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> Things look quite different to many small, non vc-funded, profitable businesses: there is so much vc money sloshing about that one is constantly fighting comp

> Things look quite different to many small, non vc-funded, profitable businesses: there is so much vc money sloshing about that one is constantly fighting competitors who operate at a loss to try to build monopolies whereas in more typical industries such businesses face much more fair competition. This story doesn’t add up. 1. VC funded company operates at a loss. 2. All incumbents are pushed out of market. 3. VC funded company has monopoly. They raise prices above the original “competitive-profitable price”. 4. New company enters market at original price. 5. VC funded company goes to the original price or goes bankrupt. 6. Anddd, we’re here again.

mrkurt 6y ago
Operating at a loss doesn’t mean they’re running at negative margins. It means they’re burning money to do sales or marketing or hire a bunch of devs to build faster than other companies.
- burrows 6y ago
  They provide the service at a lower price and would be profitable if they weren’t aggressively expanding? That’s just a better company.
  - mrkurt 6y ago
    I’m not sure why you’re fixated on price. Most interesting companies aren’t building commodities like toothpaste. Companies that have enough market power to crush smaller competitors tend to also drive the quality of products down. I’d prefer more high quality products to fewer “better companies”.
    - burrows 6y ago
      > I’m not sure why you’re fixated on price. I’m responding to OP. >> there is so much vc money sloshing about that one is constantly fighting competitors who operate at a loss to try to build monopolies He’s claiming that VC companies use their warchest to undercut and ultimately force out incumbents. > Most interesting companies aren’t building commodities like toothpaste. Why is price less relative for “non-commodity” companies? > Companies that have enough market power to crush smaller competitors tend to also drive the quality of products down. Maybe? Peter Thiel talks about small margins in competitive industries leading to lower quality products because companies lack sufficient resources to innovate. eg, Google’s advertising domination lets them build high quality products like GMaps and GMail.
dan-robertson 6y ago
I don’t see why that doesn’t add up. It looks plausible to me. Note that often this low price for internet companies is 0 and many users will not put up with any price increase, so the VC backed company will fail once their monetisation strategy ( usually it’s “something something advertisers”) doesn’t pan out. A small profitable business is harmed by the unsustainable competition at steps 1-2 and may struggle to hold out until step 3 (which likely won’t happen; going bust/being acquired and shuttered seem more likely to me) or 6
devdas 6y ago
Alternatively, no one enters the market because the monopoly company can still undercut them. Another bigger problem is that the monopolist pushes the low cost of delivered goods or services on third parties (see the gig economy). That race to the bottom harms people, but there will always be takers for those jobs in any society without a good social security system.

mrkurt 6y ago

Operating at a loss doesn’t mean they’re running at negative margins. It means they’re burning money to do sales or marketing or hire a bunch of devs to build faster than other companies.

burrows 6y ago
They provide the service at a lower price and would be profitable if they weren’t aggressively expanding? That’s just a better company.
- mrkurt 6y ago
  I’m not sure why you’re fixated on price. Most interesting companies aren’t building commodities like toothpaste. Companies that have enough market power to crush smaller competitors tend to also drive the quality of products down. I’d prefer more high quality products to fewer “better companies”.
  - burrows 6y ago
    > I’m not sure why you’re fixated on price. I’m responding to OP. >> there is so much vc money sloshing about that one is constantly fighting competitors who operate at a loss to try to build monopolies He’s claiming that VC companies use their warchest to undercut and ultimately force out incumbents. > Most interesting companies aren’t building commodities like toothpaste. Why is price less relative for “non-commodity” companies? > Companies that have enough market power to crush smaller competitors tend to also drive the quality of products down. Maybe? Peter Thiel talks about small margins in competitive industries leading to lower quality products because companies lack sufficient resources to innovate. eg, Google’s advertising domination lets them build high quality products like GMaps and GMail.

dan-robertson 6y ago

I don’t see why that doesn’t add up. It looks plausible to me. Note that often this low price for internet companies is 0 and many users will not put up with any price increase, so the VC backed company will fail once their monetisation strategy ( usually it’s “something something advertisers”) doesn’t pan out. A small profitable business is harmed by the unsustainable competition at steps 1-2 and may struggle to hold out until step 3 (which likely won’t happen; going bust/being acquired and shuttered seem more likely to me) or 6

devdas 6y ago

Alternatively, no one enters the market because the monopoly company can still undercut them. Another bigger problem is that the monopolist pushes the low cost of delivered goods or services on third parties (see the gig economy). That race to the bottom harms people, but there will always be takers for those jobs in any society without a good social security system.