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.
Everyone is a loser except for the investors. If you really take it to the logical conclusion, the business model is Dumping [1]: capture the market, drive out everyone else, then jack up prices when you are the only show in town. And the winners in the endgame are the investors.
I'm not doubting your point, but at the same time I struggle to name an example that did the "then jack up prices when you are the only show in town" step.
No one, not even Amazon, reached the "only show in town" scale. Walmart's online presence for most popular items is competitive and many times offer lower prices.
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
Remember that we've been here before: Groupon actually ended up BEING a straight-up ponzi scheme that is now worth a small % of what it IPO'd for as a conglomerate of all of its competitors (LivingSocial, etc.).
And do not forget that some % of folks driving for Lyft and Uber are doing so in cars that are financed with subprime debt.
$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.
I genuinely don't understand the argument that tech companies are hurting society by providing lower paying gig-economy jobs.
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.
Because workers often stake their livelihoods on a single source of income. This is perilous enough when the source of income is result of them making contributions to the economy at the actual market rate.
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
Are you just referring to gig economy workers or white collar workers who are also getting six figure incomes based on VC money? How much less would even profitable companies have to pay for white collar workers if they didn’t have to compete with VC funded startups and there were bunch of people out of work because VC funding dried up?
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.
the quality of these jobs have changed over time. Originally an Uber driver told me he he was clearing $4000 a week a few years back(incentives, surge pricing, etc). Now not much has changed for me, but there pay structure has changed significantly.
I think you're demonstrating a point of view that's tragically common here on HN - you're assuming that people are never desperate, and that they always have an alternative to choose instead. Many people are in the position where they only have one option and have to pick that to earn a living. That's not strictly being forced to work a job that sucks, but the reality is they don't have a choice if the alternative is starving or losing their home.
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.
What were these people doing before they started driving for Uber? Presumably they decided that being a driver was a better use of their time and that's why they made the switch.
If you remove the opportunity to earn some money with gig work, you are forcing them into their next best alternative, which is starving or losing their home. I don’t see how that makes people better off.
The "gig work" jobs crowd out other, better-paying and/or better-benefited jobs because the companies brokering them (Uber, Lyft, etc) are able to operate without turning a profit.
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).
> I think you're demonstrating a point of view that's tragically common here on HN - you're assuming that people are never desperate, and that they always have an alternative to choose instead.
Indeed. The minimum wage should be $20 an hour. If you can’t earn that much then you should be on the dole.
Do you really think people doing gig economy jobs have alternatives? It's not a "lifestyle choice", it's literally looking around and saying what can I do that will pay my bills, today. And if these are the only options available this is what you "choose".
People do in fact have options. They look at them and they choose. Lots of people choose to work in the gig economy for reasons you obviously don’t value. Working Uber beats working many other jobs, as should be obvious by the fact people continue doing it. People aren’t idiots. You can fool some of them some of the time. You can’t fool many people about their own lives and experiences for long.
> 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.
Which would also mean the need for real jobs is honestly represented.
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.
I don't understand what you're getting at. So offering someone employment (do this for money) should only be allowed if it's at a consistent frequency (full time) and at a guaranteed non-variable amount? What if the job they're being hired to do does not have consistent demand? Or the service provided has competition, or varying costs, which requires price changes?
Think about the demand for tax preparers each year. Higher demand Jan-Apr. Lower demand the rest of the year. Should companies be forced to hire tax preparers full time year round or should they be free to contract for only when they are needed?
That example isn't comparable to the kind of contracts that were originally being discussed. A contract with fixed hours on the scale of months doesn't have the same degree of stress as one with hours varying from day to day, week to week.
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?
It’s like zoning. Some people honestly believe that no one is both willing, able and perfectly happy to live in a small, cramped apartment or without a kitchen, or in a group house. Other people understand perfectly well that making all those lifestyle choices illegal through zoning increases the value of their property by making it impossible to be poor and live in that area. If you make living in an area while poor impossible only the middle class and wealthy will live there and you’ll have lower crime and the schools will have good results because they’re full of the children of people who’ve made it.
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.
Think of society as a very slow (this is key) networked system, subject to the same kind of feedback loops and manipulations we can perform in computer networks, just progressing in human time over years.
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.
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.
You will always find someone willing to work for less money or in worse conditions. It’s why we have minimum wage and workers’ rights regulations.
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.
Copenhagen principle of moral entanglement in action: regardless of cause and effect, the most powerful actor that is somehow entangled in a situation is called the one responsible by the media.
It makes logical sense to direct efforts towards change at a body that is powerful enough to enact change.
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.
>genuinely don't understand the argument that tech companies are hurting society by providing lower paying gig-economy jobs.
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.
Desperation and misunderstanding is forcing Uber drivers to drive passengers. The money they're getting has three components: the first part pays off their marginal costs (gas, insurance), the second pays off their fixed costs (increased depreciation on their car), and the third is their wage. How much is left after the first 2 components are taken off? It varies widely and is hard to calculate, but suffice it to say "not much".
Driving for Uber is like selling your stuff for cash. It's better than starving, but it's not a good choice.
What about the people in the industries being 'disrupted' by the strategy of flooding the market with unsustainably-cheap products or services (e.g. taxi drivers being undercut by Uber) ?
Fuck taxi drivers and their entire industry. Fuck their lying about someone being there in 15 minutes for four hours. Fuck their “broken” credit card machine. Fuck hailing a taxi while black. Fuck a regulator that does their best to make filing a complaint impossible. Fuck trying to get s taxi to travel to an area that they are legally required to serve but they just refuse to go to.
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.
But this is not a structural problem with the taxi industry: it is a problem with the current implementation in certain areas.
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.
Indeed, not everywhere is New York City. Some places are worse, like San Francisco. Possibly there are places that are worse again. Certainly I would never get a taxi in Southeast Asia if I could possibly get an Uber.
The point is that there's no specific reason that the taxi industry "deserves" to be terminated with extreme prejudice by disruptive startups.
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.
I honestly have no idea how much taxi fares are and have only used a Taxi when I was in New York in 2012. Before Uber, I would rent a car at the airport.
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.
I genuinely don’t get people denying even the existence of opposing arguments. I am perfectly fine with arguing against them, even in such juvenile Ayn Rand terms. But to just pretend that there is no argument whatsoever seems disingenuous.
- 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...
> 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.
So, in the end, the analogy breaks: turns out, the companies found out a way to procure $10 bills for ~$6 and then (after initial growth phase) to get it as low as ~$3-4 and finally make a profit.
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.
> why are people singing up for the gig economy jobs?
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.
Uhm, but these are different companies that start with this proposition for workers from the beginning. That's not what's happening: the old and new models of employment are offered by different companies that compete on the same labour market. And new companies that work with the gig model did not create this labour market.
See "deception:" most people underestimate the cost of using their car as a taxi or delivery vehicle. This is also why Uber would be much less profitable if it deployed its own self-driving cars, and probably has to convince "independent contractors" to buy and maintain its fleet.
You're talking about costs, but why does this matter at all? It's a market, so you should talk about supply and demand instead. People who decide to work for Uber have plenty of other options: stay without a job, land other low-paying job, etc... Uber is not their only possible employer, nor it is in a cartel with other low-wage job companies. It cannot dictate it terms to employees. If they accept the Uber's offer, it's only because that's what labour market is like.
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.
> 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.
Yes, and after my life improved so significantly after old-style taxis have been replaced by taxi apps, I'm more than content with Kalanick's compensation.
Sweet. Those people who drive for less than minimum wage are mostly water, but they also contain proteins and other trace elements. A centrifuge can separate that out.
Replace all of the ports on the bill with a single USB-C port and call it revolutionary?
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".
Well that shifts the value away from the bill being a promissory note and back to being the actually valuable item. Kind of like a commodities backed currency, which most nation's try to avoid.
The amazing thing about currency being actual valuable things (like precious metals or gems) is that it cannot be devalued by "printing" more of it from non-valuable things.
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.
I believe the plan is to undercut everyone else until all other sellers of $10 go out of business, then bring the price up to $15 and use your position to prevent anyone else from selling $10 bills again.
- 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.
Get people so used to buying $10 bills from you that they stop paying attention to the numbers. Like how a lot of people buy from Amazon without even checking if it's cheaper elsewhere.
I get the author's point that they don't like investing in companies that hoover up investment dollars, but the selling $10 for $5 example annoys me. Any GAAP-based income statement starts off total income minus cost of that income equals gross income. Check out the income statement for Amazon...
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.
Wouldn't this scheme be akin to a ponzi one, in some way?
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?
I wonder what the answer is to these two questions:
- 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?
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.
>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 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 $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.
Also, there seems to be no personal accountability for those who lost all that money. I can set up a business that sells 10$ notes for 9$, convince a number of VCs and/or shareholders to cover the losses, and live the sweet, exciting life of the entrepreneur until the game is over. By the time the value of the company drops to zero, I'll probably have accumulated enough cash to live comfortably ever after.
Your made up horse name made me just think of (which may already exist outside my awareness) a corollary to Poe's Law.
"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's not the investor that decides to give money to the $10 bills seller. It's a third party.
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.
And that's perfectly fine, as long as the people paying the price (here, VCs) are the ones bearing the responsibility for their eventual losses.
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.
As a quibble, I would say the traditional VC-backed tech startup is a technology that costs $50mm to develop, but can be sold into a market of 10 million units @ $100 with a per-unit cost of $75.
"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.
Developing a monopoly while selling below cost was Amazon's path, and others took note - Uber, for example, which is hoping to corner the autonomous taxi market, and is effectively offering its current services with human drivers in order to position itself for that.
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.