I was working on fundraising materials for a client that was just-about-to-get-a-term-sheet when lockdown happened. They were reliant on airports and the likelihood of any deal closing soon is slim.
Once I detached myself from the project, I took a good look at my financial models. For every $50 the client took in bookings, they had to pass $30 to operators, spend $9 on marketing, 5$ on refunds, and $7 on overheads.
The assumption was while operator payouts grew linearly, marketing, refunds and overheads grew sub-linearly. There is going to be this nice breakeven point when everything is going to make sense, if only they procure enough capital to get there.
These Uber for X / Casper for X business models are all largely dependent on this belief being true. Whether that's the case or not depends on the unit economics of the market in question. The only way to know for sure is to run experiments.
That, I believe is what easy money has allowed in the US - mass experimentation. In my home country, we don't have the resources to even attempt to find answers to such questions.
This is a subtle and often-missed point. In the markets where they are trying to acquire customers and become dominant, the "Uber-for-X" businesses have negative gross margins. But they will have surely demonstrated (or the investors really are fools) that, once they have saturated a particular market (ie, a region or city) they are unit profitable. The bottom line looks bad because these companies are growing so fast that their balance sheet is dominated by the markets they're aggressively trying to corner, which wipes out the profits from the markets they have already won and proven viable.
These companies often assume that they can spend money to acquire customers but that those customers will stay loyal when the money hose turns off. If you have a fucking amazing product and spent the money to get people over the activation energy of trying it, that’s true. But a lot of these customers came to you for the bargain and flee as soon as the bargain dries up.
Or competition appears in your most profitable locales and skims off the most profitable end of the market, like Juno in Manhattan, offering slightly higher payouts to the top-rated Uber drivers, and a slightly better service to the top customers. And they don't have to try to make up the costs of overcoming legal hurdles and creating the market.
This sounds right but it's not trivial to show that one piece of the business is profitable. Accounting isn't that simple, and to a degree the investors simply have to believe the story. I'm not saying you can't have an amazon type situation where indeed profits are sunk into new investment, but surely not every firm claiming this is actually doing this.
Yeah, this question has always stumped me. High-growth companies that are not showing a profit are getting their reputations hammered. But I can't discern which of these are doing this to their peril and which are effectively following the Amazon story and will come out of this successful.
This is usually expressed as the long term value (LTV) of the customer. It costs X to get a customer but once they know you they may use you again, refer you to others, etc. and take Y days/weeks/months to repay you for customer acquisition costs. For instance with magazines people used to subscribe for 3 years on average which is why so many companies love subscriptions. They have enough inertia and friction that people just keep paying in many cases.
Guessing, but maybe better anti-scam and customer service mechanisms? But yeah, seems iffy to me too, but hard to say without knowing the particulars of the business.
They were looking to deploy those IOT beacons that can give granular and real-time data on asset availability. A lot of the refunds stem from currently inefficient processes.
"In the old economy of price signals, you tried to build a product that people would want, and the way you knew it worked is that people would pay you more than it cost. You were adding value to the world, and you could tell because you made money. In the new economy of user growth, you don't have to worry about making a product that people want because you can just pay them to use it, so you might end up with companies losing money to give people things that they don't want and driving out the things they do want."
This "new economy" does not sound like a legitimate one. We often see complaints online about "gatekeeping" in today's US society. This appears to be an attempt for all "economic" activity to be controlled through "investment" by a small number of people desperately searching for returns (because the real economy is in shambles). Destroy competition ("disrupt") and then rent-seek.
Proponents once claimed software as a business had infinite upside because the overhead costs are so low. They argued anyone could start a software company. Not today. VC required. That seems to be the general consensus.
Why does today's software require so much investment? Low quality work product that "cost" some ridiculous dollar amount in developer salaries which is then "sold" at the price of something like $0.00-3.99. The "value" to be recouped through surveillance of the user. Brilliant.
Unicorn is the perfect symbol because all of this is pure fantasy.
Money with no place to go. There is no "new economy". There is only the old (real) one that is in dire straits. That is why investors are so desperate. They will try anything.
I know someone losing money handover fist in a VC-backed startup.
I know someone else who goes to a day job for socialization and health insurance but makes his real money selling Microsoft Excel and Word macros.
Facebook IPOed without a business model. Their ad platform was crap, attracting generic banner ad prices. They launched all the targeting tools pretty quick, so Zuck obviously had a a plan... but public investors took the risk.
Amazon was a long term example. They were losing money on every sale to be made up in volume (sticking with economist cliches) for decades. Now, they're literally 1000X bigger than the 2 billion dollar picker-uper startup.
I agree though. There has been a ton of spend spend-2-to-make-1 MOs running businesses lately... and it is ridiculous. Also agree about Matt. The cat can write.
I just think it's worth remembering the rational starting point for all the irrationality. Uber's initial value proposition was:
"We are a software platform company. Software platform economics apply, just like Google & Microsoft. We'll scale like software and have a monopoly like platforms."
That actually wasn't all that unreasonable. They did scale at a speed that a non-software (or law abiding) company couldn't have. But.. it turned out not to work. Market share didn't translate into monopoly pricing power.
Now (or maybe last year), the alternative value proposition is/was: "When self driving gets invented..." This one is unreasonable.
Softbank really did go big on some very bad bets huh?
Just want to make a correction here: Amazon was definitely not losing money on every sale.
I think what you're thinking of is that the company rarely reported a profit. But that was because they carefully managed their finances so that all the money they made was redirected back into growth, either through capital improvements, hiring, lowering prices, etc. before it was reported as profit. Amazon maintained a boot-strapping mindset long after going public.
In contrast, some gig economy companies are losing money on every sale; they generate no new capital of their own and their growth is financed entirely by external sources of capital.
On the greater point... I agree that some gig economy companies are more on-the-nose, but they overall proposition wasn't that different. The business model lost money, but generated growth.
In hindsight, once you know who the winners are, it's easy to point out the differences. Realtime, it's harder.
> "Amazon should have been fined billions for those infractions."
They were not infractions, that was the tax code. Governments (whether you like it or not) decided that in order for these markets to grow, they need to forgo taxes on them for a while until they reach critical mass. They weren't skirting the law, so you can't 'fine' Amazon (or any online retailer) for that.
Government didn't "decide" that. Government was slow at rectifying the loophole. Legally, all of Amazon's customers were breaking the law by not paying "use" tax.
Some states are making up for past undercollection of sales tax by pressuring you to pay when you file your income taxes. Pretty much everybody collects sales tax online these days, but if you don't obsessively keep records, you can't be sure you paid it on every single purchase, so it's safest to pay the estimated amount when you do your NY state income taxes, which means they are double dipping to some extent.
There is an estimated amount which you can pay optionally.
The implied threat is, if you don't pay the estimate, and thereby claim you already paid your sales tax due on all online purchases, then if you get audited, you lied under penalty of perjury on your return.
Now this is very unlikely, but it's compelling if you're very risk averse.
what i'm saying is that the gov't should not place the pressure of paying sales tax on the consumer, and instead get it off the store that's selling to you.
If it's an overseas store, then they do not have legal right to operate in america, and should refuse an american customer. Unless they either also pay sales tax, or have a treaty with the USA in their home country for tax reciprocity.
It's dumb to have a customer be responsible for said sales tax.
That's a fallacy. If you read Facebook's S-1, the business model is there. Their ad platform could have not been great technologically speaking but it was a hardcore money machine that set FB in a clear trajectory to full operational profitability. Their user numbers where fantastic, so they had a perfect virtuous circle.
They had an accelerated revenue growth and their ad-depending revenue ratio was improving (as well as their cost of revenue)
Imagine going public with a 150% year over year growth. Like it or not, Facebook had a business model. A global business that could scale massively with a relatively small operational footprint. We know now at what cost and the moral implications, but the business was there.
No DoorDash or shit has the numbers to pull a "Facebook".
To add to the absurdity of claiming Facebook IPO'd without a business model, here are the financials surrounding their IPO (which was May 2012):
2009 | $777m sales | $229m net income
2010 | $1.97b sales | $606m net income
2011 | $3.71b sales | $1b net income
2012 | $5.09b sales | $32m net income
2013 | $7.87b sales | $1.49b net income
A billion in profit the year before IPO, supposedly without a business model. Uber should have considered not having a business model. Here is what FB's business model was in 2012: ring the advertising cash register all day and night.
Yes. It does, like to buy a lottery ticket.
It is not a good investment thou.
> SoftBank really did go big on some very bad bets huh?
This is usually a misconception on how betting works. Many people looks at the result and classifies a bet as good if won and bad if lost. The reality is that the best way of looking at bets is from their expected return. A good bet is one with a positive expected return. Sometimes you will lose the bet and lose the money, but that does not mean that it was a bad bet if the expected result was positive.
If I bet you 100$ against 5$ that you get heads on a coin toss. That is a good bet for you. If you toss the coin and lose the 5$ that was still a good bet and you should take it again if you have the opportunity.
Were Facebook, Uber, Amazon,... good bets? It’s hard to say. What seems easy to see is if they turned into a profit or a lose.
Facebook, Uber, and Amazon are not comparable at all to WeWork, Oyo, or some others. If you thought some 22 year old with no hotel management experience was within a few years going to rival Hilton and Marriott and come up with the in house policies, procedures, and build up the staff required to go around the world and perform constant quality control, then I have a bridge to sell you. Same thing with WeWork, there's no moat there.
when you invest in a series of companies knowing some will fail but the ones that dont will hit it big, and thus make money on average, that is not gambling or anything like buying lottery tickets.
Think of it like a machine learning ensemble model. when you take a group of things, hopefully not correlated, you end up with a better result. when you average lottery tickets, you still lose.
Gambling is not about good or bad luck, it is about statistics. That is why the casinos are gambling all the time but get good profits. Casinos understand statistics and balance the bets on their side. And, as in your example, casinos lose many bets, it is in average that they make money.
So, your example is completely correct, but it applies to all types of gambling.
No, thats flawed thinking. When you invest in a company, you are investing in an organization that will (at least its their responsibility to) try to succeed. They want to make money and/or grow. On average, investors are virtually guaranteed to make money. Thats why you call it investing, you are taking money and putting it into an asset that creates wealth. the strategy for success is in your hands.
when you buy a lottery ticket or place a bet in a Casino, on average you are guaranteed to loose money (unless they are bad at their job or you are cheating). you are just hoping that you will not be one of the majority of losers, and this is at random. success is in the houses hands.
your way of thinking on this is poisonous and its important you understand the differences, or at least make the world a better place by keeping your mouth shut on this subject. Telling people investing is gambling makes the world a worse off place.
Maybe they should hire someone to come up with normal slides, it can’t be good to be seen publicly losing money hand over first and making slides that look like they belong on Wait But Why.
I once saw a presentation with a slide that said “failure = success”. Yes, I am aware that this happened on HBO’s Silicon Valley, and no that’s not where I saw it.
"While reading a post on hacker news, a Softbank earnings call presentation caused me to google the difference between a unicorn and a Pegasus" is just one of those sentences that sounds Insane in prior to 2020.
I'm not sure I agree. I think some of them were stupid at the time of the investment. The larger the wishful thinking component, the more likely it's a stupid investment.
I hear you. I did an experiment post dot com crash which was to add notes in my journal about investments that were announced. I added my own evaluation next to it as 'makes sense' or 'doesn't make sense.' That helped me contextualize my looking back at things.
I did this after I had turned down a high level engineering job at Netscape pre-IPO because, in my evaluation, every time they tried to charge money for their main product "Communicator" nobody would buy it, and I felt the market for their ecommerce server software was competing against a free alternative. That choice, leave Sun (an Internet powerhouse) or join a startup that couldn't sell its primary product, I considered the leave Sun choice 'stupid' at the time. It cost me about $7M in theory because that is what my options would have been worth (and yes they would have vested before the crash hit).
Since I spent an unhealthy amount of time self criticizing my "choice mistakes" I took it upon myself to figure out if I was being realistic or not. My experience, based on my journal notes, was that I was wrong about half the time. So my criticism was unwarranted. It also helped temper any unrealistic feelings about my own abilities based on successes that were, largely luck driven.
That's... sobering. But were you wrong about Netscape? Or were you right, but it took the market long enough to catch on that you left a lot of money on the table? I think the latter, but would defer to your opinion if you disagree.
I have since come to the conclusion that I was both right and wrong.
If you analyze the meta-branching of that decision you can see at least three branches.
1) The one I took which was to stay at Sun. In this universe my employee purchase options continued to grow, Sun's stock split again, and my net worth grew by more than my annual salary that year.
2) In this first alternate, I take the job at Netscape in May of 1995, and become a multi-millionaire (on paper) in August. Using historical data for Netscape, and knowing that when they went public they had a 1 year lockout on employee sales, if I were to have sold 1/4th of my option on the anniversary of the IPO in each of 1996, 1997, 1997, and 1998, my net worth would go up to roughly $9.8M net of income taxes assuming I didn't file an 83b election (not that I could of come up with the cash to vest all my shares anyway at that time but whatever)
3) I take the job at Netscape, I am holding multiple millions of dollars in stock which become AOL stock in 1998 and don't sell them, they become nearly worthless 5 years later.
The illustration is that there is a path and different choices along the path end in different endings.
As it turned out, after Netscape went public, realizing that I was not going to make a whole lot of money on Sun stock as an employee, I left and started a startup with some other ex-Sun employees.
My take away from all of this was that decisions are neither "right" nor "wrong", rather they are just inflections in the timeline. Sometimes the timeline has given you additional advantage, and sometimes it has taken it away, the trick for me was to not get greedy. When there was "enough" advantage, lock in the benefit and move on, when there was "enough" disadvantage, stop digging the hole and move on. But most importantly for my mental health, as long as the slope was generally on the upswing, then don't sweat the choices that didn't work out.
With all that being said, I'm also a big fan of learning from decisions and trying to put into my toolkit things that would have illuminated the upside and downside more clearly if I had done them at the time. Case in point, "Never join a startup where the two senior leaders are both in a relationship and their reporting relationship at home is different than the one they have at work." and "Never join a startup that has never had to defend its existence to a skeptical investor."
You can try to make better decisions, but it's hard to have better timing. While, a gut feeling or a statistic for the market's rationality curve might be possible, it certainly seems wiser to make better decisions.
In today's economy Netscape's value would be in its user base in the same way one would expect chrome to be valuable. In the data marketing world, nothing is really free.
That story about the pizzas was crazy. Especially the end where you have the doordash driver in on it, just pretending to deliver the pizzas. At what point would Doordash notice? A thousand pizzas? A hundred thousand pizzas? A million pizzas?
> Doordash reportedly lost an insane $450 million off $900 million in revenue in 2019 (which does make me wonder if my dream of a decentralized network of pizza arbitrageurs does exist).
> Uber Eats is Uber's "most profitable division” . Uber Eats lost $461 million in Q4 2019 off of revenue of $734 million. Sometimes I need to write this out to remind myself. Uber Eats spent $1.2 billion to make $734 million. In one quarter.
It really does remind me of the .com bubble in many ways. The quote from Scott McNeely[0] has sprung to mind a lot lately.
- MSFT 10x sales
- V 17x sales
- MA 16x sales
- NFLX 9x sales
- BYND 23x sales
- ZM 68x sales
Some of those are obviously great companies with fat margins and well worth above average multiples. But ZM at 68x sales?
The market feels a bit out of touch.
[0] "At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"
I think the underlying assumption is that the company will grow very quickly, so that when it comes time to pay you back they are paying you back with a small fraction of their revenue. Look at Netflix, for example: ten years ago they had 1.67 billion in annual revenue. Last year they had 1.87 billion in net income, and they are still growing. There are certainly some ridiculous valuations, but that quote is ignoring both the fact that businesses grow and that not everybody needs a 10 year payback.
More generally, the reason there are high valuations for companies that are growing users by selling a $20 bill for $18 is that they can drive out all of their competitors who can't afford to burn money. Once those competitors are gone, the survivor can raise prices, lobby governments for regulations that make breaking into the market very difficult, and generally employ anti-competitive practices to take advantage of their situation. If they're able to do this without being smacked down by anti-trust regulators they will be a money printing machine. These high valuations mean that the market thinks that governments will remain toothless and easily controlled. It's a depressing future to think about, but there's a pretty high probability that this is how it will be.
You're right. I just haven't been able to bring myself to invest like this. Also, I hate the idea of supporting companies who behave like leeches, but it's pretty hard to avoid that.
> More generally, the reason there are high valuations for companies that are growing users by selling a $20 bill for $18 is that they can drive out all of their competitors who can't afford to burn money.
Which is a prime example why the whole business model is harmful for a capitalistic marked as it undermines any idea of "fair" competition and marked self balancing. (At least in a context where the money burned comes from an external source like e.g. VC, through close to quasi-monopoles spreading to new markets also fall into this category IMHO).
I know anecdote isn't data but I only order with uber eats when they send me 10$ coupons. That way I pay less than if I walked to the restaurant myself. We call it dining with VCs.
I read that story elsewhere today, but I was left with a few holes - when the door dash driver pays for the pizza, was it their own personal credit card, or was that a door-dash issued card? That was the missing part for me.
I think that they would notice at some point, and potentially trigger a fraud lawsuit - at some point the terms of service that all these people are agreeing to - would probably cover fraud. But even if not covered in the terms of service, one would probably still lose a lawsuit based on the fraud alone.
I mean they are knowingly reselling something for less than it costs them, without ever touching the product, and they have no agreement at all with the restaurant owner that could stipulate "hey when you sell the pizza it has to meet these criteria". They specifically avoided letting the restaurant owner know that they were being sold through DoorDash, which is sketchy and definitely would lose DoorDash some sympathy about being "defrauded".
I just can't see fraud here, only a giant company that is built on losing money intentionally creating a system that loses money with zero guardrails. Then people just... used that system exactly as it was.
Doordash is already 'in on it' on a whole different scale than the pizzeria, this is generating order flow and the real payoff is the next couple of hundred million dollars from Masayoshi. That's what they'll notice.
> You have insanely large pools of capital creating an incredibly inefficient money-losing business model. It's used to subsidize an untenable customer expectation. You leverage a broken workforce to minimize your genuine labor expenses. The companies unload their capital cannons on customer acquisition, while this week’s Uber-Grubhub news reminds us, the only viable endgame is a promise of monopoly concentration and increased prices. But is that even viable?
Are there historical examples of this strategy working? I can't think of any off the top of my head.
Uber's bet is that the desirable customer experience (quick, cheap delivery) is tenable with both 1) scale and 2) new technology that drives prices down. In the long run, I think they're right:
For #1: When you consolidate two (or more) local delivery operations that do the same thing, you can increase the efficiency of your operation as a whole.
For #2: The big question is: can they stay solvent long enough to see autonomy or other delivery technology come to fruition? I have serious doubts about this. I expect we'll see Uber slowly raise prices to keep the business sustainable.
In Germany, Takeaway [1] bought most of the competion and the small players quit (like Deliveroo) since they couldnt compete... well looks like this is actually working:
> For #1: When you consolidate two (or more) local delivery operations that do the same thing, you can increase the efficiency of your operation as a whole.
The problem with that is delivery services have a fixed cost per order that does not significantly decrease just because you are fulfilling more orders, especially across multiple regions. You can group multiple orders per delivery, but the amount you pay the driver can only go so low before it is not viable for them to work for you.
I was asking this question a few days ago, are any of these large food companies still going to exist as they do today? Everybodies basically annoyed with them except maybe the customer but then again he's being subsidized by underpaid gig workers, restaurants, and vc money, and all the while the company itself still can't turn a profit
For what its worth, even the customer is getting annoyed. I've had multiple cases where a a driver stole my food or mixed up orders. Sure, the company will fix it and refund you, but you're hungry now.
I now only order from places that have in-house delivery drivers, or I go pick it up myself.
That's what got us to stop, too: a few years back we stopped using e.g. GrubHub and Eat24 because they were not only really late (over an hour and, memorably, once never showing) but lied about it blaming the restaurant, not knowing that I'd called them first and confirmed that our order had been ready as scheduled. They tried to offer credit on a future order until I told them my next call was going to be the credit card company.
The same happens with the delivery companies here in the UK like Deliveroo, Just Eat and Uber Eats.
That is not a mistake or technical error either, someone intentionally wrote code to do "if no driver is assigned for > 5 mins, pretend like it is and update the web UI to say the driver is there".
Hey, I just want to say Thanks for leaving the link to your comment. You didn't replicate the comment, and you didn't force me to go through your history to find the comment. That's really nice of you! Thank you.
> The actual nerdy economics joke there is in the second paragraph, which takes the form: Two economists are walking down the street. One of them sees a $20 bill on the ground. As she bends to pick it up, her colleague says “don’t bother, if that was a real $20 bill someone would have picked it up by now.” She replies, “no see this was left here by a consumer tech startup trying to maximize user growth; their Monthly Active Picker-Upper numbers are doubling every two months.” She picks up the $20 bill and the startup raises money at a $2 billion valuation.
Intended or not I like the line about "if that was a real $20" as sort of a subtext of how sometimes in economics you see predictions or explanations assuming people or businesses are somehow assumed to be logical.
The $20 just couldn't be real because who would do that?
But of course they do that and the expectation that being logical pays off or how we expect the market to work is all out the window.
Economics is a post hoc explanation for how the market works. It's not like somebody came up with the theory of how a market should work and then built one, like you would a computer. Rather, markets existed back in the middle ages before economists did, increased the wealth of its participants, and economists later appeared to explain why that was the case. Nowhere is the prerequisite that this system is the result of logical design.
<Theory X> is a post hoc explanation for how <Subject Y> works. It's not like somebody came up with the theory of how <Subject Y> should work and then built one, like you would a computer.
General relativity is a post hoc explanation for how large-scale spacetime works. It's not like somebody came up with the theory of how the universe should work and then built one, like you would a computer.
Darwinian evolution is a post hoc explanation for how life forms change over time. It's not like somebody came up with the theory of how life on earth should work and then built one, like you would a computer.
Those are good analogies (if more precise and more easily testable than is typical in the social sciences), but the framing suggests you don't believe they are.
The difference being that we've already gotten past the point of thinking that Darwinian theory should dictate human lifes. A lot of political energy is invested in keepingn them the way particular theories say it ought to be based on certain economic theoretical criteria.
You wouldn't kill the baby of a Tiger/Lion simply because your textbooks say it's not genetically feasible (glossing over the fact that it's simply not been observed before).
You're not wrong, but I don't think the person you're replying to is suggesting otherwise, they're just commenting on the assumption in many economic models that participants are rational actors that make logical decisions.
Classically (read: what I was taught in AP Econ 15 years ago), "normative economics", which is prescriptive and meant to inform policy, is divided from from "positive economics", which attempts to describe and rationalize economic activity.
There were economists in the middle ages. Ibn Khaldun, Maimonides.... Even before then. I believe Rome hanged (or crucified maybe) a whole generation of them during the crisis of the third century.
The bit about not picking up a $20 note because "somebody would have picked it up already" is a relatively common (half-joke) refutation of the efficient market hypothesis.
The efficient market hypothesis doesn't assume that the market is _perfect_ -- just that it has priced in all available information.
When an arbitrage opportunity is noticed (i.e. the $20 bill on the ground) it will disappear quickly and ultimately be priced in the market. That's the efficient market hypothesis. That's what happens in the joke.
Because of how quickly these are captured and priced in, the sentiment is that true arbitrage opportunities rare exist and aren't worth looking for. The joke is taking that to the logical extreme, but it doesn't make the general sentiment wrong.
> Because of how quickly these are captured and priced in, the sentiment is that true arbitrage opportunities rare exist and aren't worth looking for. The joke is taking that to the logical extreme, but it doesn't make the general sentiment wrong.
Yes, it does.
The EMH suggests that markets move extremely quickly to capture and price based on all available information, and that market disruptions and failures are temporary and mostly inconsequential.
The real world suggests otherwise. As it turns out the concept of "perfect information" is literally ridiculous, because the concepts of all available information and rationality can't even really be defined in the context of a complex adaptive system, and when you look around the world you see examples of inefficient markets, unexploited arbitrage, sheer randomness, misplaced risk, and chaotic behavior or complex emergent properties all around you.
The EMH proponent says oh that's not actually happening because it can't be happening because my theory says it can't, so there. Just like the person in the joke.
Of course there’s no “perfect information” (why quote something I didn’t say?), just available information.
The sentiment is that arbitrage opportunities are rare and typically disappear before they can be exploited. Again, no one would claim that they don’t exist period — that’s the whole reason the joke is funny.
Honestly, if you look around and see “unexploited arbitrage” then you should be wealthy. I don’t personally see many $100 bills as I walk around, to use the metaphor from the joke.
I'm not sure if it contributes very much to discussion to say "markets are efficient!" or "no they aren't!". I often see interesting things that make me think simplistic ideas of market efficiency are wrong. But on the other hand, I never have seen a $20 bill on the ground that I can recall. Might be interesting to poll people and find out how many have.
The Odd Lots podcast is very similar and Tracy and Joe are also very funny. Matt actually appears in a couple episodes (he has a really deep voice I didn't expect)
A lot of what I am reading lately reminds me of the touches of sarcasm I loved reading back in 1998-1999, just when the bubble popped.
Winter is coming, and it might be uglier this time, I also believe this kind of evolutionary pressure is a very good thing.
Hi, don't take this as a challenge or a "cite your source". Didn't the bubble pop 2000-2001? I'm asking because I'm wondering if I am remembering it wrong, I lost my job kind of late but I worked with IBM. The "I got $50K of options!" 22 year olds all got jacked much earlier.
Yeah, I should have written just before the bubble popped.
I think we had clearly visible warnings back then, just as we had quite a lot of good warnings recently. In my opinion, the C19 event is only an accelerator.
I would love to sit down with a few of these ivy league educated VCs and get them to explain how they justified investing massive amounts of LP money into blatantly bogus revenue models.
If they can come up with anything other than "build a monopoly and then figure it out", I'd be shocked.
Look at all of the most prosperous public tech companies, especially the famous FAANG companies. Every single one of those sells a product/service with an actual profit margin (ads, ecommerce infrastructure, cloud services, media, smartphones, operating systems, etc).
Not a single one of them got to where they are with the "sell a product/service at a loss and then figure it out later". Why? Because that's an incredibly foolish and reckless use of capital.
This is also why I don't like when companies like AirBnB are lumped in with ones like Uber during these "unicorns struggling in the pandemic" discussions. AirBnB has a sustainable revenue model, they were simply affected by an artificial restriction on travel. Uber and DoorDash have no excuse.
VCs, if you're listening... for pete's sake stop blowing investor money on this nonsense and invest in actual good businesses.
Unfortunately, Monopolies are profitable and we do not yet have the policy/law/political will/experience/all-of-the-above to prevent them for technology-at-scale.
Been reading "Goliath" lately by Matt Stoller -- there are some crazy similarities between monopolization in the early 1900s and now.
Maybe natural monopolies like Google or Facebook. I'm not sure if any of the VC trying to buy a monopoly efforts have worked that well? I mean Facebook took investor money but probably would have done fine without it.
The first .com implosion was broadly marked by companies that lacked revenue getting crazy valuations.
The current “.com” implosion is broadly being marked by companies that do have “revenue” but only by using VC cash to create “fake markets.”
The whole story of buying pizzas from a normal pizza shop for $20 and selling them for $18 through your “app” is the stereotypical example of the current .com implosion. Anyone can sell $2 bills for $1, but that’s not a business and no you can’t “make it up on volume” because the only reason people are using your app is because you’re selling something for a crazy low unsustainable price.
The take home lesson from the current unfolding implosion is that a great product does not magically just equal a great business.
There was plenty of that with the first .com implosion. Many e-commerce sites actually did have customers (eg. my sister swore by Kozmo.com), it's just that they got them by selling goods for less than they paid for them, and then the customer base dried up once they had to actually make a profit.
The big scam now is in customer acquisition: companies spend more in marketing than the LTV of a customer and make up the difference with VC cash. This is a little bit easier to hide: you have positive gross margins, explosive revenue growth, and the appearance of a sustainable business, but once you take your foot off the gas and stop spending VC money your existing customers churn away and you can't acquire new ones. Google and Facebook are also making out like bandits from this, and may get hurt significantly when the bubble bursts.
Yes, the cost of customer acquisition is certainly part of the current mess. While probably not strictly a gross margin issue, in practice it in effect is since that is very much a direct cost associated with the transaction.
There are certainly a lot of these upside down companies spending $100 to obtain a customer so they can sell a product for $70 that costs them $60 to make.
The cost of acquisition is also the cost of retention. I moved to DoorDash exclusively during the pandemic because of DashPass. Before that I was mostly UberEats.
UberEats would need to win me back, at least if they want me before I got back to the office.
As I usually only order food for lunch or whatever for one person, I found that I never hit the DashPass minimum. Maybe I'm just not a fancy enough eater.
> The whole story of buying pizzas from a normal pizza shop for $20 and selling them for $18 through your “app” is the stereotypical example of the current .com implosion
Lets not have this be the lesson that people learn, please. This is not an actual strategy - think of it more as a coupon. There is plenty of reason to think that with economies of scale a single company COULD win out, not have to raise prices and keep on trucking, a la google/fb in the advertising space.
The problem is when multiple people realize this it become a cold war-esque capital arms race. That there is absolutely nowhere else within the economy to make a decent return on investment at a lower level of risk is what is driving all of this. We have 0% interest rates everywhere, and tons and tons of money sloshing around.
Its completely conceivable to me that the best thing to do to grow the economy at this point is to do UBI. That there has been no inflation while the government pumps TRILLIONS of dollars into the economy means none of that money is getting spent within the economy, just thrown away to prop up massive company debtloads.
"thrown away to prop up massive company debtloads."
This strikes me as unnecessarily reifying it.
I can print a $1 trillion dollar bill and give it to you. If we agree that you now owe me $1 trillion, it really doesn't have any effect on anything. It balances, we could repeat the exercise a trillion times, and assuming we both continue to believe in the meaning of that money, it has no effect on anything. The only rational thing for either of us to do is act as though it doesn't exist, even if we totally believe it does exist, because it balances.
I can't of course say that nothing bad will happen when people play weird games like this. But the essence of the game that we are aware of, it doesn't make sense to me to be afraid of. It's just writing large numbers on paper (or in databases). If the paper, or database records are destroyed, it's not wasting anything or consuming anything, unless something somehow became unbalanced.
Also - It's not the companies competing in the unicorn market, it's the VCs. The reason why there are no competitors to Uber and Lyft, is because the unit economy is completely broken. If you're not backed by billions of VC & banking money to let you lose on every transaction, the market doesn't really exist. It's artificially created on borrowed time, cashed out in IPO, and numbers shenanigans. VC's virtual limitless access to capital is dangerously giving them powers to choose winners and losers and control the markets, economies, and the fate of large workforces in the world.
I'll followup on this - its not the VCs, its the lack of investments that give a real return, which makes capital flow towards the higher risk things so it can seek a return.
> its the lack of investments that give a real return
The stock market has provided a tremendous real return over the decade since the great recession. And it's dramatically safer on average than venture capital. Let's say you waited until the market got back to the old highs (call it mid to late 2012), to put your money into an S&P 500 index - you're up close to 100% in a little over seven years, or 9-10% per year, an amazing return by historical standards, for doing nothing.
So no, it's not the lack of investments offering a real return. It's caused by the extreme scale of wealth outstanding now. That wealth isn't overall that desperate for a return, that's why so much of it has piled into government debt yielding zip, and only a tiny fraction by comparison flows into VC. The VC being deployed has scaled with the increase in the pile of wealth in the US and global economy broadly.
This is just a tiny subset of wealth seeking a very extreme return in exchange for taking on a lot of risk, not just seeking a good or great (what I think you mean by real) return. They're chasing an Alibaba, Facebook, Google type homerun. It's the literal thing that lured all that money into making a bad bet on Masayoshi Son's fund, his Alibaba riches. It's a diversification into lottery tickets, because hey, you could be a winner, you gotta play to win, only a small number of these lottery tickets are sold, and you know the people that control access to all the tickets.
Stock markets are very high risk though. Not on the same level as VCs, but buying an index fund is imo within one order of magnitude of funding 200 startups in terms of risk. If you can get 8% a year on your $100billion, I think anyone takes it.
Its that giant "conservative" investors can't get 4% in bonds, so they move into blue chip stocks. Blue chip stockholders have to run into smaller mid-caps and semi-mature startups. Series B funding has to move to VCs, all to get the same level of yield.
> That wealth isn't overall that desperate for a return
On the conservative end, pension funds etc functionally need to chase some amount of return or else they start to become insolvent. You can't hold at 0% forever, there's no point in being a pension fund at that point. Right now its not desperate for a return, because its trying to stay alive. But when they were making bets on WeWork its because they were looking for a massive return.
Yep. The whole reason the SB Vision Fund exists is because some Saudis needed a place to park their oil wealth that traditional markets couldn't absorb.
Even when the numbers aren't arbitrage it's appalling. Friends of mine will regularly order $8 of food for $20 delivered. And these companies still post massive losses after all that markup.
Meanwhile Walmart abandoned their RFID automatic checkout system because RFID tags cost more than the markup of bananas, their most commonly sold item.
Indeed, the price of food delivery apps is insane. I really don’t know where all the money is going. How can they overcharge so much for food and yet still have a loss? In addition to the service fee, delivery fee, and what you pay in tips, the actual price of the food items is sometimes (often?) more expensive in these apps than on the restaurant’s own menus.
I think this is an indication that consumer expectations on the cost having an item delivered in less time than it takes for a hot meal to cool down are not realistic. We've been conditioned to believe that it costs a couple of bucks (or nothing at all!) to provide this service thanks to the vertical integration of pizza shops and more recently other players. If we paid the true cost of having an item picked up and delivered to us within minutes then frankly most of us wouldn't bother.
Let's say that an average customer will yield $20 a year for the next 10 years in profit to Doordash. Depending on your discount rate the net present value of that customer is something like $150-175. If Doordash can acquire that customer for $100 worth of advertising and discounts that is a 50-75% return. Obviously they do that and do it as much as they can.
So what will their balance sheet look like if they can do that for 1 million customers? They'd spend 100 million dollars on advertising against a profit of 20 million dollars for a loss of 80 million dollars. Everyone on HN then makes fun of them for losing so much money and jokes about selling $2 for $1. But they actually turned 100 million dollars into 150-175 million dollars worth of customer value. In other words, they made a bunch of money this year and they just won't realize the profits until 5-10 years from now.
The problem is that delivery is a commodity business; there's not much of a moat keeping a DoorDash customer from going somewhere else. The customer is pretty likely to churn if a cheaper alternative shows up, they get cold food, whatever, in which case DoorDash isn't going to record their theoretical future profits.
Restaurant Food is not exactly a commodity. It's more a habit, and around 70% of people are loyal customers of some restaurants. And UberEats, for example, currently has helped to create 4000 virtual restaurant brands.
As for cost, at the scale UberEats, DoorDash, etc operate, there's no reason they wouldn't have access to the lowest cost providers.
>The current “.com” implosion is broadly being marked by companies that do have “revenue” but only by using VC cash to create “fake markets.”
The taxi market isn't fake. The food delivery market isn't fake. People paid for these things before Uber, Lyft, Doordash et Al
The problem is that investors see the possibility of a monopoly or duopoly forming. That means they're willing to throw stupid amounts of money at these companies in the hopes ending up on top.
The first time I got in an Uber and saw a Lyft sticker in the window and a driver with two phones on the dash is when I knew for sure this whole “new economy” was doomed.
Both the user and the supplier we’re just gaming multiple apps to find the best deal with no loyalty whatsoever. It basically just boiled down to which VCs wanted to subsidize the transaction the most.
As long as a company does not have organic growth. Meaning Referral (existing customers bring in new customers) > Churn (losing customers) there just is no scenario where it will end well for the company.
Adding investor money for paid growth is at best a halfway decent accelerator, at worst noise that hides the real performance of a company.
That's not true. There are plenty of companies where referrals are non-essential or non-existent, but the company is able to turn $1 of advertising into an LTV of $20 even if the customer churns. Imagine an app that helps a woman through pregnancy, for example. The churn rate on its own doesn't mean that the product is necessarily trash and the lack of referral doesn't mean that the product isn't appreciated. Some buyers have needs on short timescales or do not naturally refer other buyers.
Yeah, that's the second exception in the article. RCLV - a real customer lifetime value to calculate your other costs against. But doing internet stuff since 1998 and startups since 2008 I have yet to encounter a LTV that is not full of.... wishfull thinking.
I second this. I've worked for a variety of early and mid-stage startups in my career, and to varying degrees, all of them had a non-trivial amount of hand-waving in calculating their LTV.
Great example. People sign up for BabyCenter, maybe from a paid search ad. Nine months and done. Insanely high advertising CPMs there because first time parents are about to make life long purchasing decisions.
This is not a new startup strategy. VA Linux Systems, which had the dubious honor of having the largest "pop" on its IPO day, and signalling the end of the dot.com boom, was selling x86 Linux servers to its customers (including companies like Akamai) for $50 dollars under the BOM (Bill of Materials) cost. So it was losing money for every server before taking into account assembly, shipping, or R&D costs, but it made it up in volume. The revenue numbers were "up and to the right!". VA Linux systems was "successful" in that it IPO'ed and the Vulture Capitalists had a very successful exit. Unfortunately, it didn't do so well a year or two later...
VA Linux Systems had its IPO on December 9th, 1999. So 20 years later, people still haven't learned, and Venture Capitalists are still happily funding this model. Sometimes they appear to have been able to successfully exit, but sometimes not. For all that humans are smart enough to go to the Moon, humans are also really, REALLY dumb!
Yes. The strategy seems to assume that network effect is everything and neglects to recognize that, at the end of the day, PRICE is the critical factor for determining demand of these services (food delivery, taxi service, etc). Once the subsidies end, behaviors will change so you must have an actual plan for making your business profitable.
Yes, it’s as if the business models of these companies have forgotten all about price elasticity... especially when the “price” is crazy low (because you’re losing money hand over fist)
Maybe? It seems that it is more about whatever metric VCs are excited about is what will lead to the next bubble. What are you measuring? Revenue? Is it viral coefficient? Is it revenue per customer? Is it lifetime revenue above acquisition cost?
Whatever it is that lands you the round will be the place that money gets burned to goose the metrics until the dollars run out or folks realize it was a phantom.
I thought that the model was to underprice the market and force everything to go through your platform and then exploit the monopoly position once it is secure
Serious question, I am a total noob when it comes to investments. But let's say I want to bet on another ".com" implosion, what can I invest into to make that bet?
I feel like these unicorns are so ridiculous that they will surely fail sooner rather than later, is there a way to bet on this eventuality?
One of the reasons why these startup bubbles happen is that you can't short companies pre-IPO, nor can you short VC funds.
It's a good demonstration of why shorting is an important part of a healthy market, no matter what people like Elon Musk claim. It's the way that sanity fights back against bubbles and irrational exuberance.
Unlike the .com implosion, the current unicorn market is propped up by VC funds and angel investors. By the time they IPO and you can short them, they're not really unicorns anymore simply by getting to that point.
While I agree with you, the problem is that shorting does have its own risks.
The saying goes: The market will stay irrational, longer than you can stay solvent.
So while your thesis is correct, it may be too soon. So you’d be wrong. You can also get caught up in a short squeeze, in which case you will be carrying heavy losses. Or if you buy a Put, then the derivative may expire worthless.
There are just too many insider trading manipulations that can happen behind the scenes, that you as a random investor are not privy to.
But, if you are lucky, and if you timed it correctly, then shorting a stock can net you a significant amount of money.
To be honest that dynamic was basically the issue the last time around as well. Pets.com selling pet food for less than the shipping cost, delivery startups like UrbanFetch and Kozmo with no minimums, etc.
When it comes to these kinds of basket case occurrences, it's a bad idea to try and tweak them to be less bad. There is a reason they occur, and it's not "compliance" or whatnot.
The ratings agencies are an obvious example. It's not a matter of integrity, ethics or policies. Ratings just aren't what they seem to be anymore. They're obviously not there for investors to estimate risk. Their main job now is to regulate the financial industry.
> In the new economy of user growth, you don’t have to worry about making a product that people want because you can just pay them to use it, so you might end up with companies losing money to give people things that they don’t want and driving out the things they do want.
If we take this line of reasoning, then the various unicorns didn't detect and ride user behavior but used their massive piles of cash to distort it in non-sustainable ways. Now that the cash is drying up, people are bouncing back to the old patterns and approaches.
I wonder how many of those alternatives disappeared/closed in the meantime?
Which is exactly the goal of those unicorns in the first place. Once you've smothered the competition in investor money, you're free to raise prices to profitability and beyond.
Like ripping out Detroit's streetcars just to sell more cars.
>Once you've smothered the competition in investor money, you're free to raise prices to profitability and beyond.
That's the theory at least. How much can Uber realistically raise their prices before people realize that yellow cabs or driving themselves is just too much cheaper to ignore. So they'll have to massively increase prices and subsequently kill off their own userbase. It's a lose lose and I don't think any of these companies expecting to pull this off will survive.
I have never once called an Uber because it was cheaper than alternatives. It's more convenient, reliable, and except for certain times transparent about pricing.
They can increase the prices significantly and I will continue to use them over cabs.
Those are all valid points, but from a business perspective the biggest problem for Uber is and always been that their product is fundamentally a commodity. Sure, economies of scale can help, but nothing they can do can change that underlying truth.
> Once you've smothered the competition in investor money, you're free to raise prices to profitability and beyond.
Of course, if a company started raising prices to profitability, perhaps it would be "worthwhile" for another group of investors to come along and start the whole cycle over again with a new - excessively funded - startup.
That's one reason. Another reason is that the market isn't profitable except through economies of scale. Until you've captured the market you'll burn cash on user growth.
> Now that the cash is drying up, people are bouncing back to the old patterns and approaches.
We haven't got to a place where we can measure a bounce-back to "the old".
For instance, as far as I can see into the future, I'm still going to use Lyft when I travel in the US. I'm price sensitive, but the alternatives are still full of externalities if I can't hail a cab off the street easily.
Of course right now, nobody is traveling outside their home cities, nobody is going to restaurants (& restaurants don't have any leverage on delivery companies), the coworking spaces are all closed, there's no parties to cleanup with taskrabbit & that beach weekend in Carmel-by-the-sea won't happen.
The problem I think is that it's going to take 500+ days to get back to even finding what percentage of the economy would go back to doing things as they used to in 2019. And what percentage will just scale down everything and force the companies to skip non-recurring engineering expenses (I'd say iPhone SE is a good example here of "good enough").
The "bounce back" is the interesting piece to consider. If you assume that business dropped to near-zero in March and worse in April and May, what does the rest of the year look like?
If things pick back up to February levels on June 1st, we're still at -25%. That's the absolute best case scenario and there's nothing that backs that up.
If things start at half and ramp up to full through December, we're closer to -40%. That's more likely than the first scenario but feels unlikely.
If things start start slowly in June and grow monthly for December to be at February levels, we're closer to -50%.
Forget the industry, how many companies can survive losing half their revenue (not profit) for the year?
(Obviously, this assumes a flat/even revenue distribution during the year. Companies that have their busy season in March-June are even worse off.)
Wouldn't the best case scenario be all the missed revenue in march-may are simply deferred to the following months?
Of course, for a lot of business that's simply not possible (they were already at capacity), and for the rest that's very unlikely, but it seems possible for some very specific industries.
Companies are already doing this with “EBITDAC”, appending “...Corona.” Using estimated earnings/sales, or simply substituting Q3/Q4 last year for this years Q1/Q2 earnings. The cited motivation that Ive seen has been between counterparties and covenants around debt.
Companies need lending to survive. But the immediate business performance would cause an immediate breach of covenants or terms, forcing actions like margin calls or liquidation. That would leave both lender and company worse off. So instead they agree to substitute in some plausible values with the expectation that business will return to “normal” sooner or later, inside the lifetime of said contract.
I havent seen anyone actually posit that revenue/earnings/profit are actually going to fully return immediately, nor that theyll capture that “deferred” business. As always matt levine had a good take on this last week.
Maybe but I've been struggling to think of a business - let alone an industry - that applies to.
Restaurants? No, those meals are gone. Oil changes? No, you've driven less miles. Haircuts? You're not going to get two to celebrate. Clothing? Maybe.. because things are still wearing out. Travel? Nope. Technology? Maybe. Durable goods and appliances? More likely.
Durable goods and appliances as you said, and regular maintenance.
If you need to have something inspected once a year, then you might have been able to postpone it some, but you'll need to do it eventually.
Also travel is not so clear.
I realise I am quite lucky, but my bottleneck for travel is vacation days.
I will still go on holidays the same amount of time this year, but it might be in a different place than expected if the borders do not reopen.
But yes, it certainly does not apply to the majority of businesses.
> the various unicorns didn't detect and ride user behavior but used their massive piles of cash to distort it in non-sustainable ways
Seems likely given the ubiquity of "Pivots" where startups have already raised cash for some half baked idea and can pivot to selling something completely different to consumers by force feeding marketing down their throats.
> so you might end up with companies losing money to give people things that they don’t want and driving out the things they do want.
I don’t see it this way. Obviously people want it, the problem is they can’t afford it. Everyone wants their own driver, dog walker, chef, house cleaner, save the earth mattress, whatever else, but they can’t afford it.
Although you can get a lot of that stuff in countries with poorer populations and fewer government safety nets.
I think there is a bigger point in between the lines which is that most Americans can't actually afford nice things. I am remarkably well off making good money in a cheap city but I still feel financially insecure because of how many times I hit the wall of not being able to realistically afford the "high quality leather boots" so to speak.
The fact that staples are so incredibly cheap has made everything else so ridiculously expensive in comparison. All of that would be surplus income that's supposed to make me feel "wealthy" has been gobbled up by ever increasing rent and healthcare.
I do wonder what if anything is wasted with talent and people's efforts plunged into things that ... amount to nothing.
Reminds me of some of the articles about top business schools and what folks observed as a large number of folks heading off to finance ... instead of running the actual businesses that produce a thing / long term value.
This sort of implies that what people "want" is fixed in time. More accurate might be to say its a bunch of money spent manufacturing some wants and disincentivising other wants.
Anyone benefiting from the lock-down, like Zoom, is doing well, those that are not, like Airlines and Uber ... not so much. This is mostly a coronavirus story, not a crash story or much else.
This was predictable and the prediction applied more broadly than just tech start ups. Tech investment in general was over saturated.
I was predicting last April (2019) that we would be heading into recession within 18-24 months even though we were in the strongest and longest running bear market in history. I wasn’t the only one predicting this as I was seeing several vaguely similar comments here on HN. I had no idea there would be a pandemic, a depression, or that any of it would happen within a year. Investments crashed earlier and harder that I anticipated because the cause of the crash was something I never thought of, but the reaction and result are similar.
The reason why people were predicting a recession is that there was/is too much money tied to investment speculation that isn’t reflected in the revenue of a given organization. In more plain terms people were betting on growth even though growth alone couldn’t repay the investments at present, which looks like a Ponzi scheme. The idea of a Ponzi scheme is to bet on growth and then encourage additional layers of investment to drive up the value of the prior layers and then dump it before it implodes, like a game musical chairs. Here are some basic examples:
* Uber was a $60 billion unicorn. It was loosing billions every quarter though without any profit in sight and yet people were still investing in it. Now it’s shedding like employees and closing offices.
* Amazon is a less extreme and much less obvious example. For one Amazon is profitable, and two Amazon makes money on infrastructure which provides scalable growth. Amazon’s market cap is insane at $1.2 trillion. Amazon generates neither the profit, revenue, sales, or growth to account for anything close to that, which speaks to speculation. As an interesting side note has historically lost money on its retail business and on Prime. It took selling access to its infrastructure to deliver a profit.
* For an example of the opposite Bank of America’s stock tanked as a result of the pandemic but it still reported a very strong first quarter a month later. It looks like the bank will continue to perform well in its earning statements even with consumer mortgage and loan forgiveness due to strengths in other banking segments. It will be curious to watch as last week Berkshire Hathaway started dumping its investments in the banking sector. The most notable are its dumping of Wells Fargo and Goldman Sachs that are failing to perform to expectations but it is also the largest single investor in BAC and it is dumping that too. This loss of investments won’t impact current business performance relative to the marketplace in general or to its competitors specifically.
Metacommentary: Every time I see a Bloomberg link on HN, I cross my fingers that it is Matt Levine, and every time it is in fact Matt Levine, it’s pure gold and 100% worth the click. I get the newsletter in my inbox, but since I check HN before my inbox usually, sometimes this is the faster route to some good Money Stuff hilarity.
Once I detached myself from the project, I took a good look at my financial models. For every $50 the client took in bookings, they had to pass $30 to operators, spend $9 on marketing, 5$ on refunds, and $7 on overheads.
The assumption was while operator payouts grew linearly, marketing, refunds and overheads grew sub-linearly. There is going to be this nice breakeven point when everything is going to make sense, if only they procure enough capital to get there.
These Uber for X / Casper for X business models are all largely dependent on this belief being true. Whether that's the case or not depends on the unit economics of the market in question. The only way to know for sure is to run experiments.
That, I believe is what easy money has allowed in the US - mass experimentation. In my home country, we don't have the resources to even attempt to find answers to such questions.