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Monday, March 6, 2017

"Health Care Needs an Uber"

"like it needs another Gruber."

Recall Jonathan Gruber, the too-cynical-by-half policy wonk "ObamaCare architect" caught on video back in 2010 dissing the "stupidity" of U.S. voters?

In the VC sessions of many of the health InfoTech conferences I've covered in recent years I've repeatedly heard lofty, vague, speculative allusions to "the Uber of health care." It's always evoked my reflexive snarky reaction "yeah, just like we need another Gruber."

Uber alone has acquired nearly 12 billion dollars in private funding to date: roughly $9 billion of that in VC equity stake money, and another nearly $3 billion in debt financing

Reports have it that the private U.S. venture capital expenditure last year was about $60.6 billion across all sectors, with the entire digital tech space getting about 10% of that total. Uber's estimated (and inescapably subjective) "Market Cap valuation" has been pegged at ~$68-$70 billion -- "making it the most valuable private company in the market."

Yeah, right.

Their myriad legal and regulatory woes aside (the recent "Greyball" caper report is a doozy), they have yet to turn a profit. In fact, as recently reported by TechCrunch:
Uber losses expected to hit $3 billion in 2016 despite revenue growth

Uber’s losses are growing from $2.2 billion last year to an expected $3 billion this year, according to multiple reports this week from The Information and others.

It’s hard to fathom Uber operating so far from profitability at a time when it feels like an established mainstream brand on the global stage.

Hip hop stars like Drake or Wiz Khalifa commonly name check Uber now in their lyrics, and multiple Hollywood studios have signed big names, including Will Ferrell,  to produce and star in comedies about Uber drivers.

The ride hailing pioneer is expected to surpass $5.5 billion in net revenue in 2016, according to a Bloomberg report, up from an estimated $2 billion in revenue last year.

While that kind of sales growth is normally impressive, considering the $3 billion in anticipated losses, Uber is apparently spending $1.55 for every dollar it makes.

An Uber spokesperson said the company does not comment on its financials...
Lose a little on every sale and make it up in volume?


Is there in fact any long-term strategic method to their madness? Should we even care? After all, it gets repeatedly reported that Uber continues to be "subsidized by a handful of Silicon Valley billionaires," and why should any of us give a flip if these well-heeled people waste a bunch of money?

Well, I'm sure that some of these Silicon Valley VC Principals are "billionaires" (at least on paper) but I also rather doubt that they've put their own money at risk. VCs are mostly "money managers" who put others' money in play (e.g., large pension and other retirement funds, and other aggregated pools of significant money).

While it's certainly a prurient schadenfreude-fest reading the press frenzy of late going to Uber's carnivorous bully-boy misogyny culture, intellectual property heist lawsuits, and endless regulatory smackdowns, what of the fundamental economic implications? Every dollar wasted on an Uber (or the utterly fraudulent and now-worthless Theranos, which now seems like a rounding error in comparison) is a dollar not available for underwriting more socioeconomically worthy startup initiatives.

Well, you can't do better than the long-read (thus far eight-installment) series posted over at the Naked Capitalism blog.
  1. Can Uber Ever Deliver? Part One: – Understanding Uber’s Bleak Operating Economics
  2. Can Uber Ever Deliver? Part Two: Understanding Uber’s Uncompetitive Costs
  3. Can Uber Ever Deliver? Part Three: Understanding False Claims About Uber’s Innovation and Competitive Advantages
  4. Can Uber Ever Deliver? Part Four: Understanding That Unregulated Monopoly Was Always Uber’s Central Objective
  5. Can Uber Ever Deliver? Part Five: Addressing Reader Comments and Questions
  6. Can Uber Ever Deliver? Part Six: Latest Data Confirms Bleak P&L Performance While Stephen Levitt Makes Indefensible Consumer Welfare Claims
  7. Can Uber Ever Deliver? Part Seven: Uber’s “Narrative” and The Vox and Stratechery Critiques of Naked Capitalism’s Uber Series – Defending Uber Requires Ignoring Industry Economics
  8. Can Uber Ever Deliver? Part Eight: Brad Stone’s Uber Book “The Upstarts”– PR/Propaganda Masquerading as Journalism
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  9. (UPDATE): Can Uber Ever Deliver? Part Nine: The 1990s Koch Funded Propaganda Program That is Uber’s True Origin Story
  10. (UPDATE): Can Uber Ever Deliver? Part Ten: The Uber Death Watch Begins
Recommend that you also take the time to peruse the numerous comments beneath each post. Naked Capitalism attracts an intelligent, thoughtful, knowledgeable readership. There are other posts focusing on Uber at Naked Capitalism, but that's enough for now.
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JUNE 21 UPDATE: Uber CEO Travis Kalanick forced to resign
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Suffice it to summarize for now that Uber, its scummy, Darwinian "Gresham's Dynamic" race-to-the-bottom ethos aside, simply doesn't make basic ECON sense. Not for the larger economy, and certainly not for the hapless Uber drivers. From a Facebook comment I posted a while back in response to some Uber (and competitor) news on driver compensation rates:
Assume you drive 60 hours a week (as many "top earning" Uber drivers report doing, safety concerns aside), all 52 weeks of the year (3,120 hours) and you average 25 miles an hour overall. Assume that ALL of that is with paying passengers ("meter running" no dead runs). Assume further that your car gets 25 miles to the gallon of gas. Note that you will likely go through at LEAST two sets of tires, wear out one set of brakes, and have your oil changed, say, 12 times. (Gonna to have to keep that car spiffy and clean too, so add in trips through the car wash at perhaps $7 to $8 each, at least,say, once a week.)

Note further that your federal self-employment tax will be 15.6% of your gross (exclusive of any FIT). To be charitable, assume further that you average 15% in tips on all of your fares (taxable as well). Ignore other stuff for now, such as other misc repairs/parts replacement, bridge tolls, car payment and auto insurance and depreciation (your insurance company will be just THRILLED to learn that you're driving 78,000 miles a year, all while being at injury/death liability risk for passengers). Just do the math on the foregoing. The math simply does not work, for the drivers anyway. While you may "gross" close to $50k, your net will be nil.

But, hey, it's "disruptive innovation" that "creates new jobs."
It gets worse. It was recently reported that Alphabet/Google now intends to compete with Uber by leveraging its "Waze" app, paying drivers the IRS standard mileage rate of $0.54/mile.
...do the initial arithmetic based on [the above] assumptions, and your gross hourly rate would be $15.53 per hour (for continuous 60 hour work weeks with no vacation time). $48,438, annual GROSS, before taxes, and all of the myriad very real expenses (fuel and maintenance alone are going to set you back about $9-10,000). It's absurd. One other note: the average depreciation on a new vehicle is about 2/3rds over five years, with roughly 20% in the first year -- and THAT assumes driving 12,000 to 15,000 miles a year, not 78,000.

Uber can't even keep its drivers, despite the fact that they supposedly pay more than this.
Seriously ignored in the "IRS mileage rate" compensation thing is the fact that it's a blended expense/depreciation reimbursement, it was never intended to be wage/salary compensation. If my wife uses her personal vehicle on business for her employer, she can indeed file for the $0.54/mile reimbursement, but it doesn't replace her regular pay. C'mon, people.

The only people making serious Bank here are the ride-share vendor execs. For now, anyway. Were Uber a publicly-traded corporation, I'd be shorting them big-time. As the Naked Capitalism series points out, there's a reason they've not done the customary Big Payday IPO "Exit" -- their financials could not withstand Wall Street underwriting Due Diligence. The Uber play is essentially that of trying to bankrupt the entire regulated commercial urban passenger short-haul industry to arrive at monopoly status -- a Peter Thiel wet dream.

So, again, maybe we all should look a good bit more closely at VC allocations. 'eh?

My interest in the postings at Naked Capitalism harks to my time in subprime risk management prior to the 2008 FIRE sector crash. See my old posts "Tranche Warfare" and "The Dukes of Moral Hazard," for example. Big fan of people like Yves Smith, Nomi Prins, and Bill Black.

ADDENDUM
Commentary / OPINION
Students should learn from Uber’s recent troubles
March 6, 2017 12:14 PM
By Vivek Wadhwa, The Washington Post


The criticism of Uber continues to pile up.

This week, the car service was found to use secret software to evade government regulators and a video showed its chief executive in a verbal altercation with one of the company’s drivers. Previously, the company’s self-driving cars raised safety concerns in San Francisco when, because of faulty and incomplete technology, they reportedly barreled through red lights and crossed over bike lanes. Uber has recently been accused of sexual harassment, intellectual property theft and other questionable behavior.


Uber isn’t alone. Silicon Valley is gaining a reputation for being obsessed with making money at any cost, i.e. Theranos, which made false claims and risked lives. The tech industry is becoming too much like the finance industry, which a decade ago caused the Great Recession with its greed.

The irony is that both industries compete for top engineering talent from our colleges. And each corrupts these students in a different way. Finance uses their knowledge to engineer our financial system, while tech focuses it on making money rather than on uplifting humanity...
Yeah.

WAR ON SCIENCE UPDATE

From Scientific American:
How to Defeat Those Who Are Waging War on Science
By Jonathan Foley, Christine Arena on February 27, 2017
President Trump’s decision to constrain and muzzle scientific research signals an important milestone. The War on Science has shifted into high gear. This is a fight for our future, and scientists as well as citizens had better prepare for what is coming next.

At his confirmation hearings last week, the new EPA Administrator Scott Pruitt unveiled the new language of this war—a subtle, yet potentially damaging form of science skepticism. Manmade climate change, he says, is “subject to continuing debate.” There is reason to be concerned about methane released by fracking, but he’s “not deeply concerned.” And research on lead poisoning is “not something [he has] looked into.”


These might sound like quibbles compared to the larger cultural and political upheavals happening in America today, but collectively, they add up to something big.


The systematic use of so-called “uncertainty” surrounding well-established scientific ideas has proven to be a reliable method for manipulating public perception and stalling political action. And while certain private interests and their political allies may benefit from these tactics, the damages are something we will all have to face.


Make no mistake: the War on Science is going to affect you, whether you are a scientist or not. It is going to affect everything—ranging from the safety of the food we eat, the water we drink, the air we breathe, and the kind of planet we live on. It will affect the kinds of diseases we get and the medicines we can use. It will determine our safety and security, and the privacy of our data and personal lives. It will dictate what our kids are taught in our schools, what is discussed in the news, and what is debated in the halls of Congress. It will affect the jobs we have, the kind of industries that thrive here, and what powers our economy.


The reality is that science touches everything we do, and everyone we love, which is why the War on Science is so deadly serious. This is a war that needs to be won. But in order to do so, scientists and science supporters—including those participating in the upcoming March for Science—need to take a new tack...
See my prior post on the March for Science.

THERANOS UPDATE

From Forbes:
What An Entrepreneur Can Learn From Theranos
Bill Rader

A unicorn created by hype

...Just a couple months ago, a Silicon Valley venture capitalist appeared on CNBC’s “Closing Bell” and instead of talking about the elephant in the room, he diverted to a defense strategy for the Theranos CEO.

He claimed Elizabeth Holmes had been “totally attacked,” and that she is “a great example of maybe why the women are so frustrated.”

He also went on to say, “This is a great entrepreneur who wants to change health care as we know it."

The last statement was the strangest thing he said. Wouldn’t we all like to change things for the better? But “wanting” and “doing” are two different things.

If you want to “change healthcare as we know it” you have to at least understand how the development process works, which is not like a Silicon Valley tech startup...
UBER UPDATES


And the hits just keep on comin'...
CAN UBER BE SAVED FROM ITSELF?
‘They have dug themselves a very deep hole’

by Andrew J. Hawkins
Fine article. Well worth your time.

But, wait! There's more!!!
Uber's 'hustle-oriented' culture becomes a black mark on employees' résumés
Julia Carrie Wong, The Guardian
Below, ouch! 
EXCLUSIVE: EARLY UBER INVESTORS SLAM TRAVIS KALANICK
Freada and Mitch Kapor say Uber is at a “tipping point” and rip fellow investors for their “deafening silence.”

Maya Kosoff
It’s exceedingly rare for an investor in a private tech company to publicly criticize a portfolio company. Even Theranos hasn’t received so much as a public smack on the wrist from its biggest institutional tech investor, Draper Fisher Jurvetson. So it was somewhat shocking, within Silicon Valley, when Mitch and Freada Kapor, who in 2010 were among the earliest investors in Uber, penned a scathing open letter to the company’s board and fellow investors, calling out the company for a “toxic” pattern of bad behavior. After working for years “behind the scenes to exert a constructive influence on company culture,” the Kapors said they had given up on reforming Uber from the inside. “If we believed it was too late for Uber to change, we would not be writing this”...
I don't share their optimism. For all of the foregoing reasons.

See also Madison Malone Kircher's excellent "How Uber got here" at New York Magazine. A great, detailed timeline.
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MARCH 8TH HEALTH POLICY REFORM UPDATES

The GOP has noisily published its initial draft "Repeal and Replace ObamaCare" bill. It is widely reviled out of the chute even within Republican Party factions.


THCB is albaze with several posts on the topic:
The Rust Belt Is Burning: Republicans Lay Waste to their Base on Health Reform
The House Republicans’ Terrible, Horrible, No Good, Very Bad Obamacare Replacement Plan
Healthcare Insurance: America’s Collective Action Nightmare
Aggghhh...

The GOP Health Care Plan Is in Critical Condition
I guess we'll see.

BTW, I downloaded the bill draft PDF and have keyword-scanned it. No mention of "Health IT" (in any of its phrase variants), "electronic," "technology," "improvement," or "quality." Zip, zilch, Nyet, Nada. The word "data" appears only in the context of "enrollment" and "expenditure" data. "The Secretary" is in the bill 40 times, alluding to the otherwise Trump/GOP-disdained "regulation" -- e.g., "as the Secretary shall determine."

Opposition continues to mount...
AARP Opposes Healthcare Bill
Proposal raises premiums and weakens Medicare
The American Hospital Association (AHA) and the American Medical Association (AMA) are also on record in early opposition.

UBER UPDATE, JUNE 22ND

From Naked Capitalism, "The Wheels Come off Uber."

Then there's this:

INTERESTING COMMENT AT N.C.
Lynne
June 22, 2017 at 3:56 pm


Last night, I heard a commentator say that Uber was a failure (along with Lyft) because they did not understand that their real customers were the drivers, and that the service needed to be set up to deliver (no pun intended) riders to the drivers and not the other way around. He predicted that there would be replacement companies that would succeed as soon as they realized that. Never heard that before ... The news anchor was speechless after the comment.
'eh?

JUNE 24TH UPDATE: AND THE HITS JUST KEEP ON COMIN'
Uber Spinning Out of Control: Employees Eyeing Exits as Press (Finally) Starts to Question Business Model
Anna Wiener in The New Yorker:
After Travis Kalanick’s Resignation, Will Uber Really Change?

...Startups are often shaped by the values of venture capital: speed, growth, rapid returns. These values inform business practices and company culture, and the same qualities that make a workplace exciting and engaging can also turn a company into a cautionary tale...
Yeah.
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More to come...

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