3 ms·

I think we're about to see a lot of tech ideas with questionable economics come back to earth. When the cost of capital was below a single digit, "parking" mon

by lumost 4y ago

I think we're about to see a lot of tech ideas with questionable economics come back to earth. When the cost of capital was below a single digit, "parking" money in a growth bet could vaguely make sense. After all, someday Uber would figure it out, or get AVs, or .. something? Better than leaving the money in a .01% money market for 10 years, or parking the money in something with no path for growth like industrials. This problem isn't restricted to startups however, even big tech has big expensive forays into questionable markets. Meta is building something for a few billion a year, Google has hundreds of strange an unprofitable businesses, and B2B SaaS is full of startups which may actually just be consultancies. A 10-12% cost of capital means that you either need to have a real plan to turn profit in 3 years or investors won't care. Just breaking even means an opportunity cost of 30%.

prasadjoglekar 4y ago
Exactly right! An unintended side effect of the artificially low cost of capital was that labor seemed expensive. All the long shot ideas that tried to "improve productivity" - whether by replacing drivers with driverless cars, or robots flipping burgers are entirely uneconomical when cost of capital goes up. Now, capital has become more expensive and labor is also more expensive. It's a perfect shitstorm for a lot of projects.
websap 4y ago
Comparing Meta and Google, to Lyft and Uber isn't an apples to apples comparison. The former have cash cow businesses and have captial that they can deploy to find the next $100 billion dollar business. Its essential for their long term survival to keep diversifying and reinventing themselves.
- halJordan 4y ago
  I think that's the point. That even these well funded, relatively sovereign companies will be punished for their moonshots and that means the future will be devastating for these magical unicorns.
  - sfblah 4y ago
    One wonders what government policies preventing this from happening are doing to the future. I don't have any way to objectively measure this, but my general sense is each day interest rates remain artificially low, the downside becomes greater. I'd be curious if you know a way to quantify this effect.
    - ForHackernews 4y ago
      Interest rates are not being kept "artificially low": central banks have already raised rates, and have signalled that they intend to continue raising rates.
      - sfblah 4y ago
        We'll have to agree to disagree on that one. Here is a 670-year history of interest rates: https://www.visualcapitalist.com/the-history-of-interest-rates-over-670-years/ https://www.visualcapitalist.com/the-history-of-interest-rat... There is a separate book you can read that attempts to go back 2000 years. Interest rates have never been this low in recorded human history, and there's an obvious reason why. The point of interest rates is to compensate the lender for deferring consumption. In a world without government manipulation, it makes no logical sense for a lender to be willing to lend money and receive zero or even negative interest. The US government is artificially keeping interest rates low because recessions have become politically untenable, and the wealthy have totally captured the mechanisms of government. The end result is monetary policy which inflates assets for the wealthy while impoverishing the poor and middle classes. Other countries have been forced to adopt the same policies to avoid their currencies appreciating. Worse yet, government is implicitly and explicitly backstopping and even socializing industries owned by the wealthy through fiscal policy. This is where you get "green energy credits" and "privatizing space," both of which have served only to enrich a couple billionaires. It's the western version of Russian oligarchs.
jjfoooo6 4y ago
Three different flavors of big bet. Meta realizing their core business, while massive, has peaked, loudly reorienting their business around a dubious moonshot bet. Google burning cash in a moonshot division, dubiously betting that creating startups within Google is easier than outside of it. Uber/Lyft subsidizing customers for a long while to take over the market, which... pretty much worked? Of the three "big bets" this seems most promising. Even if the market decreases, it's not going away, nor is it going back to regional taxi companies.
- lumost 4y ago
  Its worth considering that 3 is actually quite common within large companies as well. I can think of a few industries dominated by big tech that have never turned a profit or even positive free cash flow.
  - ghaff 4y ago
    The thing that actually puzzles me is that in the post-Kalanick era, Uber didn't more aggressively pivot to essentially being a taxi company where drivers supply their own vehicles. You've got a working app--how many people do you need to maintain/enhance it? Self-driving isn't happening in an economically interesting time horizon--certainly not reliable door-to-door in cities. So raise prices, cut costs, and have what's a fairly attractive taxi business for many places. Of course, that may not have been what investors wanted to hear.
- bin_bash 4y ago
  I think you’re right. I couldn’t imagine using taxis when traveling for work ever again. Uber sends the receipt straight into Concur for me. Pre-Uber I remember having to get Taxi drivers to write me a freehand paper receipt to expense.

by lumost 4y ago

prasadjoglekar 4y ago

Exactly right! An unintended side effect of the artificially low cost of capital was that labor seemed expensive. All the long shot ideas that tried to "improve productivity" - whether by replacing drivers with driverless cars, or robots flipping burgers are entirely uneconomical when cost of capital goes up. Now, capital has become more expensive and labor is also more expensive. It's a perfect shitstorm for a lot of projects.

websap 4y ago

Comparing Meta and Google, to Lyft and Uber isn't an apples to apples comparison. The former have cash cow businesses and have captial that they can deploy to find the next $100 billion dollar business. Its essential for their long term survival to keep diversifying and reinventing themselves.

halJordan 4y ago
I think that's the point. That even these well funded, relatively sovereign companies will be punished for their moonshots and that means the future will be devastating for these magical unicorns.
- sfblah 4y ago
  One wonders what government policies preventing this from happening are doing to the future. I don't have any way to objectively measure this, but my general sense is each day interest rates remain artificially low, the downside becomes greater. I'd be curious if you know a way to quantify this effect.
  - ForHackernews 4y ago
    Interest rates are not being kept "artificially low": central banks have already raised rates, and have signalled that they intend to continue raising rates.
    - sfblah 4y ago
      We'll have to agree to disagree on that one. Here is a 670-year history of interest rates: https://www.visualcapitalist.com/the-history-of-interest-rates-over-670-years/ https://www.visualcapitalist.com/the-history-of-interest-rat... There is a separate book you can read that attempts to go back 2000 years. Interest rates have never been this low in recorded human history, and there's an obvious reason why. The point of interest rates is to compensate the lender for deferring consumption. In a world without government manipulation, it makes no logical sense for a lender to be willing to lend money and receive zero or even negative interest. The US government is artificially keeping interest rates low because recessions have become politically untenable, and the wealthy have totally captured the mechanisms of government. The end result is monetary policy which inflates assets for the wealthy while impoverishing the poor and middle classes. Other countries have been forced to adopt the same policies to avoid their currencies appreciating. Worse yet, government is implicitly and explicitly backstopping and even socializing industries owned by the wealthy through fiscal policy. This is where you get "green energy credits" and "privatizing space," both of which have served only to enrich a couple billionaires. It's the western version of Russian oligarchs.

jjfoooo6 4y ago

Three different flavors of big bet. Meta realizing their core business, while massive, has peaked, loudly reorienting their business around a dubious moonshot bet. Google burning cash in a moonshot division, dubiously betting that creating startups within Google is easier than outside of it. Uber/Lyft subsidizing customers for a long while to take over the market, which... pretty much worked? Of the three "big bets" this seems most promising. Even if the market decreases, it's not going away, nor is it going back to regional taxi companies.

lumost 4y ago
Its worth considering that 3 is actually quite common within large companies as well. I can think of a few industries dominated by big tech that have never turned a profit or even positive free cash flow.
- ghaff 4y ago
  The thing that actually puzzles me is that in the post-Kalanick era, Uber didn't more aggressively pivot to essentially being a taxi company where drivers supply their own vehicles. You've got a working app--how many people do you need to maintain/enhance it? Self-driving isn't happening in an economically interesting time horizon--certainly not reliable door-to-door in cities. So raise prices, cut costs, and have what's a fairly attractive taxi business for many places. Of course, that may not have been what investors wanted to hear.
bin_bash 4y ago
I think you’re right. I couldn’t imagine using taxis when traveling for work ever again. Uber sends the receipt straight into Concur for me. Pre-Uber I remember having to get Taxi drivers to write me a freehand paper receipt to expense.