Ted Audio Collective.
Hi, everyone. You're listening to After Hours.
I'm Yang Mi Moon, and I'm here with me here at Desai and Felix, overholt your team.
Hey. Hey, Yang Mi. You just got back from...
I got back from a conference in London, which was fantastic.
It was put together by the British Academy, and it was all about, basically, how do we reinvent corporations to be more socially legitimate actors?
And in some sense, it was like the classic arguments about stakeholder capitalism versus shareholder capitalism.
But the urgency around it is obviously increasing more and more.
And it was a really great conference, and the Brits are really thoughtful about some of this stuff.
At some point, we should talk about stakeholder capitalism.
I think that would be great.
That's a great topic.
It's funny how it's still not really on the table in the U .S.
in the way it is in other parts of the world.
True. I think that's true, but I think it's coming.
Yeah, we should talk about it.
Yeah, anyway. But tonight, guys, I want to talk about Uber.
Okay? Oh, okay. Let's take Uber off.
And I'll tell you why in a second, but, Meher, I know you also brought in a topic.
That's right. So I think briefly it got mentioned the tendency in China now to kind of build up this information about users, and it's not just financial information for credit bureaus.
It's expanding into the state, knowing and using information about citizens and compiling it in really aggressive ways.
We've joked about it a few times.
We've joked about it, but we're going to try to talk about it seriously.
Oh, I think that's great.
Okay, great. So the reason I wanted to talk about Uber is Uber is really going to go public next year.
And it has to, right?
It has made promises that it is going public next year.
And the rumor is that they're going to price their IPO at an enterprise value of $120 billion.
I know. Amazing. $120 billion.
Apparently, they had Goldman Sachs and Morgan Stanley come in and say, what do you think?
And they came back, and that was the number.
Yeah. All right? So just for context, that's a big number.
When Facebook went public, it went public at an enterprise value of about a hundred billion dollars.
Exactly, yeah, yeah.
So... It would top Alibaba, right?
It would top Alibaba.
She's still the biggest one right now.
It's just a big frickin' number.
All right. And let me be clear, I more than anyone appreciate the difference that Uber has made in the way we behave as consumers.
It is remarkable what they've done, but $120 million.
So I began to think about, okay, what is the thesis underlying this number?
And that's the question I want to ask you guys.
Under what scenario can you imagine them living up to a valuation of $120 billion?
I think they're generating about $10 billion in revenue this year.
They're still losing money, and they openly say they don't expect to reach any kind of sustainable profitability for at least three years.
So they're just losing lots of money still.
So what do you guys think?
So I think it's hard to get to that valuation.
In one way, it's easy, which is it's like a price to sales multiple of $10 or $12.
And that's not all together out of whack with companies like it.
But it's hard for me to think of a company like it with that kind of multiple that's losing money.
Well, that's the difference I was going to get to.
And that's the difference with Facebook, right?
Which is Facebook went public and it was making money.
And Uber shows no signs of that.
And it's been kind of clear about the fact that several years out, we're not going to be making money.
I think to get to that valuation or to understand that or believe in it, I'm not saying I do, it's got to be about more than the ride sharing.
It has to be about Uber Eats, it has to be about delivery services.
They've got to find their way into our lives in more ways than just that.
I can't buy it on the ride sharing, in part because I don't know about you, but I switch apps all the time.
I go to VIA, I go to Lyft, I'm happy to move around.
At a first approximation, I have no loyalty to Uber.
But that really begs the question of what are the competitive modes here for a company like Uber?
I don't get it. I confess, I don't really get it.
The first thing I think to remember about the $120 billion, this is a pitch by an investment bank.
Of course, if you hope to be the lead bank, you don't want to give a really low valuation.
But there's one change that I, and I have no idea whether that's just in the markets that I use Uber or whether that's more generally true.
It used to be that if I compared the price of taking an Uber to, say, a taxi, there was almost always a sizable discount.
Now I find very often they have the same prices or they're more expensive on their core product, UberX.
The one thing that is now priced advantageously is UberPoo.
I think what they're doing is they're now morphing to flexible, small buses kind of a system.
In that moment, I think two of the key difficulties of Uber get solved in almost magical ways.
One is if you want to grow, you need lots and lots of drivers.
Getting more drivers is really difficult in a world of multi -homing where all the drivers drive for Uber and Lyft and everyone else.
The moment you have pool, there's much more revenue to be shared, and part of what they're going to do is they're going to share it with the drivers.
The second issue that you solve, I think, is the competitive issue.
Typically, for a large market, you would think that, yes, these are models with network effects.
The more people use a particular service, the more valuable it becomes.
But these network effects get much, much bigger once you're in a pool model because now you're not only asking, oh, do I find a driver who happens to be close to me?
You're asking, do I find a driver who's happened to be close to me?
And do I find other passengers who roughly go in the same direction?
And that, of course, is going to be much more true for a company that has larger scale.
So VIA has that model in New York City, and it works, and it's fantastic.
Yes. And it's so cheap.
Are other cities amenable to that?
I mean, there's a lot of distinctive things about New York City that make that possible.
It does strike me that so many of the dimensions along which you can imagine Uber generating a real competitive advantage only work in high -density markets.
You know, it's one of the reasons why they will often come out and say, well, in our highest density markets, we're actually approaching profitability.
Yes, that's right. Well, I would hope so, you know.
Yes. But if you want to be a $120 billion company, you need to do better than that.
The other factor to roll in is how much demand is there for these pool -like services?
The more efficiency you create on the company side, the less pleasant the experience starts to become for customers.
And I understand that customers like low prices, but there is a point at which you don't want to really share your car with two or three other people and be making stops along the way.
So there's a bit of a trade -off there.
I have no idea whether that gets you to $120 billion.
But I do think that the sense of competitiveness of the market changes with the dominance of the pool model.
I sometimes wonder if there was like a one -time, you know, seismic shift they were able to benefit from coming in underneath taxis, taking all the rents away from the medallions, and now what's left?
But I think that's why they're leaving the traditional market for taxis.
I think now of Uber as sort of like small bus transport.
I know the vehicles are not literally buses, but the markets that have small bus companies, I think typically in emerging markets where you pick up four or five other people, I think that's going to be the dominant experience.
The one thing that's striking to me about Uber is in any market in which it has a sizable presence, there is always a strong regional competitor.
In the U .S. that would be Lyft, but in many of the markets that you go to, you'll find that there's a strong regional competitor.
And to me what that says is that they have to build these markets one at a time, which creates a vulnerability for them, because that means in any given market, you have multi -homing, they go in, they bear the cost associated with building the market, and then someone can come in on top of that and offer
a very, very similar service.
But only if the pooling thing really works.
Yeah, well, the pooling thing is interesting.
But it's not big enough, Felix.
Yeah. You know, Uber growing into this valuation, one of the things Uber has begun to do recently, they have purchased bike sharing, they're getting into scooter sharing, some other forms of transportation, to the point where you can open your app in some cities, and you actually see more than just
automotive options.
What if one day you opened Uber, and it basically had all the different ways you can get from point A to point B?
Including take a taxi, you take the subway, you take the train, it essentially enabled you to map out getting from point A to point B, the most efficient way you wanted, any way you wanted.
And they're taking a cut out of all of these different types of transportation.
And in addition, what if it's not just in time?
What if you could, oh, I'm going to Paris, I'm planning my entire agenda, and just like I would plan my flights using Expedia, I'm going to plan all of my grand transportation ahead of time using Uber.
And then it becomes interesting, like transportation is a service, in other words.
I can imagine that being very sticky.
I think that's really interesting.
It's got to be more of the ride sharing, right?
I mean, Uber Eats doesn't strike me as exciting enough.
That's not enough. And there's grub, huh?
Yeah, no. It's just hard to get there.
And they're actually making money.
Can I ask one more question?
Self -driving technology.
You can imagine Uber taking one of two approaches.
Dara has sometimes hinted that they might just sell it.
And license the technology from someone else.
The different approach is to say, no, no, no.
We're going to invest in this technology, and others can license it from us.
What would you advocate if you're building the future of Uber?
Is this a technology that you need to own or that you can license from somewhere else?
I have never ever understood why they're trying to do this on their own.
I mean, when you think about Uber's capabilities, I just see there's nothing.
What is it about Uber that tells you, this is the company that's going to crack?
This technologically really, really, really hard problem.
Really hard problem.
Nothing. So I would advocate selling it, and I would be really surprised if they got a lot of money for it.
I agree. By the way, I love your vision of the future of mobility, and I only have one little twist to your story.
The app that I fire up to see all of this is Google Maps.
I agree. And they, in fact, point me to Uber sometimes, right?
They'll point you to Uber.
Yes. But this is a great example of two companies that are each bad at something.
So if you go to Google Maps now, they're already integrating buses and some other things.
But the DNA of that company is not such that they think, oh, let's productize that.
What if we were to create our own little business unit there?
That's just not how they think.
On the other hand, you have Uber, who does think that way, but doesn't necessarily have the underlying technology to be able to do it really well.
The other interesting angle on this, I think, is what happens when it's a public company?
And how does that change things?
Now, in some sense, a lot of people have already had liquidity because they've been able to sell their shares.
But these busted IPOs are devastating, and they can turn companies upside down.
So true, yeah. So in the food space, you think about Blue Apron versus Plated, right?
Blue Apron went public.
It's been really difficult.
Plated got bought out, stayed private, and with Albertson.
It's not clear to me that these guys, if it's aggressively priced IPO and you know it will be, if a year or two years later a busted IPO is a bad outcome.
I mean, it's a hard outcome for a company to manage through.
I think for Blue Apron, it's bad.
I think it's 10 times worse for a technology company trying to solve really hard problems, because the minute you get an exodus of your engineers, you've got nothing.
You know, the minute those engineers walk out the door, you're...
Anyway, okay, thanks, guys.
Here, you want to tee this one up?
Yeah, so I think there have been some really interesting developments in China regarding the kind of use of information broadly.
And there's this thing called social credits that they hope to have implemented by 2020, where citizens will be told how much, quote -unquote, social credit they have.
And... It's a score, right?
It's a real score. And the score can be influenced by things like you do a DUI, you get penalized.
You do something pro -social, you can be rewarded.
So it began in part because of Alipay and a lot of the private companies that were gathering immense amounts of information very quickly, given the relative historical lack of information about people's finances.
But then it spread to the state, creating and gathering information about individuals and then ranking them, and then explicitly talking about whether they were good citizens or not.
And based not just on behavior, like did you pay your parking tickets, but even on who you socialize with.
And this is like straight out of Orwell in some sense, but it's also kind of really interesting in terms of what it could do to promote all kinds of behavior.
So I wonder what you guys think about this.
So if you read the Western press about this, it is just a total nightmare.
This is a government that spies on its citizens to begin with, that has many, many levers to punish those who don't follow a particular ideology.
If you think about what's happened to the minority in Xinjiang, it's a complete nightmare.
And so this seems like, oh my God, China is going down a road.
That is just really terrible for everyone living there.
And then it's always hard to get a real sense of Chinese public opinion, but there's a researcher at Berlin University, I think she's done a really great job.
And she says 50 % of Chinese citizens completely approve of the social credit system and another third somewhat approve.
This thing is super popular.
And so I think to me, one of the really big questions is like, what are we missing?
So a little context, right?
I mean, this is a country that just the amount of economic activity has just exploded.
And one of the biggest sources of friction is that you don't know who to trust.
So the fear of being swindled, you're always afraid that you're going to get ripped off.
If you're selling something, you're afraid that the customer is not good for it.
If you buy medicine, you're not sure if the medicine is safe.
So there's just rampant distrust, a lack of accountability in the system.
And so to many citizens, I would imagine it coming as some kind of relief to have a system where finally there is some kind of accountability in it.
My concern about this is, and the reason I reacted strongly to this, when there are private actors who are selling information like credit scores done in Bradstreet, for example, I'm all right.
I'm okay. That's okay.
To me, that feels okay.
But when the state has that information and is setting the kinds of things you're supposed to be doing and not be doing, like Felix is a dissident and if you are caught talking to him, you go down in your ranking, I mean, that just terrifies the hell out of me.
So what's the difference?
Well, the difference is the state is different.
But if all you pay decides tomorrow for no good reason, your credit is no good.
Well, that's true. And that credit rating agencies have always had that issue in the US.
But they've also done a great deal of social good, arguably, by creating some more precision about what information is.
I just think the state is terrifying.
When the state uses that information aggressively, which is what they're doing, they're not just, they're using it aggressively.
This is like in your face, monitoring your behavior and rewarding you and telling you, you know, socialize with good people, don't socialize with bad people.
That's terrifying. So maybe, as very often in China, when a big policy is declared.
So they come out and they say, by 2020, we want to have this kind of social credit system.
What happens typically in China is that you get local experimentation.
So there is no single system in place at this point in time.
There's roughly 40 local cities, communities, municipalities that build prototypes.
And any one of these prototypes, if they work really well, you hope that this will become the national model.
There is enormous variability, as you might imagine.
So the nightmarish aspects that you just pointed out me here, where incorrect political behavior then gets filtered into an overall score.
But there's also a ton that is actually very narrowly tailored at the kinds of issues that you pointed out to begin with.
So, for instance, in May of this year, Beijing started its own system.
It is entirely directed at bad corporate behavior.
So it's identified roughly 300 ,000 companies that are these Ponzi schemes, companies that rip off other actors.
In a world, it is almost unimaginable for us to know how stressful it is to be a Chinese consumer.
Because left and right, you're being there all the time.
There's no trust left.
And because the party is seen as sort of the residual claimant of everything in China.
Now, the party has a problem with credibility and with credit.
And so what they're trying to do is both at the level of corporations but also at the level of other kinds of social behaviors that are rampant in a system that has no accountability to create some sort of accountability.
So if you go and you look at the way this has been implemented, the kinds of things that are most interesting to me anyway when I look at it are not the kinds of things you would expect.
So for example, the way the system works in a lot of these experiments, everybody starts out with 1 ,000 points.
And there's a grade associated with how many points?
So if it's, like, 960 above, it's an A.
That's an Asian A, by the way.
And then a B or C. And so if you get a DUI, automatic B.
You're moved down to the B, right?
If you cheat on some kind of commercial transaction, you really get docked.
But what's interesting is, like, the little nudges.
So if you don't clean up after your pet, you know, there are towns that will dock you 10 points for that.
No, no. I think I'm okay with that part.
Maybe it's better that we all know that, you know, you don't clean up after your pet, and they'll instigate more pro -social behavior.
But that's not what this is entirely.
There's a lot of stuff going on about beliefs and about associations.
And look, I don't want to be cynical, but that's the big jackpot, right?
I mean, that's the big jackpot for the state.
So what I find most interesting about how you look at the situation, me here, is that, in a way, this is the conundrum of living in a low -trust society.
Imagine for a moment that if the Chinese government recognizes the situation's terrible today, people do all kinds of things that are not quite right, let's do something that is really meaningful for the country.
Let's try to provide more information in a decentralized manner.
And we nudge people to better behavior.
In a low -trust environment, you don't know, is the government doing this because it's really interested in making things better?
Or is there some hidden agenda?
When Xi Jinping came in, he went back, and he found cases of people with these confessions that are essentially the result of torture.
And he exonerated a good number of them.
And what you don't know is that looks like a really good thing, but it could also be that you're only doing this for show, and you're only doing this to help mayors who are on your side to begin with, and so on.
So if I imagine, like, that's my management task, if I ran a country, and we have zero trust, any move that you can make looks suspicious.
But just to be clear, this is a zero -trust society that's been succeeding handsomely for the last 20, 30 years.
So I understand that it could be made better, but we're not dealing with the kind of breakdown of the state that we were talking about in the last episode.
We're dealing with a highly successful economy.
So we should work...
I don't know. Well, look, I'm sorry.
China is the economic success story of the last 30 years.
Yes. So we move 200 million people to cities where their productivity is much higher, and so that creates tremendous amounts of growth.
And then if you ask people who got rich in the process and who got left behind, people will say it was...
In fact, that, I think, is in good part of what creates the sense of unfairness and low trust.
So yes, in aggregate, it's a big success story, but when looking around in China and how that wealth got distributed, people have a deep, deep sense of unfairness.
So I have a personal story.
So because I was older when I moved to the United States, I didn't have a credit history.
And so when I moved to the States, I went to my bank and I said, you know, I have a job, I have a monthly income, and I would love to have a credit card.
And they said, you don't have a credit history, we can't give you a credit card.
And I said, well, so what do I do?
And they said, well, you know, you go to Macy's and you apply to a store card.
So I went to Macy's and I applied for a store card, and I got denied because I didn't have a history.
And so I think in a society where these kinds of monitoring systems are common, you have no choice but to join.
So even this question like, do you want to be part of it, do you not want to be part of it, I think it's me.
Yes, of course. You don't have a choice on whether you have a FICO score.
We all have credit scores in this country.
We all have them. We don't have a choice.
And as a result, we have a two -tier financial system in this country.
And if you have a low credit score, your entire experiencing of navigating any part of your commercial life is completely different.
And there's a lot of innovation in the private sector about trying to address that problem.
A lot of it is about trying to get to the underbanked and trying to get better.
Subprime mortgages?
Well, that was a particularly pernicious part of it.
I agree. But I guess my point is there are private solutions to these problems.
I don't understand why the private solutions are so much better.
Because the state ain't involved.
Like, what's the difference?
What's the difference between private actors and state actors?
I cannot get credit because Equifax messes up.
Well, the state regulates those entities and they make sure they behave.
But they didn't, right?
Well, they try. They don't do it always perfectly.
I'll say. Do you want to substitute the state as that collector of all that information?
Look, what's interesting about the distinction between commercial firms owning and managing this information versus the state is that we used to talk about these things when the information was relatively narrow in scope.
And so a FICO score is a great example of that.
It's relatively narrow in scope.
If Amazon bought PayPal, and maybe even American Express to boot, and suddenly had access to all of your purchasing behavior, your viewing behavior, what you buy, the hotels you stay in, how often you take trainages, they have the full window.
That's the big companies in China.
That's what Sesame credit.
That's Sesame credit.
That is Sesame credit, right now.
Yes, I agree. And so this kind of intelligence exists now.
Companies have it. It's all out there.
Okay, all I have to say is I'm going off the grid.
Good luck with that.
How do we get in touch with you?
I'll be in touch with you.
Okay. Okay, me here.
I'm going to need you back on the grid because we're going to do picks now, but I'll go with Felix first while you acclimate to all the technology you're surrounded by.
Yes, what is this thing?
Okay. It looks like a microphone, but what is it really?
Who's listening? Okay.
So my recommendation is a book recommendation.
The book is by Amy Goldstein, a journalist at The Washington Post, and the book is called Jane's Will.
And it takes us back to 2008.
So remember, in the middle of the financial crisis, things are really horrible.
And Jane's Will is a town where one of the really big automobile plants closes.
And part of what I really like about the book is often the structural changes that we see in the American economy.
We have all these numbers.
We have, you know, a number of people who lose their job, and we have new jobs created, and so on and so on.
And I think what's really remarkable about the book is the part where she describes in great detail, and it feels very personal.
What happens next? How do lives change?
How do interactions change between people?
And I think it's really masterful in a way, sort of the best account, I think, of journalistic work in book form that really gets you to see things close up.
I got to tell you, I read that book.
Oh, okay. What did you think?
The part I think I found most moving about the book was you see the lengths that people will go to to keep their families together.
Yep. Yep. So it's really...
Remarkable. ...incredibly moving passages where you see men just deciding to take on extraordinary commutes in order to find jobs and, you know, enable their families to stay together.
And it's just really remarkable.
Yeah, yeah. It's really remarkable.
I think it's Amy's first book, but so well done.
Oh, my God. So good.
So good. So good. Okay.
I'm going to go next.
I'm going to recommend, I guess it's an app.
It's a piece of software called Airtable.
Have you guys used this?
No. Don't know. This is an app that has sort of taken technology companies by storm.
For me, it has completely replaced Excel.
It's kind of a combination spreadsheet program, database management tool, project management tool.
If you're an organization freak, it is so good.
Someone recommended it to me a couple of weeks ago because she knows that I just like to keep order in all things.
And, oh, my God, it gives me such joy that I'm now looking for things to organize.
So how is it different from Excel?
Or how is it the same?
You can do beautiful things.
It comes with a set of templates.
So you can use it from everything from organizing your book collection to running your CRM at your company.
I think it's so interesting because this is a, I mean, think about the durability of Excel spreadsheets, right?
And this is just a ripe for innovation.
The space is amazing.
It's really something.
And then the mobile app is fantastic.
Airtable. It's called Airtable.
So I have a pick, which is a book, and it's a memoir.
And I've been down on memoirs because I kind of feel like they're a little bit too much navel gazing.
You know? It's one thing to do an autobiography if you've accomplished something amazing.
So I picked up this memoir, which I think is just spectacular.
And it's by Lisa Brennan Jobs, who is the daughter of Steve Jobs.
And it's called Small Fry.
And it's her memoir of growing up as Steve Jobs's daughter.
As you may know, they had a very fraught relationship.
And in fact, he denied paternity.
And then they ultimately kind of reconciled.
The beautiful thing about the book is, it kind of captures you because of the Steve Jobs angle, right?
Because like initially you're like, oh, this is kind of interesting, right?
And oh my God, he wasn't as nice as people think.
And blah, blah, blah.
But then she just writes beautifully.
And she tells a compelling story of what it's like to just grow up as a young girl in this kind of California setting.
One of the neat parts the book starts with, or somewhere in the first half, she tells a story of how she's at Steve Jobs's home when I think he's getting close to passing away.
And she confesses that she steals things.
You mean from him? She steals little objects from the house.
Oh, like as little tokens?
It's not even clear.
She doesn't even know what she's doing.
But she kind of wants to keep a piece of this thing.
And she does a really good job of exposing her weaknesses and her faults because you're like, oh my God, she's stealing.
But you kind of come to understand it.
So it's just a really beautiful book.
What's her name? I'm pretty sure it's Lisa Brennan Jobs.
Wait, so was she the daughter that he named the original Lisa for?
Oh yeah, exactly. That Lisa computer.
And in fact he denied it.
But yeah, exactly. That's Lisa.
He said subsequently that he didn't, but it's clear that he did.
And that of course hurt her terribly.
Anyway, it's a great story.
She's a complicated person.
Okay guys, that was great.
Thanks everyone for listening.
This is After Hours.
