It’s become an amusing hobby of mine to pick on Jeremiah Owyang for his giddiness over what he calls the “collaborative economy.” Services that, through some aspect of consumer sharing or non-traditional commerce are disrupting old guard ways of doing things.
For example, Uber is often cited as being “collaborative” by Jeremiah. But it’s not. Uber is a car service that doesn’t pay livery or taxi service taxes and allows anyone to apply to drive for it, no state or local licensing applied. Any individual can essentially charge others for a ride somewhere.
(For the record, I love Uber and use it often. Cleaner cars, convenient mobile app, don’t have to pay in the car because my credit card is on file with them … convenient as hell.)
But the individual driving is not going to the same destination. It’s not ride-sharing. Someone pays someone else to drive them somewhere. The service that supplies the application that makes that passenger-driver connection gets a fee – much like a hotel bellhop would get a tip – and the driver gets paid by the passenger for the ride.
Aside from the mis-labeling of many (not all) of these services as collaborative, it’s also interesting to me that none of them seem to have sustainable business models. That’s a tried and true trait of Silicon Valley and other technology companies. They don’t know how they’ll ever really make sustainable revenue. They just play the game until some other big company comes along and buys them for a ridiculous amount of money.
I guess it’s one way to strike it rich, and if it works, good on them. But when are we going to start being really honest about the investment world and how absurd it all is?
A recent back and forth with Jeremiah (who is a friend, by the way) and me in a friend’s Facebook thread gave me another opportunity to poke. I made reference to the fact that none of these companies are making money. Jeremiah’s typical response ensued, linking me to a few stories about valuations and investments. Here was my response:
“Valuations are shit. Investments are gambles. Show me sustainable revenues.”
One article listed AirBnB’s valuation at $10 billion. Another spreadsheet seemed to show how Wall Street has invested $11 billion in the “collaborative economy,” never mind that the companies they’ve invested in, like Uber, aren’t collaborative at all. So Uber and AirBnB (which is like Uber only you rent out your apartment or house) don’t really qualify in the argument since they aren’t collaborative.
If you take your head out of the Silicon Valley and Wall Street cloud, you see a couple things at play here:
- Investors pour a ton of money into companies that show no sustainable revenue growth.
- Because of the investments, the analysts place high valuations on these companies, if for any other reason than they have big bank accounts from all the investments.
- Few of them actually show sustainable revenue growth – meaning they make a profit after all their expenses are paid, year-over-year, that grows each year.
- A handful get bought by bigger companies — sometimes more traditional companies in said industry just so the competition goes away — and the investors make money. The business never really did.
Maybe this is why I’ll never be a big-shot investor. Sure, I believe it’s good to gamble on a big idea now and then. If I could go back and do it all over, I’d pump all $2,300 I had in the late 1990s into Google stock.
But I can’t help to think the big valuations and sometimes big price tags placed on businesses that don’t show a reasonable path to sustainable revenue is the direct result of venture capitalists playing some crazy game of smoke and mirrors to make people think the thing is viable.
Am I wrong? Show me. The comments are yours.