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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,

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.
        ninkendo 3y ago
        No, these can both be true. Uber can charge users less than they pay the drivers (losing money on rides) while still paying drivers less than the drivers' total costs. Like if I take an Uber somewhere, Uber charges me $10, pays the driver $15, and the driver's actual costs are $20 (gas, wear/tear, whatever.) Not saying whether or not this actually happened, only that it's mathematically totally possible.
  - tshaddox 3y ago
    Eh, the money is fungible though. It’s still VC funding the massive growth of the company in order to “disrupt” (which actually means “extract value as fast as possible from drivers’ vehicles, insurance impropriety, etc.”).
jjeaff 3y ago
The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. Both through scale and advances in technology. Which is true. But rarely true to the extent to which they believe it.
- bananapub 3y ago
  > The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. did you not read the article? the entire thing premise is that is not true and there are negative externalities and incentives even if the company doesn't ever make a profit.
  - qwytw 3y ago
    Well to be fair Uber is almost profitable at this point (just -1.78% net margin) so if they actually wanted to they could be profitable in a quarter or two..
- pydry 3y ago
  It's a bet not a lie, theyre betting that they can squeeze out competition and jack up ride prices and jack down wages. It's a rather sickening bet though. One would hope they'd lose.
- nobody9999 3y ago
  >The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. Both through scale and advances in technology. Which is true. But rarely true to the extent to which they believe it. Uber and other folks who sell whatever it is they sell at a loss -- with no real expectation (other than driving their competition out of business so they can then hike prices well beyond where those who can actually make a profit charge) always reminds me of this[0]. The ridiculous part is that the link below was a parody when created. Now it's a "business model." Sigh. [0] https://www.youtube.com/watch?v=KodqIPMbyUg https://www.youtube.com/watch?v=KodqIPMbyUg
- 3y ago
danielmarkbruce 3y ago
There certainly is nuance. There is nothing magical about marginal costs - if someone is pricing something at break even or 1% gross margin and never have any hope of running a profitable business at that price because of their fixed costs, it's not different from a competitive perspective - the price is unsustainable. On top of that, there is nuance as to what goes into fixed v variable, how fixed fixed really is, how good your management accounting system is, how good you are at predicting things like product recalls, or insurance losses, or loan recoveries, or whatever other variables are part of your particular business.
8ytecoder 3y ago
They don’t even hide this fact. That’s pretty much the unstated goal behind funds like SoftBank funding startups at well above what the startups even ask for.
deleted 3y ago
[deleted]
TuringNYC 3y ago
>> 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. Even these things get played. Sometimes driver/rider subsidies get classified as "Marketing expense" rather than cost of goods sold.
qwytw 3y ago
> 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. Well yes, because they are selling software or other products which require a very high investment into R&D and have minimal marginal cost... Other markets don't work like that so I don't think this is particularly relevant especially considering the a huge proportion or the majority of those startups (which received the most VC money) are yet to turn a profit (until they do it's still 'dumping' in this sense).
- s1artibartfast 3y ago
  The same phenomenon takes place in traditional Industries as well without VC investors. If an established company comes out with the new product, say a medical device, it might not be profitable until they get their sale volumes up. I think the key difference is how the price for the sold good changes over time, not the net profit for sales. If Your business model is to hold price relatively constant, but only see a profit when you hit your target market share, that's not dumping. It becomes dumping if your business plan is to capture Market share at a low price, and then ratchet up your price once you have displaced competitors.
93po 3y ago
> 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. Many startups and new projects operate with effectively zero revenue until critical mass, at which point they start charging. Youtube, Meetup, Reddit, G Suite, facebook, craigslist, twitter, linkedin. The list goes forever. These all started as free services without any meaningful revenue. I don't see any difference between these platforms and Uber, which while not free, is also selling below costs.

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.
      - ninkendo 3y ago
        No, these can both be true. Uber can charge users less than they pay the drivers (losing money on rides) while still paying drivers less than the drivers' total costs. Like if I take an Uber somewhere, Uber charges me $10, pays the driver $15, and the driver's actual costs are $20 (gas, wear/tear, whatever.) Not saying whether or not this actually happened, only that it's mathematically totally possible.
- tshaddox 3y ago
  Eh, the money is fungible though. It’s still VC funding the massive growth of the company in order to “disrupt” (which actually means “extract value as fast as possible from drivers’ vehicles, insurance impropriety, etc.”).

jjeaff 3y ago

The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. Both through scale and advances in technology. Which is true. But rarely true to the extent to which they believe it.

bananapub 3y ago
> The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. did you not read the article? the entire thing premise is that is not true and there are negative externalities and incentives even if the company doesn't ever make a profit.
- qwytw 3y ago
  Well to be fair Uber is almost profitable at this point (just -1.78% net margin) so if they actually wanted to they could be profitable in a quarter or two..
pydry 3y ago
It's a bet not a lie, theyre betting that they can squeeze out competition and jack up ride prices and jack down wages. It's a rather sickening bet though. One would hope they'd lose.
nobody9999 3y ago
>The only issue is that companies like Uber are lying to themselves and their investors that costs will go down significantly in the future. Both through scale and advances in technology. Which is true. But rarely true to the extent to which they believe it. Uber and other folks who sell whatever it is they sell at a loss -- with no real expectation (other than driving their competition out of business so they can then hike prices well beyond where those who can actually make a profit charge) always reminds me of this[0]. The ridiculous part is that the link below was a parody when created. Now it's a "business model." Sigh. [0] https://www.youtube.com/watch?v=KodqIPMbyUg https://www.youtube.com/watch?v=KodqIPMbyUg
3y ago

danielmarkbruce 3y ago

There certainly is nuance. There is nothing magical about marginal costs - if someone is pricing something at break even or 1% gross margin and never have any hope of running a profitable business at that price because of their fixed costs, it's not different from a competitive perspective - the price is unsustainable. On top of that, there is nuance as to what goes into fixed v variable, how fixed fixed really is, how good your management accounting system is, how good you are at predicting things like product recalls, or insurance losses, or loan recoveries, or whatever other variables are part of your particular business.

8ytecoder 3y ago

They don’t even hide this fact. That’s pretty much the unstated goal behind funds like SoftBank funding startups at well above what the startups even ask for.

deleted 3y ago

[deleted]

TuringNYC 3y ago

>> 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. Even these things get played. Sometimes driver/rider subsidies get classified as "Marketing expense" rather than cost of goods sold.

qwytw 3y ago

> 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. Well yes, because they are selling software or other products which require a very high investment into R&D and have minimal marginal cost... Other markets don't work like that so I don't think this is particularly relevant especially considering the a huge proportion or the majority of those startups (which received the most VC money) are yet to turn a profit (until they do it's still 'dumping' in this sense).

s1artibartfast 3y ago
The same phenomenon takes place in traditional Industries as well without VC investors. If an established company comes out with the new product, say a medical device, it might not be profitable until they get their sale volumes up. I think the key difference is how the price for the sold good changes over time, not the net profit for sales. If Your business model is to hold price relatively constant, but only see a profit when you hit your target market share, that's not dumping. It becomes dumping if your business plan is to capture Market share at a low price, and then ratchet up your price once you have displaced competitors.

93po 3y ago

> 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. Many startups and new projects operate with effectively zero revenue until critical mass, at which point they start charging. Youtube, Meetup, Reddit, G Suite, facebook, craigslist, twitter, linkedin. The list goes forever. These all started as free services without any meaningful revenue. I don't see any difference between these platforms and Uber, which while not free, is also selling below costs.