Did Softbank Get It Wrong With Uber And WeWork?
Many people are baffled by the kind of valuations start-ups like Uber and WeWork were able to get from VCs like Softbank given how much they resemble conventional businesses rather than true tech start-ups like Facebook or Google.
Are Uber & WeWork Really Worth That Much?
The question on everyone’s minds is whether Uber & WeWork are really worth that much, given how much money they are losing even after raising billions.
Did Softbank make a mistake?
I Am No Expert — But Let Me Know If My Observations Makes Sense
I am no expert, but I’ve studied how the stock market works and how multi-billion dollar companies justify their valuations, especially those north of 100 billion USD like Facebook, Google or Microsoft extensively.
The reason I had to do that was because I wanted to build a 100 billion USD start-up that could solve a global problem so I could help Malaysia fulfil its full potential.
To be able to do that, I would first need to understand how the stock market works and what makes a company worth 10 million, 100 million, 10 billion or 100 billion.
Why Facebook & Google Are Worth More Than 100 Billion USD
The reason why companies worth well over 100 billion USD like Facebook and Google are worth so much is because they are pure tech companies.
They can build their platform once and launch everywhere in the world without having to have an on-ground team. They are also solving fundamental global problems that everyone faces, and their products are what people around the world use everyday and can’t live without.
Big conventional businesses like Starbucks actually make comparable amounts of revenue, but have very high costs and narrow profit margins for each sale they make compared to true tech companies like Facebook and Google who can basically print money out of thin air.
It costs Google & Facebook virtually nothing to show you an ad, link or picture in their newsfeed or search results besides the negligible costs of keeping the servers running at scale. If they were stingy china-man companies, their profit margins would be sky high, but they increase their costs by paying sky-high salaries and attractive benefits like free food, massage and a great working environment to attract top talent and invest heavily into research and development and innovation, building risky cutting edge things like self-driving cars (Google’s Lidar Cars) and solar powered airplanes.
The Problem Is — A Heavy Physical Aspect Makes A Difference
Unfortunately for Uber & WeWork, their core product and business has a heavy physical aspect, with Uber having to work with local drivers who are providing a service that requires a physical asset — a car — that needs maintenance and incurs costs every time they ferry an Uber passenger and WeWork having to work with local landlords and sign long term leases on property in order to refurbish them and rent them out.
Uber has to pay drivers, and WeWork has to pay their landlords. There is a cost they have to pay — to a middle-man/supplier — for every unit of service they sell — ride/rent.
History Has Proven Time Again — If It’s Much Better — People Will Switch
However, the service that Uber & WeWork are providing has real value, and is much better than anything that existed before it.
History has proven again and again that people will ALWAYS switch to something that is better, even though they might not know they want it or might find it weird at first.
Henry Ford said that if you had asked people what they wanted before everyone had a car, they would say that they wanted a faster horse carriage.
Our parents or grandparents din’t think that we needed a better way to stay in touch with friends; letters, house phones and coffeehouse meet-ups were good enough. They didn’t think there was a problem to be solved, but today many of us can’t survive without Facebook or Instagram.
We would have totally lost touch with some friends without it.
Cabs and cars worked fine before Uber existed, and the idea of getting into a stranger’s car who was not a cab driver seemed weird and creepy, unless you are used to hitch-hiking, but it turns out to actually be an ingenious and much better solution to transportation.
History has shown us that if you’ve build a product that is orders of magnitude better than any solution before it, people will eventually switch to it.
Uber & WeWork Have A Heavy Physical Aspect To Their Business Models
Uber relies on local drivers and their cars in order for their users to be able to book a ride to their destination. Their app on its own, without the drivers and their cars would not work. Drivers are stakeholders too, and need to be paid for each ride completed.
WeWork on the other hand relies on local property owners to lease them their property at a cheaper price in return for a long term commitment from WeWork to rent the place. Regardless of whether WeWork is able to fill up their co-working and co-living spaces, WeWork still has to pay rent to their landlords, which is a significant operating cost to their business model.
A Heavy Physical Aspect Results In Higher Capex For Expansion
Unlike purely tech start-ups like Google and Facebook who can just build their platform in Silicon Valley and get everyone in the world to use the same platform, start-ups with a heavy physical aspect like WeWork and Uber require significant amounts of capital expenditure to expand their services across different countries and markets.
The Requirement Of An On-Ground Team To Launch In A New Country
In both cases, you would have to hire an on-ground team in order to launch in a new city or a new country. Uber needs to build up a community of drivers while marketing their service to consumers while WeWork needs to secure their landlord, manage the renovation and day to day operations of their space and have an on-ground sales team to ink deals with companies who might want to move in.
Local Copycats Have An Advantage For Businesses With Heavy Physical Aspect
With Didi & Grab’s victory over Uber in their local markets and the success of local co-working spaces like Colony, WORQ and Common Ground in local markets like Kuala Lumpur and other cities around the world, the results have shown that local copycats actually have an advantage over businesses with a heavy physical aspect.
This is because local copycats are more familiar with their own country or region, have more close connections and hence can better hyper-localise and forge better deals due to strong existing connections and a better understanding of the local market.
Hyper-Localisation Matters More When Local Stakeholders Are Involved
Local drivers and landlords have different cultures and prefer to work with people or companies who understand their cultures better. Armed with knowledge of the local culture, local copycats were also able to hyper-localise their services so that it’s more in tune to how local consumers use their products, just like how Grab offered the option for consumers to pay cash due to the low credit card penetration rate in ASEAN and set prices beforehand because ASEAN consumers are more price sensitive and would prefer to know how much a trip would cost before taking a Grab ride.
But Softbank Invested In All Of Them — “Morganisation” All Over Again
I think I see what Softbank is doing here, they invested in all the regional ride-hailing platforms in the world besides Uber — which they of course invested in too later on — including Didi in China, Grab in ASEAN and Ola in India.
J.P Morgan, one of the first venture capitalists in the world who invested in Thomas Edison’s lightbulb start-up, did the same thing back in the early 1900s, when he consolidated the railway industry as well as the steel industry in the U.S, forming companies such as U.S Steel and General Electric.
That concept of investing in all the the major players in an industry in order to consolidate them to weed out inefficiency and competition like what J.P Morgan did came to be known as “Morganisation”.
That’s Okay — Either Way — Softbank Wins — Question Is — By How Much?
Softbank is basically doing the same thing here with ride-hailing, if you own all of them, either way, you win as long as ride-hailing wins.
The more important question here however is whether ride-hailing will be worth as much as what Softbank thinks it will be, because Softbank will only make money if their stake is worth much more than the valuation that they bought it at.
Transportation & Accommodation Are Global Problems
Companies that can command 100 billion USD valuations are usually solving global problems that everyone in the world faces.
Transportation & accommodation are indeed global problems that everyone in the world faces, everyone needs to commute and everyone needs a place to stay or work.
But Uber & WeWork’s Solutions Don’t Solve Them Entirely — Impossible To Do So Due To The Enormity Of The Fragmented Physical Market
However, because problems like transportation and accommodation are so big and have such a heavy physical aspect to the solution, it’s quite hard to solve the problem for everyone with just one single platform.
Due to the heavy physical aspect involved, where the solution involves the rights to property, drivers and cars, you would need a very high amount of capital expenditure to grow and it would be almost impossible to conquer the entire market due to the enormity of the existing fragmented market.
You will have to own all the property in the world or all the cars and drivers in the world in order for you to fully conquer the market.
It is quite impossible to do so.
Uber Is Just A Better Taxi Company With An App — Market Isn’t Worth That Much
Much of the criticism on Uber’s lofty valuation is that it is basically just another taxi company, albeit being a much better one. The taxi industry is a multi-billion dollar industry, but it is not worth that much, mostly because it is a conventional business with high costs, lower margins and non-exponential scalability unlike true tech companies like Google or Facebook.
Basically, it is like a slightly better Comfort Delgro with a bigger market.
People Do Drive Less & Uber More — But Not By That Much
The counter argument to that is that Uber has actually created an entirely new market by enticing people who usually wouldn’t take public transport to now take Uber instead and getting people who usually would not become cab drivers to become Uber drivers.
There is some truth to this, especially in markets like Kuala Lumpur where the reputation of taxi’s aren’t great, people have been using ride-hailing more than they normally would with the advent of ride-hailing start-ups, with some even getting rid of their cars.
People Who Need To Drive Will Still Drive — It Makes More Economic Sense
While that was possible when regulations were non-existent and everyone could become an Uber driver whenever they had time and the price war was going on and subsidies were keeping prices artificially low, it is not when regulation kicks in and subsidies run out.
Once the market goes back to market prices, those who need to drive would still go back to driving because it makes more economic sense.
It would make sense to purely rely on ride-hailing services if you don’t already own car, but it would not be too convenient if you had a family with kids.
If you have already bought a car and have to pay down your instalment or have already paid off your instalment, it would not make financial sense to switch entirely to ride-hailing services, simply because you already have a monthly commitment to your car or the cost of driving is a lot cheaper if you have already paid off your car loan.
Especially if you are in sales or have to travel to multiple locations in a day, driving would ultimately still be much cheaper and make more economic sense.
City Folk Drive Less Because It Makes Economic Sense — Not Because Of Uber
Unless you’re in a city where the cost of owning a car is already unsustainable like New York City. In those cities, people have always been taking public transport and cabs even before ride-hailing services like Uber came about.
People In Cities Like New York Prefer Cabs To Driving Even Before Uber
As cities grow and the costs of living gets higher, it is a natural trend for city dwellers to increasingly shun car ownership and opt for public transportation — which includes ride-haling — instead of owning cars.
As more cities grow, more city dwellers will opt to not own a car, but that’s due to the natural progression of a city, not due to the emergence of ride-hailing services like Uber.
Margins Are Tight — Because Of The Middle-Man/Supplier — Drivers
For every ride Uber or Grab delivers, most of the fare has to go to the drivers, who also need to earn a living, pay for fuel and the costs of the car and maintenance.
Because of the need to pay drivers for their time and cost to operate their vehicle, margins are tight. If you slap on a subsidy, you’re essentially losing money on each sale made.
You will also need to spend more the faster you grow.
It’s Still Worth A Lot — But Not That Much — They Should Still Survive
Nevertheless, I believe that once Uber decides to flip the switch and stop the subsidies so they start to make a profit on each ride, it can still be a sustainable business.
They have created real value and made a service that’s much better than anything before it — cabs. However, they are probably not worth that much if they are just a better version of a taxi company.
Their true value in that case should be more than the entire cab industry because of the extra value that they have created, which is still worth a lot, but not as much as they are worth today.
Come On — Snapchat — Twitter — Zynga — Groupon Are Still Around — Just Smaller
There are start-ups with much worse business models and are still haemorrhaging money that are still around like Zynga and Groupon.
They still exist, just much smaller than they used to be. Even for a start-up like Snapchat, which is essentially in the communications industry competing with the likes of WhatsApp, Messenger & Instagram whose USP was almost entirely wiped out by Instagram and struggling to become profitable, still yielded a handsome profit in the form of an exit by way of an IPO for their founders and investors.
Unlike those start-ups, Uber and WeWork have created more value and true utility, and would still be worth a whole lot, but perhaps not as much as they are worth today.
Is There A Tech Bubble? — Not Like The 2000s — No — But There Is A Lot Of Money
Many people are saying that there is a bubble in tech like what happened in the 2000s. After studying what really happened and hearing from those who were in the know in the early 2000s, the situation today is actually very different.
Back in the day, any dumb idea can raise a tremendous amount of funding, there was absolutely no regard for a path to profitability or even solving a true problem. Today’s start-ups are different, many of them do create real value and are solving real problems.
It is also normal for companies to be worth more due to inflation and the fact that truly disruptive tech companies like Google or Facebook can really become global monopolies and be worth that much.
However, there is a lot of cheap money out there due to the super low interests rates coming out of the 2008 financial recession, which led to an increase in investment in general across all industries. This caused the entire stock market today to be overvalued.
There Is Real Value This Time — But If There’s A Correction — Some Might Die — But Not Uber & WeWork — Downsized Yes — But They Have Real Value — Will Survive
The entire stock market today is probably due for a correction of some sort soon, but it is not tech specific, there has been true value created by most tech companies, and they would likely emerge much stronger just like how Google did.
When the correction happens, some start-ups with terrible business models and are not really solving any problem or creating real value might die, but not Uber & WeWork, unless something goes terribly wrong internally or with the management of the company, which might be the real cause of their downfall in the end — if they do eventually fall.
They might be downsized, but because they are creating real value, they would survive.
Uber’s Valuation Is A Bet On Whether Self-Driving Cars Become A Regulated Reality
The way I see it, Uber’s valuation is largely a bet on whether self-driving cars would become a regulated reality where every car you see on the road is a self-driving car.
Self-Driving Cars Are Already A Reality — But When Will Regulation Make It Common?
Self-driving cars are already a reality today, the technology is already here.
What’s stopping every car on the road from being a self-driving car today is government regulation and some ethical issues that we have yet to resolve — things like should a self-driving car swerve to the right and risk killing 1 person in order to avoid killing 3 if it did not swerve at all.
Self-Driving Cars + Uber Is The Future — The Question Is When Will That Happen?
Over time, self-driving cars and ride-hailing will become the norm, it’s just natural progression as society develops and technology advances.
The question is when?
It’s A Very Long Game — Each Country Will Take It’s Own Time To Get There
Due to the often stifling bureaucracy in each government and the politics involved, it would take a long time for the governments of the world to get their act together in welcoming the advent of self-driving cars.
Each country would likely take its own sweet time to get there, with various interests groups and big industries trying to slow progress until they are ready to fully capitalise on the opportunity.
It’s going to be a long game and a long wait.
Self-Driving Cars Eliminates The Middle Man — Uber Will Be Worth That Much Then
But when that day comes, Uber would be worth a whole lot more, probably even more than what it is worth today, because they would have eliminated the biggest part of their cost — the middle man — in Uber’s case, that’s the driver.
With the advent of electric self-driving cars like Teslas, the cost savings would be even more significant, since electricity is cheaper and electric cars have less moving parts and require less maintenance than internal combustion engines powered cars.
Can Uber’s Cash Reserves Last Them That Long? — Maybe
The danger here is that Uber runs out of cash and dies before that day becomes a reality.
If they manage their costs well with Softbank’s immense financial backing, there could probably survive until that day comes, we shall find out.
Maybe Tesla Will Be The Ultimate Winner In The End
But who knows, perhaps Tesla might end up becoming the ultimate winner in the end if they control the key hardware required to make this work — a huge fleet of self-driving electric cars connected to a ride-sharing system.
Grab Faces The Same Problem As Uber — In A Much Smaller Market
Grab basically faces the exact same problem as uber, but in a much smaller — by spending power — and much less developed market in ASEAN.
Grab Is Only Worth That Much If They Become A Tencent Of ASEAN
In my opinion, Grab is only worth what they are worth today if they manage to become the Tencent of ASEAN and become a super app.
Otherwise, they are just an ASEAN taxi company, which is still worth some money, but definitely no where near what they are worth today.
Grab Has To Conquer Payments, Healthcare, Insurance & More
In order to become the Tencent of ASEAN, Grab will have to conquer payments, healthcare, insurance and much more.
It Looks Like Grab Has The Cash & A Good Chance Of Doing That
With their tremendous cash reserves and the cheaper cost of labour in ASEAN, coupled with the recent moves they’ve made, it looks like Grab has a decent chance of achieving just that if you they manage their resources carefully and make the correct moves.
But Exiting Would Be A Problem — No ASEAN Stock Market Can Absorb Them
Nevertheless, trying to list Grab on an ASEAN stock exchange and trying to exit in that manner would be a huge challenge. I am doubtful that any ASEAN stock market has the ability to absorb Grab with their current valuation.
They Are Worth More Than Major ASEAN Banks — And Still Losing Money
At their current valuation, Grab is actually worth much more than some of the major banks in this region, and they are still bleeding money.
ASEAN’s Public Investors Aren’t Ready — They Don’t Understand Tech Yet
Most of ASEAN’s rich investors made their money from conventional businesses like property, manufacturing, banking and commodities.
Most of them are from an older generation and do not really understand the value of tech.
They have not yet seen a Google or Facebook being built, most probably do not even know how much they are worth today — FB is worth more than 500 billion USD while Google is worth more than 840 billion USD in 2019, how they make money and are totally clueless to the fact that Google and Facebook are making billions every quarter out of thin air just by showing ads.
They are familiar with things like coffee and steel that you can see, feel and touch, not ephemeral things like a picture or a link that appears on a screen for a short while.
ASX Isn’t Liquid Enough For Huge ASEAN Tech Stocks
The Australian stock exchange used to be a popular place for ASEAN tech start-ups to list, due to the underperforming and dying mining stocks in the stock exchange.
However, over the years, many ASEAN listings, with the exception of a few, have crashed and failed. At best, they’re penny stocks that don’t see much movement and don’t provide much liquidity to investors and shareholders.
The Options Are — HK — Nasdaq/NYSE Via Didi Acquisition — NYSE/Nasdaq With Strong Chinese Backing — But That Might Not Really Be An Exit For Softbank
Listing in Hong Kong might be one of the options, since Alibaba first listed there long before they listed in the US.
Other than that, one of the best options in my opinion would be to get acquired by Didi and list on Nasdaq or NYSE as part of Didi, holding Didi stock.
ASEAN start-ups generally don’t do too well in US stock exchanges because investors there see the ASEAN market as too small for their tastes, especially so when you have to convert revenue or profits made here to USD. They seem minuscule. Many US based growth stage start-ups make much more than an ASEAN champion.
If Grab ever plans to list directly on a US stock exchange, they would need to have very strong financial backing from a big Chinese company, like what SEA did. Grab has Softbank, so it might work, but that would mean Softbank can’t really exit because they would have to hold on to their stock in order for the stock price to not fall, unless they can find someone to take their stock off them at that valuation.
WeWork Is Just Much Better Office Space & Living Space With Better Amenities
Those who have experienced working both at a conventional office and working at a co-working space would know how much better working at a co-working space is.
WeWork has added significant value in creating working and living spaces that is much better than what most people are stuck with today.
It’s Good — It’s Much Better Than It’s Competitors — It Should Be The Way Forward
What they have built is way better than what exists today. The world would be a much better and much more productive place if everyone worked at a nicer work place, that should be the way forward.
Like Uber — There’s Real Value — But They Just Should Not Be Worth That Much
There’s real value that is being created, the question, like Uber, is whether they are worth as much as they are worth.
Landlords & Huge Rent Commitments Suck Up Margins
While drivers and their cars make up the bulk of Uber’s costs, WeWork faces the same problem with their landlords and huge rent commitments.
How Much Can You Squeeze Out Of A Community? — No One Knows Yet
Some argue that there is a lot more to be made from the tight-knit community that WeWork has built around their co-working spaces.
I see sense in that, and agree that there is much more to be made from communities, but no one knows for sure yet.
Much More Has To Be Done — You Have To Provide Many Services
For that to happen, WeWork has to do much more than just provide a cozy co-working space. They would have to build and provide many more services to be able to profit from the community that they have built.
Better Living & Work Spaces, Better Community Is Great — Not Everyone Can Afford
However, not everyone can afford better working and living spaces. With the prices where they are at, it’s pretty expensive.
You Have To Conquer The Entire Housing & Office Market To Be That Valuable
In order for WeWork to truly solve the housing and office space problem thoroughly, they would have to conquer the entire market, which is close to impossible.
That Requires An Enormous Amount Of Capex Or Committed Opex
WeWork would need to have control over most of the office and living spaces in the world to do that, and that would require an enormous amount of capital expenditure.
The property market is huge, requires plenty of capital and is pretty fragmented. It would be almost impossible to have control over a significant portion of it.
Co-Working Is Great — But Too Much Sunk Costs To Switch For Most
While everyone would love to work at a cozy and comfortable co-working space, it wouldn’t be practical for a lot of people and companies to do so. There is too much sunk costs invested in their existing offices for them to switch easily.
Conventional Offices Are Much Cheaper — Prices Have To Go Down By A Lot
Renting your own office is still much cheaper, and gives you much more freedom to do what you want with the space. For co-working to be affordable for everyone, especially if you have interns, prices will have to go down by quite a lot.
My co-founder and I chose to get our own office which we are sharing with a few other start-ups for that sole reason. It is much cheaper than a co-working space, there’s no extra charge when you hire more interns, you can host your own events — like speed dating events — and you can stay and sleep there like what we are doing. Co-working spaces don’t really allow you to sleep there.
Co-Living Has A Life Span — Only 20s — 35 — Before Starting A Family
As for co-living, there is only a certain amount of time a person would want to stay at a co-living space, that’s when they are still single and without a family.
Once people start getting married and have kids, they would prefer their own space.
Uber & WeWork Can Become The Next Alibaba Or Amazon?
Perhaps the plan all along was for Uber & WeWork to hold on long enough to become the next Alibaba or Amazon, who both seem to also have a heavy physical aspect to their business, but do they really?
Contrary To Popular Belief — Alibaba Is NOT A Copycat Of Amazon
Many people, especially westerners, think that Alibaba is China’s copycat of Amazon. However, that is actually far from the truth.
Alibaba Is A Merchant Platform — Physical Aspect Isn’t That Heavy
Amazon started off selling books online, they would go out and buy the books that were ordered online so they could deliver them to their customers and eventually stocked up on the popular titles based on the orders they were getting.
As they grew, they were still primarily an e-commerce platform, where they would get stock from suppliers and sell it to customers.
Alibaba, on the other hand, is a merchant platform that connects merchants to buyers, they don’t make a margin on the goods sold through the platform, but instead charges the merchants a listing or subscription fee to list their products on the platform.
They did not need to have inventory and their business model does not have a heavy physical aspect. They only went into logistics and warehousing later to make things easier for their merchants.
Their Mission Is To Make All Forms Of Commerce Easy — Client Is The Merchant
Having a strong command of both Mandarin and English, I realised that Jack Ma has been misquoted many times in articles and documentaries, especially by the western media and English speaking journalists.
If you understood what he said in Mandarin during his speeches and interviews, you will realise that Alibaba’s mission is to make all forms of commerce easy, and their client is the merchant, not the consumer.
They are a platform that connects merchants to buyers, and do not sell anything to the buyers directly, and hence do not really sell products, the merchants do, not them.
You Need To Listen To Jack Ma’s Speeches In Mandarin To Truly Understand
The context and meaning you get if you listen to Jack Ma’s talks and speeches in Mandarin first-hand is often very different from what you read in western articles. You’ll need to listen to Jack Ma himself to truly understand.
Amazon Isn’t Worth Very Much Until Very Recently
When Alibaba got listed on NYSE in 2014 at a market valuation of 231 billion USD, I was surprised to find that Amazon was actually worth much lesser at only 100+ billion USD.
If you look at Amazon’s market capitalisation throughout the years, it wasn’t really worth that much until recently. It’s stock only truly shot up exponentially in the last 5 years from 2013–2014 onwards.
Much Of Amazon’s Worth Today Is Because Of AWS — Prime & Data As Well
That’s because of the longest time, Amazon wasn’t really making money on their tight e-commerce margins. Their business model was still conventional and are seen as just an online retailer and are valued the same way conventional retailers were valued.
Much of Amazon’s recent stock surge and profit surge came largely from the maturing of their cloud server service AWS and premium subscription service Amazon Prime, which had very high margins, similar to how Google and Facebook are selling ads, because the cost per unit sold is low for such products, giving them high profit margins.
Of course, the consumer data that they have gathered over the years also helped them to sell more to consumers and manage their logistics and buying costs more efficiently using AI and machine learning to accurately predict consumer’s spending behaviour.
It’s A Long Game For WeWork To Find/Develop It’s Own AWS, Prime & Data
Softbank is probably betting that WeWork and Uber would breakeven, hold out and one day develop their own high profit margin product in the form of their own AWS and Amazon Prime of transportation and co-working with the help of the data that they would be gathering from their users and customers.
However, that’s a long game to play, we do not know when that would happen and whether that would happen. WeWork and Uber would need to have a visionary founder that keeps innovating and building new products for that to happen.
I think it is possible, but it is a long game ahead.
Google — Facebook — Wowwwz Are In A Different League — They Solve Global Problems Everyone Faces Thoroughly — Purely Online — Minimal Physical Aspect
Tech companies like Google and Facebook, and perhaps one day my start-up — Wowwwz, belong in an entirely different league.
They solve global problems that everyone in the world faces, and they can solve those problem thoroughly purely online via tools and services on their online platforms with minimal physical presence excepts servers to keep their app running.
This Allows Them To Build Once — Launch Everywhere — Print Money Out Of Thin Air
With little to no physical presence or infrastructure required, this allows tech companies like Google, Facebook and Wowwwz to build once and launch everywhere in the world.
Everyone in the world would be using the same Google search engine, Facebook app and Wowwwz app, there is little to no physical or on-ground costs. This allow these companies to literally print money out of thin air, that’s why they are worth so much.
Super Duper High Margins — With Little To No Costs Besides Servers & Electricity
For every ad or link Google or Facebook serves, there is little to no costs for them besides servers and electricity, which is negligible at their scale. That results in super duper high margins, akin to printing money out of thin air.
The Catch — It Requires Vision To Build Such Solutions
The catch, however, is that it requires vision to build out such solutions like Google and Facebook that solves a global problem that everyone in the world uses everyday.
Visionary Founders Who Understand The Problem Enough Are Very Rare
Such visionary founders who understand a global problem enough to solve them thoroughly are very rare. Not everyone has vision.
Google — Facebook — Wowwwz Won’t Make Significant Revenue For 5–7 Years
Companies like Google or Facebook also would not make any significant revenue for its first 5–7 years of its life before it solves the problem thoroughly.
They would need to spend hundreds of millions to billions just building out their solution in order to become the last and the best solution for their problem.
Investors Who Are Attracted To Instant Revenue Will Miss Out — Huge Mistake
Many investors, especially those in under-developed ecosystems like ASEAN shun these companies for a lack of early revenue, and prefer start-ups that make revenue from day 1 like Uber and WeWork.
That’s actually a huge mistake.
It Actually Costs Much More To Build & Grow WeWork/Uber Than Facebook/Google/Wowwwz Although The Latter Doesn’t Generate Revenue At The Start
In the long run, it actually costs a lot more to build and grow a company like WeWork and Uber than a Google, Facebook or Wowwwz although companies like Google, Facebook and Wowwwz do not make any significant revenue during the first few years.
Google/Facebook/Wowwwz — 500 Million USD To 5 Billion USD In First 7 Years
Companies like Google, Facebook or Wowwwz would have to spend hundreds of millions of dollars or even up to billions to build out their product in the first 7 years.
No Meaningful Revenue — Focus On Iterating Fast & Solving The Problem Thoroughly
During that time, they would have no meaningful revenue, and would be focusing on iterating fast and solving the problem thoroughly, increasing their retention rates and viral co-efficient.
In Facebook’s case, that would mean adding a super wall, newsfeed, photo tagging function and much more to keep users engaged and help friends stay in touch.
Uber/WeWork — 10 Million USD To Get Started — Bottomless Pit Hole Afterwards
It still takes some resources to build out Uber’s app and to furnish the first WeWork space, but after that, they can start generating revenue from their first ride or tenant.
You can start generating revenue with just 10 million USD invested.
Instant Revenue From The Get-Go — Simple Solution — But Lose 25 Cents On Every Dollar In Revenue As You Grow — The More You Grow — The More You Lose
Many investors like the fact that Uber and WeWork are generating instant revenue from the get-go, from the first Uber ride and the first tenant onwards. This is possible because the solution they are offering is rather simple, a ride to a destination and a place to work.
However, margins are thin due to the fact that Uber and WeWork need to pay their drivers and landlords on each unit sold. Worse still, in order to grow and weed out competition, massive discounts and subsidies are employed until a point where the companies lose 25 cents on every dollar in revenue as they grow, sometimes they can even lose as much as how much they bring in in revenue.
With this model, the more you grow, the more you lose.
Uber just lost 5 billion USD in this recent quarter alone, that’s already enough money to build out Google, Facebook or Wowwwz to mega-profitability.
When You Start To Consolidate Your Market Share — Margins Are Still Thin
Even when Uber or WeWork start consolidating their market share and raise prices back to where they should be, margins would still be thin due to the nature of their business of having to pay a middle man or supplier since their solution is not entirely tech based.
You’ll Need To Hold Out Until Your Own AWS — Data & Prime Comes Along
Uber would have to hold out until self-driving cars become a common and regulated reality while the both of them would have to hold out until they stumble upon their own version of an AWS or Amazon Prime where they can enjoy supernormal profits with negligible costs per unit sold.
Uber & WeWork Have Real Value — Just Maybe Not This Much Right Now
Nevertheless, I believe that Uber and WeWork have real value.
Uber will be worth as much as it is right now or even more when self-driving cars become common on the road and WeWork might stand a chance when it figures out how to build tools and services that would greatly benefit its community.
The only problem is that its a very long game for both, they will have to hold out until that happens, which could be possible with Softbank’s deep pockets, we shall see.
Unless They Are Rotten From The Inside — They Should Survive
By creating real value, they should survive, unless they are actually rotten from the inside from mismanagement or a toxic culture.
Otherwise, even if things don’t work out, they should still survive, just smaller.
I Hope Softbank Survives & Not Get Too Jaded — I Think They Can
What Softbank is doing is actually a great thing, it drives innovation and gives start-ups the capital required to make things better and drive society forward.
The only problem is that they are a late stage fund that can’t reach start-ups like Wowwwz that are stuck in ecosystems that aren’t ready to support true innovation yet.
I hope they survive even if Uber or WeWork don’t do too well, the world needs them.
Softbank Has The Holding Power To Wait It Out — I Hope
Things would probably turn out more than fine as long as Softbank has the holding power to wait it out until self-driving cars become common for Uber and until WeWork figures out a high margin revenue stream from its community.
I hope they have the holding power to wait it out and their investors don’t get impatient.
The Vision Fund Is A Great Thing — I Admire Masayoshi Son’s Vision
The world needs the vision fund to drive innovation and society forward. It is a great thing that it actually exists. I admire Masayoshi Son’s vision and his take on the world.
Masayoshi Son Is Right On Many Things — I Like His Spirit — I Share His Mindset
I think that Masayoshi Son is right on many things, I love his spirit and share his mindset. You have to take big bets to solve big problems in order to generate supernormal returns.
One should build to become number one, nothing less.
There Are Still Plenty Of Great Start-Ups & Solutions That Need The Vision Fund
There are still plenty of great start-ups and solutions to pressing global problems that everyone in the world would do better with, and they would need the financial support of the vision fund in order to properly build out their solutions and launch to the world.
Problems like helping everyone in the world find their right life partners and go on to build and maintain healthy and long lasting romantic relationships like what my start-up — Wowwwz is trying to solve.
A Lot Of Global Problems Can Be Solved & A Lot Of Great Value Can Be Generated
Many global problems like love and relationships can be solved and a huge amount of value can be generated from it in the long run, because you are solving a global problem.
The World Needs More Risk Takers Who Dare To Dream Big & Make Things Better
There are too many naysayers who are too afraid to do anything themselves but resort to condemning others to make themselves feel better.
The world needs more risk takers who dare to dream big, take risks and make things better for everyone in the world.
That’s The Only Way Society Moves Forward
Without them, society will still be stuck in the stone ages. Mankind would not be able to progress without taking risks, embracing failure and learning from its mistakes.
The world needs more people who would take the risks necessary to leave a dent in the universe and move society forward.
From Railroads — Lightbulbs — Computers — Smartphones To Reusable Rockets
Innovators and risk takers have brought us the railroad, lightbulbs, computers, smartphones and today, even reusable rockets.
These are all things we take for granted today that were ridiculed for being too ambitious or absurd when their founders first pitched their ideas.
I Hope I Can Contribute One Small Part By Helping Everyone Find & Build Lasting Romantic Relationships Through Wowwwz Too
I don’t know whether I would be able to do it in the end, but I am trying everything I can.
Hopefully, I would be able to contribute one small part to driving society forward too by helping everyone in this world find their right life partners and live happily ever after through the start-up I am building — Wowwwz.
To even have a chance of doing that, I need your help.
In fact, I need all the help I can get, because I am doing this from an ASEAN ecosystem that isn’t really ready to fund and support start-ups like what I am building that are solving hard global problems and don’t generate any revenue during the first few years of its life.
I hope you will help me so that I can build the tools to help everyone in this world find their soulmate whom they can grow old together and live long happy lives with.
If you have access to a brand, company, working building, community or even VCs, let me know; I can help you build a community of people who like your product or brand and introduce them to each other, or bring a community closer by introducing people at the same building or company to each other!
You can reach me at email@example.com or LinkedIn.
Don’t forget to SHARE this story and all related stories to as many of your friends too, we need to more people to spread the word so we can start a positive paradigm shift in our ecosystem.
Also, you can help by downloading the app, give us a good rating, subscribe to my Youtube Channel about relationships-coming soon, leave your email, join this Facebook Group and check back every few months for cool updates.
*Search for Wowwwz on the App Store or Play Store to download
JohnsonKhooTV — Subscribe to my upcoming Youtube Channel where I will be talking about real life stories about love & relationships
FB Group To Stay Updated On Wowwwz’s Journey — Join this Facebook Group so you can stay updated on our journey, new features and new stories and new updates on our quest to build a start-up that could help everyone in this world find true love and live happily ever after
Help me out, because many people’s lifetime happiness is in your hands.
Once you’ve downloaded the app and signed up, you can also start to meet other amazing single people in Kuala Lumpur or Singapore who share the same values and interests as you by scanning the QR codes below.
*Search for Wowwwz on the App Store or Play Store to download
SCAN with Wowwwz to meet amazing single people in Kuala Lumpur!
SCAN with Wowwwz to meet amazing single people in Singapore!
Do SHARE this with as many of your single friends as possible so they can find their soulmate soon, we can get more traction, and raise the funding necessary to build you more cool features that will help amazing single people meet each other and amazing couples grow their relationship!
Let’s do this together!
The world needs YOUR HELP so all of us can find true love!
You have the power to become a superhero!