Month: March 2014

Don’t Invest in Bitcoin, Invest in Change

Last week, Marc Andreessen and Warren Buffett had an old-white-male catfight over the investment potential of Bitcoin. I think hair was pulled.

andreessen

Buffett’s take is that Bitcoin has no intrinsic value. Bitcoin is not a currency, according to the IRS. And it’s not. It cannot be used as a medium of exchange because it is not a reliable store of value. Wait, but what about the US Dollar and hyperinflation? Shut up.

To be fair, Andreessen isn’t buying up Bitcoins himself. He’s investing in the technology, including $25M in Coinbase, a Bitcoin wallet and exchange.

Either way, Warren Buffett does not invest in technology. He cites the auto industry to give insight as to why:

All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people’s lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, “Here is the road to riches.” So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies–themselves no lollapaloozas for investors.

Buffett says that it would have been wiser to short horses, because the US Horse Population declined from 21 million to 5 million between 1900 and 1998. And Warren Buffett was probably around to do just that.

Another example is airplanes. There were hundreds of airlines and even more aircraft manufacturers last century, but only a few managed to not die. Rather than taking positions in airlines, investors should have shorted the passenger railroad industry.

There are about a bajillion Bitcoin startups right now. Most will die, but it’s Marc Andreessen’s job in life to invest in things that can die. The only constant is change.

See Also:
Why Buffett Doesn’t Invest in Technology –Henry Blodget @BI

The Difference Between Design and Aesthetics

I try to stick my USB cable in upside-down about 18 times a day. That’s probably 30 seconds wasted each day, 3.5 minutes a week, over 3 hours a year that I spend jamming a plug the wrong way into a hole. I could have spent that time sleeping.

The USB plug is a fine example of poor design.
usb plug
It’s not my fault I keep trying to plug in my phone charger upside-down. The human brain is actually very well-designed, no matter how you might suppose that design came about. There is no such thing as human error, only design error. A USB plug could be greatly improved if it came with “THIS SIDE UP” written across the top, but that would not be aesthetically pleasing.

Here is an example of good aesthetics:

tubatoilet

It’s a row of tuba-shaped urinals in a jazz lounge restroom. Beautiful, right? But terrible design. Urinals are supposed to have backboards for users to take bank shots. I don’t have a lot of personal experience, but I assume it’s quite difficult to get a direct shot after a night of Irish Car Bombs. That’s gonna be really hard to clean up.

Don’t sacrifice design for aesthetics.

What Does Full Stack Mean Now?

pancakes_2

Once upon a time, “full stack” meant coverage of the technical layers, from server to user interface. That’s gotten too easy.

Chris Dixon and Balaji Srinivasan recently explained that the new full-stack approach is to build a complete, end-to-end product. One that covers all aspects of an industry: Technology, design, marketing, supply chain management, sales, partnerships… The best way to disrupt an industry is to rebuild it. New startups must go for the full Apple.

Airbnb is becoming a hospitality company, a standardized service that aims to control the customer’s travel experience from touchdown to departure. Other examples cited include Tesla, Warby Parker, Uber, and Nest. These are all clearly lifestyle companies. A full stack startup controls how customers live their lives.

Next month: Full stack startups control customers’ bodily functions.

Crowdsourcing an Efficient Market

Public hotel chains including Hilton, Marriott, and Wyndham are now implementing franchise growth strategies to ramp up a pipeline of new hotels and rooms in response to the strong recovery in the travel industry.

This recovery has been underway since 2009.

Source: Tourism Economics
Source: Tourism Economics

Industry disruptors like Airbnb and HomeAway spent the last five years eating the hotel industry’s lunch while hotel chains were still loading their muskets.

Construction takes time, and hotels can’t move that quickly. Crowdsourcing provides a highly-liquid, dynamic supply. Travelers don’t have to wait half a decade for Airbnb hosts to build new rooms to meet their needs. In times of low demand, hosts take their rooms off the market while hotel chains go through bankruptcy and consolidation.

Source: American Hotel & Lodging Association
Average Hotel Room Occupancy Rates. Source: American Hotel & Lodging Association

People have made noise about Uber’s surge pricing and Lyft’s Prime Time price increases, but this is how the principle of supply and demand works. How much would someone have to pay you to schlep passengers on New Years’ Eve? Or in the aftermath of a hurricane?

uber-surge-pricing

By providing higher incentive to drivers during times when they would probably rather be doing other stuff, supply increases to match the number of passengers needing rides. With a potentially limitless source of drivers, we quickly find an efficient market.

Regulations that cap prices or artificially limit supply enforce an inefficient market where supply and demand never meet.

Cities like San Francisco and NYC are finally issuing more taxi medallions for the first time in years. At the same time, GDP data show that prices for traveler accommodations are falling, and we’ll soon see a glut of empty hotel rooms. It’s hard to create an efficient market when moving at Gatling-gun pace.

implosionsboardwalk

The Best Investment is to Hire a Team of Lobbyists

Late last year, a leaked screenshot of Uber’s Internal Revenue and Ride Numbers indicated that they were on track to make more than $200M in revenue for 2013.

They started last year serving 14 US cities and ended the year with 25. Given unchecked expansion, it won’t be long before Uber is eating a substantial chunk of the $11B taxi and limo industry.

Ridesharing proponents argue that the taxi industry should take this as a cue to reform their third-world system. If hailing a cab in SF wasn’t such a crappy experience, nobody would need Lyft or Uber.

la-me-ln-uber-lax-20140124-001

Unfortunately, repairing the existing system is a poor investment of resources, from the perspective of industry incumbents.

A far more effective option: Spend a few hundred thousand hiring a team of lobbyists to further your cause. The lobbying team identifies key policymakers, and throws fundraisers to help them raise campaign money. Your team becomes a big donor, the candidate is elected, and industry regulation is at your mercy.

Last week, the Seattle City Council whimsically voted to enforce new legislation that will limit app-based transportation companies to 150 cars on the road at any given time in an artificial suppression of supply.

ubereverywhere_template_r1_OL

If new market entrants are blocked, the hundreds of thousands spent influencing public policy can lead to billions saved in the long run for incumbents. Former lobbyist Jack Abramoff assures that a successful lobbying effort achieves returns that are multiplied hundreds of times over the initial investment. This is even better than the return that Uber’s Series A investors got.

Transportation lobbying is a $230M industry with customers from all the major automotive manufacturers, labor unions, and transit authorities. Disruptive businesses claim that the current transportation system is broken, but when hiring lobbyists represents a better financial choice than trying to fix the transportation industry, maybe something else is broken.

See Also:

Corruption Index Indicator: Cities That Ban Ride Sharing To Protect Taxi Incumbents –techdirt

How Corruption Is Strangling U.S. Innovation –HBR

abramoff