It's the playbook of any well funded organization trying to break into a new market. This is the entire premise of loss leaders, and they're effectively risking their entire capital.
Yes, but: for a profitable organization a loss-leader is expected to enable profit-making elsewhere in the org, so a total sum ought to be positive.
For example, console hardware is loss leader for console makers because they make up for it for every game sold. Google Chrome and Android are loss leaders for Google, but are strategic assets protecting its revenue business.
In both cases, these companies can continue to do that indefinitely (as long as it makes business sense).
Venture-backed companies that are burning cash, on the other hand, are pursuing an unsustainable strategy of predatory pricing to kill off competitors and grab the most of the market.
(obviously, it's not either-or, you can easily name examples from long standing companies or startups doing either)
This paper is not about grabbing most of the market etc and eventually making a profit. As the abstract quoted above says, it's about creating an illusion that this can be done so as to sell stock to a greater fool. Uber was quite successful at this, as were many others.
Really, from the pov of Travis Kalanick and the original funders, Uber is a fabulously successful business.
The original founders and the venture predators made their money. The professional execs at the top running the business now are also making lots of money. It doesn't matter to any of them what happens to competitors, employees and current shareholders.
Theres no difference between what you just described just that one has an umbrella where its funded by revenue elsewhere and the other is on VC dollars on the promise of long term ability for market share and raise prices or someone else buys organization and continues it as a loss leader for its ability to get market share.
They are completely different financially. Look at this way: in a single quarter, the cash flow for a company with a loss leader strategy will still be positive because the loss product is offset by other revenue. The venture predation company will have a massive negative cash flow no matter what because there is no near-term revenue to offset the loss.
That’s a bit of an exaggeration right? Facebook sold their headsets at a loss and seem to be doing fine, Uber and doordash entered into markets without charging fees and look to doing fine, OpenAI is currently doing that with ChatGPT and we will see how it goes for them.
Surely, selling at a loss is a risky endeavor, but we see it time and time again that companies selling at a loss get more funding due to their inflated numbers from selling at a loss. Or, it’s only those companies that make headlines and we don’t hear about all the companies going bankrupt selling their services at a loss.
> Uber and doordash entered into markets without charging fees and look to doing fine
These companies are not profitable. They are still in the loss-making market share acquisition phase. They might be profitable at some point, but that would likely be by increasing pricing to something far less desirable to consumers, negatively impacting growth. AirBnb recently turned a profit but is now more expensive than hotels with often worse service, and they're being regulated out of some markets, so we'll see how it works out for them. Would DoorDash with a minimum $15 delivery fee survive? Uber if it's more expensive than a cab?
Don't get me wrong, I'm happy living large off of VC fund's money. But I'm not brand loyal to any of this stuff.
Are there any examples of successful companies doing this? Uber and Wework only cost the IPO bag holders. Have any Venture Predation companies actually reached supracompetive pricing levels and recouped the predatory losses enough to have overall harm to consumers?
IPO bag holders, too bad, and I don't see any regulatory need to protect them.
I thought "loss leaders" were specific products sold below cost so customers would buy accessories or subscriptions that have nice profit margins. Like selling cheap printers but expensive ink.
The technical term for "loss leader" usually refers to a place like a grocery store selling some necessity like milk at or below cost, because they know if you compare milk prices and decide to buy there, you'll get other things once you're in the store.
That's different from "sell a dollar for fifty cents until all competitors are dead".
There's also loss leader applied to things like consoles, where they lose money (at first) but make it back on the games.
