Good products and bad companies
Over the past 15 years, clever digital ideas have captured the imagination, transformed habits and reshaped industries and economies.
So it might come as a surprise that so many good digital products of this generation come from bad companies.
Spotify has reshaped music, but the company is still looking to generate a steady profit. Uber has changed cities and become a way of life for some passengers and drivers. The company also spent far more money than it brought in in its 13 years of existence.
App companies like DoorDash, Instacart and Gopuff have hooked some Americans on delivering restaurant meals, groceries or convenience items, but virtually no company that brings fresh food to our doorsteps has managed to make it work financially. Robinhood helped make investing accessible and fun, but it didn’t make free stock trading profitable. Twitter is a cultural force, but it’s never been a good business.
Some tech stars are also (arguably) big business, including Facebook, Airbnb, and Zoom Video. But how have so many companies with transformative technologies broken the rule that a company dies if it can’t balance its checkbook?
The optimistic view is that we want companies like Uber and Robinhood to have the time and money to perfect their products, attract as many customers as possible, and solve money problems later. And some of these digital stars are profitable, depending on how you define “profit”.
The sad view is that we may be living in a technological mirage and the persistence of companies that shouldn’t survive has robbed us of real sustainable innovation. Let’s discuss it:
Maybe this is what a revolution looks like.
Last year, Uber spent almost half a billion dollars more than it generated – and it was a big improvement. If Uber was a family business, it would probably be long gone. The belief that tech disruption is just beginning and investors’ hopes of cashing in on it have kept Uber going.
Proponents of the company say Uber is a leaky canoe by choice. Uber has expanded into many cities and countries at once rather than going slow and has capitalized on its popularity by expanding into a transportation and food delivery hub, races, booze and other goods at our doorstep.
The hope is that this is step 1 in Uber’s journey to something bigger, better for everyone, and profitable. A similar transformation is happening at Spotify, which is trying to overcome the ugly math of music streaming by expanding into potentially lucrative podcasts. Instacart wants to transition from a grocery delivery middleman to selling software to supermarkets to run their businesses. (Software tends to be very profitable. Grocery delivery is not.)
In many ways, that’s exactly what we should want. Because investors believed in their business plans, companies with good ideas have the time and money to dream big, grow, and figure out how to give customers what they want – and eventually generate real profits. also.
Amazon is a famous example of a company that spent more money than it brought in for a few of its early years – a temporary condition until it both had a good product. and a great company. Until the past two years, Netflix also had to keep borrowing money to stay afloat. And some companies, including DoorDash and Spotify, aren’t profitable by conventional accounting measures, but make more money than they spend.
Or maybe hope has clouded common sense.
The other possibility is that these digital ideas never made economic sense in the first place and were buoyed by the misplaced hopes of investors. From this point of view, this generation of “Profits? What benefits? digital businesses is like a landlord trying to expand a house with a rotten foundation.
In the Margins newsletter, financial writer Ranjan Roy and his collaborator Can Duruk have repeatedly argued that the winning digital ideas of the past decade weren’t necessarily the smartest, but the ones with the most money to try ( and keep trying).
“When there’s so much capital focused on the wrong idea, we might never collectively come up with the right idea,” Roy told me. “It’s a perversion of capitalism.”
What opportunities are we missing, Roy asked, explore alternative catering business models that might work better for customers, restaurateurs, couriers and delivery companies? Maybe Uber has both burned a bunch of other people’s money and erased the opportunity for other companies and governments to improve transportation. Instead of Spotify integrating a compensation model that hasn’t worked for most musicians, alternative approaches might have flourished.
These companies, which have not found a way to make their products work financially, have become like a forest that has not been cut down from dead trees and undergrowth. New life does not have the oxygen to flourish.
I find it disorienting that more than a decade into a profound period of digital change, it’s still unclear how the history books will reflect on this moment. Are we at the beginning of lasting technological alterations in the world around us? Or was it all just a well-funded dream?
How Elon Musk makes business decisions: The world’s richest person and soon-to-be owner of Twitter acts largely on “whim, fantasy and the certainty that he’s 100% right,” my colleagues reported, based on interviews with people. who have worked with Musk.
Chinese censors cannot track: Bloomberg Businessweek writing that online complaints from citizens about the Chinese government’s Covid-19 policies overwhelm the legions of government censors tasked with scrubbing critical posts from popular apps. (Subscription may be required.)
“You are about to learn what a Twitter is.” A local TV news segment from early Twitter explains this strange new online addiction. Twitter started in 2006, so this segment wasn’t that far off!
Hugs to that
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