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Comment by koolba | Hacker News Reader

From the article:

> “The inducement law in Washington is clear,” Commissioner Kreidler said in a statement accompanying the order. “Everyone has to play by the same rules.”

> As a result of the order, Zenefits has worked out a compromise with the State whereby it will offer its software on a paid basis, at a rate of $5 per employee per month.

I don't get it. So the rule is that you have to charge your customers something? Why can't businesses get free services off the fat of VC capital? Who's being protected by this besides existing insurance companies that are getting their lunches eaten?

Note that I'm not defending any of the other shenanigans that Zenefits has done. I'm just curious what the rationale is for requiring them to charge customers a fee. Anti-dumping laws?

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The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive.

That being said, I also think this is overkill.

Yes, this looks like a simple effort to safeguard against anticompetitive behavior of a well funded company. I think there should be proper regulation against this sort of freebies. Even more straight forward example would be Uber vs all other ride-sharing companies. They started off offering steep steep discounts to both drivers and riders (from their VC coffers) while running at a loss, making it impossible for any less funded competitor to even think of entering the business.

There should be some sort of regulation about starting off free and jacking up prices once the competitors are driven out of business. Or if such already exist, it must be enforced and made more stringent.

The old joke is if you charge more than your competitor, you're price gouging. If you charge less, you're anticompetitive, if you charge the same, you're colluding. Basically, government can arbitrarily terminate any business it so wishes.

If you do any of these in good faith then you wont run into any trouble.

* If you aggressively price to extract almost all of the value of your product or service because of an unnatural (i.e. not market based) advantage then you're price gouging.

* If you purposefully operate at a loss with the intended path to profitability being raising your prices later then you're being anti-competitive. We want to reward companies for real efficiency, not just who happens to have the largest VC war chest.

* If you charge the same as your competitor in good faith and don't find yourself in the first bullet because of collusion then there's no problem.

> If you do any of these in good faith

Eh, there's a strong political element to all these things. Political risk can't be ignored. Case in point: Uber versus Airbnb.

What's your point re Uber vs AirBNB?

Both have been kicked out of markets for not playing by the rules.

Now they may both "win" in the end and make many billions, so the end story may be "focus on growth not playing by the rules, if you have enough money you will eventually win anyway"

I don't think Uber's case is more obvious. Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors. This is particularly clear in the case of Uber Pool which only makes sense with lots of riders using it, which you need to bootstrap somehow, or it will not be feasible for anyone.

> Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors.

I understand why this might appear to be the case, but that's not what this [0] HN front page article analysis asserts.

The article asserts that 'Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement'.

Interesting read.

[0]http://www.nakedcapitalism.com/2016/11/can-uber-ever-deliver...

"Uber's business only works at scale, therefore they need to get there and deep discounts to get to scale make sense regardless of competitors."

Isn't that almost universally true for everything? Is it an acceptable reason to stifle open market competition? I mean think about any other industry. Say a new airline wants to get into business. Is it okay for them to offer $1 tickets (while writing off taxes/airport fees as losses) until they gain enough market share? What would that do to other competitors in that industry?

Not really. "Only works at [large] scale" means that you cannot be profitable and be a small business.

As over 70% of business transactions in the US are done by small businesses, then most businesses can profitably exist at a small scale.

When something is only profitable at large scale, typically what's done in the western-style economic nations is to (a) make a public company like the US Post Office (b) tightly regulate the market so the inevitable large actors has to serve the public good as is done for insurance currently or (c) hand out monopolies at the local level as is done for telecom companies.

Is it okay for them to offer $1 tickets until they gain enough market share?

No "until", the point is that they would offer $1 tickets forever, it's just that they would only lose money while they scaled. So competitors would still be screwed even after the "dumping" part.

And in a sense, isn't any new business temporarily "dumping" its products? If you're a solo founder writing and selling a SaaS product for $20/month, your income won't pay for the costs (e.g. your salary) until you get enough customers. Is that dumping? What if the competitors' products all cost $1000/month?

Uber's business is taxi dispatch which has been successfully turning a profit for many companies much much smaller for many years.

I would argue that dispatch was never a large or profitable part of taxi companies. The profitable part was picking people up off the side of the road where network effects do not matter.

That's not the regulator's problem, though. That's Uber's problem to figure out, without acting in an anticompetitive manner.

> creates a monopoly, then jacks their prices up

And then, very quickly, realizes to the surprise of no economist that they are no longer a monopoly.

That's the part where its a misapplication. These are fundamentally websites we're talking about, not steel mills. The barriers to entry, especially for competitors operating in other states, are incredibly low.

No new roads, no new ports, no mineral leases, etc.

Barriers to entry aren't the only thing protecting a monopolist's position. In many markets, network effects work against a newcomer's ability to acquire customers.

It's not just a website, though. There's the services offered through the website.

And while there might be some competitors that come in (no guarantee of that), it'll still take time. Time which the entrenched monopoly can use to entrench itself further.

But is this a case of dumping? It looks like Zenefits doesn't actually need[1] to charge for the software, in order for their revenue model to work; and it's not dumping if your costs of production are actually that much lower.

[1] edit: or want -- the loss of platform size plus transaction costs might outweigh the extra revenue it would bring?

'Dumping' is just a scare word, used to slander competitors; there is rarely (if ever) any evidence that 'dumping' is used as a tactic to destroy competitors, then hike prices. This irrational fear has been around for a long time, at least since Bastiat's time.[1]

[1] http://bastiat.org/en/petition.html

>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive.

Or they go belly-up and leave people without insurance. Because selling things below cost isn't a sustainable business model, despite how that looks from the confines of Silicon Valley.

Or worse, kills all the competitors then dies anyway.

The irony of anti-dumping laws is that they are usually used by corporations to protect their turf against cheaper upstarts.

>>The risk is that a well funded company gives away their product, drives all their competitors out of business and creates a monopoly, then jacks their prices up. It could be viewed as anti-competitive.

So... Uber? They aren't exactly "giving away" their product but the rides are massively subsidized.

That is the logic they tell the voters, but we all know the reason this law was passed was campaign contributions and speaking fees paid to politicians from incumbent companies.

Like... Google or Facebook?

Offering something for free based solely on big capital sound like the definition of dumping, so anti-dumping laws is probably right.

Their business model doesn't rely on charging for HR software. Their HR software is free and will continue to be free forever. This is just a straight up win for consumers.

Is Facebook, or Hacker News, or reddit "price dumping" its free software?

Those big sites sell users to advertisers, the users of said free software are their product, not their customer. This site is just a hobby project.

The same can be said about the Zenefits users. They don't care about the 5 dollars per user that they can make in revenue. They care about the x000 dollars in insurance dollars that they make off of them.

The customer is the insurance companies, not the users. The users are the product, so of course they give it away for free.

But the marginal cost of the service is near zero. I don't really understand what the rule is. What service must be charged for?

It would have been interesting to know the history of that law. Maybe if we had that context it would make much more sense.

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