Good Products and Bad Businesses

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

It might seem surprising, then, that so many great digital products have come into this generation from bad businesses.

Spotify has reshaped music, but the company is still figuring out how to turn a consistent profit. Uber has altered cities and become a way of life for some riders and drivers. The company has also spent far more cash than it has brought in over its 13-year life.

App companies like DoorDash, Instacart and Gopuff have hooked on some Americans to deliver restaurant meals, groceries or convenience items, but hardly any company that brings fresh food to our doors has made it work financially. Robinhood helped make investing accessible and fun, but it didn’t make free stock trades profitable. Twitter is a cultural force, but it has never been a good company.

There are some tech stars that are also (arguably) great businesses, including Facebook, Airbnb and Zoom Video. But how did so many companies break the rule of transformative technologies that a business dies if it can’t balance its checkbook?

The optimistic view is that we want companies like Uber and Robinhood to have the time and money to hone their products, grab as many customers as possible and work out the money kinks later. And some of these digital stars are profitable, depending on how you define “profits.”

The bummer view is that we may be living in a technology mirage and sustainability businesses that should not survive have robbed us of true, lasting innovation. Let’s haveh it out:

Perhaps this is what a revolution looks like.

Last year, Uber spent about half a billion dollars more cash than it generated – and that was a big improvement. If Uber were a family business, it would probably be long gone. Faith that technology disruption is just getting started, and investors’ hopes to cash in from that, have kept Uber going.

The company’s supporters say Uber is a leaky canoe by choice. Uber is expanding into many cities and countries at once rather than slowly and capitalizing on expanding its popularity into a hub for transportation and delivering meals, groceries, booze and other goods to our door.

The hope is that this is Step 1 on Uber’s journey to something grander, better for everyone and profitable. A similar transformation is happening at Spotify, which is trying to combat the ugly math of music streaming by expanding into potentially lucrative podcasts. Instacart wants to pivot from being a grocery-delivery go-between to selling software to manage their businesses. (Software tends to be very profitable. Grocery delivery is not.)

In many ways, this is exactly what we want. Because investors have believed in their business plans, companies have good ideas, time and money to dream big, expand and figure out how to give customers what they want – and eventually generate real profits, too.

Amazon is a famous example of a company that spent more cash than it brought in a few of its early years – a temporary condition unless it was both a good product and a great business. Until the past couple of years, Netflix also needed to keep borrowing money to stay afloat. And some companies, including DoorDash and Spotify, are unprofitable under traditional management measures but do bring in more cash than they spend.

Or perhaps hope has obscured common sense.

The other possibility is that these digital ideas have never made economic sense in the first place and they’ve been propped up by investors’ misplaced hopes. In that view, this generation of “Profits? What profits? ” Digital companies are like a homeowner trying to enlarge a house with a rotten foundation.

In the Margins newsletter, the financial writer Ranjan Roy and his collaborator Can Duruk have repeatedly argued that the winning digital ideas of the past are not necessarily the smartest ones, but the ones with the most money are tried (and kept trying).

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

What opportunities are we missing, Roy asked, to explore alternative restaurant-delivery business models that could work better for diners, restaurant owners, couriers and delivery companies? Maybe Uber has burned a bunch of other people’s money and erased it for other businesses and governments to improve transportation. Instead of Spotify’s ingraining payroll model that worked for most musicians, alternative approaches might be thrived.

Those companies, which have not found a way to make their products work financially, have become like a forest that has not been cultivated of dead trees and undergrowth. New life does not have the oxygen to flourish.

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


  • How Elon Musk Makes Business Decisions: The wealthiest person in the world and soon-to-be owner of Twitter largely acts on “whim, fancy and the certainty that he is 100 percent right,” my colleagues reported, based on interviews with people who have worked with Musk.

  • China’s censors can’t keep up: Bloomberg Businessweek writes that citizens’ online complaints about the Chinese government’s Covid-19 policies are overwhelming the legions of government censors tasked with scrubbing critical posts from popular apps. (A subscription may be required.)

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

Say hello to this surprisingly speedy platypus.


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