Wednesday, June 14, 2017

A follow-up to Mark's post

This is Joseph

I wanted to follow-up on Mark's recent posts. One thing that needs to be carefully thought about with disruptive technologies is whether the legal framework will remain static or not.  Consider the example of Amazon and sales tax: for a long time the company benefited from having lower costs due to rules about collecting sales tax in states where it did not have a physical presence.  However, success breeds interest in collecting this revenue and, eventually, a successful company can no longer make the argument that special treatment is needed in order to grow a new industry.

With Uber, the fault line is clear -- as long as the drivers are independent contractors that's fine.  But the new types of variable pricing are undermining that argument.  Felix Salmon:
I do think that it does bring Uber one step closer to being the drivers’ employer, since the drivers are effectively being paid a flat wage for generating a variable revenue stream.
The answer is supposed to be driverless cars, but it is unclear that anybody is likely to own this space enough to make it a monopoly.  Both traditional car companies and Google look like competitors, and it isn't clear that these companies can be simply muscled aside.

Now it looks like the CEO might take a leave of absence, which isn't a good sign.

The part of this that is most painful is that Uber is actually probably a very good company in terms of producing a needed product and the huge valuation is causing more harm than good.  A real time ride hailing device on smartphones really does add a lot of value by matching customers with cars in a way that used to be quite difficult with a taxi.  That's likely to be a product of enduring value.  What's harder to see is how it can ever dominate the transportation space enough to make the market capitalization, weighted for risk, seem reasonable.

Addendum:  After talking with Mark, he suggested breaking out the steps for the driverless car pivot as being:

  1. Invent and perfect the technology
  2. Build a car company or partner with an existing car company on favorable terms
  3. Build the cars -- either by buying a fleet or selling them to customers
  4. Link the cars to their current taxi service
Some of these steps may be quite challenging.  A car is an expensive asset.  It is pricey to build them in bulk and it might be hard to convince people to lend them out (unlike the taxi scenario where the owner is able to stay with the valuable asset.

This also suggests that regulatory and insurance issues are tractable.  Who is insuring the car and how does it work for periods where it is completely empty?  Is summoning an empty car an invitation to theft?  It's not that these issues aren't soluble, but there are a lot of steps before success.

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