What if venture capital is keeping a viable ridesharing industry from emerging

This is not a hot take. I'm absolutely serious about this one.

Admittedly, all that venture capital flowing into Uber and Lyft put ridesharing services on the road a little sooner, but probably not as much as most people would assume. Once the two big enabling technologies (smart phones and GPS) were in place, the rest was fairly straightforward. There is little question that other companies would have stepped in to respond to the demand if there had never been a Lyft or an Uber.

We caught a glimpse of a world without the big two a few years ago when this happened:

Ride Austin was created by local tech leaders in 2016, after Uber and Lyft stopped operating in the city due to a failed referendum to overturn Austin City Council regulations. According to its website, it’s the only nonprofit ride-hailing company in the world, pays drivers more than other companies, and donates to local charities (as well as have a system for allowing drivers to do so with a portion of fares).

 As best I can tell from these accounts, Ride Austin is a better company than either Lyft or Uber in terms of management, corporate citizenship and having a business plan that consists of more than "burn large piles of money until a miracle happens." In a functioning market, it and companies modeled after it should taking over, Instead it's struggling to survive because Lyft and Uber are doing everything they can to kill it.

We've be seeing for a while an unmooring of business narratives from established business principles. We've discussed it in terms of hype and magical heuristics, but perhaps the most important element is the stunning volume of venture capital controlled by appallingly arrogant people who frequently aren't all that smart. Now we're seeing the flow of dumb money choking out actual innovation.

Why Dubai -- the inevitable home of the hyperloop

This is a point that has come up in conversation and correspondence frequently but I don't know if I've ever made it in the blog. The odds of ever seeing a full scale hyperloop remain slim, at least until there are major breakthroughs that greatly reduce the cost of constructing, maintaining and protecting a massive maglev vactrain system, but if we do see one, my money has always been on Dubai.

Virgin Hyperloop One has raised $172 million in new funding to bring its futuristic transportation dreams to life, according to new filings with the United States government. At least $90 million has come from existing investor DP World, a major Dubai port operator, The Verge has learned.

The hyperloop startup is also seeking up to $224 million in this equity sale, according to the filing. Eighty investors have contributed to the round, and specific investors weren’t named. The funding amount was disclosed in a new filing with the Securities and Exchange Commission on Tuesday, which was first reported by Crunchbase News.

 First off, they have the cash. The "hyperloop" (see point 1) was always a bit like a Mars colony in that the question was never "can we do it?" but rather "can we afford to do it?" The misinformation (and in some cases, disinformation) around the proposal has always been primarily about cost. Dubai can afford a hundred or so miles of track.

 More importantly, they have a reason to build it. Not for transportation, of course -- there's no way to make those numbers work -- but for tourism. The country's playground-of-the-rich standing brings in a tremendous amount of money. Whatever its other issues, the "hyperloop" has the makings of a first rate attraction.

 The fit isn't  just economic. This is the land of indoor ski resorts and half-mile tall buildings. A "hyperloop" wouldn't even stand out.

Seems like a good time for a repost -- Netflix + NBC/Universal

Disney takes full control of Hulu as Comcast steps aside https://t.co/4QcTytqlBQ

— Mark Palko (@MarkPalko1) May 15, 2019

Wednesday, August 1, 2018

Netflix Exit Strategies -- Comcast?

I apologize for writing these out of order, but one of the lessons I've learned as a blogger is that, if you want to speculate on something, get the post up quick because events have a way of moving faster than you could imagine and a position can go from bold and provocative to yesterday's news overnight.

For that reason, I want to jump ahead in the Netflix thread to exit strategies. Right now the company is sitting in a classic corporate throne of Damocles, king of the world but with a sword dangling over its head. Having a market cap bigger than Disney's is wonderful, but that stock price is based almost entirely on a highly questionable narrative. How do you gracefully cash out in such a situation?

One possibility I'd like to open up for discussion is some kind of merger or acquisition with Comcast (with the question of who would be acquiring whom rather bizarrely up in the air). There is something of a precedent here with AOL Time Warner, but Netflix and Comcast are a far better fit.

The two companies already have an extremely close working relationship. As previously mentioned, in the all important children's division, Netflix is largely dependent on licensing properties from the NBC/Universal library. NBC also produces (and apparently owns) one of Netflix's highest profile shows, Kimmy Schmidt.

Netflix also desperately needs guaranteed access to a major content library. We currently have a thread going about how the "plan" for Netflix to produce its way out of this problem is unworkable and probably insincere. Though not on par with Disney or Warners, NBC/Universal does have such a library.

The Disney Fox deal means that the House of Mouse now owns a controlling interest in Hulu. This has got to leave Comcast feeling somewhat out in the old. Pairing up with Netflix would put the company roughly on an even footing with its rival.

And finally, with the uncertain future of net neutrality, the business logic of the partnership is even stronger.

I'm writing and posting this in haste so I well may end up repenting it in leisure, but if we are on to something, I'd very much like to be to say you heard it (and discussed it) here first.

“She’s a good ol’ country girl"

When I get clear of some entanglements, I'm planning a big thread on the surprisingly complex relationship between partisanship and ideology in the Bible belt. When I do, I'll probably mention this.

From Politico:

Trump backers applaud Warren in heart of MAGA country
By ALEX THOMPSON

KERMIT, W. Va. — It was a startling spectacle in the heart of Trump country: At least a dozen supporters of the president — some wearing MAGA stickers — nodding their heads, at times even clapping, for liberal firebrand Elizabeth Warren.

The sighting alone of a Democratic presidential candidate in this town of fewer than 400 people — in a county where more than four in five voters cast their ballot for Trump in 2016 — was unusual. Warren’s team was apprehensive about how she’d be received.

About 150 people gathered at the Kermit Fire & Rescue Headquarters Station to hear the Massachusetts senator and former Harvard professor talk about what she wants to do to fight the opioid epidemic. Trump-supporting college students in baggy t-shirts, housewives in pearls, and the fire chief dressed in uniform joined liberal retirees wearing rainbow “Persist” shirts and teachers with six-figure student loan debt.

Kermit is one of the epicenters of the opioid addiction epidemic. The toll is visible. The community center is shuttered. Fire trucks are decades old. When Warren asked people at the beginning of the event to raise their hands if they knew somebody who’s been “caught in the grips of addiction,” most hands went up.

“That’s why I’m here today,” she said.

Warren entered the room from behind a large American flag draped in the station. Roving around a circle of people seated in fold-out chairs, she tried to strike a tone equal parts empathy and fury, while avoiding pity. She went full prairie populist, telling people their pain and suffering was caused by predatory pharmaceutical barons.

The 63-year-old fire chief, Wilburn “Tommy” Preece, warned Warren and her team beforehand that the area was “Trump country” and to not necessarily expect a friendly reception. But he also told her that the town would welcome anyone, of any party, who wanted to address the opioid crisis. Preece was the first responder to a reported overdose two years ago only to discover that the victim was his younger brother Timmy, who died.

Preece said after the event that he voted for Trump and that the president has revitalized the area economically. But he gave Warren props for showing up.

“She done good,” he said.

Others agreed.

LeeAnn Blankenship, a 38-year-old coach and supervisor at a home visitation company who grew up in Kermit and wore a sharp pink suit, said she may now support Warren in 2020 after voting for Trump in 2016.

“She’s a good ol’ country girl like anyone else,” she said of Warren, who grew up in Oklahoma. “She’s earned where she is, it wasn’t given to her. I respect that.”

A memorial repost

Friday, March 2, 2018

Explaining the principal-agent problem

I thought I posted this years ago.

The Butler and the Maid from The Carol Burnett Show

One more note on the Uber fleet -- it makes surge pricing go away*

[* realized what a bad title this was. Uber can still jack up prices at rush hour; it just won't put any more cars on the road.]

I'm nervous about using economic language here -- I'll probably get some of the terms mixed up -- but one of the the most attractive parts of the original Uber business model was surge pricing and the resulting elasticity of supply.

In order for this to work you need to satisfy a couple of essential conditions. First you have to have to have a big surplus of supply most of the time. It's the classic problem of staffing to the spikes. Second, you have to find a way to avoid paying for people and equipment when you're not using them.

Uber and Lyft actually managed to solve those two problems. There are a huge number of underemployed people out there with underutilized vehicles, and when they aren't carrying passengers, they cost the companies nothing.

Conventional wisdom recently has been that both Uber and Lyft need to jump on the self-driving bandwagon and acquire a fleet of autonomous vehicles as soon as we hit level five technology (something that's probably at least a good decade  away, but we'll put that aside for the moment). In addition to the previously mentioned flaws in this plan, both companies lose this tremendous latent supply. If they want to have a million cars available in a metro area for Friday afternoon rush hour, they will have to buy a million cars, and it's fair to assume a large majority of those cars will be sitting idle a large majority of the time.

It still feels weird to say this, but Elon Musk gets this one right.

Well, that pretty much just lays it out in the open

From a characteristically good LA Times article by Sam Dean

“Profitability in the first three-to-five years is not the focus,” said Daniel Ives, an analyst at Wedbush. “The focus is on doubling down on growth and further expanding this Uber economy over coming years.”

The company is just getting started, the thinking goes, and its core ride-hailing service, Uber Eats food delivery business and Uber Freight shipping logistics division are poised to take over many times their current market across the world.

“As someone who’s covered technology for 20 years, I could count on one hand the stories that are potentially transformational on the consumer enterprise side,” Ives said. “Uber has the blueprint to be what I view as the Amazon in transportation.”

Once Uber reaches that world-eating scale, the believers say, it will have such reach into drivers’ and riders’ lives that it can start tightening the economics, and introduce more profitable subscription models or, eventually, self-driving cars, and fend off any competition from other deep-pocketed tech giants.

Ives sees Lyft, which only operates in North America and hews closer to its core ride-hailing product than the expanding Uber, as a less enticing investment precisely because it has said it plans to work to reduce losses.

“A major strategic mistake that Lyft made was putting their back against the wall talking about the path to profitability in the next few years,” Ives said. “Ultimately with Uber, either you believe or you don’t.”

A few points.

1. We're talking about a world-wide monopoly. Among the other difficulties facing this plan, it requires a certain degree of buy-in from the various governments involved. This is a big stumbling block in Europe and an almost insurmountable obstacle in China.

2. Putting aside the unlikeliness of pulling this off, the phrase "tightening the economics, and introduce more profitable subscription models" is a pretty way of saying "take advantage of the monopoly and start gouging."

3. It's a bit off topic but there are few meaningful parallels between Amazon and Uber business models. The name is evoked here strictly for its magical power.

4. And perhaps my favorite part. Lyft's mistake was even thinking about paths to profitability. That shows a lack of faith, and for all magical thinking, faith is essential. If it works for the Great Pumpkin...

What if self-driving cars will actually hurt Uber and Lyft?

Two reasons for me to be nervous about this argument: first, it is very much in the minority and second, it puts position of defending the business logic of Elon Musk, at least in relative terms.

Of course, the level of autonomy required for viable driverless taxis is still a long ways away. That's not to say that AVs won't start having a big impact on transportation before then (my money's on long-haul trucking), but  go anywhere with no human on board functionality still faces big challenges.

That said, if you could get the technology safe enough and reliable enough, and you put aside Musk's typically exaggerated promises (the cars will not be paying for themselves in a year and a half), the basic idea of setting up a ride share company using privately owned Teslas is not necessarily a bad one.

By comparison, the argument, now absolutely entrenched in conventional wisdom, that Uber and Lyft will greatly benefit from the advent of fully autonomous cars continues to strike me as deeply flawed.

Here's an example. Imagine you own one of two delivery services in a town. Both you and your competitor have roughly the same number of trucks but you have invested a great deal of money upgrading and making sure that your vehicles are as energy-efficient as possible. So far, the cost of the upgrade has been balanced out by your savings on diesel so that you are able to charge roughly the same rate as your competitor. A drop in fuel prices will reduce your operating cost. Normally that would be a good thing, but the cost for your competitor will drop by even more so that he will be able to undercut you on prices.

The Uber business model is based on the fact that there are a huge number of underemployed people who own underutilized cars (virtually all private vehicles are underutilized). Since car and driver are already just more or less sitting there most of the time, Uber is able to offer rides at a rate that would not otherwise be sufficient to cover all the assorted cost.

(Technically Uber doesn't offer the rides, but you get my drift.)

{And, yes, there are people who buy cars just to drive for Uber. There are also people who buy commemorative plates as a hedge against inflation.}

If you take drivers out of the equation, suddenly it becomes unclear what advantage Uber has over taxicab companies, car rental services, car dealerships or any business that maintains a large fleet of cars. Let's consider the Hertz example here in Southern California. Currently you have locations spread around LA and Orange counties, with each lot having to maintain a minimum stock. With truly driverless cars, you can get awfully close to 100% utilization for much of the day. Just have your extra vehicles prowl for fares and make deliveries, then send them to whatever location needs them next. Add to that maintenance facilities, purchasing power, a late model fleet and countless economies of scale.

You can imagine similar scenarios for any number of other businesses and in each of those scenarios, Uber and Lyft get screwed over by large, new, well-positioned competitors.

All of this leads us to the dirty little secret of the ride sharing industry. Though it was made possible by technological innovation (specifically the smart phone), the stability of the business model depends not on sustained disruption and transformation but on things remaining basically the same.

This does not bode well

As many have noted, the competition for economic development has a record of corrupting and/or sharply lowering the intellects of state and local officials. The hyperloop and other Musk proposals have a history of doing the same thing.

Now imagine what is likely to happen when you combine the two.

Only three months ago, another Virgin Hyperloop executive, Assistant General Counsel Nathan Roth, said Texas was "basically ... in the lead" for a hyperloop route because transportation officials in the Dallas area had started a federal environmental impact study — something he said no other area had done.

Such an impact study is different than what Missouri completed and was recently lauded by Walder. Missouri's study released in October was a nine-month feasibility report conducted by Black & Veatch and Olsson Associates. It focused on social impact, potential station locations, route alignments, regulator issues and rights-of-way access.

The process of securing a hyperloop route is indeed complex — so much so that the U.S. Department of Transportation in March launched an organization to help new transportation technologies such as hyperloop come to fruition quicker.

Virgin Hyperloop isn't the only company pushing the technology made popular by tech visionary Elon Musk. Earlier this year, it was reported that Transonic Transportation LLC, a Louisiana-based startup, is working on a hyperloop route in Texas that would transport freight. The company originally investigated a route that would move people.

"There's just no way we can do passenger transport in Texas in the next 20 years, so we ended up refocusing on freight," co-founder Josh Manriquez said in January.

The freight route he now envisions would run from Laredo at the Mexico border to San Antonio.

[Side note. I may not have mentioned it recently, but maglev vactrains are even more problematic for carrying freight than they are for carrying people.]

It must suck to have a hundred million dollar production come in second to happy little trees

One of the fundamental rationales of the content bubble, a multi-billion dollar explosion in television and movie production, is that the value of older content will drop to next to nothing as the newer shows come online.

Content accumulates and, as we've said before, if older shows hold their appeal, let alone find new audiences, then it's not clear how the market (even allowing for healthy international expansion) can absorb a really big surge, and big doesn't begin to describe what we've been seeing.

From Forbes:

Calculations of viewer's habits have uncovered some interesting trends, one of which pointed out that older content seems to appeal to consumers of the on-demand audience.

As an indication of this, Hulu reports that viewers watched more than 1000 million hours of TGIF content in 2018. The ‘TGIF brand’ includes the series Full House, Family Matters, Sabrina:The Teenage Witch, Step By Step, Perfect Strangers, Boy Meets World, and Hangin’ With Mr. Cooper. All of these series premiered in the 1990s. Over 1200 episodes of this content is available for viewing.

Viewers were also draw to take in nearly 1 million hours of Bob Ross’ The Joy of Painting.

This series originally aired from 1983 until 1994, amassing 403 episodes. Star/On-Screen Instructor Ross passed away at age 52 in 1995.

Maybe we just need to give Clarke a bit more time

A couple of years ago, we ran a thread on this video from Arthur C. Clarke speculating on the world of 2000. In particular, we discussed suggestion that what we would now call telecommuting would make cities obsolete.

Here was the main reason we suggested for the failure of telecommuting to live up to its promise.

But I think a third factor may well have been bigger than either of those two. The early 60s was an anxious but optimistic time. The sense was that if we didn't destroy ourselves, we were on the verge of great things. The 60s was also the last time that there was anything approaching a balance of power between workers and employers.


This was particularly true with mental work. At least in part because of the space race, companies like Texas Instruments were eager to find smart capable people. As a result, employers were extremely flexible about qualifications (a humanities PhD could actually get you a job) and they were willing to make concessions to attract and keep talented workers.


Telecommuting (as compared to off shoring, a distinction will need to get into in a later post) offers almost all of its advantages to the worker. The only benefit to the employer is the ability to land an otherwise unavailable prospect. From the perspective of 1964, that would have seemed like a good trade, but those days are long past.

Of course, that was 2017. With two more years of an improving job market, we are getting closer to those post war levels, which makes this perhaps a bit less surprising.

The final stages of TEDification include your own personal Netflix special

Ken Levine gives us another example of the researcher -> TED Talker -> celebrity progression.

So I come upon a special by someone named Brene Brown. Who? Well, she must be famous if she has a Netflix Special. So I click on and it starts like every other stand up special – the performer backstage (basically a waste of the first three minutes), and then this attractive middle-aged woman steps out onto the stage. It’s a big theatre with balconies. You can’t do a Netflix special without balconies. And she immediately gets a standing ovation. Have I been marooned on a desert island for five years? Who is this person getting a standing O? She starts off with a few mild jokes that are getting screams. And then I start to realize she’s not actually a comedienne, she’s a self-help guru. But she’s one for Millennials because every sentence was peppered with “So I’m like… and then he’s like… and I’m like… and like they’re like…”

...

Finally, she makes reference to a TED talk she once did. So I decided to turn off the special and seek the TED talk.
...
I guess Oprah or somebody discovered it and the TED talk went viral. And suddenly Brene Brown is a social media star. She now has a bunch of books (I assume with covers that she is allowed to approve), a top draw lecturer, and Netflix Special-er.

Her message sounds sound and every few years another self-help guru comes along (where is Susan Powter when we need her?), but to me the most interesting thing about Brene Brown is her transformation from academic lecturer to zeitgeist celebrity. She’s now got the new hair, new wardrobe, new zippy patter, new Millennial-speak. Someone should really study that phenomenon. Hey, maybe there’s a Hulu Special in your future.

Another reminder that the stakes for Mr. Musk are very, very high

From CNBC:

Tesla said Thursday it plans to raise up to $2 billion, with $1.35 billion coming from convertible notes and $650 million from new equity, including a big purchase from CEO Elon Musk.

In a filing, Musk signaled his intent to buy about $10 million of the electric auto maker’s stock in the new offering. The total equity offering is for 2.7 million shares of Tesla. Musk’s purchase would be 41,896 shares. Before the offering, Musk owned about 20% of Tesla’s outstanding shares, worth about $12.6 billion, according to FactSet.

Forbes lists the next worth of Elon Musk as $20.3 billion as of 5/4/19. $10 million is not by any stretch of the imagination a "big purchase" for him. $12.6 billion, on the other hand, is quite a bit, particularly given the tendency of Forbes billionaires/"billionaires" to exaggerate their wealth (and Musk's tendency to exaggerate everything).

The collapse of Tesla would cost Elon Musk most of his fortune, not to mention his reputation and all those perks of celebrity. Maintaining his persona as messianic visionary and disruptor is absolutely essential for keeping the funding flowing in.

We will probably never know how sincere Musk is when he talks about Mars colonies, or maglev vactrains or telepathy brain chips, but it is important to remember that the buzz those futuristic "ideas" generate buzz that is worth considerably more than $10 billion dollars to the "real life Tony Stark."

[And it appears to be working. ]

Drinking from the wrong pipe -- Bill Barr edition

For those who just got here, we have a long running thread about the implications of Straussianism in the conservative movement. One aspect we've been particularly focused on was instability of a system operating within a relatively free society (as compared with cases where the state controls the media) that depends on channeling censored information and sometimes outright disinformation to the base while keeping the leadership well informed.

Here's how we put it in 2017:

The initial purpose of this "noble lie" approach was to use the propaganda to keep the base sending money and showing up for the polls through of a combination of rage and fear. As with all Straussian systems, it was assumed that those in power would be in on the joke while the people who believed the lies would simply serve as electoral cannon fodder.

At some point though (I suspect inevitably), a couple of things happen. First, the believers become leaders. This is become blindingly obvious with Trump, but the children of Fox News have been in control of the party since at least 2010 and the roots go back further. Remember how Dick Cheney insisted while traveling that all hotel televisions be tuned to Fox News?

The second, and possibly more dangerous problem is that a propaganda-fed base has no capacity to self correct, rather it continues follow unsustainable paths that only gain momentum, often exacerbated by ratcheting mechanisms. Soon you reach a point where, even if the leaders accurately perceive the situation and realized the best solution, they can no longer reconcile that reasonable course of action with what the vast majority of their supporters have been told to believe for decades.

We referred to leaders being caught up in the propaganda as "drinking from the wrong pipe."

Keeping all of that in mind, check out this insightful piece of analysis from Josh Marshall:

It’s a common refrain among non-Republicans that Fox News and the rest of the conservative media superstructure have essentially brainwashed 30 percent or 40 percent of the population over the last couple decades. But implicit in that belief is that it’s those people, voters, for lack of a better word the audience of national politics. Elites or high level appointees or operatives may cynically participate in this flimflam. But somehow they’re not part of the process, they not stewing in the same cauldron. They’re cynical, amoral, pick your description.

This is a major blindspot. Bill Barr is another Republican guy in his late 60s who’s been living, as Miller puts it, in that Fox News/GOP legal circles cocoon for two decades. Why would he be any different from your birther uncle you avoid at holiday dinners?

More to the point, why would we be in the current situation if the bacillus of Foxism or rightwing authoritarianism (whatever you want to call it) wasn’t as pervasive with the Bill Barrs of the GOP as the ordinary Joes you see at the Trump rallies? More articulate, yes. But different? Not really. And why would it be?

Beyond the stonewalling and outrageous comments from Barr yesterday, one thing that struck me is that more than a few times he didn’t seem familiar with basic facts of the case or the Report. I don’t mean points in dispute between pro and anti-Trump commentators. I mean, basic factual details. It wasn’t clear to me he’d actually read the Report itself. At least some of his arguments seemed based on Republican commentaries rather than the actual document. Much the same applies to his comments about 2016 “spying”. This isn’t to excuse any of Barr’s lawless and now, in at least certain cases, criminal behavior. But it’s not clear to me he’s even sweating the details on behalf of his authoritarian aims.

"Her Pilgrim Soul"

With all of the attention going to the new Twilight Zone (haven't gotten around to it -- the queue is long -- but I'm big Jordan Peele fan), I thought it would be a good time to look back at the uneven but often very good 1985 series. It was the show that brought J. Michael Straczynski to the grown-up table and started his surprising long collaboration with the notoriously difficult Harlan Ellison.

The show also revealed a surprisingly sensitive side to Wes Craven, who directed a number of episodes. Here is perhaps the best.




Nice to hear Charles Aidman's voice again.