Good products and bad deals

Over the past fifteen years, smart digital ideas have captured imaginations, transformed habits, and reshaped industries and economies.

That’s why it may seem surprising that so many great digital products of this generation have come out of bad deals.

Spotify has transformed music, but the company is still trying to figure out how to consistently earn revenue. Uber it has revolutionized cities and has become a way of life for some passengers and drivers. The company has also spent far more money than it has earned in its thirteen years of existence.

App companies like DoorDash, Instacart and Gopuff have hooked some Americans on restaurant food deliveries, groceries, or convenience items, but Hardly any company that brings fresh food to our doors has ever made it work financially. Robin Hood It helped make investing accessible and fun, but it hasn’t made free trading profitable. Twitter it’s a cultural force, but it’s never been good company.

There are some tech stars that are also (possibly) big companies, like Facebook, Airbnb and Zoom Video. But how have so many companies with transformative technologies broken the rule that a business 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 refine their products, get as many customers as possible, and solve the money problems later. And some of these digital stars are profitable, depending on how you define the term “earnings.”

The pessimistic view is that we may be living in a technological mirage and the persistence of businesses that should not survive has robbed us of true and lasting innovation. Let’s break it down:

maybe like this are revolutions

Last year, Uber spent nearly $500 million more in cash than it generated, and that was a huge improvement.. If Uber were a family business, it probably wouldn’t exist anymore. Faith that technological innovation is just beginning, and investors’ hopes of cashing in on that, have kept Uber alive.

Company supporters say Uber is a leaky canoe by choice. Uber expanded to many cities and countries at once instead of going slowly and capitalized on its popularity by becoming a transportation hub and delivering food, groceries, alcohol and other products to 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 taking place at Spotify, which is trying to make up for poor streaming music numbers by expanding into potentially lucrative podcasts. Instacart wants to go from being a grocery delivery broker to selling software to supermarkets to run their businesses. (Software tends to be very profitable; grocery delivery is not.)

In many ways, that is exactly what we should want. Because investors have bought into their business plans, companies with good ideas have the time and money to dream big, expand, and figure out how to give customers what they want, and eventually make real profits, too.

Amazon is a famous example of a company that spent more cash than it took in during some of its early years., a temporary condition until he had a good product and a great business. Until a couple of years ago, Netflix he also needed to keep borrowing money to stay afloat. And some companies, including DoorDash and Spotify, aren’t profitable by conventional accounting measures but generate more cash than they spend.

Or maybe hope has clouded common sense

The other possibility is that those digital ideas never made economic sense in the first place and were backed by the misguided hopes of investors.

From that point of view, that generation of digital companies that don’t care about profits are like a homeowner trying to expand a house with rotten foundations.

In the Margins newsletter, finance writer Ranjan Roy and his collaborator Can Duruk have repeatedly argued that the winning digital ideas of the past decade have not necessarily been the smartest, but rather the ones with the most money to try (and keep going). trying).

“When there’s so much money going into the wrong idea, we may never collectively find the right idea,” Roy told me. “It is a perversion of capitalism.”

What opportunities are we missing to explore alternative food delivery business models that might work better for users, restaurant owners, couriers and delivery companies? Roy wondered. Perhaps Uber has spent other people’s money and eliminated the possibility for other companies and governments to improve transportation. Instead of Spotify implementing a payment model that hasn’t worked for most musicians, alternative approaches could have prospered.

Those companies, which have not found a way to make their products work economically, have become a forest that has not been cleared of dead trees and brush. The new life does not have the oxygen it needs to flourish.

I find it disorienting that, after more than a decade of profound digital change, it is still unclear how the history books will reflect that moment. Are we at the beginning of a lasting alteration of the world around us, driven by technology? Or has this all been a well-funded dream? (YO)

(On Tech)