Does it dry up like a raisin the sun? Or fester like a sore and then run
November 20, 2015 1:11 PM   Subscribe

The Slow Demise of a Unicorn Everybody knows how the first tech boom went bust. But this time around, something's different. More than 100 tech start-ups are currently valued at more than $1 billion dollars, if you go by what VCs and other early investors have paid to buy ownership stakes. Unlike in the early 2000s, very few of today's unicorns have gone public, so there's no way to know what the market really thinks they're worth. Lately though, it seems like the hype train may be coming of the rails. So what happens to those companies now? The New York Times profiles Living Social to find out.
posted by Diablevert (65 comments total) 15 users marked this as a favorite
 
I'm facepalming so hard at that ridiculous valuation list.

FWIW - if any "angels" are reading this, I am more than glad to offer you my professional services as an advisor on any investments you may be considering in tech startups. My fee structure is very reasonable, I assure you.
posted by odinsdream at 1:23 PM on November 20, 2015 [7 favorites]


Unlike the dotcom era, many unicorns have substantial revenues and revenue growth to back up the valuations. At the same time there are a few like Snapchat that seem to be significantly overvalued.

Also unlike the dotcom boom because these are not public companies there is less market transparency. we don't know the exposure and how far ahead they are. If a mutual fund owns a big slice of a public company and that company's stock tanks the loss is reflected quickly in the value of the fund. Snapchat could be looking at a big hit in their valuation when they do their next funding round, but until that happens or the fund writes down the value of the shares of their own accord, we just don't know the magnitude of the loss.
posted by humanfont at 1:25 PM on November 20, 2015 [5 favorites]


Sometimes, I really do wonder how history will look back on shit like this. It's amazing and perplexing how much money is being tossed around, capital basically chasing mythical mega-super-awesome multiplied capital, in a way that future generations may well look back on as some sort of vague repeat of the tulip market boom and bust.
posted by tocts at 1:26 PM on November 20, 2015 [13 favorites]


I was a founder at a company that came out of an incubator loosely associated with some of the early stage Living Social people and basically, I'm surprised it took them this long to fall apart. I didn't interact with a ton of people in that startup scene before I got out of there but of those I did, a ridiculously high proportion of them went on to commit unethical acts ranging anywhere on the scale from "wow, really?" to "we're considering a lawsuit unless you pay us back."
posted by feloniousmonk at 1:26 PM on November 20, 2015 [12 favorites]


The valuations are higher this time around because the rules of the game are more beneficial to investors. All these investments are convertible loans, so the investor gets their money back if the company sells for far below its official valuation. And tax laws are set up so companies can't give ridiculously huge percentages to their employees anymore, diluting the stock. Not saying these valuations aren't ridiculous, but there are factors at play that push them up.
posted by miyabo at 1:27 PM on November 20, 2015 [15 favorites]


Sometimes, I really do wonder how history will look back on shit like this.

"Wait, they paid how much for tulips?"
posted by Etrigan at 1:32 PM on November 20, 2015 [1 favorite]


Yeah, Square going public at $3.9B and has risen 45%; totally off the rails. Clearly the bubble has burst.

WTF are these people smoking when they say Square is an example of the hype going bad?
posted by Bovine Love at 1:35 PM on November 20, 2015 [2 favorites]


Square is considered a disappointment in that its private valuation was as high as $6B before the IPO. At close of market today they're worth $4.2B, or about $6B on a fully diluted basis. Private investors may currently have a net loss. OTOH Square's ratchet protects many of those investors. Ratchets are particularly popular right now and are one of the tricksy things companies are doing to secure higher valuations.

I hate the whole "unicorn" terminology, but there are a lot of valuable startups that do justify their high valuations. LivingSocial is not one of them and was obviously not one of them. It was clear at the time they were getting all the hype that both it and Groupon were not sustainable businesses. (Or less charitably, were scams.)
posted by Nelson at 1:38 PM on November 20, 2015 [7 favorites]


About a year ago Snapchat's CEO outright said his company was overvalued and they were planning around that fact.
posted by vogon_poet at 1:39 PM on November 20, 2015 [1 favorite]


At least Square has a business (payment processing) with fees and stuff that they can point to; the rest of that social stuff just blows over like the fake town in a Western movie set as soon as the users leave. And there's not much as fickle as the users of free Internet services.
posted by wenestvedt at 1:40 PM on November 20, 2015 [14 favorites]


The Square IPO situation also effectively wiped out the majority of, if not all employee options, which must be a great motivator.
posted by feloniousmonk at 1:41 PM on November 20, 2015


Looking at the referenced WSJ graphic:

Uber, worth $51.0 billion. "Disrupting" the taxi cab market by not having employees or carrying insurance - basically by free riding on externalities.

Xiaomi, $46.0 billion to build Apple knock-offs for China. Good luck with that.

AirBnB, $25.5 billion to "disrupt" the hotel industry by not having employees or carrying insurance - basically by free riding on externalities.

SnapChat, $16.0 billion to reassure tech-novices that it is safe to share naked selfies.

Am I being too harsh?
posted by RedOrGreen at 1:43 PM on November 20, 2015 [41 favorites]


Slack is another company that is both obviously valuable with a great product, and also with a very high valuation ($2.8B at last report). CEO Stewart Butterfield's comments on valuations from when he raised money are good reading.

Also while we're talking about disappointing startup IPOs, Etsy is now worth less that $1B on the public market. The stock price is less than a third of what it was the first day of trading.
posted by Nelson at 1:44 PM on November 20, 2015 [1 favorite]


Not saying these valuations aren't ridiculous, but there are factors at play that push them up.

But those aren't really "values" they're wishful thinking. If I was selling a hardware store, its value would typically be something like (to simplify greatly):

( ( assets - liabilities ) + ( annual profit * 2 ) )

So if the hardware store has $1M in assets after subtracting liabilities, and makes $200K a year in profit, you might expect to pay $1.4M for the business. That's super-simplified, of course.

What is the value of a tech company? At some point, if it's actually a business, you have to be able to point to genuine profits, and not those tech-company "profits" which ignore the cost of servicing their huge debt and push actual day-to-day expenses off into the future via spreadsheet magic.

Though it may be the case the tech companies value isn't in the tech, but in their usefulness in accounting games. In which case, it really makes no difference what they do, if they do anything at all. As long as it appears even semi-viable and can be hand-waved long enough to let the money being tax-laundered (for lack of a better term) have the accounting magic done to it, the tech company is "successful".
posted by maxwelton at 1:44 PM on November 20, 2015 [4 favorites]


I continue to insist that if Silicon Valley really cared about unicorns it would hire more women

In related news, I would like a pony.
posted by gusandrews at 1:45 PM on November 20, 2015 [6 favorites]


The problem with the "tech industry" classification is that extends everything from discounts sites to ride-sharing to online payments to SpaceX. These are clearly businesses with very different models. It sounds like the only thing they have in common is the publicity-capital complex that delivers them VC funding and TC hype.

One wonders what "tech" would look like if it wasn't hogtied to Sand Hill Road.
posted by Apocryphon at 1:45 PM on November 20, 2015 [13 favorites]


Square is only a disappointment to people who only read as as far as "$6B". Seriously, those people deserve to be disappointed. If I sell you stock at $10/share, but you promise to give me double the shares if it goes public at $5/share, I actually paid $5. The $10 value was clearly BS, because I get a variable amount of stock for that $10, not just a single share. This means it was not, in fact, valued at $6B. A companies capitalization is, indeed, set by the last transaction, but if that transaction isn't a simple 'buy', then blithely assuming otherwise is your error, not theirs (though I would argue such deals should not be allowed, they seemed designed to mislead)

In addition, even if the last transaction was straight buy, it borders on idiotic to claim a company which, to all appearances, is wildly successful is in fact unsuccessful because the last transaction was moderately overpriced, ignoring the incredible growth and value the company achieved.
posted by Bovine Love at 1:46 PM on November 20, 2015 [2 favorites]


And there's not much as fickle as the users of free Internet services.

I'm gonna say that free Internet services certainly give them a run for their money.

Then again half the stuff I pay money for also gets ruined (Flickr sucks now, don't get me started again on rdio), so maybe I should just have gone with "Internet services".
posted by brennen at 1:51 PM on November 20, 2015 [5 favorites]


Xiaomi, $46.0 billion to build Apple knock-offs for China. Good luck with that.

They're the third-largest smartphone manufacturer in the world. A quarter (and growing) of their sales are outside China.

Apple probably doesn't have to worry too much, because Apple is its own thing and people generally first choose between Apple and Android. But Android is still the majority, and Xiamoi is already beating all of them except Samsung.
posted by thefoxgod at 1:52 PM on November 20, 2015 [15 favorites]


And tax laws are set up so companies can't give ridiculously huge percentages to their employees anymore, diluting the stock.

This is why there's basically no chance I'd ever work for a startup again. In the first boom (and even the post-boom period), a non-founder could get enough stock to have it actually be a big win if the company hit the jackpot. But these days it's unlikely you'd make up for the pay differential (not to mention the stress and crazy hours) compared to a big company. The only remaining advantage is those who just really like the small-company high-pressure atmosphere.
posted by thefoxgod at 1:54 PM on November 20, 2015 [7 favorites]


Yeah, and some of us have to work in this market. What a fucking mess. How many shitty bubbles do I have to live through.

At least it isn't quite like the Alberta oilpatch. That region, and the city that depends most on it (Calgary) has been through a double-digit number of boom-bust cycles since some of my high school friends got sucked into it, lo, those many years ago.
posted by clvrmnky at 2:04 PM on November 20, 2015 [2 favorites]


If I start a company and can talk someone into giving me $10,000 for 1% of the company, then I can pretend the company is worth $1 million, even if I could never convince 99 other people to do the same thing. This is ridiculous.
posted by grouse at 2:07 PM on November 20, 2015 [3 favorites]


SnapChat, $16.0 billion to reassure tech-novices that it is safe to share naked selfies.

SnapChat is currently up to 6B video views per day. It is entirely mobile, and takes the whole screen, unlike a lot of desktop video that might be in the background. That is a lot of monetization potential. An awful lot of that video is likely public video, not naked selfies. SnapChat may not be the platform you think it is.

Reference: FT
posted by Bovine Love at 2:09 PM on November 20, 2015 [7 favorites]


Totally wishing Pud and fuckedcompany.com would come back in a blaze of glory and lead us through Meltdown 2.0.
posted by JoeZydeco at 2:12 PM on November 20, 2015 [15 favorites]


Totally wishing Pud and fuckedcompany.com would come back in a blaze of glory and lead us through Meltdown 2.0.

Ahhhh, the good old days. I remember reading FC religiously waiting for my employer to show up. And then they did and I got laid off and I wasn't such a fan anymore.
posted by photoslob at 2:21 PM on November 20, 2015 [12 favorites]


To anyone lurking out there, "Unicorpse" would be a kick ass user name - pay up and c'mon in!
posted by ryanshepard at 2:23 PM on November 20, 2015 [5 favorites]


Xiaomi, $46.0 billion to build Apple knock-offs for China. Good luck with that.

Apple claims that most android makers are Apple knock-offs. Personally I think nearly all of Apple products are high-end knock-offs of previous products. I've heard a ton of great things about this company. Most of all how much they listen to their customers and how quick they are to adapt. Do not underestimate them.

Uber, worth $51.0 billion. "Disrupting" the taxi cab market by not having employees or carrying insurance - basically by free riding on externalities.

Have you known taxi cab drivers (I have). Were they employees, or were they folks that rented out the cab on a per-day basis, and if they didn't make more money than they rented the cab for, they were SOL? While there are legit criticisms of Uber, there seems to be this impression that cab drivers had steady employment, and are treated as employees. I talked to a cabbie about Uber recently... And while much of his critiques were 'they need to follow the law', at the end of the conversation it came down to the fact that Uber drivers didn't have to pay 250,000$ (southern ontario) to have a medallion. The cabbie explained that the madallion system was to ensure that there was an artificially limited amount of drivers out there, otherwise it wouldn't be a viable business. I asked him why cities didn't have a similar scheme for restaurants (or any other given business model). He didn't have an answer for me. Sure they should have a commercial drivers license and appropriate insurance, but can we quit pretending that the current system is a reasonable one - it isn't. Taxi's should be disrupted.
/uber rant
posted by el io at 2:26 PM on November 20, 2015 [19 favorites]




How about an annual Schadenfreude Parade? With, of course, many wonderful over-inflated balloons.
posted by lagomorphius at 2:29 PM on November 20, 2015 [1 favorite]


Totally wishing Pud and fuckedcompany.com would come back in a blaze of glory and lead us through Meltdown 2.0.

FALCO! (RIP NTK)
posted by fearfulsymmetry at 2:30 PM on November 20, 2015 [4 favorites]


Well my cat IS worth a billion dollars and she's not for sale.
posted by overeducated_alligator at 2:44 PM on November 20, 2015 [16 favorites]


> Slack is another company that is both obviously valuable with a great product

It's a very nice IRC service. Which I guess, given my inability to find an IRC client worth a damn, means that Slack have a truly excellent product indeed.
posted by scruss at 2:51 PM on November 20, 2015 [3 favorites]


The problem with Slack is the perennial one: their value and utility is bound up in other tech startups. They go as the rest go.
posted by clvrmnky at 3:02 PM on November 20, 2015 [1 favorite]


Also unlike the dotcom boom because these are not public companies there is less market transparency. we don't know the exposure and how far ahead they are.

Indeed, these things are often not very liquid. I mostly interact with tech companies through the staff recruitment pushes, but more professionally relevant is the university endowment end of things. Yale made large advances in their endowment ranking in the past decade or so, following an investment strategy focused on high return. Something like 1/3rd of their endowment is tied up in private equity, a sixth in real estate, a sixth in market event bets ("absolute return"), a and the remaining third in foreign stocks (11 percent), commodities (8.2), bonds (4.9), domestic stocks (3.9), and cash (3.5). You'll notice that the less liquid a market is, the more they invest in it.

This hurt them in 2009 when subprime tanked their real estate portfolio, and they seem to have mostly recovered by growing private equity stakes. It seems likely that they're going to get slammed again if they rolled their old Facebook position into more tech startups.
posted by pwnguin at 3:05 PM on November 20, 2015


A lot of this is like strawberry-flavored gibberish to me, but Stewart Butterfield is doing well, and I'm happy about that.
posted by JHarris at 3:11 PM on November 20, 2015 [1 favorite]


FWIW - if any "angels" are reading this, I am more than glad to offer you my professional services as an advisor on any investments you may be considering in tech startups. My fee structure is very reasonable, I assure you.

Sounds great. What school did you go to? Who are your parents? Are you a white guy?

Culture fit is very important to us.
posted by rhizome at 3:18 PM on November 20, 2015 [9 favorites]


mr vino, that article is from 2009, isn't really relevant, and besides Iceland came back.
posted by JHarris at 3:22 PM on November 20, 2015


The rest of that social stuff just blows over like the fake town in a Western movie set as soon as the users leave.

Not to worry; the privacy policy and its folksy "we will never share your private data, ever" summary are binding only on the company, whose demise the actual data will survive; once it is unencumbered by such restrictions, there are a lot of predatory/adversarial marketing aggregators who will pay handsomely for it.
posted by acb at 3:29 PM on November 20, 2015 [6 favorites]


Xiaomi, $46.0 billion to build Apple knock-offs for China. Good luck with that.

Xiaomi, and ugh I hate saying this, is kind of the chipotle of smartphone manufacturers.

They've figured out how to sell a comparable or higher quality product than their competitors midrange $250-400 phones(barring others in the cheap but good space like oneplus) for $100-200. Or even less, sometimes. And they utterly DESTROY the $20-150 competition. Like, smoking crater. It's like comparing the worst small town pizza place to Roberta's. A moto E is an ok phone, but if you go look at xiaomis line you could get a redmi note pro.

And they've figured out how to do that and make money. They win at almost everything. Specs, build quality, you name it. And they sell stuff that seems like it would be utterly a commodity item like USB battery banks for $12 that the other guys sell for $25-60. And the chassis is significantly nicer.

They might still be somewhat of an apple clone shop interface design wise, but their engineering and supply chain smarts are obviously top notch. They're just competing for the best product in the "fast casual" space while apple is a fancy sit down bistro chain.

People who dismiss them go "pfft they just sell stuff to go in bags and don't even serve beer" and are completely missing the point.

There's a HUGE market out there that would, or is buying a quality $100 phone who might be interested in a $800 phone in theory, but aren't going to buy one for years if at all. That's not a no-profit space, it's a huge untapped market to sell things that aren't utter garbage. And in a year or two, last years phone isn't going to be half as fast as this years... It's going to be like 10% slower. And no one buying $100 phone will care that it has a snapdragon 1240xl instead of a 1800gtr or whatever.

People underestimating them are doing the same thing as people who underestimated Toyota and Nissan in the 70s. Apple is selling BMWs, but xiaomi is selling cars more like the original Toyota Cressida or the old Avalon. A lot of the feel of a luxury car, with surprising performance for what it is, but undercutting the crap out of them. Just because brands in that market produced econoboxes until now doesn't mean they aren't starting to turn around and make aspirational products that come closer than people would think to "premium".
posted by emptythought at 3:33 PM on November 20, 2015 [30 favorites]


Yes but what does this mean for the two (three?) oyster bars, and the place that has an $85 "tasting menu" + separate fee for caviar, that have recently opened in my neighborhood? Will San Francisco's Silicon Valley tastemakers have enough to eat if things totter?
posted by late afternoon dreaming hotel at 3:40 PM on November 20, 2015 [1 favorite]


Will San Francisco's Silicon Valley tastemakers have enough to eat if things totter?

Let them eat…cake, I guess?
posted by wenestvedt at 4:00 PM on November 20, 2015


Will San Francisco's Silicon Valley tastemakers have enough to eat if things totter?

In a roundabout way, that's the interesting thing to me. Above and beyond having a good chuckle over which of these is going to turn out to be the pets.com of 2015, I think it's going be really interesting to see if the air can come out of this balloon in a slow hiss rather than a big pop.

With an IPO, you get the rocket ride, or at least the party bus, and then everyone sobers up in the morning and you take out the trash. (That's like nine metaphors in two sentences, but eh, fuck it.) With all these companies in private hands, you're only getting these little leaks here and there, when a few months go by and some of the big funds which have invested in these startups in the later stages have to make a public filing, and then it's like....."oh, and uh, we're actually now pricing our Uber stake at **cough**mumble*mumble**$15 million less than what we paid for it.

So the question is, well, how much money got put into these things, really? Enough so that it can be lost without causing major problems for the funders? Does anyone know? Are they all juts going to keep smiling and buying caviar and hoping the flop sweat doesn't show? Or will it inevitable show up in other ways?
posted by Diablevert at 4:16 PM on November 20, 2015 [2 favorites]


The cabbie explained that the madallion system was to ensure that there was an artificially limited amount of drivers out there, otherwise it wouldn't be a viable business. I asked him why cities didn't have a similar scheme for restaurants (or any other given business model). He didn't have an answer for me.

So you take your advice on municipal licensing situations from a cabbie?

All municipalities restrict restaurants through a multitude of regulations regarding location restrictions (zoning), size restrictions, patio restrictions, noise restrictions and required access and service provision (bathrooms and accessibility) and probably many others.

Cab drivers were required to have commercial insurance, obey transportation laws regarding accessibility, safety, licensing and competition rules. Uber just breaks the law and gets away with it.

Uber will get crushed under lawsuits eventually for failing on all these fronts. Eventually Uber will stop paying off people injured in car accidents and some passengers are going to be fucked (ie - quadriplegia and no way to pay for their care). The investors are just gambling that either they can buy of the governments, public and courts or more likely that they through their super awesome investor savvy will bail just before the valuation gets realistic.

The surest sign that the exponential growth of income inequality is out of hand is that really dumb people have way too much money.
posted by srboisvert at 4:40 PM on November 20, 2015 [16 favorites]


Eventually Uber will stop paying off people injured in car accidents and some passengers are going to be fucked (ie - quadriplegia and no way to pay for their care). The investors are just gambling that either they can buy of the governments

I wouldn't be too sure. I seem to remember that London Transport, and quite a lot of other bus companies, used to run shell insurance companies to provide legal minimum liability cover for car accidents and just pay up if needed. If you're numerous enough, there's no point in paying someone else's profit margin on their insurance premiums; restitution becomes an operating cost. Of course this would be in a country and period when healthcare costs were 100% covered by the state.
posted by cromagnon at 6:16 PM on November 20, 2015


Cab drivers were required to have commercial insurance, obey transportation laws regarding accessibility, safety, licensing and competition rules. Uber just breaks the law and gets away with it.

The reason Uber is managing to flout the law openly is that taxi regulations that choke off supply and push up prices are deeply unpopular with the public. It doesn't matter how well intentioned regulations are, if enough people dislike them there's a space in the market for a scofflaw company that can mobilise money and voters.

Its hard to take a moral stand against Uber when you live somewhere taxis frequently fail to even show up.
posted by zymil at 6:32 PM on November 20, 2015 [6 favorites]


Uber as a company has a lot of issues. But the concept of ride-sharing (remember, Lyft is also a thing that exists, and doesn't seem to be as callous as Uber is) is of debatable moral badness.
posted by Apocryphon at 6:44 PM on November 20, 2015 [1 favorite]


Uber requires licensing and insurance in NYC, and it doesn't seem to be hurting them at all.
posted by snickerdoodle at 7:57 PM on November 20, 2015


Dutch

Much of life is Dutch one-digit operations

in which legions of big robust
people crouch

behind badly cracked
dike systems

attached by the thumbs

their wide balloon-pantsed rumps
up-ended to the
northern sun

while, back in town, little
black-suspendered tulip magnates
stride around.

—Kay Ryan
posted by storybored at 8:25 PM on November 20, 2015 [3 favorites]


Uber has also been successful at using customer goodwill to get regulations rewritten in many places. I doubt they will be obliterated by lawsuits and regulatory issues at this point at least in the US.
posted by humanfont at 9:07 PM on November 20, 2015


Are they actually making money yet? I thought they were just burning through money so they could pump their valuation up and then cashout?
Like the stuff I've read seems to show that they are losing money on every ride currently.
posted by Iax at 9:19 PM on November 20, 2015


So you take your advice on municipal licensing situations from a cabbie?

Actually, my opinions about the cab business are more derived from a friend of mine that was a cabbie. He didn't own his cab, he didn't own a medallion, he was lucky if he broke even in an evening, and probably made less than minimum wage. Much of the critiques I see against Uber are how the drivers are treated, but those critiques seem to ignore how well cabbies fare.

Cab drivers were required to have commercial insurance, obey transportation laws regarding accessibility, safety, licensing and competition rules. Uber just breaks the law and gets away with it.

I agree that Uber should follow the law... Except this thing you refer to as "competition rules" - what the fuck is that supposed to mean? What other industries are protected by this? What other industries *should* be protected by this? How does this help consumers, public safety, or any other governmental concern. That being said, I can see some merit in the cab lawsuit against the city of NYC; but I think they should just get paid, instead of stopping Uber (assuming it's drivers are properly licensed and insured).
posted by el io at 10:23 PM on November 20, 2015 [1 favorite]


Recode had some numbers from Uber from earlier this year. 10.8 billion in expected bookings for over $2 billion in revenue for 2015 and $26 billion in bookings next year with $5 billion in revenues.

They probably aren't showing a profit, but they could if they wanted to.
posted by humanfont at 10:34 PM on November 20, 2015


Even if Uber remains strong and profitable, it doesn't mean that the broader tech bubble won't burst...

I'm much more interested in talking about what's going on with Theranos.

What percentage of start-ups are, like Uber, actually capable of making money? It seems like a lot of them are just relying on investment money and aiming to build up more and more customers without any actual achievable way of making money, like Living Social was.

Also, I read elsewhere that a lot of the app economy relies on tech workers spending money on apps and services that really only make sense when you have plenty of money but not a lot of time. So when tech companies start to lay off workers (which is already happening) it's going to put more pressure on other start-ups.

I think the whole thing is a house of cards, like Theranos, ultimately based on hype and the smokescreens money and power throw up around themselves. But then again I think capitalism itself is a bubble...
posted by overglow at 12:45 AM on November 21, 2015


overglow: I'd love to see an FPP about Theranos - I had never heard of them, and the two articles that you linked that I read were pretty interesting/enlightening (and make me wonder what party the biotech industry tends to support more, if there is a difference).

It wouldn't shock me that there might be biotech bubble growing, but I would argue it's a different bubble than the overall tech bubble. Again, that might be worthy of an FPP.
posted by el io at 1:09 AM on November 21, 2015 [1 favorite]


The problem with Slack is

We PAY for Google Apps for Business... why shouldn't I be using Hangouts and Groups again?
posted by mikelieman at 3:39 AM on November 21, 2015 [1 favorite]


The story of Living Social is a very good one, but it's not about the inherent over-valuation of startups.

Instead, it's about two much more interesting things.

First, the power of network effects to produce one, and only one, winner in an internet-delivered consumer business where the best non-internet analogs seems tend to reach equilibrium at two, three or four major players. Groupon won daily deals despite robust competition from the global giants (Amazon and Google each launched deal offerings), middle market players with strong adjacencies (OpenTable and Yelp in the US, others abroad), and well-funded pure play competitors (Living Social, most notably).

Second, in the overall underperformance of daily deals, how much harder is to profit with a new business model when you are requiring dramatic changes of behavior of suppliers as well as consumers. Daily deals required merchants to behave differently and make big investments, and merchants are both conservative and tight-fisted. Uber and AirBNB didn't ask taxi companies or hotels to change their behavior, they instead relied upon them not changing and went about create a new and inherently better (Uber) or cheaper (AirBNB) supply channel.

(While the stock has been terrible, Groupon has actually been steadily growing revenue in the past few years, although the strong dollar led to an FX-unadjusted revenue decline in the most recently reported quarter.)
posted by MattD at 7:02 AM on November 21, 2015 [1 favorite]


> why shouldn't I be using Hangouts and Groups again?

Because they are terrible?

And the lack of ability for integration with bots, channel permanence, and notifications are others.
posted by mrzarquon at 12:43 PM on November 21, 2015 [2 favorites]


Groups handles 'permanence' and 'notifications' well, and um... I really never found a purpose for a bot at work reading a thread in groups, but there is an API I've heard...
posted by mikelieman at 1:47 PM on November 21, 2015


Nothing like ignorance to breed contempt for a product. For that matter, if someone doesn't understand why Slack is not "just IRC" they're really not qualified to comment on the product or the company's valuation.
posted by Nelson at 2:14 PM on November 21, 2015


[...] the power of network effects to produce one, and only one, winner in an internet-delivered consumer business where the best non-internet analogs seems tend to reach equilibrium at two, three or four major players. Groupon won daily deals [...]

No. It lost daily deals, because it was a stupid idea that was intrinsically doomed to failure. Among all similar businesses, Groupon made the greatest number of advertisers waste the greatest amount of more money, but that's like coming first in a crap-your-pants competition. Lots of Internet businesses are like that: they rise on the theory that the marketplace will only support one of them, and then they fall on the realisation that it will support zero of them. This is what we call an off-by-one error and computer types are particularly prone to it.
posted by Joe in Australia at 2:17 PM on November 21, 2015 [4 favorites]


the rest of that social stuff just blows over like the fake town in a Western movie set as soon as the users leave. And there's not much as fickle as the users of free Internet services.

I forgot to interrogate this one, but the uncomfortable truth about all those social sites is that while they are overvalued... their entire value is user data.

Everyone seems to want to skirt around admitting, especially the ones involved, but look at what happened to myspace. Sold to an offshore sketchy vague ad company to sort of vaguely tend and mine for data. And nothing like that will ever happen again if the database(s) are of any real value. That was essentially deadstock by the time it was sold, and it still went for millions.

The business model for a lot of sites like tumblr seems to be get really popular>make some vague half assed pass at "monetization">sell.

Instagram made no fucking sense for a second as a company. What these big databases of active users hashtagging things is worth is personal info, and behavior tracking/modeling. They're absolute goldmines of what people are buying, wearing, using, eating, traveling...

All of those sites are a complete farce designed to get you to input as much data as possible for them to sell later. The ads they serve you are the equivalent of bus fair to a public transit system. Covers some less-than-half percentage of the operating budget, but is not the main purpose of the service.

Facebook makes money on ads, but the income facebook generates from ads is not their assets or value.

If this bubble pops, expect a bunch of the big sites and smaller-ish sites like pintrest to get gobbled up by the main players. Or by an upstart trying to get a big foothold in the whole-life-tracking-and-analysis game. In any sane society we would have laws defining what data needs to be wiped when a company declares bankruptcy or XYZ other criteria are met(essentially fails and sells for below X percentage of value, where X is high enough to discourage bottom feeders). But that is never ever going to happen now. That genie is way the fuck out of that bottle.

The scary uses of this data are in their infancy. The recent FPP about ultrasonic tones syncing devices to get a "whole user profile" is the equivalent of DOS and a 14.4 modem as far as this shit goes. Don't be scared that google will know everything you do, be scared that your employer and insurance company will. And this is going to become A Thing before lawmakers even get off their asses.

isn't it funny how this post would have sounded like complete tinfoil hat garbage even 5 years ago?
posted by emptythought at 6:00 PM on November 21, 2015


Fwiw, Myspace DID make it's revenue from ads directly when it was still popular; that was before monetization of user data was really a thing.
But it meant the constant and obnoxious hurricane of ads, product development based on ad deals, and having to focus design around as views.
Which, of course, everyone hated, and it definitely fueled the decline.
It turns out users would much prefer being monetized in other ways.
posted by flaterik at 9:23 PM on November 21, 2015 [1 favorite]


Nothing like ignorance to breed contempt for a product.

If the product doesn't have inherent capabilities that are compelling, and can't convey them clearly, that's not my problem. That's the product managers.

Slack appears to solve a problem I don't have, consequently, I have zero motivation to create another userid/password combination. All the handwavey evangelism hasn't done anything to change my opinion.
posted by mikelieman at 12:11 AM on November 22, 2015


This popped up on a GRE review question of all places, but since this thread talked about tulipmania I wonder how much of this is applicable to the current situation:
At the peak of tulip mania in Holland, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble. The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

The event was popularized in 1841 by British journalist Charles Mackay. According to Mackay, at one point 12 acres of land were offered for a Semper Augustus bulb. Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Some modern scholars, however, feel that the mania was not quite as extraordinary as Mackay described. Some even argue that not enough price data remain, historically, to represent an all out tulip bulb bubble.

In her 2007 scholarly analysis Tulipmania, Anne Goldgar states that the phenomenon was limited to "a fairly small group", and that most accounts from the period are based on a few contemporary pieces of propaganda. While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility. Thus, any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame. This is not altogether surprising. Although prices had risen, money had not exchanged hands between buyers and sellers. Thus profits were never realized for sellers; unless sellers had made other purchases on credit in expectation of the profits, the collapse in prices did not cause anyone to lose money.

There is no dispute that prices for tulip bulb contracts rose and then fell in 1636–37, but even a dramatic rise and fall in prices does not necessarily mean that an economic or speculative bubble developed and then burst. For tulip mania to have qualified as an economic bubble, the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs. Modern economists have advanced several possible reasons for why the rise and fall in prices may not have constituted a bubble. For one, the increases of the 1630s corresponded with a lull in the Thirty Years' War, which occurred between 1618 and 1648. Hence market prices were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise, and did not result from a sudden resurgence in the war.
posted by divabat at 1:38 AM on November 22, 2015


More on these magical "valuations":

PRESS RELEASE: BASECAMP VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT
posted by grouse at 12:29 PM on December 3, 2015


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