6 ms·

Isn’t that what Amazon did early on? If so, looks like it worked.

by DougN7 5y ago

hoppyhoppy2 5y ago
I don't think they're arguing that it doesn't work for the company doing it. I think they're arguing along the the lines that it's unfair or unethical (anticompetitive) and comes with costs for the broader society.
- ideamotor 5y ago
  For example companies like door dash that run at a loss while forcing restaurants to take in less profits (because restaurants must pay door dash and can’t raise prices just for door dash users). It’s a ponzi scheme of investors. The real business for many SV companies is keeping the investor money flowing in.
  - ddtrafficking 5y ago
    And on top of that some of these companies work by exploiting labor while not being held accountable for that. I recently learned from a doordash courier that he and other Bangladeshi men had paid tens of thousands of dollars to a human trafficking organization to work doordash in exchange for getting to the United States. Of course he didn't have this money, it was debt to the organization, and he has to pay it out of his DoorDash wages, plus interest, to the organization. He lived in an apartment with dozens of other men in the same situation. He had a gps tracker around his ankle and everything. How are you supposed to compete with a company that uses modern slavery in order to deliver your meal for $5 or less?
  - lotsofpulp 5y ago
    > because restaurants must pay door dash and can’t raise prices just for door dash users All the restaurants I know charge higher prices if you order online than if you call directly or go in person. I do not use food delivery apps, but I assume prices are similarly inflated there since people willing to purchase online or via app are amenable to paying more. It is absolutely crazy to me the amount of premium people are willing to pay just to not have to pick up the phone or drive 5 min.
    - Jeff_Brown 5y ago
      > It is absolutely crazy to me the amount of premium people are willing to pay just to not have to pick up the phone or drive 5 min. Crazy and awesome. It means people value their time highly, and can afford to buy it back.
      - lotsofpulp 5y ago
        I hope. I suspect many or probably most cannot afford to buy their time back though, based on who I mostly see using online food ordering and delivery.
    - taurath 5y ago
      It’s crazy expensive when you aren’t getting a discount, and even with many discounts. Tech money doesn’t really care about the amounts though. Whenever a food delivery app recruiter calls me up I tell them I don’t think delivering burritos to other programmers is much value to the world.
- lostcolony 5y ago
  Yep. Of course companies do it when they can; it works for them. It's the effect on other companies, on actual market competition, and ultimately the consumer, that is a problem. Heck, Amazon is a fun example; they've long used their monopoly power to dictate to publishers, and are currently seeking to leverage their monopoly, Kindle Unlimited, etc, to help drive self-publishing on their platform, to cut out Publishers entirely. I'm not saying that removal of publishers is innately a bad thing, I -am- saying that making Amazon the largest publisher and the largest distributor of books in the world probably is. And they've achieved it not by simply being the best, but also via predatory pricing, and using money from AWS to cover costs in their retail arm to help gain market share, at the expense of smaller retailers who don't have a massively profitable cloud service to offset their losses with.
  - lotsofpulp 5y ago
    > And they've achieved it not by simply being the best, but also via predatory pricing, and using money from AWS to cover costs in their retail arm to help gain market share, at the expense of smaller retailers who don't have a massively profitable cloud service to offset their losses with. Source? Their financials do not indicate that they were or are subsidizing losses in their retail business with AWS. https://dazeinfo.com/2019/11/06/amazon-net-income-by-year-graphfarm/ https://dazeinfo.com/2019/11/06/amazon-net-income-by-year-gr... AWS income did not even ramp up until a few years after it came out in 2006. Their main competitive advantage was having a decent website and shipping operation early on when other retailers did not, and being able to sell goods to customers in most states without charging sales tax until the 2010s for most states.
    - hoppyhoppy2 5y ago
      In fairness to the parent commenter, Amazon never had a net profitable year until 2004. Most new non-Silicon Valley retailers can't operate for ten years with yearly losses. Certainly not most smaller retailers.
      - lotsofpulp 5y ago
deleted 5y ago
[deleted]
lotsofpulp 5y ago
Amazon’s primary advantage, initially, was that you could save ~7% sales tax in most states by purchasing from them. They also probably had a good deal on shipping at the time since they were the only ones doing it at such a large scale. If you look at AMZN net income graph, they never really lost a ton of money.
r00fus 5y ago
Yes. Why not scrutinize their business as well?
woofie11 5y ago
It works brilliantly. It's called dumping. It created major businesses like Standard Oil, prior to antitrust laws. Indeed, it's #1 on Wikipedia's list of anticompetitive strategies: https://en.wikipedia.org/wiki/Anti-competitive_practices#Types https://en.wikipedia.org/wiki/Anti-competitive_practices#Typ... I have mixed feelings about some of the big money SV strategies. Antitrust concerns aside: - They do allow some types of long-term transformative businesses, which would otherwise be impossible. - They don't allow many forms of sustainable businesses to exist. If you and I have the same idea and ability to execute, whichever of us raises more money (and in an ideal free market, this means whichever of us is willing to accept less favorable terms) wins. This drains value from entrepreneurs to capital. Perhaps it speeds things up a little bit, but it's a net lose. It also leads to businesses with unsustainable debt and burn rates, and many viable business models crash-and-burn.
- taurath 5y ago
  It basically describes most of the biggest companies coming out of tech. Imagine thinking that an individual or a group of normal people can be competitive in an economy like this.
- Jeff_Brown 5y ago
  > whichever of us raises more money (and in an ideal free market, this means whichever of us is willing to accept less favorable terms) wins I went through an entire economics PhD program, and had never before now heard of this founders' race to the bottom of investment terms. What a remarkable insight. Is there already a name for it?
  - woofie11 5y ago
    It's my own insight. I have about a half-dozen similarly remarkable insights each week. If you're interested in writing an econ paper about it, I'm glad to let you take first authorship. We can call it the "Founders Race to the Bottom" or the "Brown Effect." :) If it goes viral, you'll be famous. I've made that offer before on similar insights, and so far, no one has taken me up on it. And a few of them were really insightful. Who knows? Perhaps you'll get a Nobel Prize for it. Econ give them out for less. Some of those insights were, er, less than deep. The real insight behind this came in the Wealth of Nations. Adam Smith walks through this exact logic market-by-market, and for example, his section on rents leads to a similar degeneracy, where rents rise to match what the market can bare, and working people are driven to poverty by spending all excess income on rent. It's a great read. This is very directly applying exactly his logic, just to a modern market.
maverick-iceman 5y ago
Amazon scaled up leveraging their monster positive FCF 2002-2015 . They didn't need equity raises. Amazon is brought up often with regards to this, but somehow I've always encountered this argument when it was made as a rebuttal to a critique towards the business technique used by the Celebrity CEO at the helm of a particular car manufacturer (as well as battery manufacturer and solar panels manufacturer, oh and flamethrower manufacturer)

Isn’t that what Amazon did early on? If so, looks like it worked.

by DougN7 5y ago

Isn’t that what Amazon did early on? If so, looks like it worked.

I don't think they're arguing that it doesn't work for the company doing it. I think they're arguing along the the lines that it's unfair or unethical (anticompetitive) and comes with costs for the broader society.

ideamotor 5y ago
For example companies like door dash that run at a loss while forcing restaurants to take in less profits (because restaurants must pay door dash and can’t raise prices just for door dash users). It’s a ponzi scheme of investors. The real business for many SV companies is keeping the investor money flowing in.
- ddtrafficking 5y ago
  And on top of that some of these companies work by exploiting labor while not being held accountable for that. I recently learned from a doordash courier that he and other Bangladeshi men had paid tens of thousands of dollars to a human trafficking organization to work doordash in exchange for getting to the United States. Of course he didn't have this money, it was debt to the organization, and he has to pay it out of his DoorDash wages, plus interest, to the organization. He lived in an apartment with dozens of other men in the same situation. He had a gps tracker around his ankle and everything. How are you supposed to compete with a company that uses modern slavery in order to deliver your meal for $5 or less?
- lotsofpulp 5y ago
  > because restaurants must pay door dash and can’t raise prices just for door dash users All the restaurants I know charge higher prices if you order online than if you call directly or go in person. I do not use food delivery apps, but I assume prices are similarly inflated there since people willing to purchase online or via app are amenable to paying more. It is absolutely crazy to me the amount of premium people are willing to pay just to not have to pick up the phone or drive 5 min.
  - Jeff_Brown 5y ago
    > It is absolutely crazy to me the amount of premium people are willing to pay just to not have to pick up the phone or drive 5 min. Crazy and awesome. It means people value their time highly, and can afford to buy it back.
    - lotsofpulp 5y ago
      I hope. I suspect many or probably most cannot afford to buy their time back though, based on who I mostly see using online food ordering and delivery.
  - taurath 5y ago
    It’s crazy expensive when you aren’t getting a discount, and even with many discounts. Tech money doesn’t really care about the amounts though. Whenever a food delivery app recruiter calls me up I tell them I don’t think delivering burritos to other programmers is much value to the world.
lostcolony 5y ago
Yep. Of course companies do it when they can; it works for them. It's the effect on other companies, on actual market competition, and ultimately the consumer, that is a problem. Heck, Amazon is a fun example; they've long used their monopoly power to dictate to publishers, and are currently seeking to leverage their monopoly, Kindle Unlimited, etc, to help drive self-publishing on their platform, to cut out Publishers entirely. I'm not saying that removal of publishers is innately a bad thing, I -am- saying that making Amazon the largest publisher and the largest distributor of books in the world probably is. And they've achieved it not by simply being the best, but also via predatory pricing, and using money from AWS to cover costs in their retail arm to help gain market share, at the expense of smaller retailers who don't have a massively profitable cloud service to offset their losses with.
- lotsofpulp 5y ago
  > And they've achieved it not by simply being the best, but also via predatory pricing, and using money from AWS to cover costs in their retail arm to help gain market share, at the expense of smaller retailers who don't have a massively profitable cloud service to offset their losses with. Source? Their financials do not indicate that they were or are subsidizing losses in their retail business with AWS. https://dazeinfo.com/2019/11/06/amazon-net-income-by-year-graphfarm/ https://dazeinfo.com/2019/11/06/amazon-net-income-by-year-gr... AWS income did not even ramp up until a few years after it came out in 2006. Their main competitive advantage was having a decent website and shipping operation early on when other retailers did not, and being able to sell goods to customers in most states without charging sales tax until the 2010s for most states.
  - hoppyhoppy2 5y ago
    In fairness to the parent commenter, Amazon never had a net profitable year until 2004. Most new non-Silicon Valley retailers can't operate for ten years with yearly losses. Certainly not most smaller retailers.
    - lotsofpulp 5y ago

deleted 5y ago

[deleted]

lotsofpulp 5y ago

Amazon’s primary advantage, initially, was that you could save ~7% sales tax in most states by purchasing from them. They also probably had a good deal on shipping at the time since they were the only ones doing it at such a large scale. If you look at AMZN net income graph, they never really lost a ton of money.

r00fus 5y ago

Yes. Why not scrutinize their business as well?

woofie11 5y ago

It works brilliantly. It's called dumping. It created major businesses like Standard Oil, prior to antitrust laws. Indeed, it's #1 on Wikipedia's list of anticompetitive strategies: https://en.wikipedia.org/wiki/Anti-competitive_practices#Types https://en.wikipedia.org/wiki/Anti-competitive_practices#Typ... I have mixed feelings about some of the big money SV strategies. Antitrust concerns aside: - They do allow some types of long-term transformative businesses, which would otherwise be impossible. - They don't allow many forms of sustainable businesses to exist. If you and I have the same idea and ability to execute, whichever of us raises more money (and in an ideal free market, this means whichever of us is willing to accept less favorable terms) wins. This drains value from entrepreneurs to capital. Perhaps it speeds things up a little bit, but it's a net lose. It also leads to businesses with unsustainable debt and burn rates, and many viable business models crash-and-burn.

taurath 5y ago
It basically describes most of the biggest companies coming out of tech. Imagine thinking that an individual or a group of normal people can be competitive in an economy like this.
Jeff_Brown 5y ago
> whichever of us raises more money (and in an ideal free market, this means whichever of us is willing to accept less favorable terms) wins I went through an entire economics PhD program, and had never before now heard of this founders' race to the bottom of investment terms. What a remarkable insight. Is there already a name for it?
- woofie11 5y ago
  It's my own insight. I have about a half-dozen similarly remarkable insights each week. If you're interested in writing an econ paper about it, I'm glad to let you take first authorship. We can call it the "Founders Race to the Bottom" or the "Brown Effect." :) If it goes viral, you'll be famous. I've made that offer before on similar insights, and so far, no one has taken me up on it. And a few of them were really insightful. Who knows? Perhaps you'll get a Nobel Prize for it. Econ give them out for less. Some of those insights were, er, less than deep. The real insight behind this came in the Wealth of Nations. Adam Smith walks through this exact logic market-by-market, and for example, his section on rents leads to a similar degeneracy, where rents rise to match what the market can bare, and working people are driven to poverty by spending all excess income on rent. It's a great read. This is very directly applying exactly his logic, just to a modern market.

maverick-iceman 5y ago

Amazon scaled up leveraging their monster positive FCF 2002-2015 . They didn't need equity raises. Amazon is brought up often with regards to this, but somehow I've always encountered this argument when it was made as a rebuttal to a critique towards the business technique used by the Celebrity CEO at the helm of a particular car manufacturer (as well as battery manufacturer and solar panels manufacturer, oh and flamethrower manufacturer)