> Take Uber, one of their key examples. It'd be one thing if the company had simply outcompeted taxicabs on the merits. Cabs, after all, were themselves a fat and complacent monopoly.
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.
A few weeks back there was a train outage and I couldn't get home.
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.
This seems like a cartoonish example. I regularly take taxis from the airport in cities and I’ve never had anything close to a problem or bad experience.
The point is that there is absolutely nothing in the taxi system to enforce transparency or accountability. Every time you take a taxi, you are crossing your fingers and hoping that you get a good experience.
> absolutely nothing in the taxi system to enforce transparency or accountability.
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.
Back in my traveling consultant days, I would always ask the taxi driver for a receipt. They would (always, predictably) angrily hand me a post it pad and say "write it down yourself".
> Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history!
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?
Taxis in many areas dramatically increased costs by artificially limiting supply to sometimes absurd levels. The obvious example is NYC where taxi medallions (a transferrable license to operate a taxi) were going for $1.4 million not long ago [1], and rapidly trending upwards. $1.4 million for a license to operate a cab is no less brokenly unsustainable than businesses running off funny money from investors, owing to "perpetually" low interests rates motivating that very behavior.
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.
NYC had those medallion limits on purpose though, because the primary goal was limiting congestion. Manhattan is a tiny island with a small amount of road space, and taxis or Ubers roving around contribute significantly more congestion than a commuter parking their car for most of the day. And yellow cabs in effect mostly travel in Manhattan.
As with any sufficiently complex system, simple solutions fail to take into account knock on effects. As such, I'm curious about what impact that decreased traffic speed had. Did it reduce traffic deaths? Did it increase deaths in ambulances? Was it uniform or were/are there areas that are at a 50% decrease and more at 1%?
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.
Ironically traffic speeds in New York are measured using yellow cabs since they drive around constantly and are required to have GPS.
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
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-...
> NYC had those medallion limits on purpose though, because the primary goal was limiting 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.
The question is, do cities have an obligation to meet all supply if their residents don’t want to? People want all kinds of things that often contradict.
Now NYC is introducing congestion charging on all vehicle trips in Manhattan to try and restore traffic.
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.
> >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.
Per SEC filings Uber has close to 4 million drivers worldwide. Even if you divide by 4 to account for part time drivers, you'd need 10k dispatchers. If their engineers make 5x as much as the dispatchers than you could have 2k engineers solely dedicated to automating dispatch and still break even.
I think they roughly have 2k engineers total and I have no idea what the breakdown is of what they do.
One thing I didn't see discussed anywhere in this entire thread is how impossible it was to get a cab at night (at least in Boston). On a Friday or Saturday night it was absolutely impossible to get a cab past 11:30pm. When I would rarely find one, they would ask for $50 cash to go to the destination, which would have been a $10 ride if metered. I frequently walked 5 miles home from a party at 1am. I have even heard stories of girls sleeping over at random guys apartments since it was likely safer than walking home alone. All of this completely disappeared when ride sharing appeared.
Which reinforces a point that I couldn't make above (because I had to go to a meeting)
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?
That may have been an experience, but it was not my experience at all. I have found taxis to just be better than Ubers/Lyfts. And yes, that includes when they were new.
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
Even in the biggest cities if you got 15-20m outside the downtown you were totally out of luck pre-Uber. I have many memories of "calling a cab" in south San Francisco on a friday night and pretty much being laughed at. Uber/Lyft were literally magic when they first came out and you could see your driver coming to you on a map.
Literally. Seattle was pretty okay with taxi service in 2011, but in San Francisco, the same taxi company that dropped me off in South San Francisco one day in early 2012 just told me I was on my own and they could not help me when I tried to get a ride home. No numbers for partner companies or suggestions or anything. I was stranded, and willing to pay top dollar. I could not believe the complete failure of the market just a few minutes outside the city.
San Francisco taxis were the worst. It was impossible to get a cab on Friday and Saturday nights, and they always blocked any attempts to add more cabs to the roads. I have zero sympathy for them.
I've had Taxis drive away when someone in my party said "we're going to <place in South Brooklyn>" before anyone got in the vehicle. Cabbies don't want to leave Manhattan. And for that reason you also won't find them outside Manhattan. There's the green borough cabs, but good luck finding one to flag down on a random street in Bay Ridge.
Taxis probably aren't great in smaller areas, and if Ubers were primarily trying to locate themselves there and compete against cars that come when you call in those areas it would probably would work fine. I have to admit my experience with taxis is less dense areas was fine, but is probably more skewed, because taxi services were optimised to take people to/from transportation hubs (e.g. airports, trains) and hotels, and that's how I used them.
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.
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.
> because taxi services were optimised to take people to/from transportation hubs (e.g. airports, trains) and hotels, and that's how I used them.
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.
My wife and I don’t have cars and we travel all over the US “nomadding”. It’s a great thing no matter where we are, we can just take Uber from place A to place B anytime day or night.
I speak a little Spanish. But I couldn’t imagine trying to get around Los Cabos, Mexico for three weeks without Uber.
Yeah, it's certainly not everywhere. My brother has a house near a midsize (by Maine standards) city and I could not get an Uber or Lyft when my car broke down last summer and others told me that was normal. (Not that cabs are great either.)
And they're pretty thin around where I live 50 miles outside of Boston.
Well there was the one time I took Uber to the outskirts of Puerto Rico to go horseback riding and there was no service to get home and I ended up paying $200 to get back to San Juan to taxi service.
One small beef with Uber and Lyft is the vastly understated estimated pickup time at airports, LAX in particular for me.
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)
I read that Uber and Lyft respond with a "quick enough" time that you don't switch to the other regardless of if they have a driver assigned. Based on how they act, I believe it.
> All this to say, any sort of competition on pricing is totally orthogonal to competition on product.
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.
Having traveled and taken cabs in many other places of the world I can confidently say Uber/Lyft/Similar apps are miles ahead in user experience than the old way. In other cities (ex. Istanbul) apps haven't quite caught on and the cab experience is much worse.
9 years ago I spent a significant amount of time in Dublin and was impressed by how the local taxi drivers integrated with Hailo. The app allowed you to call a cab from an out of the way location, you could see where the cab was, and you pay (and tip) in the app. If Yellow Cab had adopted this 10 years ago, Uber would be a cautionary tale like pets.com.
I read that Hailo ran out of money trying to expand to NYC. I lived in London when it was big and it seemed to just disappear at some point. Failing like that after becoming dominant in London is simply puzzling to me. Sounds like a license to print money once most of the cabs use it.
To say competition on pricing and product are orthogonal is to treat this like some sort of study and completely ignore the real world conditions that these businesses live in.
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.
I always wondered about the elasticity of Uber prices. When I’m traveling for business, I don’t care it’s someone else’s money. When I’m on vacation, I expect to spend money. When I’m going out for drinks or just didn’t want to deal with downtown Atlanta traffic and parking when living in the burbs, I also didn’t care.
In Prague, price conscious people are using public transport. Then I think most people have multiple apps Uber/Bolt/Liftago and before making a trip they check each for the best deal.
I’ve taken cabs in Canada (Toronto, Vancouver, Montreal, always as a tourist/business traveler) and it was exactly as described.
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.
There's also the increased security aspect. Before you get in a car, there's a map, with both you and the driver's phones reporting GPS updates back to the mothership.
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".
You don't get the issue down to zero (and probably can't without self driving cars), but you do get the benefit of a record of where the car goes. It's not perfect, but it's markedly better than it was.
Except nobody is showing any evidence there has been an improvement, rather, everyone just says "Surely Uber does it better and does the right thing", which is absurd.
I know the women in my life feel structurally much safer. They don't have some weird attachment to the companies, but recognize that the overall system involved makes the possibility for shenanigans much less likely. There's an emergency contact button right in the app, linked to the GPS tracker.
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.
Ah, so you think the better solution is taxi cabs, which have zero tracking, transparency, and accountability?
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.
That's why there are regulations. In Germany, for example, cabs can't deny a ride because you look weired, you smell, your are drunk, and similar things. They are required to take any ride. The levels are very high for them to deny a ride. The punshment would be to cancel their cab license.
Cabs are even required to take kids with proper safety and to take people with disablities like wheel chairs.
They have similar laws in the US too, the problem was that cab drivers would never follow them! They are supposed to take you anywhere you need to go, but I was repeatedly refused transit because my ride was too out of the way and one time since it was too close to the airport.
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.
Uber blacklists people all the time for pursuing chargebacks when Uber charges a customer despite failing to provide the service. Here's an example of predatory behavior from just yesterday: https://old.reddit.com/r/UberEATS/comments/151k5hq/whats_wro...
My counter anecdotal example is that this never happened to me or anyone in my social sphere after 10 years of Uber rides, but phone number blacklisting happened to almost everyone I knew. /shrug
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.
I believe it was. Had a bit of controversy at the start with the guy fighting some taxi companies over it, but overall it does the job fine. The problem is that the taxis themselves suck.
The 1b that happens with tech companies is different than calling a taxi and not taking it. In this situation Uber/Lyft is still able to charge you and so they won't feel as slighted.
> [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.
1a doesn't happen if you call a "black car" service. Different service level.
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.
> All this to say, any sort of competition on pricing is totally orthogonal to competition on product.
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.
>>: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.
Pricing may be orthogonal to product, but both are needed profitability. You gotta have something people want AND make a profit.
If VC has showed us anything, it’s that you don’t have to be cash flow positive. You just have to present the illusion that you just might be one day long enough to cash out.
The real people being scammed by all this are secondary investors and pension funds.
>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
> There’s nothing inherently evil about large corporations
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.
> Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history
> 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.
I always see people say this but I don't know how they were subsidizing rides. I was an early Uber driver when I was in grad school and I received roughly 2/3rds of what riders paid. Was Uber's third take too low?
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.
Maybe, just maybe, your singular experience is not accurately representative of Uber's business? You can go look up how they were clearly subsidizing fares.
Right—I'm sure they won some business because they were actually a better experience in some ways, but I've ridden in like three taxis ever in my nearly 40 years on this planet, and never in the place where I live, but have taken probably thirty or forty ubers/lyfts, most of them near home. Why? Taxis were too expensive, so I never even considered them an option. Ubers and Lyfts were stupid-cheap for a long time.
Another big impact of Uber/Lyft was safety of getting around in poorer foreign countries, particularly ones where you don't speak the language. It's much more safe and consistent to take an Uber at night in Colombia as a foreigner
> Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history!
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.
Oh wow, I didn’t know you could say that. I should have told the taxi driver this when he said my card was declined (the reader was broken, so he had to use his phone with the Square dongle). I ended up having to use my other (debit) card, which annoyed me a lot… Paying cash was not an option, since I needed a receipt. He didn’t even have a printer, so I had to enter my email, which annoyed me even more. This was from Orlando airport to a hotel ($65 wo/tip)… going back I went with Lyft and it cost ($42 incl tip) and there is no problem paying.
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.
> 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.
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.
> Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history!
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.
> Uber/Lyft did outcompete taxis on merit, and to suggest otherwise is revisionist history!
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.
One of the things that's interesting here is what's the fundamental difference between using your phone to order a cab using your voice, and using your phone to order a cab with your fingers ( an app ).
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.
Well, location and (aparently) attitude of workers/service providers does matter. If I call a taxi, it arrives with a 99.9% probability. And it usually takes around 5 minutes to arrive. In fact, fiddling with an app to order a taxi would be more time consuming then the 10 second phone call. IOW, if you have working infrastructure, Uber isn't even a competitor.
NYC is the only city I've found that seems to be good at #2 and #3. #2 because route finding is generally pretty easy to follow so scamming people is harder. #3 has been much much better since its been made illegal to get to the destination and then reveal that the card reader is broken.
(I'm sure there are other cities that get it right, but they're hard to find in the US).
What is this crap people in the valley have to say about taxis? That's a problem with where you live, not with taxis. Taxis everywhere I've lived have always been fine, safe, clean, boring, and the prices aren't great, but neither is uber--they seem on par where I live
Except taxi drivers get paid enough to raise a family
There's no way this is a valley thing. I've had mostly terrible taxi experiences across the UK. The exception being advanced airport rides, where they are paid more for the ride and the cost is fixed. Two taxies in a row at the train station recently said their meter wasn't working and it's cash only.
I live on the east coast. A decade ago driving nights for Uber across three different cities and picking up passengers from all over the country, half the people I picked up wanted to tell me their taxi horror stories. Your experience is the exception.
I agree. In my area, taxis were never bad at all, and Uber/Lyft was not much of an improvement. Uber/Lyft got a foothold here purely because they were cheaper.
You forgot to mention that even if you call a cab, and even if it shows up, someone else can just take it. The one time I tried taking a cab, we called and ordered one, waited outside, and then watched as it picked up a group of people up the street and drove away.
Dodging regulation, aka cheating, disqualifies a party from a competition. And today we have rideshare drivers refusing to drive into bad neighborhoods just like cabbies did before regulation - consumers are worse off in that example and there are others.
Everything you’re mentioning happened due to the invention of the smartphone, a nearly perfect ride hailing device with GPS and payment ability included.
It’s like saying Netflix invented streaming video.
I think part of the problem is tipping. Remember how Uber used to say tips weren’t necessary and then they decided to encourage tipping so that they could pay drivers less. The problem is a huge chunk of users don’t bother tips. I tried driving Uber/Lift for a couple days in 2019 to see if I could make extra money and noticed that the majority of my fares were just people going to their job at Burger King and I’d make like 4 bucks for that and no tip. And I wouldn’t really expect people using Uber as transportation for their low wage job to be tipping much but it just showed me that the whole system was pretty broken.
Thiel's quote from the article "You create a monopoly when you invent something new".
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).
I don't see that quote anywhere. Did Thiel actually say that? I thought the main gist of his book Zero to One is you want to create a monopoly but inventing something new doesn't necessarily lead to monopoly. You need the other moats he talks about: network effects, brand recognition, etc.
You’ve identified the difference between a monopoly and an enduring monopoly.
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.
I guess the word "monopoly" is not super precise but the gist of the definition seem to imply otherwise. "a single seller or producer that excludes competition from providing the same product". If any competition can provide the same product as soon as they learn about it, it's not a monopoly. Monopoly implies the inability of competitors to enter the market at all.
Yes, that’s the play on (or expansion of) definitions that he is making.
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.
The parent comment linked an article. In that article is an embedded video. It’s one of the first few things thiel says after thanking the interviewer.
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.
If you think you have a solution that is the best, and it's much better than what exists, shouldn't you strive to let everyone access it?
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)
I derive the function driving this behavior in my third proposition [1]:
“ “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.”
> Thiel's quote from the article "You create a monopoly when you invent something new".
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.
This isn't an uncommon attitude, tech has just had the unique ability to re:invent itself and build defensive moats faster than competition can catch up.
Thiel did not actually coin that phrase, as he has noted many times. It was coined by some writer or editor at (I think) WSJ as a catchy headline for a synopsis/excerpt of Zero to One. He thereafter adopted it due to its catchy, provocative nature.
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".
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 might have a different perspective if you lived and worked in a region whose once vibrant manufacturing industries had decimated by globalization. Or if you invented something valuable and had it instantly ripped off by a Chinese competitor beyond the reach of western IP laws. Etc. etc.
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.
That they got away with the term "blitzscaling" still offends me. We had a plenty-adequate term for it before: dumping.
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.
Predatory pricing is the the general term. Dumping is predatory pricing done in the context of international trade.
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.
I used the term dumping specifically, because (to my understanding, and hectored at by an econ professor once who made it stick) it refers to trade out-of-your-home-market rather than purely "international trade"--and what 'home market' is is, itself, a thing for debate.
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.
Every definition ive ever seen including the wikipedia page is pretty clear about it being specific to international trade and thats how Ive always understood it.
Blitzscaling means growing quickly. Using capital to fund growth is good for everyone. That's how we got spacecraft and nuclear bombs (ehhh...).
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.
It is not a problem that has been solved if I understand your last sentence correctly. It is a problem that many people have different solutions to and each group proudly proclaims they have solved it.
Classic monopoly behavior w/o the monopoly: run competitors out of business with cheaper, better service then provide more expensive, worse service once the existing players are bankrupt. Calling them "start ups" and ignoring the major money backing them shouldn't change the equation.
Without the monopoly, it’s not really problematic though.
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
Yeah it's funny how for example, Uber kind of followed a curve.
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.
i actually prefer yellow cab. even though my uber rating is in the top 1%, I'd rather not have to worry about annoying the driver, not accidentally closing the door too hard, making sure to not keep the driver waiting, being responsible for everyone I'm riding with, etc.
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.
Last time I took a cab (a few weeks ago) my friend spent 5 min negotiating at the beginning, then it took a while to explain to the driver where to go and he got lost anyway. So yeah that doesn’t really make me want to stop using Uber in the future.
Or the costs to them are so abstracted that it's difficult for them to add it all together including gas, commercial insurance (or probability of a situation with liability or damages with no insurance coverage), depreciation of the car, etc.
Potentially they were/are trading long term depreciation on their vehicle, as well as the opportunity cost of working for a traditional employer for short term cash infusions and not really making any money.
Actually, yes, there are. They're called landlords and health insurance companies. When your literal life is in someone else's hands, you do what you need to satisfy them.
The drivers are for sure making money now.
But there was a long period where the rides were like 80% cheaper than they are now, in which they clearly were not, all-in if they ran the math.
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.
Also, the rate the drivers get is pretty much inversely related to the rates the consumer has been seeing. I've heard from many drivers that their pay has dropped considerably podt-IPO. When the services were trying to corner the market with investor money, they subsidized both consumer and driver. Now that money has dried up and the services are predictably squeezing both sides of the equation.
I don't get this, none of Uber, Lyft, AirBnb, Vrbo, Hellofresh, Blueapron DoorDash, Postmates, Casper, Instacart, Carvana have driven their competition out of business and people are still choosing them. It costs nothing all all to not use them and you at all times could have switched back to whatever you did before.
Money excuses any behavior for some folks, but I think the thesis falls apart when assuming a salable product/service has real associated monetary value.
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.
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.
> The point is that the entire model deployed by VCs is to profit by disrupting the marketplace with predatory pricing, and leave the losses to the suckers who buy into the IPO.
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?
Thank you. The journal article is a whole lot less sensational. “ In this Article, we argue that venture predation can harm consumers, distort market incentives, and misallocate capital away from genuine innovations. We consider reforms to antitrust law and securities regulation to deter it.”
"genuine innovations" reveals their prejudice: Uber and Lyft had to drive 100s (perhaps 1000s) of inventions, from mobile and database platform changes to user experience. Legacy taxi companies weren't going to attract the kinds of engineers who could drive them, let alone the product leadership commitment to see them through.
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.
I didn't quite buy the connection they were making between the predatory pricing and the offloading shares onto public markets. Both are present, but I don't see the two together as a smoking gun that would make this kind of predatory pricing special.
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.
You aren't mentioning the people hit by this behaviour - people who use to run cab firms or drive their own cab. Or B&Bs and small hotels.
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.
"Cab firms were monopolistic, often user-unfriendly, and needed a change" and "Uber is a horrendously predatory company that should not be allowed to operate outside the law or undercut competitors due to not having to make a profit" are two statements that can coexist.
Just because what we had was bad doesn't mean that what replaced it was better.
Moral hazard is a situation in which one party engages in risky behavior or fails to act in good faith because it knows the other party bears the economic consequences of their behavior.
I think the most effective argument against Wansley and Weinstein is that the markets may reset after the companies involved collapse, so you essentially get a transfer of value from shareholders to VCs and from shareholders and VCs to consumers at the cost of disrupting (in a very negative way, certainly) existing competitors. In other words, given a long enough time horizon, it's not really a monopoly problem, it's a fraud problem, and the losers are retail investors who were gulled by VCs funding impossible and unsustainable business models in pursuit of IPO-happy greater fools. (And, if the bloom comes off the SV VC rose, as it well should, then those con games are less likely to work, and we'll see a rapid collapse in valuations, junk IPOs, investments, and, relatedly, these same attempts to corner monopolies in markets -- like software -- where there is no natural barrier to competition.)
> I think the most effective argument against Wansley and Weinstein is that the markets may reset after the companies involved collapse
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.
Again you are forgetting those people who have their livelihoods destroyed by being unable to compete with free money.
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.
Elaborate, how are employees bigger losers than retail investors? The former would have to find new jobs, the latter could be screwed out of their life savings.
Okay, I'll go burn some money on bad investments. You shit in a diaper 10 hours a day (because if you go to the bathroom too many times you get fired) for the privilege of sliding further and further into debt in an attempt to live on $15/hr. We'll see who the bigger loser is.
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.
I think it's a larger phenomenon at play, if it's a news story in front of a paywall, it will have inflammatory and misleading language at the very least in the headline in order to go viral.
Agreed, this use of scam can quickly reduce to "most business models are scams." And that is less than useful.
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. :(
Your argument about “predatory” versus “unsustainable” pricing is a distinction without a difference. All predatory pricing is unsustainable. You’re literally selling at a substantial loss to take customers away from your competitors and drive them out of business. It is an unsustainable price. That’s the whole point.
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.
Predatory is selling at below cost of manufacture. You do it in a way that is unsustainable with regard to making and offering of the product. Much of tech's unsustainable pricing is that they cannot maintain the growth of the company at that pricing forever. Which, tracks, as they also cannot sustain that growth forever.
Funding follows founders that consistently execute in scaling a solution. The big bet is that these same founders will be able to figure out profitability along the way. The challenge is that there are many "business" that can scale but are fundamentally not profitable, i.e. Groupon.
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.
Even without SPACs, California is where narratives are made and stories are written (think Hollywood's music and movie industry).
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".
Groupon is a bad example because Groupon itself is actually fundamentally profitable. It's the value proposition that is flawed - the merchants that use it don't get any value add but Groupon itself is absolutely profitable on every transaction. I mean, how can it not? It literally just takes a middleman fee for selling discounted services, without having to bear any cost of fulfillment.
Yes, they are. I am just a 401K investor, and when I learned about SPACs, I went "wait WHAT?".
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.
The article is leaving out a key fact. You have to build something people want. You can throw as much VC money onto a bad product (and business model) and it still won't work. Figuring out a new product and viable business model is hard. That is the reason why so many startups fail.
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.
I'm not sure that's the main thrust of the article. The idea here is that VCs can profit regardless of whether or not the product is viable. The rationality or irrationality of the company itself is not relevant. You can have a completely non-viable company disrupt an industry where ultimately everyone loses except the VCs, and the VCs' incentives are not necessarily aligned with what consumers would consider to be success.
Not only might consumers favor an inferior product that simply undercuts market pricing, even a higher quality product that has been subsidized to grow market share may be degraded for profitability. I believe this paper is saying that the momentum of market share provides a window for VC to extract profit and exit regardless of the quality of the product.
"Silicon Valley" is not a monolithic actor, and certainly not a scam on some general level. There are scams within Silicon Valley, just like there are Madoff on Wall Street, and car dealerships charging too much for repairs in most small towns.
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...
> "Silicon Valley" is not a monolithic actor, and certainly not a scam on some general level
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.
There are multiple cultural streams within Silicon Valley. Anyone who lives there could tell you that. Again, not a monolith. One of those currents easily tips into scams, and they are the least respectable.
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.
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)
All eyes are now on the companies that don't have any real offering, or couldn't be competitive in the current market without loss-leading. Which, I mean, good. If you have a company that drives real value with its product, that's a good thing -- that's what we should be striving for.
Otherwise you just want to have a big VC booze and coke party.
I would be very bearish on California right now. All the tailwinds that its had for the last 30 years are slowly unwinding. Nevermind the fact that China's economic growth 6% is equal to the percentage of US-China flights as compared to pre pandemic levels.
> The transfer of lousy tech equity to late-stage investors who have been led to believe it's valuable sure looks like a good blow-off to me.
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.
> "Of course we're committed to automated driving," the exec told him. "The numbers don't pencil out any other way."
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.
I'm no fan of most business models and the way SV money works, but some of this was suspect.
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.
If you thought the whole point had anything to do with Lyft's self-driving efforts, I think you missed the point, or maybe stopped reading before it got to the point (it did bury the lede a bit).
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.
It's meant to be an illustrative anecdote, I do think there's some validity to the idea that the industry is based on taking on heavy losses for many years to own market share while simultaneously building out tech infrastructure and capabilities to shrink operational costs once you own that market...do you not?
I really "enjoy" when academics try to judge tech companies they don't really understand.
Look, Uber's finances still aren't great. Doesn't apply to all of its peers across the world. If they burn through all their money and can't raise more, something will happen. As a user, I will say that I will continue using ridesharing apps even if conventional taxis end up cheaper.
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.
What a terrible article. First, this is hardly a new insight, having been discussed extensively even on HN for many years, much less in the press, blogosphere et al. Isn’t it in Thiel’s book?
Second, it only applied to a few businesses.
(And those few were mostly in SF, not SV anyway :-).
Third, if all this is true it means all the fake wunderkinds on HN won’t be able to startup the next grift that withdraws value from the consumers’ pockets and places it into theirs! Oh no!
- 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?
the article is saying that the business models exhibited by some companies are unsustainable, and exist only to diminish competition in the market (which is a net loss for consumers)
in other words, it's descriptivism, not prescriptivism. Do you agree with that description presented by the article?
It's sort of prescriptive though in that the lawyers say they want to chip away at this.
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.
indeed, it's not sustainable, and with both the aim and effect being the destruction of competition in the market, it's a loss for consumers. I do have a problem with such societal losses.
I think I was asking when has it happened that a tech company has used these tactics to put everyone out of business so as to create a monopoly. I feel like that's what the article advocating against. But I'm not sure it's a real problem.
just to be clear, in response to a discussion about big tech companies working to stifle competition (which is bad for consumers), you're asking for examples of something different, in which there is a complete monopoly with no competitors whatsoever?
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
Hmm. This seems to miss the point. Consider that when you invest in exchange traded stocks: your goal is not to predict which company will make more profit. Your goal is to predict which company other people will end up thinking is worth more. These things are somewhat connected obviously, eventually, but they're not the same.
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.
I knew UberEats/DoorDash were losing money at an astronomical rate (~1.3 billion in 2022) but I didn't realize that was nothing compared to what Uber is losing (9.1 billion).
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.
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.
A corollary to this is that many of these venture-backed businesses that use predatory pricing also exert strong downward pressure on wages of the “contractors” they employ who would otherwise be able to find full time jobs in the incumbent industry.
This was true back in the pets.com day as well. Yahoo itself was fueled by ads bought by startups fueled with venture capital. The goal was to IPO as fast as possible, and that is a game of musical chairs in some sense.
> 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.
> Where Wansley and Weinstein break important new ground is on the other legal standard set by the Supreme Court: recoupment of losses. If Uber and WeWork and the rest of the unicorns are perpetual money losers, it sounds like the standard isn't met. But Wansley and Weinstein point out that it can be — even if the companies never earn a dime and even if everyone who invests in the companies, post-IPO, loses their bets. That's because the venture capitalists who seeded the company do profit from the predatory pricing. They get in, get a hefty return on their investment, and get out before the whole scheme collapses.
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.
Even more ironic here is reading criticism about economic model and ethics on Business Insider, a hive of scum and villany that regularly publishes sponsored content and outright lies from anonymous sources.
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.