Who are the Real Winners of Stupid Tech VC Money
Initially it is obvious.
It’s the consumer.
How? The cash is subsidising the initial users in order to drive growth in the hope of realising a sustainable business model in the future.
That translates to you getting a service at below cost price.
Think going into a car dealership and the sales person giving you the car half-price in order to ‘prove’ a business model.
Why do VC’s do this?
They throw buckets of cash at a problem, which they are happy to burn through incredibly quickly, in an attempt to drive their competition out of business. The aim of the game is market domination and the hope is that increase of customers makes the business more efficient, lowering costs which hopefully means that the pricing model does not have to change much.
And if it does the consumer loses.
The competition in the market is gone and the spoils for the winner are an effective monopoly on the profits that other companies have been forced to leave.
It’s a disingenuous move that is played often by venture capitalist in huge markets. Instead of pricing a product as reality has imposed they undercut what other people can feasibly offer the service for.
This is often described as being disruptive.
Sure it is disruptive to existing industries, see Uber and Taxi services, but when your business model no longer needs to rely on standard economics imposed by traditional business models — which require businesses to earn a profit — you have an opportunity to grow quickly while losing Billions.
Is that disruptive, or is it simply speculative and duplicitous?
To consumers it is probably both. It lets them benefit from a better service at a lower cost while hiding the fact that it is not sustainable long term. It hides that if certain economies of scale are not reached, if technology does not advance, if providers of the service are not willing to accept less, cost will return to the previous level while the consumer will expect the better service they have grown used to receiving at the lower cost.
It’s why VC investment as a race to the bottom is a vehicle headed for disaster.
Unsustainability is not a ship that is easy to get back on track.
I see the jibes that say ‘but Amazon was unprofitable for nearly 20 year, now look at it’ but that misunderstands the infrastructure and investment in physical warehouses they had to make to reach the point they are at now.
What we are seeing is huge investment in companies that have no existing or proven business model nor any realistic hope in reaching it with the susidies they are paying just to find out if they can ever make money.
A Chinese umbrella startup lost nearly 300,000 umbrella’s across a city in just a few month lately.
In short, we need more real business that solve more real problems.
But while VC’s are willing to pay for your lunch eat as much as you can.
It won’t be around forever.
