Unit Economics - <AUTHOR> http://blog.samaltman.com/unit-economics <comment><USER3> While I'm not intending to be heavy-handed and reductionist, I think the (macro) trend(s) we've seen in (domestic) startup investment since 2008-2009 can satisfactorily explain this behavior.

Disinflation & deflation, capital flows and political friction preventing effective (any?) fiscal policy have produced an environment where private capital set on a given rate of return on investment is chasing increasingly risky organizations [1][2].

Large firms have been sitting on enormous sums of cash; e.g., why is it that the most capitalized company on earth isn't investing aggressively. In lieu of investment, many of these firms have been focused on engineering stock buybacks.

So, the thesis: why are so many firms pouring money into startups with increasingly questionable fundamentals? Because hands previously gripping bundles of capital have (nominally) more capital than they did with decreasing options for productive investment and downward pressure on returns.

1\. [http://www.economist.com/blogs/freeexchange/2015/04/puzzles](http://www.economist.com/blogs/freeexchange/2015/04/puzzles)

2\. [http://krugman.blogs.nytimes.com/?s=low+inflation+return+inv...](http://krugman.blogs.nytimes.com/?s=low+inflation+return+investment)

P.S. I recognize that I'm probably a bit left field for this group as I'm not a libertarian, I support strong regulation and I question the marginal value of lots of Valley products.

<comment><USER4> I think this is a pretty clear failure of capitalism, since the whole point of having greedy, top-hat-wearing capitalists chasing profits is to have them re- invest that profit in the hopes of making more. In the meantime, they compete with each other and end up magically allocating resources in a socially useful way.

Instead, big companies sit on their profits (like you say), while startups compete for the attention of a small group of investors who behave for all the world like the central planners of old, deciding how to allocate money based on their own tastes, interests, and gut feelings, rather than anything resembling a market test.

 _Goes off to have red flag dry-cleaned_

<comment><USER5> A failure of capitalism? I have to question the premise. Capitalism does not have as a goal some social-utilitarian purpose. Capitalism is practiced by individuals for their own self-interest. Sometimes they work together for a shared self-interest (e.g. corporations, investor groups) or they work against each other as needed (competition). But you cannot take self-interest out of the equation and still have capitalism. Every trade (be that stock for cash, or work for cash, etc.) is predicated on each of the parties fulfilling their individual needs and wants to the degree that they can. On it's own terms, capitalism hasn't failed at all.

What you can say is that capitalism has failed to mollify those that seek non- capitalistic goals. This is true of some so-called capitalists who experience guilt in pursuing their self-interest as well. If your view is that capitalists are "greedy, top-hat-wearing" types that fail to meet your social welfare goals, then my bet is your characterization masks a larger purpose. Primarily at bringing them down, probably in favor of the central planners of old (or some degree thereof).

Perhaps the real question should be: why would companies and individuals with captial choose to sit on it, or choose to spend it on relatively worthless start-ups? Why would a capitalist choose to sit on cash or buy-back shares if there are other, more profitable avenues to invest those funds? I think if you take a critical look at it you might find that there's still a fair amount of central planning behind what we'd like to think is a capitalist economy.

<comment><USER6> I mean, when Adam Smith says "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest," he's not saying that in support of self-interest, he's saying that in support of OUR DINNER. The point of capitalism as economic system is not that self-interest is inherently good but that self-interest can be yoked to "some social-utilitarian purpose."

Of course, Adam Smith's opinion of corporations was "The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own," and he thought they'd all die out unless they were propped up like the East India Company, so it's not like the Wealth of Nations is much of a guide to what we call capitalism nowadays. But still.

<comment><USER5> Adam Smith was wrong with the regard to the moral case for capitalism. He rightfully recognized why people acted, but he failed to recognize any substantive moral basis is such self interested actions; instead he resorted to the precise premise that the post I originally responded to pre-supposed. That argument must fail because one cannot act with self-interest AND altruistic interest consistently. The capitalist must always fail on these terms as there is always someone with a perceived greater need, and perceived greater right, to the capital of the capitalist.

If you consider first and foremost your own happiness and life as a moral value worthy of pursuit, you loose the hang-ups that Adam Smith had with capitalism. There's a whole separate discussion that goes down that path about what constitutes self-interest in the large (and no, defrauding innocents is not your best interests); but that's a bit out of scope to what the original poster stated.

<comment><USER7> I think the Ayn Rand viewpoint--that self-interest is intrinsically a moral good and that capitalism is justified by this moral good--is not very widely held as a justification for capitalism.

<comment><USER8> I think modern American political discourse makes this a harder position to take. Which is not to say it's correct, because it's transparently not, but selfishness-as-Godliness is a firm part of the American right wing, self- styled libertarians included.

Greed's been good since the eighties, didn't you get the memo? =(

</comment></comment></comment></comment></comment></comment></comment><comment><USER9> Kept waiting for him to drop the phrases "network effect" and "economies of scale" but it never happened. AKA burn to acquire users until you're so big that you can throw your weight around to reduce costs ala Amazon. The holy grail of software startups.

Given this post, I think it makes sense that YC is pivoting to include more hardware startups in its portfolio. Software is so saturated that people are starting to regard the majority of it as free. The people who do pay for services like Twitter & Facebook are the advertisers and business owners who have probably observed questionable ROI on average for the past few years.

I don't expect a bottle of coke to be free, and I don't expect a condom [1] to be free. So the "unit economics" make more sense in hardware (tangible/consumable product) land. Network effects are still important, but shipping a product and _collecting revenue from each sale_ even if you still have negative margins lengthens your ability to stay in business, giving you valuable time during which you might hit critical user mass or achieve economies of scale.

[1] [http://techcrunch.com/2015/08/09/y-combinators-l-condoms- pro...](http://techcrunch.com/2015/08/09/y-combinators-l-condoms-provides- safe-sex-on-demand/)

<comment><USER10> > Software is so saturated that people are starting to regard the majority of > it as free.

This doesn't match my experience at all. To me it seemed that throughout the 00s both consumers and small businesses were unwilling to pay anything for the cloud software, but tide has definitely turned. Now, all smart small companies I know don't blink an eye to spend hundreds of dollars per month for various cloud subscriptions and consumers are starting to pay for software both on mobile devices and cloud SaaS.

<comment><USER11> I get the sense that small-business SaaS companies can usually charge (after a short free-trial period), but consumers are still very reticent to pay for software. There are some services that are the exception (eg. Spotify/Netflix), but generally those are industries that were very large _before_ software came along, and they replace incumbents (eg. RIAA/cable) that people used to pay for as well.

<comment><USER10> Yes, consumers are much more willing to pay for content-driven services - after all they are mostly consuming, not creating. But if you observe niches and prosumers (who are creators), they are already paying for software. And niches can be huge on global scale: think about running, cycling, gym training. Or pets, dogs, horses. Investing. Knitting. Photography.

You are totally right that they are currently much more reticent to pay for software than businesses but based on my anecdotal observations, I think that the trend line is growing and accelerating. I also think that for consumer businesses, you have to be a bit more creative with your monetization models. Cost/benefit calculation of subscription model is an easy task for small businesses, but consumer spending has always been much more erratic in the physical world also, thus subscription models are not necessarily the best fit for consumer space.

</comment></comment></comment></comment><comment><USER12> The number of companies that have bad unit economics is, I agree, substantially higher than it should be. But I'm not sure this explains the bubblegum expansion of valuations and rounds we're seeing today. There are many thoughtful comments on the perceived bubble from people all over the industry. I'm not qualified to say one way or the other, but I did enjoy Mark Cuban's recent post on the matter. [1]

My company, Thumbtack, got a lot of this right early on. Years ago we doubled down on getting the unit economics right. So right that we were (IIRC) profitable for a month or two before taking a big VC round. Not sure how many other companies can say that. But at the end of the day, if the bubble is a bubble and it pops, knowing that we would survive and be able to make a profit is hugely satisfying.

My advice to any young startup is figure out how to make money early on. It's the rare Google/Facebook that can blow up and use the platform to sell ads. Most startups will not do this, but many can still make good money doing important things that people will pay for.

[1] [http://qz.com/356620/mark-cuban-is-absolutely-convinced- we-a...](http://qz.com/356620/mark-cuban-is-absolutely-convinced-we-are-in- tech-bubble-and-its-worse-than-the-last-one/)

</comment><comment><USER13> I've gotta think one category he's talking about are the delivery services. I still have not seen a decent articulation of the end-to-end economics. But they can't be terrific.

I know, for example, that Sidecar pays drivers up to $20 for a single delivery and just can't see how this is viable outside of rare exceptions. At least Instacart prices the item being delivered (and I suspect never gives you the yellow ticket price which pretty much every Safeway item gets nowadays).

<comment><USER14> I agree; delivery services will only make sense with autonomous delivery (which I suspect is the long-term plan for all of them - Uber included). But realistically, the R&D required there is crazy if you're trying to be first to market - Amazon and Uber are investing billions in this, and they're the competition.

Once drones or autonomous cars become widespread, this business becomes a commodity and anyone without a legacy business they have to migrate will be at an advantage. So I have no idea why these companies are getting funded other than it's a problem that's simple enough for a really smart university student to tackle.

<comment><AUTHOR> Uber is profitable in many of its mature markets. This is while charging less than half what you would pay a legacy taxi service, while paying drivers more than they would make at the same.

This is the direct byproduct of strong network effects on both the supply/demand side, paired with operational excellence on their part.

Self driving cars would bring the marginal cost down even further, but they have built a stunningly good business with or without a quantum leap in automation.

The same probably isn't true for many other Uber-for-X companies, particularly those with underwater unit economics.

<comment><USER15>
      Uber is profitable in many of its mature markets. This is
      while charging less than half what you would pay a legacy
      taxi service, while paying drivers more than they would
      make at the same.

What? Seriously? Are you saying that say the cost of a "medallion" is more than twice the cost of all other costs in a taxi service? Can you give any examples?

<comment><USER16> The average NYC taxi driver does not own a medallion. A couple years ago they traded hands for $1,000,000.00. Most of them are owned by companies which have many hundreds if not thousands of them.

These companies rent the medallion for 12 hour blocks to drivers and would charge them between $175-250 per block. Before Uber there were many more drivers than medallions and drivers would bid the price of renting the medallion for 12 hours up!

Drivers who worked full time and took a few weeks off would spend around $40,000.00/year on renting the medallion. A cab that was rented for 24 hours/day all year would easily generate $90,000.00/year for the owner of the medallion.

With Uber the companies that own the medallions (and more so those that took massive loans to acquire them) are the ones hurting. The drivers are just fine, if not better. And even taxi drivers I've spoken with like Uber because medallion owners are desperate for drivers now and are charging $100-$150/12 hours. They just want to get the cars out of the garage.

Uber drivers expenses that are different from cab drivers include a car mainly. Something that costs far less than the money they gave medallion owners and something they can write off big parts of on their taxes. And they can use it on their free time.

<comment><USER15> But ... [https://www.gov.uk/vehicle-licences-private-hire-taxis- londo...](https://www.gov.uk/vehicle-licences-private-hire-taxis-london)

License cost is 154 GBP (200 bucks) annually in London. Not a million. I maybe misunderstanding a lot of the cost issues in taxi services but it seems the medallion cost is a huge racket - but that's hardly a global issue?

<comment><USER17> That's not a "Black Cab" which would be the equivalent of NYC yellow taxis. A private taxi cannot be hailed on the street, I assume much like yellow taxis. This was once a major advantage, but uber (and equivalent apps) make it almost irrelevant.

Becoming a Black Cab driver is much harder than renting a medallion, though. You have to pass "The Knowledge" which is considered at least as hard as passing a university degree. You have to have an encyclopaedic knowledge of London roads, and generally spend at least a couple of years (often longer) driving around those roads on a scooter so you can demonstrate that knowledge in a series of tests.

I'm not sure if the problem is similar in other major cities, but I expect there is _some_ form of cartel in force in most of the major cities.

However, even if there isn't, there is still a real advantage to profitability from something like uber: if there are enough customers using a passenger exchange, then the likelihood of having passengers near to you is significantly higher. So less of your time is spent in unbillable transit to your next customer. In London there are hundreds of taxi firms; each of them gets some share of the passengers calling them up, so they have to take what they can get. With a central exchange, they get the passengers most suitably located for them from all possible passengers.

</comment></comment></comment></comment></comment></comment></comment><comment><USER18> The one product that I use and pay for that is so good that I recommend to all of my friends is Spotify. I'm so surprised how few of my friends actually pay for it though. They're willing to put up with ads and reduced quality for just $10 a month.

Other services I found so good that I recommend to all of my friends but do not pay for because my data needs are very small are dropbox and evernote. I bet some of my friends wonder why I wouldn't spend such a small amount of cash for their usefulness.

Getting people to pay for digital services is hard.

<comment><USER19> > They're willing to put up with ads and reduced quality for just $10 a month.

I see two reasons for this:

1) Free is huge. Most people are willing to put up with a lot of bullshit for free.

2) Netflix. We pay $7.99/mo for essentially infinite TV on multiple devices, but $9.99 only gets me audio on one device at a time. It seems like a worse deal, so why would I pay?

<comment><USER12> Also: never underestimate laziness. Typing in a credit card takes work.

Re: Netflix/Spotify price differences. The relative size of the libraries (vs all content in the domain) is something to keep in mind. Netflix gives users access to some videos, but Spotify gives users access to almost all songs [1].

[1] Can't find precise estimates for sizes of libraries, so apologies for the argument from anecdotal evidence.

<comment><USER20> OTOH, $120/yr for music is, depending on your assumptions and how you measure, actually pretty high compared to what people have historically spent on recorded music. [1] I know I've been on the fence about paying for a subscription given that I already have a big library of most of the music I care about. It's not so much that I'm too lazy to subscribe but I'm very slow to sign up for services that are going to hit my credit card every month.

Netflix video streaming is close to worthless for movies. But combined with DVDs it's pretty good.

[1] [http://recode.net/2014/03/18/the-price-of- music/](http://recode.net/2014/03/18/the-price-of-music/)

</comment></comment></comment></comment><comment><USER21> What's driving a lot of the idiotic investment is FOMO (fear of missing out). It is a powerful thing and can override a rational assessment of a businesses chances for success.

This combined with a lack of historical perspective is dangerous. Nearly _every_ smartphone app you see had a voice/phone counterpart a few years ago (remember 777-FILM or #TAXI?), most of them are long dead, and were killed off by the same market forces that will release their latest mimics from their mortal coil.

<comment><USER22> This is why there's a dearth of reasonable funding these days. VCs, the bad ones (which most of them are), are flock-driven creatures. Nobody wants to step out of line, and that's a problem when something new, novel, or actually different walks in your door. The flip side of FOMO is "if nobody else is doing X, I won't do X either."

Startups can get $100k in seed money by yelling on the street in soma.

Startups can get $100 million by tickling andreessen in the right spot and chanting forbidden words from the before time.

Nobody can seem to get $5 million to bridge the gap between living-in-coder- poverty and being able to hire a real team for more than two months.

</comment></comment><comment><USER23> There are two sides to this:

1) A business with good fundamentals doesn't need a VC.

If I've got cash flow, I can probably get a loan with a bank on much better terms than any VC will give me.

If I don't have cash flow, well, okay, I need a VC. But then, tautologically, my business doesn't have good fundamentals.

2) VC's _only care about unicorns_.

Since VC's make up their whole portfolio based around the 100X+ returns on a single company wiping out the losses from the rest, fundamentals are irrelevant. Being in the hot buzz which enables you to flip to somebody else for 100X is far more valuable.

A business with good fundamentals sells for about 10X which is nowhere close enough to offset the rest of the losers.

<comment><USER24> Re (1), I just tried to get a loan from Wells Fargo last week for a consulting business with a few hundred K in annual revenue, and it was an _incredible_ pain in the ass (multiple years of balance sheets/income statements, tax returns, trips to the bank, and all for, like, 25% of one year's profit-sized loan) -- there's truly an opportunity to disrupt small business lending, but the hard part there is capital aggregation.

</comment></comment><comment><USER14> Low margin businesses are all the rage because all the large, high-margin opportunities are either gone or have such huge barriers to entry that startups have to raise a half billion dollars before making an honest attempt.

At least that's what I see. Not that we shouldn't chase the expensive ones, but I don't know that VC is the right framework for that.

<comment><USER11> Maybe the solution to that is to go after small, high-margin opportunities, ideally growing ones.

[http://paulgraham.com/startupideas.html](http://paulgraham.com/startupideas.html)

<comment><USER14> This is currently the model that most big consulting companies use: find a thousand niches and fill them all with people. I have a feeling that if you enter these markets as a startup, you'll find they're not really as high margin as they look, and that the margin will get eaten up by integrators anyway (integration work doesn't scale exponentially and causes your costs/outputs to lag your pipeline).

Anyway it's not a bad idea; just not one I feel is especially well suited to the VC investment model.

<comment><USER11> I think the idea is to pick niches that are small now but will become big in the future. Build the only programming language available for the Altair and you have a high-margin monopoly on a market of a few thousand machines. Build the only operating system for every IBM PC and clone, and you have a high- margin monopoly on a market of hundreds of millions of machines.

That's behind the common SV wisdom of "catch a wave", "ride a trend that's larger than yourself", "find markets, don't try to create them", etc.

The pitfall is that it requires some degree of future-prediction, and predicting the future is left as an exercise to the entrepreneur. The guy who built the first programming language for the Altair is the richest man in the world; the guy who built the first programming language for the Alto [1] has largely been forgotten by history.

[1] [https://en.wikipedia.org/wiki/Xerox_Alto](https://en.wikipedia.org/wiki/Xerox_Alto)

</comment></comment></comment></comment><comment><USER25> It's pretty funny that this even needs to be said, but for some reason it does. This stuff is business 101. Irrational exuberance anyone?

<comment><USER26> On the one hand: who cares? It's private, non-leveraged private money. It isn't a debt bubble like the mortgage crisis and hasn't infected the public markets like the 90's. Caveate Emptor and all that.

On the other hand: the suckers at this table are pension funds and other LPs that are terrible at picking managers. A few good years of returns and money will flood from underfunded pension plans into VC .... just in time for a nice healthy correction. If I was relying on a pension to retire in the next decade or two, then I'd be worried.

<comment><USER27> "It isn't a debt bubble like the mortgage crisis and hasn't infected the public markets like the 90's. Caveate Emptor and all that."

I've heard that a lot, but I wonder if it's as harmless as people say? If/when this bubble pops, won't that have a pretty tough spiral effect? Granted it might not be as deep as the late-90's bubble, but I'd have to think that this will be pretty grim when it happens too.

Along with sky-high valuations come sky-high salaries, which breed high rent & purchase prices for homes. Along with that comes high tax revenue and such.

If suddenly a young engineer's expected income drops from $150-$200k/year to $60k, that could be pretty rough. Granted it probably will affect the coasts a lot harder than the central US, but I'd think it'd have national effects regardless. Salaries drop, suddenly people can't afford their houses, so they either have to sell at a loss or try to hold on to it. What if a sizable chunk of the population is no longer able to afford college loans?

You also mentioned the pension problem; if tax revenue starts to dry up because housing prices goes down, that could exacerbate a problem that's already popping up around the US.

<comment><USER28> You know, I've long wondered this for the Bay Area.

The question in my mind is...how much of the housing crisis, rents, and raw population are coming from people employed by startups that are most at risk of this?

Google, FB, Apple, Adobe, etc. have strong revenue (perhaps other issues, but there is no argument that there is money to be made and that they are making it). They also employ massive numbers of people. If a so-called funding bubble bursts, is it really going to make a dent in the other areas like you suggest? Or is the bulk of the "tech industry" comprised of the larger tech companies?

If it is the larger tech companies, and a bubble bursts, it might provide less flexibility for leaving to start your own thing, and there may be overall less competition, but they still compete against each other for top talent, and need way more resources than a startup does.

</comment></comment></comment></comment><comment><USER24> @sama: right on with this. SV $ metrics are always measured in revenue growth, not free cashflow, margin, etc. Measuring revenue works fine for high-margin businesses, which software has been for a long time.

Now that we're using VC to finance resource-intensive SaaS companies (e.g. analytics) and even cleaning/home care/service companies, there's a need for collectively higher financial sophistication.

Revenue growth is a good proxy when you're selling zero-marginal cost products; not so when you're selling 95 cents of cost for $1.

<comment><USER29> It seems like VCs ought to be more sophisticated than to naively apply the model for SaaS to low margin consumer facing products, but I don't know enough - this really could be the case.

Similarly, I have no understanding of all the money that flows into the space (from the outside). The margins are low (to non-existent) and the space is brutally punishing. Screw up a persons laundry, food order, or plain just take too long and you have to give away a year's worth of margins to keep the customer. Delivery as a service is a commodity - who cares who delivers your food or does your laundry? At the same time, the cost of switching between providers is as close to zero as it gets (they are doing home delivery after all!). In the parallel universe that is SF, VCs subsidized (thanks!) the industry to the tune of making it comparable (or actually cheaper) in price for me to pay someone to pick up my laundry, wash and fold it, and return it, to doing it myself at a coin operated laundromat. Whenever the service I used raised prices to stop hemorrhaging money, I simply switched to their latest VC funded competitor.

<comment><USER30> I think you explained very well why HomeJoy failed this summer.

</comment></comment></comment><comment><USER31> Does anyone else think that these unoriginal, doomed-from-the-start startups are a direct result of funding institutions looking for founders that appear really good "on paper"? You know, experience with this BigCo, a degree at that IvySchool, etc. Even YC may be becoming guilty of this, as it seems like a top school brand is a prerequisite.

Or the more sinister metric, _do you have growth?_ PG wrote that startup=growth, and that growth is the all-encompasing metric. Might this incentivize some prestige-seeking 'entrepreneurs' to _do things that don 't scale_ like pumping money into convincing users to join their website, or making fake accounts?

Not that growth and a founder's unsustainable touch early on aren't excellent things for which to strive. But in any system in which there is prestige to be gained, there will be those who will match patterns and fool the heuristics of the gatekeepers.

</comment><comment><USER32> The worst part of it is that companies with bad unit economics are not just shooting themselves in the foot for the sake of "growth" or simply faking hotness, but that in acquiring users for more than they are worth they effectively drive acquisition costs up for everyone else in the industry.

</comment><comment><USER33> As a side note, unless you have a secret sauce (something unique to your company, like better proprietary data, lower operating costs, etc.) all acquisition channels will decline in effectiveness over time, making it harder to make unit costs work. This is generally known as audience fatigue.

</comment><comment><USER34> You have to admit, though, that there is nothing quite like the feeling of paying $7 for an Uber pool to go all the way across San Francisco, especially when it's surging 3.9x.

</comment><comment><USER35> I was nodding my head in agreement until I got to this line

> where you make more than you spend on each user, and it gets better not > worse as you get bigger, you may not look like some of hottest companies of > today, but you'll look a lot like Google and Facebook.

Wouldn't Facebook be an example of a company with bad unit economics?

<comment><USER36> You're accounting for Facebook's and Google's business model all wrong. The end users aren't the customer. Advertisers are the customers. Think of Facebook and Google more like giant hydro-generation plants that have to continually work to divert the flow of attention of its users to its customers.

Like any hydro-generation plant, you want to capture a monopoly from this recurring source of income so you can dictate premium prices from your customers.

<comment><USER11> They also have basically zero user-acquisition costs, on both the user and advertiser side. CAC (customer acquisition cost) is usually the largest variable cost for most businesses. Things like server costs, electricity, etc. are tiny in comparison. Cut CAC and your margins skyrocket.

Indeed, the reason why Google & Facebook are profitable is because they're a very effective way of cutting CAC for other businesses. Their revenue is another businesses's marketing spending, and yet they're _still_ better than the alternatives for driving customer conversions.

</comment></comment></comment><comment><USER37> _First they talked about valuations being too high. Then they talked about valuations not really meaning anything. Then they talked about companies staying private too long. Then they talked about burn rates._

The first 3 are essentially the same thing and the 4th is related.

</comment><comment><USER38> I don't get why we always cite Google, Facebook, WhatsApp, Instagram as an example of companies that have shown the way. While, those companies are great in their work and business, they didn't really start with an aim of providing value but as just-another-side-project. Why do we ignore the thousands of online businesses that might not be raking in billions but are successful by every measure? A reason why I look forward to products like Bare-metrics, and AeroFS.

The problem I see with seeing these companies as an example is that most people think around the ideas that they feel good about. It is disappointing that so many people are just driving towards building another photo sharing app or a low margin business.

<comment><USER39> Google and Facebook are cited because they generate an ungodly amount of cashflow/profit and have manage to do it in a smaller timeline than their equally financially regarded counterparts (Google took 15 years to reach that of the revenue that took Coca Cola took 100+ years to reach).

I'm curious as to why you consider Baremetrics a success and by what measures? No offense to the guys at Baremetrics (they're product is well executed and I reference their SaaS metrics constantly), but their financial performance is not great [0] given their funding raise and valuation [1]. They're losing more customers than they gain, they're presumably cashflow negative (for a team of 6 engineers at competitive salaries, you're looking at $750k/year cost) and their ARPU/LTV numbers are really low (in relation to their low number of customers). Right now they're getting 10x on revenues, which is crazy high.

[0] - [https://demo.baremetrics.com/?start_date=2013-11-13&end_date...](https://demo.baremetrics.com/?start_date=2013-11-13&end_date=2015-09-20)

[1] - [https://angel.co/baremetrics](https://angel.co/baremetrics)

</comment></comment><comment><USER40> Let's extrapolate the argument to the second order.

Mobile gaming, for example, has bad Unit Economics. Games like Candy Crush Saga and Game of War spend absurd amounts of money in acquisition.

...which is Facebook and Twitter's primary revenue stream.

There is a possibility of a domino effect.

<comment><USER41> > Games like Candy Crush Saga and Game of War spend absurd amounts of money in > acquisition.

Yes, because they know on average every person that starts using the app makes them $1.50. So they spend a lot of money acquiring users at $1 each. That's not a failure of unit economics.

<comment><USER40> If those numbers were the case, then that definitely would be correct.

But cost to obtain the average user is $3, nearly double from what it was last year. [http://venturebeat.com/2015/04/30/it-costs-more-than-3-to- ac...](http://venturebeat.com/2015/04/30/it-costs-more-than-3-to-acquire-a- mobile-user-now-fiksu-finds/)

I strongly doubt the average user spends $3, given that the current freemium environment is hedging by offering freemium perks for free periodically to get user retention. Which makes them less likely to actually spend money.

<comment><USER42> Candy Crush brought in $1.5 Billion dollars in revenue in 2013[0]. In 2014 it had 93 million users[1]. That means Candy Crush brings in at least $16 / user / year. I'm guessing they don't really care what the cost per acquisition is when they are making that much per user.

[0] [http://bgr.com/2014/02/18/how-much-money-does-candy-crush- ma...](http://bgr.com/2014/02/18/how-much-money-does-candy-crush-make/)

[1] [http://www.gamespot.com/articles/93-million-people-play- cand...](http://www.gamespot.com/articles/93-million-people-play-candy-crush- saga-daily-do-you/1100-6417819/)

<comment><USER40> Huh, I thought CCS revenue was an order of magnitude lower. My mistake.

In that case, the numbers make more sense.

</comment></comment></comment></comment></comment><comment><USER43> Its the classic suspension of disbelief.

Previous companies made a loss, but in the end started to make a stonking profit (google, airbnb)

However they seem to be the exception not the rule. Currently in london there is an explosion of highly integrated iphone ebay apps. Quite why they (the investors) think its a great idea to fund so many clones is beyond me.

But then the economics of startups are odd. like broadcasting seeds, you expect infant mortality. However this acceptance of utter failure has creeped up from the seed funding stages into series a,b,c and even d (twitter still cant make money.)

Its fine if you manage to sell your shares onto the next sucker. But the problem is that each round bring a bigger price of failure.

</comment><comment><USER44> In today's environment, it's better to be one of the "hot" companies with presumably poor unit economics.

Otherwise, your competition will out-market and out-sell you every month simply by spending more money.

<comment><USER45> If you can achieve profitability, then you could presumably wait for your competitors' business models to fail and then rake it in when all their customers have to migrate. They pay all the costs to build up your customer base then go away.

<comment><USER46> > _then you could presumably wait for your competitors ' business models to > fail_

Isn't that essentially playing the market? You might be waiting until the bubble bursts - which puts you in the same position as everyone else trying to short this bubble thats supposed to pop any day now.

And even if you are profitable now, the effects of a bubble doesn't mean you will be profitable afterwards.

<comment><USER45> The market is not a company.

If you're playing anyone, it's your competitors. Understanding your competitors is much easier than understanding the market. Actually running a business in the space makes you much more familiar with the unit economics of it. If the market fails, that is, if people decide they no longer wants the service you're both offering, then you're both hosed.

If you feel there's a bubble, that is, if you feel that demand for a product / service is going to eventually collapse, then the rational response is to get out of that market, assuming your position is liquid enough to do that, and invest in asset classes that will do well if and when the market collapses. You don't start taking short positions unless you have specific reason to believe a specific company isn't looking good. Otherwise volatility could cause you to lose a lot of money in a very short period of time. Also, you can't short a whole market, you can only bet against it.

</comment></comment></comment></comment><comment><USER47> What I don't get is this: the freemium pricing model is often used, but what few people seem to know is that selling below cost is also called "predatory pricing" [1] and it is illegal. And there are good reasons for that. So... why are we letting the market get ruined by this phenomenon?

[1] [https://en.wikipedia.org/wiki/Predatory_pricing](https://en.wikipedia.org/wiki/Predatory_pricing)

<comment><USER48> Not exactly, and I'm not even sure 'freemium' falls into these categories anyway. Selling in a way that is deliberately designed to drive off competition is illegal, assuming you can prove it. Selling below cost is just called 'making a loss' and is perfectly legal, if generally unsustainable ;)

Here are two scenarios:

1\. I sell product A at a loss, intending to attract customers who will then buy product B at much higher margin, making me a large profit - legal.

2\. I sell A at a loss to attract company X's customers and drive them out of business, then raise the price of A once they go bust - illegal and predatory pricing.

<comment><USER47> Yes, but what is happening right now is that start-ups are taking funding, build a brand on VC money, hence drive everybody else practically out of business (and blocking potential newcomers), while making losses year after year.

To me that sounds pretty much like predatory pricing (and anti-competitive behavior in general).

<comment><USER11> Only in the particular industries they operate in. And the whole point of this essay (and the reason this is a problem) is because _these are bad industries_ , known to have bad economics, and companies are using VC money to paper over the bad economics.

Just ignore the herd and look for overlooked industries which _don 't_ have bad economics. That's what you have to do to survive as a startup founder anyway.

It's pretty analogous to the family next door who goes and buys a yacht on credit cards even though their income can't support the payments. Yes, it's annoying to watch people have nice things they didn't earn, and yes, they do marginally prop up the price of yachts. However, were you really planning on buying a yacht anyway? They will get their come-uppance when the bills come due, and it's not worth worrying too much about what other people are doing in the meantime.

</comment></comment></comment></comment><comment><USER49> The exception may be for companies that have clearly recognized network effects.

In this case, your product may not be valuable without a lot of users, customers or cars .. You need to spend to get to critical mass, but I'm sure it's important to articulate a plan on why your business becomes profitable from that point onwards.

Too often, there isn't a tipping point or that tipping point is very hard to reach and companies never become profitable

</comment><comment><USER50> Moving matter rather than information is inherently expensive. A lot of the current darlings are about moving matter around. Their best bet is to achieve monopolistic dominance by being radically more cost-efficient than the old- school industries they disrupt, but it's still expensive.

</comment><comment><USER51> Advise for game developers: that's why you should not do clones or games which looked different but are actually clones - like not-so-innovative 2d platformers. If you think about an innovation for your next game, think about it twice, will it drive sells, really?

</comment><comment><USER52> Homejoy seems to be the most recent example of non-sensical unit economics.

</comment><comment><USER53> The reason this is complicated is that the burn rate of the business is determined its net margin (NM) and the viability of the business is determined by its contribution margin (CM) (NB I didn't say gross margin - they are slightly different).

CM is _extremely_ hard to calculate because "fixed" costs - in practice - <USER2> scale with the number of customers. But on the other hand, if you have a positive CM, it may make sense to invest heavily in capacity, leading to negative NM.

</comment><comment><USER54> Is Sam talking about Fanduel and DraftKings?

<comment><USER55> Those two certainly apply IMO, they both have The Next Zynga written all over them. Any investment where you have to spend the money buying every ad on TV has a red-flag that the valuation isn't nearly what people claim it is.

Actually, Zynga itself is another one (though it's a public company). I don't see any evidence Zynga will ever be a profitable company, and it has no valuable assets, so I think it's fair value is pretty close to $0.

<comment><USER45> TV ads can be quite price-effective if you have the right strategy, are catering to a broad enough market, and have a good pro. Fantasy football has such broad market appeal that pretty much any ad buy is going to reach a significant number of people that play it.</comment></comment></comment>


The US is home to one third of all the world's data--here's who's storing it - <AUTHOR> http://qz.com/104868/the-us-is-home-to-one-third-of-the-worlds-data-heres-whos-storing-it/

<comment><USER2> The author really needs to define "data" and "stored" for this article to make sense. For example, I work for a large manufacturing company and the combination of our ERP/MRP DB and our manufacturing systems DBs totals about 20-25TB, with about 10-15% growth per year on average. That's small potatoes and _barely_ what I'd consider big data in the context of analytics. However, totally separate from this structured data, well, there's a whole of other structured data created by and stored in other app databases, but this is predominantly stuff that supports business automation, not core business systems. I'd guestimate this is in the 5-10TB range, but since most of that data is siloed and unrelated across apps, an analyst would never be looking at more than a few hundred gigs at a time for any given purpose. Then we get to unstructured data, which is what I thought this article was intending to discuss. With file servers at every one of our sites, with 20000+ employees using Google Apps/Drive, with who knows how many Dropbox accounts (not to mention internal FTP), and internal CMSes, we probably have about one PB of unstructured data, not including the stuff in the cloud. We generate email at about 2TB per month, and until recently backed it all up on tapes we ship to Iron Mountain. This is separate from the default business process of imaging a terminated employee's PC and keeping that permanently just in case (stays on a server for a while and is then backed to tape).

So, I'm not sure how to interpret this article, given what I know about how my own company works and where our data lives.</comment>


Tomorrow's Apps Will Come From Brilliant (And Risky) Bitcoin Code - <AUTHOR> http://www.wired.com/opinion/2014/03/decentralized-applications-built-bitcoin-great-except-whos-responsible-outcomes

<comment><AUTHOR> Bitcoin is a member of a larger class of innovated technologies called Distributed Anonymous Corporations.</comment>


The Apollo Breach Included Billions of Data Points - <AUTHOR> https://www.wired.com/story/apollo-breach-linkedin-salesforce-data/ <comment><USER3> "The sales intelligence firm firm Apollo sent a notice to its customers last week disclosing a data breach it suffered over the summer. "On discovery, we took immediate steps to remediate our systems and confirmed the issue could not lead to any future unauthorized access," cofounder and CEO Tim Zheng wrote. "We can appreciate that this situation may cause you concern and frustration." In fact, the scale and scope of the breach has a lot of people concerned."

Nice of them to notify their customers, but not the people whose data has been exposed. "Have I Been Pwned" alerted me.

<comment><USER4> I didn't even know who Apollo was until I got that email

<comment><USER5> I still haven't figured out who they are, but my email account that was compromised was made specifically for Heroku.

Thanks to haveibeenpwned.com for the heads up.

<comment><USER6> The one that I got a hit for was made specifically for New Relic.

Is this some kind of sales platform or what? It's so tiresome to have your email become the town bike the moment any SaaS gets their hands on it.

<comment><USER5> I had a NewRelic account via Heroku, so that's a link for me too

</comment></comment></comment></comment></comment><comment> shady-lady Apollo, formerly known as ZenProspect, YC Winter 2016 class.

Unlikely they're not active on HN. Maybe they could elaborate on how this happened.

Wonder how hard GDPR fines are going to hit them.

also only notified by haveibeenpwned

</comment><comment><USER7> Apollo has a page on how to have your data removed. Simply request it by emailing firstname.lastname@example.com or firstname.lastname@example.com.

[https://www.apollo.io/legal](https://www.apollo.io/legal)

<comment><USER8> Too late.

</comment></comment><comment><USER9> My work contact information has been in the Apollo, Exactis, and NetProspex breaches. I have no idea how my information ever got in these databases. Have I been pwned sent the only notifications I got about these breaches. Does anyone maintain a list of these services I can preemptively get my information removed from?

</comment><comment><USER10> I may be missing something, but the net effect of this kind of breach is seemingly not that (like the case of a data breach of a "single" company user database) of having "reserved" data (that only the company had and that was given to it with an expectation in good faith by the user to keep it safe) in the hands of someone else, it is more like having data that was already available to _anyone_ for a fee in the hands of someone that didn't pay that fee.

</comment><comment><USER11> Can I check what data Apollo had on me?

<comment><USER12> If you are a EU citizen then GDPR should allow you to request it since they are clearly operating in the EU if you are from the EU and got notified.

Email them and say that you are making a GDPR subject access request. They have 30 days to respond.

</comment></comment><comment><USER13> I once ran a social media marketing organization where we were very good about not scraping data outside of the terms and conditions of the networks we interacted with.

In so many of these breaches we're seeing cases where these analytics firms have data scraped from networks that is well in violation of terms - <USER2> mistakenly, but wanton disregard for data usage policies of those networks.

Why is nothing ever done about that?

<comment><USER14> we need gdpr in the us

</comment></comment><comment><USER15> In all these breaches I wonder if the data ends up public. Might serve good to sciences.

<comment><USER16> It has peoples names, phone numbers, job titles, and current places of employment. I don't see how that level of compromise is good for the sciences.

<comment><USER15> With that kind of info you could compute various societal statistics on occupation. Including, for example, being able to see if any large company has minorities underrepresented in higher-level positions.</comment></comment></comment>


HAKMEM (1972) [pdf] - <AUTHOR> http://dspace.mit.edu/bitstream/handle/1721.1/6086/AIM-239.pdf?sequence=2 <comment><USER2> HAKMEM instilled in me a lifelong love affair with the architecture of the PDP-10.

This memo was quite influential on 14-year-old me, mainly because I could not understand a word of it. It caused me to look many things up (which was hard in the pre-web 70s) and served well to show me the depths of my lack of understanding of the size and shape of the world. I ran into Gosper on one of his vists east and though didn't ask him about munching squares, I did receive an unsolicited and incredibly valuable lesson on using the lispm debugger and DDT. He's still a friend today. RG was also highly influential, though in the opposite way (he assumed I understood far more than I did so would pass along crumbs in order not to waste my or his time). Nelson I've never met.

Are there still opportunities for random kids to be exposed to such things? It feels like despite there being several orders more information now at your fingertips that life has become more professionalized and constrained.

<comment><USER3> For most disciplines, there are places on the web where esoteric information can be found. Wikipedia is very strong on math and computer science topics, and I recognize the feeling that you are describing of realising how much there is to learn. The hyperlinked nature of Wikipedia amplifies this.

The phenomenon of professionalization has probably made computing less of an intellectual activity, and more of a routine business. Is that what your perception is? It doesn't help that the signal-to-noise ratio is now much lower.

<comment><USER2> > The phenomenon of professionalization has probably made computing less of an > intellectual activity, and more of a routine business. Is that what your > perception is?

Not just computing. Compared to my childhood in the 60s/70s (I'm gen X, though my early childhood was not in the US), life is highly professionalized. Sport used to be played by everyone, now even school kids specialize and have fancy training. Music is less ad hoc though admittedly that had become a factory product by the 60s.

And it was easier to tinker. Nowadays people talk of "building" a PC when they are just gluing together lego blocks. That is great in that it opens up the opportunity for many more people to program, but at a cost of hardware tinkering. It used to be obvious by looking at a car motor what was going on. Now they are boring.

When video games were starting they were a gateway to programming for lots of kids. Now they are part of an ecosystem of toys that play with the kids (rather than the kids playing with them) and are generally part of an integrated marketing ecosystem ("franchise") that has characters and storylines that integrate film, video, toys...where is open ended imagination? Fandom is more consumption of someone else's thinking now than it used to be.

I know, sounds like a curmudgeon's lament.

> It doesn't help that the signal-to-noise ratio is now much lower.

I am not sure that's true. There's a survivorship bias in that we still read the work of the greats, while most of the crud is lost. I recently tossed out several shelves worth of old CS papers from the 60s-80s that I knew I'd never look at again. Dead end CPU designs, absurd (in retrospect) claims, all sorts of crud.

There is lots of fabulous thinking from the ancient Greeks, but what's survived is an infinitesimal portion of what was produced...I assume none or hardly any of what perished was worth re-reading.

</comment></comment></comment><comment><AUTHOR> The HAKMEM (the Hacker Memo) paper by Bill Gosper, details work done at the MIT AI lab by the first known code hackers.

Stories about the MIT hackers (Bill Gosper,Richard Greenblatt, and Stewart Nelson) are detailed in Steven Levy's book about the beginnings of the hacker culture.

</comment><comment><USER4> The chess problem described in item 70 always surprised me. It just didn't seem worthy of inclusion. A few years ago I happened across the book by Lasker that it was drawn from and found that they'd made a typo in their description of the problem (bishop should be at KB8, not KB7), one that still makes it a mate-in-3 as described, but nowhere as interesting as what it should have been.

I wrote it up in /r/chess: Problem 66 from Chess for Fun, Chess for Blood by Lasker: white to mate in 3 [1]

[1] [https://www.reddit.com/r/chess/comments/73h23o/problem_66_fr...](https://www.reddit.com/r/chess/comments/73h23o/problem_66_from_chess_for_fun_chess_for_blood_by/)

</comment><comment><USER5> I'm trying to make sense of what this document is: it seems to me random trivia that the MIT AI Lab produced in a relatively unstructured format? Am I understanding this right?

<comment><USER6> Yes. From the Jargon File:

> A legendary collection of neat mathematical and programming hacks > contributed by many people at MIT and elsewhere. (The title of the memo > really is "HAKMEM", which is a 6-letterism for 'hacks memo'.) Some of them > are very useful techniques, powerful theorems, or interesting unsolved > problems, but most fall into the category of mathematical and computer > trivia.

([http://catb.org/jargon/html/H/HAKMEM.html](http://catb.org/jargon/html/H/HAKMEM.html))

</comment></comment><comment><USER7> Smells like an MIT incarnation of the Scottish Book [1].

[1]: [https://en.wikipedia.org/wiki/Scottish_Book](https://en.wikipedia.org/wiki/Scottish_Book)

<comment><USER8> That's quite a wonderful story - in particular:

"Solving any of the problems was rewarded with prizes ... For problem 153, which was later recognized as being closely related to Stefan Banach's "basis problem", Stanisław Mazur offered the prize of a live goose. This problem was solved only in 1972 by Per Enflo, who was presented with the live goose in a ceremony that was broadcast throughout Poland."

</comment></comment><comment><USER9> In HTML format: [http://home.pipeline.com/~hbaker1/hakmem/hakmem.html](http://home.pipeline.com/~hbaker1/hakmem/hakmem.html)

</comment><comment><USER10> Oh no, Kolmogorov is referred to as Komolgoroff in item 105.

This problem is in fact due to Kazimierz Kuratowski: [https://en.wikipedia.org/wiki/Kuratowski%27s_closure- complem...](https://en.wikipedia.org/wiki/Kuratowski%27s_closure- complement_problem)

</comment><comment><USER11> Some of the memos contain original mathematical research of high quality: for example, Gosper's algorithm for continued fraction arithmetic is original [1], even mathematicians like Lagrange did not mention anything about arithmetic operations on continued fractions [2].

[1] [https://www.inwap.com/pdp10/hbaker/hakmem/cf.html](https://www.inwap.com/pdp10/hbaker/hakmem/cf.html)

[2] [https://archive.org/details/lecturesonelemen00lagruoft/page/...](https://archive.org/details/lecturesonelemen00lagruoft/page/4)

</comment><comment><USER12> I have read HAKMEM (I think I had first read it in the twenty-first century), and I like this. I don't know PDP-10 programming, but I hope that I can learn, so that I can understand some more of the stuff in the HAKMEM, some of which is difficult if you do not know PDP-10 programming. Is there emulation available?

<comment><USER13> _Is there emulation available?_

Looks like there may be:

[https://www.theregister.co.uk/2017/01/30/pdp10_enthusiasts_r...](https://www.theregister.co.uk/2017/01/30/pdp10_enthusiasts_resurrect_ancient_mit_operating_system/)

</comment></comment><comment><USER14> Some previous discussions: [https://hn.algolia.com/?query=hakmem%20points%3E3&sort=byDat...](https://hn.algolia.com/?query=hakmem%20points%3E3&sort=byDate&dateRange=all&type=story&storyText=false&prefix=false&page=0)

</comment><comment><USER15> My ePub version of the paper: [https://github.com/baruchel/misc/tree/master/contribs](https://github.com/baruchel/misc/tree/master/contribs)

</comment><comment><USER16> "As we all know, connections to phone lines are illegal unless made through a data coupler supplied by TPC (The Phone Company)"

Ah!

</comment><comment><USER17> I liked the reference to the "String Handling Interpretive Translator".

</comment><comment><USER18> [pdf]</comment>


Ask Andrew W.K.: My Dad Is a Right-Wing Asshole - <AUTHOR> https://www.villagevoice.com/2014/08/06/ask-andrew-w-k-my-dad-is-a-right-wing-asshole <comment><AUTHOR> This article is being applauded by folks left and right. With good reason.

Could civility and decency be coming back?</comment>


Open-Source Loan-Level Analysis of Fannie and Freddie - <AUTHOR> http://toddwschneider.com/posts/mortgages-are-about-math-open-source-loan-level-analysis-of-fannie-and-freddie/

<comment><USER2> This is pretty cool.

When people say to have a github repository, I often worry that people think they have to have some huge project. Like a fork of Node or something.

This analysis would be more than enough for me to give someone an interview.

The math isn't complex, the analysis is pretty shallow but it shows that the author knows their way around the basics of:

        - finding data, this is often the hardest part of data analysis
        - working with data, unpacking, storing, retrieving, etc
        - basic analysis with R or python

and to be honest, this counts for alot!

As a first introduction to a potential employee, this is more valuable than having a good resume and its well within reach of most people, regardless of how busy you are!

TL/DR, don't overthink having a public github account. Basic analysis like this will put you above most other candidates, oh and good job to the author!

<comment><USER3> I was actually most impressed by the interactive maps. I'm assuming there are some readily available tools for making those, but it's outside my normal experience so seems more impressive. I totally wanted to do geo-data stuff when I was a kid, but the data and tools just didn't exist at the time.

<comment><USER4> They seem to be made with Highcharts [1] a good tool for this kind of thing with a very shallow and short learning curve. Not particularly flexible though by comparison to what D3 has to offer [2]

[1] [http://www.highcharts.com/maps/demo](http://www.highcharts.com/maps/demo)

[2] [http://d3js.org/](http://d3js.org/)

<comment><USER5> The toolchain isn't the point. That's the difference between someone with business judgment and a plain ol' geek.

</comment></comment></comment></comment><comment><USER6> This is a really good write up and analysis. I'd like to point out a couple of things: the subprime market has moved to FHA and Ginnie Mae securities. I'm not sure if they have the same detail of loan level data available online, but it would be interesting to analyze.

The other thing is that securities, mortgage loans themselves, securitizations and their derivatives will not trade in the market at fundamental value. This type of fundamental analysis is great, and you can make a lot of money by understanding value better than your competitors. When the market goes crazy, your portfolio market value can fall far below values calculated with these models. If that happens and you've leveraged your portfolio, you will go out of business. I know it seems like stating the obvious right now, but I saw a lot of very smart people who were caught in this trap.

</comment><comment><USER7> I was asked to do an analysis of Fannie and Freddie during a job interview in 2001. A 3 page report of 2 institutions I'd never heard of before, with a stack a papers around 3 feet high consisting of a variety of financial statements, promotional material, and news clippings, to be completed in pen within 3 hours.

Not being from the US, unaware of these institutions, and boggled how the concept of the state backing fixed rate mortgages was sensible, I wrote my 3 pages and somehow got the job.

> It should not be overlooked that in the not-so-distant past, i.e. when I > worked as a mortgage analyst, an analysis of loan-level mortgage data would > have cost a lot of money. Between licensing data and paying for expensive > computers to analyze it, you could have easily incurred costs north of a > million dollars per year.

If it existed. It did not. Computers were not needed to analyse a nice big data set, because a nice, big, transparent, data set, did not exist. Those that dug did quite nicely realizing that a big data set didn't exist did so by digging themselves, being confused, and realizing everyone else was confused / delusional too.

Splitting things by state and making data available is a level in transparency. But it is fine-tuning an organ based on where the horn is, and not understanding what the notes played are.

Providation of this type of data is badly stitching a bad gash. It confirms what has been known for years. A better question would be "If you're issuing bonds based on loans to people you have a FICO 'thin file' score of 600 for, that you've not done basic background checks for, and they're seeking to borrow 10 times their annual income, don't you see something wrong?"

Basic questions and understanding underlying data are more important than optimization of headline metrics.

<comment><USER6> The data has certainly been available for a fee since earlier than 2001:

[https://www.corelogic.com/solutions/loan-performance- seconda...](https://www.corelogic.com/solutions/loan-performance-secondary- market-analytics-for-capital-markets.aspx)

<comment><USER8> Not for Fannie or Freddie. Fannie only started releasing it in 2013, and Freddie was earlier (2006 or 2007 I believe).

<comment><USER9> The data has been available; acquiring it would have cost six figures until recently.

Details: The loan-servicers have the same data and many have provided it to Black-Knight (LPS/McDash) for years. [http://www.bkfs.com/Data-and- Analytics/CorporateInformation/...](http://www.bkfs.com/Data-and- Analytics/CorporateInformation/AboutUs/Pages/default.aspx)

While you mention that Freddie provided data from 2006, the loan-level performance data is even more recent. The original releases were just origination info and thus worthless by themselves for risk assessment.

</comment></comment></comment></comment><comment><USER10> I work in the mortgage industry and have analyzed large datasets of subprime and alt-a mortgages. These findings are very consistent with mine, although the default and severity rates are (obviously) even worse than conventional.

Freddie is a bit behind in their dataset, only offering data through 2013. IMO, this kind of defeats their effort to increase transparency. If 2014 vintage loans are performing much worse (or better), it won't be known in time for many investors/modelers to react.

I also wish GinnieMae would release loan level data like this for FHA/VA/USDA loans, which are a huge part of the market. I could only find MBS pool aggregated data on their web-site: [http://www.ginniemae.gov/doing_business_with_ginniemae/inves...](http://www.ginniemae.gov/doing_business_with_ginniemae/investor_resources/mbs_disclosure_data/Pages/monthly_consolidated_data.aspx)

<comment><USER8> Freddie does releases data monthly on the fourth business day. Both loan and pool data.

</comment></comment><comment><USER11> Mortgages get disproportionately low airtime in the startup world, which I've always thought was strange, especially considering how significant they are to the US (and global economy).

Check out LendingHome ([http://lendinghome.com](http://lendinghome.com)) if you're looking for an awesome company in SF that's doing some really cool work in the space.

<comment><USER12> The federal government dominates the mortgage market -- through direct insurance, guarantees, and purchases. It's tough to compete with them. The only comparable market I can think of is student loans where some companies have found a way to pick off the most credit worthy borrowers (e.g. SoFi). But in student loans the government does no underwriting and offers a uniform rate, some of which are quite high in the current interest rate environment. Whereas in mortgages the government underwrites and offers very low rates.

How exactly anyone expects to make money by lending out money for thirty years at 75 basis points above the risk free rate, with a zero premium call option, levered 4:1 or greater, and with low recovery percentages if the security needs to be seized is beyond me. That's even before getting into the high overhead to deal with servicing and regulatory compliance.

<comment><USER11> Not sure what you mean by "dominate", but there's $13 _trillion_ in mortgage debt outstanding as of Q4 2014, $5T of that is held by federal agencies, and $4.5T is held by financial institutions [1]. So it's actually a much bigger business than you imagine.

> How exactly anyone expects to make money ... and with low recovery > percentages if the security needs to be seized is beyond me

which is probably why you're not a mortgage banker :).

[1] [http://www.federalreserve.gov/econresdata/releases/mortoutst...](http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm)

<comment><USER12> >which is probably why you're not a mortgage banker :).

If you take a look at just how well mortgage bankers have done over the past 50 years, I'm not convinced they create any value over the course of a cycle for their employers. Indeed they seem especially prone to blowing up said employers every 15 years or so.

Picking up nickels in front of steam roller doesn't seem like a great business model to me. In fact, it looks like a pretty reliable indicator of a principal-agent problem.

</comment></comment></comment></comment><comment><USER13> It was unclear to me at first that a default rate of 0.4 on the map is actually 40% !!!

I had no idea it was that high, and I just assumed it meant 0.4% until I saw the numbers later.

</comment><comment><USER14> > So-called agent-based models attempt to model the behavior of individual > borrowers at the micro-level, then simulate many agents interacting and > making individual decisions, before aggregating into a final prediction. The > agent-based approach can be computationally much more complicated, but at > least in my opinion it seems like a model based on traditional statistical > techniques will never explain phenomena like the housing bubble and > financial crisis, whereas a well-formulated agent-based model at least has a > fighting chance.

Can anyone unpack this a bit? By my (fuzzy) understanding, this was something a lot of people thought in the 80's with neural networks but there wasn't a lot of theory to back it up. Later, applied math people introduced the kernel SVM which could solve non-linear problems with power equivalent to neural networks [0]. RNNs are back in style now (and a lot more theory has been developed), but is this the type of agent-based model that would be useful for this problem and why so?

[0]: [http://www.scm.keele.ac.uk/staff/p_andras/PAnpl2002.pdf](http://www.scm.keele.ac.uk/staff/p_andras/PAnpl2002.pdf)

<comment><USER15> I suspect they're talking about something much more brutish, where you build some agents that by any mechanism read some stuff out of the environment and take some actions, then put lots of them in the same environment and see what happens. This less "neural nets" or "SVM" and more "game AI being run at scale", probably via heuristics and brute-force coding like in a game, except the game is a model of the real world.

In this case, as cool as neural nets and SVM and all the rest can be, I'd rather write some code that I really, really understand than have a more-or- less opaquely-trained AI. (I am aware of various efforts to read out "meaning" from our various trainable AIs, but it's still even easier to directly put the meaning there from the start.) Then if I see something surprising, I pretty much know it's either a bug, or an unexpected interaction (the thing I'm looking for), and not merely some form of training error.

</comment></comment><comment><USER16> Direct link to Github repository: [https://github.com/toddwschneider/agency- loan-level](https://github.com/toddwschneider/agency-loan-level)

</comment><comment><USER17> It would be interesting to cross-reference the records from Freddie and Fannie with the HMDA data, which has additional fields about each mortgage application: [https://www.ffiec.gov/hmda/hmdaflat.htm](https://www.ffiec.gov/hmda/hmdaflat.htm) Would the HMDA "loan amount" field match the "ORIGINAL UNPAID PRINCIPAL BALANCE" field in the Fannie data? Since HMDA data is geo-located to the Census tract, it could then be linked to Census and other public data sets.

</comment><comment><USER18> Thanks for the detailed analysis! It's very thorough and really interesting, and it's awesome that people are making intelligent use of this data now that it's available.

</comment><comment><USER19> Private securitizations were inflating the subprime bubble well before Fannie and Freddie jumped in. If there's any data on, e.g., Countrywide/IndyMac it'd be valuable to add.

</comment><comment><USER20> I like the source code.</comment>


Apparently the CIA Pays for Sublime Text? - <AUTHOR> https://wikileaks.org/ciav7p1/cms/page_9535650.html <comment><USER2> Don't get me wrong, it's a neat find worthy of an HN post, but the CIA is still an organization that employs technical staff, so the fact they pay for Sublime Text licenses isn't really a surprise.

<comment><USER3> Well said I agree!

</comment></comment><comment><USER4> Of course they couldn't use vim, they'd have to tell everyone.

<comment><USER5> this is a subtle joke that is even better on the second read

</comment></comment><comment><USER6> ... As they should. It is a good tool.

</comment><comment><USER7> They use AFFINITY COMPUTER TECHNOLOGY as a front to make license purchases. Have they paid for your app?

<comment><USER8> That is not a front, it is a legitimate business. This is how IC makes many nonattributed purchases (go through contractor).

</comment></comment><comment><USER9> So, is wikileaks run by morons these days or what?

<comment><USER10> Yes, the ones at CIA.</comment></comment>


Kevin Rose's new startup/tech podcast to go live tomorrow at 10am - <AUTHOR> http://twitter.com/#!/kevinrose/status/21618759340916736 <comment><USER2> How is a podcast a startup?

When everything is a <thing>, then nothing is a <thing>.

<comment><USER3> I think it's suppose to say that the podcast will be about startups and tech.</comment></comment>


Video of mousetraps and ping-pong balls makes clear why social distancing works - <AUTHOR> https://www.washingtonpost.com/health/2020/04/10/ohio-coronavirus-video/ <comment><USER2> A modern take on the high-school physics video from years ago demonstrating nuclear fission and critical mass.</comment>


What do you think of this news mapping site? I made it myself - <AUTHOR> http://www.trackthisnow.com/

<comment><USER2> A few thoughts:

* It seems heavily skewed toward non-US sources. I'm in the US and did a search for Obama. It showed 1 result on the map. This made me think the site doesn't work very well. Strangely, the location of search results on the right don't correspond with the map.

* The search button is ugly

* I don't understand the country filters. You should hide those behind an "Advanced search" link

* Sometimes, the map shows the western hemisphere on the right half, eastern on the left. This was unexpected.

* When I click a map marker, nothing happens. It's a Google Map, so I'm expecting Google Map behavior, which is an info window to popup on click. Similarly, I get an alert error when trying to double-click for zoom.

* The fluid map width works well on my widescreen monitor.

* The progress bar is a good idea

* The design is generally clean and pleasant. One thing worth testing would be how many users don't even see the articles on the right because that's a typical spot for ads. I suspect moving the results to below the map may work better - particularly if you add the info window popups.

* The thumbnail images look distorted. They also need spacing added to the right side.

<comment><AUTHOR> really appreciate the feedback. I have already started working on it. The search button was ugly (changed now) yes.. I am yet to work out how to show the country filters well. in any case i think it is a good idea to group it into an advanced section

Clicking/double clicking was confusing people. have corrected the behavior now (zooms when you double click) The results appear on the right on mouse over not click. i didn't realize that users may not realize this. One of the problems of being too close to the project is that i loose perspective (of how it will look to a new user)

The thumbnails have been corrected

will love it if you had another look

<comment><USER2> Nice work

* The new search button is much better.

* I would switch the news articles to change on click, not mouseover. The distance between map marker and news link is too far; too many other markers can accidentally be moused over. This is most obvious when mousing over a marker that is surrounded by other markers (typically like Swiss results). Plus, when you click, you expect something to happen, not so much when you mouseover.

* You should make the fonts a consistent size between the input fields, select fields, and their labels.

* The Facebook like button is a little lost in the top right. I would consider putting it just below the bottom left corner on the map.

* The thumbs look better. I would still pad them 3-5px more on the right. Then make the title text flush with the top of the images.

* Your bottom banner ad jumps around depending on the length of article results. Presumably, you'll want to change that.

* But all of these things kind of play 2nd fiddle to having more markers appear on the map and making the article results seem more closely tied to the map results. The example of searching "Obama" and only seeing one marker on the US is the kind of thing to fix.

* BTW, good job on making the page load fast.</comment></comment></comment>