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It’s still mind boggling that all these unicorns haven’t found a way to make money even after being in business for years and having a mature product. It’s a st

It’s still mind boggling that all these unicorns haven’t found a way to make money even after being in business for years and having a mature product. It’s a strange world.

paulddraper 8y ago
It's still mind boggling that all these unicorns haven't stopped growing after being in business for years and having a mature product. It's a strange world.
- nicolashahn 8y ago
  It's a testament to how much spare money is just floating around in the upper VC class.
- est31 8y ago
  Don't forget that products like Slack, Uber, Airbnb, etc. all could have basically everyone as their customer. These companies influence the daily lives of millions of people, with comparatively few employees, thanks to the scaling skills of technology. That's why they are valued so high and are still growing. Sure, they might be overvalued and one day the bubble can burst, but neither is it just a ponzi scheme, there is definitely a business behind it.
  - maxxxxx 8y ago
    They also don’t have very high barriers to entry for competitors. Replacing SAP is really hard after it has been established in a company. On the other hand replacing Slack is really easy. Same for Uber. Customers and drivers can jump ship anytime.
    - mooreds 8y ago
      It depends on how you use slack. (I agree that Uber is pretty easy.) If slack becomes an email replacement (instead of an ephemeral IM client), and a repository for historical knowledge, then it becomes very difficult to replace. In the workplaces where I have used slack, it definitely starts to take on that role (links to discussions are placed in tickets and documents, for example).
      - deleted 8y ago
        [deleted]
      - maxxxxx 8y ago
        From what I have seen Slack may have a strong a foothold in some teams but overall it’s not hard to use something else when new teams are formed. I’m my company everybody is slowly moving to Teams. This can be done gradually. Definitely much easier to replace than SAP.
    - pmohun 8y ago
      I'm not sure replacing Slack is as easy as you may think. If you have used their product, then you understand the amount of integrations and dependencies that become built into a team's workflow. When your entire history of communications, way of tracking tickets, and document repository is stored in a desktop application, replacing Slack may not be as simple as switching to another messaging program. Could you "replace Outlook" -- it's just an email client after all.
      - maxxxxx 8y ago
        “Could you "replace Outlook" -- it's just an email client after all.” Absolutely. There is always pain in transitions but some are easier than others.
        freewilly1040 8y ago
        But why would you? “Hey boss I’m going to take up a bunch of everyone’s time getting everyone on boarded and retrained, as well as doing a nontrivial data migration, because some hot new email client is marginally better”
        maxxxxx 8y ago
        As almost always for cost reasons. What I am trying to say is that some things are more difficult to replace than others. Moving away from slack is doable. Moving away from Outlook is doable. Moving from 100000 Windows machines to Linux is harder. Moving away from SAP is really hard.
    - est31 8y ago
      Uber has a big competitive moat, which is willingness to burn money. They've got a lot of it, and any competitor which can't raise as much money for that purpose as Uber has will lose out. It's simple, in any area that a small competitor of Uber operates they just artificially lower prices and do it until the competitor runs out of money. The company with more money wins. Slack... sure you can just spin up a rocket.chat or matrix instance, but operating those costs money and attention by employees that YOU need to hire and pay. And suddenly the Slack bill you have doesn't seem that high. Quite many companies are in such a situation. There are institutions in different situations, like the French state for example which employs millions (sic) and really wants to keep the data out of foreign hands so they use matrix instead and have staff to maintain the instances. With the costs being irrelevant for most institutions, they select for other criteria instead, which is quality of the product. And Slack for some reason is market leader here. I definitely prefer to use IRC but I'm not delusional, most people aren't like me.
      - maxxxxx 8y ago
        "Uber has a big competitive moat, which is willingness to burn money. " that's a very bad long term strategy :-)
        est31 8y ago
        Most of the time, there won't be anyone trying so most of the time they will make money instead of burning it. As long as they are burning less on average than they are doing in profits they turn a profit in total. The business model already exists e.g. in the form of American cable companies. They offer crappy services for super expensive prices, but the moment a competitor gets into town and invests heavily, they invest as well and outbid them. This way they ensure that no competitor can make profits and grow beside them in that specific town. So they are safe. Add in government mandated monopolies and "you get counties abc, I get counties def" type deals between cable companies and regulators looking the other way. Same will likely happen for Uber vs Lyft.
      - techntoke 8y ago
        Usually those staff are able to setup and manage chat while doing 100 other things for the company, and if they're not then fire them.
  - acchow 8y ago
    Airbnb is profitable.
cupofjoakim 8y ago
Well, these guys do have a good way to make money. Enterprise contracts are worth their weight in gold. As you could see from the quote, their revenue has increased more than their losses - which mean that they are on their way to become profitable. Arguably they could be now, if they didn't invest in growth as much.
- derwiki 8y ago
  > Arguably they could be now, if they didn't invest in growth as much. Bingo bango https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-as-much-net-profit-as-it-did-in-the-fourth-quarter-of-2017/ https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-... > Keep in mind that Amazon consistently lost money for its first several years as a public company. It first reported a quarterly profit in the fourth quarter of 2001 [...]
  - mises 8y ago
    Amazon massive economies of scale due to operating a highly efficient worldwide supply chain. I don't see Slack's average variable cost per unit going down in that same way. Amazon also made a lot of money on things like AWS by reinvesting, which is why they weren't profitable. They were burning that money by reinvesting it, not for operating expenses.
- Radim 8y ago
  > their revenue has increased more than their losses But "net loss" already takes revenue into account! "Loss" is not the same thing as "expenses". The revenue increased substantially, but so did expenses, resulting in a slight decrease in loss over the past 3 years. At the current rate, the company would reach break-even profitability around the year 2070.
  - canes123456 8y ago
    That is not how SAAS economics works. You spend a lot money upfront and revenue is earned over years. They can stop investing in sales/marketing tomorrow and be profitable.
tonyedgecombe 8y ago
I think it's more mind boggling that people will continue to invest in them on the basis of a vague promise of profitability in the distant future. Turning a profit is much harder than buying market share.
- ed312 8y ago
  Conversely it takes so much money and time to create a profitable company vs history.
- mises 8y ago
  The market is hot, and people would stuff money in a hole in the ground right now if you promised a possible 5x return. That will change soon enough. I think these unicorns may know this and may have decided their time to raise money publicly is now, before a market crash. Not saying the market is about to crash, but it's certainly volatile.
  - lotsofpulp 8y ago
    Software having basically zero marginal cost is a game changer. There's a reason why the big tech companies are the belle of the ball right now, they all print money, and they're still growing. Some things are worth the risk for that kind of payout.
    - idlewords 8y ago
      Software had zero marginal cost before everyone started hosting it on cloud services.
    - mises 8y ago
      > basically zero marginal cost If only. Their COGS may be low, but marketing expenses and R&D are 2/3 of slack's expenses. Also, cloud gets very pricey at scale.
freewilly1040 8y ago
Expansion costs money. They’ve doubled revenue three years in a row while keeping losses steady. Solid international growth means they aren’t running out of addressable market any time soon. The implication is that they could invest less in growth and get to profitability, but then they’d be leaving addressable market on the table.
cbhl 8y ago
Their operating expenses are likely dominated by the three types of people: software engineers (listed as R&D), sales/marketing, and administrators. Profitability will probably come post-IPO in some form of a hiring freeze (or quotas), and cuts in perks/food per capita. If 80%ile studio rents in San Francisco were closer to $800/month than $3400/month then maybe salaries could be 70% of what they are, and Slack would be almost break-even. It's worth noting that profitability isn't the only useful way to run a publicly-traded business. Telecoms are typically swimming in debt, but they're (mostly) fine because they have cash flow (monthly payments; making it impossible to quit).
- wongarsu 8y ago
  > Telecoms are typically swimming in debt In general many profitable businesses swim in debt. If you finance each project to 1/3 with your own capital and 2/3 dept you can do three times as many projects, and for established companies with lots of assets (production facilities etc) banks will happily lend that money. On the other hand there are companies like Nintendo and Apple with huge cash reserves and nowhere to spend them.
charlesju 8y ago
Let me let you in on a little secret. Slack makes TONS of money. Take that as a truth and then think about why they're still reporting they're losing money..
- gpickett00 8y ago
  What is this hidden truth you're alluding to?
- refurb 8y ago
  Are you inferring that the financials in the S-1 are being misrepresented? If so, that's quite the accusation!
- charlesju 8y ago
  No. Let me put it this way. Strategically from a bunch of directions. Even if they were making 10x the money. They would still be reporting the same steady losses.
fulldecent2 8y ago
They haven't found a way to be profitable because they are not seeking a way to be profitable.

It’s still mind boggling that all these unicorns haven’t found a way to make money even after being in business for years and having a mature product. It’s a strange world.

paulddraper 8y ago

It's still mind boggling that all these unicorns haven't stopped growing after being in business for years and having a mature product. It's a strange world.

nicolashahn 8y ago
It's a testament to how much spare money is just floating around in the upper VC class.
est31 8y ago
Don't forget that products like Slack, Uber, Airbnb, etc. all could have basically everyone as their customer. These companies influence the daily lives of millions of people, with comparatively few employees, thanks to the scaling skills of technology. That's why they are valued so high and are still growing. Sure, they might be overvalued and one day the bubble can burst, but neither is it just a ponzi scheme, there is definitely a business behind it.
- maxxxxx 8y ago
  They also don’t have very high barriers to entry for competitors. Replacing SAP is really hard after it has been established in a company. On the other hand replacing Slack is really easy. Same for Uber. Customers and drivers can jump ship anytime.
  - mooreds 8y ago
    It depends on how you use slack. (I agree that Uber is pretty easy.) If slack becomes an email replacement (instead of an ephemeral IM client), and a repository for historical knowledge, then it becomes very difficult to replace. In the workplaces where I have used slack, it definitely starts to take on that role (links to discussions are placed in tickets and documents, for example).
    - deleted 8y ago
      [deleted]
    - maxxxxx 8y ago
      From what I have seen Slack may have a strong a foothold in some teams but overall it’s not hard to use something else when new teams are formed. I’m my company everybody is slowly moving to Teams. This can be done gradually. Definitely much easier to replace than SAP.
  - pmohun 8y ago
    I'm not sure replacing Slack is as easy as you may think. If you have used their product, then you understand the amount of integrations and dependencies that become built into a team's workflow. When your entire history of communications, way of tracking tickets, and document repository is stored in a desktop application, replacing Slack may not be as simple as switching to another messaging program. Could you "replace Outlook" -- it's just an email client after all.
    - maxxxxx 8y ago
      “Could you "replace Outlook" -- it's just an email client after all.” Absolutely. There is always pain in transitions but some are easier than others.
      - freewilly1040 8y ago
        But why would you? “Hey boss I’m going to take up a bunch of everyone’s time getting everyone on boarded and retrained, as well as doing a nontrivial data migration, because some hot new email client is marginally better”
        maxxxxx 8y ago
        As almost always for cost reasons. What I am trying to say is that some things are more difficult to replace than others. Moving away from slack is doable. Moving away from Outlook is doable. Moving from 100000 Windows machines to Linux is harder. Moving away from SAP is really hard.
  - est31 8y ago
    Uber has a big competitive moat, which is willingness to burn money. They've got a lot of it, and any competitor which can't raise as much money for that purpose as Uber has will lose out. It's simple, in any area that a small competitor of Uber operates they just artificially lower prices and do it until the competitor runs out of money. The company with more money wins. Slack... sure you can just spin up a rocket.chat or matrix instance, but operating those costs money and attention by employees that YOU need to hire and pay. And suddenly the Slack bill you have doesn't seem that high. Quite many companies are in such a situation. There are institutions in different situations, like the French state for example which employs millions (sic) and really wants to keep the data out of foreign hands so they use matrix instead and have staff to maintain the instances. With the costs being irrelevant for most institutions, they select for other criteria instead, which is quality of the product. And Slack for some reason is market leader here. I definitely prefer to use IRC but I'm not delusional, most people aren't like me.
    - maxxxxx 8y ago
      "Uber has a big competitive moat, which is willingness to burn money. " that's a very bad long term strategy :-)
      - est31 8y ago
        Most of the time, there won't be anyone trying so most of the time they will make money instead of burning it. As long as they are burning less on average than they are doing in profits they turn a profit in total. The business model already exists e.g. in the form of American cable companies. They offer crappy services for super expensive prices, but the moment a competitor gets into town and invests heavily, they invest as well and outbid them. This way they ensure that no competitor can make profits and grow beside them in that specific town. So they are safe. Add in government mandated monopolies and "you get counties abc, I get counties def" type deals between cable companies and regulators looking the other way. Same will likely happen for Uber vs Lyft.
    - techntoke 8y ago
      Usually those staff are able to setup and manage chat while doing 100 other things for the company, and if they're not then fire them.
- acchow 8y ago
  Airbnb is profitable.

cupofjoakim 8y ago

Well, these guys do have a good way to make money. Enterprise contracts are worth their weight in gold. As you could see from the quote, their revenue has increased more than their losses - which mean that they are on their way to become profitable. Arguably they could be now, if they didn't invest in growth as much.

derwiki 8y ago
> Arguably they could be now, if they didn't invest in growth as much. Bingo bango https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-as-much-net-profit-as-it-did-in-the-fourth-quarter-of-2017/ https://qz.com/1196256/it-took-amazon-amzn-14-years-to-make-... > Keep in mind that Amazon consistently lost money for its first several years as a public company. It first reported a quarterly profit in the fourth quarter of 2001 [...]
- mises 8y ago
  Amazon massive economies of scale due to operating a highly efficient worldwide supply chain. I don't see Slack's average variable cost per unit going down in that same way. Amazon also made a lot of money on things like AWS by reinvesting, which is why they weren't profitable. They were burning that money by reinvesting it, not for operating expenses.
Radim 8y ago
> their revenue has increased more than their losses But "net loss" already takes revenue into account! "Loss" is not the same thing as "expenses". The revenue increased substantially, but so did expenses, resulting in a slight decrease in loss over the past 3 years. At the current rate, the company would reach break-even profitability around the year 2070.
- canes123456 8y ago
  That is not how SAAS economics works. You spend a lot money upfront and revenue is earned over years. They can stop investing in sales/marketing tomorrow and be profitable.

tonyedgecombe 8y ago

I think it's more mind boggling that people will continue to invest in them on the basis of a vague promise of profitability in the distant future. Turning a profit is much harder than buying market share.

ed312 8y ago
Conversely it takes so much money and time to create a profitable company vs history.
mises 8y ago
The market is hot, and people would stuff money in a hole in the ground right now if you promised a possible 5x return. That will change soon enough. I think these unicorns may know this and may have decided their time to raise money publicly is now, before a market crash. Not saying the market is about to crash, but it's certainly volatile.
- lotsofpulp 8y ago
  Software having basically zero marginal cost is a game changer. There's a reason why the big tech companies are the belle of the ball right now, they all print money, and they're still growing. Some things are worth the risk for that kind of payout.
  - idlewords 8y ago
    Software had zero marginal cost before everyone started hosting it on cloud services.
  - mises 8y ago
    > basically zero marginal cost If only. Their COGS may be low, but marketing expenses and R&D are 2/3 of slack's expenses. Also, cloud gets very pricey at scale.

freewilly1040 8y ago

Expansion costs money. They’ve doubled revenue three years in a row while keeping losses steady. Solid international growth means they aren’t running out of addressable market any time soon. The implication is that they could invest less in growth and get to profitability, but then they’d be leaving addressable market on the table.

cbhl 8y ago

Their operating expenses are likely dominated by the three types of people: software engineers (listed as R&D), sales/marketing, and administrators. Profitability will probably come post-IPO in some form of a hiring freeze (or quotas), and cuts in perks/food per capita. If 80%ile studio rents in San Francisco were closer to $800/month than $3400/month then maybe salaries could be 70% of what they are, and Slack would be almost break-even. It's worth noting that profitability isn't the only useful way to run a publicly-traded business. Telecoms are typically swimming in debt, but they're (mostly) fine because they have cash flow (monthly payments; making it impossible to quit).

wongarsu 8y ago
> Telecoms are typically swimming in debt In general many profitable businesses swim in debt. If you finance each project to 1/3 with your own capital and 2/3 dept you can do three times as many projects, and for established companies with lots of assets (production facilities etc) banks will happily lend that money. On the other hand there are companies like Nintendo and Apple with huge cash reserves and nowhere to spend them.

charlesju 8y ago

Let me let you in on a little secret. Slack makes TONS of money. Take that as a truth and then think about why they're still reporting they're losing money..

gpickett00 8y ago
What is this hidden truth you're alluding to?
refurb 8y ago
Are you inferring that the financials in the S-1 are being misrepresented? If so, that's quite the accusation!
charlesju 8y ago
No. Let me put it this way. Strategically from a bunch of directions. Even if they were making 10x the money. They would still be reporting the same steady losses.

fulldecent2 8y ago

They haven't found a way to be profitable because they are not seeking a way to be profitable.