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In international trade this is called “dumping”, and it’s often considered illegal and most definitely unfair It’s usually used as a reason for regulating impo

• brookst 3y ago
  Eh, there is alot more nuance here. Dumping is typically when an established company attacks a competitor with temporarily low prices. If you squint right, sure, VC backed low costs could be seen as dumping. But the problem is that also means virtually every startup is dumping, even bootstrapped garage efforts. And I guess any company that reports a quarterly loss is also dumping. So I think it probably makes sense to treat VC-subsidized startups as a different economic phenomenon that needs different rules than if e.g. Goodyear sells tires at far below cost in California until competitors leave and then they raise the price.
  • lesuorac 3y ago
    I don't think you have to squint very hard to see VC as dumping. It's why they all follow that common trend of low-price growth hacking and immediately follow up by raising prices.
    • derefr 3y ago
      > It's why they all follow that common trend of low-price growth hacking and immediately follow up by raising prices. The key difference is that startups are rarely selling the same product, to the same people, for different prices at different phases of growth. They're more often selling different products, with different positioning, to different market segments at different times in their growth; where they just happen to call those products "editions" of the same thing. A common startup lifecycle: 1. get seed capital to build an MVP targeting one distinct market (usually consumers or individual professionals); 2. market (or give away) your consumer-product MVP to price-sensitive early adopters (which is where the initial look of "giving it away" comes from — that's what this market segment demands); 3. wait for those early adopters to educate the rest of the market about what's cool about the product and the brand; 4. meanwhile, use the "social proof" (rather than earnings reports) from these early adopters, as leverage to get a Series A investment; and use it to build a separate, more polished product targeting the enterprise market; 5. use your enterprise product, in combination with a bunch of new sales staff, to reach the non-price-sensitive late adopters. (While continuing to sell/give away the MVP consumer version!) 6. At some point, after achieving traction in both product lines, you can also "trickle down" the benefits of the enterprise product — and integrate process, saving OpEx — by building a new version of the MVP [now "consumer/SMB" product line] using the enterprise product's technology. (It's still a separate product, though, not just a feature-limited version of the enterprise product — there are a lot of things enterprises want that actively get in the way for consumers.) This is less like Goodyear charging less for tires until they monopolize the market; and more like Goodyear starting off selling car tires, achieving brand recognition there, and then making all their real money by selling semi-truck tires. A clear example of all six phases (but with bootstrapping in place of VC investment): Microsoft built initial versions of Windows for consumers, at retail prices (or "given away" via OEM channel-partners with steep volume discounts); achieved reach; then reinvested the revenue from that to build a more polished and robust Windows NT for enterprises, and made big money from non-discounted enterprise volume licensing; then "trickled down" the technology from Windows NT to create Windows XP, with the consumer/SMB product now just an "edition" of Windows XP.
      • deleted 3y ago
        [deleted]
      • dboreham 3y ago
        That analysis of Windows history is fiction. Plausible business school fiction but fiction nevertheless.
        • paulddraper 3y ago
          What part is incorrect?
          • Eisenstein 3y ago
            I am not the person who replied to you and I don't know to what extent that tale is fiction, but MS was enormously profitable selling Windows to OEMs and consumers before NT became a major force. NT was more of a response to OS/2 than it was some grand plan at grabbing the enterprise market that was hatched years earlier.
          • winphone1974 3y ago
            Analysis without facts can be refuted without facts.
      • winphone1974 3y ago
        This history is a pretty convenient interpretation. MS mad big money on their OEM deals and this is after they were all ready being paid for each IBM machine. They were also 10-15 years old at this point
  • nathan_compton 3y ago
    "even bootstrapped garage efforts" this doesn't seem to follow. Bootstrapped efforts don't have the funding to absorb a lot of loss to get market share. They have to make a product people will pay for, typically.
    • CTmystery 3y ago
      Your parent is confused. There's a difference between absorbing losses to stay alive while you try to get a product to market and deliberately losing money per sale because you want to drive the competitor out of business. No squinting required.
  • ethbr0 3y ago
    > different economic phenomenon that needs different rules than if e.g. Goodyear sells tires at far below cost in California until competitors leave and then they raise the price. What's the end game to VC subsidies? There are many VC-backed businesses where 'Scale until you become profitable' is the end goal. But there are also many where 'Outlast until competitors leave and then raise the price' is the only plausible profitable future.
    • Aunche 3y ago
      > What's the end game to VC subsidies? I don't think VC's give a damn about long-term profitability. All they want to do is to trick later investors into buying them out. I can't think of a single one of these types of companies that has had a profitable year* let alone make enough profit to recoup their losses. *I'm excluding AirBNB because their prices are cheap by operating in a legal gray-zone.
      • xp84 3y ago
        *Citation needed-- ABNB is so expensive these days, although they won't disclose half the cost until the final phase of checkout!
        • pixl97 3y ago
          That's two slightly different things... Not showing you the price actually makes it more profitable for the end user, not directly for Abnb. By showing price in this way Abnb attracts you, then the end user scams you for a higher price. But this is different from the 'legal grey zone' OP was talking about. The Abnb hosts should likely be paying local taxes/fees for operating as a short term rental, in which if they were doing so the final costs to rent an Abnb would be higher in most jurisdictions.
          • lazide 3y ago
            Also, the hosts should be meeting a number of zoning rules (if we’re being honest), meeting building codes for safety, etc, etc. If they put a sign on the side of the road or in front of their place, they’d get shut down post haste, but because it’s online it’s easier to turn a blind eye and ask forgiveness, not permission.
  • conjecTech 3y ago
    No, there isn't much nuance here. Accounting has notions of fixed costs and marginal costs. The startups you are referring almost all lose money on fixed costs, but sell things at per-unit economics which make sense at scale because they are below marginal cost/COGS. Things like Uber are a typical dumping cases. For years, they charged below their COGS and eventual profitability depended on driving out competition and raising prices.
    • SOLAR_FIELDS 3y ago
      Circa 2015, Uber charged roughly $30 USD for a trip to the airport from my house. Now it is usually between $60 and $70. There has been significant inflation, but $30 in 2015 is only worth about $38 today.
      • jeffbee 3y ago
        The source of Uber's dumping wasn't chiefly VC funds, though. Uber's ability to price below market was mostly funded by the residual value of their drivers' vehicles.
        • mrguyorama 3y ago
          Uber was charging riders less than they paid drivers for a long time. That's not "residual in the drivers car", that's subsidizing their drivers
          • dboreham 3y ago
            It's both because they also weren't paying drivers enough to cover their (actual) costs.
            • winphone1974 3y ago
              That doesn't make sense. If the drivers were operating at a loss they were subsidizing Uber, not the other way around.
  • potatolicious 3y ago
    Ehhh I dunno if it's really that nuanced. Companies that are unprofitable, but who sell goods/services above direct costs, are relatively (though of course never totally) safe from the accusation of dumping. i.e., if you sell a widget for more than it costs to manufacture, but unprofitable after you account for indirect costs like R&D and other corporate costs, it may or may not be dumping. The VC-backed companies like Uber weren't doing this. They were unprofitable even under the standard of price > direct cost. That's pretty cut and dry dumping. "Scale until you become profitable" in the traditional (and IMO defensible and sound business) sense is about scaling until your margins cover your fixed and indirect costs like R&D (see: Google, Facebook), but that's not the Uber model.
  • fakedang 3y ago
    There's a clear difference in trade economics between eating initial losses as a risk to acquire customers (which every company does, including the one man food truck by your street), and doing it with a fat war chest backing it with the only goal being to wipe out the competition. Garage startups aren't looking to wipe out the competition (yet), unlike the likes of Google and Uber.
  • waboremo 3y ago
    Not sure how you reach the conclusion that bootstrapped garage efforts would equate to dumping under these conditions. Bootstrapped garage efforts, unlike VC backed, have very little if any runway. They can't afford to.
  • deleted 3y ago
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  • paulddraper 3y ago
    The difference between dumping vs not-dumping is the permanence and sustainability of the price. If widgets costs you $12 to make and you sell them for $10, you are currently running at a loss. If you plan to continue selling them at that price and reduce your costs to $8, that's okay. Whereas if you plan to later raise your price to $15, you're dumping. Though if you plan to develop super-widgets and sell those for $15, that's okay. --- Hopefully that makes sense. That said, a frequent issue is overestimating margins (intentionally or unintentionally). Uber underestimates their fundamental costs, so (intentionally or unintentionally) are dumping.
  • lazide 3y ago
    Hahahaha, ‘everyone does it therefore it isn’t what it obviously is’ is….. pretty funny. I get why you’re saying it, we’re profiting from it (kinda?), but a spade is still a spade when it’s shaped exactly like a spade, used for digging, etc. regardless of what label marketing slapped on it. There is a bit of a difference here in that it is private vs gov’t backed (kinda, unless you count fed printing money as gov’t backing, which it wouldn’t require much squinting to do).
  • guywithahat 3y ago
    I agree, I think dumping makes more sense when a government is helping and industry produce temporarily low priced goods to kill competitors, as would sometimes happen with China. Even a big company like Amazon has a much more finite amount of resources than a government
  • rossdavidh 3y ago
    I have heard "dumping" used typically when a foreign company is trying to gain market share by driving domestic competitors under. So, while they are typically established companies, they're not established in that market. Anyway, the essence of it is that running at a loss for a while in order to drive your competitors out of business, then raise the prices, is widely recognized as the kind of market practice that the government is justified in taking action against.
• tootie 3y ago
  We also call it "selling dollars for fifty cents"
  • eastbound 3y ago
    “We lose on every item but we make it up with scale.” — the show “Silicon Valley”
    • loa_in_ 3y ago
      Which doesn't really make sense unless you interpret it as "we make it up with growth."
      • lotsofpulp 3y ago
        It makes sense in the context that the TV show is a comedy, so the line is supposed to be nonsense.
        • quesera 3y ago
          And it's a very old joke. Surely not the first, but old enough to make the point: > 7 May 1934, Lewiston (ID) Morning Tribune, “News Behind the News” by Paul Mallon, pg. 4, col. 4: > The oil men were acting like the peddler who lost money on every sale but tried to make it up on volume.
• nickpp 3y ago
  Fascinating story of how Dow fought a dumping competitor: "In 1905, German bromide producers began dumping bromides at low cost in the U.S. in an effort to prevent Dow from expanding its sales of bromides in Europe. Instead of competing directly for market share with the German producers, Dow bought the cheap German-made bromides and shipped them back to Europe." https://en.wikipedia.org/wiki/Dow_Chemical_Company https://en.wikipedia.org/wiki/Dow_Chemical_Company
• wslh 3y ago
  Startups play the game of customer acquisition costs above the revenue all the time. If we want to discuss this issues we need to skip cherry picking.