I think the pure tech plays in 2019 are doing just fine. Zoom, Cloudflare, and Datadog all look like good companies. They're just not over-hyped and overinflated.
The smoke and mirrors plays need mass hype/media blitz to "succeed." The companies that actually add value only need to market to the audiences for which they're economically relevant.
Spot on. Many of these companies have devolved into little more than pump-and-dump schemes for executive compensation. All that’s undergirding them are their BS “disruption” and PR narratives, gobbled up and regurgitated by the media.
This sounds slightly like a no true Scotsman arguement to me. I'm sure you could find some none pure tech plays that are successful.
Plus companies like Uber don't exactly own assets, its more tech company than not.
For all the promise of the Web, people live in the real world, that's where the money is to be made, mega tech companies are necessarily going to live at the interface.
Buffett's hypothesis (as I understand it) boiled down to (1) find successful businesses that are capital-starved, (2) pair them with businesses which naturally generate float (e.g. insurance), under a corporate umbrella, (3) invest the float in those businesses and thereby beat market returns (by only selecting quality businesses, and having the ability to provide mentorship / experienced leadership).
I don't think he invests so much in capital starved businesses, more he just uses the cash generated by eg insurance to invest in high quality businesses. I suppose the difference here is the high quality part. Wework doesn't seem to have much of a moat, have particularly good governance, or have much of a track record of anything.
It basically means "hold cash", so visa, stripe, insurance companies etc. all get cash from customers, hold it for a period of time, and distribute it to customers.
Holding it for a period of time is "generating float." For many of these companies the float is a large multiple of the profit.
Cloudflare still relies on the "massive amount of free users creating buzz vs. a tiny fraction of paid users". Although not an obvious scam, they may very well go the Groupon way.
This is a classic "bottoms-up" model that is quite viable (eg Dropbox, Slack, Zoom, Elastic, MongoDB). Not sure why anyone would call it a scam. In fact, I would be wary of software companies without a base of free users, as that means the company needs to keep spending a lot of its revenue on sales and marketing.
Not necessarily. You don't need marketing and sales people if you have a free-tier product that markets itself. Michael Stonebraker, the guy who took Postgres from academia and into the real world, talks about how he applies this with VoltDB
>This is a classic "bottoms-up" model that is quite viable (eg Dropbox, Slack, Zoom, Elastic, MongoDB).
None of which are profitable.
>In fact, I would be wary of software companies without a base of free users, as that means the company needs to keep spending a lot of its revenue on sales and marketing.
I am much more wary of companies that keep or burning cash for years and years with the only excuse that "Amazon did that as well".
> I am much more wary of companies that keep or burning cash for years and years with the only excuse that "Amazon did that as well".
I think about this a little differently. Spending money on free users is actually a much more efficient "marketing expense" than classic outbound strategies (e.g., online advertising).
Are these good examples, though? Dropbox is down ~35% since IPOing, and Slack is down almost 50%. This certainly suggests the market thinks they were both overvalued when they IPO'd.
This is arguably a "things might go wrong in the future" argument, which has no real substance as it can be made about literally anything. To really say something, you'd need to provide some more substance about why you think the current investors in Dropbox and Slack are less informed about economic conditions than investors in the rest of the market.
> The Fed will run out of monetary tricks, eventually.
No, it won't.
It might run into a monetary-policy resistant situation (e.g., stagflation), but the Fed has infinite range of monetary policy tricks available (literally, there's no floor to rates now that the Fed has taken notice of the use of negative rates elsewhere.)
Groupon is a perfect example of a company that became irrelevant before reaching profitability. Most tech valuations are based on the assumption that the company's product will stay hot forever, giving enough time to cut expenses and turn black. While in reality, the crowd of early adopters that gave you the hockey stick growth, quickly moves on to something else once they get bored and then it turns out your market is orders of magnitude smaller than your investors expected.
I don't see a CDN as something that customers get bored of in the same way as coupons for random services.
When a consumer realizes they are getting 50% off of a service or product they didn't want or need in the first place, they stop signing up for deals. Also, once the businesses realize these customers don't provide repeat business and they are devaluing their product for consumers who do want it, they stop offering the discounts. Finally, it's trivial to sign up for each of their competitors and play them off of each other.
When does a Cloudflare customer stop needing secure, performant content delivery, and how easy is it to switch to a competitor?
