The confidence game. Uber comes undone

This post will be the last of three that explains the con man context to Uber. In the last few days the President resigned, Uber is unwinding, so rather than continue to dig deeper with more and more posts, from here I’m happy to let better writers and journalists take over…

Greed is not new. What is new is the staggering dollars and multitude of ways that greed can express itself.

So far I have written the bookends…

A confidence game relies on the ‘mark’s’ cooperation. Larceny can be thrilling and empowering. And then you lose your money.

Uber and the entire industry of embellishing fully automated self driving cars, cartelization of the taxi industry is the game, the mark is the funds, mutual, sovereign, LPs of venture capital firms and, ultimately, you. As I wrote in a previous post, Eric Holder, the former Attorney General of the United States is and now an Uber counsel, he is there to forcefully move paper, all the coming adverse legislation, lawsuits, actions class actions and shareholder suits from one side of the desk to the other. Their side to yours.

Scam: The Glim-dropper
Requires several accomplices, one of whom must be a one-eyed man. One grifter goes into a store and pretends he has lost his glass eye. Everyone looks around, but the eye cannot be found. He declares that he will pay a thousand-dollar reward for the return of his eye, leaving contact information. The next day, an accomplice enters the store and pretends to find the eye. The storekeeper (the intended griftee), thinking of the reward, offers to take it and return it to its owner. The finder insists he will return it himself, and demands the owner’s address. Thinking he will lose all chance of the reward, the storekeeper offers a hundred dollars for the eye. The finder bargains him up to $250, and departs. The one-eyed man, of course, cannot be found and does not return

When I published the first post I was timestamping my prediction. People like to talk shit. I knew when the fortunes of Uber turned around all those that were the Uber cheerleaders would be busy rewriting their history, inserting cautionary notes when before there were none. When the positive reinforcement loop self corrects and true corresponds once again with fact, pundits, analysts, fan boys and girls, the innocent and the complicit will do an about-face. They will get off the train and get on the one on the next track going the opposite way.

Three-card Monte The trickster shows three playing cards to the audience, one of which is a queen then places the cards face-down, shuffles them around, and invites the audience to bet on which one is the queen. At first the audience is skeptical, so the shillplaces a bet, and the scammer allows the shill to win. This is usually enough to entice the audience to place bets, but the trickster uses sleight of hand to ensure that nobody in the audience loses, unless the con man decides to let someone win, hoping to lure the audience into betting much more.

I grew up in New York City, i remember Three Card Monte nostalgically, even that time when i was 15, played and lost. Three card monte could be set up anywhere on the street, it was played on a mat placed on the top of four cardboard boxes stacked on top of each other, when the cops came around the dealer would just knock down the boxes and disappear into the crowd.

Uber used propaganda to recruit its shills…

As I was noodling the fine points of the Uber Confidence game, HUBERT HORAN wrote a great post, his ‘splain is better than my best attempt H/T

Uber needed to reframe all public discussion around an emotive, ideological/tribal narrative that would limit scrutiny of its uncompetitive economics and would also enlist a base of dedicated supporters, who would see Uber’s battle against longstanding laws and regulations as a moral battle where compromise was unacceptable.

Uber needed a simple regulation-based explanation for the industry problems it would allegedly solve, but did not want anyone to reexamine the actual history of taxi deregulation, or to understand the huge difference between pricing/entry liberalization and the total market control they were seeking.

Uber needed to establish the image of a battle between cutting-edge technologists fighting to disrupt a backward industry so that people outside of its core of supporters would view Uber as the heroic good guys.

Uber needed to create a strong association between its disruptive innovation and its meteoric growth in order to create the impression they were following the proven model of Amazon and other successful unicorns and thus would inevitably achieve strong profitability and industry dominance just as they had. Establishing Uber as an innovative good guy with a business model just an innovative as Amazon would eliminate the need to investigate whether they actually had similarly powerful inventions, or to figure out why the losses investors were subsidizing were so large and persistent.

To build a base of ideological/tribal supporters Uber CEO Travis Kalanick emphasized the company’s affinity with the tech industry and its libertarian/objectivist values. He highlighted his famous Silicon Valley investors, his use of Ayn Rand as his Twitter avatar, and described himself as a “trustbuster” and a “freedom fighter.” “It’s like Braveheart. Like, ‘freeeeeduuuuuuuuum.”[21]

Uber evoked the same us-versus-them imagery with entrenched and corrupt political forces, but substituted the heroic technology innovator for the heroic entrepreneur the think tanks had used. Kalanick described Uber as an avatar of progress “a transportation technology innovator, boldly going where no man has gone before;” its loyal supporters would be amply rewarded in the end because “ultimately, progress and innovation win.”

Despite massive funding from Silicon Valley billionaires, Uber faced overwhelming disadvantages in its battle against a powerful “Taxi Cartel” “Over the years, what I’ve come to realize is that this controversy exists because we are in the middle of a political campaign and it turns out the candidate is Uber” and the opponent is “an asshole named taxi.” “Our opponent — the Big Taxi cartel — has used decades of political contributions and influence to restrict competition, reduce choice for consumers, and put a stranglehold on economic opportunity for its drivers”. “When we do so, we don’t do so fighting anybody. The fight is brought to us by those who don’t want to have to compete, don’t want to innovate and who like the status quo for what it is, which is not to the benefit of consumers or drivers.”

Given the long-term objective of total market control, the propaganda narrative made the uphill battle with the evil Taxi Cartel into a struggle over core values where total annihilation of the enemy was a moral imperative. “Nobody likes him, he’s not a nice character, but he’s so woven into the political machinery and fabric that a lot of people owe him favors…We have to bring out the truth about how dark and dangerous and evil the taxi side is.” Kalanick made it clear that truth and justice were totally on Uber’s side and any accommodation with incumbent operators or taxi regulators was out of the question. “If you’re operating from strong principles, you can compromise when the person on the other side is operating from principles you respect,” he says.

Despite Uber’s transparent interest in destroying all incumbent operators in order to establish global industry dominance, Kalanick insists Uber is just trying to increase competitive options. “When it’s about protecting incumbent industry, when it’s about providing less choices for citizens to get around the city, then there’s less to talk about.”

Following the think tank template, Uber emphasized attractive outcomes (e.g. hiring Uber would soon be cheaper than buying a car, Uber would eliminate waiting for cabs on Saturday night, and the company had “generat[ed] 20,000 new driver jobs every month” that had no factual basis and were totally inconsistent with actual industry economics.

Uber insisted that the emergence of an unregulated, Uber dominated industry had nothing to do with multi-billion dollar subsidies but was strictly the result of the free choices of consumers in a competitive market and therefore must reflect the efficient results that markets always produce. But as law professor Eric Posner points out, “…[this] is a response that any monopolist could make…But whether or not Uber does overcharge people now, sooner or later — once it displaces taxis and dominates markets — it will.”[22]

Echoing the struggling immigrants in the think tank narrative, it valorized its “driver-partners” as “small business entrepreneurs” who had been generously granted a unique opportunity. Uber forced drivers to bear much greater costs than traditional taxi drivers faced, could fire their “driver-partners” at will, and aggressively lied to them about their true earnings potential. In 2016, once drivers were locked into vehicle financing obligations, Uber slashed their compensation by over $1 billion.[23]

But Kalanick perversely defended a business model whose economics and service standards are controlled tightly by Uber as a way to empower workers. “When you empower drivers to own and operate their own vehicles, they can take control over their own income, their hours, and they can improve their lives.”

Uber’s public claims quickly coalesced into a PR/propaganda[24] narrative that can be readily summarized. Uber’s huge valuation was justified by its powerful business model that was based on cutting-edge technological innovation; it has created a totally new product category (“ridesharing”) an industry (the “on-demand” or “sharing economy”) that is totally different from traditional taxis; its meteoric demand growth was the result of consumers freely choosing their vastly superior product in open, competitive markets; resistance to Uber’s growth was due to the coalition of the evil Taxi Cartel and corrupt regulators who were willing to block major innovations and job creation in order to protect an inefficient status quo; that startup losses will soon give way to strong profits, just like past unicorns that rapidly grew into profitability; robust long-term growth is certain because its business model is so powerful that it can overwhelm competition in any city and any country and inevitably achieve global industry dominance and because it will become so efficient that it will significantly displace car ownership.

Uber’s PR/propaganda narrative was powerfully amplified by journalists following the tech industry

There is no legitimate, verifiable economic evidence supporting any part of Uber’s PR/propaganda narrative. But the effectiveness of propaganda campaigns does not depend on analytical rigor. It depends on their ability to get seemingly objective outsiders to amplify the message and give it greater credibility.

The media had completely ignored the 1990s think tank propagandists’ explicit attacks on all aspects of taxi regulation, but when the exact same narrative was repackaged in the context of an epic power struggle where cutting edge technologists backed by the best and brightest in Silicon Valley would inevitably overwhelm a backward industry, it became widely repeated in the tech industry and mainstream business press as if it was established truth that had been independently verified.

Uber’s narrative exploited the myopia of tech industry journalists embedded in a Silicon Valley tribal culture that sees itself as the avatar of economic progress, who readily embraced Uber’s framing of a heroic battle against a backward industry.

Given the awesome benefits that Silicon Valley-led “disruptive innovation” would inevitably bring, there was never any need to interview anyone knowledgeable about the industry being disrupted, or consider whether the Uber’s claimed innovations had ever transformed any other industry.

Journalists focused on the wealth and status of Uber’s Silicon Valley investors within the venture capital world. The presumption they must know what they are doing eliminated the need to find evidence that would explain how they had found tens of billions of economic value no one else had ever seen, or whether their interests coincided with any broader economic interests.

Part eight of this series uses Brad Stone’s recent Uber/Airbnb book as an example of tech journalist bias. Stone, the senior executive editor for technology at Bloomberg News, manages to endorse every element of Uber’s narrative while finding excuses for everything contradicting it (e.g. the massive failure of Uber China). Stone fails to mention Uber’s multi-billion dollar losses or any other aspect of its uncompetitive economics, and cannot explain where profits or returns to investors might come from. Part seven of this series provides examples of much more open-minded, independent tech journalists, willing to acknowledge contradictory evidence and obvious Uber flaws Yet even they maintained that Uber it an ideal example of how the tech industry is the avatar of innovation and progress.

Since Uber’s narrative provided a fully self-contained explanation of its inevitable success, even journalists without strong tribal tech industry ties had little need to undertake any independent investigation. Given Uber’s overwhelming financial advantage, one could assume the battle had been decided before it started, and thus there was no need to dig into complicated competitive issues. The press treated Lyft (with a mere $2 billion in funding) as an also-ran and the entire incumbent taxi industry as a complete irrelevancy. Given its rapid growth, journalists accepted the Uber narrative implication that it was following the exact model that Amazon and Ebay had followed.

The huge industry-wide losses caused by the massive increase in less efficient capacity was never considered newsworthy, and was never blamed on Uber; since Amazon and Ebay had converted large initial losses to sustainable profits there was no reason to doubt that Uber would as well.

Uber’s successful creation of the perception that it was the new Amazon/Ebay caliber tech winner created a virtuous circle, increasing the amount of highly favorable press Uber received. Aside from being locked out of access on one of the biggest stories on their beat, Silicon Valley journalists would also risk reputation in fighting the image version of a massive momentum trade.

It also meant that the press ignored the question of whether Uber actually had the Amazon-like scale economies needed to eventually achieve profitability, and ignored the arithmetic showing that an Uber recovery from its multi-billion dollar losses would constitute one of the greatest corporate turnarounds in history.

Uber’s us-versus-them narrative also provided built in-responses to critics; people who raised questions about reduced driver earnings or whether the app was actually a technological breakthrough or Uber’s eventual profitability could be dismissed as an Luddites who opposed empowerment and progress. Those who complained about Uber’s ruthless behavior and disregard for legal requirements were bleeding hearts who did not understand what was required to create billions in corporate value. The combination of Uber’s aggressive PR efforts, and a weak, disorganized and marginalized opposition created the impression that there was only one side to this story.

Of the thousands of Uber stories in the mainstream press, none included any interviews with independent experts on urban transport, none investigated the pros and cons of the longstanding taxi regulations Uber was disobeying, and none investigated whether “innovations” like Uber’s app or surge pricing practices had ever driven major competitive changes in any other industry.

Since Uber was popular (and traditional cab service was decidedly unpopular) with many of the urban elites who were a major audience for these media outlets, there was little motivation to expose the unsustainable subsidies that popularity possible, or to point out that the service they liked was reducing the already poor working conditions of drivers and also threatened affordable late night taxi service for low-wage workers.

Uber’s hyper-ruthless corporate behavior powerfully complemented its PR/propaganda strategy

Space does not allow the full story of Uber’s strategy for market control to be told here, but its highly effective PR/propaganda program was the key (in conjunction with its $13 billion investment base) to convincing the world that success was inevitable. By capturing the tech industry and mainstream business media, Uber rendered any local politicians that might have wanted to enforce longstanding regulations powerless, and ensured that outside critics questioning Uber’s business practices or competitive economics were never taken seriously.

To summarize briefly, the other key component to Uber’s market control strategy was the development of a highly ruthless corporate image. While the PR/propaganda campaign told the world that success was inevitable, Uber’s vicious behavior towards local politicians, competitors and critical journalists told the world that resistance was futile.

The end is nigh