14 ms·

Today’s correction isn’t much like the dot-com bubble

238 points by akrain 7y ago

firasd 7y ago
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 7y ago
  SpaceX is real. Uber, AirBnB, WeWork and all the other 'lawbreaking as a service' and 'subsidizing transactions with massive VC' companies are not.
  - WhyNotThough 7y ago
    Taxi and hotel businesses deserved a little punch in the gut.
    - agumonkey 7y ago
      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.
      - cat199 7y ago
        yes, state sponsored 'economic efficiency' purges. what could possibly go wrong?
        agumonkey 7y ago
        Not necessarily this. There may be other ways.
        cat199 7y ago
        oh? all ears about these 'ways'.
        agumonkey 7y ago
        me too
        dang 7y ago
        You've been posting flamebait and unsubstantive comments quite a bit to HN lately, and we've already asked you not to. If you keep doing this we will have to ban you. I don't want to do that, so please read the site guidelines and follow them from now on: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
    - lotsofpulp 7y ago
      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.
      - bilbo0s 7y ago
        Not as many pervert, I mean, "security" cams in the hotel rooms either.
      - chubot 7y ago
        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.
        jschwartzi 7y ago
        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.
        ghaff 7y ago
  - wisty 7y ago
    Uber has a market cap of like 50 billion. It's real. It's no Apple or Google though.
    - ninkendo 7y ago
      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.
    - NeedMoreTea 7y ago
      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 7y ago
        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 7y ago
        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.
  - firasd 7y ago
    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-goodbye-millennial-urban-lifestyle/599839/ https://www.theatlantic.com/ideas/archive/2019/10/say-goodby... 2) https://threadreaderapp.com/thread/1184981449172144128.html https://threadreaderapp.com/thread/1184981449172144128.html
    - oarsinsync 7y ago
      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.
    - mdorazio 7y ago
      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 7y ago
        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.
mtts 7y ago
“ The problem with tech today isn’t so much that software failed to eat the world, but that the most celebrated unicorns weren’t actually software companies. They have struggled to achieve liftoff because their feet are stuck in the mud of the physical world” This sums it up nicely. Investors got deluded enough to think that if they threw enough money at a non-software company it would magically start making software company levels of profits. Hopefully the real economy won’t be affected too much when this bubble finally bursts.
- corporateslave5 7y ago
  The thing is I don’t think investors got deluded, I think investors new exactly what they’re doing. They were hoping some greater fool would take the investment off their hands
  - ivanche 7y ago
    That's not investing, that's speculation.
    - mdorazio 7y ago
      Welcome to Venture Capital.
    - fooker 7y ago
      "Venture"
  - matwood 7y ago
    The greater fools in the case of We being the public market. The rejection of the We IPO was a win against this ridiculousness.
    - chii 7y ago
      in which case, how many other companies have "fooled" the public, but just skirted the line enough to not trigger this level of checking?
muglug 7y ago
The obvious counter-example to this is Slack, a "pure-tech" company whose value has halved since IPO, and there's a similar story with Snapchat (though its value has recovered somewhat in the past year).
- cptskippy 7y ago
  I don't think Slack counts, Slack's IPO was just a cash out because they saw the writing on the wall.
  - semiotagonal 7y ago
    Slack's stock price chart has a "down and to the right" appearance.
    - AznHisoka 7y ago
      It was valued at $7 billion or so early last year. so at today’s price, it still went up over 50% since then. so one could argue it is still overvalued. just because some greater fool declared it was worth $40 at some point doesn’t mean it’s now a bargain if it goes down to $20.
      - semiotagonal 7y ago
        Indeed, I wasn't suggesting it was a good investment, just that the appearance of the chart is fairly consistent in moving toward a value of zero.
- Slartie 7y ago
  Well, nobody said that being a "pure" tech company automatically guarantees sky-high valuations, a hockeystick growth curve and the successful capture of a winner-takes-all market. Of course there must still be failures in that space, some which fail early and some which fail late. It's just that the described path to success is close to impossible in any other space except for pure tech companies, preferably with a software-only product, which means that any company not fitting that description, but boasting absurd high valuations justified by assuming the company will go the path described above does most likely mislead investors.
puranjay 7y ago
It's an incredible mix of hubris (on the startup's part) and delusion (on the investors part) to call some of these "tech companies". Like WeWork. It's a real estate company that should be valued like a real estate company. But somehow everyone concurred that it is, indeed, a tech company. How or why, no one bothered to ask.
- easytiger 7y ago
  To be more specific it's a real estate company, that started out with a low asset ownership position. Then it got into the asset game leveraging their revenue, but mostly leveraging some meaningless sociological/technological gibberish to skewer an investor. I think this speaks to the state of the kind of people making decisions about things they don't even try to understand.
  - hurrdurr2 7y ago
    This is what amazes me; that there are so many supposedly intelligent individuals throwing money at shitty ideas. Google investing in Juicero comes to mind. It's like any semblance of due diligence is just an afterthought.
    - SpicyLemonZest 7y ago
      I think calling Juicero a shitty idea is too strong. It didn't end up working, and probably it was knowable in advance that it wouldn't, but the difference between early-stage Juicero and early-stage Keurig is smaller than most people gave it credit for. There's a strong and robust market (at least in the SF Bay Area) for weird expensive juices.
      - jjeaff 7y ago
        I agree, fresh juice on demand is a good idea (besides the fact that the amount of sugar is usually terrible for you). But they had to have found out very early on with Juicero that squeezing the packets by hand basically produced as much juice as their expensive machine.
arbuge 7y ago
"You might not have heard about these “real tech” companies—like Zscaler, Anaplan, and Smartsheet—because they mostly sell business-to-business software or cloud services. But all of them are trading more than 100 percent above their listed IPO price." All of those are also down significantly from their all time high though.
- SpicyLemonZest 7y ago
  Sure, but that isn't relevant to the IPO dynamics. Investors threw hundreds of millions at Zscaler, heavily subsidizing their growth, because they drew some charts saying they'd be profitable in the future. I'm sure that in 2014 you could have written an explainer about how suchandsuch Zscaler product is only competitive with Symantec because of VC money - or you could have written the reverse explainer, about how the Zscaler product isn't really competitive at all and they're duping people into using it using VC money and modern buzzwords. Both those genres are pretty popular about consumer-facing unicorns. But it turned out the charts were right, and Zscaler is now profitable, although they still aren't making as much as investors at the all-time high expected.
dredmorbius 7y ago
There's a fantastic book that just came out in ... 1954 ... that I'd highly recommend. John Kenneth Galbraith's The Great Crash, 1929. https://www.worldcat.org/title/great-crash-1929/oclc/313657908 https://www.worldcat.org/title/great-crash-1929/oclc/3136579... The tech and land booms of the time involved Florida real estate, railroads (a/k/a airlines), airlines (actual aircraft involved), "Radio" (RCA), new alternative energy source and distribution plays, and of course, Goldman Sachs. I'd first read it following the 2007-8 global financial crisis. It's still relevant now. Short, highly readable, entertaining, and informative.
- TheOtherHobbes 7y ago
  See also Anthony Trollope's The Way We Live Now. Which was written in 1875. About the financial scandals of the 1870s.
code4tee 7y ago
All that’s happening is that the market is calling BS on companies that lack sound business fundamentals. The days of valuing companies sky high that are deeply unprofitable but “it’s OK because we’re a tech company so it doesn’t matter” are over. This is ultimately a good thing for companies with real businesses that were for much of recent history valued far less than those that had no clear prospects of making a profit. See all the writings about IWG vs WeWork on some of the previous insanity there.
- Scoundreller 7y ago
  It still works for taking over highly fragmented industries. And always will.
hn_throwaway_99 7y ago
The article touches on this, but I don't think it really addresses the root cause of the difference between 2000 and now. IMO the main difference is really just timing. Companies are staying private much longer than they did in the .com bubble. Back then, the IPOs still occurred during the "only thing that matters is eyeballs" phase, and when markets eventually expected profitability, the emperor was shown to be pantsless. Now, though, companies that are going public are already large and have gobbled up a lot of their market due to VC funding. What's happening is that they are at the point where that profitability signal has to be in view - you can no longer say "it will be just around the corner". This flamed out most spectacularly with WeWork, but it's a bit of just desserts that private investors wanted to gobble up all the big early gains, only to find that the additional time just gives public investors more reason to be skeptical.
- jacquesm 7y ago
  Punting a risky investment is a fine line between the dream still being alive and the bad news starting to roll in. For some investors - and sadly, even for some founders - this is during the earlier stages, which is why it is a huge red flag if founders or early investors insist on cashing out during later rounds.
daxfohl 7y ago
One could argue the cloud services companies aren't really pure software as alluded to in the article, but a software veneer over a gig economy for the underlying hardware. This perspective would allow for a bit deeper of a comparison between what's working and what's not.
- wbronitsky 7y ago
  I don’t understand this argument at all; it seems to be only buzzwords. What is the relation of the gig economy to a cloud hosting service, other than most gig economy apps are built on cloud servers? Also, how does looking at the problem this way enlighten us?
  - rossdavidh 7y ago
    I think the idea is that a cloud company is primarily renting hardware. Therefore, it doesn't scale like a software company; as its number of customers goes up, its number of employees and amount of capital equipment has to go up as well. This would mean it should not have a multiple like a pure-play software company, where the costs go up little if any as the number of customers goes up, because almost all of the software's development costs are up front.
    - wbronitsky 7y ago
      I assume you mean that these companies are in the business of renting hardware, not that they themselves rent the hardware they are using. I believe the virtualization they are offering allows the service to scale a bit more like software, but I do agree that these cloud providers don’t have 0 marginal cost. Either way, thank you for de-buzzwording the original argument. It makes much more sense in English
      - daxfohl 7y ago
        Sorry for all the buzzwords....It was 6 AM PST and coffee hadn't kicked in yet. Interestingly the de-buzzwording of the argument makes sense for the actual thing called "gig economy" too. It could just as well be called the "human rental business".
code4tee 7y ago
There’s another often unwritten element here around companies basing their valuation on false markets. For example, if I sell $2 for $1 that’s a false market. Of course I can grow like crazy and gobble up lots of customers. I could even “disrupt” existing players like those stodgy old companies (banks) that sell $2 for $2.15 (a loan). The VC subsidies for some of these companies are so high that they are basically selling $2 for $1 in some cases (WeWork was basically losing nearly $1 for every $1 of revenue!) Ride share companies grew fast when they sold VC subsidized rides but have struggled to maintain that market share dominance without subsidies (lots of other players quickly move in). MoviePass sold lots of subsidized movie tickets until the money ran out. Thus the fallacy of the whole “it’s ok that we’re unprofitable because look at how fast we’re growing” is that in many cases these companies were only growing BECAUSE they were grossly unprofitable in the form of their investors massively subsidizing purchases.
- ethbro 7y ago
  The South Park gnome episode comes to mind. For values of: 1 - Demonstrate growth 2 - ? 3 - Profit https://en.m.wikipedia.org/wiki/Gnomes_(South_Park)#/media/File%3AGnomes_plan.png https://en.m.wikipedia.org/wiki/Gnomes_(South_Park)#/media/F... Who knew it was a billion dollar business model?
- rubicon33 7y ago
  That's not an uncommon nor unheard of tactic in business. Fuel growth, and capture the market for your brand, by selling at a loss. The trick is always the transition to profitability. Generally, this comes through layoffs and maybe price increases.
  - deleted 7y ago
    [deleted]
  - tempsy 7y ago
    If you look at the scooter companies they are now charging $.29/minute (vs I think $.15/min a year ago). If you rent it for an hour, that now costs more than $20 with tax. Not exactly cheap anymore.
jeremydeanlakey 7y ago
One perspective that I gained much later than I should have: Suppose you have a small software company, Reinvest Software with big margins and lots of opportunities to expand. You can take home that profit and pay taxes. Or you can invest in growth. That investment in growth is an investment in intangible assets with insanely good tax treatment. But it looks bad on the financial statements. Suppose an investor, Smart Capital, sees your business potential and invests even though your GAAP income is low or negative. Smart Capital does very well for itself. Suppose another investor, Sucker Capital, sees Smart Capital doing well, decides that profits don't matter and invests in Negative Margin Software, which never has hope of making money. I think a lot of people can't distinguish between Negative Margin Software and Reinvestment Software. For many years, I didn't realize that they were separate things and I thought tech was mostly a Ponzi scheme. At first glance, I see more Reinvestment Software vs Negative Margin Software compared to the dot-com era.
- sfilipov 7y ago
  What are good examples of Reinvest Software? My guess would be Amazon, but what others?
  - countryqt30 7y ago
    @sifilpov: Most high-growth startups are like this, and a fair share of "growth companies". Differentiating the two is exactly the difficult part ;).
  - Retric 7y ago
    Facebook was a good example. They avoided excessive advertising in their growth phase, effectively spending potential profit for a huge user base. Critically, the profit was intangible as was the investment as the IRS does not care about money you never collected or the number of users you have only cash. YouTube is another, as far as we can tell it’s currently extremely profitable yet people looking at their financials where laughing at the sale price when Google Snatched it up. Part of this is from ever more advertising coupled with ever lower bandwidth costs.
lordleft 7y ago
Something I've been wrestling with is the perceived 'unsexiness' of certain technologies, like C#. When I joined this industry, I thought that anything that wasn't powered by Rust or Python or Haskell was irredeemable, that C# was a dinosaur not long for this world, and that tech unicorns would be set the tone of our industry going forward. Now that I'm a bit older I've begun to see that something like C# isn't going away anytime soon - that people still use .NET and other technologies because the enterprise endures, and companies like Microsoft are continually investing in their tooling. This article reminded me that sometimes unsexy technology powers the world, and if you can bring value and or mastery of that technology you can greatly benefit.
- oldmanhorton 7y ago
  Dont forget that even if C# feels old and stodgy, F# gives a very fresh and "cool" experience on top of .NET
  - np_tedious 7y ago
    Agreed. Also the recent C# language developments are themselves pretty good, as are the runtime / SDK improvements in dotnet core. With mostly a Linux, python / slightly FP background I "should" be the skeptic. But a recent project had me on a dotnet core app developed mostly on OSX and deployed on Linux. It was honestly pretty neat and while I no longer work on it, I am bullish on this space.
- karmakaze 7y ago
  The difference between a company that benefits from 'tech' and one that doesn't is how their tech is used. If they use off the shelf tech to directly build their business, it isn't so much a tech company as it is app development, IT, or whatever you name it. If however, you use whatever good or average off the shelf tech and build tools that leverage the tech then apply it to your business then you're a tech company. You can't just make the app you have to build tech to build the company. This is your advantage. The tech you build can be software or it can be patents or it can be proprietary processes but it has to be leveraged. My way to estimate this is to count the number of employees that build product or tools. The size of sales/marketing can vary but excessive numbers of devs isn't a good sign for a tech company and might just be a consultancy.
sabujp 7y ago
The part about stock prices for non-tech and tech isn't entirely true, what about stocks like PD? Here's a company that's trying to posture itself as an enterprise grade ops system, stock is in the gutter
- o-__-o 7y ago
  Nothing sexy about monitoring. You or I could build our own overnight. Twilio is the true leverage and why they command a much higher P/E multiple
  - hunterloftis 7y ago
    I agree with you but I’d phrase it differently. Perhaps that neither monitoring nor sms is “sexy,” but that you could reasonably hack together a monitoring MVP over a weekend but not a telephony MVP. There’s a natural barrier from the underlying problem domain.
    - bydl0coder 7y ago
      Of course you can put together an SMS sending service over the weekend. It just won't scale to the whole world and will have limited throughput.
sabujp 7y ago
uber needs to shift to self driving taxis quickly
- bydl0coder 7y ago
  How they will be better at making self-driving cars than established electronics and auto-manufacturers?
janoc 7y ago
That article seems to harp on the fact that it is "not-com bubble", basically that the companies are getting punished because they are not "pure tech/software companies". Quite a way to miss the point, IMO. As if delivering pure software was a sign that the company is worth investing in. Just look at all the cryptocurrency/blockchain startups from about two years ago. Most of them literally didn't have anything else but a whitepaper and some hacked up "coin" - a derivative of the open source Ethereum code. And 99.9% of them has gone bust already, disappearing with all the investor's money. This is about investors finally wising up that a start-up with no path to profitability is not a viable business, regardless of the explosive growth fueled by cheap VC dollars and undercutting the competition ("disrupting the market") by ignoring existing laws (Uber, ...). At least not for public investors - it is still immensely profitable for the founders and early investors of those "unicorns". However, their goal is not to make a profitable company but to grow fast, attract a lot of VC money and then recoup the investment in an inflated IPO when the entire Potemkin village gets sold off to a lot of naive suckers who end up footing the bill once the house of cards finally collapses. This is what needs to called out, not some BS talk about "not-com" bubbles.
- wool_gather 7y ago
  > This is about investors finally wising up Well, this generation of investors, at least. ;) We had much the same thing happening 20 years ago, and I have no doubt that we will again.
buboard 7y ago
Ctrl-F "Interest rates" not found. That's what's different. Where is money going to go if not in the most hopeful investments, in bank accounts? If there is a bubble it's the fault of central banks

238 points by akrain 7y ago

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 7y ago
SpaceX is real. Uber, AirBnB, WeWork and all the other 'lawbreaking as a service' and 'subsidizing transactions with massive VC' companies are not.
- WhyNotThough 7y ago
  Taxi and hotel businesses deserved a little punch in the gut.
  - agumonkey 7y ago
    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.
    - cat199 7y ago
      yes, state sponsored 'economic efficiency' purges. what could possibly go wrong?
      - agumonkey 7y ago
        Not necessarily this. There may be other ways.
        cat199 7y ago
        oh? all ears about these 'ways'.
        agumonkey 7y ago
        me too
      - dang 7y ago
        You've been posting flamebait and unsubstantive comments quite a bit to HN lately, and we've already asked you not to. If you keep doing this we will have to ban you. I don't want to do that, so please read the site guidelines and follow them from now on: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
  - lotsofpulp 7y ago
    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.
    - bilbo0s 7y ago
      Not as many pervert, I mean, "security" cams in the hotel rooms either.
    - chubot 7y ago
      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.
      - jschwartzi 7y ago
        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.
      - ghaff 7y ago
- wisty 7y ago
  Uber has a market cap of like 50 billion. It's real. It's no Apple or Google though.
  - ninkendo 7y ago
    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.
  - NeedMoreTea 7y ago
    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 7y ago
      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 7y ago
      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.
- firasd 7y ago
  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-goodbye-millennial-urban-lifestyle/599839/ https://www.theatlantic.com/ideas/archive/2019/10/say-goodby... 2) https://threadreaderapp.com/thread/1184981449172144128.html https://threadreaderapp.com/thread/1184981449172144128.html
  - oarsinsync 7y ago
    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.
  - mdorazio 7y ago
    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 7y ago
      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.

mtts 7y ago

“ The problem with tech today isn’t so much that software failed to eat the world, but that the most celebrated unicorns weren’t actually software companies. They have struggled to achieve liftoff because their feet are stuck in the mud of the physical world” This sums it up nicely. Investors got deluded enough to think that if they threw enough money at a non-software company it would magically start making software company levels of profits. Hopefully the real economy won’t be affected too much when this bubble finally bursts.

corporateslave5 7y ago
The thing is I don’t think investors got deluded, I think investors new exactly what they’re doing. They were hoping some greater fool would take the investment off their hands
- ivanche 7y ago
  That's not investing, that's speculation.
  - mdorazio 7y ago
    Welcome to Venture Capital.
  - fooker 7y ago
    "Venture"
- matwood 7y ago
  The greater fools in the case of We being the public market. The rejection of the We IPO was a win against this ridiculousness.
  - chii 7y ago
    in which case, how many other companies have "fooled" the public, but just skirted the line enough to not trigger this level of checking?

muglug 7y ago

The obvious counter-example to this is Slack, a "pure-tech" company whose value has halved since IPO, and there's a similar story with Snapchat (though its value has recovered somewhat in the past year).

cptskippy 7y ago
I don't think Slack counts, Slack's IPO was just a cash out because they saw the writing on the wall.
- semiotagonal 7y ago
  Slack's stock price chart has a "down and to the right" appearance.
  - AznHisoka 7y ago
    It was valued at $7 billion or so early last year. so at today’s price, it still went up over 50% since then. so one could argue it is still overvalued. just because some greater fool declared it was worth $40 at some point doesn’t mean it’s now a bargain if it goes down to $20.
    - semiotagonal 7y ago
      Indeed, I wasn't suggesting it was a good investment, just that the appearance of the chart is fairly consistent in moving toward a value of zero.
Slartie 7y ago
Well, nobody said that being a "pure" tech company automatically guarantees sky-high valuations, a hockeystick growth curve and the successful capture of a winner-takes-all market. Of course there must still be failures in that space, some which fail early and some which fail late. It's just that the described path to success is close to impossible in any other space except for pure tech companies, preferably with a software-only product, which means that any company not fitting that description, but boasting absurd high valuations justified by assuming the company will go the path described above does most likely mislead investors.

puranjay 7y ago

It's an incredible mix of hubris (on the startup's part) and delusion (on the investors part) to call some of these "tech companies". Like WeWork. It's a real estate company that should be valued like a real estate company. But somehow everyone concurred that it is, indeed, a tech company. How or why, no one bothered to ask.

easytiger 7y ago
To be more specific it's a real estate company, that started out with a low asset ownership position. Then it got into the asset game leveraging their revenue, but mostly leveraging some meaningless sociological/technological gibberish to skewer an investor. I think this speaks to the state of the kind of people making decisions about things they don't even try to understand.
- hurrdurr2 7y ago
  This is what amazes me; that there are so many supposedly intelligent individuals throwing money at shitty ideas. Google investing in Juicero comes to mind. It's like any semblance of due diligence is just an afterthought.
  - SpicyLemonZest 7y ago
    I think calling Juicero a shitty idea is too strong. It didn't end up working, and probably it was knowable in advance that it wouldn't, but the difference between early-stage Juicero and early-stage Keurig is smaller than most people gave it credit for. There's a strong and robust market (at least in the SF Bay Area) for weird expensive juices.
    - jjeaff 7y ago
      I agree, fresh juice on demand is a good idea (besides the fact that the amount of sugar is usually terrible for you). But they had to have found out very early on with Juicero that squeezing the packets by hand basically produced as much juice as their expensive machine.

arbuge 7y ago

"You might not have heard about these “real tech” companies—like Zscaler, Anaplan, and Smartsheet—because they mostly sell business-to-business software or cloud services. But all of them are trading more than 100 percent above their listed IPO price." All of those are also down significantly from their all time high though.

SpicyLemonZest 7y ago
Sure, but that isn't relevant to the IPO dynamics. Investors threw hundreds of millions at Zscaler, heavily subsidizing their growth, because they drew some charts saying they'd be profitable in the future. I'm sure that in 2014 you could have written an explainer about how suchandsuch Zscaler product is only competitive with Symantec because of VC money - or you could have written the reverse explainer, about how the Zscaler product isn't really competitive at all and they're duping people into using it using VC money and modern buzzwords. Both those genres are pretty popular about consumer-facing unicorns. But it turned out the charts were right, and Zscaler is now profitable, although they still aren't making as much as investors at the all-time high expected.

dredmorbius 7y ago

There's a fantastic book that just came out in ... 1954 ... that I'd highly recommend. John Kenneth Galbraith's The Great Crash, 1929. https://www.worldcat.org/title/great-crash-1929/oclc/313657908 https://www.worldcat.org/title/great-crash-1929/oclc/3136579... The tech and land booms of the time involved Florida real estate, railroads (a/k/a airlines), airlines (actual aircraft involved), "Radio" (RCA), new alternative energy source and distribution plays, and of course, Goldman Sachs. I'd first read it following the 2007-8 global financial crisis. It's still relevant now. Short, highly readable, entertaining, and informative.

TheOtherHobbes 7y ago
See also Anthony Trollope's The Way We Live Now. Which was written in 1875. About the financial scandals of the 1870s.

code4tee 7y ago

All that’s happening is that the market is calling BS on companies that lack sound business fundamentals. The days of valuing companies sky high that are deeply unprofitable but “it’s OK because we’re a tech company so it doesn’t matter” are over. This is ultimately a good thing for companies with real businesses that were for much of recent history valued far less than those that had no clear prospects of making a profit. See all the writings about IWG vs WeWork on some of the previous insanity there.

Scoundreller 7y ago
It still works for taking over highly fragmented industries. And always will.

hn_throwaway_99 7y ago

The article touches on this, but I don't think it really addresses the root cause of the difference between 2000 and now. IMO the main difference is really just timing. Companies are staying private much longer than they did in the .com bubble. Back then, the IPOs still occurred during the "only thing that matters is eyeballs" phase, and when markets eventually expected profitability, the emperor was shown to be pantsless. Now, though, companies that are going public are already large and have gobbled up a lot of their market due to VC funding. What's happening is that they are at the point where that profitability signal has to be in view - you can no longer say "it will be just around the corner". This flamed out most spectacularly with WeWork, but it's a bit of just desserts that private investors wanted to gobble up all the big early gains, only to find that the additional time just gives public investors more reason to be skeptical.

jacquesm 7y ago
Punting a risky investment is a fine line between the dream still being alive and the bad news starting to roll in. For some investors - and sadly, even for some founders - this is during the earlier stages, which is why it is a huge red flag if founders or early investors insist on cashing out during later rounds.

daxfohl 7y ago

One could argue the cloud services companies aren't really pure software as alluded to in the article, but a software veneer over a gig economy for the underlying hardware. This perspective would allow for a bit deeper of a comparison between what's working and what's not.

wbronitsky 7y ago
I don’t understand this argument at all; it seems to be only buzzwords. What is the relation of the gig economy to a cloud hosting service, other than most gig economy apps are built on cloud servers? Also, how does looking at the problem this way enlighten us?
- rossdavidh 7y ago
  I think the idea is that a cloud company is primarily renting hardware. Therefore, it doesn't scale like a software company; as its number of customers goes up, its number of employees and amount of capital equipment has to go up as well. This would mean it should not have a multiple like a pure-play software company, where the costs go up little if any as the number of customers goes up, because almost all of the software's development costs are up front.
  - wbronitsky 7y ago
    I assume you mean that these companies are in the business of renting hardware, not that they themselves rent the hardware they are using. I believe the virtualization they are offering allows the service to scale a bit more like software, but I do agree that these cloud providers don’t have 0 marginal cost. Either way, thank you for de-buzzwording the original argument. It makes much more sense in English
    - daxfohl 7y ago
      Sorry for all the buzzwords....It was 6 AM PST and coffee hadn't kicked in yet. Interestingly the de-buzzwording of the argument makes sense for the actual thing called "gig economy" too. It could just as well be called the "human rental business".

code4tee 7y ago

There’s another often unwritten element here around companies basing their valuation on false markets. For example, if I sell $2 for $1 that’s a false market. Of course I can grow like crazy and gobble up lots of customers. I could even “disrupt” existing players like those stodgy old companies (banks) that sell $2 for $2.15 (a loan). The VC subsidies for some of these companies are so high that they are basically selling $2 for $1 in some cases (WeWork was basically losing nearly $1 for every $1 of revenue!) Ride share companies grew fast when they sold VC subsidized rides but have struggled to maintain that market share dominance without subsidies (lots of other players quickly move in). MoviePass sold lots of subsidized movie tickets until the money ran out. Thus the fallacy of the whole “it’s ok that we’re unprofitable because look at how fast we’re growing” is that in many cases these companies were only growing BECAUSE they were grossly unprofitable in the form of their investors massively subsidizing purchases.

ethbro 7y ago
The South Park gnome episode comes to mind. For values of: 1 - Demonstrate growth 2 - ? 3 - Profit https://en.m.wikipedia.org/wiki/Gnomes_(South_Park)#/media/File%3AGnomes_plan.png https://en.m.wikipedia.org/wiki/Gnomes_(South_Park)#/media/F... Who knew it was a billion dollar business model?
rubicon33 7y ago
That's not an uncommon nor unheard of tactic in business. Fuel growth, and capture the market for your brand, by selling at a loss. The trick is always the transition to profitability. Generally, this comes through layoffs and maybe price increases.
- deleted 7y ago
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- tempsy 7y ago
  If you look at the scooter companies they are now charging $.29/minute (vs I think $.15/min a year ago). If you rent it for an hour, that now costs more than $20 with tax. Not exactly cheap anymore.

jeremydeanlakey 7y ago

One perspective that I gained much later than I should have: Suppose you have a small software company, Reinvest Software with big margins and lots of opportunities to expand. You can take home that profit and pay taxes. Or you can invest in growth. That investment in growth is an investment in intangible assets with insanely good tax treatment. But it looks bad on the financial statements. Suppose an investor, Smart Capital, sees your business potential and invests even though your GAAP income is low or negative. Smart Capital does very well for itself. Suppose another investor, Sucker Capital, sees Smart Capital doing well, decides that profits don't matter and invests in Negative Margin Software, which never has hope of making money. I think a lot of people can't distinguish between Negative Margin Software and Reinvestment Software. For many years, I didn't realize that they were separate things and I thought tech was mostly a Ponzi scheme. At first glance, I see more Reinvestment Software vs Negative Margin Software compared to the dot-com era.

sfilipov 7y ago
What are good examples of Reinvest Software? My guess would be Amazon, but what others?
- countryqt30 7y ago
  @sifilpov: Most high-growth startups are like this, and a fair share of "growth companies". Differentiating the two is exactly the difficult part ;).
- Retric 7y ago
  Facebook was a good example. They avoided excessive advertising in their growth phase, effectively spending potential profit for a huge user base. Critically, the profit was intangible as was the investment as the IRS does not care about money you never collected or the number of users you have only cash. YouTube is another, as far as we can tell it’s currently extremely profitable yet people looking at their financials where laughing at the sale price when Google Snatched it up. Part of this is from ever more advertising coupled with ever lower bandwidth costs.

lordleft 7y ago

Something I've been wrestling with is the perceived 'unsexiness' of certain technologies, like C#. When I joined this industry, I thought that anything that wasn't powered by Rust or Python or Haskell was irredeemable, that C# was a dinosaur not long for this world, and that tech unicorns would be set the tone of our industry going forward. Now that I'm a bit older I've begun to see that something like C# isn't going away anytime soon - that people still use .NET and other technologies because the enterprise endures, and companies like Microsoft are continually investing in their tooling. This article reminded me that sometimes unsexy technology powers the world, and if you can bring value and or mastery of that technology you can greatly benefit.

oldmanhorton 7y ago
Dont forget that even if C# feels old and stodgy, F# gives a very fresh and "cool" experience on top of .NET
- np_tedious 7y ago
  Agreed. Also the recent C# language developments are themselves pretty good, as are the runtime / SDK improvements in dotnet core. With mostly a Linux, python / slightly FP background I "should" be the skeptic. But a recent project had me on a dotnet core app developed mostly on OSX and deployed on Linux. It was honestly pretty neat and while I no longer work on it, I am bullish on this space.
karmakaze 7y ago
The difference between a company that benefits from 'tech' and one that doesn't is how their tech is used. If they use off the shelf tech to directly build their business, it isn't so much a tech company as it is app development, IT, or whatever you name it. If however, you use whatever good or average off the shelf tech and build tools that leverage the tech then apply it to your business then you're a tech company. You can't just make the app you have to build tech to build the company. This is your advantage. The tech you build can be software or it can be patents or it can be proprietary processes but it has to be leveraged. My way to estimate this is to count the number of employees that build product or tools. The size of sales/marketing can vary but excessive numbers of devs isn't a good sign for a tech company and might just be a consultancy.

sabujp 7y ago

The part about stock prices for non-tech and tech isn't entirely true, what about stocks like PD? Here's a company that's trying to posture itself as an enterprise grade ops system, stock is in the gutter

o-__-o 7y ago
Nothing sexy about monitoring. You or I could build our own overnight. Twilio is the true leverage and why they command a much higher P/E multiple
- hunterloftis 7y ago
  I agree with you but I’d phrase it differently. Perhaps that neither monitoring nor sms is “sexy,” but that you could reasonably hack together a monitoring MVP over a weekend but not a telephony MVP. There’s a natural barrier from the underlying problem domain.
  - bydl0coder 7y ago
    Of course you can put together an SMS sending service over the weekend. It just won't scale to the whole world and will have limited throughput.

sabujp 7y ago

uber needs to shift to self driving taxis quickly

bydl0coder 7y ago
How they will be better at making self-driving cars than established electronics and auto-manufacturers?

janoc 7y ago

That article seems to harp on the fact that it is "not-com bubble", basically that the companies are getting punished because they are not "pure tech/software companies". Quite a way to miss the point, IMO. As if delivering pure software was a sign that the company is worth investing in. Just look at all the cryptocurrency/blockchain startups from about two years ago. Most of them literally didn't have anything else but a whitepaper and some hacked up "coin" - a derivative of the open source Ethereum code. And 99.9% of them has gone bust already, disappearing with all the investor's money. This is about investors finally wising up that a start-up with no path to profitability is not a viable business, regardless of the explosive growth fueled by cheap VC dollars and undercutting the competition ("disrupting the market") by ignoring existing laws (Uber, ...). At least not for public investors - it is still immensely profitable for the founders and early investors of those "unicorns". However, their goal is not to make a profitable company but to grow fast, attract a lot of VC money and then recoup the investment in an inflated IPO when the entire Potemkin village gets sold off to a lot of naive suckers who end up footing the bill once the house of cards finally collapses. This is what needs to called out, not some BS talk about "not-com" bubbles.

wool_gather 7y ago
> This is about investors finally wising up Well, this generation of investors, at least. ;) We had much the same thing happening 20 years ago, and I have no doubt that we will again.

buboard 7y ago

Ctrl-F "Interest rates" not found. That's what's different. Where is money going to go if not in the most hopeful investments, in bank accounts? If there is a bubble it's the fault of central banks