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“Suffer a loss to gain a profit.”
Japanese proverb
A few days ago I wrote about the point where more effort starts to cost you more than it gives back.
Uber and Alibaba each chose to go past the point of negative returns. They lost money for years to win a market.
In 2016, Uber was losing over $1 billion a year in China. The cash paid for part of each fare so riders would pick Uber over Didi, China’s biggest ride app.
Didi started with far more riders and spent heavily on fares too.
Whoever stopped paying first would lose the riders. Uber stopped first. That August it sold Uber China to Didi.
For a billion dollars a year, Uber ended up owning a fifth of the company that beat it.
In the US, Uber already had most of the riders. It lost billions in a price war with Lyft to keep them.
By 2024, about three in four dollars Americans spent on ride apps still went to Uber.
Then it started keeping more of each fare. In Seattle, drivers’ tax records showed Uber’s take per trip nearly tripled in five years.
In the US, losing billions kept riders on Uber long enough for it to take a bigger cut of each fare.
If you’ve ever priced below a rival to win a customer, you’ve done a small version of what Jack Ma did in China.
In 2003, eBay paid $180 million for China’s top auction site and charged sellers a fee to list on it. That same year, Ma’s company Alibaba launched Taobao, a rival site where listing was free.
eBay’s view was blunt: “Free is not a business model.”
Sellers moved to Taobao. By 2005, Taobao had more than half of China’s online auction market.
With its sellers gone, eBay shut its Chinese site the next year.
Once most sellers were on Taobao, it raised the fees and cash deposits it charged brand-name stores to sell there.
Free listing won Taobao the sellers it later charged.
A platform does all it can to attract users while it grows, then takes more from them once it’s on top.
Chris Dixon describes that pattern in his book Read Write Own.
When the winner takes most of a market, losing money now can raise your odds of winning it. Uber in China shows you can still lose.
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What limit could you set on what you’ll lose to win?
