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In my opinion, giving large scale subsidies to customers seems like a business anti-pattern, and is surely gonna kill a lot of startups in near future. I have

In my opinion, giving large scale subsidies to customers seems like a business anti-pattern, and is surely gonna kill a lot of startups in near future. I have been sold to the Idea that Investors are killing any Internet "Business" by advising Founders against simple & straight-forward business plans. They constantly ask founders not to monetize earlier and wait until founders have no choice but to trash out the company/app to advertisers. The End Result is that founders get more and more scared of asking their customers for money. If It was upto me, I would take 1000 paying customers over 100k free customers any day. Also this would mean free customers(subsidized customers in Uber's case) not hogging company's valueable resources and company could better serve lower number of paying customers. Edit: I don't really know how to spell "customer".

deleted 10y ago
[deleted]
- edem 10y ago
  At least he is consistent.
djyaz1200 10y ago
Amen! VC's favor this approach because this is the only strategy that requires their scale of money. If you just go out and make a useful product and sell it to people you may do very well... but there isn't room for the kind of huge returns VC's need. Through massive subsidies the VC's are trying to buy monopolies in entire markets... and it may be that transportation is such a large market that no amount of private capital can deter competition indefinitely.
- kuschku 10y ago
  > Through massive subsidies the VC's are trying to buy monopolies in entire markets... And there you have it, the core of the Silicon Valley concept, the ideal startup, the business model of VCs. 1. Create a new product. 2a. Create a new market; have first mover advantage or 2b. Use Predatory Pricing or Anticompetitive actions to gain advantage 3. Establish monopoly 4. Cash out big. 5. Use money to fund new business ventures, see 1.
pweissbrod 10y ago
two words: amazon prime
- Retric 10y ago
  Amazon prime is a major profit center for Amazon. http://www.fool.com/investing/general/2016/03/25/how-prime-makes-amazon-profitable.aspx http://www.fool.com/investing/general/2016/03/25/how-prime-m...
samfisher83 10y ago
Bing might be 90% as good as google, but when people are trying to search for something they are just going to use google. I really started to realize how useful Uber was when i was traveling internationally I just pulled out my phone and a car came. I didn't have to worry about what the rate was going to be. It might have even been above what a taxi might charge, but at least I knew what the cost was going to be. It just kind of works.
- CoffeeDregs 10y ago
  I'm not sure how usefulness-when-traveling-internationally is relevant when the vast majority of the market for Uber, Lyft, etc will never board a plane more than a handful of times in their lives... EDIT: typo ("irrelevant" -> "relevant")
- Ben-G 10y ago
  I touched on this point in the post. If there's a significantly cheaper local competitor, most people will be happy to use that service when they're home. Then they'll use Uber (or some other globally operating competitor) while they travel.
  - kuschku 10y ago
    Especially if Dobrindts "A single app to book all taxis, carsharing companies, car rentals, train or bus tickets, in all of Germany" takes off.
onion2k 10y ago
I think a lot of investors and founders try to replicate the model that worked for Paypal. By accepting a high customer acquisition cost (in the form of literally giving away money) at the start you can scale up phenomenally quickly. It's a proven model. The problem is that it's hard to know if you can still attract new customers without that artificial appeal, so actually stopping is a huge risk. Your growth figures could collapse. Uber have managed to amass such a ridiculous warchest of cash that they won't need to stop for a really long time. And I suppose that's the point - if they can get to profit even with the subsidies before they run out of money they won't ever have to stop giving away money to new customers.
- rnernento 10y ago
  How is it possible to get to profit with the subsidies?
  - Namrog84 10y ago
    The same way that free mobile games make most of their money from 1‰ of the 'whales'. Nom mobile games. Let's say team fortress 2 or other games subsidized to make game free for all. When a small portion are buying crates and skins. Uber could do same with black car. Delivery services. Etc.. And then offer discount /free for the (multiple independent ride share or other) to those that want to be cheaper.
  - shkkmo 10y ago
    I assume they meant reduce and eliminate the subsidies without having raise prices.
diminoten 10y ago
Investors, early stage in particular, are optimizing for exits, not profitability. I know that's not what's on their mind when they're advising (I assume the best of intentions), and they do provide the best of what they have, but if that's what gets rewarded, that's what'll get optimized for, and there's nothing the "Good ones" can do about it if they want to be/remain successful. Very few people other than those pesky customers, seem to care if a business is actually making money on its own these days.
1_2__3 10y ago
Put snarkily: Paid subscription models don't lead to hockey sticks. And investors are only interested in hockey sticks. There's so much in our world we could do if we only demanded profit, rather than 20+% profit YoY from every corner of our existence.
- rjeli 10y ago
  Novice here, why don't subscriptions lead to hockey sticks? Which business model does?
  - tenminuteslater 10y ago
    Hockey sticks come from low friction. Subscription models are just plain tougher -- people have to put in a credit card and pay real money for the service. You just don't get exponential increases in that type of a situation (cue counter-example). The business models that lead to hockey sticks are anything where the initial use is free to the user. Essentially, how Google, Facebook, and Twitter all started. They can use advertising to monetize that growth, and eventually ancillary paid services (Google Drive storage for example).

deleted 10y ago

[deleted]

edem 10y ago
At least he is consistent.

djyaz1200 10y ago

Amen! VC's favor this approach because this is the only strategy that requires their scale of money. If you just go out and make a useful product and sell it to people you may do very well... but there isn't room for the kind of huge returns VC's need. Through massive subsidies the VC's are trying to buy monopolies in entire markets... and it may be that transportation is such a large market that no amount of private capital can deter competition indefinitely.

kuschku 10y ago
> Through massive subsidies the VC's are trying to buy monopolies in entire markets... And there you have it, the core of the Silicon Valley concept, the ideal startup, the business model of VCs. 1. Create a new product. 2a. Create a new market; have first mover advantage or 2b. Use Predatory Pricing or Anticompetitive actions to gain advantage 3. Establish monopoly 4. Cash out big. 5. Use money to fund new business ventures, see 1.

pweissbrod 10y ago

two words: amazon prime

Retric 10y ago
Amazon prime is a major profit center for Amazon. http://www.fool.com/investing/general/2016/03/25/how-prime-makes-amazon-profitable.aspx http://www.fool.com/investing/general/2016/03/25/how-prime-m...

samfisher83 10y ago

Bing might be 90% as good as google, but when people are trying to search for something they are just going to use google. I really started to realize how useful Uber was when i was traveling internationally I just pulled out my phone and a car came. I didn't have to worry about what the rate was going to be. It might have even been above what a taxi might charge, but at least I knew what the cost was going to be. It just kind of works.

CoffeeDregs 10y ago
I'm not sure how usefulness-when-traveling-internationally is relevant when the vast majority of the market for Uber, Lyft, etc will never board a plane more than a handful of times in their lives... EDIT: typo ("irrelevant" -> "relevant")
Ben-G 10y ago
I touched on this point in the post. If there's a significantly cheaper local competitor, most people will be happy to use that service when they're home. Then they'll use Uber (or some other globally operating competitor) while they travel.
- kuschku 10y ago
  Especially if Dobrindts "A single app to book all taxis, carsharing companies, car rentals, train or bus tickets, in all of Germany" takes off.

onion2k 10y ago

I think a lot of investors and founders try to replicate the model that worked for Paypal. By accepting a high customer acquisition cost (in the form of literally giving away money) at the start you can scale up phenomenally quickly. It's a proven model. The problem is that it's hard to know if you can still attract new customers without that artificial appeal, so actually stopping is a huge risk. Your growth figures could collapse. Uber have managed to amass such a ridiculous warchest of cash that they won't need to stop for a really long time. And I suppose that's the point - if they can get to profit even with the subsidies before they run out of money they won't ever have to stop giving away money to new customers.

rnernento 10y ago
How is it possible to get to profit with the subsidies?
- Namrog84 10y ago
  The same way that free mobile games make most of their money from 1‰ of the 'whales'. Nom mobile games. Let's say team fortress 2 or other games subsidized to make game free for all. When a small portion are buying crates and skins. Uber could do same with black car. Delivery services. Etc.. And then offer discount /free for the (multiple independent ride share or other) to those that want to be cheaper.
- shkkmo 10y ago
  I assume they meant reduce and eliminate the subsidies without having raise prices.

diminoten 10y ago

Investors, early stage in particular, are optimizing for exits, not profitability. I know that's not what's on their mind when they're advising (I assume the best of intentions), and they do provide the best of what they have, but if that's what gets rewarded, that's what'll get optimized for, and there's nothing the "Good ones" can do about it if they want to be/remain successful. Very few people other than those pesky customers, seem to care if a business is actually making money on its own these days.

1_2__3 10y ago

Put snarkily: Paid subscription models don't lead to hockey sticks. And investors are only interested in hockey sticks. There's so much in our world we could do if we only demanded profit, rather than 20+% profit YoY from every corner of our existence.

rjeli 10y ago
Novice here, why don't subscriptions lead to hockey sticks? Which business model does?
- tenminuteslater 10y ago
  Hockey sticks come from low friction. Subscription models are just plain tougher -- people have to put in a credit card and pay real money for the service. You just don't get exponential increases in that type of a situation (cue counter-example). The business models that lead to hockey sticks are anything where the initial use is free to the user. Essentially, how Google, Facebook, and Twitter all started. They can use advertising to monetize that growth, and eventually ancillary paid services (Google Drive storage for example).