzo »

koolba wrote: post #13
b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

> The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs will get a lot worse if not disappear. It'll be a double whammy hit. As the unsustainable businesses collapse and prices rise back to reality, it'll cause an even larger drop in net sales due to consumer's reluctance to pay the full cost of their poke bowls. Combine that with a bunch of gig economy workers having their only inco…

Most of the cost of the poke bowl is fixed, not marginal.

The full cost of the poke bowl is a function mostly of rent and wages (which are largely a function of interest rates and rents). If a recession hits, wages and rents will fall, and with them the cost of the poke bowl as well.

The marginal cost of poke bowl is like $3 of fish and $0.10 of rice and veggies.

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

#55

Post by onemoresoop »

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…

I am quite happy to get out of the house and into an office, even though am not enamored with offices per see. I would probably go crazy being with my partner all the time. I feel that at work, while I don't have much privacy, I have some kind of privacy from my partner. Does that ring a bell?

Also the daycare.. I probably couldn't do remote work with my kid crawling and giggling all day long.

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

#56

Post by b_tterc_p »

dawhizkid wrote: post #14
b_tterc_p wrote: post #6

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs wil…

Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from…

Maybe, but I think not. If there’s a recession, it becomes harder to get cash. If it is hard to get cash, you probably can’t afford to keep burning it in hope of building your competitive moat, especially if people are more conservative to the idea that the moat will never happen. So what does Meituan do about its annual $18B deficit? It can try to raise prices and lower wages (maybe you’re right and supply of labor increases), but that’s a fundamental change to its entire business and a huge gap to fill; plus the wages are already near the bottom. If it doesn’t click with consumers quickly... the business just dies- and for a lot of these services the enticement is just the low price right now. A lot of gig economy jobs are premised on bad businesses that only work now because there is a lot of capital to go around. It might be true that at a certain scale it would work, but that doesn’t mean they’re able to get there.

Can Uber and Lyft do better? Maybe. They can’t drop wages much lower either because these people need not only to eat but to pay off vehicle leases. And the more people driving for Uber, the less each person makes due to limited demand for rides (also likely reduced in a recession), so I think there will be a limited surge of new drivers.

It could be that Uber could just drop all of its scale except where profitable, but that throws billions of sunk cost down the drain too and throws a horrible signal to the market about its prospects for the future.

Tl;dr: I believe that companies with deeply red income statements will suffer the most when a recession hits, and it follows that disposable contract workers for these companies will be the most vulnerable.

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

#57

Post by xsmasher »

skybrian wrote: post #41
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…

If the "waste" is subsidizing services you actually want, is it really waste? It's more of a transfer from investors to landlords and drivers, who certainly wouldn't be as happy with less money.

Are the drivers getting paid more than they are worth, or are you getting a service for less than it should cost?

Either is possible; or other options - like Uber is making money per ride in some regions and losing in others.

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

#59

Post by b_tterc_p »

dawhizkid wrote: post #35
12298765 wrote: post #25

Earlier quoted context omitted.

The whole point was that the jobs would disappear -- if Uber and Lyft back out of smaller cities to be profitable, all of those jobs are gone, which is exactly the point of the person you replied to. Most of those gig jobs would start disappearing

There's no "backing out" if we're talking about individual cities in a country they already operate in (save a few edge cases). That isn't really how Uber/Lyft enter/exit markets. They will just not pay driver incentives for new markets, which is usually the lighter fire for incentivizing new supply (i.e. drivers) to start driving. There's no job to be "lost." They aren't going to turn you away for a "job" or "fire"…

That’s true, there’s no real reason to “leave” a city. But if they need to stop bleeding cash in an expensive city, they’ll need to raise prices during a hurting economy. Doing this at scale is going to severely dent their ability to cover fixed costs long term.

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

#60

Post by tomnipotent »

dawhizkid wrote: post #23
tomnipotent wrote: post #21

Earlier quoted context omitted.

Which would mean eliminating upwards of 90% of their workforce. Thus not sustainable, and the jobs disappear.

You’re conflating profitability, growth, sustainability etc. you’re also conflating what is bad for Uber vs what is bad for drivers It is sustainable to do that if by sustainable you mean have a profitable long term business that is cash flow positive It would likely massively hurt share prices because you’re trading growth for profitability

I'm not conflating anything, you're just mixing subjects. You said that gig jobs would get better or there would be more, and I countered that was not the case since a business cannot sustain that number of people if it's not profitable.
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