3 ms·

"If we grow share, we will grow our way into profitability" We lose money on each unit, but make it up through volume.

by pg 17y ago

loganfrederick 17y ago
As much as I agree with these obvious concepts, and I don't think any such model on its own is sustainable, there is a caveat. The model of potential financial success on the project could be more complex than simply price times units. Using the Microsoft example, their traditional business lines are clearly not as easily profitable as they used to be. Their options are basically: Hunker down on their main products and innovate or diversify into new revenue streams. They've generally gone with the latter. Success has been limited (this thread has inspired me to blog about the importance of the Xbox success on Microsoft as a whole). Yet it is still the direction they've chosen. That brings the discussion to the war with Google over search. They see huge potential profits and markets in the internet, with search and its related advertising revenues being the biggest. It's also a market with a clear market leader, but one who doesn't necessarily have a complete monopoly and can lose customers in a click (aside from custom deals such as search on mobile devices, etc.) Microsoft probably sees economic value that helps make up for some of the immediate financial loss: Not allowing one company to monopolize any tech-related industry or at least establish a brand and product in a growing market space. None of these directly compensate for the cash spent, but they do have value. Microsoft has the cash to make long-term investments, and that's how they view search, as a long-term investment. I feel compelled to be thankful that Microsoft is even bothering. I'd hate to see Google be the only serious competitor in the search space. As nice a company as they may seem, anyone given an absolute monopoly would inevitably cave to some form of laziness or corruption.
ivankirigin 17y ago
There are some examples of this. If you send many SMSs, it costs a lot. But if you are a big driver for SMS traffic, you actually get paid. You make money at scale.
byrneseyeview 17y ago
People who say that need to be more specific. In the case of a negative gross margin, that's true, but what about high fixed costs and a positive gross margin?

"If we grow share, we will grow our way into profitability" We lose money on each unit, but make it up through volume.

by pg 17y ago

"If we grow share, we will grow our way into profitability" We lose money on each unit, but make it up through volume.

As much as I agree with these obvious concepts, and I don't think any such model on its own is sustainable, there is a caveat. The model of potential financial success on the project could be more complex than simply price times units. Using the Microsoft example, their traditional business lines are clearly not as easily profitable as they used to be. Their options are basically: Hunker down on their main products and innovate or diversify into new revenue streams. They've generally gone with the latter. Success has been limited (this thread has inspired me to blog about the importance of the Xbox success on Microsoft as a whole). Yet it is still the direction they've chosen. That brings the discussion to the war with Google over search. They see huge potential profits and markets in the internet, with search and its related advertising revenues being the biggest. It's also a market with a clear market leader, but one who doesn't necessarily have a complete monopoly and can lose customers in a click (aside from custom deals such as search on mobile devices, etc.) Microsoft probably sees economic value that helps make up for some of the immediate financial loss: Not allowing one company to monopolize any tech-related industry or at least establish a brand and product in a growing market space. None of these directly compensate for the cash spent, but they do have value. Microsoft has the cash to make long-term investments, and that's how they view search, as a long-term investment. I feel compelled to be thankful that Microsoft is even bothering. I'd hate to see Google be the only serious competitor in the search space. As nice a company as they may seem, anyone given an absolute monopoly would inevitably cave to some form of laziness or corruption.

ivankirigin 17y ago

There are some examples of this. If you send many SMSs, it costs a lot. But if you are a big driver for SMS traffic, you actually get paid. You make money at scale.

byrneseyeview 17y ago

People who say that need to be more specific. In the case of a negative gross margin, that's true, but what about high fixed costs and a positive gross margin?