Tag Archives: Uber

Is Uber really worth $40 Billion? What is value?

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Today it was discovered that Uber raised about $1.2 Billion in its latest round of VC funding. This puts Uber at the stratospheric valuation of $40 billion. This valuation makes Uber worth more than companies like Haliburton, CBS, Yum! Brand (Pepsi, Pizza Hut, Taco Bell, KFC), Northrup Grumman Corp, Kraft Foods, and basically 72% of the Fortune 500, according to this Fortune article, that means there are only 140 companies in the world valued more than Uber. On the other hand, its revenue is only $400 million which is one fifth the revenue of the smallest company on the Fortune 500.

Clearly this means that investors expect a massive IPO and that the company will continue to double revenue every 6 months. This is one of the major reasons for this round of funding as well – Uber needs to be able to expand in Asia and this money will allow them to do so. They’ll have to hire staff, fight law suits, bribe people, and who knows what else. It begs the question, are we going to see Uber Rickshaws?

With this astronomical valuation of the company, it makes you ask what is value, who is receiving this value, and how long can this valuation truly be valid? There are only two stakeholders that are truly receiving $40 billion in value, that’s the startup founders and the early investors. With the bad press that the company has been receiving, it’s clear that it’s not Uber’s customers, whom expect privacy and discretion on the part of Uber, whenever they are not receiving it. Ok, maybe that’s not completely fair, as a large number of people use Uber today, it’s clearly filling a void that aging regulations wasn’t really filling. However, it’s clear that this benefit is coming at great cost to the “employees” of Uber where aribitrary rate cuts in some areas prevents it from being possible to make a true living wage. Furthermore, this valuation will only last as long as Uber is able to continually grow, as soon as the company fails to show that they are continuing to grow, their stock prices (as they will be public by then) will eventually fall back to much more realistic prices. This is similar to what initially happened with Facebook and more recently with prices falling for Twitter. The major difference being that Uber has a much clearer revenue model than either of those companies that does not rely on ads, simply drivers and riders. Furthermore, we only know what the revenue for Uber is, we do not know what the profit margins on that revenue are, clearly they are looking good, because for a given city the overhead for Uber can’t be more than half a million dollars, which means they are likely doing rather well.

Compare this to companies that actually make things that drive the economy through providing many jobs, like Kraft, it makes you wonder where these valuations come from and what it is that investors truly see in companies like Uber. To me, it’s an interesting company that has an aggressive approach to business, but that isn’t worth that kind of money. Maybe I’ll see things differently if it comes to Portland.

Silicon valley, new tech, and how we use it

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Last night as I was watching Hulu, an interesting comercial came on that was all about jabbing Silicon Valley and its love for the newest of the new. I think it was for a new Toshiba Tablet. This comercial was really self-aware of the environment in which they sell as well as the types of people they are actually trying to sell their devices to. I think that the commercial also does a great job pointing out that the Internet of Things and 3d Printing both might be part of a hype machine that is out of control. All of these technologies could do great things, but they aren’t preordained to do anything amazing. It’s up to the user to really enable that.

I think that the book I’m reading “Enchanted Objects” does a bit of this as well. I’m torn if I should love these ideas or hate them. The Smart scissors mentioned in that ad would definitely fit under the definition of Enchanted Objects because it’s something ordinary that through sensors, haptic feedback or other do-hickeys has some extra-ordinary capabilities. Many of these things seem gimicky and unlikely to catch on. Others, like the author’s Glow Pill – which is a lid for a pill container to remind people to take their pills – would be really helpful to a lot of people out there.

I also agree with the author’s sentiment that the black screens we peer into day in and day out, are somewhat ugly, unweildy and have never lifted up to their hype. Which means that they likely haven’t made our lives significantly better and mostly just incrementally. I think this is born out through the drop in sales in tablets, the saturation of the smart phone market, and the resurgance of sales in PCs. People have found the tablet ecosystem limited in someway and awkward to use and have opted to refresh their capability with a cheap laptop rather than springing for a new tablet (an exception to this trend could be a Surface 3, but we’ll see how that pans out in the long term). Another concern with all these devices is of course security and safety from prying eyes. I’ve been talking about this for a number of years, but I believe that people will actually start listening after seeing the result of the Ferguson MO police action. Your twitter feed and location is on twitter, the police can find that. What other data are you sharing out there without truly understanding it. How can it be used against you by a militarized local government?

I think much of this goes back to my questions of ethics and technology. At what point does a technology become unethical or, rather, the use of a technology become unethical? Is a smart trashcan ethical because it helps you save the environment and support local business, what happens if that impacts your taxes or gets you on an eco-terror watch list? We don’t understand how our data is being used and to me that is scary.

I think this is played out a great deal with the fact that AirBnB, Uber, Lyft, and similar sites are the biggest booming sites in Silicon Valley. These aren’t truly technological innovations, they are business model innovations, which is why they are so devastating. Sure they are leveraging technology in an appealing way, but they aren’t really technology companies. Their innovation is in the way they engage with their customers, the delivery method is the same in many cases, a room or a car, as their competitors. The competitors haven’t been able to figure out how to combine the nimbleness of the app with a dynamic business model. Based on historical evidence, it’s unlikely that they will be able to catch up and compete. Which is fine, because I’m sure their data usages will be as opaque as the new companies. We don’t know how they are collecting our data or what they are doing with it.

Stupid laws, poor Decisions, and corruption

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Uber and Lyft have been all over the news lately. They’ve been getting pushed out of city after city. They have had rulings go against them, like one in PIttsburgh today. The ironic thing is that the Judges were completely sympathetic to the people of Pittsburgh and Uber/Lyft, but had to rule in that way because of the way the law is written. I think it’s fair to say that the judges believe that if the people of Pittsburgh want these services they will have to work with the city council to have the commission responsible for Taxis change the rules so that Uber and Lyft are legal. Uber plans to running through the holiday weekend, in a similar fashion that they are in Austin, Texas where the services are also illegal.

The Supreme Court of the US has ruled in favor of Hobby Lobby in a case around if a privately held company has to pay for birth control based upon religious exceptions. However, there have been a lot of points indicating that there is hypocrisy in their approach. Through their 401(K) they own stocks in companies that manufacture birth control. They are willing to pay for vasectomies and vVagra, which seem incongruent with their beliefs. To be internally consistent Hobby Lobby should be against paying for vasectomies as well – the only difference between them and the Pill is that it is on the man not the woman. Should the results imply that Hobby Lobby must be internally consistent and be forced to divest those stocks and be prevented from paying for vasectomies? I’m not sure, but I think that there could likely be a lawsuit over that – forcing Hobby Lobby to explain the rationale of refusing to pay for one over the other. Which may have a different unintended consequence of hours getting cut to Wal-Mart levels and no one getting insurance except for salary employees.

Apparently a DOJ antitrust lawyer was invited to a big Comcast shindig for the Olympics. The only reason the person didn’t go was because of the rules put in place to prevent her from going. I think there are two ways to interpret this. First, she’s sincere and wants to go, but is aware that it could look bad for her and Comcast if she went. Second, she’s sincere and is saying that it would be corrupt if she went even though it did look like a lot of fun. I can see both sides, but I think it’s pretty fair when people assume this is part of the general corruption within the US government. Where the government has a revolving door between the regulated and regulators. How can you hope to not have general corruption though being a decent person. You get to know the people you’re working with and you want to help them because that’s what good people do. It’s the most likely type of corruption to happen – corruption through complicity.

All in all, these three stories don’t play well for the US being a shining light on the hill. We’ve seen the MIddle East blow up of late and there’s a lot of discussion as to why. One reason is that we’re trying to push democracy on people that aren’t ready for it, however, are we even ready for it? Each of these stories shows that we have broken laws that could be captured by business or other entities. I think that for a country to export their version of democracy they need to have their house in order and show how well the system can work. I liken it to process improvement. Porsche is one of the best examples around this – they became some of the best Lean consultants in the world through fixing all of their problems first. You need to build credibility and show you can execute, then you partner with a struggling supplier and build the change together. You cannot force it down their throat.

Our system is broken in many places and the past few weeks really highlights that.

New Economy vs. Old Economy – Creative Destruction

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My last post on this the New Vs. Old triggered a far to brief conversation at work about creative destruction and when it’s “right” for creative destruction to occur. I felt that this was an interesting tact for approaching this sort of conversation. My colleague pointed out that when new businesses challenge laws that are in place just because you have to question if that’s “right” or not.

First, what is creative destruction? I wrote about this over two years ago, so I’ll forgive you not remembering. Essentially, it’s whenever new businesses figure out new innovative ways to provide a service or technology that causes the previous service to be obsolete. Today, it’s more popularly described as “disrupting a market.”

So, looking at creative destruction and the laws that spring up around a given industry I believe that on the extreme there are only two types of laws. Those that protect the consumer/public/end user/employee and those that protect the industry. That’s not to say that this isn’t a gradient where the impact of a given law flows from protecting the public to the industry or in fact does both.

For example, Copyright used to protect both the people that produce music and the public. It did this by guaranteeing a state sanctioned monopoly for a short time period and upon expiration the public would then own the work. This enable the creation of the music industry and helped artists grow and make money. It wasn’t perfect for either party, but it worked fairly well. We all know of stories of starving artists that died and then their works became popular. Well, currently those works still make someone money and that isn’t good for the public. Now copyright lasts as long as 70 years past the death of the original artist. This clearly is no longer protecting the public but is protecting the industry. I would argue that with how far the pendulum has shifted it’d be moral to try to push the boundaries of these laws and creatively destroy the industry. This is currently happening with the copyleft movement.

In the last blog I wrote about AirBnB and discussed Uber in the one before that. These are very different than the music industry. Most cab companies have something called a medallion, which is something like a certification of quality for the vehicle and the cab driver. These are very expensive and have essentially a dual function of protecting both the public and the taxi industry. Uber is challenging these laws because it is a “ride sharing” program where you hail a person going in the direction you are, pay them some money and move on. The purpose of the company is to reduce expense of moving around a big city like San Francisco, increase the competition of the market, reduce the number of cars on the road, and to make money a different way. Depending on your point of view it’s breaking the law. It’s being sued and will likely continue to be sued.

Is it “right” for this company to operate this way? Well, there’s the argument that you don’t have to use Uber at all, so if you’re concerned about the safety aspect you’re mostly covered. Since it’s a personal vehicle the general public is at no more risk than if the car was driving around with one person rather than two. The person is already on the road and likely would have been anyway, so if they suck at driving you’re no more or less safe. However, it’s still possibly in conflict with the law. It’s a new way to hail a “cab” and the taxi companies are having problems adapting to the competition. So is it right or wrong? In this case, I don’t really know. I think that it’s “Right” that a company is forcing taxi companies to evaluate how they do business and to challenge the laws that are in place to protect the taxi industry. I think there could be risks to the public, but they aren’t huge.

There’s another aspect that I haven’t talked about in this model though. A company like Yellow cab has subsidiaries in many different cities. While Uber is an application and it’s “cabs” are in any city where a person is a member. There’s a huge network effect benefit for Uber, they need to do little to no extra work and they can grow into new markets. Uber doesn’t control which markets they enter to some extent or how quickly they grow in a given market, they can grow as fast as the market can support the growth. Yellow Cab has a much different growth potential and can’t enter new markets as easily. If Uber is able to service an under serviced area shouldn’t we support that? Isn’t that “right.” Furthermore, with this rapid growth model it’s nearly impossible to know what laws they are going to be in conflict with until it’s already in the market. Ignorance of course is no defense, but it removes some of the intentional aspects of the creative destruction.

I think that there are certainly moral questions that need to be asked around new businesses and business models. We should continue to ask them and work to make sure that if a new company is disrupting and industry the result is equal or greater protection to the public and a balance between changing laws that protect incumbent industry and the new entrant.