WEBVTT - The Highly Valued But Unprofitable Tech Unicorns 0:00:04.400 --> 0:00:07.800 Welcome to tech Stuff, a production from I Heart Radio. 0:00:12.119 --> 0:00:15.120 Hey there, and welcome to tech Stuff. I'm your host, 0:00:15.360 --> 0:00:18.480 Jonathan Strickland. I'm an executive producer with I Heart Radio, 0:00:18.640 --> 0:00:21.639 and I love all things tech. And one thing that 0:00:21.760 --> 0:00:26.279 consistently floors me in the tech world, specifically in the 0:00:26.440 --> 0:00:30.440 tech startup world, is that a company doesn't have to 0:00:30.480 --> 0:00:36.040 be profitable to seem valuable. And to me, this sounds 0:00:36.080 --> 0:00:40.000 like a contradiction. You know, I mean, if a company 0:00:40.120 --> 0:00:44.680 is not making a profit, it is either breaking even 0:00:45.000 --> 0:00:49.640 so you know, things are just staying afloat, or it's 0:00:49.720 --> 0:00:52.720 losing money. So you would think that a company that 0:00:52.920 --> 0:00:58.320 was not making a profit couldn't be valuable. It would 0:00:58.400 --> 0:01:00.880 at best be neutral, and worst, it would be an 0:01:00.880 --> 0:01:05.520 ever growing cost to operate and require you know, consistent 0:01:05.640 --> 0:01:08.920 investment to just keep going. And yet in the tech world, 0:01:09.200 --> 0:01:12.280 we have plenty of examples of companies that are not 0:01:12.400 --> 0:01:19.280 profitable and yet consistently reach crazy valuations and the billions 0:01:19.319 --> 0:01:22.039 of dollars. So we're going to talk about a few 0:01:22.080 --> 0:01:24.800 of those today, some of which I have covered in 0:01:25.080 --> 0:01:28.280 other episodes, And I thought we would start off with 0:01:28.360 --> 0:01:34.080 a company that actually has become profitable but only relatively recently, 0:01:34.640 --> 0:01:38.320 and that is Twitter for those of you who are 0:01:39.040 --> 0:01:43.640 blissfully unaware. Twitter is a social network platform upon which 0:01:43.680 --> 0:01:48.720 people can post short messages called tweets to followers, and 0:01:48.760 --> 0:01:54.040 originally Twitter limited these two characters in length because the 0:01:54.080 --> 0:01:58.480 service was largely reliant on SMS, or Short Messaging Service 0:01:58.520 --> 0:02:02.920 a k a. Old Ashen text messaging, and because SMS 0:02:03.000 --> 0:02:05.600 has a limit to the number of characters it can support, 0:02:05.840 --> 0:02:09.240 which is a hundred sixty characters. Twitter also had a 0:02:09.280 --> 0:02:11.760 limit had a little buffer built in there so that 0:02:11.840 --> 0:02:15.280 your user name could fit in. For example, in two 0:02:15.320 --> 0:02:19.359 thousand seventeen, Twitter would actually increase that character limit to 0:02:19.440 --> 0:02:23.720 two eight characters, so suddenly you could be twice as wordy, 0:02:23.760 --> 0:02:27.519 and for people like me, that was glorious. But here's 0:02:27.560 --> 0:02:31.359 the thing. While Twitter launched in two thousand six and 0:02:31.680 --> 0:02:37.440 eleven years later expanded that character limit throughout that entire time, 0:02:37.520 --> 0:02:42.280 it had never had a profitable year. So let's take 0:02:42.320 --> 0:02:45.640 a quick look at the trajectory of Twitter. Back in 0:02:45.680 --> 0:02:49.360 two thousand six, a company called Odeo created Twitter as 0:02:49.400 --> 0:02:52.040 kind of a side project. Some folks at Odeo kind 0:02:52.040 --> 0:02:55.320 of got together to make it, but by the following year, 0:02:55.400 --> 0:02:58.440 it was ready to kind of stand as its own thing, 0:02:58.600 --> 0:03:02.040 particularly after having a big debut to the world at 0:03:02.120 --> 0:03:06.800 large at south By Southwest in two thousand seven. South 0:03:06.840 --> 0:03:10.320 By as you know, cool people call it. I just 0:03:10.360 --> 0:03:13.320 call it south By Southwest because I am aware I 0:03:13.360 --> 0:03:18.600 am not cool anyway. It's a big event in Austin, Texas, 0:03:18.680 --> 0:03:23.079 and it includes multiple tracks of content programming. So there's 0:03:23.120 --> 0:03:26.440 a music track in which hundreds of bands come to 0:03:26.480 --> 0:03:29.800 Austin and they play live gigs around the city. There's 0:03:29.880 --> 0:03:33.880 a film track in which the theaters around town will 0:03:33.919 --> 0:03:39.000 exhibit films from both new and unknown artists and famous filmmakers, 0:03:39.040 --> 0:03:42.760 and whole discussions and things like that as well. And 0:03:42.800 --> 0:03:46.520 then there's the interactive track, which includes all the computers 0:03:46.560 --> 0:03:50.880 and apps and text stuff. Folks at the event adopted 0:03:50.920 --> 0:03:55.080 Twitter pretty quickly, and that buzz really helped propel the 0:03:55.160 --> 0:03:58.680 app and gave it a reputation as being this cool, 0:03:58.880 --> 0:04:01.920 hip way to stay touch with friends, and later on 0:04:02.440 --> 0:04:04.760 it became kind of seen as this tool in order 0:04:04.800 --> 0:04:08.960 to send communications out too large numbers of people. So 0:04:09.000 --> 0:04:11.080 it was relatively cool and hip. I mean, I would 0:04:11.120 --> 0:04:14.080 say it was part of the interactive track. That gives 0:04:14.120 --> 0:04:16.000 a cap on how cool and hip it can be, 0:04:16.000 --> 0:04:19.040 because I would argue that the tech track still wishes 0:04:19.120 --> 0:04:21.680 it was as cool as the music and film tracks are, 0:04:22.440 --> 0:04:25.320 and I say that as a tech guy anyway. Over 0:04:25.360 --> 0:04:29.000 the past few years, Twitter would hold various rounds of 0:04:29.040 --> 0:04:32.279 funding in order to attract investors to supporting the platform, 0:04:32.640 --> 0:04:35.320 and the general thought was, let's grow this thing as 0:04:35.400 --> 0:04:37.880 much as we can and then we'll figure out how 0:04:37.880 --> 0:04:41.440 to monetize it later, which, honestly, I mean that might 0:04:41.520 --> 0:04:45.160 sound crazy, but it's probably the only route that you 0:04:45.200 --> 0:04:47.960 can take with some of these tech companies. You know, 0:04:48.080 --> 0:04:51.160 if you're launching a new app, it's hard to convince 0:04:51.320 --> 0:04:56.120 people to jump on an untested, unproven app unless it 0:04:56.320 --> 0:04:59.279 is free to use. Most folks are not super eager 0:04:59.360 --> 0:05:02.919 to spend money on something that hasn't had a proven 0:05:03.040 --> 0:05:05.760 use case, and so finding a way to scale up 0:05:06.080 --> 0:05:10.279 and then monetize, you know, your large user base was 0:05:10.360 --> 0:05:16.080 probably the most logical approach. Twitter co founder Jack Dorsey 0:05:16.279 --> 0:05:19.400 led the company for a few years before handing the 0:05:19.440 --> 0:05:23.400 control as CEO over to Evan Williams Now. In this 0:05:23.440 --> 0:05:26.680 phase of Twitter's growth, which would be around two thousand eight, 0:05:26.880 --> 0:05:30.240 two thousand ten, the company began exploring ways to use 0:05:30.320 --> 0:05:34.440 promoted tweets as a type of advertising, so advertisers could 0:05:34.680 --> 0:05:38.960 pay to promote a specific message a tweet so that 0:05:39.040 --> 0:05:41.320 it would show up in the timelines of folks, even 0:05:41.360 --> 0:05:45.400 if those folks weren't following that particular account. So I guess, 0:05:45.440 --> 0:05:48.679 for you know, those who don't use Twitter, I should clarify. 0:05:48.920 --> 0:05:52.600 The way it generally works is that you make an account, 0:05:52.760 --> 0:05:55.839 assuming that you're making an account that can post publicly. 0:05:56.000 --> 0:05:59.279 You can make a private account and then you can 0:05:59.279 --> 0:06:02.479 dictate which people can actually see your tweets, but most 0:06:02.520 --> 0:06:06.120 people have a public account. Then you end up following 0:06:06.120 --> 0:06:10.279 accounts you want to follow. So maybe there's some notable people, 0:06:10.480 --> 0:06:13.039 maybe there's some brands, maybe they're friends of yours that 0:06:13.040 --> 0:06:15.240 are on Twitter. You go and you follow those and 0:06:15.279 --> 0:06:17.720 you click a little button to follow them, and now 0:06:17.800 --> 0:06:22.880 whenever someone posting on those accounts posts a public tweet, 0:06:23.640 --> 0:06:26.680 that tweet shows up in your little Twitter feed and 0:06:26.720 --> 0:06:30.040 you can read them. So let's take an example of Sally, 0:06:30.600 --> 0:06:35.239 June and Bob. So Sally follows June, but she doesn't 0:06:35.240 --> 0:06:38.960 follow Bob. So whenever June sends out a public tweet, 0:06:39.120 --> 0:06:44.719 Sally sees it. Now, June follows Bob, so June can 0:06:44.720 --> 0:06:48.200 see all of Bob's public tweets. If June were to 0:06:48.279 --> 0:06:52.160 start a tweet with at Bob, so sending a Twitter 0:06:52.279 --> 0:06:56.400 message to Bob, not a direct message, but at reply message, 0:06:56.839 --> 0:07:00.360 Sally would not see that tweet automatically because Sally is 0:07:00.400 --> 0:07:03.400 not following Bob. Now Twitter didn't always work like this, 0:07:03.680 --> 0:07:06.599 but over the years the service institute these rules where 0:07:06.839 --> 0:07:09.320 you have to follow both parties in order to see 0:07:09.760 --> 0:07:14.480 these at replies on the face of them. Now, if again, 0:07:14.520 --> 0:07:17.640 if Sally had followed both Bob and June, she would 0:07:17.640 --> 0:07:20.720 see June's at at Bob. But now, let's say that 0:07:20.760 --> 0:07:23.240 Bob is running a business and he wants to promote 0:07:23.280 --> 0:07:26.240 his business. So he goes and he purchases a promoted 0:07:26.280 --> 0:07:30.440 tweet on Twitter, and he crafts a short message urging 0:07:30.480 --> 0:07:33.160 people to you know, follow a link to his business, 0:07:33.440 --> 0:07:37.880 and he pays Twitter and the message posts. Now Sally 0:07:37.920 --> 0:07:40.600 logs in, she looks at her Twitter feed, and now 0:07:40.680 --> 0:07:42.840 she sees at the top of that Twitter feed or 0:07:42.920 --> 0:07:46.400 near the top, Bob's message, even though she does not 0:07:46.600 --> 0:07:51.160 follow Bob. Because that tweet has been promoted into her timeline. Now, 0:07:51.160 --> 0:07:53.880 as you might imagine, a lot of Twitter users were 0:07:53.920 --> 0:07:58.160 not super keen on promoted tweets, as they were often 0:07:58.240 --> 0:08:00.480 left wondering why am I seeing this? Mean? I don't 0:08:00.480 --> 0:08:03.440 even follow this account? But it was one of the 0:08:03.480 --> 0:08:07.000 ways that Twitter could make money, and it did make money. 0:08:07.360 --> 0:08:10.560 It just wasn't making enough money to offset the cost 0:08:10.640 --> 0:08:15.160 of operating the company, so it remained operating at a loss. 0:08:15.680 --> 0:08:18.480 In two thousand thirteen, Twitter announced it was going to 0:08:19.000 --> 0:08:21.360 go public. It was going to become a publicly traded 0:08:21.400 --> 0:08:24.600 company and hold an I p O or initial public offering, 0:08:25.360 --> 0:08:29.000 so that would mean that Twitter stock would be publicly 0:08:29.000 --> 0:08:32.240 traded on stock exchanges. Now, keep in mind that this 0:08:32.280 --> 0:08:35.840 was still several years from Twitter actually having a profitable year, 0:08:36.320 --> 0:08:38.640 but this also meant the company could get a fresh 0:08:38.720 --> 0:08:42.480 injection of investment money, as folks would buy up shares 0:08:42.520 --> 0:08:45.959 of stock. So everyone recognized that Twitter was providing a 0:08:46.040 --> 0:08:49.280 valuable service, even if the company itself hadn't found a 0:08:49.320 --> 0:08:53.240 way to leverage that to make the company profitable. Heck, 0:08:53.360 --> 0:08:56.400 back in two thousand eleven, Twitter had a valuation of 0:08:56.559 --> 0:09:00.960 eight billion dollars, but it was still seven years away 0:09:01.000 --> 0:09:06.800 from a profitable year. In it launched a targeted advertising campaign, 0:09:07.320 --> 0:09:10.880 a more focused approach to promoted tweets, and the following year, 0:09:10.920 --> 0:09:15.280 the company held a round of layoffs, eliminating around nine 0:09:15.360 --> 0:09:20.520 percent of its workforce. In the last quarter of Twitter 0:09:20.679 --> 0:09:25.360 posted a quarterly profit of ninety one million dollars. The 0:09:25.400 --> 0:09:27.920 company had been in operations since two thousand and six, 0:09:28.200 --> 0:09:32.480 and this was the first profitable quarter for the company. 0:09:32.640 --> 0:09:36.680 So three months Twitter followed that up with a string 0:09:36.840 --> 0:09:40.080 of profitable quarters, and so two thousand eighteen became the 0:09:40.280 --> 0:09:45.000 first profitable year in the company's history. Now, to be clear, 0:09:45.480 --> 0:09:49.560 the company still had about one point five billion dollars 0:09:49.600 --> 0:09:53.280 in debt at that point. Two thousand nineteen was another 0:09:53.280 --> 0:09:56.800 good year for Twitter, but then saw a step back. 0:09:57.160 --> 0:10:01.439 The company made larger expenditures in and despite bringing in 0:10:01.480 --> 0:10:05.360 three point seven to billion dollars in revenue, it ended 0:10:05.400 --> 0:10:08.600 the year with an operating loss of one point one 0:10:08.760 --> 0:10:12.280 four billion dollars. Still, Twitter is a company that has 0:10:12.320 --> 0:10:15.800 gone from start up to one that actually generated enough 0:10:15.840 --> 0:10:19.400 revenue to at least sometimes cover all the costs of 0:10:19.400 --> 0:10:22.800 operation and then some. But let's move on to a 0:10:22.880 --> 0:10:26.960 slightly younger company. One that's perhaps on the cusp of 0:10:27.000 --> 0:10:30.800 having its first profitable year by the end of That 0:10:30.840 --> 0:10:34.640 company is snap Incorporated, which of course is known for 0:10:34.720 --> 0:10:40.000 its popular video social platform Snapchat. I should say video 0:10:40.080 --> 0:10:45.600 and photo platform Snapchat. Snapchat launched back in two thousand eleven, 0:10:46.040 --> 0:10:49.120 meaning this company is actually a decade old, which feels 0:10:49.160 --> 0:10:53.559 weird to say. Uh and uh, And in my mind 0:10:53.600 --> 0:10:56.080 it's always like that thing that just came out a 0:10:56.080 --> 0:10:59.000 couple of years ago, like I have such a bad 0:10:59.040 --> 0:11:01.960 way of placing wind tech things launched to me, like 0:11:02.080 --> 0:11:06.840 anything pre Twitter was only around a few years. But anyway, 0:11:07.080 --> 0:11:11.640 three Stanford University students named Reggie Brown, Evan Spiegel, and 0:11:11.679 --> 0:11:15.439 Bobby Murphy created the app way back in the day. Now. 0:11:15.480 --> 0:11:17.920 The story goes that Brown had come up with this 0:11:18.000 --> 0:11:20.760 idea of a platform that would allow users to post 0:11:20.880 --> 0:11:24.000 photos and videos that would have a limited shelf life, 0:11:24.160 --> 0:11:27.679 so after a given amount of time, the content would disappear, 0:11:28.080 --> 0:11:31.120 meaning you had to be actively engaged with the app 0:11:31.280 --> 0:11:35.400 frequently or you'd end up missing out on stuff. Also, 0:11:35.880 --> 0:11:38.319 I should add that at least some of the stories 0:11:38.360 --> 0:11:40.880 of the early days of this idea, In fact, a 0:11:40.880 --> 0:11:44.240 lot of the stories I should argue really revolved around 0:11:44.240 --> 0:11:47.800 the very things that concerned critics have raised about Snapchat, 0:11:48.240 --> 0:11:50.680 that being that the fact that you're you're talking about 0:11:50.800 --> 0:11:54.199 video and photos that only stay active for a certain 0:11:54.200 --> 0:11:57.920 amount of time and then they go away forever or 0:11:58.440 --> 0:12:03.840 apparently forever, meant that folks would take photos and videos of, say, 0:12:04.040 --> 0:12:08.079 less socially acceptable subjects. So, in other words, at least 0:12:08.080 --> 0:12:12.199 in one recounting of this idea, the primary use case 0:12:12.240 --> 0:12:15.240 for the disappearing photos was that it might encourage people 0:12:15.320 --> 0:12:19.640 to send racy pictures and videos to one another. Reading 0:12:20.240 --> 0:12:26.760 some of the accounts about this is pretty disturbing in 0:12:26.840 --> 0:12:31.200 some cases, like it. It feels gross. Not that people 0:12:31.280 --> 0:12:34.400 shouldn't send whatever they want to whomever they want. I 0:12:34.440 --> 0:12:38.800 don't mean that if they are consenting adults and and 0:12:38.960 --> 0:12:41.920 it is welcomed. I have no issues with what people 0:12:41.960 --> 0:12:45.480 send to one another, but rather that it was a 0:12:45.600 --> 0:12:50.280 means of encouraging this behavior from people who might otherwise 0:12:50.400 --> 0:12:53.760 resist it. You start getting into some territory that I 0:12:53.840 --> 0:12:57.920 find pretty ski vy. However, there are lots of other 0:12:57.920 --> 0:13:00.360 ways of using the app that don't involve, you know, 0:13:00.480 --> 0:13:05.120 skivie related topics and worlds are turned on such thoughts 0:13:05.200 --> 0:13:09.640 I suppose now, Honestly, if I dived into the background 0:13:09.760 --> 0:13:12.040 of the founders and some of the emails that they 0:13:12.080 --> 0:13:16.160 were sending to one another, back with them each other 0:13:16.240 --> 0:13:19.720 and with their fraternity mates, I would quickly need to 0:13:19.760 --> 0:13:22.960 slap an explicit tag on this episode. It is not 0:13:23.080 --> 0:13:25.840 a good luck, is all I'm gonna say, or rather 0:13:26.040 --> 0:13:30.600 like some of it is like really reprehensible, but let's 0:13:30.640 --> 0:13:34.680 just move on. I've been soap boxing long enough. So 0:13:34.800 --> 0:13:37.320 this was an app that was partly built on the 0:13:37.320 --> 0:13:40.559 premise of fomo, you know, the fear of missing out, 0:13:40.920 --> 0:13:43.480 which was kind of brilliant because that kind of design 0:13:43.800 --> 0:13:49.080 encourages ongoing and increased engagement, and that is something that 0:13:49.280 --> 0:13:53.040 can be monetized if it's treated properly. It's the thing 0:13:53.120 --> 0:13:56.400 that every platform is out for. It's why the Facebook 0:13:56.400 --> 0:13:59.040 algorithm works the way it does. It's why the YouTube 0:13:59.040 --> 0:14:02.400 algorithm works the way it does. It's designed to encourage 0:14:02.440 --> 0:14:06.200 you to stay there for as long as possible. In fact, 0:14:06.240 --> 0:14:09.439 just to backtrack a little bit, while Twitter turned a 0:14:09.559 --> 0:14:12.199 profit in two thousand and eighteen, the company also saw 0:14:12.240 --> 0:14:15.840 a drop in active users. In fact, that drop of 0:14:15.880 --> 0:14:18.960 active users was bad enough that Twitter essentially said it 0:14:19.000 --> 0:14:21.400 wasn't going to report on the number of active users 0:14:21.440 --> 0:14:26.600 anymore and instead focus on profitability as a metric, possibly 0:14:26.640 --> 0:14:29.840 because the company was also kind of saying that it's 0:14:29.960 --> 0:14:33.480 long term profitability strategy hinged on building out a larger 0:14:33.520 --> 0:14:37.080 community of active users, and it could be pretty upsetting 0:14:37.080 --> 0:14:41.200 to investors to hear that the long term success of 0:14:41.240 --> 0:14:46.600 a company is dependent upon something that is currently in decline. Anyway, 0:14:46.760 --> 0:14:51.560 the story of snapchat then gets really rough. Originally the 0:14:51.600 --> 0:14:55.080 idea was for a website, but the trio soon learned 0:14:55.240 --> 0:14:58.560 that a mobile app would be far more useful and popular, 0:14:59.080 --> 0:15:02.120 and the app that the you originally created with Bobby 0:15:02.200 --> 0:15:05.760 Murphy actually doing the coding was called Peka boo p 0:15:06.040 --> 0:15:09.680 I c A b o O. And then well, a 0:15:09.760 --> 0:15:13.720 decision was reached, and that decision was to exercise Reggie 0:15:13.760 --> 0:15:16.640 Brown from the group to kick him out. So out 0:15:16.640 --> 0:15:21.120 of the three, Brown had apparently made the fewest contributions 0:15:21.160 --> 0:15:25.560 to actually building the product, though according to you know 0:15:25.800 --> 0:15:30.520 the original story, it was his actual idea to make 0:15:30.560 --> 0:15:33.240 this thing. He didn't do a whole lot of work 0:15:33.480 --> 0:15:37.000 to build it. He did do some work with filing patents, 0:15:37.640 --> 0:15:40.640 but even by his own admission, he said he didn't 0:15:40.680 --> 0:15:44.320 do quite as much as as a Spiegel or Um 0:15:44.440 --> 0:15:49.640 or Murphy had done. So he later would sue Snapchat, 0:15:50.240 --> 0:15:54.560 which was essentially not even acknowledging his existence, and the 0:15:54.600 --> 0:15:58.040 company would ultimately reach a one fifty seven point five 0:15:58.240 --> 0:16:03.240 million dollar settlement with him, which is, you know, not 0:16:03.640 --> 0:16:06.640 that's not a bad amount of cash to take with 0:16:06.720 --> 0:16:08.960 you to say, like, yeah, I came up with the idea, 0:16:09.120 --> 0:16:11.320 and then you could go and do whatever you wanted 0:16:11.400 --> 0:16:13.920 with it. By the way, these guys were not like 0:16:14.960 --> 0:16:17.960 struggling college students either, I just want to point that 0:16:18.000 --> 0:16:21.200 out anyway. Brown and Spiegel then founded a company on 0:16:21.280 --> 0:16:25.560 September six, two thousand eleven that would be Snapchat, which 0:16:26.120 --> 0:16:29.840 was essentially a relaunch of Peekaboo, but with some you know, 0:16:29.960 --> 0:16:34.360 changes to the look of it. The company Snap Incorporated 0:16:34.720 --> 0:16:37.360 would follow a few years later as a sort of 0:16:37.440 --> 0:16:41.480 parent company for the purposes you like organizing and handling 0:16:41.520 --> 0:16:44.440 finance and things like that. The app, at first was 0:16:44.520 --> 0:16:47.480 an iOS exclusive. It came to Android a year later 0:16:47.520 --> 0:16:52.120 in two thousand twelve. In ten, Mark Zuckerberg reportedly made 0:16:52.120 --> 0:16:56.880 an offer that the Snapchat founders actually could refuse, but 0:16:57.040 --> 0:17:00.920 that offer was allegedly for three billion dollars and they 0:17:00.920 --> 0:17:05.199 turned it down. Wowser's In two thousand seventeen, the company 0:17:05.240 --> 0:17:08.280 held an I p O and got a massive cash 0:17:08.320 --> 0:17:13.120 injection and that created a company valuation of twenty four 0:17:13.720 --> 0:17:19.520 billion dollars and had introduced advertising, So it was generating revenue. 0:17:20.040 --> 0:17:22.679 It was making cash, It just wasn't making enough to 0:17:22.720 --> 0:17:25.680 cover all the costs in order to turn a profit. 0:17:26.080 --> 0:17:28.960 But the app appeared to be on a rocket ship 0:17:29.000 --> 0:17:31.080 to the moon. But then a couple of things ended 0:17:31.160 --> 0:17:34.520 up causing the company some grief. One was that a 0:17:34.600 --> 0:17:37.560 spurned Mark Zuckerberg decided he would build out his own 0:17:37.600 --> 0:17:43.320 Snapchat by having the Facebook owned business of Instagram introduced 0:17:43.320 --> 0:17:48.920 features that were let's just call it directly lifted off 0:17:48.960 --> 0:17:53.320 of Snapchats feature list and so calling it something that 0:17:53.400 --> 0:17:59.840 resembled Snapchats features as being kind Snapchats. Growth trailed off 0:18:00.000 --> 0:18:04.440 weekly it dropped by so the company was actually still growing, 0:18:04.480 --> 0:18:06.760 it was just growing at a much slower rate than 0:18:06.840 --> 0:18:13.160 it had been. Then there was the ultimate betrayal. Snapchat 0:18:13.240 --> 0:18:17.160 redesigned its user interface, and then Kylie Jenner sent out 0:18:17.160 --> 0:18:20.800 a tweet saying she didn't even use it anymore, and 0:18:20.960 --> 0:18:25.840 that was the unkindest cut of all. Honestly, I'm still 0:18:25.880 --> 0:18:30.159 goggling at a billion dollar company that is unable to 0:18:30.160 --> 0:18:33.720 turn a profit. I really just you know, business is 0:18:33.760 --> 0:18:39.480 beyond me. Obviously, I am not any sort of business genius. Anyway, 0:18:39.640 --> 0:18:43.040 snap was going through some internal turmoil. The company lost 0:18:43.080 --> 0:18:45.680 to chief financial officers and the head of its human 0:18:45.720 --> 0:18:50.000 resources department in short succession, and Instagram was eating into 0:18:50.080 --> 0:18:54.480 Snapchat's growth, and then the double whammy of TikTok's emergence 0:18:54.920 --> 0:18:57.240 began to be an issue, and then the pandemic of 0:18:58.480 --> 0:19:02.040 really threw wrenches into the various works. The company wasn't 0:19:02.080 --> 0:19:05.720 falling apart, not by any means, but things were pretty tense. 0:19:06.200 --> 0:19:09.720 In The Financial Times declared that Snapchat had about three 0:19:09.800 --> 0:19:12.960 years to reach a cash flow neutral status or else 0:19:12.960 --> 0:19:14.720 it would need to find a new way to raise 0:19:14.800 --> 0:19:17.480 money in order to stay in business. Its losses in 0:19:17.520 --> 0:19:22.720 twenty eight amounted to one point three billion dollars. Now, 0:19:22.720 --> 0:19:25.200 the good news for snap is that while the company 0:19:25.280 --> 0:19:29.720 lost money in the years since, it was losing less 0:19:29.760 --> 0:19:35.000 money per year in losses amounted to around nine hut 0:19:35.200 --> 0:19:39.679 five million dollars. That's not great, I get it. The 0:19:39.720 --> 0:19:43.600 Motley Fool reported in January of one that Snap might 0:19:43.640 --> 0:19:46.959 actually turn a profit this year, though I glanced at 0:19:46.960 --> 0:19:50.199 the company's quarterly earnings reports, which the company has to 0:19:50.240 --> 0:19:54.000 file publicly because it's a publicly traded company, and it 0:19:54.040 --> 0:19:56.520 continues to operate at a net loss this year. The 0:19:56.560 --> 0:19:59.920 company continues to add revenue streams frequently in the four 0:20:00.119 --> 0:20:04.359 of serving more ads per experience. But yeah, no profitable 0:20:04.480 --> 0:20:07.520 year yet. When we come back, we'll talk about some 0:20:07.600 --> 0:20:10.720 other famous companies that have yet to turn a profit, 0:20:10.760 --> 0:20:13.760 at least on an annual basis. But first, well, I 0:20:13.800 --> 0:20:23.800 gotta have some profit. Let's take a quick break before 0:20:23.840 --> 0:20:26.080 we get into our next company. Let me hit you 0:20:26.119 --> 0:20:28.520 with a little fun tidbit that I came across while 0:20:28.560 --> 0:20:32.680 researching this episode. Business Insider has a two thousand nineteen 0:20:32.800 --> 0:20:36.879 article that served as some of the inspiration for this episode. 0:20:36.920 --> 0:20:39.720 Although a lot of the things in that list are 0:20:40.480 --> 0:20:43.120 you know, have turned a profit since then. But in 0:20:43.160 --> 0:20:46.520 that article they cite a report from pitch Book, and 0:20:46.600 --> 0:20:49.239 that report says that out of one startups that had 0:20:49.280 --> 0:20:52.240 a valuation of at least one billion dollars, that is 0:20:52.320 --> 0:20:58.400 the Unicorn valuation only uh less than had become profitable. 0:20:58.400 --> 0:21:03.960 In fact, sixty were unprofitable more than half. And the 0:21:04.080 --> 0:21:07.880 article also cites a stat from Recode that says unprofitable 0:21:07.920 --> 0:21:12.920 companies that went public actually performed better than profitable companies did. 0:21:13.440 --> 0:21:16.199 The market loves a highly valued underdog. I guess I 0:21:16.200 --> 0:21:19.400 mean I still don't understand business honestly. But let's move on. 0:21:19.840 --> 0:21:22.560 Let's talk about a company that's not actually a tech 0:21:22.680 --> 0:21:26.520 company but was treated like one. And of course I'm 0:21:26.560 --> 0:21:30.160 talking about we Work, a company that had the business 0:21:30.200 --> 0:21:34.200 model of securing office space in various markets and then 0:21:34.320 --> 0:21:38.840 essentially sub letting that space out to customers. And those 0:21:38.840 --> 0:21:42.159 were typically smaller companies or sometimes companies that wanted to 0:21:42.160 --> 0:21:45.400 open up, say a small branch office in the city 0:21:45.440 --> 0:21:49.119 where they did not already have a presence. We Work 0:21:49.480 --> 0:21:53.920 has had a phenomenal journey, complete with drama and theatrics, 0:21:54.160 --> 0:21:57.200 and one of the strangest attempted I p O s 0:21:57.320 --> 0:22:02.439 I have ever researched. Like Its bonkers, y'all. Now. The 0:22:02.480 --> 0:22:06.720 founder of the company was Adam Newman, and Israeli born 0:22:06.880 --> 0:22:09.760 entrepreneur who moved to the United States in two thousand 0:22:09.880 --> 0:22:12.960 one and got his start running a company called Crawlers 0:22:13.000 --> 0:22:16.680 with a K and that specialized in clothing for babies. 0:22:17.359 --> 0:22:20.440 In two thousand eight, he created a new startup called 0:22:20.560 --> 0:22:23.280 Green Desk, which was sort of a predecessor to we Work, 0:22:23.480 --> 0:22:26.479 and the idea was to create office space that folks 0:22:26.520 --> 0:22:30.000 like freelancers could rent out. So maybe you're a freelancing 0:22:30.080 --> 0:22:32.640 writer and you need a dedicated workspace, so you could 0:22:32.720 --> 0:22:36.920 rent out like a desk in a shared coworking environment 0:22:36.960 --> 0:22:39.399 with lots of other people. So that was the idea, 0:22:39.600 --> 0:22:41.600 and it was called Green Desk because the focus was 0:22:41.640 --> 0:22:46.959 on sustainability, So the office space had recycled furniture in it, 0:22:47.119 --> 0:22:48.960 and the idea was that the electricity was going to 0:22:49.040 --> 0:22:52.239 come from wind power, that kind of thing. Newman and 0:22:52.400 --> 0:22:56.159 his Green Desk co founder Miguel mcklvey sold off the 0:22:56.200 --> 0:22:59.760 company for a few million dollars and around twenty or 0:23:00.000 --> 0:23:04.520 an eleven because accounts very they launched a new company 0:23:04.640 --> 0:23:07.399 based around the idea of shared workspaces, and this was 0:23:07.560 --> 0:23:10.919 we Work. And again, despite the fact that you know, 0:23:11.000 --> 0:23:14.000 it was really a real estate company, the media was 0:23:14.080 --> 0:23:17.399 treating it like it was a tech startup, and it 0:23:17.440 --> 0:23:19.840 was operating a lot like a tech startup, so I 0:23:19.880 --> 0:23:22.919 guess that was the reason for the media coverage. We 0:23:23.040 --> 0:23:27.000 Work expanded rapidly, securing office space in various cities around 0:23:27.040 --> 0:23:30.040 the world and then renting it out to their customers. 0:23:30.320 --> 0:23:33.639 And this meant we Work was signing these really expensive 0:23:33.720 --> 0:23:37.240 long term leases with lots of different office buildings, and 0:23:37.320 --> 0:23:42.280 that made some investors nervous because this was a guaranteed expense. Right, 0:23:42.359 --> 0:23:45.520 You're doing a long term lease, that's a guaranteed cost 0:23:45.560 --> 0:23:48.960 to your company, and we Works business of renting out 0:23:49.000 --> 0:23:53.159 space to customers was not necessarily going to follow the 0:23:53.240 --> 0:23:56.560 demand that would match the supply. In other words, there 0:23:56.640 --> 0:24:00.800 might be years where fewer customers actually need that shared 0:24:00.840 --> 0:24:03.240 office space, and yet you would still be saddled with 0:24:03.320 --> 0:24:07.920 this long term lease agreement. The company grew very quickly. 0:24:08.080 --> 0:24:10.560 The Newman developed a reputation for having a bit of 0:24:10.560 --> 0:24:15.119 a lavish and some might say hedonistic lifestyle. He also 0:24:15.280 --> 0:24:17.000 made some choices that made him a bit of a 0:24:17.000 --> 0:24:20.240 target in the business space. Now, I would argue that 0:24:20.480 --> 0:24:26.080 targeting Newman based on those choices was sometimes unfair and disingenuous, 0:24:26.119 --> 0:24:32.000 like you know, placing weird kind of moral uh decisions 0:24:32.040 --> 0:24:34.960 based upon some of his behavior, but he was also 0:24:35.080 --> 0:24:37.879 known for spending a lot of money, both in the 0:24:37.960 --> 0:24:41.359 company and outside of it, so it was kind of 0:24:41.400 --> 0:24:45.760 hard to to not criticize his behaviors in some cases. 0:24:46.280 --> 0:24:49.280 In two thousand nineteen, things came to a head. The 0:24:49.320 --> 0:24:52.720 company was planning a public offering to go on to 0:24:52.840 --> 0:24:57.760 the stock market. It had recently rebranded and became the 0:24:57.880 --> 0:25:02.439 Wee Company. This is something that's since been essentially abandoned, 0:25:02.440 --> 0:25:04.359 but the idea was that it would have three divisions. 0:25:04.640 --> 0:25:07.119 There was the we Work division, that's the one with 0:25:07.200 --> 0:25:10.760 the office space. There was we Grow, which was going 0:25:10.800 --> 0:25:13.439 to or which was running an elementary school in New 0:25:13.480 --> 0:25:16.399 York City. And there was we Live, which operated a 0:25:16.400 --> 0:25:19.520 couple of apartment buildings. Now in the i p O filing, 0:25:19.520 --> 0:25:22.800