Sunday, February 2, 2020

"The King of Saudi Arabia is [effectively] sending hot chocolate to everyone in Mexico City"

From Matt Levine's newsletter, about Softbank funding two competing delivery services in Latin America:

With limitless money to spend it can eliminate the competition and dominate the category. (This is sometimes called “blitzscaling.”) Its rapid growth will come at the expense of huge near-term losses, but SoftBank doesn’t care. It is playing the long game, and if you own the dominant player in a big global category surely you can find a way to make it profitable.

One thing to say about this strategy is that, if this is your plan, it seems very important to pick one company per sector. Pump one company full of your money so it can cut prices, undercut the competition and gain a dominant market share, sure, great. Pump two companies full of your money and they will just keep undercutting each other down to zero, oops

...

At one end, the sovereign wealth fund of Saudi Arabia plows gigantic piles of money into SoftBank’s Vision Fund. At the other end, Mexico City’s “legendary late-night snack spot El Moro” can have someone “deliver its churros and hot cocoa to takeout customers across the capital” well below cost, subsidized by the Vision Fund. The King of Saudi Arabia is sending hot chocolate to everyone in Mexico City. Here, have this nice hot chocolate, on the King of Saudi Arabia. Modern capitalism is always so much stranger than you expect.