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Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning. By forcing down interest rates and

Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning. By forcing down interest rates and essentially moving spending from the future into the present, they're stimulating investment in general. But what they forget (or more likely, choose to ignore) is that investments can be just bad investments. Uber is a bad investment. There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Riders can too. Building a real time ridesharing engine is not hard - I did it once as a prototype years ago but it was unfortunately in the pre-smartphone era and you had to find ride matches using your regular computer. So central banks print money in order to buy up safe investments. That forces institutional investors to pour their money into risky investments like venture capital firms. VC firms look around at a field with slim pickings but that torrent of money has to go somewhere, so it ends up being used to fight vast unsustainable price wars. And in the end people's savings that they will depend on in retirement don't end up invested in productive assets that'll yield ROI into the future .... their money ends up subsidising a 10 minute taxi ride and being lost forever. The people who run Uber may feel that they 'have' to do this otherwise their competitors would do so instead, but that just reinforces how hopeless the situation is: they know perfectly well that their main competitive advantage is illusory, or at best, is merely a result of better access to capital flows. All it'll take is a sustained set of interest rate hikes and the end of QE, and suddenly Uber will have to charge the real underlying market rates. How will it end?

jonknee 10y ago
> Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning. By forcing down interest rates and essentially moving spending from the future into the present, they're stimulating investment in general. But what they forget (or more likely, choose to ignore) is that investments can be just bad investments. How do you explain things like the .com boom when interest rates were "normal"? Uber has raised a lot of money, but it's a drop in the bucket in the world of global finance (and a very small drop at that!).
- zigzigzag 10y ago
  I never claimed low interest rates were the only trigger for malinvestment! Just look at the south sea bubble. The dotcom boom was mis-spending by retail investors, rooted in ignorance of new technology combined with enormous hype. But because it was a fundamentally market driven boom, it ended relatively quickly with a large correction. This time it's different: it's a deliberately engineered wave of malinvestment caused by government policy. And they happily admit it! It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon.
  - jonknee 10y ago
    > It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon. The total amount of VC money invested in the US in 2015 was $58.8b [1]. That is less than the operating income of Apple. It is a lot of money in some respects, but the potential rewards are also huge (look at Apple!). I think the huge valuations have more to do with the huge potential for global businesses than whatever Yellen is doing with interest rates. The internet was a completely different place in 1996, I don't think any fair comparison can be made regarding investment. Something like a billion daily active users and the cash that can generate wasn't a possibility. The whole internet advertising business in 1996 was estimated at $267m [2] which is less than Google now brings in PER DAY (~$283m). [1] http://nvca.org/pressreleases/58-8-billion-in-venture-capital-invested-across-u-s-in-2015-according-to-the-moneytree-report-2/ http://nvca.org/pressreleases/58-8-billion-in-venture-capita... [2] https://www.iab.com/news/internet-advertising-bureau-announces-1996-advertising-revenue-reporting-program-results/ https://www.iab.com/news/internet-advertising-bureau-announc...
- ubernostrum 10y ago
  How do you explain things like the .com boom when interest rates were "normal"? The answer is always going to be some variation of "the goshdurned gubmint". Maybe interest rates, maybe someone read Greenspan's tea leaves which he deliberately left sitting out to cause "malinvestment", maybe something else entirely.
ethanbond 10y ago
Wow, that's a roundabout justification. You don't need low interest rates for people to make stupid investments. Uber could just as easily be an example of what happens when the weather is nice and we grow a surplus of food and food prices fall and therefore people spend their remaining capital on bad investments like Uber.
- rhizome 10y ago
  No, you don't need low interest rates for stupid investments, but it makes them a lot cheaper.
  - hx87 10y ago
    It also makes non-stupid investments cheaper, so all else being equal cheap money shouldn't increase the proportion of stupid investments.
    - hughw 10y ago
      But it makes ordinary safe investments like bonds return unappetizing, even negative rates. So you can't put your billions in bonds. You look for high yield on something like Uber.
    - kmonsen 10y ago
      Not entirely true, with low rates bonds and banks are loosing to inflation so you "need" to invest in something.
    - rhizome 10y ago
      so all else being equal cheap money shouldn't increase the proportion of stupid investments All else isn't equal because it's not a free market. You can't just say "Oh, Uber looks good, I think I'll invest in them." It's not even rivalrous, it's simply private. So, cheap investor money has to find an outlet some other way.
comboy 10y ago
> I did it once as a prototype years ago but it was unfortunately in the pre-smartphone era and you had to find ride matches using your regular computer. How was the driver side solved? SMS?
- zigzigzag 10y ago
  No. Back then not many people thought about mobile and besides, I'd been burned on an earlier mobile project when I'd tried to write a J2ME app (kind of what the first versions of WhatsApp were; photos with status messages but no chat). Both driver and rider logged onto the shared website. It was more like uberPOP, the intention was people registered drives they were planning to make anyway like regular commutes and then you got a kind of fuzzy geo-specific chatroom thing where you could see other riders who were interested in sharing line up. It also calculated the distance the first driver would have to go out of their way to pick you up and did some optimisation around that, and it calculated fuel costs. The idea was to let people split the fuel bills. Back then I was worried about peak oil.
  - rockinghigh 10y ago
    So you created a carpool forum. That's a great idea but the complexity is vastly less than a real-time platform to dispatch cars and with prices that evolve over time.
    - zigzigzag 10y ago
      It was a real-time system, actually. It wasn't a forum: riders would appear and disappear on the fly as they entered routes, and it did overlap calculations. You just put in your start and end points and it'd match people with quite different start and end points if the trip fuzzily matched subsegments.
elmar 10y ago
In the end Amazon.com managed to survive and prosper with a very similar strategy.
- John23832 10y ago
  Amazon actually moves product, and there is a HUGE infrastructure barrier to entry in the AWS space. Uber competitors don't have either of those stumbling blocks.
- zigzigzag 10y ago
  Amazon has not spent years losing money, they merely chose to match spending with revenue so their numbers were balanced. That's quite different to winning market share through raw subsidies.
  - ethanbond 10y ago
    Key distinction. As well as assembling an incredible logistics system. Uber has... a trivial app that's already been cloned dozens of times? Uber's saving grace, if it will ever get one, will be autonomous vehicles. First the technology has to get good enough, then the law has to catch up. All while Uber is just dumping cash to fend off the aforementioned dozens of clones by artificially deflating their prices? My bet is that they'll run out of time/money.
  - samfisher83 10y ago
    Their paid in capital is greater than retained earnings. Which basically means profits are less than what the share holders have put in.
allendoerfer 10y ago
I generally agree that flooding the market might lead to stupid investments. Two points: > That forces institutional investors to pour their money into risky investments like venture capital firms. Are there statistics about this? Is this really the case? What is the percentage of VC compared to the rest? I only have a vague feeling that VC is tiny compared to private equitiy and even tinier compared to Wallstreet. > their money ends up subsidising a 10 minute taxi ride and being lost forever That actually seems like a good thing. People with capital subsidising basic services for the general population. Wealth generally has the tendency to move in the other direction.
- zigzigzag 10y ago
  http://www.bloomberg.com/news/articles/2014-09-23/are-public-pensions-inflating-a-venture-capital-bubble http://www.bloomberg.com/news/articles/2014-09-23/are-public... People with capital subsidising basic services is not a good thing because pensions are so widespread - the subsidy is essentially coming from the same people taking the ride in the first place, just via an incredibly high overhead and roundabout trip!
  - kevinmchugh 10y ago
    This bloomberg article says that something like 30% of VC money came from pensions in 2014, 2/3 of that from public pensions. Perhaps a couple percent more, because funds of funds were a large contributor. It makes a very convincing argument that VC is a bad investment vehicle for pensions, but I can't draw the line from this article to pensions are subsidizing basic services. Certainly with Uber, it's largely Saudi Arabia right now that's subsidizing riders. That is a very circuitous path for the Saudis to benefit or enrich their subjects, but everyone else in the uber world is benefiting.
- iaw 10y ago
  > Are there statistics about this? It's actually fundamental to Portfolio management theory. [0] > That actually seems like a good thing. Maybe, I don't know. Uber engages in some aggressively competitive business practices, it's possible that because of their investor subsidies they've been able to undermine a number more possibly sustainable new business models around ride sharing. It's impossible to bootstrap in a market where Uber's a competitor. [0] https://en.wikipedia.org/wiki/Efficient_frontier https://en.wikipedia.org/wiki/Efficient_frontier
jsprogrammer 10y ago
> their money ends up subsidising a 10 minute taxi ride and being lost forever. What? Uber is just a black hole? What about the driver? Who received most of that money for their services? That driver can now use that money to invest in the way they wish.
- adwn 10y ago
  > What? Uber is just a black hole? No, obviously zigzigzag was describing the perspective of the investors. The implication is that their return on investment is lower than the investment, i.e. their money is "lost forever".
  - jsprogrammer 10y ago
    Do the drivers go away? Perhaps one will give an investor a lift one day.
    - tedunangst 10y ago
      Rather expensive way to get a lift. It would be cheaper to save the money until you need a ride, then build a bonfire out of cash to attract attention and hail a cab.
SixSigma 10y ago
Where does that money ultimately go ? Into the pockets of drivers (although a portion of that comes from the pockets of existing taxi firms in opportunity cost and financing repayment). So as a stimulant for the economy it is working. It is even trickle down economics in action ! It should also make incumbent taxi oligopolies up their game, so the customers ultimately win. There will be losers. But that is the nature of the game.
- jahnu 10y ago
  Yes! Too many people apply household economics to the state. If anything has been proven since the GFC it's that Keynsian stimulus works (when it is supposed to be used not all the time, e.g. in a liquidity trap, i.e. now)
- zigzigzag 10y ago
  No it isn't - all it does is shift spending around. Money that could have been saved and spent later is being spent now in the hope that it'll create something of long term value that'll pay off more than invested. This is 'stimulation' in the same way that spiking yourself with coffee in the morning doesn't actually give you more energy in total, it just makes you feel more awake in the present at the expense of needing more recovery later. Is Uber such a case? Maybe if it ends up with a long term, world wide monopoly on self driving taxi networks. But right now it's ultimately just a taxi firm that's burning vast sums of money giving people cheap rides. It's literally just throwing pensions and university donations onto the street without any plan for how to get that money back.
pjc50 10y ago
I have a half-baked theory that much of the 20th century's prosperity came from spillover gains from "malinvestment". Things which are socially useful, but it turns out not to be possible to capture their value in the market. The big example is railways - all the original investors lost their money. What if there are no profitable "normal" capital investments left in the west, other than asset price bubbling?
- RodericDay 10y ago
  > The big example is railways - all the original investors lost their money. Can someone build up on this?
  - pjc50 10y ago
    https://en.wikipedia.org/wiki/Railway_Mania https://en.wikipedia.org/wiki/Railway_Mania but more recently the Channel Tunnel, which makes a small operating profit these days but also lost most of the original investment and went through bankruptcy: https://en.wikipedia.org/wiki/Eurotunnel https://en.wikipedia.org/wiki/Eurotunnel (The railway mania wikipedia page even blames low interest rates for it! Personally I'm of the opinion that the government can set its bond coupons to whatever it likes and investors are not owed a minimum return, but there we go) Edit: since the original comment was quite popular, I'll make some forward-looking statements: there is likewise a lot of investment which needs to be done in order to decarbonise, has major social benefits, but will not necessarily be profitable in the market. Even the highly distorted market that is energy. It may turn out that substantial negative interest rates are needed to finance the transition.
    - deleted 10y ago
      [deleted]
    - AndrewKemendo 10y ago
      Is it because there was not enough demand from consumers to justify the cost, but that rail was too important a piece of infrastructure that it couldn't just go away? I mean the top performing asset class for Berkshire Hathaway had been railway for a long time, albeit carriers not rail infrastructure.
brightball 10y ago
Well there is a barrier to entry, user preference. The same force that keeps people searching with Google instead of Bing keeps people hailing rides with Uber instead of Lyft.
- ethanbond 10y ago
  Weird that Lyft is still a part of this discussion since all you read about is how Uber is murdering them... and that's all we've been hearing for years and years... and yet here they are right here in this comment thread. We'll see how strong "user preference" is when Uber can no longer afford to subsidize the living hell out of every ride, but the next little service with a strong VC backing is just getting started doing so.
- sfifs 10y ago
  Do you use Google instead of Bing due to preference or better results? I end up seeing more relevant results. Would you still use Uber if competition was 30% cheaper? Most people outside the 5% trade off time or convenience for conserving cash.
zxcvvcxz 10y ago
Good post I agree with your sentiment. Adding to this, food delivery startups are another great example of this. I call them "VC subsidized lunches." Me and my friends installed half a dozen apps, each of which have given anywhere from $25 - $500 (!) in promotions, i.e. free lunches. The irony was having actual lunch with investors in which they didn't pick up the tab...
binalpatel 10y ago
You clearly have a viewpoint you're entrenched in - and you're pigeon holing this into that. Uber is a bad investment to you - but a good investment to others. If in the end they successfully become one of the first firms to have a self-driving fleet, then they'll likely be able to make a tremendous return on their investment. And maybe they won't, maybe they'll fold before then. But saying that this was all the fault of Fed policy is nonsense.
- MrBuddyCasino 10y ago
  > If in the end they successfully become one of the first firms to have a self-driving fleet, then they'll likely be able to make a tremendous return on their investment. Why? Everyone's building self-driving cars these days, if they have an advantage its not going to hold up for long. Then the car producers can simply do the same via their existing ride-sharing networks (car2go, DriveNow).
  - binalpatel 10y ago
    Largely the first mover advantage, I think. I'm sure once someone does it it'll be a (or it already is) a gold-rush, but the first to get to the finish line will realize the most gains initially. I'm also not sure how relevant it is, but Uber has been successful in branding. It's not, "I'm going to ride share to the airport", it's usually, "I'm going to Uber to the airport." But in the end - I have no idea :). It'll be interesting to see what happens!
  - intrasight 10y ago
    Uber is not in the self-driving car business. They aren't in competition with car companies. They don't really have any competition now. I doubt that is going to change.
hencq 10y ago
I don't disagree with your main argument, but I'd say there's at least some barrier to entry. The market definitely has some network effects. More drivers in the network makes it faster to get a ride and therefore more attractive to riders. Vice versa more riders makes it more attractive to drivers to be on Uber's network. As you point out, drivers and riders can install multiple apps (and they often do, e.g. Lyft), but for a competitor to enter they'll likely need to jumpstart their network. Something which they'll likely have to do by subsidizing both drivers and riders. This means that whoever decides to take on Uber would probably need quite a big war chest themselves.
- meira 10y ago
  Uber penetration is very low, a lot of cities don't have their serviços available so others can occupy these spaces without worrying with network effect at all. Uber is doomed.
  - umanwizard 10y ago
    What country are you talking about? Uber is available in every major US city, for a pretty loose definition of "major".
    - paulddraper 10y ago
      I agree. I've never been anywhere in the US with lots of taxis where Uber wasn't.
    - gregpilling 10y ago
      I was in Italy in June, and Uber was not very useful. I could not get a ride in Modena, Bologna and a few other places I tried.
    - user5994461 10y ago
      It might be hard to understand for the typical American HN reader but the major USA cities are only a tiny fraction of the world. There are more than 100 other countries out there with many cities in need of taxis.
hodgesrm 10y ago
Interest rates just explain why there's money looking for a better return. But why invest in Uber as opposed to other start-ups? And why invest in start-ups at all as opposed to property or existing companies that are available at lower P/E values? The answer seems to be that many people feel Uber is a decent investment compared to alternatives. If Uber ended up owning some share of self-driving transportation that choice might look prescient or at least not so hard to understand. Something analogous has happened at Amazon, where an unrelated business--AWS--now seems to be driving profitability
- untog 10y ago
  > The answer seems to be that many people feel Uber is a decent investment compared to alternatives. Yes, but I'm not convinced they think this for sensible reasons. People follow a herd mentality, and invest in Uber simply because others are doing so - if that many people are doing it, it must be a sure thing, right?
  - hodgesrm 10y ago
    I don't think you ever have full visibility into something as speculative as Uber so following the herd is understandable even if it's not likely to yield big returns for most people. Also, I would not discount early investors assuming they can sell out before the levee breaks. That seems pretty rational.
unabridged 10y ago
>Uber is a bad investment. There is no barrier to entry in ride sharing. Uber's size is only a benefit for drawing in tourists from other cities, each market is a separate battleground and you only need to beat Uber in your local market. And what prevents some city from setting up its own government sanctioned/required ride sharing market & app.
- jonknee 10y ago
  > And what prevents some city from setting up its own government sanctioned/required ride sharing market & app. That's essentially what taxis are and they are (in the US at least) almost universally awful.
gnicholas 10y ago
> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Uber and Lyft have erected barriers by structuring their pay system so that drivers are much better compensated if they do a large number of rides for them. This effectively erects a barrier to entry, because newcomers cannot get drivers as easily.
- Someone 10y ago
  On the other hand, if a competitor offers flat-rate payments at the average price Uber pays (= lower than the drivers making the most rides get, but higher than the drivers making the least number of rides get) new drivers entering the market and drivers making few rides should flock to the competitor. Uber's strategy will only work if those drivers, on average, are worse than the ones making many rides.
  - employee8000 10y ago
    You need the customers to pay these drivers. Until you get a proper and healthy two-way market, all these ridiculous hypotheses won't actually work.
- zigzigzag 10y ago
  You're assuming that driving cars is an ultra-tight labour market. That's not a correct assumption. There is a relatively limited number of cars you need to have good service compared to the number of people looking for unskilled jobs in major metro markets, even when unemployment is low in percentage terms. If Uber was hiring an army of specialists maybe I'd agree but loads of people can drive.
jdavis703 10y ago
Even if Uber winds up a bust, the money they've paid drivers is really money which was used to buy real things in the economy. Since most countries have been unable to pass actual (or enough) fiscal policy, the only tool left to fight off a sluggish economy is monetary policy. I for one don't mind if the investor class bleeds some money because they can't afford (meaning the returns are too low) to invest in "safe" asset classes.
michaeldunworth 10y ago
I'll tell you exactly how it will end. Uber will be one of the first companies to a $1T valuation. (First two will be Facebook and Apple). Here's why. Uber isn't about ride-sharing, at all. Uber is about rewriting your idea of needing a car. The market they're going after is literally automotive industry. So right now, they're burning money hand over fist, but they don't /need/ to be doing that. It's a strategic choice, to drown their competitors (see Amazon, that's exactly what they do by tapping good sources of financing in the past). Uber will continue to do so until it is not viable to compete with them. The only companies that will be able to compete is one with infrastructre and rivers of gold. Google. Google owns all the data of Ubers (maps), and they've got everyone on their own maps, they've got hundreds of millions of users that are tied into a google profile in some capacity (gmail/youtube/etc...) and a lot with linked credit cards. This makes for the biggest threat to Uber. Google can afford to lose, and Uber not buying Lyft is going to be the only potential down fall of the company. If Google buys them (which I don't think they will) then that is the headshot on Uber unfortunately. Back to my point, basically Uber is going to burn and burn while capital is cheap, and force other players out. Makes sense. They can stop subsidizing their rides for users once they've bullied out the others, and there we end up with decently priced normal rides (Which is still ridiculously better in price and experience than a taxi). But by the time this happens (3 years-ish) Autonomous vehicles will be making their ways into cities at much more capacity. This will reduce their costs significantly, and all these price points they have which they have to pay for, will pay for itself by autonomous tech (instead of just forking out their own money to make our rides $5, the lack of labor because of the autonomous vehicles will force the COGS down essentially). People will have a huge uproar at Uber for creating and then cutting hundreds of thousands of jobs (the drivers) - But their service and value add of an autonomous driving network will wash away everyones humanity side because it's just "too good". Leaving them in the tallest tower in the city with a penthouse office and a cat sitting on Travis' lap while he looks out the window down onto his autonomous city laughing in an evil tone. $1T company, without fail. RE Groupon: Groupon as compared to in the article is a different situation. Groupon had minimal barriers to entry and is only a sales machine. People, people, people, and more people were needed in order to bring in the next deal, the next bargain, etc... Uber is absolutely incomparable as they have an innovation in technology, financial defensibility, and humungous footprint of recurring revenue. Groupon had none of those so I feel the article writer putting that out there doesn't seem like a just example. The only thing they have in common is that they're losing money.
tuxracer 10y ago
> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Some ride sharing companies offer bonuses to drivers based on number of rides now. For example, 50 rides in a week $250 bonus at the end of that week. Using multiple apps interferes with a driver's ability to get the bonus. Many drivers use multiple apps anyways, maybe don't drive enough to get the bonus anyways, etc... but the dominant companies do have tools at their disposal to help mitigate the risk of newcomers quickly taking over a market.
emrekzd 10y ago
I disagree with your main argument. Uber is buying growth, and it is buying growth that yields network effects. I live in the Bay Area and yes uber prices have been ridiculously low and they stayed the same for long. However one thing changed; now I see other riders sitting next to me while I pay the same price I always paid for UberX. Demand enables pooling. Network effect in pooling is obvious. You are also dismissing the fact that traditional cab companies are going out of business. My main counter argument against"there isn't innovation on uber anymore" would be simply pointing out what is happening to traditional players. I don't think they are coming back with the new rules of the market, any they were forced to leave this early because uber "bought" growth.
- vadym909 10y ago
  It is buying growth for the rideshare business model. Google, Tesla or anyone can piggyback on their work once the model matures and kinks get sorted out- at least until Uber builds a moat from driverless cars.
- mywittyname 10y ago
  Uber is unsustainable, both the core business and for the drivers. They've survived this long because they were able to dance around regulations and take advantage of drivers. But things are changing: insurance companies are onto drivers and governments are onto the businesses. All of this is going to drive up costs. They are gambling on surviving longer than traditional taxi companies can. Economics are not in their favor. There's a reason taxi service is expensive. It's hard enough to provide cost-effective public transportation, much less private transport. Once driverless cars hit the streets, then the calculus changes a bit. But that's when the competition will really begin. What's more likely is Google/Amazon will create (or acquire) a driving service broker that will automatically hail for you from whatever service will offer the ride cheapest (and probably won't even take a commission).
  - dragonwriter 10y ago
    Google already has the beginnings of that brokering service in Maps' ridesharing feature
aianus 10y ago
> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Riders can too. This is not true. There are big network effects when you consider products like UberPOOL. A new app would burn through a lot of cash to subsidize rates below the rates Uber can offer profitably through pooling.
vadym909 10y ago
I agree. Transportation companies just don't tend to be profitable. Airlines are super competitive and minimally profitable. The airlines folks have a saying- they can only be as profitable as their dumbest competitor- and these are people that actually own or lease their planes and have airports and routes granted to them. Even monopolies like taxi cab companies weren't that profitable if you consider the costs of the medallions. Its just hard to make money in transport- drivers make peanuts, car companies have razor thin margins, oil is too volatile, customers are too cost-conscious. Very different than enterprise software or pharma.
- Animats 10y ago
  Airlines have had trouble with this for a long time. "The Sporty Game", by John Newhouse (1982) tells this story from the aircraft builder perspective. Over the history of airlines, the industry was a net financial lose. As of 1982, the only aircraft product lines to make money were the Boeing 727 (because so many were made) and the 747 (because it was so big). The US used to have a highly regulated airline industry. The Civil Aeronautics Board decided who could fly where. Then came airline deregulation. Suddenly there were lots of new airlines, most of which went bust. Now we have fewer airlines than before deregulation, worse service, and constantly changing fares. On the aircraft side, airlines are buying new copies of the antiquated Boeing 737, because it's cheap. The B-757 and B-767 are being phased out in favor of the old, narrow 737.
  - bruceb 10y ago
    Airfare is cheaper than it was in the past. You can still get good service but you have to pay more.
  - selectodude 10y ago
    The 767 is being replaced by the new, widebody 787. The new 737s don't have much other than the name in common with the 737s from 30 years ago.
    - Animats 10y ago
bogomipz 10y ago
"Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning." Substitute the word 'stimulate' with the word 'influence' but this is actually the job of a central bank.
hackuser 10y ago
> what they forget (or more likely, choose to ignore) is that investments can be just bad investments Do you have evidence that someone forgot or ignored this issue? Quotes from a particular central banker, for example? I don't think this part informs the conversation. The question you raise, while maybe novel to some of us on HN, has been long discussed and examined in economics. There are indicators of over-investment and under-investment, and trade-offs to different central bank financial tools. Finally, because a central bank tool increases investment, that doesn't mean the level of investment becomes too high; it could have been too low before. It's like watering a plant; it might help or depending on its prior condition the same action might over-water or under-water it. One sign there is under-investment, as I understand it, is that extremely low/negative interest rates are not stimulating inflation. This suggests plenty of under-utilized capacity.
- zigzigzag 10y ago
  By definition it's hard to quote someone who isn't talking about something :) I've read speeches by central bankers. They almost never think in terms of high or low quality investments. Instead they only see the negative impact of easy money through the lens of inflation, but this is a problem because the inflation statistics they monitor don't include the prices they're impacting, hence the "mystery" of low interest rates coupled with low inflation. The inflation exists, it's just inflation in the cost of equities, houses, the cost of yield or other things that aren't consumer goods.
skybrian 10y ago
What does "moving spending from the future to the present" actually mean in Uber's case? For many kinds of spending, the future and the present aren't in competition. Keeping cars and people idle today won't result in more cars and labor available tomorrow. If Uber weren't around, maybe the people writing software and driving cars could be doing something more useful. But that's competition between two different investments in the present, not between the future and the present. If anything, low interest rates encourage people to speculate on bets that might pay off later rather than on surer bets that will pay off sooner. So that's the (possibly mythical) future competing with the (actual) present.
- zigzigzag 10y ago
  It means that instead of saving money to be spent later e.g. in retirement, the money is being spent right now in the hope of positive (inflation beating) ROI later. But what if those investments don't work out? Then you have no savings and won't be able to spend money in the future. Being able to save money for the long term is fundamental in a society that has long lifespans. Unfortunately government policy is to essentially forbid saving, because forcing people to "invest" their savings pumps employment and GDP stats, which is largely how their success is measured.
acchow 10y ago
> Uber is a bad investment. So the VC's might lose money. But if the central bank is aiming for a bigger picture, Uber and Lyft have been great improvements on the market/society/efficiency overall. A car picks me up in 1-2 minutes, instead of the 10 minutes a taxi used to take. And it actually comes - taxis in SF have always been unreliable. And instead of most cabs driving around aimlessly empty half the time burning fossil fuels, now you have the majority of Uber cars carrying at least 1 customer (sometimes 2 or 3 with UberPool/Lyft Line) most of the time.
- mattmanser 10y ago
  The US taxi market was a shitfest. The rest of the world, not so much. All that's really happened is that Uber side stepped some of your shitty laws. The efficiency gains, etc is all bullshit, not much has changed here in the UK apart from now you can use an app rather than a phone call. They turn up a minute or two quicker, wow. Uber are subsidising our rides a bit at the moment so it's like 20% cheaper for now. I hear prices go up after a year or two. As for taxis during peak time, rich people can now pay more for priority pickups with surge pricing. That's not a plus for society, it's a plus for rich people.
  - prodigal_erik 10y ago
    In the US, I could always make a phone call asking for a taxi. They would tell me it'll arrive in 90 minutes, and the odds were 50:50 it would never arrive at all. That's not because of any shitty law, that's just gross incompetence in incenting their drivers.
    - jdminhbg 10y ago
      Well, deliberate undersupply of taxi medallions could be considered a shitty law.
  - riboflava 10y ago
    Rich people contribute more to society, so the second order effects of benefiting rich people end up benefiting the larger population as well.
spectrum1234 10y ago
Agreed on central banks, disagree on "There is no barrier to entry in ride sharing." There are enormous costs to acquire customers and to enter new cities. The technical ease has nothing to do with the enormous soft costs.
danneu 10y ago
> Building a real time ridesharing engine is not hard - I did it once You did about 0.01% of the work.
- LandoCalrissian 10y ago
  Oh no don't you see he is genius that can do it at any time. Sure he could be rich or do a backflip he just doesn't want to right now.
- zigzigzag 10y ago
  Of setting up a global operation like Uber? Of course. My point is that there's no special competitive edge in building that kind of app. It's not like a search engine or another process node improvement in CPU design, where it takes armies of specialists. The hard part of Uber isn't the technology, which anyone can do, it's taking on the regulators.
FullMtlAlcoholc 10y ago
You are completely discounting the positive externalities that arise from "ride-sharing" (a ridiculous term) services such as Uber and Lyft. This is the opposite of misguided central planning in my opinion for a number of reasons. According to the California DMV, after a record high number 215000 DUI arrests in 2008, the number of DUI arrests has decreased year after year. Uber and a lot of the other ride sharing apps started in about 2009. In 2013, the latest year for which I could find data on, the number of arrests had plummeted to 160000. While this information may not be all that pertinent to VC investors, it certainly has benefits for the general public. Here is a link to the data (pg5): https://www.dmv.ca.gov/portal/wcm/connect/77b8b0e3-c20b-42b0-8670-451d9c9262cd/S5-250.pdf?MOD=AJPERES https://www.dmv.ca.gov/portal/wcm/connect/77b8b0e3-c20b-42b0... With the options provided by the sudden ubiquity of ride-sharing apps paired with a surge of investment in public transportation has led to some residents of Los Angeles forgoing car ownership. This is a massive shift in consciousness for a city derided for and held up as the model of urban sprawl. I've even started using a combination of biking, ride-sharing, and public transportation for commuting to work/play. From a more personal standpoint, I can not be happier to see the death of the taxi industry. Taxi drivers would routinely give me one look and pass me by even after calling ahead because of the color of my skin. The taxi industry in Los Angeles is largely dominated by recent Armenian immigrants who most likely are not that familiar with the different cultures here in SoCal. One driver who was a bit more enlightened told me that in their taxi training class they explicitly are told to avoid picking up black passengers if possible. In fact, it got so bad, that police launched a sting and the LA city council passed new laws to target discrimination: http://www.latimes.com/local/california/la-me-lax-taxis-race-20160120-story.html http://www.latimes.com/local/california/la-me-lax-taxis-race... Uber's bust this year is so spectacular because they pulled out in China because they went up against and lost to a consortium that included Alibaba, George Soros, GM, and a number of other interests who were scared shitless that if Uber won, they would dominate not only ride-sharing, but transportation in general...globally. That is Uber's ultimate aim. Yes, they lost a couple billion. But it was worth doing because if they were successful, they'd be the dominant global player. In the end, they lost to a more innovative company in Didi Xiang (I believe they were mixing dating with ridesharing among other features). The dot-com bust was only a bust if you take a personal, myopic, short-term view. While a lot of people may have lost their shirts, that money didn't vanish into a black hole. The investment in infrastructure is responsible for the Internet as we know it today. It's not perfect, but it's pretty much at the level of a William Gibson novel. Honestly, I am hoping they turn car ownership into an expensive luxury option. I can finally enjoy driving in the California sunshine without any ill-suited and undertrained drivers on the road.
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xapata 10y ago
You should consider the possibility that subsidizing a 10-minute ride could be a good method for a central bank to stimulate the economy.

jonknee 10y ago

> Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning. By forcing down interest rates and essentially moving spending from the future into the present, they're stimulating investment in general. But what they forget (or more likely, choose to ignore) is that investments can be just bad investments. How do you explain things like the .com boom when interest rates were "normal"? Uber has raised a lot of money, but it's a drop in the bucket in the world of global finance (and a very small drop at that!).

zigzigzag 10y ago
I never claimed low interest rates were the only trigger for malinvestment! Just look at the south sea bubble. The dotcom boom was mis-spending by retail investors, rooted in ignorance of new technology combined with enormous hype. But because it was a fundamentally market driven boom, it ended relatively quickly with a large correction. This time it's different: it's a deliberately engineered wave of malinvestment caused by government policy. And they happily admit it! It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon.
- jonknee 10y ago
  > It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon. The total amount of VC money invested in the US in 2015 was $58.8b [1]. That is less than the operating income of Apple. It is a lot of money in some respects, but the potential rewards are also huge (look at Apple!). I think the huge valuations have more to do with the huge potential for global businesses than whatever Yellen is doing with interest rates. The internet was a completely different place in 1996, I don't think any fair comparison can be made regarding investment. Something like a billion daily active users and the cash that can generate wasn't a possibility. The whole internet advertising business in 1996 was estimated at $267m [2] which is less than Google now brings in PER DAY (~$283m). [1] http://nvca.org/pressreleases/58-8-billion-in-venture-capital-invested-across-u-s-in-2015-according-to-the-moneytree-report-2/ http://nvca.org/pressreleases/58-8-billion-in-venture-capita... [2] https://www.iab.com/news/internet-advertising-bureau-announces-1996-advertising-revenue-reporting-program-results/ https://www.iab.com/news/internet-advertising-bureau-announc...
ubernostrum 10y ago
How do you explain things like the .com boom when interest rates were "normal"? The answer is always going to be some variation of "the goshdurned gubmint". Maybe interest rates, maybe someone read Greenspan's tea leaves which he deliberately left sitting out to cause "malinvestment", maybe something else entirely.

ethanbond 10y ago

Wow, that's a roundabout justification. You don't need low interest rates for people to make stupid investments. Uber could just as easily be an example of what happens when the weather is nice and we grow a surplus of food and food prices fall and therefore people spend their remaining capital on bad investments like Uber.

rhizome 10y ago
No, you don't need low interest rates for stupid investments, but it makes them a lot cheaper.
- hx87 10y ago
  It also makes non-stupid investments cheaper, so all else being equal cheap money shouldn't increase the proportion of stupid investments.
  - hughw 10y ago
    But it makes ordinary safe investments like bonds return unappetizing, even negative rates. So you can't put your billions in bonds. You look for high yield on something like Uber.
  - kmonsen 10y ago
    Not entirely true, with low rates bonds and banks are loosing to inflation so you "need" to invest in something.
  - rhizome 10y ago
    so all else being equal cheap money shouldn't increase the proportion of stupid investments All else isn't equal because it's not a free market. You can't just say "Oh, Uber looks good, I think I'll invest in them." It's not even rivalrous, it's simply private. So, cheap investor money has to find an outlet some other way.

comboy 10y ago

> I did it once as a prototype years ago but it was unfortunately in the pre-smartphone era and you had to find ride matches using your regular computer. How was the driver side solved? SMS?

zigzigzag 10y ago
No. Back then not many people thought about mobile and besides, I'd been burned on an earlier mobile project when I'd tried to write a J2ME app (kind of what the first versions of WhatsApp were; photos with status messages but no chat). Both driver and rider logged onto the shared website. It was more like uberPOP, the intention was people registered drives they were planning to make anyway like regular commutes and then you got a kind of fuzzy geo-specific chatroom thing where you could see other riders who were interested in sharing line up. It also calculated the distance the first driver would have to go out of their way to pick you up and did some optimisation around that, and it calculated fuel costs. The idea was to let people split the fuel bills. Back then I was worried about peak oil.
- rockinghigh 10y ago
  So you created a carpool forum. That's a great idea but the complexity is vastly less than a real-time platform to dispatch cars and with prices that evolve over time.
  - zigzigzag 10y ago
    It was a real-time system, actually. It wasn't a forum: riders would appear and disappear on the fly as they entered routes, and it did overlap calculations. You just put in your start and end points and it'd match people with quite different start and end points if the trip fuzzily matched subsegments.

elmar 10y ago

In the end Amazon.com managed to survive and prosper with a very similar strategy.

John23832 10y ago
Amazon actually moves product, and there is a HUGE infrastructure barrier to entry in the AWS space. Uber competitors don't have either of those stumbling blocks.
zigzigzag 10y ago
Amazon has not spent years losing money, they merely chose to match spending with revenue so their numbers were balanced. That's quite different to winning market share through raw subsidies.
- ethanbond 10y ago
  Key distinction. As well as assembling an incredible logistics system. Uber has... a trivial app that's already been cloned dozens of times? Uber's saving grace, if it will ever get one, will be autonomous vehicles. First the technology has to get good enough, then the law has to catch up. All while Uber is just dumping cash to fend off the aforementioned dozens of clones by artificially deflating their prices? My bet is that they'll run out of time/money.
- samfisher83 10y ago
  Their paid in capital is greater than retained earnings. Which basically means profits are less than what the share holders have put in.

allendoerfer 10y ago

I generally agree that flooding the market might lead to stupid investments. Two points: > That forces institutional investors to pour their money into risky investments like venture capital firms. Are there statistics about this? Is this really the case? What is the percentage of VC compared to the rest? I only have a vague feeling that VC is tiny compared to private equitiy and even tinier compared to Wallstreet. > their money ends up subsidising a 10 minute taxi ride and being lost forever That actually seems like a good thing. People with capital subsidising basic services for the general population. Wealth generally has the tendency to move in the other direction.

zigzigzag 10y ago
http://www.bloomberg.com/news/articles/2014-09-23/are-public-pensions-inflating-a-venture-capital-bubble http://www.bloomberg.com/news/articles/2014-09-23/are-public... People with capital subsidising basic services is not a good thing because pensions are so widespread - the subsidy is essentially coming from the same people taking the ride in the first place, just via an incredibly high overhead and roundabout trip!
- kevinmchugh 10y ago
  This bloomberg article says that something like 30% of VC money came from pensions in 2014, 2/3 of that from public pensions. Perhaps a couple percent more, because funds of funds were a large contributor. It makes a very convincing argument that VC is a bad investment vehicle for pensions, but I can't draw the line from this article to pensions are subsidizing basic services. Certainly with Uber, it's largely Saudi Arabia right now that's subsidizing riders. That is a very circuitous path for the Saudis to benefit or enrich their subjects, but everyone else in the uber world is benefiting.
iaw 10y ago
> Are there statistics about this? It's actually fundamental to Portfolio management theory. [0] > That actually seems like a good thing. Maybe, I don't know. Uber engages in some aggressively competitive business practices, it's possible that because of their investor subsidies they've been able to undermine a number more possibly sustainable new business models around ride sharing. It's impossible to bootstrap in a market where Uber's a competitor. [0] https://en.wikipedia.org/wiki/Efficient_frontier https://en.wikipedia.org/wiki/Efficient_frontier

jsprogrammer 10y ago

> their money ends up subsidising a 10 minute taxi ride and being lost forever. What? Uber is just a black hole? What about the driver? Who received most of that money for their services? That driver can now use that money to invest in the way they wish.

adwn 10y ago
> What? Uber is just a black hole? No, obviously zigzigzag was describing the perspective of the investors. The implication is that their return on investment is lower than the investment, i.e. their money is "lost forever".
- jsprogrammer 10y ago
  Do the drivers go away? Perhaps one will give an investor a lift one day.
  - tedunangst 10y ago
    Rather expensive way to get a lift. It would be cheaper to save the money until you need a ride, then build a bonfire out of cash to attract attention and hail a cab.

SixSigma 10y ago

Where does that money ultimately go ? Into the pockets of drivers (although a portion of that comes from the pockets of existing taxi firms in opportunity cost and financing repayment). So as a stimulant for the economy it is working. It is even trickle down economics in action ! It should also make incumbent taxi oligopolies up their game, so the customers ultimately win. There will be losers. But that is the nature of the game.

jahnu 10y ago
Yes! Too many people apply household economics to the state. If anything has been proven since the GFC it's that Keynsian stimulus works (when it is supposed to be used not all the time, e.g. in a liquidity trap, i.e. now)
zigzigzag 10y ago
No it isn't - all it does is shift spending around. Money that could have been saved and spent later is being spent now in the hope that it'll create something of long term value that'll pay off more than invested. This is 'stimulation' in the same way that spiking yourself with coffee in the morning doesn't actually give you more energy in total, it just makes you feel more awake in the present at the expense of needing more recovery later. Is Uber such a case? Maybe if it ends up with a long term, world wide monopoly on self driving taxi networks. But right now it's ultimately just a taxi firm that's burning vast sums of money giving people cheap rides. It's literally just throwing pensions and university donations onto the street without any plan for how to get that money back.

pjc50 10y ago

I have a half-baked theory that much of the 20th century's prosperity came from spillover gains from "malinvestment". Things which are socially useful, but it turns out not to be possible to capture their value in the market. The big example is railways - all the original investors lost their money. What if there are no profitable "normal" capital investments left in the west, other than asset price bubbling?

RodericDay 10y ago
> The big example is railways - all the original investors lost their money. Can someone build up on this?
- pjc50 10y ago
  https://en.wikipedia.org/wiki/Railway_Mania https://en.wikipedia.org/wiki/Railway_Mania but more recently the Channel Tunnel, which makes a small operating profit these days but also lost most of the original investment and went through bankruptcy: https://en.wikipedia.org/wiki/Eurotunnel https://en.wikipedia.org/wiki/Eurotunnel (The railway mania wikipedia page even blames low interest rates for it! Personally I'm of the opinion that the government can set its bond coupons to whatever it likes and investors are not owed a minimum return, but there we go) Edit: since the original comment was quite popular, I'll make some forward-looking statements: there is likewise a lot of investment which needs to be done in order to decarbonise, has major social benefits, but will not necessarily be profitable in the market. Even the highly distorted market that is energy. It may turn out that substantial negative interest rates are needed to finance the transition.
  - deleted 10y ago
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  - AndrewKemendo 10y ago
    Is it because there was not enough demand from consumers to justify the cost, but that rail was too important a piece of infrastructure that it couldn't just go away? I mean the top performing asset class for Berkshire Hathaway had been railway for a long time, albeit carriers not rail infrastructure.

brightball 10y ago

Well there is a barrier to entry, user preference. The same force that keeps people searching with Google instead of Bing keeps people hailing rides with Uber instead of Lyft.

ethanbond 10y ago
Weird that Lyft is still a part of this discussion since all you read about is how Uber is murdering them... and that's all we've been hearing for years and years... and yet here they are right here in this comment thread. We'll see how strong "user preference" is when Uber can no longer afford to subsidize the living hell out of every ride, but the next little service with a strong VC backing is just getting started doing so.
sfifs 10y ago
Do you use Google instead of Bing due to preference or better results? I end up seeing more relevant results. Would you still use Uber if competition was 30% cheaper? Most people outside the 5% trade off time or convenience for conserving cash.

zxcvvcxz 10y ago

Good post I agree with your sentiment. Adding to this, food delivery startups are another great example of this. I call them "VC subsidized lunches." Me and my friends installed half a dozen apps, each of which have given anywhere from $25 - $500 (!) in promotions, i.e. free lunches. The irony was having actual lunch with investors in which they didn't pick up the tab...

binalpatel 10y ago

You clearly have a viewpoint you're entrenched in - and you're pigeon holing this into that. Uber is a bad investment to you - but a good investment to others. If in the end they successfully become one of the first firms to have a self-driving fleet, then they'll likely be able to make a tremendous return on their investment. And maybe they won't, maybe they'll fold before then. But saying that this was all the fault of Fed policy is nonsense.

MrBuddyCasino 10y ago
> If in the end they successfully become one of the first firms to have a self-driving fleet, then they'll likely be able to make a tremendous return on their investment. Why? Everyone's building self-driving cars these days, if they have an advantage its not going to hold up for long. Then the car producers can simply do the same via their existing ride-sharing networks (car2go, DriveNow).
- binalpatel 10y ago
  Largely the first mover advantage, I think. I'm sure once someone does it it'll be a (or it already is) a gold-rush, but the first to get to the finish line will realize the most gains initially. I'm also not sure how relevant it is, but Uber has been successful in branding. It's not, "I'm going to ride share to the airport", it's usually, "I'm going to Uber to the airport." But in the end - I have no idea :). It'll be interesting to see what happens!
- intrasight 10y ago
  Uber is not in the self-driving car business. They aren't in competition with car companies. They don't really have any competition now. I doubt that is going to change.

hencq 10y ago

I don't disagree with your main argument, but I'd say there's at least some barrier to entry. The market definitely has some network effects. More drivers in the network makes it faster to get a ride and therefore more attractive to riders. Vice versa more riders makes it more attractive to drivers to be on Uber's network. As you point out, drivers and riders can install multiple apps (and they often do, e.g. Lyft), but for a competitor to enter they'll likely need to jumpstart their network. Something which they'll likely have to do by subsidizing both drivers and riders. This means that whoever decides to take on Uber would probably need quite a big war chest themselves.

meira 10y ago
Uber penetration is very low, a lot of cities don't have their serviços available so others can occupy these spaces without worrying with network effect at all. Uber is doomed.
- umanwizard 10y ago
  What country are you talking about? Uber is available in every major US city, for a pretty loose definition of "major".
  - paulddraper 10y ago
    I agree. I've never been anywhere in the US with lots of taxis where Uber wasn't.
  - gregpilling 10y ago
    I was in Italy in June, and Uber was not very useful. I could not get a ride in Modena, Bologna and a few other places I tried.
  - user5994461 10y ago
    It might be hard to understand for the typical American HN reader but the major USA cities are only a tiny fraction of the world. There are more than 100 other countries out there with many cities in need of taxis.

hodgesrm 10y ago

Interest rates just explain why there's money looking for a better return. But why invest in Uber as opposed to other start-ups? And why invest in start-ups at all as opposed to property or existing companies that are available at lower P/E values? The answer seems to be that many people feel Uber is a decent investment compared to alternatives. If Uber ended up owning some share of self-driving transportation that choice might look prescient or at least not so hard to understand. Something analogous has happened at Amazon, where an unrelated business--AWS--now seems to be driving profitability

untog 10y ago
> The answer seems to be that many people feel Uber is a decent investment compared to alternatives. Yes, but I'm not convinced they think this for sensible reasons. People follow a herd mentality, and invest in Uber simply because others are doing so - if that many people are doing it, it must be a sure thing, right?
- hodgesrm 10y ago
  I don't think you ever have full visibility into something as speculative as Uber so following the herd is understandable even if it's not likely to yield big returns for most people. Also, I would not discount early investors assuming they can sell out before the levee breaks. That seems pretty rational.

unabridged 10y ago

>Uber is a bad investment. There is no barrier to entry in ride sharing. Uber's size is only a benefit for drawing in tourists from other cities, each market is a separate battleground and you only need to beat Uber in your local market. And what prevents some city from setting up its own government sanctioned/required ride sharing market & app.

jonknee 10y ago
> And what prevents some city from setting up its own government sanctioned/required ride sharing market & app. That's essentially what taxis are and they are (in the US at least) almost universally awful.

gnicholas 10y ago

> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Uber and Lyft have erected barriers by structuring their pay system so that drivers are much better compensated if they do a large number of rides for them. This effectively erects a barrier to entry, because newcomers cannot get drivers as easily.

Someone 10y ago
On the other hand, if a competitor offers flat-rate payments at the average price Uber pays (= lower than the drivers making the most rides get, but higher than the drivers making the least number of rides get) new drivers entering the market and drivers making few rides should flock to the competitor. Uber's strategy will only work if those drivers, on average, are worse than the ones making many rides.
- employee8000 10y ago
  You need the customers to pay these drivers. Until you get a proper and healthy two-way market, all these ridiculous hypotheses won't actually work.
zigzigzag 10y ago
You're assuming that driving cars is an ultra-tight labour market. That's not a correct assumption. There is a relatively limited number of cars you need to have good service compared to the number of people looking for unskilled jobs in major metro markets, even when unemployment is low in percentage terms. If Uber was hiring an army of specialists maybe I'd agree but loads of people can drive.

jdavis703 10y ago

Even if Uber winds up a bust, the money they've paid drivers is really money which was used to buy real things in the economy. Since most countries have been unable to pass actual (or enough) fiscal policy, the only tool left to fight off a sluggish economy is monetary policy. I for one don't mind if the investor class bleeds some money because they can't afford (meaning the returns are too low) to invest in "safe" asset classes.

michaeldunworth 10y ago

I'll tell you exactly how it will end. Uber will be one of the first companies to a $1T valuation. (First two will be Facebook and Apple). Here's why. Uber isn't about ride-sharing, at all. Uber is about rewriting your idea of needing a car. The market they're going after is literally automotive industry. So right now, they're burning money hand over fist, but they don't /need/ to be doing that. It's a strategic choice, to drown their competitors (see Amazon, that's exactly what they do by tapping good sources of financing in the past). Uber will continue to do so until it is not viable to compete with them. The only companies that will be able to compete is one with infrastructre and rivers of gold. Google. Google owns all the data of Ubers (maps), and they've got everyone on their own maps, they've got hundreds of millions of users that are tied into a google profile in some capacity (gmail/youtube/etc...) and a lot with linked credit cards. This makes for the biggest threat to Uber. Google can afford to lose, and Uber not buying Lyft is going to be the only potential down fall of the company. If Google buys them (which I don't think they will) then that is the headshot on Uber unfortunately. Back to my point, basically Uber is going to burn and burn while capital is cheap, and force other players out. Makes sense. They can stop subsidizing their rides for users once they've bullied out the others, and there we end up with decently priced normal rides (Which is still ridiculously better in price and experience than a taxi). But by the time this happens (3 years-ish) Autonomous vehicles will be making their ways into cities at much more capacity. This will reduce their costs significantly, and all these price points they have which they have to pay for, will pay for itself by autonomous tech (instead of just forking out their own money to make our rides $5, the lack of labor because of the autonomous vehicles will force the COGS down essentially). People will have a huge uproar at Uber for creating and then cutting hundreds of thousands of jobs (the drivers) - But their service and value add of an autonomous driving network will wash away everyones humanity side because it's just "too good". Leaving them in the tallest tower in the city with a penthouse office and a cat sitting on Travis' lap while he looks out the window down onto his autonomous city laughing in an evil tone. $1T company, without fail. RE Groupon: Groupon as compared to in the article is a different situation. Groupon had minimal barriers to entry and is only a sales machine. People, people, people, and more people were needed in order to bring in the next deal, the next bargain, etc... Uber is absolutely incomparable as they have an innovation in technology, financial defensibility, and humungous footprint of recurring revenue. Groupon had none of those so I feel the article writer putting that out there doesn't seem like a just example. The only thing they have in common is that they're losing money.

tuxracer 10y ago

> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Some ride sharing companies offer bonuses to drivers based on number of rides now. For example, 50 rides in a week $250 bonus at the end of that week. Using multiple apps interferes with a driver's ability to get the bonus. Many drivers use multiple apps anyways, maybe don't drive enough to get the bonus anyways, etc... but the dominant companies do have tools at their disposal to help mitigate the risk of newcomers quickly taking over a market.

emrekzd 10y ago

I disagree with your main argument. Uber is buying growth, and it is buying growth that yields network effects. I live in the Bay Area and yes uber prices have been ridiculously low and they stayed the same for long. However one thing changed; now I see other riders sitting next to me while I pay the same price I always paid for UberX. Demand enables pooling. Network effect in pooling is obvious. You are also dismissing the fact that traditional cab companies are going out of business. My main counter argument against"there isn't innovation on uber anymore" would be simply pointing out what is happening to traditional players. I don't think they are coming back with the new rules of the market, any they were forced to leave this early because uber "bought" growth.

vadym909 10y ago
It is buying growth for the rideshare business model. Google, Tesla or anyone can piggyback on their work once the model matures and kinks get sorted out- at least until Uber builds a moat from driverless cars.
mywittyname 10y ago
Uber is unsustainable, both the core business and for the drivers. They've survived this long because they were able to dance around regulations and take advantage of drivers. But things are changing: insurance companies are onto drivers and governments are onto the businesses. All of this is going to drive up costs. They are gambling on surviving longer than traditional taxi companies can. Economics are not in their favor. There's a reason taxi service is expensive. It's hard enough to provide cost-effective public transportation, much less private transport. Once driverless cars hit the streets, then the calculus changes a bit. But that's when the competition will really begin. What's more likely is Google/Amazon will create (or acquire) a driving service broker that will automatically hail for you from whatever service will offer the ride cheapest (and probably won't even take a commission).
- dragonwriter 10y ago
  Google already has the beginnings of that brokering service in Maps' ridesharing feature

aianus 10y ago

> There is no barrier to entry in ride sharing. Drivers can install multiple hailing apps. Riders can too. This is not true. There are big network effects when you consider products like UberPOOL. A new app would burn through a lot of cash to subsidize rates below the rates Uber can offer profitably through pooling.

vadym909 10y ago

I agree. Transportation companies just don't tend to be profitable. Airlines are super competitive and minimally profitable. The airlines folks have a saying- they can only be as profitable as their dumbest competitor- and these are people that actually own or lease their planes and have airports and routes granted to them. Even monopolies like taxi cab companies weren't that profitable if you consider the costs of the medallions. Its just hard to make money in transport- drivers make peanuts, car companies have razor thin margins, oil is too volatile, customers are too cost-conscious. Very different than enterprise software or pharma.

Animats 10y ago
Airlines have had trouble with this for a long time. "The Sporty Game", by John Newhouse (1982) tells this story from the aircraft builder perspective. Over the history of airlines, the industry was a net financial lose. As of 1982, the only aircraft product lines to make money were the Boeing 727 (because so many were made) and the 747 (because it was so big). The US used to have a highly regulated airline industry. The Civil Aeronautics Board decided who could fly where. Then came airline deregulation. Suddenly there were lots of new airlines, most of which went bust. Now we have fewer airlines than before deregulation, worse service, and constantly changing fares. On the aircraft side, airlines are buying new copies of the antiquated Boeing 737, because it's cheap. The B-757 and B-767 are being phased out in favor of the old, narrow 737.
- bruceb 10y ago
  Airfare is cheaper than it was in the past. You can still get good service but you have to pay more.
- selectodude 10y ago
  The 767 is being replaced by the new, widebody 787. The new 737s don't have much other than the name in common with the 737s from 30 years ago.
  - Animats 10y ago

bogomipz 10y ago

"Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning." Substitute the word 'stimulate' with the word 'influence' but this is actually the job of a central bank.

hackuser 10y ago

> what they forget (or more likely, choose to ignore) is that investments can be just bad investments Do you have evidence that someone forgot or ignored this issue? Quotes from a particular central banker, for example? I don't think this part informs the conversation. The question you raise, while maybe novel to some of us on HN, has been long discussed and examined in economics. There are indicators of over-investment and under-investment, and trade-offs to different central bank financial tools. Finally, because a central bank tool increases investment, that doesn't mean the level of investment becomes too high; it could have been too low before. It's like watering a plant; it might help or depending on its prior condition the same action might over-water or under-water it. One sign there is under-investment, as I understand it, is that extremely low/negative interest rates are not stimulating inflation. This suggests plenty of under-utilized capacity.

zigzigzag 10y ago
By definition it's hard to quote someone who isn't talking about something :) I've read speeches by central bankers. They almost never think in terms of high or low quality investments. Instead they only see the negative impact of easy money through the lens of inflation, but this is a problem because the inflation statistics they monitor don't include the prices they're impacting, hence the "mystery" of low interest rates coupled with low inflation. The inflation exists, it's just inflation in the cost of equities, houses, the cost of yield or other things that aren't consumer goods.

skybrian 10y ago

What does "moving spending from the future to the present" actually mean in Uber's case? For many kinds of spending, the future and the present aren't in competition. Keeping cars and people idle today won't result in more cars and labor available tomorrow. If Uber weren't around, maybe the people writing software and driving cars could be doing something more useful. But that's competition between two different investments in the present, not between the future and the present. If anything, low interest rates encourage people to speculate on bets that might pay off later rather than on surer bets that will pay off sooner. So that's the (possibly mythical) future competing with the (actual) present.

zigzigzag 10y ago
It means that instead of saving money to be spent later e.g. in retirement, the money is being spent right now in the hope of positive (inflation beating) ROI later. But what if those investments don't work out? Then you have no savings and won't be able to spend money in the future. Being able to save money for the long term is fundamental in a society that has long lifespans. Unfortunately government policy is to essentially forbid saving, because forcing people to "invest" their savings pumps employment and GDP stats, which is largely how their success is measured.

acchow 10y ago

> Uber is a bad investment. So the VC's might lose money. But if the central bank is aiming for a bigger picture, Uber and Lyft have been great improvements on the market/society/efficiency overall. A car picks me up in 1-2 minutes, instead of the 10 minutes a taxi used to take. And it actually comes - taxis in SF have always been unreliable. And instead of most cabs driving around aimlessly empty half the time burning fossil fuels, now you have the majority of Uber cars carrying at least 1 customer (sometimes 2 or 3 with UberPool/Lyft Line) most of the time.

mattmanser 10y ago
The US taxi market was a shitfest. The rest of the world, not so much. All that's really happened is that Uber side stepped some of your shitty laws. The efficiency gains, etc is all bullshit, not much has changed here in the UK apart from now you can use an app rather than a phone call. They turn up a minute or two quicker, wow. Uber are subsidising our rides a bit at the moment so it's like 20% cheaper for now. I hear prices go up after a year or two. As for taxis during peak time, rich people can now pay more for priority pickups with surge pricing. That's not a plus for society, it's a plus for rich people.
- prodigal_erik 10y ago
  In the US, I could always make a phone call asking for a taxi. They would tell me it'll arrive in 90 minutes, and the odds were 50:50 it would never arrive at all. That's not because of any shitty law, that's just gross incompetence in incenting their drivers.
  - jdminhbg 10y ago
    Well, deliberate undersupply of taxi medallions could be considered a shitty law.
- riboflava 10y ago
  Rich people contribute more to society, so the second order effects of benefiting rich people end up benefiting the larger population as well.

spectrum1234 10y ago

Agreed on central banks, disagree on "There is no barrier to entry in ride sharing." There are enormous costs to acquire customers and to enter new cities. The technical ease has nothing to do with the enormous soft costs.

danneu 10y ago

> Building a real time ridesharing engine is not hard - I did it once You did about 0.01% of the work.

LandoCalrissian 10y ago
Oh no don't you see he is genius that can do it at any time. Sure he could be rich or do a backflip he just doesn't want to right now.
zigzigzag 10y ago
Of setting up a global operation like Uber? Of course. My point is that there's no special competitive edge in building that kind of app. It's not like a search engine or another process node improvement in CPU design, where it takes armies of specialists. The hard part of Uber isn't the technology, which anyone can do, it's taking on the regulators.

FullMtlAlcoholc 10y ago

You are completely discounting the positive externalities that arise from "ride-sharing" (a ridiculous term) services such as Uber and Lyft. This is the opposite of misguided central planning in my opinion for a number of reasons. According to the California DMV, after a record high number 215000 DUI arrests in 2008, the number of DUI arrests has decreased year after year. Uber and a lot of the other ride sharing apps started in about 2009. In 2013, the latest year for which I could find data on, the number of arrests had plummeted to 160000. While this information may not be all that pertinent to VC investors, it certainly has benefits for the general public. Here is a link to the data (pg5): https://www.dmv.ca.gov/portal/wcm/connect/77b8b0e3-c20b-42b0-8670-451d9c9262cd/S5-250.pdf?MOD=AJPERES https://www.dmv.ca.gov/portal/wcm/connect/77b8b0e3-c20b-42b0... With the options provided by the sudden ubiquity of ride-sharing apps paired with a surge of investment in public transportation has led to some residents of Los Angeles forgoing car ownership. This is a massive shift in consciousness for a city derided for and held up as the model of urban sprawl. I've even started using a combination of biking, ride-sharing, and public transportation for commuting to work/play. From a more personal standpoint, I can not be happier to see the death of the taxi industry. Taxi drivers would routinely give me one look and pass me by even after calling ahead because of the color of my skin. The taxi industry in Los Angeles is largely dominated by recent Armenian immigrants who most likely are not that familiar with the different cultures here in SoCal. One driver who was a bit more enlightened told me that in their taxi training class they explicitly are told to avoid picking up black passengers if possible. In fact, it got so bad, that police launched a sting and the LA city council passed new laws to target discrimination: http://www.latimes.com/local/california/la-me-lax-taxis-race-20160120-story.html http://www.latimes.com/local/california/la-me-lax-taxis-race... Uber's bust this year is so spectacular because they pulled out in China because they went up against and lost to a consortium that included Alibaba, George Soros, GM, and a number of other interests who were scared shitless that if Uber won, they would dominate not only ride-sharing, but transportation in general...globally. That is Uber's ultimate aim. Yes, they lost a couple billion. But it was worth doing because if they were successful, they'd be the dominant global player. In the end, they lost to a more innovative company in Didi Xiang (I believe they were mixing dating with ridesharing among other features). The dot-com bust was only a bust if you take a personal, myopic, short-term view. While a lot of people may have lost their shirts, that money didn't vanish into a black hole. The investment in infrastructure is responsible for the Internet as we know it today. It's not perfect, but it's pretty much at the level of a William Gibson novel. Honestly, I am hoping they turn car ownership into an expensive luxury option. I can finally enjoy driving in the California sunshine without any ill-suited and undertrained drivers on the road.

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xapata 10y ago

You should consider the possibility that subsidizing a 10-minute ride could be a good method for a central bank to stimulate the economy.