You're getting downvoted but GAAP treatment aside it's actually an interesting business question.
It's often useful to think of marketing expenses on a continuum between "upper funnel" and "lower funnel". "Upper funnel" expenses tend to be more like investments (Brand TV advertising).Lower funnel tend to be more like "cost of sales" (promotion to buy more).
Marketing spends on direct user acquisition tends to fall somewhere in the middle and that's where the whole controversy lies. One could argue as many start-ups have done that only if you acquire users aggressively will your future growth come and hence the spend is more "investment like".
One could also argue that consumers are disloyal and will take their business to whatever "good enough" competitor exists that offers better value.
A few decades of academic research in buyer behavior suggests that the latter is the norm in consumer facing industries (soaps, corn flakes, hotels, air tickets...). Purchase behavior in these industries tend to follow very well defined patterns (NBD-Dirichlet) but of course network effects, patents and regulatory capture can up-end this (Google, Facebook Comcast, eInk Corp...)
In many ways, the marketing models of Uber and similar startups are bets that network effects break the patterns.
I think "fake it till you make it" is a proven, successful marketing strategy aimed at bringing actual business later on.
When investors bring money they don't necessarily need to have profits immediately, it is ok to risk some of it for promise of future benefits (that is very definition of investing).
I understand subsidizing rides might be questionable way of doing this, but do not mistake it for invalid business model.
Employing children from poor asian countries to produce clothes you are selling is questionable but it sure as hell is profitable unless we collectively decide to make it unprofitable by outlawing or penalizing it in some other way.
In the end, if we think rides should not be subsidized or maybe drivers should be paid enough to have a living there is nothing stopping us from electing reputable representatives that can be trusted to do just that.
It's often useful to think of marketing expenses on a continuum between "upper funnel" and "lower funnel". "Upper funnel" expenses tend to be more like investments (Brand TV advertising).Lower funnel tend to be more like "cost of sales" (promotion to buy more).
Marketing spends on direct user acquisition tends to fall somewhere in the middle and that's where the whole controversy lies. One could argue as many start-ups have done that only if you acquire users aggressively will your future growth come and hence the spend is more "investment like".
One could also argue that consumers are disloyal and will take their business to whatever "good enough" competitor exists that offers better value.
A few decades of academic research in buyer behavior suggests that the latter is the norm in consumer facing industries (soaps, corn flakes, hotels, air tickets...). Purchase behavior in these industries tend to follow very well defined patterns (NBD-Dirichlet) but of course network effects, patents and regulatory capture can up-end this (Google, Facebook Comcast, eInk Corp...)
In many ways, the marketing models of Uber and similar startups are bets that network effects break the patterns.
reply