The Loss Leader

The record

1. 1972

   Polaroid

   Held

   Whether to double down on the razor-and-blades instant film model by betting the company on the SX-70 installed base

   • Bet company on SX-70 — Swallow huge upfront cost to seed a film-consuming installed basechose this
   • Pivot to digital hardware — Sell new devices at commodity margins with no consumable

   Stated reasonFilm was by far the most profitable part of the business, so an installed base of cameras would be harvested in high-margin film sales for a generation

   Committeda half-billion-dollar investment (financed almost entirely out of current earnings save for $100 million raised in a 1969 stock sale)

   What happened

   • 1974 stock price: marked down roughly 90% between the 1972 launch and 1974
   • 1991 peak revenue: peaked at $3 billion in revenue in 1991
   • 1998 worldwide net sales: fell 14% to $1.8 billion from $2.1 billion the year before, driven by lower instant film sales
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2. 2015

   Robinhood

   Held

   Whether to make trades free by default and monetize the retail asset base behind them rather than charging commissions

   • Free trades, monetize assets — Give away commissions and earn on PFOF and net interest on parked cash and stock.chose this
   • Charge commissions — Keep the visible per-trade fee as the primary revenue source.

   Stated reasonThe visible commission was the worst place to make money; the invisible asset base of cash and stock was the best

   What happened

   • 2024 Net interest revenue: roughly $1.1 billion, larger than its transaction-based line
   • 2024 Total net revenues: $2.95 billion in 2024, up 58%
   • 2020-12 SEC penalty: $65 million settlement for misleading customers about PFOF and best-execution failures
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3. 2018

   Epic Games

   Held

   Whether to buy users with free games and a low take rate to build a store against Steam

   • Subsidize with free games — Undercut Steam and give away premium games weekly to acquire userschose this
   • Match Steam's model — Compete on standard take rate without heavy giveaways

   Stated reasonBuild scale now and monetize later by luring users with cheap economics and free games into paid transactions

   What happened

   • 2024 Registered PC users: grew from 108 million to 295 million, a 173% jump
   • 2024 Third-party revenue: grew about 1.6%, from roughly $251M to $255M
   • 2024 Third-party revenue YoY: fell 18% year-over-year to $255M even as total platform spending rose to $1.09 billion
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4. 2009

   Microsoft

   Held in part

   Whether to pay Yahoo 88% of Bing search revenue to acquire query scale

   • Pay 88% for Yahoo scale — Run search on Yahoo sites, pay 88% of revenue to acquire query volumechose this
   • Build Bing scale alone — Keep growing Bing organically below the ignition threshold against Google

   Stated reasonMicrosoft could not buy queries at retail and needed to acquire a whole population at once to reach the scale that makes long-term revenue possible

   What happened

   • 2013 Yahoo revenue share from the deal: grew from roughly 20 percent of Yahoo's total revenue in 2011 to around 31 percent in 2013
   • 2015 Bing U.S. search share: Bing climbed above 20 percent of U.S. search by early 2015
   • 2015-04-15 exclusivity and volume commitment: in the 2015 Eleventh Amendment Microsoft went from exclusive to non-exclusive and Yahoo's mandatory routing dropped to a 51 percent Volume Commitment
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5. 2014

   Amazon

   Held in part

   Whether to sell Echo hardware below cost to drive voice-commerce adoption

   • Sell hardware below cost — Subsidize Echo devices to win voice-driven commerce laterchose this
   • Price hardware at profit — Sell Echo at a margin without betting on voice commerce

   Stated reasonGive people a microphone in the kitchen and they'll shop by voice, making money when people use devices not when they buy them

   What happened

   • 2017 Echo pricing: Echo repriced to $99.99 and Echo Dot cut to $49.99
   • 2024 devices sold: more than 500 million Alexa devices in the world
   • 2022-11 layoffs: roughly 10,000 jobs cut with devices among hardest hit
   Read the full analysis →
6. 2019

   Charles Schwab

   Held

   Whether to eliminate online trading commissions to weaken a commission-dependent rival

   • Cut commissions to zero — Retire the fee that costs Schwab little but rivals muchchose this
   • Keep charging commissions — Maintain the per-trade fee and risk losing customers to free competitors

   Stated reasonCommissions were a small share of Schwab's revenue but a large share of its rival's, so the cut inflicted asymmetric damage while gathering assets

   What happened

   • 2020-10-06 Acquisition completion and combined scale: Deal closed creating a combined firm with about $6 trillion in client assets across 28 million brokerage accounts
   • 2019-10 New brokerage accounts and client assets: 142,000 new brokerage accounts, up 31% from September, and client assets at a record $3.85 trillion
   • 2019-11-24 Acquisition of rival: Schwab signed an agreement to acquire TD Ameritrade for roughly $26 billion in stock
   Read the full analysis →
7. 2020

   Epic Games

   Held in part

   Whether to deliberately trigger Fortnite's removal from iOS to challenge Apple's 30% commission through litigation

   • Provoke removal and sue — Bypass Apple's payments to trigger removal and a planned lawsuitchose this
   • Comply with Apple's rules — Keep Fortnite on iOS and pay the 30% commission

   Stated reasonEpic sacrificed its smallest revenue platform to attack the principle of the 30% platform commission charged everywhere

   What happened

   • 2025-04 Contempt finding: Apple found in willful civil contempt over its 27% linked-out commission
   • 2025-12 Appeals court ruling: Ninth Circuit affirmed the contempt finding but narrowed the remedy
   • 2026-05 Supreme Court action: Justice Kagan declined to pause the contempt order while Apple appealed
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8. 2022

   Geico

   Held

   Whether to keep funding the billion-dollar ad budget or slash it to repair margins

   • Cut advertising for margin — Slash ad spend to restore underwriting profit, accepting fewer policies.chose this
   • Sustain ad spend for growth — Keep spending over a billion a year to keep acquiring customers.

   Stated reasonIt cut advertising because it was hammered by inflation in claims costs and needed to repair margins

   What happened

   • 2023 Policies in force: fell 8.9% in 2022 and 9.8% in 2023
   • 2023 Underwriting result: turned a $1.9 billion underwriting loss in 2022 into a $3.6 billion profit in 2023, a combined ratio of 90.7
   • 2023 U.S. auto insurer market share rank: third largest at about 12.3%, behind State Farm and Progressive
   Read the full analysis →
9. 2000

   Amazon

   Reversed

   Whether to grant Toys R Us exclusive toy-selling rights on Amazon under a 10-year alliance

   • Grant exclusive toy alliance — Make Toys R Us the exclusive seller of toys on Amazon under a 10-year dealchose this
   • Keep the aisle open — Preserve broad selection by allowing multiple sellers in the toy category

   Stated reasonAmazon still saw itself as a partner that needed Toys R Us's catalog and category expertise

   What happened

   • 2006-03-31 contract status: New Jersey trial court entered an order terminating the strategic alliance and denying Amazon's counterclaim
   • 2009-06 settlement paid: Amazon agreed to pay Toys R Us $51 million to settle the lawsuit, with all claims dismissed
   Read the full analysis →
10. 2021

    Robinhood

    Held

    Should Robinhood halt customer buying of GameStop to meet the collateral call, or find another way to survive the deadline?

    • Halt customer buying — Cut off new buying to shrink the collateral demandchose this
    • Keep buying open — Allow trading to continue and risk failing the margin call

    Stated reasonHalting buying shrank the position Robinhood had to collateralize and preserved its solvency ahead of the 10 a.m. deadline it could not otherwise meet.

    What happened

    • 2021 PFOF share of revenue: PFOF was roughly 81% of Robinhood's revenue — over $331 million in a single quarter
    • 2021-06 FINRA penalty: FINRA imposed roughly $70 million in penalties — the largest in its history at the time
    Read the full analysis →
11. 2021

    Tesla

    Held

    Whether to give Hertz a fleet discount on its 100,000-Tesla order

    • Charge full sticker — Sell to Hertz at the same price as to consumers, no fleet discountchose this
    • Grant fleet discount — Offer the deep discount fleet buyers typically negotiate

    Stated reasonTesla would sell to Hertz only for the same margin as to consumers, so the deal had zero effect on its economics

    What happened

    • 2023-10 Teslas actually purchased by Hertz: Only about 35,000 Teslas bought of the 100,000 announced
    • 2025 Hertz EV fleet disposition: Hertz sold off roughly 30,000 EVs by early 2025
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12. 2022

    Ferrari

    Held

    Should Ferrari meet overflow demand for its cars or protect scarcity by capping and monetizing demand elsewhere?

    • Meet the demand — Sell more cars to satisfy the world's appetite
    • Cap volume, monetize overflow — Restrict car supply and earn from premium touchpoints insteadchose this

    Stated reasonFerrari's actual product is the gap between how many people want a Ferrari and how many can have one, so it protects rarity.

    What happened

    • 2024 Sponsorship, commercial and brand revenue: reached €670 million, up 17.1%
    • 2024 EBIT margin and deliveries: €6,677 million net revenue, 28.3% EBIT margin, net profit €1,526 million on 13,752 cars delivered
    Read the full analysis →