> How could they destroy hundreds of small businesses, if they themselves were not profitable?
Not OP, but small businesses have to use operating margins to make payroll and pay for capital goods. 'Startups', through what essentially boils down to predatory pricing, can burn through investor cash to acquire customers leaving the entire market at a loss.
NYMag actually does a decent job explaining it a bit:
This is based on the unjustifiable assumption that the author knows better than the VC's and other investors. In particular, the author somehow knows that these company's won't be able to turn a profit, even though the VC's and investors surely believe the company will.
It's not based on the presumption that the author knows better than the VCs. It's based on the very real fact that profitless VC-funded startups are competing based on unsustainable prices with the goal of raising prices in the future once their competition has been starved out.
It's market manipulation (but not the type that rises to the level of impermissible market manipulation).
It's easy to make this allegation, but very hard to substantiate it, since there are many factors that influence profit, and just because a company isn't profitable now, doesn't mean that the only way they can become profitable is by starving out their competition and then raising prices. Can you give a single instance of a venture backed startup actually causing price increases after driving out their competition?
How does Amazon empitomise this? What goods have they raised the prices of (and why I say raise, I mean relative to the price before Amazon, not that Amazon merely increased their own prices).
It certainly seems like Amazon is beginning to exercise their strength as a monopsony to gain unfair advantages and extend their business into new areas without actually competing on merits.
I don't see how a single instance of Amazon misusing their monopoly power, equates to price rises across the board. So far I imagine the overall affect of Amazon has been to reduce consumer prices.
Amazon tends to (ab)use their monopoly power through things like shipping costs.
As an emporium of everything, Amazon already has a distinct advantage. Even if prices are higher on Amazon than other e-commerce sites, it makes sense for me to use Amazon because I can get 2, 3, 4 products shipped at once. That can be a big saving.
Additionally, Amazon subsidised widespread free shipping on low-ticket items for many years, in the UK they have only recently gotten rid of it[1].
That free shipping policy, while great for consumers in the short term, did starve out a lot of their competition.
And of course, the larger Amazon gets, the better shipping rates they can negotiate. My orders are now delivered to me by a "Amazon Logistics". It seems they've finally achieved full vertical integration.
No it's not. A company being profitable is different than a company turning a profit specifically for it's initial investors. The profitability of a company post-buyout is murky. We're also talking about VCs getting in on profitable businesses ventures, not tech conglomerates. If a VC makes their money by finding hot trending startups that later get bought out, they're not really investing in a company that profits on the merits of the business plan alone. A lot of the big buyouts are based on buzz, and often the valuations are overblown when compared to actual ability to profit. Expected profits != actual profits.
VCs also anticipate they'll be wrong a majority of the time about a company. That means, a substantial amount of the time (maybe a majority of the time?), they'll be throwing a lot of money at "disrupting" existing businesses with no successful alternative.
But since profitability is better thought of in terms of averages or expectations, it makes no difference if the companies in question are all moderately profitable, or a few extremely profitable companies, and some non-profitable ones.
If the business fails, then it has disrupted existing businesses for no gain. But if it becomes extremely profitable, then presumably it has made some cost savings in order to be able to do so, and so deserves these profits.
If the average business is profitable, then the investment is justified, both for the investors, and from the point of view of society as a whole.
Not OP, but small businesses have to use operating margins to make payroll and pay for capital goods. 'Startups', through what essentially boils down to predatory pricing, can burn through investor cash to acquire customers leaving the entire market at a loss.
NYMag actually does a decent job explaining it a bit:
http://nymag.com/daily/intelligencer/2014/04/problem-with-pr...