
Who Pays the Price for Selling $10 Bills for $5? - jstanier
http://theengineeringmanager.com/growth/who-pays-the-price-for-selling-10-bills-for-5/
======
jondubois
Gig workers are not the only losers.

Any small business which doesn't receive VC funding is also disadvantaged
because they aren't able to give consumers the same kinds of deals that these
consumers have gotten used to.

What some of those big VCs have been doing is criminal and has been hurting
both workers and value-producers for over a decade. I hope that they'll end up
in jail after it all goes belly up because this is very serious.

It's not hard to see what's really happening; VCs are shoving investors' money
into each others' pockets and then dumping the bi-product on the public market
so that the public foots the bill... A lot of which ends up taking a chunk out
of regular people's retirement funds.

The crime is made even worse by the fact that many of those who end up footing
the bill don't even have a choice. If I have a compulsory retirement fund like
401k or Superannuation, then I often don't have much say about where my money
is invested... Maybe it goes to an index fund; part of which goes to big corps
like Google which then use the money to acquire worthless VC startups from
people who are friends with executives.

~~~
TAForObvReasons
Everyone is a loser except for the investors. If you really take it to the
logical conclusion, the business model is Dumping [1]: capture the market,
drive out everyone else, then jack up prices when you are the only show in
town. And the winners in the endgame are the investors.

[1]
[https://en.wikipedia.org/wiki/Dumping_(pricing_policy)](https://en.wikipedia.org/wiki/Dumping_\(pricing_policy\))

~~~
skrebbel
I'm not doubting your point, but at the same time I struggle to name an
example that did the "then jack up prices when you are the only show in town"
step.

~~~
oarsinsync
While not reaching literal "only show in town", Wintel did exactly this when
reaching dominance.

------
nateburke
Remember that we've been here before: Groupon actually ended up BEING a
straight-up ponzi scheme that is now worth a small % of what it IPO'd for as a
conglomerate of all of its competitors (LivingSocial, etc.).

And do not forget that some % of folks driving for Lyft and Uber are doing so
in cars that are financed with subprime debt.

[https://usa.streetsblog.org/2019/02/13/americas-car-
centric-...](https://usa.streetsblog.org/2019/02/13/americas-car-centric-
transportation-policies-are-driving-us-to-ruin/)

$1-1.5 T in auto debt is not 2008 subprime mortgage debt, but it's important
to remember that a real tie-in to the publicly-chartered banking system exists
here beyond whatever LPs put into VC funds.

How I see this playing out, post-ipos:

Wall Street will demand profits, Uber/Lyft will raise fares because it's the
only thing they can do, fewer riders will use the apps, causing fewer drivers
to drive -- they will have to walk away from their car loans.

GMAC will need to be bailed out again.

------
deweller
I genuinely don't understand the argument that tech companies are hurting
society by providing lower paying gig-economy jobs.

By providing more jobs, these companies are increasing options for workers
looking for jobs. No one is forcing Uber drivers to drive passengers.

If there is a shortage of labor, then the prices paid to workers will increase
due to market forces. If there is not a shortage of labor, then people that
need jobs are finding them.

~~~
fabricexpert
It’s not the volume of jobs, it’s the quality.

Driving a taxi or delivering food is a pretty bad job, doing it as a self
employed contractor is almost criminal. You have to cover all your own
expenses and have no guarantee of work, with zero progression (ever heard of
an Uber driving saving up and staring their own minicab business?). It’s a
terrible economic decision.

The market does not correct for this as it is entirely controlled by a small
group of companies.

~~~
countryqt30
Again, nobody forces you to do this so what's the point?

~~~
onion2k
I think you're demonstrating a point of view that's tragically common here on
HN - you're assuming that people are never desperate, and that they always
have an alternative to choose instead. _Many_ people are in the position where
they only have one option and have to pick that to earn a living. That's not
_strictly_ being forced to work a job that sucks, but the reality is they
don't have a choice if the alternative is starving or losing their home.

So sure, nobody is forcing anyone to drive for Uber, but there are people who
_have_ to drive for Uber because they don't have any other opportunities in
the short term.

~~~
p_roz
If you remove the opportunity to earn _some_ money with gig work, you are
forcing them into their next best alternative, which is starving or losing
their home. I don’t see how that makes people better off.

~~~
danaris
The "gig work" jobs crowd out other, better-paying and/or better-benefited
jobs because the companies brokering them (Uber, Lyft, etc) are able to
operate without turning a profit.

It doesn't help that these jobs often have an attractive shine to them up
front—fast, easy money! all you have to do is drive around!—but hide lots of
costs—like massively increased wear and tear on your car—that there's no
advertisement about, and no help in covering. If you have to keep driving to
keep food on the table, it's also that much harder to take the time required
to find a better job (though admittedly, that's not really qualitatively
different from most low-end hourly-paid jobs, though it may be quantitatively,
if your expenses end up wiping out enough of the income that you're
effectively getting less than minimum wage).

------
tomohawk
Money Quote:

> I once read a tongue-in-cheek description of San Francisco as “an assisted-
> living community for tech workers in their thirties”. This snide jab pokes
> fun at the wave of Silicon Valley startups creating services and products
> for a stereotypical technology worker in the city. Nowhere to park your car?
> Uber and Lyft can get you around. Too busy working to cook and do grocery
> shopping? Postmates can deliver your lunch and dinner. Living in an
> apartment too small for a laundry room? Rinse can do your washing.

~~~
Balgair
This one goes back about four years:

"OH: SF tech culture is focused on solving one problem: What is my mother no
longer doing for me?"

[https://twitter.com/azizshamim/status/595285234880491521](https://twitter.com/azizshamim/status/595285234880491521)

------
golergka
So, in the end, the analogy breaks: turns out, the companies found out a way
to procure $10 bills for ~$6 and then (after initial growth phase) to get it
as low as ~$3-4 and finally make a profit.

Now, the logical question is to ask, why is anyone willing to provide this $10
bill for such a low price to begin with? Or, to switch from the analogy back
to the subject matter, why are people singing up for the gig economy jobs? The
author puts the blame on the unicorns - but they did not create the
environment in which a gig worker is willing to accept such a job.

~~~
username223
> why are people singing up for the gig economy jobs?

Despair and deception. Companies have figured out how to shift costs onto
their employees, then claim that those employees are "independent
contractors." Uber is a global taxi company that pays millions of employees
starvation wages. It sells itself as an SV "technology" company that pays a
few thousand employees a few hundred thousand dollars a year to convince
people to wear out their cars for less than minimum wage.

~~~
golergka
Uhm, but these are different companies that start with this proposition for
workers from the beginning. That's not what's happening: the old and new
models of employment are offered by different companies that compete on the
same labour market. And new companies that work with the gig model did not
create this labour market.

~~~
username223
See "deception:" most people underestimate the cost of using their car as a
taxi or delivery vehicle. This is also why Uber would be much less profitable
if it deployed its own self-driving cars, and probably has to convince
"independent contractors" to buy and maintain its fleet.

~~~
golergka
You're talking about costs, but why does this matter at all? It's a market, so
you should talk about supply and demand instead. People who decide to work for
Uber have plenty of other options: stay without a job, land other low-paying
job, etc... Uber is not their only possible employer, nor it is in a cartel
with other low-wage job companies. It cannot dictate it terms to employees. If
they accept the Uber's offer, it's only because that's what labour market is
like.

Trying to blame it at Uber or inventing some kind of evil conspiracies are all
futile attempts to omit a simple depressing fact: people working at these low-
wage jobs don't have opportunities to do anything that would be more valued by
society.

~~~
username223
> people working at these low-wage jobs don't have opportunities to do
> anything that would be more valued by society.

And that same society made Travis Kalanick the 115th richest person in the
world. There are two sides to this equation, and shrugging your shoulders and
saying "supply and demand" is taking a side.

~~~
golergka
Yes, and after my life improved so significantly after old-style taxis have
been replaced by taxi apps, I'm more than content with Kalanick's
compensation.

~~~
username223
Sweet. Those people who drive for less than minimum wage are mostly water, but
they also contain proteins and other trace elements. A centrifuge can separate
that out.

------
neom
A fun thought experiment: how _could_ you go from selling $10 bills for $5 to
selling $10 bills for $15?

~~~
huffmsa
Replace all of the ports on the bill with a single USB-C port and call it
_revolutionary_?

Edit1:

/s

Slightly more seriously, you could promise to anyone who bought a $10 bill
that in some _x_ number of years they could redeem that bill for $20. This is
called "being the Treasury and Federal Reserve".

The hard part is finding a way to invest the $5 of profit they gave you in an
asset which will appreciate faster than your promised return.

Edit2:

This is not advisable, see "Bernard Madoff, Ponzi Scheme".

~~~
Razengan
That gave me another idea which I haven't considered the implications of, but
it sounds fun and video game'y:

Electronic/Smart bills, that keep track of how many times they've been used to
purchase stuff with.

After a bill has been circulated N times, it increases in value by Y, and/or
unlocks special artwork.

Some bills may become highly sought-after collectibles worth far more than
their face value.

Would it help or harm the economy?

~~~
huffmsa
Well that shifts the value away from the bill being a promissory note and back
to being the actually valuable item. Kind of like a commodities backed
currency, which most nation's try to avoid.

~~~
Fjolsvith
The amazing thing about currency being actual valuable things (like precious
metals or gems) is that it cannot be devalued by "printing" more of it from
non-valuable things.

Nations try to avoid this because they can spend freely on a promissory note
currency system. It is a recipe for disaster in the long term.

------
PopeDotNinja
I get the author's point that they don't like investing in companies that
hoover up investment dollars, but the selling $10 for $5 example annoys me.
Any GAAP-based income statement starts off total income minus cost of that
income equals gross income. Check out the income statement for Amazon...

[https://finance.yahoo.com/quote/amzn/financials/](https://finance.yahoo.com/quote/amzn/financials/)

Amazon lost money for a bazillion years, and they continued to get investment
dollars. What is one reason that Amazon could do this? Because they were
selling things for less than it cost to make or acquire these things. If
Amazon's business model was to buy a book for $10 at Barnes & Noble and sell
that book for $5 on Amazon.com, they would never have gotten off the ground.

None of the companies in this article buy something in this spend $10 make
something they sell for $5.

Interesting article. Bad example.

------
MayeulC
Wouldn't this scheme be akin to a ponzi one, in some way?

This holds true for startups as well: foster interest in the company, launch
it with some initial inertia (VC funds), collect investors' (stock holders)
money, and see the stock skyrocket. Little risk for everyone involved (but the
buyers).

Of course, that's only a pyramid scheme if the business isn't intended to turn
profitable (VC firms do not care), and stock holders are placing a bet.

But I wonder: if one were to look at the whole stock market, wouldn't it also
look like a big pyramid scheme, if squinting a bit?

------
jfk13
Aside: I'd suggest removing the -webkit-hyphens:auto property from the title.
When I load the page in Safari it appears as:

    
    
        The Engineering Man-
        ager

~~~
jstanier
Thanks - had no idea.

------
lordnacho
I wonder what the answer is to these two questions:

\- Once we've driven out the competition, what prevents some other VC-backed
firm from playing the same trick? If customers go for the cheapest thing -and
let's face it, taxi and food delivery are not differentiable- won't there
always be another disruptor?

\- If there's a monopoly that lets us make huge profits, wouldn't the
government come and do something about that?

~~~
Fjolsvith
> -and let's face it, taxi and food delivery are not differentiable- won't
> there always be another disruptor?

Drones and perhaps, down the road, teleporters.

~~~
lordnacho
Right and then the trick will be to make the cheapest drone delivery? How is
it ever not a race to the bottom?

------
dsfyu404ed
TL;DR:

The traditional VC backed tech startup growth curve is an exercise in giving
something away for less than it's worth, such as selling a $10 bill for $5.
This is done to dominate the market. You will become very popular very quickly
and dominate the $10 bull market by selling them for $5. After dominating the
market you must find some way to become profitable. Often when a company tries
to raise prices and become profitable they find that the market evaporates,
you won't sell many $10 bills for $11 even if you run a managed service that
makes it convenient. For "gig-economy" startups this screws the workers
because their jobs evaporate with the market. The article ends with a call to
action.

~~~
Udik
Also, there seems to be no personal accountability for those who lost all that
money. I can set up a business that sells 10$ notes for 9$, convince a number
of VCs and/or shareholders to cover the losses, and live the sweet, exciting
life of the entrepreneur until the game is over. By the time the value of the
company drops to zero, I'll probably have accumulated enough cash to live
comfortably ever after.

~~~
michaelt
Why should anyone else be accountable for sophisticated investors' failure to
do their due diligence?

If I go to the Kentucky Derby put $1000 on Fancy Dancy Magic Prancy, it's
hardly the horse's fault if my gamble doesn't pay off.

~~~
marcosdumay
It's not the investor that decides to give money to the $10 bills seller. It's
a third party.

Now, I don't know what kind of punishment the GP wanted to see. If the
question is why doesn't all the money run away from the VP's fund, I wonder
about that too.

~~~
michaelt
Don't you have to be an accredited investor to invest in venture capital and
angel investments?

------
Chris2048
Isn't the revenue 50k, and the loss (minus) 100k?

~~~
jstanier
Don't be ridiculous! It doesn't say that... ;)

~~~
jstanier
Fixed it now, I think.

------
oeuviz
Illustrates how VC backed startups are more of a product on their own.

