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Published: Mar 09 , 2017
Author: Stephen White

In the world of internet start-ups and disruptive technology the valuations placed on popular new entrants into a market continue to be completely out of whack with their profitability, as they were in the dot.com boom and bust 20 years ago. Companies with a market valuation of $1 billion or more, known as tech unicorns, include Snap Inc. the owners of Snapchat, Airbnb, and Uber. Snapchat is currently valued at between $25-35 billion. But it has never made a profit and its net worth, assets less liabilities, is only $1.5 billion. Airbnb has a market value of around $30 billion, about $7 billion more than physical competitor Hilton, but turned in its first profit only in the second half of 2016. And Uber, currently valued at between $60 -70 billion, made a $3 billion loss last year according to Bloomberg

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Warm Water

In his excellent book Homo Deus Yuval Harari describes an experiment conducted by Daniel Kahneman, who won the Nobel Prize in Economics in 2002. A group of volunteers were asked to take part in a ‘short’ experiment - they were to place one hand into a bowl of water at an exact 14C (cold enough to be quite unpleasant) for 60 seconds. The same group were also asked to take part in a ‘long’ experiment – to place their other hand in a bowl of water at 14C for 90 seconds. However, unknown to the volunteers, a small amount of warmer water was added to this bowl in the last 30 seconds which raised the temperature to a slightly warmer 15C. Some did the ‘short’ experiment first, others did the ‘long’ experiment first...

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