Let’s be honest. They aren’t building a company to take on Intel and AMD. They are at most “building a company” to either be an acquisition for one of the major chip producers (maybe even Apple) or to be acquihired.
This is considered a very viable exit strategy. Sure you want to have a plan B in case nobody will acquire you, but I've known several companies that plan A was to get acquired. It didn't work out for every one but it does work sometimes. It really depends on your industry and your ability to make yourself attractive to the buyers.
Intel, Cisco, nVidia, AMD, Qualcomm and a dozen other companies are always happy to scoop up new IP for their castles. Just Intel and Cisco together have $37 billion in annual operating income burning a hole in their pockets.
Teams that can flip new semi or network IP, are like medtech inventors that routinely do exactly the same thing in that space. It's very difficult, requires particularly specialized industry insider knowledge and the industries are filled with very large, rich corporations happy to overpay to ensure their positions.
How did that work out for Uber, Lyft, and closer to home DropBox? They all went public and still haven’t shown that they have any idea how to become profitable.
I worked as a dev lead for one company where we were our vendors largest customer (over 60% of their revenue). I recommended that we either don’t depend on that vendor for our new implementation when contract renewals came or that we insisted on them putting their code in escrow in case they were sold and they abandoned the software.
I would suggest for tech VMware, Arista, RedHat are far more rational guides.
What's wrong with DropBox and why in the world would you include them with Uber? They had a modest $18m operating loss on $428m in revenue last quarter. They have essentially zero red ink concerns right now and their business is still expanding (over the prior three years sales will have increased almost 100% through this fiscal year). Further they have a billion dollars in cash to go with their small trickle of red ink.
DropBox could roll into profitable status in any given quarter and going forward, if they wanted to, just by very gently nudging operating expenses. They don't need to, there's basically no benefit to their market valuation in doing that (not until or unless they start spitting off a lot of profit). They're in a position where they're clearly going to let sales growth gradually lift their operating condition to profitable, I'd guess within four quarters or so at their rate of improvement.
A lot of companies follow the DropBox approach of allowing sales growth and margin improvement to overtake the operating losses gradually. That is especially desirable when pulling back on expenses might harm sales growth and there is no good reason to do it (ie no cash crunch).
See: Salesforce, ServiceNow, Palo Alto Networks, Twitter and Square for recent prominent examples of how this works. It's not uncommon.
https://qz.com/1214822/dropbox-is-filing-for-a-500-million-i...
The company’s prospectus warns it has “a history of net losses”; anticipates increasing expenses and slowing revenue growth; and notes that it “may not be able to achieve or maintain profitability.” To compete, Dropbox is pouring money into research and development to convert non-paying users to paid subscribers, and to enhance collaborative tools.
Also like Jobs famously said about DropBox. “They are a feature not a product.” For the same price that you pay for DropBox and 1TB of storage, you can get the full Office 365 suite, for 6 users and a total of 6TB of storage.
For personal users and not businesses, Google and Apple offer good enough alternatives cheaper and that integrate better with their ecosystem.
Every company you named has a much higher switching cost than Dropbox. You can’t just go to a Twitter competitor because of the network effects.
Not until iCloud folder sharing is available.
What about building a company with idea of making money?
Like it or not, when a team of people knows exactly what their multinational company would find valuable, and observes that the company isn't choosing to build that thing itself (often for internal political reasons the insiders are privy to), it's an extremely viable strategy to leave, build the thing yourself, and sell it back to the company 2-3 years later, and make yourself a big chunk of change in the process.
In fact, I'd say it's a much more guaranteed route to success than betting on an IPO. Because unless there's a drastic change in the political winds at the company, as long as you can execute on the product development, it's a reasonably sure bet.
Look no further than YC - only two YC based companies have ever gone public.
Profitable, yes, but all companies together = less than bitcoin
Spawn companies, yes, but total number of public companies that IPOed = 2
YC funds a lot of companies who do cool things that aren't very profitable. I don't know what most of them do, and that's great. So many of them serve niches I haven't even heard of. If they break even making someone's life better, then they're a success.
Imagine a world without Stripe or something like it. The current boom in membership services might not have happened. Even VC-juiced Patreon, which I use, handles payments through Stripe. How many successful companies by your measure glue their business together with companies that got their initial funding and guidance from YC?
There's a reason I'm not a capitalist. Profit as the only measure of success is how we ended up in this hell world. You're welcome to only care about that, but I prefer to imagine and work toward better futures.
Just that there are nuances between monastery and money-seeking-only business.
https://news.ycombinator.com/newsguidelines.html
Also, please don't cross into personal attack.
No, profit is not the cause of hell. Debt is, it's a modern-form of slavery.
When you accept VCs money, the reality (if you play by the rules), is that you agree to give your most precious ressource (time and energy) to pay back your debt.
It may pay off, or may not, but you have to be very aware of your choices.
Theoretically you could “buy back” your equity but with the type of returns and want it’s almost impossible. Taking VC money is like taking a payday loan.
But if you ask a random person in the street, they will know what crypto is, they may know dropbox if they are computer litterate, but they won't know YC unless they are a geek.
And for those who want to be successful by creating their company, I have strong doubts. Profitable businesses are laughed at as "lifestyle business", and profitability itself is considered less important than network effects.
In the end, I'm not surprised companies like wework are happening, where no sane person should invest a dollar. It's like the dot com boom again.
Ampere is 3 years old, though PE and not VC backed.
Private equity vs VC is a distinction without a difference as far as the investors motivations.
there’s nothing wrong or fake about building a company and a product to take on more risk/freedom with the intent of selling it to someone for whom it would be valuable later. it also probably pays a lot better, considering the increased risk of failure and better negotiating position if you invent and produce something truly groundbreaking.
this is how silicon valley has worked for decades.
Notice I didn’t say whether it was their desire. What they want is inconsequential once you take investor money.
Exponential Technology for instance was designing PowerPC chips that were faster than Motorola or IBMs. After Apple got rid of the clone market, they closed down the business and started another one. In 2010, Apple acquired them to help design their custom Arm chips.
> expect to start having losses consistently
This is a very rosy view of Tesla. Tesla has always had losses consistently and will continue to do so for years. They are $13 billion in debt with only $4 billion cash, and a not insignificant amount of their cash is from full self-driving preorders they are still obligated to fulfill.
My money is still on Tesla going bankrupt.
(And for other kinds of chips besides general purpose CPUs, fabless startups have been common for a long time)
Your tone ("building a company"), however, suggests that something useless is occurring here, that they are just playing house as opposed to creating value. That's the part that feels like coded cynicism.
After seeing Apple design processors that are performance competitive with Intel except on the very high end and they will probably make better modem chips than Intel could by acquiring PA Semi and the remnants of Exponential Technology and seeing Amazon design custom server and embedded chips for its own use, I think we are seeing a renaissance in chip design we haven’t seen since the 80s and 90s.
Microsoft and Google are also dipping their toes in custom designed chips.
It’s estimated that Google only sells 3 or 4 millions Pixels a year. What’s the motivation for them to care about the watch market? Screens on watches are too small to display ads.
The high end Android market is minuscule. The whole Android hardware ecosystem is a profitless race to the bottom.
I doubt Google “cares” if you use Android or not. If you use iOS you still get Google ads and you still probably at least watch Youtube.
Considering Google paid Apple 12 billion dollars this year to be the default search engine on iOS [0], they have a very big incentive to build a high quality android phone to get iOS users to switch over.
Those 3 or 4 million pixels could have been iOS users as I was one of those people last year when I decided to try out android again and the pixel was the first android I have ever used that didn't suck compared to my iphones (looking at you samsung galaxy s4). With apples draconian enforcement of what I can run on my iOS devices and set as defaults, I think I'll even stick to android unless it goes to shit or apple makes something radically better.
[0]: https://fortune.com/2018/09/29/google-apple-safari-search-en...
They’ve had over a decade to create an ecosystem that people are willing to actually spend money on. But statistically, people who are willing to spend money on a high end phone, a watch, $160+ headphones, etc veer toward Apple.
Google has been selling its own branded phones and tablets for six or seven years unsuccessfully.
The Pixel 3a seems to have been relatively successful.
https://ww.9to5google.com/2019/08/20/report-google-sees-near...
And while Pixel vs. iPhone is not the same discussion as iOS vs Android, it's worth mentioning Android has grown over the past several years whereas iOS has largely stalled.
https://gs.statcounter.com/os-market-share/mobile/worldwide/...
But Apple also realizes that iPhone sells are stagnating. But at the same time they have auxiliary products that are all making revenues and profits that any of the Android makers would die for from watches, AirPods, and services.
this looks made up & doesn't make sense.