Silicon Valley’s business model is a scam
businessinsider.com
businessinsider.com
Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history! Before ride-sharing apps, the process for getting a taxi was:
1. Stand on a street corner (if you're in a busy area) or make a call if you're not. If you have to make a call, there's a ~20% chance a taxi actually shows up.
2. Get in the taxi, tell your driver where to go and how to get there since they could otherwise take a more expensive and profitable route.
3. When you're at you destination, pay the driver. 80% chance they will say "the machine is not working," offering to take you to an ATM to get cash if needed. Note that the machine magically works when you shrug and tell them you're not obligated to pay if the reader is broken.
Ride-sharing apps completely changed the game. Suddenly you know exactly how much you had to pay, in advance. You knew exactly where your ride was so you had an estimated arrival time. You knew exactly what route they were taking.
People talk about how Uber/Lyft dodged taxi regulation, which is true, but the reason there was so much regulation around taxis in the first place was because the old system was so ripe for abuse. Imagine being a tourist landing at an airport and taking a taxi to your hotel; what if you got into a cab and they charged a hidden $20 "airport pickup fee," or took the scenic route, or simply charged a higher rate than the car in front of them? That's exactly why the industry was so tightly regulated, and you have things like standardized rates, requirements for rates to be displayed on the interior and exterior of every cab, the meter being visible to the rider, etc.
All this to say, any sort of competition on pricing is totally orthogonal to competition on product. Uber and Lyft handily won the product battle against cabs.
1b. You have an emergency and need to cancel or the cab can't find you and the company blacklists your phone number.
> [1] If you no longer need your scheduled or requested ride, feel free to cancel it. You may be charged a cancellation fee in certain conditions.
[1]: https://help.lyft.com/hc/e/all/articles/115012922687-Cancel-...
In SF, there really isn't "another cab company" other than Yellow Cab.
To echo the parent, they may have been unethical and borderline illegal about scooping marketshare from cab monopolies, but there were no complaints from the consumer.
Vehicles are bottom tier. Cab driver will always insist on just being like "What's the cross street?" (Bro use the satnav). Way more expensive.
1b almost never happened, because the technology didn't really exist. And there are many competing companies. And you can resolve it by actually paying for the work you made someone do.
Cabs are even required to take kids with proper safety and to take people with disablities like wheel chairs.
Want to file a complaint? Well, then you are free to file a complaint with the taxi and limousine commission and then show up in person at an obscure location to present your case.
The amount of follow-through was approximately zero.
Although your point is poignant, it would be more valid if their price structure was (cough) sustainable.
What if Lyft and Uber were 25% cheaper than taxis; primarily because they didn't need to pay a dispatchers' salaries? This would be the classic case of automation lowering prices.
IMO, they could have out-competed traditional taxis without needing to price below cost; which would make your observation 100% true.
Instead, Uber and Lyft merely demonstrated that there is a market for the self-driving taxi business. Unfortunately, their relentless expansion shows the danger of letting ones' imagination run away and overestimating how quickly tech can be built. Self-driving cars is a hard problem; and building a business assuming that "AI can be delivered on a date" is a huge, huge, risk.
Clearly both companies lost the bet (that self-driving cars would work in time for their price model to work). Perhaps the Uber and Lyft stories are bad examples of the overall thesis of the article?
Of course, the companies may have known it was a rash bet in the vein of this fable about teaching a horse to talk:
https://naomistanford.com/2009/02/09/teaching-the-horse-to-t...
Uber and Lyft could win--depending on location--based on product. But they also deeply undercut taxis on the basis of price until people got used to using them.
>What if Lyft and Uber were 25% cheaper than taxis; primarily because they didn't need to pay a dispatchers' salaries?
I'm pretty sure dispatchers are cheaper than expensive SV engineers.
That’s like saying paying human computer wage is less than electrical engineers who develop electronic computers.
Non-recurring engineering cost is higher BUT IT’S NON-RECURRING and largely independent of the number of users, unlike dispatchers.
I think they roughly have 2k engineers total and I have no idea what the breakdown is of what they do.
I expect some of Uber's appeal, from the perspective of investors, was predicated on a belief in the arrival of widespread full vehicle automation. If that happened, they'd have had the infrastructure, systems, and brand to immediately swap over, on a global level, and become an unbelievably profitable (and massive) company. Add in some massive scale vertical integration of maintenance and other costs, and it's hard to overstate how big they could have become. Of course it didn't happen, so instead we just got a bunch of cheap taxi rides, and that's cool. Feel bad for the medallion guys who got left holding the bag (those licenses now go for < $100k, which is a vastly more sustainable equilibrium) but at some point you've gotta trust your tulip detector.
[1] - https://www.cbsnews.com/news/how-much-is-a-nyc-taxi-medallio...
The sharp rise in Ubers is correlated with an 8% decrease in Manhattan traffic speeds. Which affects not only them but car commuters, bus commuters, residents, deliveries, etc. https://nyc.streetsblog.org/2015/07/22/ubers-own-data-reveal...
One issue I think we are seeing is that we, as tech workers, are super excited to fix the immediate problems. We have the skillset and it's really engaging! But we will often miss the forest for the trees and then double down on our solution being the solution instead of one part of the solution.
All this to say, thank you for discussing the traffic slowdown caused by increased cars. It's a side effect I hadn't been considering before.
I think one of the biggest impacts has been on the sustainability of the transit services. For all road users, slower speeds require you to maintain more labor and vehicles out to maintain SLAs/frequencies, or to increase waits. For bus users in particular, it starts a vicious cycle because of several additional factors
* some baseline amount of people will just switch to rideshare instead of buses, reducing revenues and decreasing traffic speeds since buses are more space-efficient than cars
* with less revenues and less ridership, there is pressure to cut service to be more "efficient" at spending money
* with poorer services, more people switch to rideshare, further reducing revenues and decreasing traffic speeds
Manhattan bus ridership entered this negative spiral and fell 23% https://nyc.streetsblog.org/2017/02/21/decline-in-nyc-bus-ri...
---
Now what level of congestion is 'acceptable' is mostly based on comparing to other cities, and how the electorate is feeling. That being said, the political pressure was so strong that NYC had already implemented congestion charges on rideshare and taxis, and is currently implementing tolling in Manhattan to try and reduce car numbers. Uber actually came out in support of it. https://www.uber.com/blog/new-york/uber-supports-congestion-...
Medallion limits exist primarily to maintain and/or increase the value of existing medallions. Other reasons given were just propaganda by existing medallion owners.
Now NYC is introducing congestion charging on all vehicle trips in Manhattan to try and restore traffic.
I also wonder if Uber/Lyft pricing below cost had to do with competing with each other? IE, if all they could do was compete on price, would that (cough) force them to undercut each other? If one decided to price below cost, would the other fear that they would loose too much market share too quickly if they kept their prices sustainable?
Disclaimer: I am not an economics expert!
(I'm sure there are other cities that get it right, but they're hard to find in the US).
I disagree. Without money-losing subsidies early Uber would have remained in the "Black Cab" market. Quality helps, but most people are not willing to pay a huge premium for it (see the race to the bottom in the airline industry).
It's also a mistake to take the large American city (New York? LA?) cab experience and project it onto the rest of the world. I live in a small-ish (< 1M) Canadian city and I've never experienced any of the listed antics when calling a cab here (and this was before Uber existed). Yet Uber still became quite dominant - probably because, for a long time, it was the cheapest option.
Now that cab companies have somewhat caught up in technology, with pay by phone and app-based booking, I’m prepared to consider them again. Price was never an issue.
The salient point the author is making is these predatory pricing strategies allow these VC backed firms to capture a market, then the VCs exit and everyone else is holding the bag. It doesn't matter how good your product is if it costs more to run than it brings in it will, eventually, no longer exist. Ultimately, these companies business models absolutely did not outcompete cabs on merits alone; they had a better product that relied on predatory pricing to attract customers.
Are price conscious people using Uber?
Pricing mechanisms could be the same - pre-agreed price etc.
The real key difference is the realtime feedback of where the cab is in terms of coming to pick you up. ie the diminishing of the anxiety of that uncertain wait.
That's it - that's the only thing traditional cab firms couldn't provide - and now many of them now have their own apps - as apps aren't that hard.
I found taxis waiting in taxi stands in known locations of busy areas, or they would come if you call. If they had to come, I found them far reliable in terms of "when the vehicle would get there" than Uber or Lyft. Both of which promise arrivals and then often have to recalculate.
I found taxis to be more predictable in price. I could get a pretty accurate estimate from a taxi driver. Meanwhile, Uber and Lyft only gave you their estimate and had no problem silently charging you more. (I believe that has been fixed).
And cabs ability to take cash was great. Yes, rarely they tried "the machine is not working", but that was rare and easy to deal with like you said. Meanwhile, if you wanted to do something non-standard (e.g. make multiple stops[0]) you could, either by paying a small cash extra or because they were a person not a machine they could handle it.
Meanwhile, the reason there was so much taxi regulation was that without it traffic becomes unbearable. There would be hour long traffic jams of ubers going to pick people up near the front door whenever an event let out, as opposed to people walking to where the taxis had to pick them up.[0] But in general they are horrible for traffic.
[0] Uber/Lyft can handle that now, but could not earlier
I'm guessing you live in one of the top 5-10 populated cities in the US. (Or a major city outside the US).
The issue is taxis are generally fine in these area, but outside being a dense population center calling a taxi is a flip of the coin.
However, those smaller areas don't have taxi medallions to avoid and typically have less taxi regulations in general. Obviously, there is still a dumping component where Ubers are sold at a loss, but the main concern I heard most people have with Ubers was them ignoring the various taxi regulations that made it work in dense areas. Things like horrible traffic jams caused by too many Ubers all converging on one location, refusing to pick up minorities, etc.
Edit: To clarify, since I was misunderstood. I don't mean taxis are good at picking up minorities. They, historically and through today, have not been (with some minorities). That's why there are laws that try to make it so taxis have to pick them up. That is one example of a regulation that Uber/Lyft have ignored. AFAIK, this has caused some issues with Uber drivers and no way to appeal except to hope that Uber corporate believes your story.
Have you talked to minorities about their experience with taxis?
https://www.pewresearch.org/short-reads/2016/07/25/ride-hail...
As opposed to
https://www.washingtonpost.com/posteverything/wp/2015/07/23/...
Taxi cab companies are infamous for avoiding entire parts of suburbia all over the US. You should spend more time outside of your urban bubble, live in middle america (or in poor LATAM, where uber exists and taxis are unsafe) for a few years, enough to realize there's an entire population underserved by existing taxi monopolies, that have been literally rescued by Uber.
This is why your experience is so different from mine. If you're just using them to get around, during the day, going between major traveler landmarks (airport, hotels, tourist destinations), yes, taxis are fine.
Almost all of my taxi/Uber use is as a local. I spent way too many nights in my 20s drunkenly wandering around downtown at 2-3am trying to find a cab to get home.
It’s not a big deal, it’s just so silly that they made a big thing about being a “data company” but would still essentially do the bad friend thing (texting “On my way!” when you haven’t even got in the shower yet)
This and only this. I've never even had an adequate experience with that damned airport.
I speak a little Spanish. But I couldn’t imagine trying to get around Los Cabos, Mexico for three weeks without Uber.
And they're pretty thin around where I live 50 miles outside of Boston.
I did see someone post on frontporchforum post that there were now a driver for either Lyft or Uber.
Your confidence in the uberness of Uber I thought should be broaden.
Pricing may be orthogonal to product, but both are needed profitability. You gotta have something people want AND make a profit.
The real people being scammed by all this are secondary investors and pension funds.
No, it's the real, legitimate businesses and employees that are in the space being """disrupted""" and lose their shirts and jobs because it's impossible for a legitimate business to compete with selling one dollar for fifty cents.
Add to that all the normal people who liked using those businesses and liked how small they were and were perfectly happy and now are stuck using a shitty evil megacorp
Just relax and enjoy the subsidized rides and grocery deliveries while it lasts.
The post you're replying to was specifically referring to the megacorps involved in the disruption and predatory pricing. They never said there was anything inherently evil about large corporations.
That said, I do agree with your prior comment:
> The real people being scammed by all this are secondary investors and pension funds.
Not exclusively, of course. You've both identified valid sets of victims.
option 3 - go to a hotel, and have them call a cab for you, or get one from the stand there. This is my go to for cities I'm unfamiliar with, and it's never let me down. The taxi companies might not have an incentive to show up promptly for _you_, random person calling them, but they do for the hotel in their area.
> People talk about how Uber/Lyft dodged taxi regulation, which is true
Taxis sucked (and still do), but Uber/Lyft's not-so-secret sauce was regulatory evasion, claiming that their taxi service wasn't a taxi service and that their employees weren't employees.
This made their product artificially competitive.
I would also receive a lower fare when the rider used a coupon or had a promotion. It always seemed more like I was subsidizing the rides rather than Uber.
Except taxi drivers get paid enough to raise a family
Also...
Step 0: Don't be black
My first job was working on payment systems in taxis. The biggest issue we had? Taxi drivers ripping them out so they can charge cash.
I'm 20years out of the taxi industry but I wish Uber and Lyft would kill that industry completely. It's what I call a scam industry. Like car dealerships the entire industry is focused on squeezing every dollar they can from every transaction. It's horrendous. I also can't believe anyone would defend taxis here. Naivety I assume.
Previously my wife had an issue with a taxi in LA where she was riding with one of her friends, the friend rightly pointed out that they were in a grid section of town and the circuitous route didn't make sense, and the driver locked the doors while saying "I'll take you anywhere I please".
I've heard similar stories from many women.
https://techcrunch.com/2017/12/09/uber-settles-lawsuit-with-...
It doesn't take a genius to see how that is safer than jumping into a random car with no record of having done so.
They're not saying "surely the ride share companies do it better"; the reasons why they think it's better are apparent to them with little trust needed.
Every time one of those stories come out, you're forgetting that the perp is immediately caught because there's a huge paper trail detailing exactly who took what ride where and the route.
I've visited the US on a few occasions, and each time I've used Uber or Lyft for precisely the reasons you state. I could bring up the app, enter my destination and get a price and an ETA. Either I liked what I saw or I didn't, and I could make my choice.
Back here in Oslo, Norway, every now and then I take a cab home after being out all night. Uber and friends don't exist here because laws and regulations. And it sucks. Even as a local they try to take detours, and who knows how much it'll cost to get home this time.
Had to take a taxi for the first time in years.
I went out to the taxi spot next to the train station and asked how much € to Amsterdam etc.. Immediately another taxi driver runs up and tells me I shouldn't take this driver because he is not from the right area, apparently. Then they start shouting at each other while I, a potential customer was there. Eventually more drivers take sides and almost start fighting.
I walk away for a bit and ask another driver. I ask how much to Amsterdam he says: "how much are you willing to pay"?
What kind of question is that, ffs. It's 23:00 and I want to go home, just give me your price. He refuses a few more times and I walk away. Then he suddenly says €100. I say too much, he counters with €80. I say €60 so we agree on €70.
When we're on the highway he says his machine is broken so we have to pay cash... Goodbye reimbursement from the train company because he's also not printing a receipt.
Finally home I lay in bed thinking how god awful the entire taxi experience is when you're not using Uber.
Turns out it was pretty hard.
He can write a receipt. Did you ask him to?
I have no sympathy for any taxi drivers anywhere.
Not sure about the jurisdiction GP took the taxi in, but in most places I’ve taken a cab there is a large plaque identifying the cab and driver, including contact data of the regulator to whom you can trivially submit complaints.
Japan is the only place I've ever been with a consistently-sane and above-board taxi experience.
That is a very generous version of what actually happened. Uber/Lyft were not replacing taxis outside a few big cities with established taxis operations, they were replacing consumer behavior entirely. It was near impossible for them to charge market rates and get a user base that had no need for taxis. If they weren’t heavily subsidizing the rides, they would have never been successful. They most definitely were charging next to nothing when they were in “growth phase”. At the height of it, it was almost as cheap as public transportation and not market rate.
quite correct!
The Uber/Lyft "package", as it were, is easily worth a full 20% over conventional taxi systems circa 2010ish.
Since using Lyft, I have since only used traditional taxis when Lyft/Uber was not available. Because the old model was bad.
It’s like saying Netflix invented streaming video.
You're right about downsides of cabs, but I'm afraid you are also revising history on the issue of merit.
For a long time, Uber (and Lyft) rides cost a lot more than clients were paying - many people noticed this and wrote about it, and the edgier ones characterized ride-sharing as a wealth transfer from VCs to riders.
The setup was clearly not "competing on merit" and was closer to predatory pricing. It's obvious the investors would have demanded massive hikes had they managed to drive competitors out of business.
Never again will I do that.
Uber's predatory and illegal practices are pretty well documented. It's not revisionist to say that without deliberately putting their thumb on the scale, Uber would not have even been able to get into the market.
This isn’t hidden or a secret, it’s literally the open known, repeated plan and has been written about for decades.
[1] https://www.wsj.com/articles/peter-thiel-competition-is-for-...
What he means is that when you compete in an existing competition with known competitors, you only have a chance of winning. Example - if I started an airline tomorrow I have to win customers over from United, AA, Southwest etc.
Instead, if you start a business that no one has ever done before, you get to be a monopoly by default. E.g. Wright brothers once had a monopoly on manned flight.
Competition is for losers means that you should not war with entrenched incumbents - even if they are terrible businesses that are not innovative, you can't win (as they say the winner of a knife fight dies in the ambulance).
A monopoly exists as soon as you invent (and sell) something new. But the moats enable the monopoly to have more longevity, which increases its anticipated value, which is what VCs sell.
Side note: the word new is doing a lot of nuanced work here.
The dictionary gives you a moment in time, but if a monopoly had a lifecycle, what is the earliest thing you can call a monopoly? Even at the earliest stage it technically excludes competition because they don’t know about it yet, and there is inertia in them constructing and making the same offering. Not a great barrier, but really not very far removed from the concept of a trade secret.
I guess the issue is that, at some point, SV venture capitalists got more money than creativity. Some of that money went into stupid products like a juice machine, some of it went into companies that were dedicated to killing the competition rather than create a new market. Ultimately, the "competition sucks" part outlived the rest of the article.
“ “Finders keepers” has been a consistent natural law of property inheritance, formally codified as “res nullius” or “nobody’s thing” by the Romans.
…It follows then that the corollary in capital based markets of “Capturing value” (Market Share) in a “Growing market” (Resource abundance) environment, becomes the ethically acceptable way to produce goods or acquire property.
…Therefore across all modern competitive frameworks, Economic, Ecological or Political, “first mover advantage” is assumed, and Monopolization of a resource, or a market, rather than cooperation, becomes the optimal organizational behavior.
“Creating Markets/Value” becomes an optimized resource acquisition strategy, as monopolization of production is most efficient when the market “Creator” controls access to the new market from the outset, minimizing appropriation costs. “Investment capital” is used to generate these new markets at a sufficient scale, while the relative abundance of capital for the “house” will allow the creators to impede competitors from the start, thus ensuring a maximum return on investment. Power law guarantees that existing resource hoards will forever seek returns and accumulate more into increasingly fallow pools of capital. Unrestrained “Free” competition, a reinterpretation of “might makes right,” then must represent the dogma behind forever growth.”
I think the problem here is the definition of "winning".
In a sane and healthy society/economy, an entrepreneur would define "winning" as "being able to make a comfortable living off of what I create".
In Silicon Valley, "winning" is almost always defined as "owning the market, being able to dictate terms to other entrants and to users, and making so much money there's no possible way you could spend it in one lifetime."
This is horribly toxic to the overall culture and economy.
For example, most people would agree that Uber is much better than the legacy taxi industry (I personally was ripped off many times in old school yellow taxis). Why would Uber make just enough rides so that Uber employees can buy food?
Their system is much better and I'm very glad they have tried to spread it to as much of the world as possible. (they have problems for sure, but old school cabs have a ridiculous amount of rider and driver abuse)
Even if your solution is objectively the best one, we don't give people monopolies based on that, for a variety of very good reasons.
I don’t think we’re talking about the same thing.
Thiel's point is that our memetic instinct is to compete in existing industries on an incremental basis. But in perfect competition, profit margins are destroyed for all participants. Thiel believes that the goal of a capitalist is to seek monopoly via innovation (i.e. zero to one, not 1 to n) in order to capture massive growth and profits. It is then the job of regulators and competition to erode that monopoly. Thiel also argues that innovation is our only portal to a brighter future. Globalization has not worked. Over regulation and wealth re-distribution alone do not work. We need growth, new solutions, and innovation. The corollary here is another quote attributed to Thiel: " Peter Thiel at Yale: We wanted flying cars, instead we got 140 characters".
None of this, btw, is a "scam".
It’s true that’s something Thiel points out but I will never understand how that point is supposed to stand by itself. Globalization has been ridiculously effective at creating worldwide value over the past 70+ years. Thiel is instead promoting his weird type of conservative nationalism, definitely not something that results in innovation or value creation. His whole philosophy is pretty incoherent IMHO.
Anti capitalism at least brings some interesting and meaningful critics regarding liberal globalization shortcomings, but Thiel doesn’t even take that angle. He’s fine with the exploitative nature of capitalism but wants to be in charge of controlling the market and culture.
You may not like Thiel's "nationalism", but there is certainly a coherent through line from a society whose middle class has been eroded by globalization to its increasingly polarized and manic politics. Trump voters, for example, feel he speaks directly to their pain, which has its roots in globalization.
Thiel's view on globalization seems to be that it has not been good on a number of dimensions, but that the real problem for the U.S. (and all of humanity) is the stalling out of real technological innovation.
A good, more succinct way to describe the bait and switch scheme uber, airbnb etc have performed in their respective markets
Ironically, this accusation. is almost always levied against Uber, which is not a monopoly, better than the competition, and competing with a monopoly! The taxicab monopoly was part of the reason prices were high and service was bad
When you run competitors out of business, you...don't have competition. Competition is what keeps a market healthy.
I like how the term "enshittification" got coined to describe this.
When your business model is "profit margins are for after we've killed or neutered all competitors", you don't have a business and that fundamentally shouldn't be permitted for a healthy economy.
IIRC theres a page on the FTC website which condescendingly explains that while predatory pricing can theoretically exist in practice it's vanishingly rare and you can basically just assume it doesnt happen.
So there you go. Hear no evil see no evil.
If you parachute in with enormous sacks with dollar signs on them from Silicon Valley and engage in deep predatory pricing in other cities and states both within your country and without, I'm comfortable calling it dumping.
Your other point wrt the FTC is, well...womp womp.
https://www.ftc.gov/advice-guidance/competition-guidance/gui...
>Can prices ever be "too low?" The short answer is yes, but not very often.
>courts, including the Supreme Court, have been skeptical of such claims.
I can think of about 5 examples just off the top of my head (not just Uber) where it was clear and obvious and they got away with it.
The courts are as skeptical as the FTC. Judge Jeffrey S. White tossed the suit against Uber despite how blindingly obvious it is that they do it.
Dumping is a tactic that can be used whether you are blitzscaling or not.
Multiple competitors can blitscale. Blitzscaling or not, the problem is when a market has no competition. This is century old solved economic and legal theory.
Blitzscaling, when dressed up by the VC class, is more along the lines of "prioritizing growth over efficiency". And all the halo projects from its advocates pretended or are pretending that profit margins don't exist until everyone else is dead; your focus on efficiency can wait until everyone else has been strangled because they can't pretend that making money is optional.
I feel that you are attempting to thinly slice some very wispy hairs.
Also the worst things in society
What it tells you about govt is that it’s an important organizational process that has deep implications.
Capital growth did not give us the spacecraft and nuclear bombs. Massive government spending in the face of a geopolitical and ideological rival did.
It started out, in NYC at least, as a luxury "black car" replacement.
Then it got flooded with the cheaper tiers, and it was hard to understand how anyone was making money - the drivers, the company etc. And they weren't!
Now its more expensive than ever and generally far cheaper to get a yellow cab again.
The problem is between the variability, Uber sign on bonuses, insurance arb, bad bookkeeping on their vehicle wear&tear.. it likely wasn't transparent for them.
Basically they had positive looking cashflow I'm sure, but had large unpredictable costs that likely set their hourly rate below minimum wage.
When I'm ready for a car, I walk outside, stick up my hand, get in, and go. Unfortunately really only works in nyc though.
and yes, cheaper. :-)
On NYC streets, the "luxury" Chevy suburbans / escalades / whatever are atrocious and nearly make me car sick.
While “Pig in a poke (cat in a bag)” scams fall across many markets, a far more popular “Noorseekee (нурсики)” scam seems particularly prevalent in global technology and property assets. i.e. people convincing other people something is valuable before reality shatters the illusion.
https://en.wikipedia.org/wiki/List_of_confidence_tricks
This isn’t new, and fighting dirty to gain dominant market share for an artificial monopolistic position hijacks critical thinking. The stock markets main function is to wash away accountability, and leverage information asymmetry to siphon equity out of the losers.
And yes, by definition poor people are often irrationally competitive, and lack impulse control. Those who foolishly take credit for scams often suffer rather unsurprising consequences.
https://www.youtube.com/watch?v=9b7P2z0-cuQ
Actual successful companies bring real value to the customers, and foster goodwill with their brands.
Have a wonderful day, =)
That certainly rings true. But, I also think it's true that all the information you need to assess a business is right there in the public filing. So, at least in theory, enough information is out there to let the VCs keep holding the bag. Right?
10 years later, the knockoff ridehailing apps *still* lack key features found in Uber and Lyft.
p.s. I'm no fan of predatory pricing using VC, but this particular accusation is unprofessional BS.
Otherwise, the article just covers pretty well explored ground. Companies take VCs money and buy revenue, and early investors have been able to offload money losing companies on public markets. This had a lot to do with interest rates imo, there was too much free money chasing returns. It's largely going to take care of itself.
Among the losers anyway. Pretty hard to pick a bigger loser in this equation than the humble Uber driver or Amazon warehouse worker.
You lose your job at Amazon competitor and start to work for Amazon.
- You are paid less ( let's say 2.5% ) - that massively compounds over a lifetime and/or
-your quality of life at work is much less - and that's about half your waking hours for most of the week - so I'd call that a big deal.
- public markets
- VC
- PE
- Family Office
The smartest money is people you've never heard of buying high quality assets. VC and PE are basically running their own versions of fixing up companies and dumping them on the public, and public markets are where all the dumbest money is.
These people aren't IPO happy fools. These are real people working hard, who through not fault of their own, are forced out of a job as a side effect of a Valley hustle.
The point they are making is that even if the companies fail to corner the market, the VCs can (and do) exit with a profit before the collapse. Therefore, predatory pricing is a profitable strategy for some actors. This line of argument essentially defeats the claim that losses needs to be recouped for the strategy to be profitable, and therefore, is rare [1], as the FTC claims:
> This strategy can only be successful if the short-run losses from pricing below cost will be made up for by much higher prices over a longer period of time after competitors leave the market.
[1]: https://www.ftc.gov/advice-guidance/competition-guidance/gui...
These people are potentially pushed close to bankruptcy and have to exit the area - because they can't sustain competition against a heavily subsidised competition.
That's value being destroyed - not in a creative way by something better, but as a side effect of a financial shell game.
Also the state often picks up the cost of that - by supporting those people back into work - and the companies that caused it carefully avoid contributing to that by avoiding taxes - because they never make any money....
I think the Uber example is a very good one - bottom line why the predatory practice? Bottom line if they got self-driving cars working - then it would be transformative and they wouldn't need predatory pricing to grow market share.
Why spend all that money on growing the market share, rather than spending on R&D?
I can only assume it's all about engineering a financial exit....
And sure you can say buyer/investor beware - but as I pointed out above, the behaviour is costing others through no fault of their own - sometimes dearly.
Black car firms were and are fine but people can't afford quality products anymore.
Just because what we had was bad doesn't mean that what replaced it was better.
I do think there is something there. At large, tech's chasing of "scale" robs so many ideas of the ability to grow and be acceptable in the small. Frustrating, as nothing works at scale. Pretty much period. And "in the small" can still be quite large and manageable for many successful people.
But so much of this argument seems to be on a redefinition of predatory pricing. Non sustainable pricing is not the same, all told. Especially when what makes it non-sustainable is the growth in the company. Either in market share, capabilities, or general offerings.
I'm wary of turning a lot of this into whataboutism argumentation. But it would be very helpful if there was a callout to what is pushed forward as an alternative model. I'm not seeing it in this article. :(
Usually, you don’t do that in every market simultaneously, and are actually turning a profit overall, thus. Or taking yourself down along with the competition.
Uber and Lyft got away with it so long because VCs believed in growth above all else, and that at sometime in the unspecified future, the ride share companies would transition to a sustainable business model after they established a near monopoly.
This used to be fine as IPO process used to filter these bad models out. SPACs however made this IPO filter much less effective and should not be allowed.
If profitability is not found along the way (spoiler alert: almost never happens) then California fires up the afterburners as it pertains to narrative and storytelling and the company IPOs selling into those who buy the narrative , which is mostly the East Coast Asset Management Industry.
Those at the helm of the East Coast Asset Management Industry will never buy the IPO with their own money, they'd do their due diligence and look under the hood and beyond the narrative, but for pensioneers and insurance policies holders the narrative more than suffices. If anything happens they can turn around and point at the narrative and say "we were told a story".
And, I believe what you are saying is that in the current "business model" the scale is the product - not the product itself.
You do not need to be an investment prodigy to know how this was going to go - a tsunami of fraud, a few walk away with riches and the investors get screwed. The people who bought SPAC de-regulation knew what they were doing, and the corrupt revolving door that is the SEC was in on it.
What the article is basically saying is that "monopolies are bad". I think everyone agrees on that and there are many examples in the tech industry, but then again monopolies are easier to achieve today with digital products.
What the article should have written was: Be more active in breaking up tech monopolies.
Re: Uber - Why anyone would complain about Softbank and the Saudis subsidizing urban transport for years is beyond me. Take it while it's cheap...
They are not subsidizing urban trasport. They are subsidizing a monopoly built out of gig workers.
True to a degree, but there is absolutely a Silicon Valley mindset and ethos that is very common. And that mindset is largely accepting of scammy behavior and often even celebrates it.
Other currents are focused on deep tech and life sciences. The first powers everything you do online, and the second will probably save your life at some point. Any society that equates technical innovation with "scams" will stagnate. It is in all of our interests to remember that and not lapse into easy pessimism. Silicon Valley is much more than scams.
Except it kinda is.
The big improvement in quality of life for people in the last 3 years have been mRNA vaccines, they brought normality back in the world. Developed in Boston and Germany.
In the 2010s the real revolution which made everybody in the world safer was fracking. Forget social media and all that crap, fracking has saved trillions to the US economy given how costly the Middle East military campaigns proved to be.
And yet in the press (tech, financial and otherwise) there is just the Silicon Valley, because it's a 2 way street, people in Silicon Valley go out of their way to get press space to explain to mere mortals how they are saving the world when there is vivid action attacking the problems in all kind of places, sometimes world saving kind of action (as per the case of mRNA)
Otherwise you just want to have a big VC booze and coke party.
Uber did $8.8b in revenue last quarter is apparently on track to post operating income profitability by the end of the year. Seems like the company still has plenty of value.
Also, this article makes no mention of ZIRP -- which in hindsight is starting to seem like a very large enabler of the subsidization strategies we've seen over the last decade.
If I was doing this strategizing at Lyft - "technologies like models advance at tremendous pace, invest just enough so we are not severly behind competition if something trans-formative comes up". In X years you will be able to build your own self driving from open source components, the question is whether X is 5 or 25 years.
For example, the first fours paragraphs are based on an offhanded comment from an unnamed exec 7 years ago. It doesn't even bother to talk about how Lyft shut down its self-driving efforts in 2021 (as did Uber in 2020), which renders the whole point moot.
Why start with such a bad-faith argument?
The argument being made is that the predatory pricing is a means to inflate the an eventual IPO so VCs can cash out. It's framing predatory pricing as being half of the strategy combined with a pump and dump, to work within the bounds of a dumb SCOTUS ruling.
Barcelona regulated the hell out of ridesharing. Uber is prohibited, I think. When you open Bolt there for the first time, you can't order a car for 15 mins. It's an arbitrary limit they instituted so you go to a road and catch a taxi. Well, those are OK and always have card payments. But you have to be on a busy road to catch them in the first place.
Second, it only applied to a few businesses.
(And those few were mostly in SF, not SV anyway :-).
- VCs get to invest into startups early - Companies use this money to grow their customer base often by subsidizing customers - This rapidly increases the valuation of the company - VCs look to make an exit by selling their equity while the company is aggressively scaling
I don't see what the problem is. Don't buy the shares from the VCs then. These are adults doing adult things and they can make their own choices on if a company is worth buying into or not because all the financial information is public information, or available if its a private deal.
I'm not sure if the article is saying that growing a business rapidly should be banned or that VCs shouldn't be allowed to sell their shares until some criteria has been met?
in other words, it's descriptivism, not prescriptivism. Do you agree with that description presented by the article?
I agree that VCs fund companies at high valuations with the idea that the company will use those funds to hit aggressive growth targets which in turn grows the potentiality of the company. This is often done by subsidizing customers to encourage rapid growth. Selling at a loss during the landgrab phase to capture market.
But it's not sustainable (as the article mentions) and eventually companies have to pivot to profitability. So I have no problem with it. It has never been the case in tech that a company did this long enough to put everyone out of business and then used its acquired monopoly power to gauge customers.
"Your margin is my opportunity" comes to mind and the second a margin is too big then someone will come along and take their piece.
if so, I'm not sure I follow why you're asking: do you believe this has never happened, or do you agree it has, but can't think of a single example?
forgive me, but such a topic change sounds a bit like an attempt to move the goalposts, to avoid talking about the actual topic, which is big tech working to stifle competition (which is bad for consumers)
to avoid confusion, we can explicitly state here that a complete or successful monopoly is not necessary for a company to work to stifle competition (which is bad for consumers), so let's get that out of the way first
Similarly, your VC is thinking about how much they can offload a portfolio company to investors in the public markets. If those investors believe stupid stuff like self-driving cars are a real thing, then why should we feel mad at the poor VC? They're just doing their job well.
Man, the people backing all of these companies are going to have one cold wake-up when this finally collapses.
It feels like a pump-and-dump, reminiscent of crypto. Endless hype to try to convince others to invest, only to get out as soon as possible.
That’s not a “rule of capitalism”. What rules? That _was_ a rule of the United States, but if it is still it’s not enforced anymore.
Well that certainly explains the question I'd had for years. When I first heard about predatory pricing I kept wondering why it's not being prosecuted on a daily basis, given it seems to be everywhere. It's amazing how much laws are reshaped by the Supreme Court.
> Under the rules of capitalism, you aren't allowed to use your size to bully competitors out of the market.
That is certainly not a rule of capitalism; it might be an interpretation of antitrust, but that is not a rule of capitalism. Also, it isn’t how the US courts and regulators view antitrust at all. You can certainly use your size to bully competitors, you just can’t use your size in SPECIFIC ways (buying too many competitors, dumping, etc)
The article is correct in courts expecting to be shown harm to consumers in order to take antitrust enforcement action, but their argument as to how the companies are doing that makes no sense.
They say these startups subsidize their business at a loss, offering consumers cheaper goods than they normally could, then they sell the company to unsuspecting rubes who don’t realize they will never be able to raise prices and make money.
If this is true… there is no crime. As they pointed out, antitrust has been interpreted to be about harm to consumers, and as described, consumers are not harmed. They get cheap goods for a while, and the company never is able to force price hikes with monopoly power, so consumers are never harmed.
The article argues the harm is actually to investors, but investors are not the ones protected by antitrust laws. As long as the companies are not committing fraud or lying in their statements to the market, investors are on their own to decide if the company is worth investing in or not.
Hard disagree here. The government has chosen to interpret "harm" in a very, very specific way. The reasoning is that if it causes prices to go down, then there is a benefit, not harm.
But harm comes in all sorts of forms, and a lot of harm is done by companies even if their actions cause prices to fall.
> The article argues the harm is actually to investors
Investors do get harmed, but I think the larger harm is actually to ordinary people.
> As they pointed out, antitrust has been interpreted to be about harm to consumers, and as described, consumers are not harmed.
I wasn’t trying to argue whether the court and government interpretation of harm is right or wrong, just that it IS the way it has been interpreted and is the current law of the land.
That makes sense except that in the case of Uber, the "whole scheme" never collapsed. Uber stock is about where it was when it IPO'd, it has been between ~20 and ~60 since.
It seems awkward at the least to say that Uber's lack of profitability is an ongoing scheme that's going to eventually defraud current owners of Uber stock.