I agree with you. It's perfectly reasonable for a firm to pour money into its customer acquisition machine so long as the return is greater than the cost of capital plus a risk premium.
Failure to reinvest every dollar under those circumstances is a Type I error.
This risk premium is an important part of that equation.
"So out of the original $4R, we’re left with $0.1R in profit. That’s 1/40th of the revenue making its way to actual bottom-line profitability, and even that takes 4 years to achieve", Jason Cohen.
That a very tight profit margin, but still could be valid business mode. Especially when you hope that over time 'brand' grows in strength and average customer acquisition costs may lower, conversions can be optimised, R&D costs will be shared across a larger user base. You might even 'max-out' the customer base.
The issue is that revenue is at risk. You might spend $300m acquiring customers for that $0.1R profit 4 years down-the-line. 2 years into that 4 year, a competitor suddenly innovates and steals the customer before you've realised the required revenue.
It doesn't even need a massive innovation. A margin that tight is very sensitive to very small changes. A competitor enters the market and your annual retention drops from 75% to 66.7% and that will probably be enough to destroy any hope of profitability.
Failure to reinvest every dollar under those circumstances is a Type I error.