Like Uber, but for Stock Scams

Economy, Media

A breathless Times piece reported that a recent round of fundraising by Uber points toward a $50 billion valuation, which is worth a giggle or two, and is probably not accurate.

This gleeful silliness isn’t really the Times’ fault. The paper is just reporting what someone told it. Our supposedly adversarial and skeptical press has always and in actuality been generously credulous. Lawyers presume everyone is lying to them, their clients most of all. Reporters, on the other hand, “trust their sources.” Anyway, the Times proceeds to double down on its friendly presumption that sources say is a holy writ worth adopting verbatim, and describes Uber thusly:

So far, the company has raised more than $4 billion as it moves into new markets globally, disrupting established taxi and other transportation industries by letting people request rides through their smartphones.

I thought this was a gas—yuck yuck—as well, and I said as much, which led to the following exchange with my buddy Jim Henley:

Well, I thought I might briefly elaborate.

Every new product or venture these days is proposed to be a “disruption”—that is to say, a sort of definitive break, a paradigm shift, to use a largely discarded neologism that described more or less the same thing. Frankly, I’m unconvinced that any result of the human genius has qualified since the advent of agriculture, but even by the laxer standards of our sorry business press, the idea that Uber has disrupted anything is wrong.

Uber is a car service. From the perspective of someone like me, who lives in a city with a historically lousy—nearly non-existent—taxi industry, Uber is very nice. (Let us, like proper MBAs, leave aside the ethical questions.) From the perspective of a former taxi near-monopoly with lousy—nearly non-existent—customer service obligations, Uber is not very nice. But it is, at the end of the day, objectively described, still just a taxi service, albeit a service with a good scheduling/hailing feature, generally good (for the customer) pricing, and real ease of payment.

It is competition for existing firms, but it isn’t a new paradigm. It hasn’t changed the fundamental nature of getting a cab. You hail a ride. It picks you up. You pay for it. It isn’t teleportation. It isn’t the steam engine. A neat analogue is something like Japanese cars outcompeting Detroit in the 70s/80s.

Viewed this way, Uber is an interesting investment opportunity, but it ain’t worth tens of billions of bucks yet. A taxi company with (let’s be optimistic) good pricing and good customer service features and (let’s be realistic) looming increases in personnel and regulatory compliance and fleet management costs is never going to be anything other than a pretty low margin business. Well that’s fine—it can still be very profitable if it’s well managed! What it can’t do is pump future stock prices insanely high by managing the expectations of the rubes who’ll buy into an IPO, etc., in order to let the early investors cash out with a fat fortune. “Sir, have you got fifty seconds for me to tell you about this amazing investment opportunityGet in on the ground floor!” There’s another term for disruption. It’s called a boiler room.

8 thoughts on “Like Uber, but for Stock Scams

  1. What the press further doesn’t get about Über — or any of the other things described as part of “the sharing economy” or whatever — is that the market for them (as a company) only exists because of the regulations they try to thread the needle through. It being super expensive to get permission to give people rides for money created the field for a middleman to facilitate via TECH!!!1! the giving of rides for money while skimming off them all the same.

    They’re looking at regulatory arbitrage & giving it credit as The Free Market At Work just because it’s a different middleman. Yank the barrier & the business model plops right into the toilet.

    1. Certainly true. And that’s also “Managerial Econ: An Introduction.” Like, in circumstances of oligopolistic markets, extant firms will attempt to erect/lobby for regulatory barriers to entry! But they may also be constrained by those same regulations, allowing new competitors to enter the market!

  2. One aspect of this investment opportunity i dont understand: the service has most growth potential in high density areas (in terms of numbers); these locations are generally cities, and thussly, regulated. What if a city, say Guangzhou, decides to make “Uber” illegal and instead launches “Guanger” – an identical copy, with the city getting all the fees, the ride records, etc. I can’t figure out why _every_ city won’t do this…

  3. That’s not quite true. Uber, Airbnb etc have found a pretty nifty workaround to regulations and in some cases Union labor through the “sharing” economy. Still, “disruptive “?

    1. Also, there’s basically no risk on Uber’s part. With, say, Car2go you have a fleet of Smart Cars to maintain. Another reason investor money loves sharing so much.

  4. “Disruptive innovation” is one of those terms, like “corporate social responsibility” and “creating shared value”, that actually meant something specific when a Harvard Business School professor invented it, then gradually got smeared into a tasteless marmalade through enthusiastic re-appropriation. That said, Uber does not fit Christensen’s own criteria for disruption, so, long story short, yes to the above.

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