Good Products and Bad Businesses

Over the past 15 years, clever digital ideas have captured ideas, transformed habits, and reshaped industries and economies.

It may seem surprising, then, that many of the great digital products in this generation have come from bad businesses.

Spotify has reshaped the music, but the company is still constantly looking for ways to turn a profit. Uber has changed cities and become a way of life for some riders and drivers. The company has spent even more cash than it did in its 13 years of life.

App companies like DoorDash, Instacart and Gopuff have attracted some Americans to the delivery of restaurant meals, groceries or convenience items, but hardly any company that brings fresh food to our door has been able to function financially. Robinhood helped make investing accessible and fun, but it did not make free stock trades profitable. Twitter is a cultural force, but it has never been a good company.

There are some tech stars who are (obviously) great businesses, including Facebook, RBNB and Zoom Video. But how did so many companies with transformative technology break 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 make their products better, capture as many customers as possible and eliminate the financial complications later. And depending on how you define “profit,” some of these digital stars are profitable.

The vague view is that we may be living in a mirage of technology, and the persistence of businesses that can’t survive has robbed us of our true, lasting innovation. Let’s hash it out:

Maybe this Is What a revolution looks like.

Last year, Uber spent nearly half a billion more cash than it generated – and that was a big improvement. If Uber had been a family business, it would probably have lasted a long time. Disruption in technology is just beginning, and Uber has continued in the hope that investors will make money out of it.

Proponents of her case have been working to make the actual transcript of this statement available online. Uber took advantage of its popularity by expanding into several cities and countries simultaneously, rather than slowly, and by expanding into hubs for transportation and delivering food, groceries, alcohol and other goods to our doorsteps.

Hopefully this is step 1 of Uber’s journey to something grand, better and more profitable for everyone. A similar transformation is taking place on Spotify, which is trying to unravel the ugly math of music streaming by expanding into potentially exciting podcasts. Instacart wants to be a grocery-delivery go-between to sell software to supermarkets to manage their businesses. (Software is very profitable. No grocery delivery.)

In many ways, this is what we want. Because investors believe in their business plans, well-meaning companies have the time and money to dream big, expand and figure out how to give customers what they want – and ultimately generate real profits.

Amazon is a well-known example of a company that spent more cash than it did in its first few years – a temporary state of affairs unless it had both a good product and an excellent business. For the past few years, Netflix has also had to borrow money to stay afloat. And some companies, including DoorDash and Spotify, are nonprofits under traditional accounting measures but they bring in more cash than costs.

Or perhaps hope has obscured common sense.

Another possibility is that these digital ideas were never in the economic sense in the first place and were driven by the false expectations of investors. From that point of view, this generation is “profit? What’s the profit? ” Digital companies are like homeowners trying to grow a home with a rotten foundation.

In the Margins Newsletter, financial writer Ranjan Roy and his collaborator Ken Duruk have repeatedly argued that the winning digital ideas of the past decade are not necessarily the smartest, but the ones with the most money to try (and keep trying).

Roy told me, “When so much capital is focused on the wrong idea, we can collectively never find the right idea.” “It’s a perversion of capitalism.”

What opportunities are we missing out on, Roy asks, to explore alternative restaurant-delivery business models that might work better for diners, restaurant owners, couriers, and delivery companies? Perhaps Uber has burned both other people’s money and eroded the opportunity for other businesses and governments to improve transportation. Instead of creating a pay model that doesn’t work for most musicians through Spotify, alternative approaches may have evolved.

Those companies, which have found no way to make their products work economically, have become like a jungle where dead trees and undergrowth have not been cut down. There is no oxygen to flourish in new life.

I find it awkward that more than a decade into the profound period of digital transformation, it is still not clear how the history books will reflect this moment. Are we at the beginning of lasting tech-turbocharged changes in the world around us? Or is it all a well-funded dream?


  • How Elon Musk Makes Business Decisions: The world’s richest man and soon to own Twitter is largely based on “whimsy, fancy and certainty that it’s 100 percent true,” my colleagues reported, based on interviews with people who work with Musk.

  • China’s censors cannot continue: Bloomberg BusinessWeek writes that citizens’ online complaints about the Chinese government’s Covid-19 policies have overwhelmed the army of government censors responsible for scrutinizing critical posts from popular apps. (Subscription may be required.)

  • “You’re going to learn what Twitter is.” The local TV-news segment of Twitter’s early days explains this strange new online addiction. Twitter started in 2006, so this segment wasn’t that long ago!

Say Hello to this surprisingly fast platypus.


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