£163.16, to be precise

Trivial

Blitzscaling has a compelling narrative weight. Find a deep-pocketed backer, a market with clear economies of scale, and comfortable incumbents who are used to throwing off cash every quarter, and, the logic goes, you can murder the competition in its sleep.

"Sure, we're losing money on every sale, but we'll make it up in volume" used to be a business-school punchline, but it's now the moderately plausible business case behind companies like Uber, Airbnb and WeWork (as I went on about a few weeks ago). The missing step, of course, is "hike prices when you dominate the market." It's historically been a bad plan to only begin turning a profit after you have a working monopoly, because historically, businesses have had physical caps on their growth (you have to build out new shops, hire extra staff, or manufacture more widgets) that mean that even the most deep-pocketed backer gets cold feet a few years in. 

The magic of ~apps~ changes that. But so too does the magic of simply having a really, really obvious plan to spend money until the competition goes bankrupt. Faced with the prospect of matching Uber's Saudi-funded cost-cutting, what sane founder wouldn't go into a less cut-throat market, like high-frequency trading or diet tea influencer marketing?

And so blitzscaling can acquire a sort of self-fulfilling success. If you are dedicated enough to the plan, the plan works because of your dedication.

But that is a fragile success, as anything built on collective belief is. If the narrative turns, it can turn hard. Uber's London operations are seeing that now, as a price war hits the capital, with various international operations smelling blood and throwing cash at the market. (I hate taking cabs in the city, but a pair of necessary trips in the wee hours of last week cost me £3 out of pocket with new entrant Ola, which is frankly insane. The drivers both said that they were more than happy with their cut, too – and that neither of them drove for Uber any more.)

The fun thing about blitzscaling is that there's another narrative waiting right there, which is, like [a social science graduate's understanding of] schrodinger's cat, also true until the actual world is measured. That's the narrative that blitzscaling is the greatest transfer of wealth from the rich to everyone else that we've seen in decades.

If you took an Uber ride funded below-cost by the investment capital of the kingdom of Saudi Arabia, then in that present moment, only one thing is happening: a journalist-killing despot is losing a tiny slice of his planetary-murder blood money in order to fund a portion of your drunken cab back from the pub. That's… not bad, as redistributions go.

Of course, the real distributional affects are in the long-term. If Uber wins, then Saudi Arabia makes a huge return on its investment, the below-cost rides fizzle out, and everyone begins paying more for their cabs than they would have otherwise as the lack of competition bites. If – as actually happened – Saudi Arabia ends up millions of dollars underwater on its investment after Softbank turns out to have invested at the peak of the market, then the rosy view of the market is truer still.

And if Uber were to go completely bust, having spent almost all of its investment on direct consumer subsidies, to the point where the company had to be sold for little more than the value of the company laptops, then it would represent a great success in the annals of world capitalism: a completely voluntary transfer of millions of dollars of wealth from the capitalist class to the consumer.

Which brings us to HQ Trivia.

If you never downloaded the app, which had three glorious months on-trend in early 2018, nor read any of post-mortems of it after its death earlier this month, the idea was simple: a live-streamed pub-quiz, with thousands or millions of real-time players, all competing to win their share of a pot of cash split between every competitor who made it through fifteen progressively-tougher questions. 

Full, smug, disclosure: I won around £150 from the app in its early days, then never played it again.

The theoretical economics of HQ Trivia did make a sort of sense: take the audience, prize pools – and ad revenue – of games like Who Wants To Be A Millionaire, but offer it directly to would-be viewers, goosing engagement and cutting out all the expensive middlemen of producers, networks, and studios. It wasn't completely idiotic, even though the company, which was very clearly paying hundreds of thousands of dollars to users while making zero revenue, attracted its fair share of mockery in the early days.

In the end, though, the problems were clear: the ad revenue never really came, and the audiences didn't stick around, even as the prize pools were uncomfortably fixed at the relatively high level they'd started. Even if the base figures had stayed where they were, it was still an uphill climb: Millionaire, for instance, was an hour-long show (thirty minutes when translated for American attention spans), with a commensurately higher number of ad-breaks than HQ's ten-minute sprint. And, of course, most gameshows don't pay out their jackpot prize every episode. Heck, most would rapidly go off-air if they did. But HQ had to keep the eye-catching sum front and centre, and even committed to a rollover model that meant that the rare times when no-one won, it couldn't pocket the cash. 

For a while, the advertisers did throw some cash at the product (though I never saw any, having pocketed my winnings and deleted the app long before the company began monetising). But the $15m raised in the company's first venture round – and the presumably smaller cash injections before and after – appears to have been fully transferred to audience members, leaving the company and its assets entirely worthless two years on.

The system works. 

Covid19

I don't really have any smart insights on this year's burgeoning pandemic because I am a technology journalist not an epidemiologist but I do have a holiday booked to Japan and Korea in April and folks, It's Squeaky Bum Time In The Hern Household. Refreshing the FCO's travel advice page has become a new part of my morning ritual, since our insurance only pays out if the government recommends against travel. Erk.

I'm writing this on Monday

Please don't yell at me if something has happened between now (Monday) and now (Wednesday) that means that I've accidentally made a very poor-taste reference somewhere, it's accidental, the newsletter is a wigwam of trust, don't tell mean people on the internet.

That's enough of that,

Alex

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