There has been a rush of venture capital money going to tech companies-Airbnb’s valuation went up to $13 billion, which is more than the the entire chains of Hyatt, Wyndham, and Holiday inn. Mind you, this is a company which doesn’t have any physical property besides a headquarters. All the costs of renting and insuring a home* falls on the homeowner and most insurance companies don’t (yet) offer homeowners insurance for Airbnb. But it’s still considered more valuable.
Enter Uber, the same company which got into a spat with Buzzfeed over negative reporter coverage of the company (PR lessons for another post). They are being valued at $40 BILLION, yes with a “B”. That’s about $7 billion more than Mark Zuckerberg is worth as of today. All for a company founded in 2009.
The question is, is Uber worth $40 billion? And what does it say that the fastest growing companies are all “tech” companies? Tech is a popular industry but the way companies are valued puzzles me.
First, Uber does not own or pay for the property being used. It’s an app which people use to find Uber drivers who function as cheaper, more efficienct taxis. I love the app (Lyft and Sidecar are similar) and I personally support the idea of free-market. I think it’s great the taxi industry, which is essentially a government-sanctioned monopoly, has to be challenged to provide cheaper and more efficient services, and it speaks volumes they feel threatened by people’s ability to choose another means of transportation. However, Uber doesn’t do anything besides connect drivers to customers. The cars, the insurance, the service itself, are all provided by the driver. Just as Airbnb is now insuring homeowners up to $1 million for damanges suffered from guest use, Uber and Lyft do no such thing.
Second, Uber (like Lyft and Sidecar) operate in a gray area. The companies are considered tech companies but the government considers them “Transportation” companies- which by law are subject to state regulation, something Uber drivers avoid doing. Say what you want about your craziest taxi driver, but they industry is regulated with real ways to report taxi drivers for road infractions. Uber doesn’t work that way; you take the risk that literally anyone with a driver’s license can give you a ride. Totally fair, in my opinion, but since the company does not insure customer or driver for liability or damages
it’s hard to justify how any venture capitalist can look at an app and throw it $40 billion. Don’t tell me it’s “technology” or “disruptive”. Ride-sharing apps are both these things but the valuations don’t appear to be ground in reality. It’s like Silicon Valley has made so much money over the last 20 years their investors can afford to just give billions to any tech app it wants. If you don’t think tech companies have been overvalued in the past, look up the Dot Com Crash, and check out the stock market: Tech companies rise and fall much faster than traditional companies like General Electric, Du Pont, or Boeing.
Final word: I support Uber, Lyft, and Sidecar’s right to offer a service to challenge the government-sanctioned monopolies and status quo. Anything to offer fair competition and lower prices in the marketplace is fine with me. But handing billions to people for doing nothing but coding some lines when they hold few assets and have little to no liability seems irresponsible. Kind of like bailing out businesses who were “too big to fail.”
Next week I’ll review book sales for 2014 and offer my thoughts on the state of book publishing. Then I’m off to Florida! See if you can guess where :). First one to guess wins a prize.
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