4 ms·

I bet that the companies on this list that actually make good-old-fashioned material things, like Nanosolar, pay off triple the average return of the Net startu

by Eliezer 18y ago

I bet that the companies on this list that actually make good-old-fashioned material things, like Nanosolar, pay off triple the average return of the Net startups.

axod 18y ago
I'm not sure solar has really taken off big time yet has it? Surely there is a massive investment into research+design before any return is seen?
- DaniFong 18y ago
  Solar is pretty much in the process of taking off. The world market grew by 62% year over year last year. http://www.solarbuzz.com/Marketbuzz2008-intro.htm http://www.solarbuzz.com/Marketbuzz2008-intro.htm
nostrademons 18y ago
I'm really tempted to take that bet... The virtue of web startups is that marginal costs are effectively zero. So once you've paid off your fixed costs (i.e. have basically any revenue model that actually works), you're profitable. If something like FaceBook, with $150M in revenues, is not profitable, it's usually because they're empire builders and hire many more people than they actually need to keep the site going. That's easily fixed by laying off people. Solar companies, in addition to having large R&D costs, also have large variable costs. And they're competing against fairly low-cost alternatives, like oil and natural gas. To be profitable, their variable costs need to undercut oil prices, and they need to have enough left over to pay for R&D, overhead, and cost of capital. "Make something people want" is only a golden rule of startup success in software. For everything else, it's "Make something people want, cheaply".
- potatolicious 18y ago
  Web startups have costs that are far from zero - as your example mentions, Facebook is not profitable because they retain too many people - but it is precisely their large work force that maintains their competitive lead in the social networking sphere. If they pared down their headcount to merely "sustain the server farms and fix bugs" size the company would disappear very quickly, having been out-done by someone else. They're not empire building, they're doing what they need to survive. The lack of costs on the web is precisely why web startups have some of the highest costs of all. Hosting is cheap, bandwidth is almost free. The only way Facebook avoids being out-done by two college kids in a garage is because they have big money backing them, and are building out like mad. On the flip side, traditional startups sell something that is of intrinsic worth. Most web apps have very little intrinsic worth, and is easy substituted - they have no patent-protected edge over the competition, and the COST of cloning an innovative feature is FAR less than the cost to reverse-engineer an ingenious new solar panel.
  - nostrademons 18y ago
    Right, but they have variable costs that are close to zero, i.e. the marginal cost of servicing one extra customer is zero. (In practice, it's a bit more than that - you're looking at fractions of a cent for bandwidth, servers, ops people to maintain those servers, etc.) I worked it out for my startup, based on previous websites that have gotten traffic, and it came to something like $1/month/200 registered users, or $0.05 CPM. Their fixed costs are high, but usually VCs invest to pay those fixed costs, after the startup has already started getting traction.
    - potatolicious 18y ago
      That may be true - and I would agree with you if the startup in question was selling a service to paying customers - e.g. eBay or Amazon. The cost of supporting an extra customer is quite small in their cases, and being online certainly gives them an advantage over brick and mortars. The problem is that most web startups don't sell anything. They give their most valuable work away for free in the vain hope that showing ads or selling premium accounts will magically rescue them from inevitable collapse. If you're not making any significant amount of money off a single user, it doesn't really matter HOW low your marginal cost is, you're still screwed. I have very little faith in companies like Facebook, LinkedIn, and the such - their per-user costs are ridiculously low, but so is their per-user revenue.

by Eliezer 18y ago

I bet that the companies on this list that actually make good-old-fashioned material things, like Nanosolar, pay off triple the average return of the Net startups.

axod 18y ago

I'm not sure solar has really taken off big time yet has it? Surely there is a massive investment into research+design before any return is seen?

DaniFong 18y ago
Solar is pretty much in the process of taking off. The world market grew by 62% year over year last year. http://www.solarbuzz.com/Marketbuzz2008-intro.htm http://www.solarbuzz.com/Marketbuzz2008-intro.htm

nostrademons 18y ago

I'm really tempted to take that bet... The virtue of web startups is that marginal costs are effectively zero. So once you've paid off your fixed costs (i.e. have basically any revenue model that actually works), you're profitable. If something like FaceBook, with $150M in revenues, is not profitable, it's usually because they're empire builders and hire many more people than they actually need to keep the site going. That's easily fixed by laying off people. Solar companies, in addition to having large R&D costs, also have large variable costs. And they're competing against fairly low-cost alternatives, like oil and natural gas. To be profitable, their variable costs need to undercut oil prices, and they need to have enough left over to pay for R&D, overhead, and cost of capital. "Make something people want" is only a golden rule of startup success in software. For everything else, it's "Make something people want, cheaply".

potatolicious 18y ago
Web startups have costs that are far from zero - as your example mentions, Facebook is not profitable because they retain too many people - but it is precisely their large work force that maintains their competitive lead in the social networking sphere. If they pared down their headcount to merely "sustain the server farms and fix bugs" size the company would disappear very quickly, having been out-done by someone else. They're not empire building, they're doing what they need to survive. The lack of costs on the web is precisely why web startups have some of the highest costs of all. Hosting is cheap, bandwidth is almost free. The only way Facebook avoids being out-done by two college kids in a garage is because they have big money backing them, and are building out like mad. On the flip side, traditional startups sell something that is of intrinsic worth. Most web apps have very little intrinsic worth, and is easy substituted - they have no patent-protected edge over the competition, and the COST of cloning an innovative feature is FAR less than the cost to reverse-engineer an ingenious new solar panel.
- nostrademons 18y ago
  Right, but they have variable costs that are close to zero, i.e. the marginal cost of servicing one extra customer is zero. (In practice, it's a bit more than that - you're looking at fractions of a cent for bandwidth, servers, ops people to maintain those servers, etc.) I worked it out for my startup, based on previous websites that have gotten traffic, and it came to something like $1/month/200 registered users, or $0.05 CPM. Their fixed costs are high, but usually VCs invest to pay those fixed costs, after the startup has already started getting traction.
  - potatolicious 18y ago
    That may be true - and I would agree with you if the startup in question was selling a service to paying customers - e.g. eBay or Amazon. The cost of supporting an extra customer is quite small in their cases, and being online certainly gives them an advantage over brick and mortars. The problem is that most web startups don't sell anything. They give their most valuable work away for free in the vain hope that showing ads or selling premium accounts will magically rescue them from inevitable collapse. If you're not making any significant amount of money off a single user, it doesn't really matter HOW low your marginal cost is, you're still screwed. I have very little faith in companies like Facebook, LinkedIn, and the such - their per-user costs are ridiculously low, but so is their per-user revenue.