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

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

#81

Post by AlexandrB » Tue, Apr 02, 2019, 9:47 PM UTC

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.

I think it's more interesting to look at it as a corruption of traditional supply/demand signalling in a market economy. By heavily subsidizing a service, investors are able to put their finger on the scale and choose winners despite what consumers would actually choose if competition was more fair. Previously, this kind of behaviour was considered "dumping" and anti-competitive. Yet, currently it's considered OK because startups (read VCs) are doing it instead of large monopolies.

It's interesting to see how this might relate to wealth inequality as well. If investors had less money and consumers had more, would they choose a less-subsidized Uber over traditional cab services as readily?

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

#82

Post by digitaltrees » Tue, Apr 02, 2019, 9:50 PM UTC

motivated_gear wrote: post #45

JMTQp8lwXL wrote: post #29

Earlier quoted context omitted.

The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding. That's essentially the bet with these companie…

"Theres a lot of people that spend years telling themselves that they're going to work on rockets. These same people build ad tech platforms and never leave. If you want to build rockets, just go build rockets." -- a very paraphrased Peter Thiel. If these companies are waiting for the next wave of automation they need to build it. Uber and lyft are trying with self driving but they haven't bet the farm on it. If Uber…

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.

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

#83

Post by afarah » Tue, Apr 02, 2019, 9:54 PM UTC

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…

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...

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

#84

Post by digitaltrees » Tue, Apr 02, 2019, 9:54 PM UTC

dragonwriter wrote: post #34

JMTQp8lwXL wrote: post #29

Earlier quoted context omitted.

The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding. That's essentially the bet with these companie…

> Only then, do these companies come out on top Only the ones that also own the automated vehicle/robotic hamburger flipper technologies—and if it's not one of the on-demand firms that does that key job automation piece, all the existing on-demand firms are worthless in the face of the firm that owns the technology that erases the big cost in their business, and therefore can partner with the whichever is willing to…

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 because people are price sensitive, and the service is a commodity with no meaningful network effect

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

#85

Post by goatgate » Tue, Apr 02, 2019, 9:55 PM UTC

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

But these companies are funded by VCs. The cause is more a function of wealth inequality. The ultra-wealthy have so much money that they only need 1/100 to be a gusher. If there wasn't so much capital consolidated in the hands of so few, this model wouldn't work as you need an ungodly amount of money to sustain 99 failures. Investments should be more constrained by real balance sheets and the needs of real people. There is a ton of waste on this billionaire's roulette wheel.

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

#86

Post by AlexandrB » Tue, Apr 02, 2019, 9:57 PM UTC

JMTQp8lwXL wrote: post #29

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 narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding. That's essentially the bet with these companie…

> The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding.

This narrative never made sense to me. Buying all those autonomous vehicles and burger flippers is an enormous expense and comes with additional logistics complications such as maintenance. Even if autonomous vehicles were perfected tomorrow, transforming a company with little to no capex like Uber into a capex behemoth would take many years, tons of real-estate negotiations, construction, etc. I'm not convinced Uber could make this transition faster than Amazon could build and app and start parking a fleet of cars at its already-built distribution centres.

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

#87

Post by moorhosj » Tue, Apr 02, 2019, 10:00 PM UTC

aeorgnoieang wrote: post #69

moorhosj wrote: post #38

Earlier quoted context omitted.

Lots of claims in this comment I'd love to see backed up. ==Working at home saves you daycare.== Is this true? Most people I know who work remotely don't have enough free time to also watch their kid, they are doing their job. It does save the 1-2 hour round trip of commuting each day. ==It lets people eat lunch at 11am or 2pm.== Can't most people in an office environment already do this? I do. ==It keeps you cleaner…

> maybe the stress of commuting is a net negative Commuting is considered one of the _most_ negative parts of a person's day, such that common advice is to seriously consider living closer to work at the expense of other amenities.

==Commuting is considered one of the _most_ negative parts of a person's day==

I think depends on the method of commuting. I do a combination of walking and train each day and it is one of the best parts of my day. I get exercise and free time to read, watch videos, or just space-out. I think people who bike or walk to work have a similarly positive perspective.

If I was driving on a gridlocked highway for 2 hours a day, I would hate it.

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

#88

Post by skybrian » Tue, Apr 02, 2019, 10:05 PM UTC

AlexandrB wrote: post #81

skybrian wrote: post #41

Earlier quoted context omitted.

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.

I think it's more interesting to look at it as a corruption of traditional supply/demand signalling in a market economy. By heavily subsidizing a service, investors are able to put their finger on the scale and choose winners despite what consumers would actually choose if competition was more fair. Previously, this kind of behaviour was considered "dumping" and anti-competitive. Yet, currently it's considered OK bec…

It's funny how sometimes setting a too-low price is considered competitive (such as a sale or loss leader) and other times it's considered anti-competitive.

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

#89

Post by AlexandrB » Tue, Apr 02, 2019, 10:06 PM UTC

digitaltrees wrote: post #82

motivated_gear wrote: post #45

Earlier quoted context omitted.

"Theres a lot of people that spend years telling themselves that they're going to work on rockets. These same people build ad tech platforms and never leave. If you want to build rockets, just go build rockets." -- a very paraphrased Peter Thiel. If these companies are waiting for the next wave of automation they need to build it. Uber and lyft are trying with self driving but they haven't bet the farm on it. If Uber…

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-sharing app my friends use. Even old-school email is more sticky in this regard, my Gmail account has a bunch of historical email I want to keep - so it's unlikely I'll ever delete it entirely. What's in my Uber account? Ride history? Why do I care about keeping that?

A think a better parallel is airlines. I have almost no loyalty to any airline, I just choose the flights that go where I want with the least cost/pain. Why would ride-sharing be that different?

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

#90

Post by dman » Tue, Apr 02, 2019, 10:07 PM UTC

JMTQp8lwXL wrote: post #74

dman wrote: post #63

Earlier quoted context omitted.

The counter example is Amazon with Prime.

Probably contrarian, but I refuse to sign up for Prime out of principle. The quicker and easier I make it to buy things, the more money I'm going to spend, which is orthogonal to my savings/investment goals. I'm not going to pay extra to have the privilege of making spending my money any easier.

I am with you on that, I am "this close" to cancelling Prime. Dont order on it anymore, strangely enough only reason I have it around is that I use the free photo storage as a second backup for photos (After Google photos)