Comment by nostrademons | Hacker News Reader

Comment by nostrademons | Hacker News Reader

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Relative to the intrinsic value of the organization, they were much bigger.

The majority of companies funded back then were e-commerce plays focused around selling the same items you buy offline for less money and making up the difference with VC money. As a consumer, it was pretty awesome. I remember signing up for AllAdvantage.com in high school (that was a startup that would pay you to view ads, and pay you for referring friends to view ads), installing the toolbar, pocketing about $50, and then uninstalling the toolbar once they crashed & burned and were no longer paying out money. My sister (newly arrived at college) fell in love with Kozmo.com, which would deliver groceries to your door at about 20% under supermarket prices.

The whole thing was a pyramid scheme designed to prop up valuations by incentivizing early adopters with discount prices, subsidized by VC dollars, who would unload the shares on the gullible public markets for higher valuations. The early adopters got some nifty conveniences at bargain basement prices; a few lucky founders & VCs got massively wealthy; most of the unlucky founders & employees wasted about 5 years of their life; and the gullible public lost their life savings.

There's some of that now, but it's much more muted. My wife and I ate very well this summer off delivery startups that were offering FaceBook deals with VC money for prices under supermarkets. However, most of the giant companies this time around actually have solid business models that operate more efficiently than existing incumbents. AirBnB takes advantage of surplus housing capacity. Uber breaks local laws that enforce inefficiency. WhatsApp ran a really lean organization so they could offer text-messaging services at a fraction of the cost of a telecom giant. Instacart charges more than the supermarket, and people pay it. Slack has made office messaging fun. SnapChat at least realizes that its lack of revenue is a major problem, and they're heads-down trying to fix it.

The public markets are not as gullible now as they were then, and so the "unload on the unsuspecting public" strategy doesn't work as well. Companies that are based on nothing but hype & investors dollars often flame out around the C round now; we saw some of that with Secret and Homejoy.

Not for nothing: Uber is subsidizing most of their markets like crazy in a Kozmo-esque growth gamble (particularly in China), and there was this story about Instacart making the rounds the other day:

http://www.fastcompany.com/3055033/instacart-raises-fees-and...

It isn't 1999 again, but I wouldn't go so far to assume that "most" of the giant companies are solid businesses just yet. As Buffett said, you don't know who is wearing swim trunks until the tide goes out. Even if companies aren't obviously subsidizing their customers' purchases (as in the first boom), there's a lot of bubble money sloshing around, making everyone's revenue numbers look better.

The saving grace for uber is they appear to be making boatloads of money in mature markets. So while opening new markets is subsidized and expensive, they're not operating on the promise of eventual profits but actual profits in mature markets. See leaked numbers from a year or so ago.

I don't understand Uber in China but then again I've never been to China.

Uber offers good signup discounts and low rates when they enter a market, but they're also making huge profits in mature markets.

They have a business model. It just takes capital to spin up new markets. (They run a market at a loss initially, until its mature enough to take profit from.)

Unless you have access to some current insider financial data that you're leaking here, you're assuming that they're making "huge profits" in mature markets, and you're further assuming that those mature markets can cover everything else.

What we know from observable evidence is that they're raising tons of money, and funneling it into growth. We also know that there are lots of subsidies, on both sides of the market -- even in San Francisco, the most mature of Uber's markets, I regularly see and hear of driver referral bonuses.

It could well be that without the easy money, the Uber story becomes a lot less compelling. Time will tell.

I think he's referring to financials that were leaked a year and a half ago, covering SF, DC, and other market-by-market breakdowns:

http://www.businessinsider.com/uber-revenue-rides-drivers-an...

Yeah, I figured, but that's pretty old information by now. In particular, it predates the company's massive spending in China, and increased competition in the mature markets that have been effectively deregulated (e.g. NYC).

One of the ironic things about Uber is that after they overcome regulatory hurdles in new markets, they make business dramatically easier for their competitors. Taxi service without regulatory capture is a commodity product.

> The majority of companies funded back then were e-commerce plays focused around selling the same items you buy offline for less money and making up the difference with VC money.

Shit. This is exactly the Indian startup scene at the moment.

A coworker of mine ordered a can of Barbasol shaving cream from one of these ecommerce startups and they shipped it to him via FedEx overnight, free shipping. His wife said "isn't that mean?" And he said "maybe but they'll be out of business in a year."

Just chiming in with an example of the ridiculousness of ecommerce plays in 1999.

Eh, many of the startups now are selling services for less than you'd pay for, with the difference subsidized by VCs. Granted, some services have close to zero costs, but one can also argues that many of them have close to zero values too. There will always be a few winners and a lot of losers in any periods. The last bubble brought us Amazon, Google, ebay, etc. I am sure some of the current unicorns will become big household names, but many others will fade away.

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