9 ms·

SoftBank’s losses reveal Masayoshi Son’s broken business model

149 points by herbertl 4y ago

cmurf 4y ago
I read most all the comments, laughing out loud how this is a 180, having the luxury of having also been reading HN for 8+ years. All the naysayers, are vindicated! Many critics said this model was predatory, and anti-competitive, bad for the economy, etc. And were dismissed.
mdasen 4y ago
Has SoftBank/Masayoshi Son really had great results? A lot of SoftBank was built on their Alibaba investment - $20M which grew to $60B. One stellar investment doesn't create a business model. SoftBank's purchase of Vodafone Japan wasn't a bad move, but part of that was Vodafone failing miserably in Japan and wanting to exit the market. SoftBank's purchase of Sprint was a disaster until T-Mobile bought Sprint. Their purchase of ARM hasn't yielded anything big for them. They bought ARM for $32B and even if NVIDIA were able to buy ARM for $40B, that would have been less than a 6% annual return on their investment - way below the market return for 2016-2020. Has there been any big success story for SoftBank beyond their Alibaba investment and purchase of Vodafone Japan (the latter which seems to have have grown at a rate of 8% per year since 2006 which is mediocre at best)? Everything else seems to have been really mediocre or a failure. Uber? It's still losing money and didn't pay off. WeWork? That imploded. Supercell they were able to flip to Tencent for a few billion which was a nice payday, but somewhat small for the size (and bluster) of SoftBank. Didi? That has sunk like a stone. Coupang has fallen a lot since its IPO, but SoftBank is probably still in the black on their investment there - but it's still not a huge success. It just seems like they've had one Alibaba where they turned $20M into $60B (a 3,000x return) and the rest of their picks feel like the types of things your coworkers chat about at lunch. "ARM is going to be huge! Everything is going to be chips in the future and it's all going to be ARM!" "WeWork is the next big thing - space as a service! They're going to take over everything with office space and co-working!" "Uber is going to take over transportation! No more subways, they'll just have these autonomous Ubers going around everywhere!" "Wag is like Uber for dog walking! Everyone will pay for premium dog walking!" I'm not even saying that these are bad businesses, but they seem over-hyped and without special insight. They seem like they're the same level of insight that you get over a lunch conversation with random people at work.
- nprateem 4y ago
  It's great to see validation for the usual advice: just buy an index ETF. Most stock pickers fail to consistently outperform the market.
- fomine3 4y ago
  For mobile network in Japan, it is considered that SoftBank's acquiring WILLCOM (PHS, simple cellular phone operator) and eAccess (also cellular operator) were a smart move. They gained already assigned frequency bands for them. Govt should had stopped it for fairness. Acquiring LINE (messaging service dominant in Japan, and also in some asia countries) looks good move but it is still not monetized well. Investing Yahoo! looks succeeded, perhaps? I don't know when they sold. Investing WeWork is really terrible to see.
  - skinnymuch 4y ago
    Which part of Yahoo do you mean? They bought out a lot more of Yahoo Japan from Yahoo/Altaba before merging it 50/50 with LINE (which you pointed out they owned a significant stake of).
    - fomine3 4y ago
      I mean $YHOO. SB invested for them since 1995 (before IPO) https://group.softbank/news/press/19960412 https://group.softbank/news/press/19960412
- skinnymuch 4y ago
  They sold Uber for a couple billion profit earlier. Their significant stake in Z Holdings, Yahoo Japan and LINE merger, is doing all right too.
tschellenbach 4y ago
Our competitor is funded by SoftBank, fun times :)
StayTrue 4y ago
https://archive.ph/ThILf https://archive.ph/ThILf
potamic 4y ago
> Son’s strategy depended on writing such large checks—to the likes of WeWork, Uber Technologies, and DoorDash—that his portfolio companies would be able to operate at a loss for years, theoretically giving them time to establish market dominance and long-term profits. This right here is the root of the problem. It is so blatantly anti-competitive and cause extensive damage to society. It hurts small businesses, discourages innovation and quality, monopolizes the industry, increases consumer costs in the long runs, it entices investors to eschew fundamentals and gamble on hype. It's just no way to run a stable economy. We as a society need to find a stop to this or it can be disastrous in the long run.
- franciscop 4y ago
  I've heard a saying (living in Tokyo and close to the Startup scene) that if you have a startup and Softbank comes in calling, you better take their investments or they'll bankroll your competition enough to put you out of business.
  - deleted 4y ago
    [deleted]
- throwaway_20357 4y ago
  What's the difference between this and Google offering YouTube or Analytics for free (and at a loss) for years? What's the difference to SaaS companies never turning a profit and operating at a loss for their whole life?
  - tedivm 4y ago
    Analytics is a special case because the metrics they got from it can be fed into their advertising system to better deliver ads. They may have run it "at a loss" but they did it for data that they certainly made a profit off of.
  - mikeryan 4y ago
    Google's a publicly traded company which is profitable in other areas. Search can carry the load financially while they achieve market dominance in other areas. This model is based on removing public market forces on a company while the company bleeds money in order to achieve dominance. W/R/T other SaaS companies doing the same, SaaS startups exit strategies include acquisition that D2C business don't really have. Who's going to be big enough or see enough value in buying Uber/WeWork/Doordash to augment their current offerings? Amazon can't buy them all at the peak of their valuation.
RandomLensman 4y ago
Turns out some things stay loss making longer than you can throw money at it.
dade_ 4y ago
I’ve just resigned from a global Japanese company. Over the years I’ve been completely baffled by their terrible business decisions, but I have a thought about what is going on. This is zero hedge quality stuff here, so don’t make investing decisions, but I am interested if anyone else sees this. The yen keeps dropping/collapsing as the Bank of Japan keeps their interest rates extremely low (made possible by the government of Japan buying their banks bonds, now owner of over 50%, which is insane, but anyway) they need foreign demand for their currency. So they print yen for their corporations, who go on international buying sprees. The profits from these companies are generally settled in USD, but really any foreign currency will do. The effect is that they are printing yen at no charge, their global corps pay virtually no interest, but even the most boneheaded executive can generate a foreign currency profit for head office that requires converting foreign currency into yen. Of course they destroy these companies through incompetence, so they keep buying more. These companies are ridiculously complex with hundreds (possibly thousands) of commercial entities globally so they are probably impossible for anyone to understand, but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate. Anyway, it is a lot of work sorting out what is going on, and I now think the poor financial & business governance is a feature that helps keep the masquerade going.
- P5fRxh5kUvp2th 4y ago
  Gaijin (foreigner) is considered a rude word, just to put it into perspective.
- Nokinside 4y ago
  It seems like your narrative does not match the fact. Current account surplus has been the problem for Japan, not deficit. There has been recent change starting March 2022 has depreciated recently, but it only makes Japanese exports more competitive. Japan's massive public debt is internal in domestic currency.
- xiphias2 4y ago
  While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY). Countries with smaller currencies are even more corrupt of course. While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.
mathverse 4y ago
How is it different from a16z writing 300m check to Neumann or countless other VCs investing in obvious vaporwares or banking on the "winner takes all" approach while burning millions of dollars every year.
- kibwen 4y ago
  It's not. Ironically, the influence of the ultra-mega-wealthy causes so much distortion and irrationality in markets that it ruins the predictive power of those markets and the ability to rely on markets to efficiently allocate resources. It's no longer a functioning system, just a game for the rich to play among themselves.
- deleted 4y ago
  [deleted]
- jussion_zoonist 4y ago
  Is a16z as successful in losing money?
sylware 4y ago
They are still ppl believing in the "magic" of the monetary systems. With sane and honest people running essential companies, I don't know in which twilight dimension enough money would flow to allow all households to make a decent living. Believing the "supply and demand" will "magically" do that is just dangerous. So, expect weird and broken business models (and in many cases, toxic and scammy), just to make the money flow. Personnaly, I have a very hard time with this truth, really.
- mxuribe 4y ago
  > ...Personnaly, I have a very hard time with this truth, really.... You are not alone! When i hear about headlines like this one, and other similar stories, i get hit with exactly one of two feelings: * Run away with my family, sort of diminish my interaqction with capitalism as much as possible, live like a hippy off-grid, etc in some far away gentle, calming forest...away from people. * Or...dive headlong into the world of tech startups and investments and such, and do all the crappy things that others do...make big, souless money (money bigger than my poor immigrant parents would ever dream of) running numerous firms that add little value to overall society...and then inevitably feel absolutely miserable with myself and lose my soul. Oh sure, i hear people say that i'm a doom-naysayer, and that there exists hapopy layers where one can make a living, be comfortable and be content with the company that one works for...but i've yet to see that. Then again, sorry, maybe i'm having a case of the mondays. :-(
  - h2odragon 4y ago
    With the hippie forest life; you get to have a big pack of dogs and spend time playing with them. the other options leave less time, even for playing with your family. I say bolt for the woods ASAP.
    - mxuribe 4y ago
      Lol I have never wanted a "big pack of dogs" until your comment today! Clearly I would have to establish a sort of compound in the forest for my family and my dogs! I love it already!
mrkramer 4y ago
>Son invested $300 million in Wag! (Uber, but for dog walking) Holy shit wtf No wonder he is losing billions left and right. It seems like dot-com bubble mentality didn't leave his head.
- bemmu 4y ago
  He seems to be (intentionally or not) applying the angel investing mentality on a larger scale. Not expecting each of these companies to work out, but having an outlier or two that covers the whole $100B+ fund. In that case these early losses would be expected, as companies that implode tend to do so quickly, with the winners only emerging many years later (it's only been 5 years).
  - mrkramer 4y ago
    Sure one colossal gain on investment can recoup all bad investments but if you are responsible investor you don't throw $300 million at pets.com like ideas. If idea sounds cool on the paper it doesn't mean it will work in the real life necessarily.
    - ergocoder 4y ago
      Yeah, Son is pushing the limit of diversifying. 300m in Wag and billions in Wework? Maybe it doesn't matter because it is the stupid money from Saudi. But he is destroying his reputation and Softbank's. But then again the reputation might not matter since they have stupidly huge money.
      - postsantum 4y ago
        Was it a long game of repatriating Saudi's money back to the west?
        brutusborn 4y ago
        Kind of like Neom's contractors but a few orders of magnitude bigger gravy-train. I like to believe it too, thinking about Saud's getting fleeced is very satisfying.
rr888 4y ago
Isn't this the whole business model of SV in the last 20 years? Dump huge amounts of money into non-profitable companies with the hopes that someone will buy them later.
- Enginerrrd 4y ago
  Realistically, I'd say it's been full swing for more like the last 15 years. ...But I think it's just not a viable long term strategy. During boom times, and when new technologies arise with significant disruption potential, it's not a bad strategy. But... I think it's naive to assume that model will work linearly forever. The economy ebbs and flows, and periods of innovation seems to as well.
- deleted 4y ago
  [deleted]

149 points by herbertl 4y ago

I read most all the comments, laughing out loud how this is a 180, having the luxury of having also been reading HN for 8+ years. All the naysayers, are vindicated! Many critics said this model was predatory, and anti-competitive, bad for the economy, etc. And were dismissed.

mdasen 4y ago

Has SoftBank/Masayoshi Son really had great results? A lot of SoftBank was built on their Alibaba investment - $20M which grew to $60B. One stellar investment doesn't create a business model. SoftBank's purchase of Vodafone Japan wasn't a bad move, but part of that was Vodafone failing miserably in Japan and wanting to exit the market. SoftBank's purchase of Sprint was a disaster until T-Mobile bought Sprint. Their purchase of ARM hasn't yielded anything big for them. They bought ARM for $32B and even if NVIDIA were able to buy ARM for $40B, that would have been less than a 6% annual return on their investment - way below the market return for 2016-2020. Has there been any big success story for SoftBank beyond their Alibaba investment and purchase of Vodafone Japan (the latter which seems to have have grown at a rate of 8% per year since 2006 which is mediocre at best)? Everything else seems to have been really mediocre or a failure. Uber? It's still losing money and didn't pay off. WeWork? That imploded. Supercell they were able to flip to Tencent for a few billion which was a nice payday, but somewhat small for the size (and bluster) of SoftBank. Didi? That has sunk like a stone. Coupang has fallen a lot since its IPO, but SoftBank is probably still in the black on their investment there - but it's still not a huge success. It just seems like they've had one Alibaba where they turned $20M into $60B (a 3,000x return) and the rest of their picks feel like the types of things your coworkers chat about at lunch. "ARM is going to be huge! Everything is going to be chips in the future and it's all going to be ARM!" "WeWork is the next big thing - space as a service! They're going to take over everything with office space and co-working!" "Uber is going to take over transportation! No more subways, they'll just have these autonomous Ubers going around everywhere!" "Wag is like Uber for dog walking! Everyone will pay for premium dog walking!" I'm not even saying that these are bad businesses, but they seem over-hyped and without special insight. They seem like they're the same level of insight that you get over a lunch conversation with random people at work.

nprateem 4y ago
It's great to see validation for the usual advice: just buy an index ETF. Most stock pickers fail to consistently outperform the market.
fomine3 4y ago
For mobile network in Japan, it is considered that SoftBank's acquiring WILLCOM (PHS, simple cellular phone operator) and eAccess (also cellular operator) were a smart move. They gained already assigned frequency bands for them. Govt should had stopped it for fairness. Acquiring LINE (messaging service dominant in Japan, and also in some asia countries) looks good move but it is still not monetized well. Investing Yahoo! looks succeeded, perhaps? I don't know when they sold. Investing WeWork is really terrible to see.
- skinnymuch 4y ago
  Which part of Yahoo do you mean? They bought out a lot more of Yahoo Japan from Yahoo/Altaba before merging it 50/50 with LINE (which you pointed out they owned a significant stake of).
  - fomine3 4y ago
    I mean $YHOO. SB invested for them since 1995 (before IPO) https://group.softbank/news/press/19960412 https://group.softbank/news/press/19960412
skinnymuch 4y ago
They sold Uber for a couple billion profit earlier. Their significant stake in Z Holdings, Yahoo Japan and LINE merger, is doing all right too.

tschellenbach 4y ago

Our competitor is funded by SoftBank, fun times :)

StayTrue 4y ago

https://archive.ph/ThILf https://archive.ph/ThILf

potamic 4y ago

> Son’s strategy depended on writing such large checks—to the likes of WeWork, Uber Technologies, and DoorDash—that his portfolio companies would be able to operate at a loss for years, theoretically giving them time to establish market dominance and long-term profits. This right here is the root of the problem. It is so blatantly anti-competitive and cause extensive damage to society. It hurts small businesses, discourages innovation and quality, monopolizes the industry, increases consumer costs in the long runs, it entices investors to eschew fundamentals and gamble on hype. It's just no way to run a stable economy. We as a society need to find a stop to this or it can be disastrous in the long run.

franciscop 4y ago
I've heard a saying (living in Tokyo and close to the Startup scene) that if you have a startup and Softbank comes in calling, you better take their investments or they'll bankroll your competition enough to put you out of business.
- deleted 4y ago
  [deleted]
throwaway_20357 4y ago
What's the difference between this and Google offering YouTube or Analytics for free (and at a loss) for years? What's the difference to SaaS companies never turning a profit and operating at a loss for their whole life?
- tedivm 4y ago
  Analytics is a special case because the metrics they got from it can be fed into their advertising system to better deliver ads. They may have run it "at a loss" but they did it for data that they certainly made a profit off of.
- mikeryan 4y ago
  Google's a publicly traded company which is profitable in other areas. Search can carry the load financially while they achieve market dominance in other areas. This model is based on removing public market forces on a company while the company bleeds money in order to achieve dominance. W/R/T other SaaS companies doing the same, SaaS startups exit strategies include acquisition that D2C business don't really have. Who's going to be big enough or see enough value in buying Uber/WeWork/Doordash to augment their current offerings? Amazon can't buy them all at the peak of their valuation.

RandomLensman 4y ago

Turns out some things stay loss making longer than you can throw money at it.

dade_ 4y ago

I’ve just resigned from a global Japanese company. Over the years I’ve been completely baffled by their terrible business decisions, but I have a thought about what is going on. This is zero hedge quality stuff here, so don’t make investing decisions, but I am interested if anyone else sees this. The yen keeps dropping/collapsing as the Bank of Japan keeps their interest rates extremely low (made possible by the government of Japan buying their banks bonds, now owner of over 50%, which is insane, but anyway) they need foreign demand for their currency. So they print yen for their corporations, who go on international buying sprees. The profits from these companies are generally settled in USD, but really any foreign currency will do. The effect is that they are printing yen at no charge, their global corps pay virtually no interest, but even the most boneheaded executive can generate a foreign currency profit for head office that requires converting foreign currency into yen. Of course they destroy these companies through incompetence, so they keep buying more. These companies are ridiculously complex with hundreds (possibly thousands) of commercial entities globally so they are probably impossible for anyone to understand, but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate. Anyway, it is a lot of work sorting out what is going on, and I now think the poor financial & business governance is a feature that helps keep the masquerade going.

P5fRxh5kUvp2th 4y ago
Gaijin (foreigner) is considered a rude word, just to put it into perspective.
Nokinside 4y ago
It seems like your narrative does not match the fact. Current account surplus has been the problem for Japan, not deficit. There has been recent change starting March 2022 has depreciated recently, but it only makes Japanese exports more competitive. Japan's massive public debt is internal in domestic currency.
xiphias2 4y ago
While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY). Countries with smaller currencies are even more corrupt of course. While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.

mathverse 4y ago

How is it different from a16z writing 300m check to Neumann or countless other VCs investing in obvious vaporwares or banking on the "winner takes all" approach while burning millions of dollars every year.

kibwen 4y ago
It's not. Ironically, the influence of the ultra-mega-wealthy causes so much distortion and irrationality in markets that it ruins the predictive power of those markets and the ability to rely on markets to efficiently allocate resources. It's no longer a functioning system, just a game for the rich to play among themselves.
deleted 4y ago
[deleted]
jussion_zoonist 4y ago
Is a16z as successful in losing money?

sylware 4y ago

They are still ppl believing in the "magic" of the monetary systems. With sane and honest people running essential companies, I don't know in which twilight dimension enough money would flow to allow all households to make a decent living. Believing the "supply and demand" will "magically" do that is just dangerous. So, expect weird and broken business models (and in many cases, toxic and scammy), just to make the money flow. Personnaly, I have a very hard time with this truth, really.

mxuribe 4y ago
> ...Personnaly, I have a very hard time with this truth, really.... You are not alone! When i hear about headlines like this one, and other similar stories, i get hit with exactly one of two feelings: * Run away with my family, sort of diminish my interaqction with capitalism as much as possible, live like a hippy off-grid, etc in some far away gentle, calming forest...away from people. * Or...dive headlong into the world of tech startups and investments and such, and do all the crappy things that others do...make big, souless money (money bigger than my poor immigrant parents would ever dream of) running numerous firms that add little value to overall society...and then inevitably feel absolutely miserable with myself and lose my soul. Oh sure, i hear people say that i'm a doom-naysayer, and that there exists hapopy layers where one can make a living, be comfortable and be content with the company that one works for...but i've yet to see that. Then again, sorry, maybe i'm having a case of the mondays. :-(
- h2odragon 4y ago
  With the hippie forest life; you get to have a big pack of dogs and spend time playing with them. the other options leave less time, even for playing with your family. I say bolt for the woods ASAP.
  - mxuribe 4y ago
    Lol I have never wanted a "big pack of dogs" until your comment today! Clearly I would have to establish a sort of compound in the forest for my family and my dogs! I love it already!

mrkramer 4y ago

>Son invested $300 million in Wag! (Uber, but for dog walking) Holy shit wtf No wonder he is losing billions left and right. It seems like dot-com bubble mentality didn't leave his head.

bemmu 4y ago
He seems to be (intentionally or not) applying the angel investing mentality on a larger scale. Not expecting each of these companies to work out, but having an outlier or two that covers the whole $100B+ fund. In that case these early losses would be expected, as companies that implode tend to do so quickly, with the winners only emerging many years later (it's only been 5 years).
- mrkramer 4y ago
  Sure one colossal gain on investment can recoup all bad investments but if you are responsible investor you don't throw $300 million at pets.com like ideas. If idea sounds cool on the paper it doesn't mean it will work in the real life necessarily.
  - ergocoder 4y ago
    Yeah, Son is pushing the limit of diversifying. 300m in Wag and billions in Wework? Maybe it doesn't matter because it is the stupid money from Saudi. But he is destroying his reputation and Softbank's. But then again the reputation might not matter since they have stupidly huge money.
    - postsantum 4y ago
      Was it a long game of repatriating Saudi's money back to the west?
      - brutusborn 4y ago
        Kind of like Neom's contractors but a few orders of magnitude bigger gravy-train. I like to believe it too, thinking about Saud's getting fleeced is very satisfying.

rr888 4y ago

Isn't this the whole business model of SV in the last 20 years? Dump huge amounts of money into non-profitable companies with the hopes that someone will buy them later.

Enginerrrd 4y ago
Realistically, I'd say it's been full swing for more like the last 15 years. ...But I think it's just not a viable long term strategy. During boom times, and when new technologies arise with significant disruption potential, it's not a bad strategy. But... I think it's naive to assume that model will work linearly forever. The economy ebbs and flows, and periods of innovation seems to as well.
deleted 4y ago
[deleted]