Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on December 10, 2018

Bookmark and Share

Uber, Moore’s Law and the limits of the technofix

Consumption

Uber remains a darling of the tech world. It is regarded as a disruptive upstart that recognized the unused capacity of privately-owned automobiles and their owners. It unleashed that capacity on cities worldwide using cellphone technology to provide discount rides to customers, ones who might otherwise have taken traditional taxis or public transportation.

It’s a truism that startups burn through money like bonfires burn through tinder. But nine years in after becoming a worldwide company, Uber is still burning cash—$1 billion in the most recent quarter and $4.5 billion altogether in 2017.

To understand how Uber continues to enchant the investment and tech worlds despite its miserable financial record requires a little background. The dominant metaphor in the tech world is Moore’s Law. Moore’s Law is named for Gordon Moore, a semiconductor pioneer, who noted the doubling of transistors on an integrated circuit about every two years. This rapid progress led to rapid increases in the capabilities of computers in terms of speed, memory and computational power even while prices were coming down dramatically. That progress is also seen in the capabilities of practically everything containing circuits including cellphones, cameras and other digital devices.

As Wikipedia will tell you, Moore’s Law is not a law of physics; it is simply an observation about an historical trend in the semiconductor industry. But so pervasive has been the effect of Moore’s Law on the digitization of our daily lives—for instance, our cellphones have become powerful, portable miniature networked computers with cameras—that we are inclined to believe that Moore’s Law is a kind of mystical force unleashed by the tech industry on modern society.

Otherwise intelligent people have come to believe impossible things by applying something like Moore’s Law to areas of our lives that simply don’t operate the way the semiconductor industry does. Tech entrepreneur and futurist Ray Kurzweil predicted in 2016 that solar energy would dominate world energy production in 12 years by doubling its share of the energy market each year through 2028. That’s when solar would supposedly provide 100 percent of all energy worldwide.

Setting aside for the moment that Kurzweil seems to be quoting a figure for solar’s 2016 share of the electricity market only and NOT the liquid fuels market, it is highly unlikely that his prediction will be borne out even for electricity. As I have explained previously, energy transitions take time, lots of time. They have historically moved along at an achingly slow pace for reasons that include long-lived energy infrastructure, entrenched economic interests combined with political muscle, and logistical and financial limits on the building of new infrastructure.

Another example of the misapplication of Moore’s Law-type thinking occurred when I was a graduate student at Michigan State University in the mid-1990s. MSU’s arch rival, the University of Michigan, announced that it would become a million-person institution by deploying so-called “distance learning” combined with internet technology. I was skeptical.

As it turns out, total enrollment at the University of Michigan in fall 2018 was 46,716. The university now has what it calls Massive Open Online Courses. But these courses do not seem to have moved enrollment anywhere near the million mark.

And now we return to Uber. First, let me point out that slapping a clever app together and grafting it onto a ride-hailing service does not create a technology company. Cars are not semiconductors, roads are not electronic circuits, and Uber drivers are not electrical engineers (at least not many of them).

The physical world that we all live in has actual speed limits considerably lower than the speed of light. Uber drivers face the same traffic that everyone on America’s car-infested roads face. Those drivers may have a slight edge with software that predicts the best route given traffic conditions. But that edge is not improving in a way that is ever going to cut average travel times, say, in half. You simply cannot move that fast safely on city streets (or without violating the current speed limits).

Even though Uber owns few of the cars that transport its customers, its ride-hailing business is actually capital intensive. It’s just that the capital in this case is owned almost completely by the drivers. Uber then is not an information-based company any more than any other ride service. Uber has not figured out some new, revolutionary way to transport people across cities. It is a car-based company just like all its direct competitors. (Obviously, it competes with public buses and subways as do its rivals.)

Obviously, the typical automobile can only hold so many people, usually five, with three in the back seat and two in the front. So, expanding service requires more cars and more drivers. There are few economies of scale. (For an excellent analysis of the problems Uber faces, read Yves Smith’s recent analysis in New York magazine.)

Here I’ll mention briefly Baumol’s cost disease. William Baumol was an economist who noticed that workers in low or no productivity growth occupations still saw their wages rise along with those in high productivity growth fields such as manufacturing. Those low productivity growth fields include the arts, education, health care and public services; in fact, practically any area that requires significant personal services is probably subject to Baumol’s cost disease.

If we as a society want people to work in these areas, Baumol concluded, we will have to pay them well enough so that they do not flee to higher productivity jobs with higher pay. A professional string quartet will not provide a live performance at a price adjusted for its zero productivity growth over the last 100 years. The players require payment that allows them to live in what is considered reasonable comfort today or they will simply do something else for a living.

We have come to accept that an opera company, for example, cannot subsist on ticket sales alone. It requires a subsidy, either in the form of private donations or public money. But we continue to harbor the illusion that other people-laden occupations can somehow be made to conform at least in part to Moore’s Law. And, while some occupations have been affected greatly by automation, it turns out that for most of those occupations, tasks have only been partially automated. The automation assists people without replacing the need for them.

Think about automated tellers. They can perform many routine transactions. But after some 40 years of deployment, there are still plenty of bank tellers around to assist us.

I conclude then that Uber is not a tech company. It is simply a taxi company masquerading as a tech company, one that pays its contractors by the ride. For reasons outlined by Yves Smith in her New York magazine piece, Uber is unlikely to survive far into the future.

Right now about the nicest thing you can say about Uber is that it subsidizes the rides of it users by spending the money of investors and by exploiting its drivers who don’t seem to understand that they are not being paid enough to cover the wear and tear on their cars (which will have to be replaced sooner, of course, as a result of their extra duty ferrying Uber riders).

Uber riders are likely to continue to reap the benefits of cheap rides until Uber investors offload their shares on unsuspecting “greater fool” investors during the company’s planned initial public offering. However, it’s hard to see the company continuing to attract investment once the flaws of its business model are revealed under the scrutiny required by the Securities and Exchange Commission. And, once additional investment dries up, Uber riders will probably be forced in short order to look for rides elsewhere as the company disappears along with all the remaining capital of its investors.

Resource Insights by Kurt Cobb



14 Comments on "Uber, Moore’s Law and the limits of the technofix"

  1. Yellow Cab on Mon, 10th Dec 2018 12:07 pm 

    Ya, Uber is just using existing infrastructure, largely paid for by others (the Internet, driver’s vehicles, public roadways) to externalize costs to appear competitive to the consumer. That they still aren’t profitable should tell you loads. Can’t imagine Uber or Lyft will be around after the VC money taps turn off.

  2. CAM on Mon, 10th Dec 2018 12:44 pm 

    Well maybe! But how long have the fracking companies gotten by using investor funds and borrowed money to operate the day to day business?

    These bubbles and many more are probably going to explode in a chain reaction.

    Hold on to your hats!

  3. Hello on Mon, 10th Dec 2018 12:59 pm 

    Just read an article claiming that Uber and such INCREASE the traffic because it’s mostly previously bus/train customers that use the service as opposed to private car owners who switch.

    Ain’t that funny?

  4. Anonymouse on Mon, 10th Dec 2018 3:18 pm 

    It is also true, though seldom mentioned, that the average ‘wage’ for an uber driver, is about $12 an hour or I understand. I assume that wear and tear and ongoing expense of maintaining the car comes out of that?, so that is not near net-pay. Ouch.

    You can get $12 an hour washing dishes, and less whatever taxes you pay, you get to keep most of that 12 dollars. And better if you can walk, bike, or take the bus to the restaurant. OR, if those are not an option, you could get an UBER to take you your dish-washing job I suppose.

    But hey, (barely) regulated private-taxi contractors that get paid by the ride, is the latest buzz(bubble).

    PSA: Seek mental health care, dumbass.

  5. onlooker on Mon, 10th Dec 2018 3:37 pm 

    The Law of diminishing returns is most applicable to technology

  6. makati1 on Mon, 10th Dec 2018 5:04 pm 

    Anon, I often thought about that when I take an uber here. Set fee, massive traffic that makes it faster to walk sometimes, and the chance of accident. Not to mention that city driving is very hard on all the things that wear out in a car. It has got to be below minimum wage net. I don’t see the fad lasting very long.

  7. Anonymouse on Mon, 10th Dec 2018 5:21 pm 

    Yea, everyone is paying attention to the hype of Uber, and lurid tales of ‘fake’ uber drivers robbing and kidnapping riders and whatnot. Less attention is paid to how Ubernomics is actually penciling out(for the drivers). I suspect in most cases, its pretty poor. Taxis (real ones), have costs and fare structures intended to capture those costs so the industry stays, you know, viable. ‘Uber’ otoh, is just an attempt to evade and sidestep those costs. Explain to me, what is preventing the current taxi industry customers and drivers, from simply using ‘apps’ like uber uses, to hail and dispatch cabs to fares? If they are not that doing that already that is. The only person(s) it (might) cut out, are the taxi dispatchers at the office, but even then, a lot of people will still continue to call using old-fashioned phones, so even there, its not like APP’ing taxis would put dispatchers on the street wholesale either.

    Uber is just so much hype. An attempt to re-invent the wheel, as it were….

  8. Outcast_Searcher on Tue, 11th Dec 2018 12:31 pm 

    The key point is that driverless cars will completely change the financial picture.

    But I know, doomers like to pretend technological advances can’t ever happen. Or completely discount what they do to gloomy forecasts, etc.

    I think it will take a decade or more before driverless cars — even in localized urban areas, are clearly better than human drivers re safety, AND all the legal, insurance, etc. rules are worked out. However, once this happens, cheap robo-taxis running as BEV’s should make things immensely better in big cities where parking is expensive and safe.

    It might take another decade or two to complete the transition to small cities and rural areas, but so what? Cheaper, safer transport where humans don’t have to drive will be fantastic.

  9. Cloggie on Tue, 11th Dec 2018 1:08 pm 

    Now even blind people can drive:

    https://youtu.be/4pvA-29YJ-s

    Dutch innovation: radar chip for autonomous driving. Next year mass production:

    https://www.deingenieur.nl/artikel/betaalbaar-autonoom-rijden-met-nederlandse-chip

    BMW promo:

    https://youtu.be/KoRPn_WuKa4

    Bosch promo:

    https://youtu.be/Ipkr3CjNpPY

    It’s coming! Fine-grained, door-to-door, affordable transport for all, while slashing embedded and per mile energy consumption.

  10. I AM THE MOB on Tue, 11th Dec 2018 2:05 pm 

    Outcast

    Driver less cars are still oxymoron..Its all based on wish thinking..Not logic

    Tesla: Autopilot was on during deadly Mountain View crash
    https://www.mercurynews.com/2018/03/30/tesla-autopilot-was-on-during-deadly-mountain-view-crash/

    Tesla and GM self-drive cars involved in road collisions
    http://www.bbc.com/news/technology-42801772

    Self-driving Uber kills Arizona woman in first fatal crash involving pedestrian
    https://www.theguardian.com/technology/2018/mar/19/uber-self-driving-car-kills-woman-arizona-tempe

    Consumers Don’t Really Want Self-Driving Cars, MIT Study Finds
    http://agelab.mit.edu/news/consumers-dont-really-want-self-driving-cars-mit-study-finds

  11. Davy on Tue, 11th Dec 2018 2:57 pm 

    “The key point is that driverless cars will completely change the financial picture.”

    OS, you and neder are just as bad as the extremist doomers you criticize with your eternal techno optimism. We just don’t know if the technology will have traction. Too many variables at the moment and not only technical. I see driverless cars as little more than a niche and one that may costs whoever invests in them dearly IOW they may not pay out with an economic return. Eventually they may end up stranded assets like we have seen other past technology encounter only this time it will be destructive change and not constructive change that strands them.

  12. Davy on Tue, 11th Dec 2018 3:51 pm 

    ” I see driverless cars as little more than a niche and one that may costs whoever invests in them dearly IOW they may not pay out with an economic return ”

    OR, maybe they will?

    “Eventually they may end up stranded assets like we have seen other past technology encounter only this time it will be destructive change and not constructive change that strands them.”

    OR, maybe they won’t?

    We just don’t know if the technology will have traction. Too many variables at the moment and not only technical.

  13. JuanP on Thu, 13th Dec 2018 7:10 pm 

    am To the board. Davy has been constantly insulting me and falsely accusing me of stealing his identity for weeks and I held back out of consideration for others, but I intend to fuck with him until next year now. Sorry for what’s coming. You can blame Davy for it as he is 100% responsible. Thank Davy for it!

  14. Davy on Thu, 13th Dec 2018 7:17 pm 

    “Davy has been constantly insulting me and falsely accusing me of stealing his identity for weeks and I held back out of consideration for others, but I intend to fuck with him until next year now. Sorry for what’s coming. You can blame Davy for it as he is 100% responsible.”

    It’s not like I wasn’t warned. I’m such a dumbass.

Leave a Reply

Your email address will not be published. Required fields are marked *