The middle class is an accident. From the end of WWII to the introduction of Google, we’ve found cold comfort in the delusion that wages, dictated by supply and demand, could sustain the greatest source of good in history, the American middle class. They don’t, and they won’t. Piketty is right — wealth begets more wealth, and the top tiers of income earners are pulling away. Note: I’ve read Piketty’s opus and don’t understand it, but referencing him makes me feel smart. Easier to explain with a chart:
Here in My Car
There are 274M cars in operation in the US. Assuming they have an average value of $20K, we have cars forming a $5.39T asset base. This capital infrastructure registers 5% utilization. Uber figured out software that lets any one of us with a smartphone tap into a previously fallow $5.12T asset. It’s as if your smartphone could bring the US Navy into your employ. I’d like to waterski behind the Nimitz Class Carrier USS Gerald R. Ford (CVN-78) in the Côte d’Azur in a speedo and tassels. What app is that?
Uber received proposals from investment banks that pegged the ride-hailing firm’s IPO valuation at $120B. So, that posits Uber’s value is greater than the value of the US airline industry or the US auto industry (excluding Tesla). I love Uber and think the firm is genius. But that valuation is insane. Uber’s model doesn’t have the moats of an auto firm or even Airbnb, which must create global demand and supply (a local competitor to Airbnb doesn’t work, as visitors from other countries wouldn’t know about it). In contrast, local on-demand taxi services abound, even if without an app. The 120K readers of this newsletter could each put in $250, and boom — we have the number-three ride-hailing firm in Miami. Who’s with me?
Uber has managed to create an ecosystem that unapologetically shows us a future under bright fluorescent lighting: it’s never been better to be remarkable, nor worse to be unremarkable. Which is all good until the disturbing truth rears its head: most of us, and our children, are not remarkable.
In today’s economy, innovation means elegant theft: robbery of your data, privacy, health insurance, or minimum-wage protection. Uber has 16K employees and 3M driver partners. “Driver partner” means some great things. It means you don’t have to show up to an office. And it means you can work whenever you want — this is key. When I speak to Uber drivers, I always ask, “Do you like working for Uber?” The overwhelming majority say yes and reference the flexibility. I’ve been especially struck by how many need the flexibility, as they’re taking care of someone who’s sick. So many people taking care of others. So many people loving other people. And it comes at a huge cost. Many of them used to have jobs with benefits. Many had to move to a strange place to take care of their sister, mother, nephew.
Uber and several other gig economy firms have asked the Securities & Exchange Commission to review current laws that prohibit them from giving stock to contractors. “Providing equity would allow [drivers] to share in the growth of the company, which could lead to enhanced earning and savings opportunities,” Uber wrote to the SEC this month.
Equity, or options on equity, would be a smart thing for these firms, as it would help cement their leadership position with a powerful retention tool financed with cheap equity. It also has the benefit of being the right thing to do. Airbus, Delta, GM, UPS — all worth less than Uber — each built and support on average 200K middle- to upper-middle-class households. Uber helps 3M households and is about to make 16K households wealthy. Note: CEO Dara Khosrowshahi stands to make $120M on the IPO. There is substantial variance, as each firm has a different ratio of stock owned by employees. However, this would likely only make the delta more stark, as Uber’s extraordinary rise means current and former employees have managed to maintain a lot of the company, which is a good thing.
This feels like the right moment in history to fire up a concept from a time gone by … unions, which have been in decline since the 80s. Corporations have the full-throated support of the Trump administration, and as federal prosecutors battle on behalf of these firms, Uber drivers enjoy few of the benefits of folks like me (member, ACT-UAW Local 7902).
I believe the recent volatility in stocks is the beginning of the end of the Four (Amazon, Apple, Facebook, and Google) moving in sympathy with one another. Consumer trends, the macro environment, and the threat of regulation are shining more intensely on some of them for different reasons. The previous sentence was a fancy way of saying one of these things is not like the other. I was on Fox Business yesterday. One of the staff joked, “This is the safest building in the world,” referencing the increased security and progressive targets of the pipe bombs sent this week. But the mood was somber. I couldn’t discern if it was concern for their colleagues, sheer fear, or both.
On the show I said Mark Zuckerberg and Sheryl Sandberg will be remembered as one of the most dangerous and damaging management duos in the history of business. Genius and likability coupled with an idolatry of innovators have depressed our teens, molested our elections, prematurely euthanized big firms, and performed infanticide on small ones. Big tech is net/net a positive for society. In this regard, Facebook has unconsciously uncoupled from the others. The chyron on my segment was “NYU Professor: Zuckerberg/Sandberg are lipstick on cancer.”
Uber has the opportunity and momentum to consciously uncouple from some of the disturbing aspects of the gig economy and big tech. The management team distributing meaningful equity could set an example that illuminates the goodness of capitalism, while increasing loyalty and retention. Many will be tempted to find rationalizations that propagate a hoax, that shareholders come before employees or the commonwealth. Put another way, “Dara, are you just another shade of lipstick?”
Life is so rich,
P.S. More on Uber’s valuation and other tech news on this week’s Pivot, my podcast with Kara Swisher. Subscribe and I will surround you with white light.