The Fall and Rise of VR: The Struggle to Make Virtual Reality Get Real

Paul McCartney made his modest contribution to the future of virtual reality with a little help from a bike mechanic.

The unlikely union of the Beatles great, a bike-shop employee in Palo Alto, and a promising if underachieving technology is the accomplishment of Scott Broock, once an enterprising executive with a fledgling camera company called Jaunt VR. In 2014, Broock offered to pay the mechanic $50 to ride around a skate park on a BMX bike while being filmed with a specialized camera rig that could shoot video and record sound in 360 degrees—all around and up and down. Broock hoped the bike’s chain clanging around the fishbowl would be ideal for something called ambisonic audio, surround sound hearable above, below, and around the listener.

A few months later, Broock managed to show a clip of the video to McCartney, who was so impressed that he invited Jaunt to film his concert the very next night at San Francisco’s historic Candlestick Park, the same venue where the Fab Four had performed their final show 48 years earlier. The startup company quickly mobilized and recorded one of the first videos of its kind, an immersive stadium concert film that would give a viewer the sensation of being among the pulsating crowd. Broock left Jaunt in 2016 and subsequently served a yearlong stint as a “global VR evangelist” for YouTube. But he still looks back at the concert video as a breakthrough achievement. “There’s a moment recorded in time of Paul McCartney playing in front of people captured in a way that, maybe 100 years from now, seems like black-and-white films”­—primitive but pioneering. “That’s a powerful thing.”

The vintage film comparison—think: grainy footage of silent passersby shuffling around in top hats among horse-drawn carriages and Model T–esque cars—is standard fare for virtual reality’s boosters. Just as movies showed viewers places they’d never go, VR would transport them directly into those same filmed environments. That was the promise that led Facebook to pay $3 billion for headset maker Oculus VR in 2014, and every year since, evangelists have proclaimed virtual reality the next new thing. Consumer tech players including Google, HTC, Samsung, and Sony joined Facebook in a race to bring consumer-ready headsets to market. Venture capitalists poured billions into content development and hardware applications. Time magazine put the then-22-year-old founder of Oculus, Palmer Luckey, on its cover and announced the technology was “about to change the world.” Mark Zuckerberg in 2017 famously said he wanted a billion people to be using Oculus headsets—though he conspicuously didn’t say by when.

ATTENTION DEFICIT: Despite $100 million in funding, Jaunt abandoned VR, shifting its focus to augmented reality. “It just wasn’t making sense for our company,” says CEO Mitzi Reaugh.

ATTENTION DEFICIT: Despite $100 million in funding, Jaunt abandoned VR, shifting its focus to augmented reality. “It just wasn’t making sense for our company,” says CEO Mitzi Reaugh.

Photograph by Winni Wintermeyer for Fortune

That omission is understandable. Because for all the hype-filled promises, virtual reality remains, well, virtually absent from everyday American life. Oculus in 2018, for example, shipped just 354,000 units of its flagship VR headset, the Oculus Rift, according to estimates from SuperData, a gaming-focused research unit of Nielsen. Contrast that with the more than 17 million PlayStation 4 game consoles Sony moved in the same period or global smartphone sales that year of 1.4 billion, according to IDC. Consumers are finding that VR is typically too expensive, too clunky, or too uncomfortable, and lacking in content that is worth trying more than once or twice. Skeptics compare the experience to the short-lived 3D-TV fad of the early 2010s.

The sluggish adoption has claimed multiple victims. Cinema operator IMAX, which used $50 million in venture capital funding to open virtual reality arcades in cities from New York to Bangkok, shuttered all the locations after just two years. Google’s in-house VR film studio, Spotlight Stories, folded earlier this year. And CCP Games, a popular Icelandic video game developer, laid off 100 people and ceased its development of new VR projects in 2017. “We saw in our own data that this is gonna take a while to get to the place it needs to be,” says CEO Hilmar Veigar Pétursson, adding that the wait will be “years, not months.” Even Jaunt, despite the boost from McCartney and more than $100 million of funding, including from Disney, couldn’t make a go of VR. Last year it shifted its attention to a related technology, augmented reality, which adds visual cues to real-life settings rather than trying to immerse users in distinct worlds. “We were focused on driving consumer adoption and understanding what consumers want to watch in VR,” says CEO Mitzi Reaugh, who oversaw a mass layoff at the Silicon Valley company. “It just wasn’t moving on the timeline that made sense for our company.”

1987: the year VR pioneer Jaron Lanier is said to have coined the term “virtual reality”

It is tempting to write off virtual reality as yet another overhyped fad. Yet that would ignore the technology industry’s long history of fallen pioneers paving the way for someone else’s breakthroughs. The Apple Newton and the Polaroid Polavision died, after all, so that the iPad and camcorder might live. It took a decade for smartphones to become ubiquitous. Early VR headsets themselves date back to the 1960s, while Nintendo and Sega in the 1990s forayed into the consumer market with the ill-fated Virtual Boy and Sega VR systems, respectively. And even if VR has been a disappointment for the entertainment industry—the McCartney VR concert video will never go platinum—the technology is proving useful in sensible business applications, like workforce training, and yet new entertainment concepts. After all, when a technology is so exceedingly cool that it attracts a legion of true believers, it is extremely difficult to kill.

Inside a building on Facebook’s sprawling Menlo Park, Calif., campus, past a literal Facebook wall scribbled with employees’ handwriting and motivational quotes like “If you never try, you’ll never know,” a spacious gray room is set up to demonstrate the highly anticipated Oculus Quest. This is the device VR enthusiasts believe can change everything. Released in May, the Quest is Oculus’s first all-in-one headset built for high-powered gaming. It requires no wires or connection to a PC and can operate with a full six degrees of freedom that allows users to look around and walk in all directions, unlike last year’s similarly wireless but less immersive Oculus Go. At a starting price of $399, it’s on par with mainstream consoles like Sony’s PS4 and Microsoft’s Xbox One.

Being placed into a VR device by an­other person is an awkward experience. Once the headset snugly fits over your face, the person who was just assisting you could be giving you the middle finger for all you know because you are now staring at, yes, another reality. In my case, it’s a very satisfying one, in which my Oculus Home, or the home screen, looks as if it were designed by Frank Lloyd Wright, complete with a maple wood interior and a domed glass roof peering up at the Northern Lights.

ALTERNATE-REALITY CREATORS: Facebook director of VR product management Sean Liu and executive producer Yelena Rachitsky aim to execute Mark Zuckerberg’s VR strategy.

ALTERNATE-REALITY CREATORS: Facebook director of VR product management Sean Liu and executive producer Yelena Rachitsky aim to execute Mark Zuckerberg’s VR strategy.

Photograph by Cody Pickens for Fortune

But the Quest is not about architecture; it’s about games. More than 50 of them launched with the device, none more popular than the colorful rhythmic sensation Beat Saber, developed and published by indie Czech studio Beat Games. Best described as Dance Dance Revolution meets Star Wars, Beat Saber in March became the first VR game to claim to surpass 1 million copies sold, and it shows no signs of slowing down. That’s thanks to an active fan community on YouTube, generating millions of hits from videos showcasing standout players. In April, it was featured on a Tonight Show segment with the host Jimmy Fallon and actress Brie Larson each playing the game on national television. VR enthusiasts nearly hyperventilated in their praise. “This is huge!” tweeted popular VR YouTuber Nathaniël “Nathie” de Jong. “True killer marketing for the entire VR industry.”

After 15 minutes of playing the game, I am sweating. You’re “exercising without knowing you are,” says Beat Games CEO Jaroslav Beck. “You are feeling the music in the most powerful way because you are physically experiencing it.” People across the industry, from developers to investors to company executives, say that this is, right now, the closest thing VR has to a “killer app”—a piece of content so good that it’s possible consumers will buy VR headsets just to play the game. It’s exactly the kind of outcome Facebook hoped for when it started Oculus Studios, a division that gives funding and technical advice to third-party game developers like Beat Games.

$34.5 billion: estimated worldwide VR total market forecast by 2023 (Source: Greenlight Insights)

Facebook’s initial vision for VR was far grander than games. It thought cinematic virtual reality would be a breakthrough application and that Facebook itself, rather than third-party developers, would create the masterpieces. Facebook established the Oculus Story Studio in 2015 as an in-house film department dedicated to making movies for virtual reality. Yet despite winning an Emmy for its animated short “Henry,” Facebook shuttered the studio in 2017. Yelena Rachitsky, a Facebook executive producer who’d been with the defunct studio, says Facebook realized its clout was better deployed encouraging an ecosystem approach. “I think there is just a reality that a lot of the creativity doesn’t necessarily happen within a big corporation,” she explains. “It’s the creators out there who aren’t limited or confined by specific corporate structures [who] I think have the innovative and creative thoughts that are going to continue to push the boundaries in VR.”

Hollywood also figured prominently in Facebook’s VR dreams. Edward Saatchi, whose father, Maurice, cofounded the ad agency Saatchi & Saatchi, was a founding member of the Oculus Story Studio. He says the goal was to create VR content that could “inspire an industry.” Five or so years ago, Hollywood directors approached then Oculus CEO Brendan Iribe, intrigued by the technology’s prospects, says Saatchi, who now heads a “virtual beings” company called Fable. “They were super excited and said, ‘Let’s make a VR movie.’ But he was like, ‘I have no idea how to do that.’ ” The Story Studio was Oculus’s attempt to find out how. “Our goal was to get film schools teaching VR movies, to have film festivals accepting VR movies, to have famous directors do VR movies,” Saatchi explains, noting that director Alejandro González Iñárritu, whose Birdman won an Academy Award for Best Picture in 2014, took home another Oscar for his 2017 VR short, Carne y Arena. “So, in that sense, we succeeded. Except it didn’t become a mainstream thing. There just isn’t any evidence that anyone is willing to pay for narrative VR content outside of a theme park.”

Assembling an Oculus Quest optical eyecup module.

Assembling an Oculus Quest optical eyecup module.

Photograph by Cody Pickens for Fortune

In retrospect, Mark Zuckerberg was so enamored with the theoretical potential of VR that it appears he spent billions without having thought through how to make a business of it. “It was a platform play,” says Blake Harris, author of the optimistically titled The History of the Future: Oculus, Facebook, and the Revolution That Swept Virtual Reality. “He had a popular app. But in his mind there’s always going to be this problem of living on other people’s platforms. You’re beholden to Microsoft, Google, and Apple.”

Indeed, Zuckerberg and his minions have described VR as the logical next step in the social experience Facebook itself created for billions of people. Just as it digitized the analog behavior of keeping up with one’s friends, now Facebook wants people inside a virtual reality to “span geographical boundaries,” as Facebook director of VR product management Sean Liu says. “We’re really thinking and pushing the notion of how we bring you and your avatar into VR. How do we allow you to emote and have social expression to really connect together and do different activities?”

In the reality we live in today, VR isn’t a prevalent tool of communication. But that hasn’t dampened Facebook’s enthusiasm for it. “I don’t know exactly when it’s going to be a big deal,” Zuckerberg said in a call with investors last year. “When we started talking about this, I said that I thought that this is going to be a 10-year journey before this was really a very mainstream and major platform.” Just about halfway down the road, the futuristic technology is nowhere near realizing Zuckerberg’s vision.

The masked robber points a gun in my face and shuffles me and a sobbing woman into a back room. “Take this fucking bag, pick it up, and fill it up!” he screams. “Everything!” Now he’s motioning toward a white wall lined with packaged phones and accessories. Before we can react, a flash, a whirring noise, and then time cuts forward. The woman is now stuffing electronics into the bag, panicked. “Hurry the fuck up!” the robber’s accomplice shouts. “Let’s go!” And then black.

As I remove my Oculus Go headset, all is bright and peaceful in an empty classroom inside an unassuming office building in Manhattan’s Flatiron District. Jeremy Bailenson, a Stanford professor and founding director of the university’s Virtual Human Interaction Lab, stands beside me. He begins explaining what I have just witnessed: a VR training module for Verizon store employees to learn how to deal with armed robberies. “If you work at a Verizon store, there’s so much expensive material that’s right near the door,” he says. “They have dozens of robberies at gunpoint each year. They want to train their employees to be safe.” Verizon had been offering traditional training procedures for years, utilizing classroom instruction and hiring actors to simulate robberies. But the company found it minimally effective. “Despite having been trained, [our employees] weren’t necessarily equipped to manage through the robbery,” says Lou Tedrick, Verizon’s vice president of global learning. “We thought VR would be a good use case because it would help the muscle memory of what it had felt like to be robbed. You want to be able to feel it in a safe environment and be able to talk about it.”

To improve its safety training, Verizon approached Strivr, a VR software training company Bailenson cofounded in 2015. Impressed by the startup’s work with other large corporate partners like Walmart, Verizon tasked Strivr with developing modules to train store managers in high-­fidelity heist scenarios. Since late 2018, roughly 1,500 of these managers have undergone Strivr’s training experiences. When surveyed, 95% said they better understood the factors they would need to consider during an actual burglary attempt. Asked about the ethical concerns of purposefully traumatizing employees, Tedrick says that professional trainers walk employees through every step of the way. “In fact, we had many people thank us for creating an incredibly realistic experience versus trying to sanitize the experience,” she adds. Verizon now plans to have store managers at all its retail locations trained in these VR simulations.

It turns out that while VR movies or virtual hangouts may not be ready for prime time, the technology is ideal for certain practical applications. VR is gaining traction in fields like surgical training, STEM education, industrial design, architecture, real estate, and more. At Facebook’s F8 developer conference in April, Oculus announced an expanded Oculus for Business program slated to begin in the fall. It includes access to enterprise-grade headsets, such as the new Oculus Quest, and “a dedicated software suite offering device setup and management tools, enterprise-grade service and support, and a new user experience customized for business use cases.” Microsoft and HTC, meanwhile, have pushed heavily into industrial enterprise with the mixed-reality HoloLens headset and the HTC Vive, respectively. “Our bigger market is on the consumer side,” says HTC’s Dan O’Brien, general manager of the Americas for the Vive product line. “But our more aggressive growth area is enterprise.”

“I think there is just a reality that a lot of the creativity doesn’t happen in a big corporation.” – Yelena Rachitsky, Oculus executive producer

Strivr, the Verizon vendor, is solely focused on business-to-business VR applications. In addition to the giant phone company, it counts Chipotle, Jet Blue, Fidelity Investments, and Tyson Foods as clients. It has distributed 17,000 Oculus Go headsets embedded with Strivr’s software in Walmart superstores and smaller stores across the country, all for internal use. From there, the startup says it can provide analytics that track performance and eye movement. “When a company tells us, ‘I need to know that the trainee looked at that bucket on the floor,’ we can tell you that they did not look at it,” says Strivr CEO and cofounder Derek Belch, a former graduate student of Bailenson’s. “That means they’re not going to look at it in the real world. Like, unequivocally.”

It isn’t unusual for business technology applications to find commercial success before their consumer versions do. Belch of Strivr says he doesn’t own a headset at home. One of Strivr’s backers, Zaw Thet of Signia Venture Partners in Menlo Park, Calif., is clearly pleased with his firm’s bet on an enterprise application. “There isn’t a killer app here on the consumer side,” he says. “Yeah, in 10 minutes you can get scared in a zombie house, and my 4-year-old likes to go look at the solar system for five minutes. But it’s not something he’s in every day.”

Why don’t more people use virtual reality—besides the issues of price, discomfort, and lack of good content? Because VR requires you to completely abandon reality. And, honestly, who has time for that? “You’re inside of a walled garden, you’re inside of a headset where you don’t have access to the real world,” says Jacob Mullins, a partner at Shasta Ventures, an early backer of the technology.

In fact, where VR has found limited success is by tweaking its approach, especially with augmented reality. AR shares similar properties with VR, but rather than completely immersing a viewer in another reality, it adds digital elements to the real world, typically through a smartphone. Think of Pokémon Go or the Ikea app that enables users to place and visualize new furniture within their homes. As confidence in virtual reality falters, AR is now experiencing levels of hype similar to the VR wave of five years ago, with startups like Magic Leap raising close to $2.5 billion to develop AR glasses and related content. Even Facebook is hedging its bets. Earlier this year, it moved hundreds of employees from its Facebook Reality Labs research division to a team dedicated to AR hardware projects. “In the future, our AR glasses will merge the physical and digital worlds, blending what’s real with what’s possible, resulting in the next mainstream, must-have, wearable consumer technology,” promises a Facebook Research web page.

READY, AIM, VISUALIZE: A Strivr employee shows how to capture accurate body movements using biomechanical input.

READY, AIM, VISUALIZE: A Strivr employee shows how to capture accurate body movements using biomechanical input.

Courtesy of Strivr

The thought for some is that perhaps it’s more compelling to enhance our world than to replace it or create a new one. While stand-alone consumer AR glasses are still a ways away because the technology is less developed than VR, AR is already widely available on smartphones, thanks to Apple’s release of a set of software development tools enabling easy-to-use applications. The tech has proved popular with retailers, for example, including Target, Walmart, and Bed Bath & Beyond, each of which has incorporated AR features into its iPhone app to help shoppers visualize purchases.

The pivot from VR to AR is particularly noticeable in venture capital trends. “I’m equally interested in both, but as an investor, I’m forced to have to pay attention to where the customer and market opportunity and demand is,” Mullins says. “Two years ago, VR appeared to have more excitement and scale behind it. But then Apple essentially enabled 300 million–plus devices and growing.” Indeed, in 2016, VR’s peak venture year, VCs pumped $857 million into VR startups, according to SuperData; AR and MR, or mixed reality—which allows virtual imagery to actually interact with the real world—received just $455 million combined. But in 2018, the equation had flipped: VR funding was down to $280 million, while AR/MR jumped to $859 million.

354,000: number of Oculus Rift headsets shipped in 2018 (Source: SuperData, a Nielsen Company)

Another burgeoning approach has found its way back to the original promise of VR: entertainment. This compelling commercial application is called “location-based entertainment,” or LBE. A crop of companies are operating what is essentially a cross between an arcade and a movie theater, with a dash of theme park. These are brick-and-mortar venues where participants use virtual reality in custom-designed spaces, freely moving alongside a small group of fellow participants who appear to each other as avatars when wearing VR headsets manufactured by Oculus, HTC, and others. Some of these experiences play out more like games, with participants wielding plastic-model guns. Others are more like a narrative film that viewers interact with. LBE experiences offer another advantage over headset-bound, individual VR uses. They further immerse users by having them strap on haptic equipment that vibrates. Some venues even feature fans, sprinklers, and heaters to simulate conditions such as wind, water, or heat.

Dreamscape Immersive is a Los ­Angeles–based LBE “exhibitor” that’s raised $36 million from the likes of 21st Century Fox, Warner Bros., and AMC. It hopes to entice customers with immersive narratives, a kind of interactive moviegoing experience, says Hollywood veteran Walter Parkes, a Dreamscape cochairman. Parkes says he finds LBE more compelling than typical in-home VR—in other words, a single user wearing a headset—because users are an “actual character in a real, rendered world with other people able to be in touch with all of [their] senses.”

“Location-based VR is compelling: You’re a character in a rendered world, in touch with all of your senses.” – Walter Parkes, Dreamscape cochairman

The hope among VR adherents is that concepts like LBE will act as a gateway to overall VR (and AR and MR) adoption, in the same way cinemas begot additional ways to watch movies. Dreamscape charges $20 for its experiences, not too far off the average price of a movie ticket, though its run times are much shorter, at around 20 minutes. The Void, the most expansive of a burgeoning collection of LBE companies, with 11 locations in four countries including the U.S. and Canada, charges about $35 for its 30-minute Secrets of the Empire experience, in which you get to infiltrate an Imperial base and shoot Stormtroopers on a molten-lava planet. (The firm has rights to Star Wars and other blockbuster Disney intellectual property.) Businesses like The Void also move VR forward because they make it possible for consumers to experience the technology without spending serious ­money. “It takes down that investment barrier to entry,” says Tuong Nguyen, an analyst at Gartner research.

I have tried many virtual reality products by now. Oculus’s and HTC’s and Google’s and films and video games and job-­training simulations. Someone was always there to strap me into the headsets, to prepare me for the experience. And then they were always gone when it started. And I was always alone, even if I saw other people, or things, inside the new reality, even if I could still hear people outside in the old reality.

When I enter the Alien Zoo at Dreamscape, inside a Westfield mall in Los Angeles, I’m thinking about how people typically describe their VR experiences. They fly over the Manhattan skyline or dive into the Pacific or head for outer space. And they always use the word “I.” I, too, am now in space. But there’s a significant difference: It’s not “I”, it’s “we.” Moments ago, my partners and I strapped blue-lit haptic sensors around our hands and feet and slung computer-stuffed backpacks around our shoulders. We stepped into a dark, bare room; slid the headsets over our faces; and watched one another’s bodies transform into human avatars. Our Dreamscape minder instructed us to shake hands to confirm this astonishing mix of the physical and fake, and then we set off for a safari on a vibrant planet occupied by brontosaurus-giraffes and gigantic praying mantises that make Jurassic Park seem positively Neanderthal. It’s a mind-­blowing experience—and absolutely worth paying for. Now all virtual reality needs to do is to persuade hundreds of millions of people to arrive at the same conclusion.

A version of this article appears in the July 2019 issue of Fortune with the headline “The Fall and Rise of VR.”

Editor’s note: This story has been revised to more clearly reflect the status of CCP Games’ VR operations.

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Techs 4 Biggest Cash Burners Have Torn Through $23.9 Billion Combined

Editor’s note: An earlier version of this story published on May 20.

“You’ve got to spend money to make money” is one of the most widely accepted business adages of all time. And nowhere is that belief more innate than in Silicon Valley, where companies like Tesla, Uber, Lyft, and Snap command dizzying valuations based on the belief that one day, they will indeed make money. Raising fresh billions to fund operations, boosters of these companies would have us believe, is a regular rite of passage. After all, didn’t giants like Amazon, Apple, Facebook, and Google also burn through tons of cash on their path to profitability?

Fortune decided to find out: How much money did Amazon, Apple, Facebook, and Google spend in their early years? And how does that compare with what today’s hot names are spending? To get the numbers, we went back to each company’s earliest published financial reports, starting with the offering statements for its IPO.

It turns out the assumption that successful tech companies burned lots of cash in their youth isn’t merely wrong—it’s staggeringly wrong. Look closely at the early days of the giants—the Fab Four, as we’ll call Amazon, Apple, Facebook, and Google (now Alphabet), and you’ll see that they were models of frugality compared with the new wave (which we’ll dub the Breakneck Burners: Tesla, Uber, Lyft, and Snap).

It’s true that in the dotcom frenzy of the early 2000s, many tech companies posted losses while devouring new funding. But the ones that burned piles of cash were such failures as Webvan and, not winners like Google. Today, says accounting expert Jack Ciesielski, “you’ve got these companies chewing through mountains of cash, and investors are comparing them not with the failures of the dotcom era but with the survivors.”

For this analysis, the crucial measure isn’t net profit but “free cash flow” (FCF), calculated by taking “cash generated by operating activities” minus capital expenditures (capex). In other words, business income minus money you spent to grow your business.

The differences are stark. Let’s start with Google. Amazingly, the company appears never to have been significantly cash flow negative. Similarly, Apple never showed negative free cash flow starting with its first full year in business and weathered only short-lived deficits as a mature player. Facebook showed just two years of negative FCF (in 2007 and 2008, when it burned $143 million).

At Amazon, long the poster child for taking losses today to earn profits tomorrow, the numbers seem almost quaint. The new venture had negative FCF of $10.6 million from 1994 to 1997, but that was just a fraction of total sales. The only major underwater span in its history came from 1999 to 2001, when negative FCF totaled $813 million. But by 2002, Amazon’s FCF turned positive. All told, the Fab Four had total negative free cash flow in their early years of almost exactly $1 billion.

By contrast, the Burners have already torn through $23.9 billion, encompassing 22 years of FCF deficits and outspending the Fab Four by around 20 to 1. At this pace, will they ever reward investors? Here’s the outlook for each.


Cash burn (total negative FCF): $10.9 billion over 12 years.

Outlook: Negative FCF ballooned to $4.1 billion in 2017 but narrowed the following year to a (comparatively) modest $222 million. The reprieve was short-lived, as Tesla began to spend heavily to ramp up production of its mass-market Model 3. In the first quarter of this year, sales tumbled, and FCF fell to minus $945 million, forcing Tesla to raise $2.4 billion in equity and debt funding. Morgan Stanley’s Adam Jonas shocked the markets by lowering his previous “bear case” for Tesla’s stock price from $97 to $10, citing dangers of slowing sales in China. Jonas warned that declining overall demand is pushing back the date when Tesla will be able to fund itself from operations.

Jonas’s price target (all targets are for 12 months from now): $230

Current price: $216


Cash burn: $8.9 billion over three years (not including losses from earliest years).

Outlook: In the offering statement to its long-awaited IPO in May, Uber revealed FCF numbers from 2016 through 2018. In 2016, Uber posted negative cash from operations of $2.9 billion and spent $1.6 billion in ­capex, for a negative FCF of $4.5 billion. Since then, the shortfalls have been shrinking, although they have remained substantial as the company has offered price promotions to customers and spent heavily on the launch of its Uber Eats food-delivery service, raising sales and marketing expenses by 25% in 2018 and 54% in Q1 of 2019. Tom White of brokerage D.A. Davidson tells Fortune, “Uber has bought itself some time with good recent performance on revenue and bookings. But by the end of this year, investors will start thinking of 2020 as hopefully the year where meaningful progress is made toward profitability.” If quarters keep slipping by without concrete progress, he adds, investors “will get discouraged or impatient.”

White’s price target: $46

Current price: $42.33


Cash burn: $1.36 billion over three years and one quarter (not including losses from earliest years, which were not specified in the IPO prospectus).

Outlook: In 2016, Lyft burned $496 million in FCF, and since then, the trajectory has improved only slightly. The shortfall shrank a bit to $350 million in 2018, but in Q1 of this year, it stood at $110 million. Lyft is asset-light, but it’s still spending so heavily on such basics as driver pay, insurance, R&D, and marketing that operating losses have continued to mount. Dan Galves of Wolfe Research points out that Lyft depends on dense urban markets for nearly 60% of its business, despite those areas making up only 5% of U.S. households. And annual growth in those metro areas, he reckons, has slowed to 24%, half the rate in early 2018. Galves also cites high driver costs that “are taking almost all the revenue” and doubts that Lyft will win broad appeal outside the big cities.

Galves’s price target: $52

Current price: $58.32


Cash burn: $2.72 billion over four years (not including losses from earliest years, which were not in IPO filings).

Outlook: Snap is still burdened by big research expenses, equal to one-third of its total costs, and R&D needed to expand its photo-sharing platform is expected to jump to over $900 million this year. Additionally, it’s instructive to look at how much cash Snap is burning in relation to all the money it collects marketing its service. From the start of 2017 through Q1 of this year, Snap had $2.33 billion in revenues and churned through 73% of that amount, $1.71 billion in cash. Michael Pachter of Wedbush notes that although user and revenue growth is impressive, “the road to profitability appears to have gotten longer.” He’s concerned that big spending on ­infrastructure and R&D has pushed back the date when Snap will show positive Ebitda to at least Q4 of 2020.

Pachter’s price target: $12.25

Current price: $13.62

A version of this article appears in the July 2019 issue of Fortune with the headline “The Biggest Burners.”

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The Value of AI to Enterprise Business

The IBM Power Systems team recently caught up with some of the leading thinkers in artificial intelligence to discuss the value of AI to enterprise business.

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Bernie Sanders Wants Companies to Give Employees Ownership—a Trend Thats Already Growing in the U.K.

Bernie Sanders, one of the leading Democratic candidates for the presidency in 2020, recently revived his push to give American workers more ownership of the businesses they work for. The Vermont senator told the Washington Post late last month that businesses should be required to put some of their stocks into employee-controlled funds, so workers get dividends.

Two other Democratic presidential candidates, Sens. Elizabeth Warren and Kirsten Gillibrand, have also joined Sanders in sponsoring legislation to make it easier for people to set up employee-owned businesses.

There’s a big debate to be had about whether companies should be forced to go down the employee-ownership route. Warren and Gillibrand have not suggested that, for instance. But the basic idea being floated in the U.S. is very similar to what an increasing number of company owners are doing voluntarily in the U.K.—handing over their pride and joy to the people who work for them.

Around 350 businesses in the U.K. are now employee-owned, with their bosses having made the decision to gradually transfer their shares into an employee ownership trust. Whoever is working for the company at the time gets to pocket dividends from the shares, though they don’t get to benefit once they’re gone. That’s different from the most common equivalent U.S. system, the employee stock ownership plan (ESOP), which sees employees retain their shares after they leave a firm.

The model is clearly gaining popularity in the U.K., with around 250 of those British businesses having adopted it in the last five years or so. According to the employee-owned John Lewis Partnership, the operator of the John Lewis department store and Waitrose supermarket chains, such businesses now account for 4% of British GDP. But why would a business owner take this step?

The feel-good factor

The employee-ownership model is not exactly new—the John Lewis Partnership has been using it since the 1950s and the engineering giant Arup since the 1970s. However, more and more examples have been hitting the headlines recently.

Last month, Julian Richer, the founder of home electronics retail chain Richer Sounds, announced he was selling 60% of his company stock to a trust for his workers. And Petra Wetzel, the founder of a Glasgow-based brewery called West, put a tenth of the company’s shares into a similar fund, with the promise of more to follow.

Julian Richer, who founded Richer Sounds in 1978, announced he is handing over control of his business to employees in an employee-owned trust.

Julian Richer, who founded Richer Sounds in 1978, announced he is handing over control of his business to employees in an employee-owned trust.

(Photo by Peter Summers—Getty Images)

“As a business owner, this means that I own less of the company that I created and will continue to own less of it each year,” Wetzel told Fortune. “On a personal level, it makes me feel good about myself as I am not being a selfish prat. I live a nice life, drive a nice car, own a nice house and go on nice holidays. I don’t need more.”

Julian Richer’s stated motivation was one of mortality. He recently turned 60, the age at which his father died, and he said he wanted to ensure a smooth transition for the company while he was still alive.

According to Deb Oxley, the CEO of the Employee Ownership Association, a group that promotes the model, the trend is largely driven by succession concerns. “If you sell a business, it doesn’t guarantee the future of those employees, or the company ethos, the supply chain, the money going into that regional economy,” she said.

If a founder or owner suddenly dies, “everybody gets nervous—suppliers, banks, creditors, insurers, colleagues,” said Richer Sounds chairman David Robinson, who formulated the company’s transition plan together with its founder. “At least this way, we’ve now avoided that.”

Meanwhile, continued independence was the motivating factor for Aardman Animations, the stop-motion outfit behind Wallace & Gromit and Chicken Run, when it adopted the model last year. “This approach…is the best solution we have found for keeping Aardman doing what it does best, keeping the teams in place and providing continuity for our highly creative culture,” said founder Peter Lord and David Sproxton at the time.

Monetary motivation

There’s yet another consideration in making this move: money.

The U.K. government has promoted the employee-ownership model in recent years with financial incentives. Seeking to expand the diversity of business models in the British economy, it decided five years ago that a worker can get up to £3,600 ($4,600) in shares from the scheme each year without having to pay income tax on it, and owners who sell a controlling interest in their business to an employee ownership fund don’t have to pay capital gains tax on the sale.

John Lewis Partnership has been using the employee-owned model since the 1950s.

John Lewis Partnership has been using the employee-owned model since the 1950s.

Photo by Sean Dempsey—PA Images via Getty Images)

In the case of Richer Sounds, Julian Richer got £9.2 million for the shares he sold to the trust, and didn’t have to pay capital gains tax on the sale. The relevant tax rate in the U.K. would otherwise have been 20%.

However, he then gifted £3.5 million of the proceeds directly back to his 530 workers, each of whom got £1,000 for each year they’d worked at the company. Some had been with the firm for over 20 years.

“The reaction has been phenomenal,” said Robinson. “It’s been humbling to see the emails from colleagues saying what it means to them… People saying now they can replace the windows in their homes, pay off some debts, pay for a son or daughter’s wedding. That’s heartwarming.”

Sharing is caring?

Fans of the model point out that employee ownership is a great way to ensure workers are fully behind the company, and making the firm a desirable place to work.

“It’s certainly the case that employee engagement and involvement is something every business should be considering now,” said Robinson. “It’s something that graduates coming into the workplace are really looking for in a business. It’s not just about [whether it’s] a company that pays a fair salary. It’s also about how it treats its employees.”

According to Tamsin Nicholds, a senior associate at law firm FieldFisher in London, the British model of employee ownership has an edge over the American ESOP approach because of the way it incentivizes workers.

“If you work in an employee-owned business and increase the profits of that business, you share more directly in those profits,” she said. “In the U.S. model, you might have a capital asset you can sell out at retirement.”

“You might say the U.S. model gives employees a more direct connection with shares, but the U.K. model can be partnered with individual share incentive schemes,” added Neil Palmer, a partner at the same office. “The U.K. model…is not just about money. It’s also about engagement and feeling you’re participating in something.”

That’s not to say the British model is for everyone, though.


While going the employee-ownership route means avoiding capital gains tax, it may also mean settling for a lower sale price—after all, there’s no bidding involved. The purchase price is also usually paid out on a deferred basis, over five years or so.

“A certain amount of patience is needed, which also requires a good long-term view of the business and confidence in the business and its ability to generate revenues for the short-to-medium-term future,” said Palmer. “You have to be willing to stay involved to ensure you get a good, sustainable platform left in place.”

On the other hand, founders also need to be willing to let go. They can’t just sell their controlling interest to the employee trust and then expect to maintain control over the business indefinitely—certainly in the U.K., the authorities check to make sure that isn’t happening, said Nicholds.

The shift also isn’t something that can be toyed with, especially if there might be a need for future investment from venture capitalists or private equity outfits.

“You can’t have a crack at it and then say, let’s change our mind and do something else,” said Palmer. “If you suddenly decide you need an injection of new capital, it’s more difficult to attract third-party investors because the majority of shares has to be held by a trust, and there’s a limit to the additional rights you can give to investors.”

A pressing question in conversations about the model is whether it’s good for business. The evidence suggests it is.

According to figures from the Employee Ownership Association, productivity at employee-owned firm went up by 7.3% from the first quarter of 2017 to Q1 of 2018, while general U.K. productivity fell by 0.1%. Other studies have also found employee ownership may improve productivity, pay, job stability and the ability of companies to survive.

More must-read stories from Fortune:

Manufacturers are leaving China—for reasons beyond the trade war

Cruises to Cuba are banned, but the ships sail on

—This is the one subject in the U.K. that’s as toxic as Brexit

—German security chiefs say Alexa should provide evidence in court

—Listen to our new audio briefing, Fortune 500 Daily

Catch up with Data Sheet, Fortune‘s daily digest on the business of tech.

Shark Tank’s Robert Herjavec’s Top 5 Business Tips For Entrepreneurs

Shark Tank’s Robert Herjavec shares his top five business tips. Learning how to move quickly is one of the most important things a business owner can do in order to cover as much ground as possible in an intensely competitive environment.

What It’s Like To Be The Youngest Woman Equity Trader In The New York Stock Exchange

How Warren Buffett Makes And Spends His Billions

A Silicon Valley Founder Shares Advice She Gives To Entrepreneurs


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Today I want to talk to you about the dumbest mistakes I made my first year as an entrepreneur.
As I was making a list of all of the dumb mistakes I made, I realized that this episode could have lasted six, seven, or even eight hours, but instead of covering all of them, I’ll just share the 12 dumbest mistakes I made my first year as an entrepreneur.

#1: I Almost Quit – 0:22

#2: Trying to Become CEO Too Early – 0:49

#3 Trying to Take Advice from Too Many People – 3:16

#4: Not Knowing How to Ask for Advice – 5:22

#5: Forcing Vs. Influencing – 7:08

#6: Living the Dream Too Early – 8:21

#7 Trying to Sell Too Many Products as an Entrepreneur – 9:54

#8 Thinking I Knew it All – 14:01

#9: Partying Too Hard – 16:07

#10: Acting Like a Boss Instead of an Employee – 18:49

#11: Not Having a Schedule – 20:16

#12: Not Knowing the Value of a Business Plan – 20:59

Those were the 12 dumbest mistakes I made — there were a lot more! Comment at the bottom to let me know the biggest mistakes you’ve made, and if you haven’t already done so, be sure to subscribe.

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Have We Reached the Point of #MeToo Malaise?: The Broadsheet

• #MeToo malaise?  Have we reached the point of #MeToo malaise? New data from crisis consulting firm Temin and Company finds that last month saw 12 high-profile allegations. That’s the lowest monthly total since claims against movie mogul Harvey Weinstein ignited the #MeToo movement in the fall of 2017 and a dramatic drop from a peak of 143 last October.

In explaining the trend, Davia Temin, the consultancy’s CEO, cited a few factors: a backlash against the movement, more sophisticated campaigns to counter accusations, and improved corporate resources that are placating the aggrieved. (The firm counts accusations if they’re covered by seven or more news outlets.)

“Fewer organizations are reporting such allegations, and if they do, they don’t necessarily identify them as sexual harassment,” Temin said in a release. “Further, fueled by corporate boards’ growing insistence upon action, some accusers are finding less need to go public. More cases are being settled satisfactorily behind closed doors.”

Temin’s data also highlighted a few other notable trends 20 months into the movement:

  • 97% of all the accused are male
  • 52 is the average age of the accused
  • Half—or 613 of 1,227—of the accused have lost their jobs
  • And arts and entertainment is the sector with the most accusations: 359, followed by politics and government (252) and business (227)

The arts saw its latest claims come under a harsh light on Tuesday when eight women accused filmmaker Max Landis of emotional and sexual abuse via The Daily Beast. (Through a representative, Landis did not respond to the publication’s requests for comment.)

The women in that story went public with their accusations, with some of them posting claims on social media before sharing them with The Daily Beast. That’s a pattern among alleged victims in arts and entertainment that has catapulted the industry—along with politics—to the top of that dubious list, Temin says. “In these fields accusers are still going straight to the public because the internal mechanisms for redress either do not exist, or are woefully inadequate.”

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Facebook Announces Project Libra, Its Wildly Ambitious Plan to Bring Cryptocurrency to the Masses

Facebook revealed its long-awaited cryptocurrency plans Tuesday, announcing “Project Libra,” a new type of digital money designed for the billions of people using its apps and social network. If the plan is successful, users will soon be able to shop with and send the currency—known as Libra—on Messenger and Instagram, as well as use it with a wide variety of other merchants like Uber, Spotify, and MasterCard.

Facebook did not provide specifics about exactly when and how consumers will get ahold of the currency, but executives suggest it will first be distributed on Messenger and WhatsApp in mid-2020.

In addition, the company also announced a new digital wallet called Calibra, which will be operated by Facebook as a separate subsidiary and provide users with a way to store and spend Libra. The digital wallet, which won’t be available to the public for months, will display the value of users’ Libra in their local currency and provide a design similar to popular digital wallet Venmo for transferring money.

Facebook provided an image of Calibra’s design—including a three-wave symbol that serves as the Libra’s equivalent of a dollar sign.

According to David Marcus, a former PayPal executive who is leading Project Libra for Facebook, one of the initiative’s main goals is to reach the 1.7 billion people worldwide who lack access to the banking system.

“It’s an anomaly that the Internet has no protocol for money,” Marcus tells Fortune, adding that Project Libra will also provide more competition in financial services, along with increasing access to capital.

Setting the foundation

While Facebook has been driving the project, the company is framing its role as one member of a federation of dozens of companies and non-profit organizations that will together manage the currency through a Swiss foundation. Corporate members of the organization, known as the Libra Foundation, will be required to contribute a minimum of $10 million to help the currency gain traction, an effort that will likely see users receive a small amount of Libra to test it out.

Initial members of the foundation are Facebook and 27 other partners, including Visa, MasterCard, PayPal, Coinbase, and venture capital firms like Andreesen Horowitz and Union Square Ventures. Marcus hopes as many as 100 partners will be onboard by the time the currency debuts, by which time the group will have crafted a formal charter that sets out voting rights and other rules.

The Libra blockchain—like other blockchains—will provide a tamper-proof record of transactions on the network. But, unlike Bitcoin and other public blockchains, only authorized bodies—in this case, foundation members—will be allowed to run a node.

In addition, members will also maintain the supply of Libra in response to demand—meaning they will issue new Libra as needed, and destroy the digital currency when people redeem them.

Members are also required to support a reserve fund to keep the value of the currency stable. In order to avoid the notorious volatility of cryptocurrencies like Bitcoin, each unit of Libra will be backed one-to-one in a basket consisting of dollars, pounds, euros, and Swiss francs.

An uncertain gambit

Project Libra’s roll-out comes as Facebook faces unprecedented scrutiny from regulators, and is battling to regain users’ trust after a series of privacy scandals. The currency’s blockchain, which is open source, will be programmed in a new language developed by Facebook called Move. It will not only serve as a transaction record, but provide what one partner describes as an “innovation layer” that invites third parties to build smart contracts and other blockchain-based services.

In launching the currency, Facebook appears to be betting that customers will treat it as a financial service. According to Calibra’s head of product Dante Disparte, customers in the U.S. will be subject to so-called “know your customer” requirements, meaning they will have to provide detailed personal information to use the service.

This raises the question of why Facebook is leading Project Libra in the first place. Based on conversations with Facebook executives, the company appears to see an opportunity to cut into the remittance market by offering users an easy, low-cost way to transfer funds across borders.

Disparte noted, in particular, that many low-income people already use WhatsApp to photograph receipts as part of a process to collect remittances from local money changers. He says this project could be expedited enormously by building the ability to transfer money—in the form of Libra—directly into WhatsApp.

The new service also provides Facebook with new opportunities for advertising and e-commerce. Notably, the company could display ads on WhatsApp and Instagram and invite people to pay directly for goods and services within the app using Libra. In doing so, Facebook would be able to glean new data about its users’ shopping behaviors—and how to better target them—potentially generating more revenue through advertising.

Such opportunities are fraught, however, given Facebook’s poor reputation with user privacy and has already led skeptics on Twitter to dub the new Libra currency “Panopticoin”—suggesting that it could give Facebook and its partners new ways to track users online.

For its part, Facebook states that its Calibra wallet will be a stand-alone product, and that the company won’t pull in data from its other sites—such as a user’s friends—unless a user gives the company permission to do so. Facebook also points to the Libra Foundation structure to make the case that it’s only one of dozens of entities building the new global currency.

New coin on the block

There’s also the question of whether Facebook—or anyone—can pull off such an ambitious, multi-pronged endeavor to begin with— especially as previous attempts to build consortia in the blockchain field have fallen flat.

The initiative is rife with regulatory land mines, especially if governments regard the new Libra currency as a way to subvert their own financial policies. But Marcus counters that this is not an issue, saying countries regard the spread of cryptocurrencies as inevitable, and that many will welcome Libra as a more efficient way for people to transfer money.

Meanwhile, it’s also unclear how Facebook’s partners might benefit from the project. In the case of global tech firms Uber and Spotify, their executives likely see an opportunity to reduce payment processing costs, and to reach new customers who lack credit cards.

Financial firms may view Project Libra as a new beachhead to challenge banks, while also providing an opportunity to look for new business opportunities. According to Katherine Haun of Andreesen Horowitz, the business of running a node will not be about grabbing data, but rather about being at the forefront of financial innovation.

Ultimately it’s consumers who will determine whether Facebook’s grand gambit will succeed or fail, with the most important test of Libra likely being convenience. If the currency’s use becomes widespread and proves to be more useful than payment options like credit cards, debit cards, Venmo and Bitcoin, it could transform large parts of the tech and finance industries.

Then again, it could also inspire others—notably Apple or Amazon—to launch cryptocurrency networks of their own.

Facebooks Project Libra: 5 Things to Know About the New Cryptocurrency

After months of speculation, Facebook finally announced details about its new cryptocurrency on Tuesday morning. The digital currency, called Libra, will be available starting next year to the billions of people who use Facebook services like Messenger, WhatsApp, and Instagram.

If the new currency catches on, it has the potential to change how people save, spend, and send money, and could disrupt big parts of the tech and banking industries.

Here is a Q&A about Libra, and what it means for you.

What’s the point of Facebook’s Libra cryptocurrency?

If adopted by companies and users, Libra can become a more convenient way to pay online. Facebook likely plans to sell products on Instagram and WhatsApp, but other websites could also use the cryptocurrency for e-commerce.

But beyond e-commerce, especially for people in developing countries that lack a banking infrastructure, Libra could be useful for storing and transferring money, without paying high fees. So, if you want to send money to another country, Libra may be a cheaper way to do it than what’s currently available.

Does Facebook’s Libra have anything to do with Bitcoin?

Libra transactions will be recorded on a blockchain—a tamper-proof ledger that runs across multiple computers. This is the same technology that Bitcoin and other cryptocurrencies are built on. So, yes, there are some similarities, including the ease of moving money and creating secure transaction records.

But there are also key differences. For instance, the price of Libra is more stable than Bitcoin, since Libra is backed by a reserve fund, while the value of Bitcoin just floats.

Also, Bitcoin is recorded on a public blockchain that allows anyone to build on it. On the other hand, to build on many features of Libra’s blockchain, developers must seek permission from Facebook and its partners who administer it.

What about privacy? Will Facebook know what I’m spending?

That depends. Facebook is setting up its new Calibra wallet as a separate company, and is promising not to combine user data with its other apps, like Facebook and Instagram—unless you give it permission. So, in theory, only Calibra will have a record of your transactions. But many Calibra users may decide to use its integrated Facebook friend-finding feature, and if they do, their data will be combined.

Libra may be stored in competing digital wallet apps built by other companies that provide higher levels of privacy.

How much are Libra worth?

Facebook and its partners are backing Libra with a pool of real world money, promising users that they will always be able to trade the cryptocurrency in for cash. The day-to-day value of Libra, which uses the monetary symbol of three waves, is pegged to the average value of a basket of world currencies, made up of U.S. dollars, U.K. pounds, euros, and Swiss francs.

Calibra’s wallet shows how many Libra users have, as well as their value is in the local currency (in this case Mexican pesos):

How do I get my hands on some Libra?

You’ll have to wait awhile as Facebook says the new digital money will only be ready by mid-2020. When it’s ready, users can download Calibra—which will work a lot like Venmo—and buy some by connecting your bank account.

It’s important to note that Facebook’s Calibra is not the only option for obtaining and spending Libra. Facebook is working with dozens of partners, including PayPal and Coinbase, many of which are expected to build digital wallets of their own. Here is a diagram that shows all of the initial partners:

All of these companies will also let users convert Libra into regular cash, and many other companies are expected to join the coming months.

In addition, there is a very good chance Facebook will give away some small amounts of Libra to its users to promote the currency when it launches in mid-2020.