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'The Fundamental Problem With Silicon Valley's Favorite Growth Strategy' (qz.com)
Tim O'Reilly, writing for Quartz: The pursuit of monopoly has led Silicon Valley astray. Look no further than the race between Lyft and Uber to dominate the online ride-hailing market. Both companies are gearing up for their IPOs in the next few months. Street talk has Lyft shooting for a valuation between $15 and $30 billion dollars, and Uber valued at an astonishing $120 billion dollars. Neither company is profitable; their enormous valuations are based on the premise that if a company grows big enough and fast enough, profits will eventually follow.
Most monopolies or duopolies develop over time, and have been considered dangerous to competitive markets; now they are sought after from the start and are the holy grail for investors. If LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh's new book Blitzscaling is to be believed, the Uber-style race to the top (or the bottom, depending on your point of view) is the secret of success for today's technology businesses. Blitzscaling promises to teach techniques that are "the lightning fast path to building massively valuable companies." Hoffman and Yeh argue that in today's world, it's essential to "achieve massive scale at incredible speed" in order to seize the ground before competitors do. By their definition, blitzscaling (derived from the blitzkrieg or "lightning war" strategy of Nazi general Heinz Guderian) "prioritizes speed over efficiency," and risks "potentially disastrous defeat in order to maximize speed and surprise."
Many of these businesses depend on network effects, which means that the company that gets to scale first is likely to stay on top. So, for startups, this strategy typically involves raising lots of capital and moving quickly to dominate a new market, even when the company's leaders may not know how they are going to make money in the long term. This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society? I have my doubts. Imagine, for a moment, a world in which Uber and Lyft hadn't been able to raise billions of dollars in a winner-takes-all race to dominate the online ride-hailing market. How might that market have developed differently?
Most monopolies or duopolies develop over time, and have been considered dangerous to competitive markets; now they are sought after from the start and are the holy grail for investors. If LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh's new book Blitzscaling is to be believed, the Uber-style race to the top (or the bottom, depending on your point of view) is the secret of success for today's technology businesses. Blitzscaling promises to teach techniques that are "the lightning fast path to building massively valuable companies." Hoffman and Yeh argue that in today's world, it's essential to "achieve massive scale at incredible speed" in order to seize the ground before competitors do. By their definition, blitzscaling (derived from the blitzkrieg or "lightning war" strategy of Nazi general Heinz Guderian) "prioritizes speed over efficiency," and risks "potentially disastrous defeat in order to maximize speed and surprise."
Many of these businesses depend on network effects, which means that the company that gets to scale first is likely to stay on top. So, for startups, this strategy typically involves raising lots of capital and moving quickly to dominate a new market, even when the company's leaders may not know how they are going to make money in the long term. This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society? I have my doubts. Imagine, for a moment, a world in which Uber and Lyft hadn't been able to raise billions of dollars in a winner-takes-all race to dominate the online ride-hailing market. How might that market have developed differently?
Don't pay your workers, cut corners, and if you fail completely just file for bankruptcy and let your creditors clean up the mess, multiple times, because you're a feckless coward who doesn't understand legitimate business.
resurrect fuckedcompany.com?
So rise up, all ye lost ones, as one, we'll claw the clouds.
Neither Uber or Lyft think they will ever be monopolies.
This article is what you get when you do economic analysis based on reading Marx.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
author is focused on the overall market or societal impact
Which of course doesn't matter at all to the founders & investors.
blitzscale is the 'greedy' approach. entrepreneurs and investors typically just care about their own company succeeding, and to hell with what that means for the market in general or consumers. they WANT to build a monopoly, duh.
Ahm.. wasn't blitzkrieg something that ultimately did well as a short term tactic but failed as part of a larger strategy? Blitzkrieg is great if you care about winning the battle but don't care about losing the war.
Which I guess is the point of their advice. If your objective is to be healthy enough to get a nice profitable IPO or buyout, but not healthy enough to survive past that, then it might be a great strategy.
Pursuit of monopoly is just the natural goal of a capitalistic enterprise. Silicon Valley's all-or-nothing approach to business development means the business fails in months rather than years, which might not matter to investors or management (remember, you can always fail upwards) but employees and users suffer the most.
have too much money. So every time a competitor arises they just get bought out or buried.
Once you've got more money than you can spend that's not money anymore, it's power. Folks figured this out in the 50s, 60s and 70s and reigned it in with high taxes and a ton of Wall Street regulations. Then Reagan came along and shit all over that. Clinton didn't help either.
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The time-honored recipe for disaster. Why do humans never learn?
Most ACs are not even worth the keystrokes to insult them. Be generically insulted by this and ignored otherwise.
... the problem is that human beings are too limited intellectually to act in accordance with the economic doctrines preached in the universities. Most of us who have experience with mankind, know that our species is full of shit, the corporations are full of shit, the politicians are full of shit and humanity itself is full of god damn bullshit.
Take videogames for example for the first 30 or so years of PC game history, we got complete games singleplayer+multiplayer in the same package until the internet arrived in the 1990's and companies started to rebadge PC RPG's as mmo's to confuse a gullible and stupid public to get them to pay for the same game multiple times while removing ownership. Watching valve and company steal videogames is broad daylight and watch the public fall all over themselves to give money to game companies for games they don't own just defies anything like a rational society.
It's not in your interest as a gamer to basically pay to fuck yourself, but that's exactly what happened because you can't have a market with no accountability. You can't hold a company accountable that's 100's of miles away in an internet enabled age, so it's just one giant institution of software fraud and companies are making a killing.
So silicon valleys model is just to make software everyone uses and make sure they never get to own or control it, and use that software to spy on and gather data from the dirty technology illiterate masses.
It took 100 years for competition to come along and kill the government-protected taxi market, charging too much and not doing enough.
It's still fighting with mighty death throes
Seriously, before whining, look at the long term effect of the previous government "solution".
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
It comes down to the fact that we've got such a wild imbalance between the super wealthy and the regular people, that the super wealthy literally have nothing to invest in. They don't care about investing tons of money in unprofitable companies because, really, who cares if they lose money? They've got more money than they'll ever need. Why not just own a wildly unprofitable company so you can show off to your friends? Regular people (you and I) need our investments to actually earn money. I know that I only invest in profitable things. Real estate, profitable companies, etc.
I don't respond to AC's.
It is bullshit, it has nothing to do with offering service, and I hope that the day comes when every single one of these companies is regulated into the ground.
Just like the Solyendra debacle or Tesla or many other new types of companies who instill a dream into investors and not much reality. But it doesn't matter because dreamers somehow have eternal faith in the company they support. Its never if they will make money but when. But sometimes that when never comes.
120 billions? :)) For a company with no profits, and with absolutely nothing proprietary that can't be replicated easily as long as you throw money at it to operate at a loss (like Uber does)?
Anybody that has a few hundred millions can come out with lower commissions, pump advertising like there's no tomorrow and people will jump immediately.
This is basically just people who lost a ton of money on Uber so far, and are now waiting to get out ASAP with other sucker's money. Hopefully at a profit, but if they can recoup anything they'll probably be very happy.
I predict neither company is going to achieve monopoly because there's no network effect in ride hailing. In fact, it's likely if one or the other tries to raise prices very much, competitors will pop up over night.
Currently, most drivers use BOTH services. One service can't suddenly get more drivers because they don't actually employee drivers, they're all independent.
Riders also use both services for the very same reasons.
There's no lock-in with the app, and no real learning curve. Switching to one or the other doesn't matter. There's no downside to switching, since there's no Facebook or Twitter like effect where switching to a competitor is "costly" since you leave all your "friends".
There's no real technological advantage of one over the other, and realistically can't be. Finding a ride isn't a hard problem, like say Search is. A student in an advanced CSCI class can solve the problem.
The real question is... after all those years, how can Uber NOT BE PROFITABLE ???
Where the money goes ???
they just have to develop ONE freaking application... how the hell are they burning all those billions dollars they earn with their million non paid drivers ???
I mean, on Each and every ride, Uber get his own cut of profit !!!
Can anyone explain me where the money goes beside prostitutes and cocaïn ???
And you want to blather about the Clintons like that's not Putin's cock in your mouth, jizzing money all over your faggot traitor face, Trumptard? Get shot please traitor, back to Moscow with you.
If the billions raised by Uber and Lyft hadn't materialized, the money still wouldn't have gone to poor people to start their projects because the government only allows capital to be acquired by those who can pay lawyers a million dollars to get the government's permission to raise capital.
This rapid growth at all costs strategy is not new. The robber barons of the gilded age would literally kill the competition if given the chance. In more recent times Jack Welch, the CEO of GE from 1981 until 2001, was famous for his "#1 or #2" strategy.
Here is an excerpt from the 2003 article The Competitor: Jack Welch's Burning Platform:
That's what Amazon is doing. Unfortunately, it's working.
I don't respond to AC's.
Isn't monopoly the entire purpose of intellectual property? Why would you expect companies built on it to be anything other than monopolies in practice and philosophy? It is so mundane, most people here don't really see any alternative.
Actually most rideshare drivers have both the Uber and Lyft apps running at the same time. When they accept a ping on one app they set the other to offline until the ride is complete so they can protect their acceptance rate. There is actually another app, called Mystro, that manages this process for you. It also allows the driver to set various preferences and automatically prioritize certain rides over others. Mystro is supposedly working to incorporate other gig services like Door Dash, Postmates, and Uber Eats.
...is another crap product (at the start) that got out faster.
Overall, society gets a new concept faster. We are able to rationalize about the woes in public.
Otherwise you have "Magic Leap" where we don't know what we are going to get until we get it, and it's usually missing the mark.
That's worse for investors, buyers, and society.
Science & open-source build trust from peer review. Learn systems you can trust.
I think the limiting factors on monopoly profits (in an unregulated market) are the size of the barriers to entry and the amount of money the customers have.
Clearly, the customers can afford much higher prices. They've been paying higher prices to taxi services for years.
Barriers to entry for a ridesharing service trying to compete with a monopoly provider (either Uber of Lyft, whichever wins) don't seem that high to me. They have to put together an app and then advertise the shit out of it. That seems doable in the age of venture capital.
Also, we don't live in an unregulated economy. The FTC considers a company to be a monopoly if they serve (I think?) 70% of their market Then they get extra scrutiny and prohibitions on anti-competitive behavior.
For these reasons, I agree that we are unlikely to see a true monopoly. I don't think Uber can kill Lyft. I think we wind up with a Microsoft/Apple situation, where the two companies differentiate by culture, and price follows. Many drivers already prefer Lyft because Lyft riders are more likely to tip than Uber riders.
The problem is that the barriers to entry are too low to ever let them really get groovy with the predatory pricing. Especially if they can't kill Lyft. Killing Lyft would bring close FTC scrutiny, so they might not even try.
Not a businessman, not an economist, not a historian, not a scholar. A moron.
I would argue that the network effect is a benefit to the consumer in the area of IT services or devices.
This technology is so complex that the average non-engineer couldn't wade through a litany of incompatible choices. And would get stuck in islands of unusability. So, what, I have to install 10 ride-sharing apps, depending on where I'm going to be, and carry 5 different kinds of payment card to use them, because each service uses a different payment infrastructure?
Probably the ideal end-state, as far as the consumer is concerned, is a duopoly, to ensure competitive improvement and price competition, but also with regulated mandated interoperability / mobility of data, eventually, once the tech is mature enough and market well defined enough to enable that.
Where are we going and why are we in a handbasket?
Just call it an "economic moat" like Warren Buffett does. He is said to only invest in companies where he sees an economic moat.
the power is diluted drastically. That's because you're mostly spending on necessities (food, housing, healthcare, education, transportation and communications). In other words, you're not in a stronger bargaining position by making purchases since were going to make those purchases anyway. Not so for the ultra rich.
Yeah, the Clinton's suck eggs and you'll never go broke hating on them. But buying competitors rules. Again, you can count on the working class to need certain things. You can buy your competitors and jack up prices. If all else fails you liquidate your purchase like they did with Sears and then stick the government with the debt from pensions and the like. It's a win-win.
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there is zero actual risk. That's because:
a. They only invest when the probability of a big payout is high or when it's guaranteed (often by the government in the form of bail outs).
b. They use the losses to offset taxes paid on the wins.
c. If all else fails they game the system. Like art dealers, where they buy a painting for $1 million, then another from the same artist for $2 million, declare demand for the paintings makes them worth $10 million each, donate them to a gallery and write off $20 million on their taxes for a net of $4-6 million. If you ever wondered where ridiculously overpriced art came from this is it.
The system isn't broken, this is how it was built to work, and folks like you let it be built that way because of blind faith in capitalism.
As for who that money should go to, how about the people who earned it? e.g. the working class.
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it's only a measurement of power past the point where you can spend it. Until then it's a means to the end of obtaining the goods and services needed to live a nice life.
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They generally become super wealthy by inheriting it.
That's not quite what your inequality.org links says.
22% had inheritances up to $1M
11% had inheritances over $1M
7% had inheritances over $50M
21% made the list solely through inheritance ($1.1B+)
What's "super wealthy"? Getting an inheritance "up to $1M".... that's like, everybody. And 12% of US households are worth over a $1M, so I think it takes more than that to be "super" wealthy.
Secondly, getting an inheritance doesn't mean you didn't make your billions yourself. Bill Gates came from a rich family, but he was a billionaire before his parents died. The Forbes 400 is mostly people who started as thousandaires and millionaires who then did something to become super wealthy.
How could anything with "Blitz" in the title be bad for society?
Wall St creates an enormous amount of money -- literally through its commercial banking operations -- that allows the funding of these mega deals. Without the leverage of these money creating loans the valuations would be more in line with economic reality. Wall St lives on leverage, but to create leverage an asset must be found against which a loan can be made. Without an asset to purchase no loan can be made and no Wall St debt added to the system. But, almost all assets are now leveraged to the hilt. So, to keep this Ponzi Scheme -- Ahem I meant system -- going Wall St needs to find new assets. What better place than Silicon Valley with all those bright, shiny, new startups! A loan can only be made against the value of an asset, so the more valuable the asset the bigger the loan and the bigger the debt instrument, and more fees for Wall St.
A moment of reflection will show that this is truly a Self Perpetuating Ponzi scheme. A new asset is created that is disconnected from real economic value. I.e. the startup IPO. That asset is purchased by leverage created money, which makes it artificially attractive, so the price of the asset goes up. The increased "value" of the asset can then be used to back more money creating leverage loans. Rinse and repeat...until the bust comes.
the King didn't need the peasants to buy his product. He just owned everything and the peasants did as they were told. We're returning to monarchy, we've just changed the names from Kings, Queens and Duke/Duchess to CEO/CFO and principle shareholder.
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