Profit is So Last Century

WeWork, which owns and operates co-working spaces (in other words, they are a commercial property management company), just filed for an IPO, and it doesn’t look great:

Among the disclosures in the filing, WeWork reported a net loss attributable to the company of $689.7m in the six months ending 30 June 30, compared with a loss of $628.1m a year earlier.

In the same period, revenue more than doubled to $1.54bn.

The company also did not give a time frame for becoming profitable as it continues to invest in expanding its operations.

WeWork’s $700m loss is nothing next to Uber’s $5.2 billion loss for the last quarter, of course, but WeWork’s pitch to investors doesn’t include the extra frosting on the shit cake (self-driving cars, food delivery, scooters, etc.) that Uber uses to divert attention from their utter failure as a business.  WeWork just owns buildings and rents space in them, something that’s been done forever at a modest profit.  The only thing new about WeWork is that they rent office space by the day, week or month, and they serve coffee and fancy snacks in the break room.  Glory fucking hallelujah.

I wonder how bad the next recession is going to be after this ridiculous bubble pops.






155 replies
  1. 1
    Goblue72 says:

    It’s worse than that. WeWork mostly doesn’t own its own buildings. Most of the co-working space it rents out, WeWork rents itself. WeWork’s model is most WeWork entering into long term leases for office space and then re-leasing that space for short term.

    They have relatively little hard RE assets they own. Next recession, there could be a big disconnect between their upstream lease payments as leasee & downstream rent receiveables as lessor.

    Turtles riding e-scooters all the way down.

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  2. 2
    Amir Khalid says:

    I know that Uber has pulled out of South East Asia. It sold its operations to its main competitor GrabCar a couple of years ago and left town. Has it pulled out of any other markets?

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  3. 3
    Joe Falco says:

    Why, if WeWork can sell their buildings and have the new owners pay WeWork the privilege of WeWork renting spaces out, they would be back in the black before you know it!

    /Gig Economy Theory

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  4. 4
    OzarkHillbilly says:

    If I had only a little more imagination I too could dream up a new can’t miss business opportunity that is losing money hand over fist but guaranteed to give a good return on investment if one only looks thru these rose colored glasses in just the right way while holding one’s tongue just so, clicking one’s heels 3 times and repeating “I’m gonna be rich. I’m gonna be rich, I’m gonna be rich…”

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  5. 5
    [Individual 1] mistermix says:

    @Goblue72: My God. I just assumed they owned since they have gone through multiple rounds of financing.

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  6. 6
    JAFD says:

    Meetup.com is “a wholly owned subsidiary of WeWork” – wonder what the P&L for that looks like ?

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  7. 7
    Cermet says:

    The idea that you slap a funny name on something (especially a stupid name for a existing business operation idea) and spend investor money (god help us if banks were the investor to start this sham) like water over a dam, then bingo – a perfect IPO for the stupid to invest even more in.

    Businesses that simply add another layer on an already shaky business segment to start with makes sense – like the endless griftering in conservative circle (jerks.)

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  8. 8
    Gin & Tonic says:

    Last month one of the co-founders cashed out about $700m of his stock. Pre-IPO. That’s a real vote of confidence, no?

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  9. 9
    Butter emails!!! says:

    Depends.
    How much is WeWork just a place for investment firms and tech billionaires to fritter away the cash it was oh so important to save from the tax man and how much of it is a gimmick to prop up commercial real estate prices by laundering investment dollars into leasing income?

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  10. 10
    J R in WV says:

    If a super-rich acolyte of Ayn Rand can take-over a successful business like Sears, which itself created successful brands lke Craftsman Tools and Kenmore appliances, and run it into the ground by attempting to use Randian political philosophy as a management strategy, there is nothing too stupid for the Masters of the Universe to do in order to lose more money faster.

    I thought we had seen total mastery of money losing back in 2007-2008, but I guess they’re going to take another swing at bettering that record setting period.

    Perhaps gold coins would be the best thing for secure investment?

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  11. 11
    HinTN says:

    @Goblue72: Thanks for the Sturgill Simpson reference.

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  12. 12
    lumpkin says:

    The purpose of an IPO should be to raise money to scale up a commercial idea that’s been proven out. Or to expand manufacturing facilities or build out a distribution network. Things like that. These grifters are doing IPOs to raise more seed money to burn through.

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  13. 13
    Van Buren says:

    @Gin & Tonic: Anyone who has that information and still buys stock should be forbidden from using bankruptcy protections.

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  14. 14
    waspuppet says:

    But — but they have an app! THAT CHANGES EVERYTHING.

    These grifters are doing IPOs to raise more seed money to burn through.

    “A business making money” no longer means “Everyone in the business makes money.”

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  15. 15
    Chris Johnson says:

    You’re missing something if this surprises you. It’s not a good something, but it’s a real something.

    Companies are not valued anymore by how much money they make for themselves, or even for stockholders. They are valued by how much they can destroy other companies. This is the post-Amazon model. You could say the Highlander model (‘there can be only one’) except it’s not about moving to a monopoly rent model, not really.

    There’s no bottom. It’s like wingnut singularity event horizon, but for capitalism. The ONLY thing that matters anymore to these giant corporate entities is whether they can destroy others. There are effectively no rules, and that’s just how it is.

    If sanity ever prevails there will be a correction, but for now sanity is nowhere to be found and profit is indeed last century: for a little while, destruction of enemies is the only thing. WeWork may or may not have any success with its IPO, Amazon still rules its domain, and Uber will only collapse when people STOP thinking it’s the most horrible and evil but functional service around. It’s 2019 and evil is good… if it can get away with it… to entrenched capital. And there has never been more entrenched capital around, and there’s nothing else for this capital to do.

    What are they gonna do, after all? Hire workers?

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  16. 16
    CaseyL says:

    I met with people at a WeWork facility some years back and unless things have changed – which they may well have – it’s a very upscale place. The conference rooms have the latest in meeting infrastructure tech, the kitchens were large and well appointed, the coffee and snacks of very high quality.

    Short-term office rental is a very nice thing for special projects, seasonal needs (like festivals), and work-from-home folks who need to hold a meeting. Most short-term office spaces are dismal places, with minimal amenities.

    I should also note that IMO places like WeWork prosper when the society around them encourages entrepreneurial attempts. In a good economy, where people can get affordable health insurance, places like WeWork thrive. Now that the US is an oligarchy that treats its citizens like chattel, few folks will want to take chances like starting their own business; fewer folks will be ABLE to do that.

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  17. 17
    HinTN says:

    @lumpkin: The stock market as a means for financing business investment is just so old school. The casino approach is so much more successful…

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  18. 18
    Kay says:

    Rebecca Ballhaus
    @rebeccaballhaus
    ·2h
    Don Jr., who often speaks with his father about his views on gun laws, has raised concerns about both red-flag laws and tighter background checks. Trump told supporters at a Bridgehampton fundraiser Friday: “Don Jr. is my gun expert.”

    More harm to the country brought about because of corrupt nepotism and the elevation of unqualified incompetents over people who have worked hard to learn and understand things. It causes real damage and it’s part of why so many of our institutions are failing. We should go back to hiring on merit. It was better.

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  19. 19

    @Butter emails!!!:
    I think these businesses are mostly long cons. The theoretical goal is to take over a whole industry to the point you can start charging monopoly rents. To make this look plausible, it’s essential to have the business grow rapidly by subsidizing the early adopter customers. The real goal is to take the whole thing through to the IPO, cash out for a profit, and leave the greater fool holding the bag when it turns out that you can’t actually control the entire market for whatever it is you’re doing- taxis, meal kits, commercial real estate, or what have you- because it doesn’t have the same kind of network effects that lock people in to Facebook or Google.

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  20. 20
    NotMax says:

    Does the phrase fire sale ring a bell?

    Verizon has agreed to sell Tumblr to WordPress owner Automattic Inc. for an undisclosed amount, The Wall Street Journal reports.

    Verizon, which first acquired Tumblr in 2017 after it purchased Yahoo, started to explore a sale earlier this year. Automattic reportedly bought Tumblr for less than $3 million, according to Axios, a stunning drop in value from the $1.1 billion Yahoo paid for it in 2013. Source

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  21. 21
    SFAW says:

    On the plus side, I see from Cole’s twitter feed that there is now an “inverted yield curve,” a term previously unfamiliar to me, so I looked it up. Oy.

    On the additional plus side, based on what an inverted yield curve allegedly predicts (so to speak), the Traitor-in-Chief looks like he’ll give us another recession, after inheriting a pretty strong economy. A big, bee-yoo-tee-ful recession, a huuuuuge recession, the BEST recession ever. Time to up his game on the trade war with China.

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  22. 22

    @Chris Johnson:

    Uber will only collapse when people STOP thinking it’s the most horrible and evil but functional service around.

    No. Uber will collapse when it runs out of greater fools willing to invest in the promise of them somehow figuring out how to make a profit when they lose money with every ride.

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  23. 23
    Nashville_fan says:

    “Glory fucking hallelujah” . . .

    These are the words I have been looking for all year . . .

    Amen.

    ReplyReply
  24. 24
    SFAW says:

    @SFAW:
    Relative to driving the country into a recession: is “being a fucking moron who destroys America’s economy” considered a “high crime and misdemeanor”?

    Asking for a House Judiciary Chairman friend, and also for a country.

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  25. 25
    A Ghost To Most says:

    @HinTN: You can never get enough Sturgill references.

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  26. 26
    SFAW says:

    @Roger Moore:

    figuring out how to make a profit when they lose money with every ride.

    Shit, that’s Economics 101 — you just make it up in volume!

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  27. 27
    NotMax says:

    In other tech news, nothing to do but chortle at this little gem. Presumably not a lot of “Genius At Work” signs around the offices.

    After a lengthy period of deliberation and soliciting ideas from the company’s fanbase, OnePlus has finally revealed the name of its long-in-the-works TV: it’s called the OnePlus TV.…

    OnePlus has also unveiled the OnePlus TV logo, which is a OnePlus logo with the word “TV” next to it.… Source

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  28. 28
    Chris Johnson says:

    @Roger Moore: …except, you never start charging monopoly rents. All these people believe that there are constant new startups that constantly revolutionize everything. There is NEVER an opportunity to ‘cash in’ apart from the massive grifting you’re doing in the process, and your enormous CEO salary.

    The goal is to take over an industry, and continue burning capital, forever, just to hold it. And kill or acquire anybody in your way. Monopoly rents no longer enter into it, any more than ‘quality’ or ‘return on investment’. It’s purely dickmeasuring with a ‘kill everybody else’ layer added to it. This is what market capitalism fundamentally is when it rules everything. Power trumps ‘return on investment’.

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  29. 29
    Cervantes says:

    @Roger Moore: I expect that has already happened. They will collapse when they run out of money, probably late next year.

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  30. 30
    Chris Johnson says:

    @Roger Moore: It’s not about making a profit. It’s about killing everything else. All these people have uncountable money and are only interested in ‘business as pro wrestling’, essentially. There is no higher purpose to any of it.

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  31. 31
    prostratedragon says:

    @CaseyL: A couple of WeWork places I’ve been to in Chicago are like this description. They seem to be mostly in buildings that are too old to be considered class A, at least the way the reckoning was done years ago, so I thought of them as a vehicle for landlords to get more out of nicely refurbished (plenty of electric outlets and such) class B buildings. At least, I figured that was the pitch WeWork made to the landlords. But the idea that this is a whole new paradigm in working or commercial rental should be poked carefully from a distance.

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  32. 32
    HinTN says:

    @SFAW:

    you just make it up in volume!

    We have a winner.

    ReplyReply
  33. 33
    Joe Falco says:

    @CaseyL:
    In a more just society, local community centers would be built and heavily subsidized to include such office spaces for new and growing businesses. I admire the ingenuity of libraries having to evolve to meet the needs of their community more than ever. Now if only libraries weren’t in danger of being on the chopping block all the damn time.

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  34. 34

    @Chris Johnson:

    The goal is to take over an industry, and continue burning capital, forever, just to hold it.

    No. The goal is to promise investors monopoly rents and then cash out when they buy your stock. These companies are cons. Their whole premise is to get some fool to buy the stock from the venture capitalists at a profit and they don’t give a damn what happens to the company after that. Their only real product is an IPO that lets the early investors cash out.

    ReplyReply
  35. 35

    WeWork is also run by a complete madman.

    Lots of unprofitable startups are getting funding as spillover from the Uber effect, but there’s an important distinction…

    Uber & Lyft investors are basically running a long con where they hope to achieve complete market ownership and regulatory capture before they raise prices above a unit loss.

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  36. 36
    Ruckus says:

    @lumpkin:
    Bet it’s not just the seed money. They are getting a high salary and trading stock and even at a penny a share they can make money basically doing nothing. Adding no value to anything, just a layer of money movement from others to themselves as it passes through.
    The point isn’t the business at all but the business idea that allows them to make money, even if for a short time and move on. Investors don’t seem to mind that a lot of people fail at “business,” it’s that they attempted to make something out of everyone else’s money. They will get rewarded again and again for that, and then for being creative and trying to break into big business with a new idea. Because all the old ideas take labor, lots of labor and that’s messy and costly and take longer to find out if you can actually be successful. And you have to have an actual idea about something other than just making money by moving it around.

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  37. 37
    Baud says:

    @Major Major Major Major:

    Yeah, I think that’s it. They want to get to a point where people get used to using them and then they can raise the price. It’s not like new competitors can undercut them because it’ll be hard for the third one fourth company in the market to get financing for years of losses.

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  38. 38
    raven says:

    @Roger Moore: I hope they last through the football season, if I time it right I can get to the stadium for four bucks!

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  39. 39
    SFAW says:

    @HinTN:

    We have a winner.

    Many years ago, I worked for a tech company. One of their product offerings involved reselling some signal-conditioning modules from one of the big industry names, but under our mark, and sold as add-ons to the product(s) we designed and manufactured. I saw some of the margins on those re-sells. The best was around 20 percent, but there were a number where our margins were negative.

    After seeing that, I joked to one of the designers that we’d make it up in volume. He seemed confused at first, thinking I was serious.

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  40. 40
    kindness says:

    I wish I could yank my 401K money before the shit hits the fan. I lost about 1/3 of my money in 2008-2009. I recovered eventually. I just don’t want to keep playing whack a mole with that part of my retirement funds. I can’t pull the funds w/o paying the taxes on it which I won’t do.

    The same sociopaths who drove the 2008/9 recession are doing the same thing again. This time I say let the financial houses fail instead of propping them up. Take no prisoners as they are doing exactly that to the rest of us.

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  41. 41
    Chris Johnson says:

    @Roger Moore: And if all the investors are complete fools, why are they doing it? Why is this now the thing? Aren’t they supposed to be smart and rich people who understand what’s what? How many of these things have actually imploded and left the founders making cartoonish trails of dust as they flee with their booty?

    This is working as intended.

    Nobody cares about the money now. It’s keeping score, and it’s about which thing dominates and destroys all the others, and you will continue seeing apparently ‘foolish’ behavior out of all the biggest piles of capital, because this is post-Amazon rules now. They drink their own kool-aid, and they are all about burning capital, forever if necessary, to dominate and destroy their rivals.

    I never said it was GOOD. I think it’s impossibly stupid and will lead to catastrophe. But you gotta understand, this is what they’re doing. They’re all true believers and a lot of ’em are maniacs and fascists with demented Nietzschean schemes, and they WILL do this and simply robbing people would be a lot simpler. It really is a power struggle. If it was money they wanted they’d be fleecing rightwingers on cable networks rather than going to all this trouble.

    I want to see Liz Warren work out on these people. I don’t like them.

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  42. 42
    feebog says:

    @SFAW:

    On the additional plus side, based on what an inverted yield curve allegedly predicts (so to speak), the Traitor-in-Chief looks like he’ll give us another recession, after inheriting a pretty strong economy. A big, bee-yoo-tee-ful recession, a huuuuuge recession, the BEST recession ever. Time to up his game on the trade war with China.

    Couple that with the shrinking job market. Only 164K jobs created in July. Moreover, BLS revised May and June downward, so the three month average is 140K. 150K is considered the “treading water” number, where new jobs roughly match he number of those entering the job market.

    ReplyReply
  43. 43
    Citizen Alan says:

    @NotMax:

    It would be kind of hilarious if Tumblr went through all that Sturm and Drang over its NWFW ban for nothing.

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  44. 44
    different-church-lady says:

    @J R in WV: A human face saying “Hold my beer”… FOREVER!

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  45. 45
    Joey Maloney says:

    This really isn’t new. “We lose money on every sale but we make it up in volume” has been around forever.

    Automattic reportedly bought Tumblr for less than $3 million, according to Axios, a stunning drop in value from the $1.1 billion Yahoo paid for it in 2013.

    This warms the cockles of my cold, bitter, shriveled heart.

    I should also note that IMO places like WeWork prosper when the society around them encourages entrepreneurial attempts.

    Co-working is HUGE in Startup Nation (Israel). Aside from the big guys like WeWork and Mindspace, there are dozens of little mom-and-pop spaces of a few hundred to a few thousand square feet.. A cafe nearby cleaned out their back room, put in some old couches and desks, added a wifi repeater: presto, co-working. Other spaces are “themed”. I was in one yesterday that caters especially to social justice orgs. They host, for example, an accounting firm where most of the staff is on the autism spectrum.

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  46. 46
    different-church-lady says:

    @Chris Johnson: But what is WeWork going to destroy? Is there some kind of established market for office-space-by-the-day? The whole idea of it never made sense to me.

    ReplyReply
  47. 47

    @Chris Johnson:

    And if all the investors are complete fools, why are they doing it? Why is this now the thing?

    This is not a new con. It’s the same con that drove the dot com bubble and that drives every Ponzi scheme and pyramid scam. There are always unsophisticated investors who can be tricked into putting their money into these schemes by promises of a big enough payday in the future. Even some supposedly sophisticated investors can be so beguiled by the promise of massive returns that they lose their judgment.

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  48. 48
    Gravenstone says:

    @Kay: Guess the NRA didn’t feel they were getting through to Trump directly, so decided to go through Idiot Son #1 as a backup.

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  49. 49
    Kay says:

    My husband thinks economic downturns bring Democrats in the next election, because people focus less on the divisive issues Republicans need to win- racism, hatred and fear of outsiders, etc. and more on practical things- am I going to survive this?

    So the opposite of “economic anxiety”. He thinks these issues the GOP focuses on are a kind of luxury – you can only get all upset about “political correctness on campus!” or “that nurse treats Ebola patients- lets all have a heart attack!” if you’re pretty damn secure, month to month :)

    I don’t know but it sounds like it might be true.

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  50. 50
    MattF says:

    It’s amusing that the word ‘bank’ doesn’t appear in this thread. Now, if you were wondering where certain habitual grifters get their financing…

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  51. 51

    @Kay:

    My husband thinks economic downturns bring Democrats in the next election, because people focus less on the divisive issues Republicans need to win- racism, hatred and fear of outsiders, etc. and more on practical things- am I going to survive this?

    There’s definitely an aspect of that. There were plenty of people who were openly racist who were willing to vote for Obama because they thought he’d do a better job of fixing the economy than McCain. And there’s also the whole “throw the bastards out” motivation. Justified or not, there’s a tendency to judge the President by the state of the economy, and recessions have always hurt the President’s party.

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  52. 52
    Le Comte de Monte Cristo, fka Edmund Dantes says:

    @Amir Khalid:

    I have seen the future of Uber, and it is of a dispatch service for taxis, like they do in Greece.

    ReplyReply
  53. 53
    MomSense says:

    I wish we could adequately tax all the motherfuckers who invest in such a ridiculous (unprofitable!!) business and use that money to fund things that actually move our society forward.

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  54. 54

    @NotMax:
    Verizon took all adult content off of tumblr, then enforced the rule with a neural net bot that is physically incapable of the task. As in, it unpredictably flags all KINDS of benign stuff as adult content, and in response takes down the entire blog. It’s too primitive a neural net. They lost a third of their members, the most active members, and most of those don’t post adult content. Everybody told them it would happen, and it did. Automatic isn’t bringing the adult content back, so I don’t know what they think they’re going to do with their purchase. Maybe they bought it cheap enough they don’t care if it doesn’t recover.

    EDIT – @Citizen Alan:
    Nope, Automatic isn’t bringing adult content back. Tumblr is dead.

    ReplyReply
  55. 55
    Le Comte de Monte Cristo, fka Edmund Dantes says:

    @J R in WV:

    I always think that the best hedge investment strategy against catastrophe is 50-40-10.

    That’s 50% ammo, 40% whiskey and 10% cigarettes (10% because they eventually turn stale).

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  56. 56
    Kylroy says:

    @J R in WV: The thing that boggles me about the decline of Sears is that they *were* the 20th century version of Amazon. Their mail-order catalog was a revelation for rural folks in the early 1900s, and the annual “wish book” was a thing through at least the early 1990s. That they completely lost sight of this and abandoned the delivery business for brick and mortar retail *right* as it was entering a tailspin strikes me as colossally stupid.

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  57. 57
    Tom Levenson says:

    I’d never really paid attn. to We Work, so with this post I checked out its Boston offerings. I eventually looked through the photo spreads for five locations, one in Cambridge, the other across Boston proper. The one closest to Chinatown showed a fair number of East Asian people in the mix. Other than that, a grand total of two black faces across the lot.

    TL:DR — they are selling the least diverse workplace this side of a Klan rally, a kind of fantasy of Silicon Valley, c. 1998: ridiculously and superficially high end work spaces in which young white folks can synergize the next disruptive avatar of shareholder value. At seriously ambitious prices ($400/month for a hot desk that can be at least partially replicated by walking between a Cafe Nero and a Panera).

    I would no more invest in this than I would buy a bridge from that really trustworthy guy hanging by the chess tables in Washington Square.

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  58. 58
    trollhattan says:

    It’s like every startup is run by Arthur Laffer. It is to Laff.

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  59. 59
    Baud says:

    @Kay:

    I’ve been saying this too. Our problem is 2016 was that enough people were doing better economically thanks to Obama.

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  60. 60
    Tom Levenson says:

    @Major Major Major Major: I agree Uber’s running a long con, but I don’t think you’ve quite nailed it. Achieving pricing power through a monopoly or near it isn’t a con — it’s a perfectly plausible approach, though hard to execute fully. (I’m not saying it’s kind or anything. Just that Bloomberg, for example, did very well indeed by capturing a virtual monopoly of financial desktop terminals that I’m sure had a helluva startup cost.)

    The con here is that there’s no real possibility of achieving monopoly or near-monopoly hold on anything they currently sell, and even implying that such market power might be in prospect would be the fraud.

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  61. 61

    @Frankensteinbeck:

    Automatic isn’t bringing the adult content back, so I don’t know what they think they’re going to do with their purchase. Maybe they bought it cheap enough they don’t care if it doesn’t recover.

    It’s the latter. Hell, they can always bring adult content back if they really want to turn a profit.

    ISTR reading that they wanted the user base.

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  62. 62
    mrmoshpotato says:

    @lumpkin:

    These grifters are doing IPOs to raise more seed money to burn through.

    Maybe they should challenge Dump on the Rethuglican ticket next year. Same business philosophy – find investors to rip off.

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  63. 63
    Victor Matheson says:

    I guess I am much less concerned about this than most people on the site. The vast majority of start-ups, whether they are tech-based “disruptors” or just mom-and-pop stores or restaurants fail without ever showing huge profits. I don’t think most of us would call these failed small-businesses grifts. They were just an idea that didn’t work.

    Furthermore, as long as all of these tech startups are funded with equity and not debt (which they all are – venture capital is equity), then there is little risk of business failures spilling over into the regular economy. You are all kind of forgetting macroeconomic history. We have had two huge bubbles burst in the past two decades – the first tech bubble burst in 2000 with the NASDAQ falling roughly 80%. Because it was all equity financing that was lost, most people lost all of the imaginary paper gains they had made, the spillover effects were minor and there is debate as to whether we should even call that downturn a recession. You can never be underwater on an equity investment. The most that can happen is you end up with $0.

    Then there was the housing bubble where drops in housing prices way less than the drop in tech stocks earlier, caused the biggest recession since the 1930s. Because it is all debt, it took down banks and left real people stuck owing more on their houses than they were worth.

    Seriously, I don’t really worry too much about tech billionaire venture capitalists losing their shirts as long as it doesn’t bring the rest of the economy down with it. The difference between venture capitalist gambling their money and the finance industry gambling on housing are completely different things despite looking kind of the same on the surface.

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  64. 64

    this week might have been a bad week to start an IPO.

    most of the stock markets are showing massive losses today because a recession warning sign went RED ALERT.

    trump’s tariff wars are a part of the reason why.

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  65. 65
    mrmoshpotato says:

    @Gin & Tonic:

    Last month one of the co-founders cashed out about $700m of his stock. Pre-IPO. That’s a real vote of confidence, no?

    Buy buy buy!

    Jesus, Mary and Joseph. Groucho, Harpo, Chico, Zeppo and Gummo too!

    ReplyReply
  66. 66
    randy khan says:

    So, actually reading the financials (I know, I know), it looks like, unlike Uber, the ratio of losses to revenue actually is declining, at least comparing the first six months of 2019 to 2018, and that a fair chunk of the loss comes from stock grants to employees, which had a big spike (as in growing by a factor of 10) in 2019. Also, several hundred million dollars of the expenses come from opening new locations, which for whatever reason – presumably because their accountants told them to – they treat as expenses not capital.

    So I’d say it’s not Uber, but more like a traditional model of spending money to expand. Still, big losses are big losses, and you have to read the financials as saying it will be a while before they make money even if all goes well.

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  67. 67
    James E Powell says:

    @Roger Moore:

    You got that right. Every story about Theranos focuses on Elizabeth Holmes and ignores the people who gave her money.

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  68. 68
    Another Scott says:

    @[Individual 1] mistermix: Owning actual stuff is so previous century…

    Cheers,
    Scott.

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  69. 69
    Victor Matheson says:

    One more thing, suppose 50 people come to you with ideas and you know 1 of them will return your investment 100x while the others are terrible ideas that will lose all of your money. But you can’t tell which is which.

    Is it a bad idea to invest in all 50 companies even knowing that 49 of them are dogs? (The bad kind of dogs, not the good, cute kind.) The answer is no. You will double your money by being on board the one idea that takes off even if all 49 others fail.

    As an approximation, this is how the venture capital industry works. You know most of your bets won’t pay off, but some of the ideas will be really great. And in tech especially, there are some real winner-take-all aspects that make it possible for good ideas to generate fantastic returns.

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  70. 70

    Now that Uber has destroyed the taxi industry, it’s time for them to crash.

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  71. 71

    More seriously, this whole cycle is a result of letting extreme disparities in wealth develop. The investors have money to throw away while we have homeless people on the streets.

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  72. 72
    James E Powell says:

    @Baud:

    There was a lot of that kind of talk in 2000. The federal budget’s running a surplus, we’re all going to get rich on the internet, so who cares if the president doesn’t know things?

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  73. 73
    Another Scott says:

    @Chris Johnson: I haven’t seen the dots connected that way before, but you lay out a decent case.

    In the last month or so, I’ve seen flashy ads on cable TV inviting viewers to invest directly in some biomedical company. I know nothing about it, but my spidey sense is screaming that it’s a grifting scam, maybe just inside the law, maybe not.

    Our economy has too many incentives to reward scamming investors (who should know better but often don’t). Grr…

    Cheers,
    Scott.

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  74. 74
    Victor Matheson says:

    @Roger Moore: I would disagree with people are just being fooled. Venture capital should generally be pretty smart money (with obvious caveats).

    Again, these are all startups and you can’t necessarily tell which will work and which won’t. As long as your gains on the winners (and they can be huge winners) exceeds your losses on the losers, you are not making a bad overall investment.

    If you could go back in time and invest $10K in both MySpace and Facebook 10 years ago, would you do it even knowing that your MySpace shares would now be worth nothing. Of course you would. It’s not that your potential for riches blinds you. It is a total rational realization that some things will succeed and some won’t, but you can’t really always tell.

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  75. 75
    Another Scott says:

    @NotMax: When Verizon locked out a huge part of Tumblr’s customers and viewers, of course those people went elsewhere. And thus Verizon destroyed the value in the brand. Duh. What did they think would happen??

    Cheers,
    Scott.

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  76. 76
    Yarrow says:

    @Another Scott:

    Owning actual stuff is so previous century…

    This is actually true. Younger people are buying fewer cars, they’re priced out of buying houses, their music and books are digital, they even rent clothes via online companies.

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  77. 77
    Kay says:

    @Baud:

    It’s a way of thinking about it. When everyone (well, ‘everyone’, this whole website) was saying during the crash “why aren’t they in the streets?!” I was thinking “because there’s still a safety net and they’re not actually hungry” – remember food stamps spiked? I mean, that was the point of the thing but it also tends to, I don’t know, NOT instill panic.

    That’s why I have SOME understanding of the “let it burn” crowd. I’m too conventional and cautious to be one but they have a point. Sometimes it really does have to get bad for people to focus less on bullshit and free-floating…hating.

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  78. 78
    Yarrow says:

    @Cheryl Rofer: Future historians will look back on this era as a second robber baron era.

    ReplyReply
  79. 79
    Victor Matheson says:

    @Cheryl Rofer: Agreed about wealth disparities. But that is solved through taxing the winners not by shutting down VC. Obviously, taxing the winners changes the calculus a bit about how far down the list of ideas are you willing to finance, but it’s hard to finance generous public services without generating the wealth in the first place.

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  80. 80

    @Another Scott: While Tumblr’s owners had been wanting to get rid of adult content for years, they didn’t do so until FOSTA-SESTA came around and made web platforms liable for certain kinds of sexytime content that their users post. For many companies, it was easier to just ban all adult content.

    But the bills also poke a huge hole in a famous and longstanding “safe harbor” rule of the internet: Section 230 of the 1996 Communications Decency Act. Usually shorthanded as “Section 230” and generally seen as one of the most important pieces of internet legislation ever created, it holds that “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” In other words, Section 230 has allowed the internet to thrive on user-generated content without holding platforms and ISPs responsible for whatever those users might create.

    But FOSTA-SESTA creates an exception to Section 230 that means website publishers would be responsible if third parties are found to be posting ads for prostitution — including consensual sex work — on their platforms.

    You can expect similar consequences from other attempts to erode Section 230/general safe-harbor notions around things like copyright (or, in the case of Trump’s draft executive order, “anti-conservative bias”).

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  81. 81
    mrmoshpotato says:

    @Yarrow:

    they even rent clothes via online companies.

    Ummm….weird.

    ReplyReply
  82. 82
    Yarrow says:

    @Baud:

    I’ve been saying this too. Our problem is 2016 was that enough people were doing better economically thanks to Obama.

    I agree but I’m not sure that should be an excuse. Democrats need to figure out how to trumpet their successes in a way that connects with people and makes them want more of them. Republicans go to fear and activate the lizard brain. Democrats tend to stick with logic and facts. Those are great but they don’t motivate people the same way emotion does.

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  83. 83
    waspuppet says:

    @Gin & Tonic: “Making money” no longer means “Making money through getting more for your goods or services than it cost to make or provide them.” And it’s something some people involved in a business can do and some can’t.

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  84. 84
    waspuppet says:

    @Cermet: BUT THEY HAVE AN APP DON’T YOU UNDERSTAND THAT CHANGES EVERYTHING THEY DON’T HAVE TO FOLLOW LAWS OR HAVE A BUSINESS PLAN OR MAKE ANY MONEY THEY HAVE AN APP IT’S THE BRAVE NEW WORLD

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  85. 85

    @mrmoshpotato: Yeah, they should rent clothes from brick-and-mortar shops like people have been doing for decades. Weirdos.

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  86. 86
    Yarrow says:

    @mrmoshpotato: People have rented clothes forever–like renting a tux for a wedding. I can see it being useful if you need a certain item and you don’t really want to invest in it long term.

    The way it’s being done now, though, is different. People rent everyday clothes. Keep them for a set period of time–say, a month–and then return them. I don’t do it so am not sure of the particulars but I know it’s popular with younger people.

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  87. 87
    Another Scott says:

    @Major Major Major Major: Thanks.

    Cheers,
    Scott.

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  88. 88
    Barry says:

    “I wonder how bad the next recession is going to be after this ridiculous bubble pops.”

    Trump will be president.
    Johnson will be the PM of the (formerly Great) Britain and the (formerly United) Kingdom, or perhaps Brexitland.
    Trump’s appointees will be on the Federal Reserve Board.
    Trump’s appointees will be running the Treasury.
    Trump’s appointees will be cooking the books.
    Trump’s fellow scum will control the Senate.

    China will not have our backs.
    Japan will not have our backs.
    Brexitland will not have our backs and will be sinking in BrexSand.
    The EU will not have our backs, and will be dealing with Brexit.
    Putin will have Trump’s back (in one hand, and a knife in the other).

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  89. 89

    @Yarrow: some brief googling indicates that it’s for fancy brands; to some, it might seem worthwhile to have a $2000 coat for two weeks for $100 (random ass-pull numbers).

    See also: being poor is expensive. As the story goes, a $200 pair of boots that will last for years is outside many workers’ price range, so they end up serially buying $50 pairs that last for a season. Perhaps this is a lux version of the same trap.

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  90. 90

    @Barry: this particular recession indicator (today’s yield curve inversion) apparently lags behind recessions by 15-20 months, so, we’ll see!

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  91. 91
    Amir Khalid says:

    @different-church-lady:
    I was thinking: If the property owners WeWork is renting from to do its short-term sublets decide to go into competition with it, WeWork is bigly screwed.

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  92. 92
    Ksmiami says:

    @Goblue72: Warren will be the President we need/ the GOP always leads to fiscal ruin

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  93. 93
    bluehill says:

    @Victor Matheson: Good points. Interesting point someone made about WeWork is that building owners leasing to WeWork are also bearing the risk. If WeWork goes under the damage is contained to their investors and employees, but if the building owners start defaulting on their loans, the impact could be greater. Kind of like when homeowners started defaulting on their mortgages. I’m guessing that the scale isn’t the same, but I don’t know.

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  94. 94
    Steeplejack says:

    @Roger Moore, @Ruckus:

    It’s the Cartman business plan:

    1. Start up.
    2. Cash in.
    3. Sell out.
    4. Bro down.

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  95. 95
    chopper says:

    @[Individual 1] mistermix:

    if they owned the buildings, then it would be a stumper as to how they’re losing so much money. i mean, renting office space is a decently profitable business, and i’m sure even short-term rental is lucrative enough.

    these guys are hemorrhaging cash and that’s likely the reason why. “we’ll make up for it in volume!”

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  96. 96
    opiejeanne says:

    @Chris Johnson: PeopleSoft. I thought of PeopleSoft in the 90s when I read your comment about destroying the competition. Their motto was “Have fun, kill the enemy” and they engaged in some truly ruthless business practices that got written up in a long interesting series in the SF Chronicle. They were the playground bully in the SF area, offering investment and partnership to people with an innovative product (software programs, mostly) to help them get a patent on the product, and then kicking them out of the “partnership”. They weren’t the initial subject of the article but it eventually focused on them and the way they did business.

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  97. 97
    gkory b says:

    @CaseyL:”I met with people at a WeWork facility some years back and unless things have changed – which they may well have – it’s a very upscale place. The conference rooms have the latest in meeting infrastructure tech, the kitchens were large and well appointed, the coffee and snacks of very high quality.
    Short-term office rental is a very nice thing for special projects, seasonal needs (like festivals), and work-from-home folks who need to hold a meeting. Most short-term office spaces are dismal places, with minimal amenities.”

    Yeah, that’s the idea I get from WeWork too. I listened to an interview with the founder on “How I Built This,’ on npr (don’t judge me).

    He didn’t seem bad, even a little surprised that it took off like it did.

    Fun facts: His mother raised him and his siblings in a commune-style spot in rural New Mexico, hippie-style homeschooling (“Learn what you are interested in:),living on food stamps and public assistance. Another one, his sister is the founder of Barre 3, an exercise studio chain. Funny to think of two multi-millionaires coming from that background.

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  98. 98
    Litlebritdifrnt says:

    @mrmoshpotato: I am obviously being dense but how could stock in a company that has never made a profit be worth 700M?

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  99. 99
    opiejeanne says:

    @Ruckus: We had an Uber driver (our youngest insisted and she paid for it) after an event, and the guy told us about his business. He described himself as an entrepreneur and his goal is creating a new crypto-currency; he is being financed by some lender group that he’s in hock to for nearly $70k. And he was quite upbeat about it. He couldn’t explain how his version of BitCoin was different from BitCoin, probably because there was very little difference, but he said something about being linked to ATMs.

    I’m sorry, maybe it’s because I’m old, but the only one I see with the possibility of making a lot of money is his lender group.

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  100. 100
    Ksmiami says:

    @Kay: I think it puts Warren at the top of the pack tbh- but can Democrat’s please amplify the message that The GOP is hazardous to the economy

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  101. 101
    RAVEN says:

    @opiejeanne: I love “Silicon Valley” on HBO. A more maladjusted bunch of assholes never waled the face of the earth and I KNOW it’s accurate.

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  102. 102
    zhena gogolia says:

    Interesting piece on Moscow protests:

    https://meduza.io/en/feature/2019/08/14/putin-s-pesky-millennials

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  103. 103

    @Victor Matheson:

    I would disagree with people are just being fooled. Venture capital should generally be pretty smart money (with obvious caveats).

    I don’t think the early investors are being fooled. The early investors just think the way to get their money back is with a big IPO, not by the company being long-term successful.

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  104. 104
    Martin says:

    In Ubers defense, the entire valuation of the company was really centered on them delivering on automated vehicles. Should that day be realized, the investment would pay off hansomely.

    And all of these businesses are built around the concept of fractional use of assets, which was key to Amazon Web Services. Rather than dedicate individual bits of hardware to each use case, they could use idle hardware to meet service needs, and with an infrastructure that could reconfigure rapidly enough, they could allocate/deallocate in near real-time. That’s been a massive success.

    WeWork was initially premised on taking advantage of unused office space. Uber initially on unused worker time. And those are still noble things, however when they turn from fractional use cases to full-time use cases, then things often turn bad. Uber pivoted into automation, which mostly just bought more time, as they have been less than successful delivering on that goal.

    These are important experiments to run, and investors are willing to run them. Some are paying off, others aren’t. It’d be nice to see more social science investigation into why certain models work and others don’t, though. Uber delivered an important point, though. It didn’t succeed over taxis because it was cheaper. It succeeded because it was better. By forcing you to review the driver, the drivers are forced to respond to the feedback which means that Uber rides are almost always more pleasant, more comfortable, and more convenient. The revenue model and the driver pay, surge rates, and so on are kinda busted in various ways, but you now see more businesses recognizing the benefits of that tight feedback loop.

    I’m not sure you can call these bubbles, though. WeWork is pre-IPO, so who gives a fuck if some VC funds are burning their money there. That’s what VC funds do – they fund 10 projects, expect one will pay off huge, 2 will pay off a bit, and 7 will be complete losses. Uber is below their IPO price, so investors seem to be pretty clear on their prospects.

    As for the other big techs, Microsoft is in their historic range. The best selling durable good of all time is the iPhone, moving 10x as many units as the previous record. It’s a massive, traditional business that if anything looks slightly undervalued compared to similar durable goods companies. Netflix was a market innovator that is crashing down a bit as many of us expected (the value is in IP, and Netflix doesn’t own that – it was just a matter of time before Disney figured out distribution). Facebook and Google are advertising monsters that have displaced previous advertising channels – magazines, newspapers, TV. Ad spending is holding even at 2% of GDP, as it’s been for the last 50 years. It just moved online. The iPhone became so important to young people that they shifted their spending in areas like apparel. So it’s not like it’s money out of nowhere, it came out of the Gap and the multitude of other clothing retailers that are now bankrupt or near bankrupt, just as those businesses benefitted when households could spend less on food thanks to efficiencies in farming and food distribution and spend it on clothes. This shit happens constantly, with each generation outraged that the economy looks a bit different than before.

    These aren’t defenses of their business models or the various sins they are guilty of, just that investors are not irrational here. They are shifting toward businesses with near zero marginal costs to expand (software will consume everything) and away from businesses where labor is being used inefficiently.

    The bigger problem is that our economy assumed from day one that labor was a necessary driver of GDP. As a result, government extracts taxes on labor, because it was seen as a perfect proxy for the economy as a whole. We tax income, payroll, etc. We tax labor more than anything else. There were always as Adam would say ‘force multipliers’ to that labor. Industrialization, factories, assembly lines made workers more productive, tractors for farmers, etc. So productivity went up, but there was always labor there driving the tractor. Software is a new multiplier, and it still preserves labor but moves it very far from the operation. The automated tractor doesn’t upgrade the farmer, it eliminates the farmer and replaces it with an engineer across the country or around the world. There’s still labor, but they’re way the fuck more productive. So much so that taxing labor doesn’t work any more because the low marginal cost of automation means that you rent seek instead. Value add is now more strongly tied to GDP than labor is, and so taxation needs to shift to that. Tax value add and it no longer matters if its a person or a machine making the good, you still get your tax revenue, and you return that to the displaced workers.

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  105. 105

    @Litlebritdifrnt:

    Because there are ways of shuffling the debt to make everyone rich quick before selling off those stocks to the suckers left holding the bills when they come due.

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  106. 106

    @Kay:

    That’s why I have SOME understanding of the “let it burn” crowd. I’m too conventional and cautious to be one but they have a point. Sometimes it really does have to get bad for people to focus less on bullshit and free-floating…hating.

    The problem with letting it burn is that the outcome is completely unpredictable. They think they’re going to be able to pick up the pieces and put them back together into their perfect socialist world, and it would be a great outcome if they could. But history says you’re a lot more likely to wind up with a Hitler, Lenin, or Napoleon than a socialist paradise.

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  107. 107
    bluehill says:

    @Litlebritdifrnt: You’re betting (or hoping and praying) that the company will generate cash in the future and that it’s losing money now to rapidly grow the business and secure early mover advantage. The current valuation should be underpinned by the expected future cash flow generation, but realistically no one knows because the assumptions needed to derive that number are really just guesses. In the absence of actual profits and cash flow, WeWork’s valuation is driven a lot by sentiment, and sentiment is driven by sometimes questionable proxies for revenues, profits and cash. This is how number of eyeballs becomes a thing.

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  108. 108
    zhena gogolia says:

    The only thing that makes me feel better for a few minutes is giving money to Kamala Harris.

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  109. 109
    Martin says:

    @Roger Moore: I disagree with that. I think a lot of startups have the attitude that their exit strategy is to be acquired or hit IPO, but VCs don’t. Shit, Apple exists due to 3 VC rounds in the 70s. IPOs are a necessary exit point because the VCs need to give up some control of the company to the public, but if you look, the investors rarely really cash out then. Generally they’re taking their VC gains and buying the stock individually.

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  110. 110

    @Litlebritdifrnt:

    I am obviously being dense but how could stock in a company that has never made a profit be worth 700M?

    Anticipation of future profits. Not every unprofitable company out there is a scam. Some of them just take a lot of money to get going but have a reasonable plan to make money in the future. Tesla is an example of this. Starting a new car company takes a lot of capital, but selling cars, especially luxury cars, is a plausible way of earning a profit. The company was very unprofitable for quite a while while they were doing the expensive parts of starting up- building production capacity, setting up a retail network, building charging stations, etc.- but they’re now on a reasonable path to profitability.

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  111. 111
    jonas says:

    @Kylroy:

    That they completely lost sight of this and abandoned the delivery business for brick and mortar retail *right* as it was entering a tailspin strikes me as colossally stupid.

    Not only did they miss how they might have turned their catalog business into an internet e-commerce juggernaut before Bezos figured it out, but then Lampert swooped in and completely upended their employee culture and management system, which encouraged departments within each store to cannibalize each other and ended up running the who place into the ground. Now it’s all over, thousands of people have lost their jobs and pensions, and the only one still making money off all this creative destruction is…why Eddie Lampert. What a coincidence!

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  112. 112
    Chetan Murthy says:

    The problem with “ehh, so the VC funds take a bath — who cares?” is that pension funds and other vehicles in which the broader public has money invested, invest in these VC funds. Which is stupid, b/c (IIRC) at this point, the broader VC biz has returns in line with the stock market — not better than the market.

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  113. 113
    Soprano2 says:

    @kindness: Can you move the 401K into something like 91-day Treasuries? I did that with half my deferred comp account back in 2009, right before the huge stock market slide. I figured I was preserving principle.

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  114. 114
    jonas says:

    @Martin:

    Value add is now more strongly tied to GDP than labor is, and so taxation needs to shift to that. Tax value add and it no longer matters if its a person or a machine making the good, you still get your tax revenue, and you return that to the displaced workers.

    Agree. I’ve long thought that replacing some or all of employer payroll taxes with some kind of VAT or carbon tax would be a good idea.

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  115. 115
    BlueNC says:

    Late to the party.

    I can’t comment on the financials, but WeWork overall is a good idea. The idea of month-by-month office space is appealing to startups, who are expecting rapid growth, but aren’t sure. In standard commercial office space, you’re looking at a three-year minimum for a lease. So either you overbuy in anticipation of growth, or you underbuy and then you’re busting at the seams within 12 months.

    For a solo entrepreneur, the infrastructure (high-speed wifi, video conference rooms, etc) and not least the social outlet that WeWork provides are appealing. It’s a step up from the spare bedroom or the coffee shop. It also provides for the possibility of hosting meetings with your clients that you don’t want to host in your spare bedroom.

    Finally, it works quite well as overflow for large corporations (just get ad hoc meeting space when your own office meeting rooms are overbooked) and for remote workers. Big Company hires a remote employee or five in a location and provides them with a bit of WeWork space to meet/collaborate etc without having to sign on to a real office–or having meetings in people’s houses or random coffee shops.

    That said, if you have a reasonable idea of your need for space, you should be able to find something cheaper. I looked at WeWork in the Research Triangle Park (North Carolina) market and it runs about 10x what you pay for “normal” office space. You do of course get all the included amenities (beer blah blah), but it is pricy.

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  116. 116
    Jamey says:

    @[Individual 1] mistermix: I think that part is a feature, not a bug…

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  117. 117
    Mel says:

    @Martin:

    Apple (not Microsoft) produces the iPhone. And Apple has been seeing a bit of sales slowdown on iPhones, in part b/c they have a flooded market. Once everyone has two or three older phones, and a newer phone that can handle all the updates, there is less incentive to but a new phone every year unless one is a true techie who has to have the latest devices, or unless there is some big innovation in phone design that makes the currently owned model obsolete.

    The natural effect of this is that demand slows, and then manufacturing will have to slow until demand picks up again.

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  118. 118
    J R in WV says:

    @Le Comte de Monte Cristo, fka Edmund Dantes:

    When we were in Florence, aka Firenze, Tuscany, Italy, you could call a cab anywhere in the city, ask a barrtender, a salesman in a shop, anyone with a cell phone, and it was guaranteed to be there in 3 minutes, and to know every ancient twisty alley in the city.

    Great service, but for one driver who pulled in close to a big concrete bollard thingy, and then acted like he wanted to accuse Beth of damaging his car. Except he couldn’t find any damage to accuse her of. We enjoyed rural Tuscany, but Firenze/Florence was so crowded with tourists who wouldn’t even get out of the way of your car walking in the F’ing street.

    Plus the old ladies who ran the biggest museum we visited were angry, mean, liars.

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  119. 119
    HinTN says:

    @Cheryl Rofer: This is the real issue. I don’t begrudge folks making lots of money. It just has to be balanced through a social contract that provides an adequate safety net.

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  120. 120
    J R in WV says:

    @Tom Levenson:

    The Hunt brothers tried to gain a monopoly in silver, failed at that losing huge sums of money, then were arrested for illegally doing what they did. Are they still even a thing? Were really, really rich, tried to corner a market, lost a whole lot.

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  121. 121
    Martin says:

    @Amir Khalid: Maybe, but unlikely. WeWork relies on broad geographic distribution and real estate investors don’t work that way, in part because it’s too expensive and risky. WeWork is really trying to solve the problem of how to package up commercial real estate into an easily consumable product that is distributed much more broadly than the real estate market is able to do. In a given city, you’re right, a big investor could displace them, but not broadly.

    Compare it to AirBNB. In the hotel space, you did get those large national and multinational chains so that you could stay at a Hilton almost anywhere on earth. So AirBNB, instead of turning all of the rando motels around the country into an ad-hoc chain by renting out individual rooms under the AirBNB banner, went one layer down and did it with individual homes. WeWork is the equivalent of the rando motel model if Hilton and Motel 6 never existed.

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  122. 122
    The Moar You Know says:

    wish I could yank my 401K money before the shit hits the fan. I lost about 1/3 of my money in 2008-2009. I recovered eventually. I just don’t want to keep playing whack a mole with that part of my retirement funds. I can’t pull the funds w/o paying the taxes on it which I won’t do.

    @kindness: I don’t know if you can do this with your 401k – put it all into money market/cash funds. That’s what I did in late 2007. I lost under 50 bucks when everything went to shit.

    And I’ve just done it again. And I may well leave it there. I don’t think we’re going to see the kind of recovery we saw last time.

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  123. 123
    J R in WV says:

    @Litlebritdifrnt:

    …how could stock in a company that has never made a profit be worth 700M?

    Because someone was willing to buy the stock on the off chance it would go up in price some time between his purchase date and the date the company goes broke…

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  124. 124
    The Moar You Know says:

    Apple has been seeing a bit of sales slowdown on iPhones, in part b/c they have a flooded market. Once everyone has two or three older phones, and a newer phone that can handle all the updates, there is less incentive to but a new phone every year unless one is a true techie who has to have the latest devices, or unless there is some big innovation in phone design that makes the currently owned model obsolete.

    @Mel: I sold out all my Apple stock a few months back, once I took a hard look at their product line and path forward, and realized they have nothing in the pipe save for phones that only 20% of the populace can afford.

    They’ll do just fine for a few more years, but they need something else besides the world’s best mobile phone. Which it is. But it’s ridiculously expensive. My wife and I got ours back in 2014 and have zero intention of replacing them anytime soon – a thousand dollar phone is not something either one of us is willing to buy.

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  125. 125

    @Martin:
    I’m not saying that VC in general is looking to cash out with an IPO. I’m saying that when there’s a company with a completely unreasonable valuation and no plausible route to profitability that’s trying to IPO, that IPO is how the VC’s think they’re going to get their money back. The main thing that drove the Dot Com bubble was that a bunch of VC figured out there was enough dumb money out there to make this a profitable approach even for companies with ludicrous business plans. I think a bunch of these companies are basically in the same mode right now; their goal is to recoup their VC investment through an IPO and they don’t really care if there isn’t a road to profitability beyond that.

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  126. 126
    Martin says:

    @Mel: I know. I thought that was implied. Your assessment of the iPhone slowdown is correct, but the general investor response to that is wrong. When the iPod came out at $499, and Apple steadily lowered its price over the next few years, investors worried that Apple was giving up dollars. Apple discovered that people still paid $499, even when the iPod was $299, they just put the other $200 into accessories and buying more music, which Apple could still capture.

    Apple has always taking that high level view – looking at the total value to the customer. So they shifted to more durable (and more expensive) iPhones that would stay in service for 3-5 years, and introduced accessories (Watch, AirPods) to the iPhone as well as services to make up the lost revenue on the iPhone churn. Revenues haven’t fallen with the drop off in sales, as the dollars have flowed into those areas.

    That has two benefits for Apple. Reducing the scale of iPhone manufacturing will make them a bit less dependent on Chinese manufacturing as they’ll better be able to move these operations elsewhere (the US is still too structurally busted to move iPhone production here), and it shifts consumer spending into areas that Apple is better able to capture than their competitors.

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  127. 127
    Mel says:

    @jonas: @Martin:

    Absolutely agree. Economies and technologies evolve. The job of a functional
    government is to make sure that the social legal, educational, and financial plans of a country evolve along with these (or preferably, predictively) to avoid the horrors that inevitably occur when there is inadequate / corrupt oversight and planning.

    What I see as most worrying isn’t the “new models” of business, but the fact that there is no adequate oversight, no plan or legislation to make sure that their employees are protected, and communities are protected, and no plan to ensure that the million little tremors of so many of these businesses going under and shifting their multiple layers of interconnected debt don’t become a cascade that burns everything down irreparably. This is why I’m leaning more and more towards Warren as my candidate.

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  128. 128
    PJ says:

    @Litlebritdifrnt: Amazon, a company with billions in revenue and billions in market cap, never made a profit until a few years ago.

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  129. 129
    TenguPhule says:

    @Major Major Major Major:

    See also: being poor is expensive. As the story goes, a $200 pair of boots that will last for years is outside many workers’ price range, so they end up serially buying $50 pairs that last for a season.

    So you;’re familiar with the Vimes School of Economics.

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  130. 130
    HinTN says:

    @Martin: Excellent synopsis.

    Two points:

    It didn’t succeed over taxis because it was cheaper. It succeeded because it was better.

    Not just the tight feedback loop on customer satisfaction. There was the security element, too. The driver has your data and you have the driver’s.

    an engineer halfway around the world

    I contend that engineering is the liberal arts education of the 21st century.

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  131. 131
    Mel says:

    @Martin: A little off topic, but you might know the answer.

    Have Apple’s iphone sales to female customers slowed since the debut of the larger phones? I saw some stats a couple years back that showed a small but notable difference in the percent of women versus men purchasing iPhones, with a higher percentage of women purchasing iPhones.

    The slightly larger phone simply doesn’t work for my hands, and I have heard that echoed by other people with smaller hands. I’d love to have the larger screen, but… Instead, I’m replacing the battery and screen on my current phone.

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  132. 132
    RobertB says:

    I don’t know if I believe it, but I’ve read that Uber isn’t planning to take over the world by controlling all the taxis, but are trying to take over the world by being the go-to company for autonomous ridesharing. That their current pricing would become profitable if they replaced Uber drivers with Uber autonomous cars. This supposes that they can a) work the kinks out of autonomous vehicles to the point where you would jump into one sent to your house by a stranger, and b) that human nature would change, and that you wouldn’t get some POS poorly-maintained Uber car, reeking of booze and/or vomit.

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  133. 133
    chopper says:

    @The Moar You Know:

    mine’s been in bonds for a bit. probably moved it too early, but then again the stock market’s been flat for the last year and a half anyways.

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  134. 134
    Chris Johnson says:

    @Roger Moore:

    The problem with letting it burn is that the outcome is completely unpredictable. They think they’re going to be able to pick up the pieces and put them back together into their perfect socialist world, and it would be a great outcome if they could. But history says you’re a lot more likely to wind up with a Hitler, Lenin, or Napoleon than a socialist paradise.

    Can’t emphasize this enough, you’re absolutely right. The problem with a ‘burn it down into chaos’ approach is that we have known geopolitical actors that I am ALWAYS harping on (hellOOO, Putin!) who specialize in causing chaos to undermine opponents/enemies structurally. Those guys are quite good at that in the way that telephone scammers are good at what they do: if you abandon civilized behavior there are certain gains to be had from being a complete amoral asshole.

    So, chaos will NOT help. Chaos is walking into a situation that is all too easily mismanaged by an enemy. We need plans, not chaos, so you are completely right there.

    As for the IPOs and such and the whole earlier conversation: some of this would be less of a problem if endless paper Silicon Valley billionaires had to treat money like money and not like some kind of limitless oxygen that uses Tinkerbell rules. I can call it power, or I can call it ‘clap harder’, but ‘the market can remain irrational longer than you can remain solvent’ and it’s important to understand how and why that is. In this case, if these people are rebuilding all of economics on a ‘the corporate monster that can crush its enemies the most will always prevail!’ model, then sure you’ve got Amazon (they try, but they can’t ever switch to a monopoly-rent model) but you’ve also got the most wretched hive of scum and villainy out there trying to convince investors that they are badder than the next guy.

    And if enough investors buy into it, and the worst people who should be in jail are rewarded (because they are clearly ‘competitive’ and destined to win) then those people will not go under. Instead, they’ll be bankrolled to make good on their threats. Which is what happened for Amazon, and look at them now: there’s a lot of neat stuff we have because of them, but there are profound social costs to it all.

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  135. 135
    WhatsMyNym says:

    @PJ: Amazon invested in very expensive physical infrastructure: distribution centers, data centers. Then there’s the software they designed and maintain for their website, and for clients using their data centers.

    To be honest, I doubted they realized the cost of the distribution chain they would need.

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  136. 136
    Steve in the ATL says:

    @Le Comte de Monte Cristo, fka Edmund Dantes:

    I have seen the future of Uber, and it is of a dispatch service for taxis, like they do in Greece.

    I would love this. I try to use taxis when I can, such as leaving an airport or train station, but calling one to come pick me up works only about 25% of the time. Fuck that shit, I will use Lyft every time in that situation. Uber was made possible only by the staggering incompetence of the taxi industry.

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  137. 137
    Martin says:

    @The Moar You Know: Apple’s path forward is an interesting one. They’re capturing the majority of tech profits right now (Google and Facebook aren’t tech profits – they’re advertising profits) so their growth needs to come from outside the tech arena. There are 5 industries that are larger than tech that Apple could get into:

    Finance
    Energy
    Healthcare
    Defense
    Transportation

    Apple is dabbling in 4 of those right now – staying away from defense. They’re using energy as a hedge against a future downturn by investing in clean energy in excess of what they need as an organization. Apple Energy is a subsidiary with a license to sell electricity on the wholesale market. I don’t think they see it as a growth option for them, but as a revenue source during a downturn.

    Transportation they’re dabbling in. It may play out, it may not.

    Finance they’re moving into steadily. ApplePay and the new Apple Card. They’re bringing down about $500M for every billion transactions per month, which is nothing to sneeze at. And that money is really just previous fraud that was prevented – someone was stealing about 4x that amount, Apple prevented that theft and is keeping ¼ of the savings. Tying the various financial threads together into a consumer friendly product is a huge potential market. It’s what tech has historically done (unfuckup markets that marketing folks ruined) and it’s a multitrillion dollar industry.

    Healthcare they’re also dabbling in and the consumer out healthcare model also works well for Apple. Technology will inevitably move us from institution owned equipment to consumer owned, at some level. Everyone having their own pulse ox, PB meter, etc. just as everyone has their own thermometer isn’t unreasonable, and these devices are right in Apple’s engineering sweetspot.

    The big potential for Apple is a bit of a new category though – identity. ApplePay is really an identity framework as much as it is a payment framework. It allows for secure storage of identity in a physical device, that the owner cannot tamper with (or inadvertently disclose). My iPhone contains an infinite number of credit cards – one for each transaction that I make. If I leak one out, no harm can come from it. But those cards are secure proxies for an account I have with my card issuer (bank). The underpinnings of ApplePay allow for an escalating identity challenge. My credit card identity is a byproduct of the ID I gave my bank – my SSN, and drivers license, etc. But there’s no efficient way to challenge that identity chain if someone suspects fraud. ApplePay addresses that, but the infrastructure isn’t built out yet. What if a 3rd party could challenge my credit card identity by asking my phone to check with the DMV that I was who my card claimed I was. It can (in theory) do that, so that if the DMV used a similar system to the banks, my phone could come back and say ‘yeah, we checked the token issued by the DMV and this person is valid’ that would be a big boost to security. And because this is baked into the hardware and sits below the software stack, software can’t mess with it short of a security vulnerability.

    Apple is already expanding this to universities. About 20 universities allow you to use your phone as your student ID, based on the same software/service stack as ApplePay. They are working with DMVs now as well. In a sense this is a market where Facebook currently is, but with no validation, and with lots of leaking of data. It’s also where a lot of facial recognition is trying to go, but with Apple’s approach it’s all on a device you own and can decide what you do and don’t want to use. But I think their plan is to hook into all identity services – your health insurer, the DMV, credit cards, workplace IDs, etc. Right now if I tap into my building at work, all the system knows is that I have a card with a given ID. It doesn’t know if I stole that card, or cloned it. It doesn’t know that the holder of the card is the rightful holder of the card. A proper identity framework solves that. If I tap in at 7:30 AM as usual, then fine. If I tap in on a Sunday night, it may say ‘wait, this is odd, I’m going to ask for more ID before unlocking the door’ and go up the identity chain, using the id I provided to get that card (my workplace ID) and maybe the ID I provided to get this job (my SSN/Drivers), etc. You might steal my phone, but you still need my biometrics and passcode to unlock those services, and there’s no way for you or I to extract those credentials.

    That will be a massive market.

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  138. 138

    @MomSense: Agreed. They seem to have too much money to waste.

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  139. 139
    Martin says:

    @Mel: Completely agree. I like Warren a lot. She’s in my top 2. She gets this stuff.

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  140. 140
    Martin says:

    @HinTN: Maybe? Basic coding/data science should be seen as a foundational skill for all new workers, similar to knowing how to type, etc. We’re not talking software engineering level stuff here, but the ability to run a query for a report, or do a bit of javascript to automate a spreadsheet is key.

    The future is not computer science. The future is every discipline being able to apply the lessons of computer science. The future is the history major that knows how to code. The domain expertise will be what pays the bills, but if you don’t have basic coding skills, you’ll be useless. Until that happens we’ll stumble through with CS majors that don’t know what the fuck they’re doing, but can at least turn out the code.

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  141. 141
    Martin says:

    @Mel: The iPhone SE has held that market. It may continue with a new model, or it may get a different model in a smallish form factor thanks to smaller bezels on the new devices. Apple is aware of the market need.

    But the Watch is what’s really addressed that problem. Apple was smart in offering the Watch in different sizes, so that there would be a model that could fit more modest wrists. Women are buying the Watch at higher rates than men, because it does address the problem somewhat nicely. It’s not just that some people have smaller hands, but also that on the dawn of autonomous cars, we haven’t figured out how to put functional pockets in women’s clothing. Has that offset the need for a smaller form factor phone? Maybe, but I don’t think so. I think we’ll still see an iPhone SE-sized device in the future.

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  142. 142
    glory b says:

    @lumpkin: Yep, one would figure this out by watching a few episodes of Shark Tank. All of the investors there are self made, and get into the numbers pretty quickly.

    I heard an interview with Howard Stern and Mark Cuban (fellow Pittsburgher!) a while back. He said he only lost money on one of his Shark Tank investments.

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  143. 143
    Steve in the ATL says:

    @Martin:

    The future is the history major

    Finally, it’s my turn!

    that knows how to code

    Shit.

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  144. 144

    @TenguPhule: I’m fairly sure that was a hand me down to pratchett since I first heard it from my mom.

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  145. 145
    WhatsMyNym says:

    @Martin:

    similar to knowing how to type

    I can’t type worth a sh**, so I became a programmer. I’ve also done some client support, nothing worse than somebody who took a class and they now think they can “code”, and “why doesn’t my script run anymore!! “.

    You really seem to have a thing for Apple.

    ETA: I once used a script in the editor to convert a million record datafile (2D flat, not relational). It took a few hours; but saved me writing, testing and running a program.

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  146. 146

    @PJ:

    Amazon, a company with billions in revenue and billions in market cap, never made a profit until a few years ago.

    A lot of that was accounting shenanigans and reinvestment and whatnot. At any rate, their AWS line makes huge profits and for several years was the only part that made money.

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  147. 147
    opiejeanne says:

    @RAVEN: We don’t have HBO but I’m sure they got it right. I worked there, on the edge of Silicon Valley and the little startup I worked for had clients all over the San Jose and Mountainview areas, and the people I had to deal with there were the most soul-less creatures I’ve met en masse. I’ve met the odd individual in nearly 70 years but it was like they’d been chosen for that trait. Oh, of course they were. I had dealings with PeopleSoft for a brief moment and what I saw just walking into their offices made me glad I never had to go back.

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  148. 148
    opiejeanne says:

    @Martin: We lived in Castro Valley in the 90s, next to Hayward, CA. We watched little companies, guys renting really crappy apartments, go from that to being worth $40 million overnight with iPOs, but although the rule was that they couldn’t access all of that value right away, they could get at about half of it. And the price of housing in San Jose going through the roof. The rest of the SF area was already nuts but every one of these little success stories made it worse.

    Heck, we watched Yahoo! when it went public and the overnight riches were astonishing. All this money, suddenly owned by people who rode their bikes to the “office” because they couldn’t afford a car, and had sleeping bags stashed under their desks so they could sleep there several nights each week. People so driven by what they were doing they were unable to relax for even a minute.

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  149. 149
    WhatsMyNym says:

    @opiejeanne: I had no trouble finding friends in the industry who were not like that (late 80’s thru 90’s). Though traveling all the way to SF for a real nightlife (and to meet single women) was a pain.

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  150. 150
    opiejeanne says:

    @WhatsMyNym: Not workaholics? Yes, I worked for a trio of partners and the one you’d expect to be the most anal and driven, the accountant, was anything but. And he was a bit of a pain, but my boss was not. He was a fun guy and I learned some programming in Basic and Unix. The company was barely profitable for about 3 years but we had some stiff competition for the big jobs, and right about then my boss’s wife decided that we peons all needed her management in order to get things done. She. seemed to think we were slackers, which none of us were. She upended the company after I helped train her to manage, and then she demoted me until I was left with only one job: pulling staples from stacks of reports, and I didn’t do that correctly. She got everyone to quit within a couple of months, and it went down in flames about a year after I left. I only know what happened because I ran into one of my other bosses and he told me how bad it got.

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  151. 151
    Groucho48 says:

    @randy khan:

    Well, they are kind of cooking the numbers. From Gizmodo…

    There’s definitely some creative accounting at work with regard to WeWork’s financials. For instance, WeWork likes to use the dubious metric “community adjusted EBIDTA” which is basically a fancy made-up term to say it subtracts interest, taxes, deprecation and amortization, marketing expenses, general and administrative costs, development, and design costs from its losses. According to an Axios report, it also includes tenant feeds, rent expenses, staffing, facilities management. This is funky math that’s sort of like waving a hand in front of your face to say the startup isn’t losing money—it’s investing in the future. Potato, poh-tah-to.

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  152. 152
    billcinsd says:

    @Victor Matheson: How do you know one will pay off? Isn’t a more realistic scenario that at most [some number, probably not larger than 2] will hit it big, but you don’t know the chances. You can look at past data, but those numbers are likely not particularly relevant to your situation. Making decisions under uncertainty is difficult and the answer generally comes down to how much you decide you can afford to lose rather than what is the expected return

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  153. 153
    Martin says:

    @WhatsMyNym: I take an odd view toward investing. Most of my money is in very broad ETFs, etc. The usual diversify aggressively stuff. But I have a chunk I actively invest. I don’t jump from stock to stock. I have one stock, and I do everything around it. I’ll do options – puts/calls, straddles, etc. but only on that one stock, and that’s Apple.

    I chose Apple 22 years ago at their bottom. They were trading at liquidation value, so there wasn’t a ton of downside and in hindsight obviously a ton of upside, and they have a unique internal organization among companies of that size which causes them to avoid some traditional problems, and stumble into others. I study everything about the company and about their market and competitors. There are opportunities they can’t reach because of who they are, and opportunities only they can reach because of who they are. I only look at fundamentals. Their internal organization, which shapes their corporate culture, is their biggest asset to an investor. It makes them very predictable at certain things that other investors dismiss. That’s a good recipe for making money.

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  154. 154
    Martin says:

    @billcinsd: Think of it as stochastic investing. Early VC rounds are pretty cheap. You put in half a million or a million, and that’s your maximum exposure, and you get 5% stake for that. If it takes off and becomes a unicorn (billion dollar market value), you’re now sitting on $50M. You can fund a LOT of failures for that one success because the upside to startups is so much greater than the downside.

    A lot of that is due to so many of these succeeding on so little capital. Whatsapp was around 50 employees when they were acquired by Facebook for $19B. They had an office but no other assets. They built on top of AWS. They had no factory or equipment. Their startup investments were in the low 6 figures and they sold for low 10 figures. That’s hard to pass up. It’s a fairly new concept that IP can generate that kind of value with no other capital assets. GM has to build factories. Software companies just need a chair and wifi.

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  155. 155
    Another Scott says:

    @Martin and HinTN: Dunno. I think it’s very easy to go too far.

    I’m an engineer (not a programmer). I started off ‘programming’ in middle school with a 300 baud time-shared terminal on paper tape. Before that, I visited some federal facility in Atlanta where they had huge banks of IBM stand-up tape drives and got to help load a new tape in a machine (and watch the glass door slide up).

    Programming skills go obsolete very, very quickly.

    I know you said that everyone shouldn’t study CS, but everyone shouldn’t necessarily know how to run arbitrary queries in Excel or Access, either.

    And I strongly disagree with “engineering is the liberal arts education of the 21st century.” An engineering education teaches almost nothing about how the world of people works. And, as we’ve seen, the world of people has a huge impact on how the rest of our world works (combating AGW, providing affordable health care, providing a livable retirement, etc., etc.). The liberal arts are hugely important – still. Even for engineers.

    What’s most important, IMHO, is that people know how to think, how to evaluate evidence, how to make inferences, and how to learn new stuff on their own. Sometimes writing a script is the way to solve a problem, sometimes it’s knowing how to do a Google search and sift through the results, sometimes it’s knowing who to talk to.

    Lots of “programming” these days is drag-and-drop-and-connect-the-boxes. In 10 years it may be “Ask Alexa/Bixby/Google/Siri/Cortana/…”. Someone who only knows how to write the world’s greatest Javascript/SQL/Ruby/Python/VBScript will be as popular as people who were the world’s greatest FORTRAN/COBOL/LISP programmers were…

    The world is changing rapidly these days. People have to be flexible and know how to learn new stuff. Knowing how to make office PCs do what you want can be a useful skill, but in 10-20 years, who knows?

    […]

    So, it’s still early days for the [quantum computing\ technology and many years before it comes out of the research realm into practical application. Yet it is still important for industries to begin exploring the use of this technology today. This early start is necessary because quantum computing is not simply faster computing, it differs dramatically from traditional computing in the way it solves problems. Developers will need the time to become familiar with the new approach so that they are prepared to use quantum computing as soon as it is ready.

    Traditional computing achieves its results by following a sequence of steps, called an algorithm, when making its calculations. If seeking to find a value that optimizes or satisfies some complex function, for instance, a traditional computer must algorithmically explore, one after another, all the possible choices. The quantum computer, though, essentially considers all the possible answers simultaneously through the quantum mechanical properties of entanglement and superposition.

    To utilize a quantum computer the programmer specifies a series of quantum gates that establish the conditions defining the problem to be solved. This quantum gate setup leverages the probability and wave interference nature of the quantum computer’s bits (called qubits or sometimes qbits), to alter an input vector so that the output vector represents a likely answer to the problem. A single run does not produce certainty in its result, however, it merely has a high probability of being correct. By conducting many such trials, the quantum computer can increase that probability to as near certainty as desired. And even though it requires multiple runs to yield an accurate result, the total computational time can be substantially less than the algorithmic approach if the quantum computer has enough qbits in play.

    This approach is so different from conventional computing that current computer and programming expertise will essentially be inapplicable to quantum computing. Developers will have to start from scratch to learn quantum computing. The time to start building quantum computing expertise, then, is now.

    […]

    My $0.02.

    Cheers,
    Scott.

    ReplyReply

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