Days of Futures Past -- Apple edition

From Matt Novak's essential Paleo-Future: 

Apple Computer was an innovative and nimble company in 1987, so it makes sense that people at the tech giant would imagine a world dominated by Apple ten years into the future. And that’s precisely what it did when it released this goofy video from the perspective of the year 1997.

The 1987 video, which can be viewed on YouTube, is clearly meant to be tongue-in-cheek, but it shows viewers an amazing world of technological innovation with a handful of things that we actually got.

The video shows Apple payphone stations that communicate with satellites in space (at least they got the satellite part right), and something called the Vista Mac II, eyewear that doubles as a computer (something that we’re still waiting on, sadly). And there’s so much more.

The article has some interesting context on what the 90s were really like for Apple, but there aren't a lot of details about the production. It has the feel of something internal for a company event. These always manage to be a little bit better produced than you expect and yet a little more corny than you're ready for.

That 72% sounds bad until you look into it, then it looks worse

As we've been  over before, the only halfway credible narrative that anyone has come up with to justify the stock price of Netflix is that it will produce so much valuable content of such long-term value that the company will not only be able to survive without the support of the studios, but will completely dominate them. Even if the studios had been able to stop Netflix at one time, the company has too much momentum now. At least that's the story.

If you go by the hype (paid for by unprecedented marketing and PR budgets), it's easy to believe that Netflix originals dominate the platform. That's not the case.

From Gizmodo [emphasis added]:

At a tech and media conference on Tuesday AT&T CEO Randall Stephenson said that the company will yank WarnerMedia content from other streaming services so that the assets will be exclusive to the streaming service his company is launching soon. That would mean that Netflix would lose popular shows like Friends and Hulu is going to lose audience favorites like ER.

... 

“Pulling it away (from Netflix)? It’s certainly something we’re willing to do,” Reilly said, according to Deadline—adding that he doesn’t think sharing assets is a good model and his “belief is that they should be exclusive.”

The move would be a major blow to Netflix. The company paid $100 million for exclusive streaming rights for Friends through 2019. Analytics firm Jumpshot showed late last year that Friends was the second- or third-most watched show on Netflix. And, as Wall Street Journal highlighted, 72 percent of Netflix viewers’ watch time is spent on non-original content, much of which is owned by WarnerMedia. The move would only add to Netflix’s incoming difficulties with the launch of Disney’s new streaming service. A recent survey conducted by Hollywood Reporter and Morning Consult showed that 28 percent of Netflix users said they would cancel their account if Disney pulled all their titles—including Marvel and Star Wars properties—from Netflix.

And that 72% understates the problem. Apologies to the regulars who have heard this before, but from an intellectual property standpoint, Netflix Originals range from complete ownership to licensing agreements where the company get no longterm rights whatsoever.

While we can't know the exact details of the contracts, it's unlikely that IP based companies like Disney or Mattel would let go of properties like Luke Cage or She-Ra. Furthermore, in addition to She-Ra, most of Netflix's other prominent kids' shows appear to be owned by studios like Universal. Historically, children are disproportionately heavy viewers, and they seem to be watching lots of original content that Netflix doesn't own.

If we put these shows with that 72%, little of the viewership seems to be going to shows that Netflix actually controls, which leaves it very much at the mercy of the industry it was supposed to disrupt.

Many Tesla bulls remain studies in faith

We could go back and forth on what an appropriate valuation for Tesla, but it's difficult to argue that a reasonable estimate (even a bullish one) hasn't moved at least a little south over the past year or so. The finance and cash flow picture has gotten truly ugly. Most indicators suggest sharply slackening demand. The competitive landscape is increasingly daunting, both on the EV and AV front.

Most Tesla bulls have adjusted their estimates as the picture has gotten more grim, but many remain steadfast, perhaps even willing to double down. The following is an informative if extreme example. Not surprisingly, the analyst's faith in the company is explicitly tied to her faith in Elon Musk and his ability to "achieve the impossible."

Ark Invest, whose founder predicted on CNBC last year that Tesla could hit $4,000 per share, stands by that call, even as the stock has lost about 40% of its value in 2019.

Tasha Keeney, an Ark analyst, said in an interview on CNBC’s “Squawk Box” that Wall Street is “misunderstanding the Tesla story” and the potential upside of Elon Musk’s vision. Musk’s accomplishments are widely acknowledged, but he’s gotten himself and Tesla into trouble with the government over his comments, stemming from an August tweet about possibly taking the company private with “funding secured.”

Keeney said Ark believes so strongly in Tesla that its five-year, bear-case scenario is $560 per share, which would be nearly triple the value of where the stock closed Thursday at $195.

This week, Morgan Stanley put a worst-case of $10 per share on Tesla. A day later, Citigroup said the stock could fall to $36 per share.

...
Keeney, however, said Ark is not troubled by additional fundraising. “If we talk about cash, and those worries, in our valuation model we actually expect, we have Tesla raising an additional $10 billion to $20 billion in the next five years. And we’re actually OK with that.”

“We want them to get as many cars on the road as possible” with the next step of running a “fully autonomous taxi network.” Last month, Musk promised 1 million vehicles on the road next year that are able to function as “robo-taxis,” a claim that was generally thought to be optimistic, at best.

On an investor call earlier this month, two of the invitees told CNBC that Musk predicted autonomous driving will transform Tesla into a company with a $500 billion stock market value. As of Thursday’s close, Tesla’s market cap was just over $34 billion.

Keeney admits that Musk sets “extremely aggressive goals” and often falls short. “But in doing that, in sort of pushing to that target, they’ve been able to achieve the impossible so far.”

Would Tesla be a healthy company today if it had never crossed the Ponzi threshold?

I'm perfectly serioius about this thought experiment.

LA Times: Elon Musk’s growth story is looking more like a fable as Tesla Inc. enters survival mode. https://t.co/PCmJA17tsn

— Russ Mitchell (@russ1mitchell) May 21, 2019

This is an enormously complicated question, far beyond my ability to address seriously, but it's not a bad thought experiment. Imagine back ten years ago, shortly after the company received its half billion dollar loan from the DoE, Tesla had decided to limit their growth and keep the focus on high-end (and high-margin) sedans and SUVs with an eye on the truck market when the technology was ready.

The stock would probably never have hit $383 back in 2017, but I wonder if it would be above $200 today.

Tuesday, June 13, 2017

Ponzi Thresholds

Another post based on Reeves Wiedeman's Uber article in New York magazine. This one sets up a concept I've been meaning to discuss with the tentative name of a Ponzi threshold. The basic idea is that sometimes overhyped companies that start out with viable business plans see their valuation become so inflated that, in order to meet and sustain investor expectations, they have to come up with new and increasingly fantastic longshot schemes, anything that sounds like it might possibly pay off with lottery ticket odds.

Like I said, this is been bouncing around for quite a while. I may have even slipped in a previous reference that I've forgotten about. There are plenty of potential examples, but the following is the first time I've seen the phenomenon spelled out in such naked terms [emphasis added]:

Meanwhile, in an effort to show potential investors in an IPO that it has multiple revenue streams, Uber has expanded into a variety of industries tangentially related to its core business. In 2015, the company launched Uber Everything, an initiative to figure out how it could move things in addition to people, and when I visited Uber headquarters, the guest Wi-Fi password was a reference to Uber Freight, the company’s attempt to get into trucking. (A former employee said the password often seemed to be a subliminal message encouraging employees to focus on the company’s newest initiatives.) But moving things had its own complications. One former Uber Everything manager said the company had looked at transporting flowers or prescription drugs or laundry but found that the demographic of people who, for example, couldn’t afford a washer and dryer but would pay to have their laundry delivered was a small one. Uber Rush, a delivery service in New York, had become “a nice little business,” the manager said, “but at Uber, you’re looking for a billion-dollar business, not a nice little business.”

It turned out that food delivery was the only area that made much sense, though even that was difficult. In the past year, food-delivery companies SpoonRocket, TinyOwl, Take Eat Easy, and Maple have all ceased operations. Postmates said in 2015 that it could be profitable in 2016, at which point it pushed the date to 2017. Its target is now 2018. “It absolutely does not work as a one-to-one business — picking up a burrito from Chipotle and delivering it,” a former Uber Eats manager said. “It has to be ‘I’m picking up ten orders from Chipotle, and I’m picking up this person next to Chipotle, and I’m gonna drop the burritos off along the way.’ ” Uber Eats has grown significantly, but getting the business up and running had required considerable subsidies, and the manager said it was rumored that a significant portion of the company’s domestic losses were coming from Uber Everything.

Uber’s expansion into an ever-widening gyre of business interests makes sense for a company looking to justify a huge valuation, but it has drawn criticism from some who wonder why the company is moving into so many different markets without becoming profitable in its first one. “It’s a Ponzi scheme of ambition,” Anand Sanwal, a venture-capital analyst, told me. “ ‘We’re gonna raise money on the promise of dominating an industry to come in order to pay for this thing that doesn’t make us money right now.’ ” He had recently conducted an unscientific poll of subscribers to his newsletter asking how many would invest in Uber today, even at a discounted valuation, and 77 percent said they wouldn’t. But the new initiatives have the benefit of keeping everyone excited about the future: In April, Uber held a conference in Dallas to explain why it planned to one day get into flying cars.

That phrase "looking to justify a huge valuation" is one that you need to contemplate for a few moments, let the logical implications wash over you. As I suggested before, like most New York magazine tech writers, Wiedeman does a good job capturing the telling detail, but is reluctant to draw that final Dr.-Tarr-and-Prof.-Feather conclusion, particularly when it threatens a cherished narrative.

There are at least two layers of crazy here. First, hype and next-big-thingism push Uber's value far beyond any defensible level, then, as reality sets in and investors realize that the original business model, though sound, can never possibly justify the money that's been put into the company, Uber's management responds with a series of more and more improbable proposals in order to keep the buzz going.

The phenomenon is not unique to this company but I can't think of another case this big or this blatant. (And they actually used the term "Ponzi scheme.")

Memorial Day Repost

A good day for a recommendation

There is, of course, no such thing as the military perspective -- no single person can speak for all the men and women who have served in the military -- but if you are looking for a military perspective, my first choice would be Lt. Col. Robert Bateman who writes eloquently and intelligently on the subject for Esquire. Here are Bateman's recent thoughts on Memorial Day.

When the guns fell silent in the Spring of 1865, they all went home. They scattered across the country, back across the devastated south and the invigorated north. Then they made love to their wives, played with their children, found new jobs or stepped back into their old ones, and in general they tried to get on with their lives. These men were no longer soldiers; they were now veterans of the Civil War, never to wear the uniform again. But before long they started noticing that things were not as they had been before.

Now, they had memories of things that they could not erase. There were the friends who were no longer there, or who were hobbling through town on one or two pegs, or who had a sleeve pinned up on their chest. There were the nights that they could not shake the feeling that something really bad was about to happen. And, aside from those who had seen what they had seen and lived that life, they came to realize that they did not have a lot of people to talk to about these things. Those who had been at home, men and women, just did not "get it." A basic tale about life in camp would need a lot of explanation, so it was frustrating even to talk. Terminology like "what is a picket line" and "what do you mean oblique order?" and a million other elements, got in the way. These were the details of a life they had lived for years but which was now suddenly so complex that they never could get the story across to those who had not been there. Many felt they just could not explain about what had happened, to them, to their friends, to the nation.

So they started to congregate. First in little groups, then in statewide assemblies, and finally in national organizations that themselves took on a life of their own.

The Mid-1860s are a key period in American history not just because of the War of Rebellion, but also because this period saw the rise of "social organizations." Fraternities, for example, exploded in the post-war period. My own, Pi Kappa Alpha, was formed partially by veterans of the Confederacy, Lee's men (yes, I know, irony alert). Many other non-academic "fraternal" organizations got their start around the same time. By the late 1860s in the north and south there was a desire to commemorate. Not to celebrate, gloat or pine, but to remember.

Individually, at different times and in different ways, these nascent veterans groups started to create days to stop and reflect. These days were not set aside to mull on a cause -- though that did happen -- but their primary purpose was to think on the sacrifices and remember those lost. Over time, as different states incorporated these ideas into statewide holidays, a sort of critical legislative mass was achieved. "Decoration Day" was born, and for a long time that was enough. The date selected was, quite deliberately, a day upon which absolutely nothing of major significance had occurred during the entire war. Nobody in the north or south could try to change it to make it a victory day. It was a day for remembering the dead through decorating their graves, and the memorials started sprouting up in every small town in the nation. You still see them today, north and south, in small towns and villages like my own home of Chagrin Falls -- granite placed there so that the nation, and their homes, should not forget the sacrifices of the men who went away on behalf of the country and never came back.

The lure of literalism

Mainly in social sciences, there's a popular genre of papers built around supposedly showing that commonly recognized nonliteral associations are in fact literal. Pulling the the corners of your mouth back actually makes you happy. Striking a self-assured pose actually changes your body chemistry to make you more confident. Linguistic forms that encourage people to use first person pronouns make societies less likely to promote education and other institutions that make individuals more independent. 

The studies are overwhelmingly based on questionable observational data or experimental approaches so contrived or round-about that they would make Rube Goldberg dizzy. This would be a good time to start an in-depth discussion of why these obviously flawed studies are so consistently appealingly, but that would take too much effort so I'm just going to play off the Goldberg reference and post a couple of very cool OK GO videos.

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.]