> Son’s strategy depended on writing such large checks—to the likes of WeWork, Uber Technologies, and DoorDash—that his portfolio companies would be able to operate at a loss for years, theoretically giving them time to establish market dominance and long-term profits.
This right here is the root of the problem. It is so blatantly anti-competitive and cause extensive damage to society. It hurts small businesses, discourages innovation and quality, monopolizes the industry, increases consumer costs in the long runs, it entices investors to eschew fundamentals and gamble on hype. It's just no way to run a stable economy. We as a society need to find a stop to this or it can be disastrous in the long run.
I sort of agree? If Son was succeeding with this strategy I would totally agree that it's a huge problem.
But he utterly failed. All he did was redistribute investor money into consumer pockets(and weirdly distort some markets in ways that are difficult to understand).
It seems like Softbank is a story of would-be monopolists losing their shirts and consumers(and even employees in those sectors) benefitting from the competition.
I would not minimize the amount of damage done to transportation, hospitality and dining, considering the importance of those industries in a lot of cities.
Softbank radically destabilized several economic sectors in an attempt to monopolize them. That kind of thing used to be a crime, and it should be again.
It shouldn't matter if they were successful or not, the method is, as parent wrote, sustainable and has no place in a supposedly stable economy.
Just like a robbery is illegal no matter if it was successful or not.
Plenty of other companies employ the same tactic but within one company and calling products "loss-leaders". Microsoft can run GitHub without making any profits with GitHub itself, as they can spend money earned elsewhere on running GitHub as a "loss-leader", just in order to push out any competitor that doesn't have a huge corporate behind them.
I believe Son has succeeded with this strategy if the bar for success is him getting rich and getting others rich. In the early 2000s he came from nothing, made a fortune, lost it all, and then remade it again. But at the end of the day, his strategy essentially hypes a company which then IPOs and he offloads his risk to the general public. He might be a good example of survivorship bias, how many have tried this very same thing only to fail miserably?
Maybe. If so, we're talking about a single investor out of at least hundreds that have similar, if not so insane, models. They work out fine, many of those posting here work for a company funded by such back in those days.
In the late 90's/early 00's it was interesting to see which sites took off and which did not. I owned a hosting company and was fairly active in the community. It was an open secret that the giant sites of today were simply losing money on a monthly basis due to infrastructure costs with rich investors picking up the tab.
Other competing bootstrapped companies with regular Joe founders simply could not keep up when their competitors could simply burn $100k/mo in bandwidth and server bills while instead they needed to be responsible with sustainable growth. I had more than a handful of founders/company owners who had previously perfectly sustainable models built up over half a decade only to be crushed by loss-making VC money.
I often wonder how much different the Internet would look like if a startup remained a startup, and not some high finance big business industry that took over the title.
> But he utterly failed. All he did was redistribute investor money into consumer pockets(and weirdly distort some markets in ways that are difficult to understand).
One might argue that the effects of "gig economy" and similar "modern tech" companies on local economies are damaging as well, beyond "weird distortions":
- residents suffering from noise and rising rents thanks to AirBnB and copycats
- taxis going out of business because they can't compete with Uber leading to people depending on regulated, discrimination-prevented taxis having issues, and to people in "high demand" situations like airports or event venues being squeezed for their money
- restaurants, many of which were already at the edge of financial survivability prior to COVID, facing extortion by delivery apps - either use them and depend on them, or having the delivery apps simply subsidize your competition until you go broke
- employees of all these companies who end up with down-pressure on their wages, and city governments with funding issues because employment tax income collapses as well, and as a result of that everyone else because governmental services degrade
Someone will always pay for the supposed "inefficiencies" that cut-throat capitalism "identifies" - and in almost all cases it is those at the lowest rungs of society that bear the worst load.
That's not all. Softbank's oversized investments into hype machine companies drove investors away from funding legitimate companies in those spaces. The approach of throwing huge sums of money at dubious companies is a huge tax on innovation.
> and weirdly distort some markets in ways that are difficult to understand
The hypocrisy of social engineers presently touting outcome-based economic management policy generally (doesn't apply here apparently, or maybe that's HN selection bias), and the general lack of antitrust enforcement post Nixon don't have something to do with it?
It is only a relatively small problem, because the guy at the helm appears to be not sufficiently successful with his approach. That said, he did have some notable wins ( Alibaba comes to mind ), so whether we discount is as luck or something else, the approach mirrors venture's unicorn search ( 19 will be busts, but one will be a massive payoff ).
Separately, just because Son is losing a lot does not mean that a better equipped investor won't try to do the same, but better. At that point, this strategy would absolutely be an impediment to regular consumer.
As consumers we benefit from the innovation and probably lower prices for a while, but I’m not sure the externalities are worth it.
Maybe an Uber rolls into town with their funny money. 5 years later, we’ve lost lots of small taxi companies, everybody is working in the gig economy, all the profits are booked in a tax havens and the prices are going up even higher than they were.
I started using Uber in April 2014. As a blind person I have taken 2047 trips for a total of 9379 miles. Contrary to your hypothetical, Denver still has its original terrible taxi companies, and Uber is still a good deal, 8 years later. Heck, the Taxi companies are actually now better because they provide apps, something that they were super reluctant to do before Uber because it removed the excuse of the broken credit card reader. Anyone remember that one?
I'm so tired of people pointing at theoretical harms like this rather than evaluating the actual situation. If you had told me 10 years ago that I could press a button on my phone and be guaranteed to be picked up, rather than calling some creepy cab company at 2 AM and being told that someone would be there in 30 minutes and having to wait all night, I would still find that hard to believe. And yet, here we are.
Another thing that really grinds my gears is seeing people cite how there are more emissions now because more people are using Uber. Buddy, that's me you're talking about. My Uber is making those additional emissions. Because in the old days I was trapped at home without easy access to transportation and now I can travel anywhere in the city at any time just like you can, which means I went from producing 0 emissions to actually, you know, living my life.
I've heard a saying (living in Tokyo and close to the Startup scene) that if you have a startup and Softbank comes in calling, you better take their investments or they'll bankroll your competition enough to put you out of business.
This seems to be a case of the market working as intended.
The are making risky plays to establish monopoly but the market actually doesn't reward that unless the government helps to solidify those monopolies.
Thus they use billions with this strategy.
Its questionable if the consumers are hurt, as basically SoftBank is subsidizing the consumers.
Now one can argue that in this process society is hurt in some more subtle ways. But that's hard to quantity. And we also get decent netflix shows out of all that wasted investment.
> Its questionable if the consumers are hurt, as basically SoftBank is subsidizing the consumers.
This subsidization is not free though. They are distorting and ruining markets in the process. Driving actually profitable competitors out of business, then collapsing themselves.
What's the difference between this and Google offering YouTube or Analytics for free (and at a loss) for years? What's the difference to SaaS companies never turning a profit and operating at a loss for their whole life?
You could indeed make the same argument about those products, it seems to me? We might've had much better alternatives to those products if they hadn't.
Google's a publicly traded company which is profitable in other areas. Search can carry the load financially while they achieve market dominance in other areas.
This model is based on removing public market forces on a company while the company bleeds money in order to achieve dominance.
W/R/T other SaaS companies doing the same, SaaS startups exit strategies include acquisition that D2C business don't really have. Who's going to be big enough or see enough value in buying Uber/WeWork/Doordash to augment their current offerings? Amazon can't buy them all at the peak of their valuation.
Analytics is a special case because the metrics they got from it can be fed into their advertising system to better deliver ads. They may have run it "at a loss" but they did it for data that they certainly made a profit off of.
Agreed. However, IMO SoftBank is just a symptom, when world's banks are (were) so liberal with the money, you get these type of deformations, zombie companies is another one.
It's important to understand that SoftBank is no ordinary bank; while it had been a reasonably successful bank, the distortion truly began with the Saudi government turning up and asking them to invest $200bn for them.
There simply isn't $200bn of real positive capturable return investment opportunities out there available at once. Anything physical would be hopelessly bottlenecked by its own size and would be unable to scale rapidly enough for the investors. So it had to be thrown at all these hugely speculative projects with the goal of capturing entire markets.
The real problem is that, due to a century of fossil fuel dependence, there's a huge amount of wealth concentrated in weird desert monarchies.
This. The disease is gross wealth inequality that leads to a certain sector of society having to figure out where to put all that money while the bottom 99.99% are facing real problems.
As I understand it, Rockefeller's initial strategy with Standard Oil was highly risky in retrospect, because it would only have paid off if new major fields weren't discovered outside of the Pennsylvania, etc. area before he managed to consolidate.
Of course, oil was eventually discovered in Texas, etc. but luckily for Rockefeller that was only after his bet had paid off.
>This right here is the root of the problem. It is so blatantly anti-competitive and cause extensive damage to society. It hurts small businesses, discourages innovation and quality, monopolizes the industry, increases consumer costs in the long runs, it entices investors to eschew fundamentals and gamble on hype. It's just no way to run a stable economy. We as a society need to find a stop to this or it can be disastrous in the long run.
Surprised this is not more unpopular on HN. The entire YC model of startups is literally this, grow so big so fast you consume the entire market.
> grow so big so fast you consume the entire market
That isn't the unpopular part. The derided part is doing so with poor unit-economics. You still need to make a profit or what is the point?
Another big difference is that is very common to run at a loss early on in the life of startup ... but when examined more closely the marginal costs should still make sense. If you are small enough that R&D overhead, or hiring ahead of revenue (growth investment) is overshadowing the top-line ... well that is the just normal startup finances. But there still needs to be a business model where it will make sense with enough sales, and the cost will have sub-linear growth relative to the revenue.
Isn't this how most fast growing companies work? Or initiatives from large companies?
Your comment makes it sound as if this is just Softbank, but I don't see the difference between this and any other hypergrowth company out there to capture and dominate a market with investor funding, operating on losses for years in order to drive out competition.
What makes Softbank different is its incompetence, not its method. But this is actually doing the market a favor by losing in the end, opening up space for competition again.
But all new business, big or small, have traditionally expected to eat losses till they establish themselves. How is this any different though. Even govt gives taxbreaks to new developers.
The world without Softbank is not infested by monopolies, bot at all. There never were taxi medallions worth hundreds of thousand of dollars, there is no monopolistic ponzi game in real estate, the world is a perfect competition as the economics 101 predicted. If only not for Softbank ruining it for everyone right
No one has demonstrated anything. SoftBanks portfolio has taken a hit, but it is hardly a nail in the coffin. Son's actions have generated enormous wealth gains for the people he backs, but in the end the public eats a majority of the losses. Son has still made billions and billions using this model, so how can you say it does not work? You would have to look at funds that tried this same thing and went bankrupt.
"Engaging in such a strategy used to be illegal . Capitalism works because companies that thrive take a bunch of inputs and create a product that is more valuable than the sum of its parts. That creates additional value, and in such a model companies have to compete by making better goods and services.
What predatory pricing does is to enable competition purely based on access to capital. Someone like Neumann, and Son’s entire model with his Vision Fund, is to take inputs, combine them into products worth less than their cost, and plug up the deficit through the capital markets in hopes of acquiring market power later or of just self-dealing so the losses are placed onto someone else."
Really? As a bottom dweller, rather than a master of the universe, I don't see any great harm.
Take Uber. A great service, cheaper rides, what's not to like. If investors stop subsidizing then and Uber was wiped from the board, who cares? I'll find some other way to get a ride. In fact their impact has only been positive, in shaking up the moribund taxi industry. I certainly don't see how it increases consumer costs in the long term, and quality has clearly benefited. Some of those benefits will stick even if Uber tanks.
As to "entices investors to eschew fundamentals and gamble on hype", frankly who the hell cares? Investors are big boys and girls, they don't need hand holding.
It's called dumping. You have artificially low costs temporarily in order to put competitors out of business. Once that's achieved, you then increase prices.
I'm actually not sure how dumping would work when done by Uber, though. Individual taxi drivers will go out of business, but there's little barriers to entry to new taxi drivers starting out again once Uber starts to flex its pricing power. Of course the picture changes if Uber starts to lobby for regulatory protection. You have to look at the micro details of the market to see whether there's a problem there.
When Uber has wiped out half of the taxi industry and has made public transit infrastructure and development non existent, what you are left with is a damaged society.
When WeWork buys hundreds of properties and prevents companies from establishing their offices in the city center, making you even more dependant on cars and leaving a dead city center, what you are left with is a damaged society.
When DoorDash forces thousands to live a precarious life, surviving only by delivering orders 16 hours a day to barely make minimum wage when taking into account gas and depreciation of your car, forcing small restaurants to lower their prices or close (because they cannot ever match the economies of scale of McDonald's), what you are left with is a damaged society.
It is a form of social dumping, of selling at a loss, and only benefits you for a very brief moment, before leaving with with a damaged society. Then, the options are, the company succeeds and inevitably raises their prices threefold to make up all of that lost money, fucking you over, or the company fails, and all your infrastructure is gone.
They don't need hand holding. I don't give a shit about their well being. They need hand cuffing, to protect our society from their destructive practices.
It used to be way cheaper than taxi's, and you'd reliably get one much faster than calling a cab or trying to hail one.
Now they've approached monopoly and need to actually start becoming profitable, it's become as expensive if not more expensive than taxi's.
Plus for anything other than very long rides at surge prices you will get repeatedly cancelled, over and over.
Imagine having a competitor receiving billions to take over the market, no oversight. They can afford to operate at a loss long after all competitors are bankrupt.
Competing against them would be foolish.
To get an idea of long term damage, imagine Uber and Lyft went bankrupt as they're running at a loss, what would you then use for transportation?, or imagine they 5-10 the price, not like you have alternatives. Sure, the taxis were crappy as alternative, but that was mostly due to limited number coming from regulation, they had no need to compete either.
True in the short term, imagine if a company becomes so dominant that little competition exists and little interest exists to create competition ( search engine ? ) that they can set the price they want.
Then you are stuck paying whatever they demand obviously within reason .
at 100 for a 5 min ride will entice some competition
He seems to be (intentionally or not) applying the angel investing mentality on a larger scale. Not expecting each of these companies to work out, but having an outlier or two that covers the whole $100B+ fund. In that case these early losses would be expected, as companies that implode tend to do so quickly, with the winners only emerging many years later (it's only been 5 years).
Sure one colossal gain on investment can recoup all bad investments but if you are responsible investor you don't throw $300 million at pets.com like ideas. If idea sounds cool on the paper it doesn't mean it will work in the real life necessarily.
How is it different from a16z writing 300m check to Neumann or countless other VCs investing in obvious vaporwares or banking on the "winner takes all" approach while burning millions of dollars every year.
It's not. Ironically, the influence of the ultra-mega-wealthy causes so much distortion and irrationality in markets that it ruins the predictive power of those markets and the ability to rely on markets to efficiently allocate resources. It's no longer a functioning system, just a game for the rich to play among themselves.
Has SoftBank/Masayoshi Son really had great results? A lot of SoftBank was built on their Alibaba investment - $20M which grew to $60B. One stellar investment doesn't create a business model.
SoftBank's purchase of Vodafone Japan wasn't a bad move, but part of that was Vodafone failing miserably in Japan and wanting to exit the market. SoftBank's purchase of Sprint was a disaster until T-Mobile bought Sprint. Their purchase of ARM hasn't yielded anything big for them. They bought ARM for $32B and even if NVIDIA were able to buy ARM for $40B, that would have been less than a 6% annual return on their investment - way below the market return for 2016-2020.
Has there been any big success story for SoftBank beyond their Alibaba investment and purchase of Vodafone Japan (the latter which seems to have have grown at a rate of 8% per year since 2006 which is mediocre at best)? Everything else seems to have been really mediocre or a failure.
Uber? It's still losing money and didn't pay off. WeWork? That imploded. Supercell they were able to flip to Tencent for a few billion which was a nice payday, but somewhat small for the size (and bluster) of SoftBank. Didi? That has sunk like a stone. Coupang has fallen a lot since its IPO, but SoftBank is probably still in the black on their investment there - but it's still not a huge success.
It just seems like they've had one Alibaba where they turned $20M into $60B (a 3,000x return) and the rest of their picks feel like the types of things your coworkers chat about at lunch. "ARM is going to be huge! Everything is going to be chips in the future and it's all going to be ARM!" "WeWork is the next big thing - space as a service! They're going to take over everything with office space and co-working!" "Uber is going to take over transportation! No more subways, they'll just have these autonomous Ubers going around everywhere!" "Wag is like Uber for dog walking! Everyone will pay for premium dog walking!" I'm not even saying that these are bad businesses, but they seem over-hyped and without special insight. They seem like they're the same level of insight that you get over a lunch conversation with random people at work.
For mobile network in Japan, it is considered that SoftBank's acquiring WILLCOM (PHS, simple cellular phone operator) and eAccess (also cellular operator) were a smart move. They gained already assigned frequency bands for them. Govt should had stopped it for fairness.
Acquiring LINE (messaging service dominant in Japan, and also in some asia countries) looks good move but it is still not monetized well.
Investing Yahoo! looks succeeded, perhaps? I don't know when they sold.
Which part of Yahoo do you mean? They bought out a lot more of Yahoo Japan from Yahoo/Altaba before merging it 50/50 with LINE (which you pointed out they owned a significant stake of).
I’ve just resigned from a global Japanese company. Over the years I’ve been completely baffled by their terrible business decisions, but I have a thought about what is going on. This is zero hedge quality stuff here, so don’t make investing decisions, but I am interested if anyone else sees this.
The yen keeps dropping/collapsing as the Bank of Japan keeps their interest rates extremely low (made possible by the government of Japan buying their banks bonds, now owner of over 50%, which is insane, but anyway) they need foreign demand for their currency. So they print yen for their corporations, who go on international buying sprees. The profits from these companies are generally settled in USD, but really any foreign currency will do.
The effect is that they are printing yen at no charge, their global corps pay virtually no interest, but even the most boneheaded executive can generate a foreign currency profit for head office that requires converting foreign currency into yen. Of course they destroy these companies through incompetence, so they keep buying more.
These companies are ridiculously complex with hundreds (possibly thousands) of commercial entities globally so they are probably impossible for anyone to understand, but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate.
Anyway, it is a lot of work sorting out what is going on, and I now think the poor financial & business governance is a feature that helps keep the masquerade going.
This applies to most all major Japanese companies. There have been two notable cases of non-Japanese execs rising to CEO, Carlos Ghosn of Nissan and Michael Woodford of Olympus, and both ended up as cautionary tales of what happens when you refuse to be just a pliable figurehead and try to effect real change.
I mean, that should work as long as they are also good at identifying talent. There are plenty of Japanese people who are very good at their jobs, and being racist (if we're going to rely on pure pragmatism) doesn't in itself make management incompetent. The problem is that the line of thinking that makes racism sound like a good idea is one that also leads to other poor decisions.
While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY). Countries with smaller currencies are even more corrupt of course.
While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.
> this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY)
This is nonsense. Mathematically. OP argues Japanese companies print “a foreign currency profit for head office that requires converting foreign currency into” a falling local currency. That can’t simultaneously be true of the U.S. dollar and Japanese yen. If one currency is falling the other is rising.
I am pointing out one of the many side effects of this policy.
31 years and they still haven’t figured out a way forward. We are all in the same mess, Japan’s situation is just ahead of us. I think their situation is our future. A stagnant economy of zombie companies, a government & central bank playing endless games to avoid collapse and crisis. They will keep this going as long as possible.
I hope they do, it would be an instruction manual for us all, but each decade that passes dims my hope.
I am pretty sure that is the case for almost all the economies of the world that are based on fiat currency combined with debt fueled growth. Which is pretty much all of them.
At some point this dangerous game of musical chairs of sovereign debt will end, and it will be bad for all of humanity
We've been here before many times in history. Some debt gets repaid, some is inflated away, some defaults.
The real crisis won't be in developed countries because whether you like it or not, you need to borrow and spend in their fiat to do business and EVERYONE wants to do business in developed countries. The crisis will be in emerging markets where no one will be willing to lend if rates hit 5% in the US.
This is the case for any economy which relies on the easy extraction of cheap but ultimately finite energy/resources.
Debt is a human constraints that could be erased by a the stroke of a pen. Sure with political consequences, but civilization have endured these kind of consequences before. Debt have been erased, new currencies erected.
Once you run out of oil though... You can't legislate for tractors to run on good will to feed the planet.
I am way more worried of actual physical constraints and the consequences of reaching them (ecosystem collapse, political extremism, wars) than our self imposed idiotic economic models.
But no. Money is just a way invented to distribute production that human society invented. Debt is a mercantile, then capitalist tool to push toward creating productive assets (see venitian shipowners or textile factories before the industrial revolution). It now have new use with the banking system, but obligations are still basically the same.
Also, while i would rather we don't use debt, it's not at all fueling growth. Growth is fueled by energy use (productivity increase is marginal at best), and growth create liquidity needs, which is either resolved by money printing or by debt. So it's backward.
Isn't this the whole business model of SV in the last 20 years? Dump huge amounts of money into non-profitable companies with the hopes that someone will buy them later.
Realistically, I'd say it's been full swing for more like the last 15 years. ...But I think it's just not a viable long term strategy.
During boom times, and when new technologies arise with significant disruption potential, it's not a bad strategy. But... I think it's naive to assume that model will work linearly forever. The economy ebbs and flows, and periods of innovation seems to as well.
Readit News
This right here is the root of the problem. It is so blatantly anti-competitive and cause extensive damage to society. It hurts small businesses, discourages innovation and quality, monopolizes the industry, increases consumer costs in the long runs, it entices investors to eschew fundamentals and gamble on hype. It's just no way to run a stable economy. We as a society need to find a stop to this or it can be disastrous in the long run.
But he utterly failed. All he did was redistribute investor money into consumer pockets(and weirdly distort some markets in ways that are difficult to understand).
It seems like Softbank is a story of would-be monopolists losing their shirts and consumers(and even employees in those sectors) benefitting from the competition.
Softbank radically destabilized several economic sectors in an attempt to monopolize them. That kind of thing used to be a crime, and it should be again.
Just like a robbery is illegal no matter if it was successful or not.
Plenty of other companies employ the same tactic but within one company and calling products "loss-leaders". Microsoft can run GitHub without making any profits with GitHub itself, as they can spend money earned elsewhere on running GitHub as a "loss-leader", just in order to push out any competitor that doesn't have a huge corporate behind them.
Maybe. If so, we're talking about a single investor out of at least hundreds that have similar, if not so insane, models. They work out fine, many of those posting here work for a company funded by such back in those days.
In the late 90's/early 00's it was interesting to see which sites took off and which did not. I owned a hosting company and was fairly active in the community. It was an open secret that the giant sites of today were simply losing money on a monthly basis due to infrastructure costs with rich investors picking up the tab.
Other competing bootstrapped companies with regular Joe founders simply could not keep up when their competitors could simply burn $100k/mo in bandwidth and server bills while instead they needed to be responsible with sustainable growth. I had more than a handful of founders/company owners who had previously perfectly sustainable models built up over half a decade only to be crushed by loss-making VC money.
I often wonder how much different the Internet would look like if a startup remained a startup, and not some high finance big business industry that took over the title.
One might argue that the effects of "gig economy" and similar "modern tech" companies on local economies are damaging as well, beyond "weird distortions":
- residents suffering from noise and rising rents thanks to AirBnB and copycats
- taxis going out of business because they can't compete with Uber leading to people depending on regulated, discrimination-prevented taxis having issues, and to people in "high demand" situations like airports or event venues being squeezed for their money
- restaurants, many of which were already at the edge of financial survivability prior to COVID, facing extortion by delivery apps - either use them and depend on them, or having the delivery apps simply subsidize your competition until you go broke
- employees of all these companies who end up with down-pressure on their wages, and city governments with funding issues because employment tax income collapses as well, and as a result of that everyone else because governmental services degrade
Someone will always pay for the supposed "inefficiencies" that cut-throat capitalism "identifies" - and in almost all cases it is those at the lowest rungs of society that bear the worst load.
The hypocrisy of social engineers presently touting outcome-based economic management policy generally (doesn't apply here apparently, or maybe that's HN selection bias), and the general lack of antitrust enforcement post Nixon don't have something to do with it?
Separately, just because Son is losing a lot does not mean that a better equipped investor won't try to do the same, but better. At that point, this strategy would absolutely be an impediment to regular consumer.
As consumers we benefit from the innovation and probably lower prices for a while, but I’m not sure the externalities are worth it.
Maybe an Uber rolls into town with their funny money. 5 years later, we’ve lost lots of small taxi companies, everybody is working in the gig economy, all the profits are booked in a tax havens and the prices are going up even higher than they were.
Another thing that really grinds my gears is seeing people cite how there are more emissions now because more people are using Uber. Buddy, that's me you're talking about. My Uber is making those additional emissions. Because in the old days I was trapped at home without easy access to transportation and now I can travel anywhere in the city at any time just like you can, which means I went from producing 0 emissions to actually, you know, living my life.
Deleted Comment
The are making risky plays to establish monopoly but the market actually doesn't reward that unless the government helps to solidify those monopolies.
Thus they use billions with this strategy.
Its questionable if the consumers are hurt, as basically SoftBank is subsidizing the consumers.
Now one can argue that in this process society is hurt in some more subtle ways. But that's hard to quantity. And we also get decent netflix shows out of all that wasted investment.
This subsidization is not free though. They are distorting and ruining markets in the process. Driving actually profitable competitors out of business, then collapsing themselves.
This model is based on removing public market forces on a company while the company bleeds money in order to achieve dominance.
W/R/T other SaaS companies doing the same, SaaS startups exit strategies include acquisition that D2C business don't really have. Who's going to be big enough or see enough value in buying Uber/WeWork/Doordash to augment their current offerings? Amazon can't buy them all at the peak of their valuation.
Tech companies DO get involved in these lawsuits from time to time.
Deleted Comment
There simply isn't $200bn of real positive capturable return investment opportunities out there available at once. Anything physical would be hopelessly bottlenecked by its own size and would be unable to scale rapidly enough for the investors. So it had to be thrown at all these hugely speculative projects with the goal of capturing entire markets.
The real problem is that, due to a century of fossil fuel dependence, there's a huge amount of wealth concentrated in weird desert monarchies.
Of course, oil was eventually discovered in Texas, etc. but luckily for Rockefeller that was only after his bet had paid off.
Surprised this is not more unpopular on HN. The entire YC model of startups is literally this, grow so big so fast you consume the entire market.
That isn't the unpopular part. The derided part is doing so with poor unit-economics. You still need to make a profit or what is the point?
Another big difference is that is very common to run at a loss early on in the life of startup ... but when examined more closely the marginal costs should still make sense. If you are small enough that R&D overhead, or hiring ahead of revenue (growth investment) is overshadowing the top-line ... well that is the just normal startup finances. But there still needs to be a business model where it will make sense with enough sales, and the cost will have sub-linear growth relative to the revenue.
Your comment makes it sound as if this is just Softbank, but I don't see the difference between this and any other hypergrowth company out there to capture and dominate a market with investor funding, operating on losses for years in order to drive out competition.
What makes Softbank different is its incompetence, not its method. But this is actually doing the market a favor by losing in the end, opening up space for competition again.
We, as a society, just did that: by demonstrating that this business model doesn't work. You're welcome!
"Engaging in such a strategy used to be illegal . Capitalism works because companies that thrive take a bunch of inputs and create a product that is more valuable than the sum of its parts. That creates additional value, and in such a model companies have to compete by making better goods and services.
What predatory pricing does is to enable competition purely based on access to capital. Someone like Neumann, and Son’s entire model with his Vision Fund, is to take inputs, combine them into products worth less than their cost, and plug up the deficit through the capital markets in hopes of acquiring market power later or of just self-dealing so the losses are placed onto someone else."
Take Uber. A great service, cheaper rides, what's not to like. If investors stop subsidizing then and Uber was wiped from the board, who cares? I'll find some other way to get a ride. In fact their impact has only been positive, in shaking up the moribund taxi industry. I certainly don't see how it increases consumer costs in the long term, and quality has clearly benefited. Some of those benefits will stick even if Uber tanks.
As to "entices investors to eschew fundamentals and gamble on hype", frankly who the hell cares? Investors are big boys and girls, they don't need hand holding.
I'm actually not sure how dumping would work when done by Uber, though. Individual taxi drivers will go out of business, but there's little barriers to entry to new taxi drivers starting out again once Uber starts to flex its pricing power. Of course the picture changes if Uber starts to lobby for regulatory protection. You have to look at the micro details of the market to see whether there's a problem there.
When WeWork buys hundreds of properties and prevents companies from establishing their offices in the city center, making you even more dependant on cars and leaving a dead city center, what you are left with is a damaged society.
When DoorDash forces thousands to live a precarious life, surviving only by delivering orders 16 hours a day to barely make minimum wage when taking into account gas and depreciation of your car, forcing small restaurants to lower their prices or close (because they cannot ever match the economies of scale of McDonald's), what you are left with is a damaged society.
It is a form of social dumping, of selling at a loss, and only benefits you for a very brief moment, before leaving with with a damaged society. Then, the options are, the company succeeds and inevitably raises their prices threefold to make up all of that lost money, fucking you over, or the company fails, and all your infrastructure is gone.
They don't need hand holding. I don't give a shit about their well being. They need hand cuffing, to protect our society from their destructive practices.
It used to be way cheaper than taxi's, and you'd reliably get one much faster than calling a cab or trying to hail one.
Now they've approached monopoly and need to actually start becoming profitable, it's become as expensive if not more expensive than taxi's. Plus for anything other than very long rides at surge prices you will get repeatedly cancelled, over and over.
I have just gone back to calling or hailing cabs.
Competing against them would be foolish.
To get an idea of long term damage, imagine Uber and Lyft went bankrupt as they're running at a loss, what would you then use for transportation?, or imagine they 5-10 the price, not like you have alternatives. Sure, the taxis were crappy as alternative, but that was mostly due to limited number coming from regulation, they had no need to compete either.
Holy shit wtf
No wonder he is losing billions left and right. It seems like dot-com bubble mentality didn't leave his head.
Isn't the point that the financed companies are able to burn cash for years?
Deleted Comment
SoftBank's purchase of Vodafone Japan wasn't a bad move, but part of that was Vodafone failing miserably in Japan and wanting to exit the market. SoftBank's purchase of Sprint was a disaster until T-Mobile bought Sprint. Their purchase of ARM hasn't yielded anything big for them. They bought ARM for $32B and even if NVIDIA were able to buy ARM for $40B, that would have been less than a 6% annual return on their investment - way below the market return for 2016-2020.
Has there been any big success story for SoftBank beyond their Alibaba investment and purchase of Vodafone Japan (the latter which seems to have have grown at a rate of 8% per year since 2006 which is mediocre at best)? Everything else seems to have been really mediocre or a failure.
Uber? It's still losing money and didn't pay off. WeWork? That imploded. Supercell they were able to flip to Tencent for a few billion which was a nice payday, but somewhat small for the size (and bluster) of SoftBank. Didi? That has sunk like a stone. Coupang has fallen a lot since its IPO, but SoftBank is probably still in the black on their investment there - but it's still not a huge success.
It just seems like they've had one Alibaba where they turned $20M into $60B (a 3,000x return) and the rest of their picks feel like the types of things your coworkers chat about at lunch. "ARM is going to be huge! Everything is going to be chips in the future and it's all going to be ARM!" "WeWork is the next big thing - space as a service! They're going to take over everything with office space and co-working!" "Uber is going to take over transportation! No more subways, they'll just have these autonomous Ubers going around everywhere!" "Wag is like Uber for dog walking! Everyone will pay for premium dog walking!" I'm not even saying that these are bad businesses, but they seem over-hyped and without special insight. They seem like they're the same level of insight that you get over a lunch conversation with random people at work.
Acquiring LINE (messaging service dominant in Japan, and also in some asia countries) looks good move but it is still not monetized well.
Investing Yahoo! looks succeeded, perhaps? I don't know when they sold.
Investing WeWork is really terrible to see.
Their significant stake in Z Holdings, Yahoo Japan and LINE merger, is doing all right too.
The yen keeps dropping/collapsing as the Bank of Japan keeps their interest rates extremely low (made possible by the government of Japan buying their banks bonds, now owner of over 50%, which is insane, but anyway) they need foreign demand for their currency. So they print yen for their corporations, who go on international buying sprees. The profits from these companies are generally settled in USD, but really any foreign currency will do.
The effect is that they are printing yen at no charge, their global corps pay virtually no interest, but even the most boneheaded executive can generate a foreign currency profit for head office that requires converting foreign currency into yen. Of course they destroy these companies through incompetence, so they keep buying more.
These companies are ridiculously complex with hundreds (possibly thousands) of commercial entities globally so they are probably impossible for anyone to understand, but my gut tells me this is a massive ponzi scheme that will explode the moment the Japanese central bank raises their interest rate.
Anyway, it is a lot of work sorting out what is going on, and I now think the poor financial & business governance is a feature that helps keep the masquerade going.
Can’t see that being good for any business if you constrain outside talent like that.
There has been recent change starting March 2022 has depreciated recently, but it only makes Japanese exports more competitive.
Japan's massive public debt is internal in domestic currency.
While credit based financial system is a ponzi scheme, it has the huge advantage in trading of transfering digitally, which was not possible for any debit based financial system before Bitcoin.
This is nonsense. Mathematically. OP argues Japanese companies print “a foreign currency profit for head office that requires converting foreign currency into” a falling local currency. That can’t simultaneously be true of the U.S. dollar and Japanese yen. If one currency is falling the other is rising.
What makes you think the BoJ will ever reverse this trend (long term)?
Japan has had negative real interest rates for 31 years...
31 years and they still haven’t figured out a way forward. We are all in the same mess, Japan’s situation is just ahead of us. I think their situation is our future. A stagnant economy of zombie companies, a government & central bank playing endless games to avoid collapse and crisis. They will keep this going as long as possible.
I hope they do, it would be an instruction manual for us all, but each decade that passes dims my hope.
I am pretty sure that is the case for almost all the economies of the world that are based on fiat currency combined with debt fueled growth. Which is pretty much all of them.
At some point this dangerous game of musical chairs of sovereign debt will end, and it will be bad for all of humanity
The real crisis won't be in developed countries because whether you like it or not, you need to borrow and spend in their fiat to do business and EVERYONE wants to do business in developed countries. The crisis will be in emerging markets where no one will be willing to lend if rates hit 5% in the US.
Debt is a human constraints that could be erased by a the stroke of a pen. Sure with political consequences, but civilization have endured these kind of consequences before. Debt have been erased, new currencies erected.
Once you run out of oil though... You can't legislate for tractors to run on good will to feed the planet.
I am way more worried of actual physical constraints and the consequences of reaching them (ecosystem collapse, political extremism, wars) than our self imposed idiotic economic models.
Also, while i would rather we don't use debt, it's not at all fueling growth. Growth is fueled by energy use (productivity increase is marginal at best), and growth create liquidity needs, which is either resolved by money printing or by debt. So it's backward.
During boom times, and when new technologies arise with significant disruption potential, it's not a bad strategy. But... I think it's naive to assume that model will work linearly forever. The economy ebbs and flows, and periods of innovation seems to as well.
Deleted Comment