How do these tech companies continue operating at a loss every year? Net loss for these companies reach hundreds of millions yet they are still operating till this day
In: Economics
Through 2 ways –
1. These companies have massive investment capital to keep them afloat, basically other companies are dumping billions of dollars into these companies in return for a share future profits at a later date. This obviously doesn’t work if UBER goes out of business but the essential plan is if cab rides *cost* $10 each, current companies sell the rides for $11 and make $1 in profit. Uber will offer the same cab ride for $5, they are losing money but everyone switches over to Uber because it’s cheaper. Then once all the current companies go out of business because they don’t have all this investor money to hold over, Uber will turn around and charge $30 for a cab ride. Now Uber is making a massive profit and passing it along to the investors and no one can compete because Uber put all other companies out of business.
2. They have alternative revenue streams, regardless of their “real product” tech companies are making profit from your behavior. Let’s say Tech Company X tracks cab rides as a whole, they aren’t linking it directly to *you* but they know that there is a 30% increase in cab rides to Neighborhood X as a whole. They can start buying up real estate in Neighborhood X because they realize it’s about to become super popular. Or they can say that people age group X are all flocking to Neighborhood Y and sell that data to other companies who might focus on Age Group X and they’ll putting up their widget stores in Neighborhood Y to capture this emerging market.
Remember, from their business POV, Uber isn’t a cab company, Grab isn’t a food delivery company. They are software developers and the people who use their software are cab drivers, or food deliverers. They keep that distinction because they are profiting from your behavior, not the product or widget you think they are selling you.
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