Who Pays the Price for Selling $10 Bills for $5?
theengineeringmanager.com
theengineeringmanager.com
Any small business which doesn't receive VC funding is also disadvantaged because they aren't able to give consumers the same kinds of deals that these consumers have gotten used to.
What some of those big VCs have been doing is criminal and has been hurting both workers and value-producers for over a decade. I hope that they'll end up in jail after it all goes belly up because this is very serious.
It's not hard to see what's really happening; VCs are shoving investors' money into each others' pockets and then dumping the bi-product on the public market so that the public foots the bill... A lot of which ends up taking a chunk out of regular people's retirement funds.
The crime is made even worse by the fact that many of those who end up footing the bill don't even have a choice. If I have a compulsory retirement fund like 401k or Superannuation, then I often don't have much say about where my money is invested... Maybe it goes to an index fund; part of which goes to big corps like Google which then use the money to acquire worthless VC startups from people who are friends with executives.
Uber, Airbnb, and other companies in this space are valued based on the assumption that they will in fact be able to reach that scale. And if they do, no doubt many of these unicorns will well exceed the trillion dollar market cap
And do not forget that some % of folks driving for Lyft and Uber are doing so in cars that are financed with subprime debt.
https://usa.streetsblog.org/2019/02/13/americas-car-centric-...
$1-1.5 T in auto debt is not 2008 subprime mortgage debt, but it's important to remember that a real tie-in to the publicly-chartered banking system exists here beyond whatever LPs put into VC funds.
How I see this playing out, post-ipos:
Wall Street will demand profits, Uber/Lyft will raise fares because it's the only thing they can do, fewer riders will use the apps, causing fewer drivers to drive -- they will have to walk away from their car loans.
GMAC will need to be bailed out again.
By providing more jobs, these companies are increasing options for workers looking for jobs. No one is forcing Uber drivers to drive passengers.
If there is a shortage of labor, then the prices paid to workers will increase due to market forces. If there is not a shortage of labor, then people that need jobs are finding them.
There is usually a confusion of practical and moral responsibility, of course. Moral responsibility is a heuristic based on evolutionary incentives, that sometimes is and sometimes isn't useful for enacting change.
Driving a taxi or delivering food is a pretty bad job, doing it as a self employed contractor is almost criminal. You have to cover all your own expenses and have no guarantee of work, with zero progression (ever heard of an Uber driving saving up and staring their own minicab business?). It’s a terrible economic decision.
The market does not correct for this as it is entirely controlled by a small group of companies.
This is a major debate in West at the moment, and in the UK it's synonymous with the term "zero-hour contracts": is it somehow OK to suppress unemployment figures by nominally employing more people but giving each one a smaller share of all the labour, and so, wages?
If the gig economy unsustainably employs people at cut-throat rates, then the statistics look good, and that spins the public opinion. Why would workers complain that they can't pay the bills if there are so many jobs out there? In fact, employment for peanuts is worse than no employment at all, because it is a lie perpetuated to try to avoid having to really deal with the issue of job poverty.
> What if...
Can you give an example of what you're talking about?
Fixed term contracts are allowable, because taking that thinking to the extreme would mean never being able to terminate a worker, even in cases where their employment becomes obsolete.
The issue revolves around "technically being employed" - having a contract which doesn't entail consistent or sufficient hours, and then not even having the choice to work enough to get by. This unfairly pumps employment figures for companies and the government, who can say that they have X workers, while denying an honest representation of how much people are actually able to work.
My original question was - is there an example of a job which could justify these kinds of fluctuations in working hours and subsequent income?
Painter, they can only work on days it's nice out. Kinda hard to paint when it's raining, and you can't get the day back.
> The value of flexible work: Evidence from uber drivers
> Using data on hourly earnings for Uber drivers, we document the ways in which drivers utilize this real-time flexibility and we estimate the driver surplus generated by this flexibility. We estimate how drivers’ reservation wages vary from hour to hour, which allows us to examine the surplus and supply implications of both flexible and traditional work arrangements. Our results indicate that, while the Uber relationship may have other drawbacks, Uber drivers benefit significantly from real-time flexibility, earning more than twice the surplus they would in less flexible arrangements. If required to supply labor inflexibly at prevailing wages, they would also reduce the hours they supply by more than two-thirds.
So sure, nobody is forcing anyone to drive for Uber, but there are people who have to drive for Uber because they don't have any other opportunities in the short term.
Indeed. The minimum wage should be $20 an hour. If you can’t earn that much then you should be on the dole.
It doesn't help that these jobs often have an attractive shine to them up front—fast, easy money! all you have to do is drive around!—but hide lots of costs—like massively increased wear and tear on your car—that there's no advertisement about, and no help in covering. If you have to keep driving to keep food on the table, it's also that much harder to take the time required to find a better job (though admittedly, that's not really qualitatively different from most low-end hourly-paid jobs, though it may be quantitatively, if your expenses end up wiping out enough of the income that you're effectively getting less than minimum wage).
By the same token many people of the “I’m middle class and I think this choice should be illegal.” persuasion genuinely think they’re making lower class people’s lives better by setting a minimum floor of some sort. They don’t think poor people can really make informed choices. It’s the same mindset as whorephobic feminists from Sweden or Iceland “protecting” women.
Now within this system there are two strategies to run a company, #1) employ people, make a product, sell it for a profit, rinse, recycle, keep going for decades if you´re good.
Or #2, for a short (but longish in human terms, several years at least, remember it´s a very, very slow system, and hey interest rates have been really low now for a decade), borrow money, employ people, make a product, and sell it for less than it cost to make.
Eventually with #2 the borrowed money runs out, but until it does you stand a more than decent chance of beating #1, and since you borrowed the money you can throw some great parties with it along the way.
For extra thrills and lolz, borrow the money from the banking system, so that when you can´t repay it, you crash the entire country with a credit crisis. Note there isn´t necessarily as clear a division between the two strategies as we might want, most companies need some kind of startup capital, and have to borrow that from somewhere.
now big finance saw they just need unicorns, not actual business models, so everything and anything is fair game and stocks are less sound than Vegas.
Rather than borrowing, it induces a follow-on investment, capital, revenue and market (in cases), recruiting strength and other mindshare effects.
The smart money knows the exit strategy (and more importantly: timing ), the dumb money thinks it does, the hopeless money has no idea what exit strategy is.
The effect is similar to the debt model you describe, though structured differently.
The whole point of “disruption” is that these businesses are squeezing out existing business which either provide more and/or higher-paying jobs.
But there is nothing "market rate" about rank-and-file work for a company that's pouring gasoline on VC money and setting it ablaze. If demand for your labor is only due to artificially low prices, that demand will evaporate once growth targets are met.
See also: existing business that was disrupted. If the new service is not actually more efficient and was only able to undercut existing players on price because of VC money, there are no real long-term winners on the ground. Sure, maybe some founders, early employees, and investors net a tidy profit, but that profit isn't based on an actual economic contribution if the product isn't viable after the VC spigot gets turned off
How many people use Uber for the convenience and are not price sensitive? How many people use Uber who have cars but use it so they won’t risk getting a DUI? Heck we use it just when we don’t feel like going through the hassle of parking and dealing with traffic when we go into the city center from the burbs sometimes.
It is an enormous pity that the taxi industry has not been disrupted more. If better service in every possible way is what disruption looks like count me in. Bring it on.
Other places have recognized the need to make taxi service more modern and less horrible and made changes—having their own ride-hailing apps for the local taxi service, for instance.
Not everywhere is New York City.
Even given its current state in the places you name, I don't believe that justifies handing over billions of dollars to sleazes like the ones at Uber, especially given that the people who do the actual work to make them that money are often working at what works out to less than minimum wage.
Two wrongs don't make a right.
Neither of these assumptions hold in practice.
- Über replaces taxis. Taxi drivers are relatively well situated wrt to pay, insurance, etc. Uber drivers are working poor. Therefore, the middle class wins, the lower class suffers.
- In some cases, Uber replaces other modes of transportation, such as public transit. If you drive everywhere, you should hate Uber for clogging the streets. Also the environment, etc.
- Uber is a shitshow internally. Remember hw they bought nice jackets for everyone on the team, except the single woman because they wouldn’t get a mass discount on that jacket? Yeah...
To the extent that existing minimum wage and workers’ rights regulations haven’t caught up with the gig economy, these jobs looks like capital exploiting labor by having found a loophole in the rules.
http://fortune.com/2015/07/30/freelance-vs-full-time-employe...
Driving for Uber is like selling your stuff for cash. It's better than starving, but it's not a good choice.
For starters these multi billion dollar gig economy tech platforms aren’t providing jobs (at least to the gig workers). Gig workers are independent contractors and by their very nature independent contractors are self-employed.
It’s all a massive fraud that harms society. How many non tech companies go public with $1B/year losses? None. The very same company who on one hand doesn’t give 40+hour workers employee benefits and on the other claim they are job creators.
> I once read a tongue-in-cheek description of San Francisco as “an assisted-living community for tech workers in their thirties”. This snide jab pokes fun at the wave of Silicon Valley startups creating services and products for a stereotypical technology worker in the city. Nowhere to park your car? Uber and Lyft can get you around. Too busy working to cook and do grocery shopping? Postmates can deliver your lunch and dinner. Living in an apartment too small for a laundry room? Rinse can do your washing.
"OH: SF tech culture is focused on solving one problem: What is my mother no longer doing for me?"
Now, the logical question is to ask, why is anyone willing to provide this $10 bill for such a low price to begin with? Or, to switch from the analogy back to the subject matter, why are people singing up for the gig economy jobs? The author puts the blame on the unicorns - but they did not create the environment in which a gig worker is willing to accept such a job.
Despair and deception. Companies have figured out how to shift costs onto their employees, then claim that those employees are "independent contractors." Uber is a global taxi company that pays millions of employees starvation wages. It sells itself as an SV "technology" company that pays a few thousand employees a few hundred thousand dollars a year to convince people to wear out their cars for less than minimum wage.
Trying to blame it at Uber or inventing some kind of evil conspiracies are all futile attempts to omit a simple depressing fact: people working at these low-wage jobs don't have opportunities to do anything that would be more valued by society.
And that same society made Travis Kalanick the 115th richest person in the world. There are two sides to this equation, and shrugging your shoulders and saying "supply and demand" is taking a side.
https://www.changechecker.org/2016/12/07/look-out-for-these-...
Edit1:
/s
Slightly more seriously, you could promise to anyone who bought a $10 bill that in some x number of years they could redeem that bill for $20. This is called "being the Treasury and Federal Reserve".
The hard part is finding a way to invest the $5 of profit they gave you in an asset which will appreciate faster than your promised return.
Edit2:
This is not advisable, see "Bernard Madoff, Ponzi Scheme".
Electronic/Smart bills, that keep track of how many times they've been used to purchase stuff with.
After a bill has been circulated N times, it increases in value by Y, and/or unlocks special artwork.
Some bills may become highly sought-after collectibles worth far more than their face value.
Would it help or harm the economy?
Nations try to avoid this because they can spend freely on a promissory note currency system. It is a recipe for disaster in the long term.
Edit: https://money.stackexchange.com/questions/5400/why-is-the-fr...
- Step 1: Switch to selling $11 (2 x $5 bills + $1 coin) for exactly one $10 bill, cutting your net loss per trx by 80% and showing how serious you are about going profitable. But its just a ruse, what your really doing is capturing the market supply of 10$ bills.
- Step 2: Once you have this, you can now start selling branded $1000 laptops for $10 (bills). Increasing the value of $10 bills and allowing you to offload your existing stock of $10 bills for $15 (or more).
At this stage you now have (a) an incredibly profitable 10$ bill business, (b) a spectacular growth story in the consumer electronics space with (c) proven ability to reach profitability.
Stockprice ++
https://finance.yahoo.com/quote/amzn/financials/
Amazon lost money for a bazillion years, and they continued to get investment dollars. What is one reason that Amazon could do this? Because they were selling things for less than it cost to make or acquire these things. If Amazon's business model was to buy a book for $10 at Barnes & Noble and sell that book for $5 on Amazon.com, they would never have gotten off the ground.
None of the companies in this article buy something in this spend $10 make something they sell for $5.
Interesting article. Bad example.
This holds true for startups as well: foster interest in the company, launch it with some initial inertia (VC funds), collect investors' (stock holders) money, and see the stock skyrocket. Little risk for everyone involved (but the buyers).
Of course, that's only a pyramid scheme if the business isn't intended to turn profitable (VC firms do not care), and stock holders are placing a bet.
But I wonder: if one were to look at the whole stock market, wouldn't it also look like a big pyramid scheme, if squinting a bit?
The Engineering Man-
ager- Once we've driven out the competition, what prevents some other VC-backed firm from playing the same trick? If customers go for the cheapest thing -and let's face it, taxi and food delivery are not differentiable- won't there always be another disruptor?
- If there's a monopoly that lets us make huge profits, wouldn't the government come and do something about that?
Drones and perhaps, down the road, teleporters.
The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5. This is done to dominate the market. You will become very popular very quickly and dominate the $10 bull market by selling them for $5. After dominating the market you must find some way to become profitable. Often when a company tries to raise prices and become profitable they find that the market evaporates, you won't sell many $10 bills for $11 even if you run a managed service that makes it convenient. For "gig-economy" startups this screws the workers because their jobs evaporate with the market. The article ends with a call to action.
Unless you're a payday lender (or similar). Of course, they have to accept the risk that they'll sometimes be unable to collect the $11 at all.
If I go to the Kentucky Derby put $1000 on Fancy Dancy Magic Prancy, it's hardly the horse's fault if my gamble doesn't pay off.
Now, I don't know what kind of punishment the GP wanted to see. If the question is why doesn't all the money run away from the VP's fund, I wonder about that too.
"That without a clear indicator of the author's intent, it is impossible to create a parody of race horse names so obviously exaggerated that it cannot be mistaken by some readers for a sincere and accurate name of a horse."
We could call it the "Derby Law".
I actually searched for "Fancy Dancy Magic Prancy" because I thought that might be an actual horse. I found out it's a reference to PBF, but nonetheless it /could/ have been a real horse.
It only gets disgusting when such "musical chairs" scams get too popular, becoming "too big to fail". Then the society at large will cover the bill, including those actors who were more prudent and honest throughout (adding insult to their injury).
The more involved and indirect the chain of responsibility, the larger the potential for scams.
"We can develop a monopoly by selling below cost" is some kind of traditional business, but I wouldn't call it a traditional tech startup.
Except that it doesn't. Those "jobs" were never sustainable in the first place, and in the meantime the workers make bank.
This gets it fundamentally wrong. Only Moviepass was in the business of selling $10 for $5. Most of what appears to be $10 for $5 can be broken down into two things:
(1) Software is a very high fixed cost and very low marginal cost business. If you spend a million to develop a piece of software your profit is going to look like crap for your first few customers, better for the next bunch, and so on until you are wildly profitable (or so you hope).
(2) Discounting recurring revenue. Spending $10 to get $5 in revenue is stupid. Spending $10 to get a customer who will give you $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.