[firasd]

I was getting insecure that my side-projects/hoped-for-businesses are things like a social news app and a podcast discovery app while Uber, SpaceX etc are changing the world but now that the software-is-eating-the-world companies are getting massacred in the stock market I feel at least some slight relief about my choices. Near-zero-marginal-cost is a magic that only pure-software (and other IP-based?) businesses have...

(Of course I'm overlooking that most new software biz that is doing well is B2B unlike my projects... but still.)

[jacquesm]

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

[firasd]

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 consumers for more than the mattresses cost to them. They are losing money on ads. If I see/hear a Casper ad, is that ad really a subsidy to me?

PS. Saw an interesting Twitter thread from Tren Griffin: "Whenever you read or hear the phrase 'losing money' you should ask yourself: what does this person mean?"[2]

1) https://www.theatlantic.com/ideas/archive/2019/10/say-goodby...

2) https://threadreaderapp.com/thread/1184981449172144128.html

[mdorazio]

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.

[ghaff]

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.

[oarsinsync]

If the money is going on tangental customer acquisition costs (ie marketing), it's probably not a subsidy.

If the money is going directly either to the supplier or the customer (subsidizing the customer's costs directly or indirectly), then it's probably a subsidy.

[daveFNbuck]

They're losing money so that you can get a cheaper mattress. You can call that a subsidy or not, but the important thing is that the transaction involves them ending up with less money and you with more money than if you had bought elsewhere.

[jschwartzi]

Casper is an interesting example to me because I've learned not to buy durable goods from companies that aren't solvent. If Casper went belly up next year, there's nobody providing any warranty for your mattress. And if it's discovered that the mattress is dangerous to sleep on because of contamination during the cheap manufacturing process, good luck getting anyone to recall it and replace it with something safe.

[ghaff]

I'd worry less about a product like Casper's than a lot of other products that you expect will need repair/supplies/etc. at some point. Sure it's possible that some gross defect will be discovered in Casper mattresses in a couple years. But it's not like there isn't lots of other furniture that turns out to not be well made. And good luck getting refunds on that after 2 or 3 years in many/most cases.

[wolco]

In all cases its a subsidy. Because without it the price would be different.

A brand subsidy is when your brand is enhanced by a third party either by direct or indirect but it doesn't have to include money.

Think taking a photo with a star at your dinner and putting it on the wall.

[WhyNotThough]

Taxi and hotel businesses deserved a little punch in the gut.

[lotsofpulp]

Why hotel businesses? There are many different hotel brands to choose from, pricing is transparent, photos/reviews are available on many websites, customer service at the chains take care of complaints pretty well, and there has been a ton of new hotel room supply added.

[chubot]

I started staying in AirBNB's around 2013 because I could get a kitchen, e.g. for a week-long stay. I like drinking water and not eating out 2-3 times a day, every day, for a week!

I was staying by myself, but I've heard from traveling families that hotels are a big hassle for them because they lack a kitchen. Imagine feeding a couple kids while staying for a week. That cost will really add up if you're eating out 3 times a day.

The standard hotel practice of giving you ice but nothing else, so you spend on expensive drinks and water, is pretty obnoxious in my book.

The little fridges stocked with $5 bags of chips are also obnoxious.

Another reason is that I'm not limited to "airport-hotel" land, which feels the same in every city. (Admittedly, this is something hotels can't easily fix.)

Also, the prices for AirBNB's were significantly more varied. At the low end, you could get one room in an apartment occupied by others, etc.

[lotsofpulp]

> Also, the prices for AirBNB's were significantly more varied.

As expected, since complying with fire and other safety codes, taxes, zoning rules, brand standards, and other business costs exist.

Kitchens are offered in various brands by Hilton/Marriott/IHG. I haven’t had Airport hotel land issues in big cities, but most other places restrict hotels from being in areas by restricting zoning... since residents in these places don’t want to be near hotels.

My point though, was that the hotel market seems to be operating pretty efficiently, with plenty of good choices available for consumers. Price might be higher, but most societies have decided it’s worth it to enforce certain standards upon them. This is different from how the taxi market was, where online booking, payment, and rating vastly raised the standards for everyone.

[ghaff]

"Extended stay" places have at least limited kitchens. I often stay at them for the typically more comfortable sitting area but having a fridge can be useful too. I mostly don't use the kitchen though.

AirBnB did make renting vacation homes and the like more convenient. Even if hotels aren't really broken, the vacation rental services were very fragmented and mostly not great.

A lot depends on what you're looking for. On vacation, I do sometimes like something with a bit more "character." TBH though, most of the time I just want reliable with a 24 hour desk, the ability to leave luggage before I can check in or after I check out, etc.

[jschwartzi]

The last AirBnb I stayed in was sparkling clean and totally infested with cockroaches. And they had the nerve to tell me they couldn't get me a full refund, and that I should be used to staying in lower-end places. In the end my fiance and I had to book a hotel anyway, at great inconvenience to ourselves and with no guarantee from AirBnb that they would refund anything. That was way more inconvenient than not having a kitchen for a few days.

So the flip side of it is that you're rolling the dice and AirBnb doesn't actually have a way to guarantee anything for you the way a hotel would.

[bilbo0s]

Not as many pervert, I mean, "security" cams in the hotel rooms either.

[agumonkey]

Be gentle please, I understand and agree that these industries got complacent but these are people. I think our societies should integrate this 'kick' phases to make them smoother and more respectable rather than have toxic competitors attack them.

[wisty]

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

[NeedMoreTea]

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?

[ghaff]

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.

[vidarh]

I think that's very hard to predict. Just 5 minutes ago I had a conversation with my ex about how I always use Uber for ad hoc travel despite the fact it's often significantly more expensive than the local minicab companies, because they can get someone here much faster. Often it's a 3 minute wait, while I otherwise might wait 10+ minutes. Their app also gives me more reliable feedback.

If I schedule in advance, or need more flexibility in car type, then the minicab companies win, but it's very rare for me to pick them because of price, even though they're often much cheaper.

But of course not everyone can afford the luxury of paying extra, and will just factor in longer waits instead.

[ninkendo]

In a conversation where “real” can be partially defined as “are they worth their market cap”, saying a company has a high market cap does little to convince me. In fact it’s the opposite: it implies a long way to fall.

[mseidl]

The whole thing is asinine.

They've never made money and they never will. If they haven't gotten after 10 years they wont get it.

[jacquesm]

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-...