Airbnb and regulations - one year later

This is a continuation to this post from last November.

So it seems that time has run out for airbnb.

The last couple quarters have shown a swell of cases where cities and various municipalities have actually started issuing citations against airbnb tenants.
Even cases that have been celebrated as wins for Airbnb like Amsterdam and Portland are actually major losses for airbnb.
The problem is that the highest growth most lucrative and representing the biggest market rents are those renting an independent unit - something that gives to the visitors the equivalent of a hotel room or suite. For example in NY  more than 60% of all airbnb rentals in for full appartment units.
Airbnb's 10B valuation has been predicated in its ability to disrupt the hotel industry.

At this point even the most liberal city is staying away from allowing full unit airbnb round the year rentals. I think it is clear that within residential zones at best what may be expected is occassional rent of probably just a room or two.

Even though I am huge proponent of the "sharing/collaborative" economy, I feel a bit vindicated about this. Not because I was predicting that it would happen but because in my view Airbnb, even though it is one of the earliest success stories it is one of the last ones to attempt to find a balance between disrupting and (possibly violating) antiquated laws and regulations while going above and beyond those regulations that make sense - and by doing so have a defensible line.
There are many ways that highway motels regulatory discipline is inadequate - be it cleaning-ness or safety or noise or false advertising of amenities not there. Airbnb could come up with innovative ways to bring these elements of quality (and process and self regulation) in the marketplace similar to the way it practically forced "professional photos" for its listings and did its breakthrough.
Airbnb could have put efforts in tax-collection on behalf of it listers - even though it would imply a 10-20% increase in the cost of its listings and would definitely affect its total volume.
Today lyft and uber (in much less time since launched) have done more than any taxi/medalion licensing union or regulation has done to make sure that all the safety rules are obeyed and they bring better service (in all aspects of quality and safety) than typical taxis do - they are not just cheaper.

If airbnb had done the things I mentioned I believe it would end up having a thiner gross margin,  but it would have a better chance to fight the eventual regulatory battle for its true target big market - for the hearts of the hotel-staying customers. My guess about what happens next is that an increasing # of cities will start enforcing the zoning rules, airbnb would have to add 10% hotel taxes in most remaining listings and the company will need to accept a future that is not valuing it as a $10-20B company but something much less exciting than that.

Square's end

After reading the http://localregister.amazon.com/ announcement and the related article on techcrunch 
It appears that the end is near at Square.

So:
- The wsj article last april ( you need to come from google to see it)  reported that according to insiders the company had 9 months runway in Q1 of 2014. They did 100M debt financing in April. This means that they will probably start using their debt facility next month or so.
- The wsj article (and separately this one ) reported that they had about $110M of cash losses in 2013. So the question is how are their losses so far in 2014. So according the the wsj article in 2013 they report 20B of volume, $550M of Revenue and they had 21% gross margin (after paying networks+ and fraud). So they had about $110M of Gross Profit to pay for their normal expenses in that year - which means that their expenses were about 200M. Now according to what square employees said in Quora they had 250 ems in 03-2012,  650 in 11-2013 and according to linkedin they have 980 now (980 linkedin members say that Square is their current employer). The above would argue that their salary related expenses increased at least by 50% this year compared to 2013 and it seems that salaries is the majority of their expenses. The company did $8B of payments in 2012 and $20B of payments in 2013, so I would guess that at best in 2014 they would double their volume. If they do that would mean (assuming that their margin don't erode further) that instad of 110M gross they would bring 220M gross. This extra 110M would allow their net losses to stay flat even if they increase their expenses by 50% from 200-> $300M. So this means that all things normal the company would eat up another 100M of cash in 2014 - or equivalently they have exactly 12 months runway before they use completely their new credit line.
- Enter amazon and the company will be forced now to change - even somewhat its pricing at least through the next 3 months - while the amazon steal-of-a-deal lasts. Recalling the impact of Starbucks deal (2% instead if normal pricing caused 20M of losses according to the articles above) we should expect that the new runway can easily disappear - if the company's cuts further into its margin.

What does the above means. Its not about whether in the end Square succeeds. I think that has been decided sometime ago (ie no future). What this means is that the end is much much closer than what everyone else thinks. Square has really just through the end of the year to
a) find a down-round ~1B-2B buyer in the next 3-4 months.
b) make major layoffs to counter the declining margins and extends its runway beyond this year - postpones the inevitable
c) bet that customers wont move to amzn due to the smb's fear of amazon is a competitor and don't do anything => fire-sale next year when declining yoy payment volume shows.

I bet that we will see a) and maybe b)

On Lyft and Uberx

Just read the long comment threads behind the recent article on Uber that got HNed https://news.ycombinator.com/item?id=8165857

The true reasons behind the anger and animosity exhibited against Uber and Lyft was not clear.
People said that the ceos are a-holes that the companies abuse laws etc that all they are looking is exit strategies etc. All that is in my view irrelevant. People could make the same comments for many successful startups that have comparably arrogant characters a founders/ceos and that break all kinds of laws and rules during their assent. For one Airbnb is an obvious such example.. Still articles _on HN_ about airbnb typically bring positive reviews. (the case about calling them "slamlords" in the thread's comments is an exception... than the rule).
So whats diff between airbnb and uber.
Uber will result in the death of the taxicab profession which will involve in a significant negative effects for 100Ks (239K in US?) taxi drivers. Hotel owners (the corresponding group that is feeling the pinch from airbnb's ascent) is not a large-population profession - most hotels are large chains contrary to taxicabs that are owned and operated by individuals or SMBs.
In my view even after Uber and Lyft provided all the necessary elements (commercial insurance coverage, background checks, vehicle checks and qualification criteria) it will still be a much less costly option than taxis. The primary reason is simple
Because by today, the computer-aided driver can perform perfectly the job of a taxi-driver without any special training - so there is no reason what soever that they should be paid more than other professions that pay for in-experienced workers. If in some place in the world it costs $10/hr to hire a McDonald cashier there is no reason why a taxi driver would be getting more.  (I am excluding here any costs related to car owning/maintaining - I am assuming these can be the same for both taxi cabs as well as uber/lyft drivers (except look at secondary reason). The taxi driver is expected to be polite, reliable, and courteous. They are given the opportunity to drive in an environment they control (contrary to McDonalds). They can decide the last moment whether they want to clock in or not. They can dress up as they see fit. They are sitting in a chair (possibly listening to their own music) while the McDonalds person is standing up accepting new orders every minute. They have a less stressfull environment (having worked at a cantene as well as driven in a big city for years - I can attest that busy times at a cantene are much more stressfull. Probably the only stress for a taxi-driver is fighting or stopping in the middle of the street to grab a customer - sth that gets eliminated with the app-booking uber and lyft.
In summary in every way I see Uber and Lyft are better deals compared to other minimum hourly professions - and given that Lyft drivers are independent contractors... not Lyft employees... I would expect their hourly rate to drop below the minimum hourly rate...

The secondary reason (I am slightly less confident about this logic by the way) is that taxi-cab demand has sufficient flunctuations around peak times which imply that dedicating the resources of a person and a car full time is counter productive. This is quite known already - and the reason for the many part-timers among taxi-cab drivers. However, reusing a car that serves a different purpose the rest of the time
makes even more sense : based on any total cost of ownership - you should expect to pay 100s of dollars for a car per month (as little as $200 most probably closer to $500). If you intend to drive for a lyft just 4hrs/day - the peak times... and your time cost $10/hr + gas at $4/hr (assuming sth like a prius) (based on the primary reason above) the cost of a fully dedicated car would canother $6/hr. ($500 / 80 hrs = $6/hr) and bring it to $20. Lyft and UberX can bring the cost down by almost 30% compared to std Uber/taxi dedicated cars even after the driver's rates are brought down to minimum hourlies...


All that doesn't mean that we wont have people that drive other people for money. Most probably we will have many more than before (til the self driving vehicle comes). It means that the profession of a taxi-driver will cease to exist - just like we don't think any longer working at McDonalds as the FastFoodClerk as a profession.

Professions of the past and future

This summer, I think most people people I vacationed with must have thought I was in a generally negative zone... A common theme in arguments and discussions I had with people was that I found myself trying to prove to them that their professions - essentially their life choices, were meaningless, and were soon to become obsolete. We would get there either by starting a discussion about  our kids and their career choices or the all too common in my home country complaining about everything that is wrong around goverment.

When my sister was telling me that her job as psychiatrist is changing  into something that she would not have ever fallen in love with - as a result of a system that in its attempt to optimize is making sure that a computer-aided-nurse  is doing the general assessment a general doctor (still not computer aided) is the air-traffic controller and she is receiving a patient only when he really just needs to be drugged and she just has to put her signature on a prescription unable to attack the complete problem of the patient's well beeing - the problem that she was actually educated for with 12 years of medical studies - that gave her the tools to be a doctor for everything.... I saw that pattern repeated in all developed countries. I saw doctors becoming employees of National Health Systems or  managed health care systems, I saw an increasing part of the service they used to provide being done by people with less than a 5-yr long college education, nurses or medical technicians.  I saw an increasing part of the decision making being the result of decision support systems. I saw the need for 12 yr of medical education being both questioned and not paid for in the end. I saw the end of the time that being a doctor means a sure way to join the upper middle class.

When I was driving with one of the most well-educated best trained most-into-it limo driver I have ever met I tried to warn him that he needs to find a new profession since I see the profession of taxi drivers disapper - and with that I mean the ability for someone to make good living and support their family by being a taxi driver (and relying in the process in a regulatory environment that somehow restricts licenses to avoid over-supply and keep prices for what is potential a minimum skill profession artificially inflated.   (I am sure of the above based on my view that the  lyft uberx model - ie the model of part-timers driving normal private cars - taking on a fare - will replace taxi professionals in most countries - even in regulated markets - during the next 2-3 years)

I stopped and talked with the owner of a tourist shop, one of the hundreds lining up in the small streets of the island. We both agreed that the talent and creativity involved in selecting the collection of items in the store and designing the store is needed and is worthwhile and unique... But sitting in the store waiting as a cachier is not and will go away - first replaced with trained amateurs + cameras in stores + trained remote store managers and later with shared "street-mall-provided" cashier and self-checkout kiosks. As the actual fullfilment of the operation would become facilated by repeatable processes and systems the only part that would not would be the store-design/collection selection/pricing and collection layout, with any annual refresh. If all providers of arts and crafts and local products can be found through marketplaces like etsy etc..the actual research for that would become efficient... so would the actual renting of these stores a rental system that is still so closed that nobody knows what everyone else is paying. With an open transparent rent marketplace for the spaces... all that someone would need is some kickstarted/crowdfunding of their idea for a particular artsy store centered around olive-wood products in a greek island. The result of all that is that the value of the store-owner is reduced.. the competition would increase... the store owner in such a store would not be able to carry 70-80% margins but closer to ecommerce like ones. The artists/producers/land-owners/clients would all get a better deal the store owner/operator would be the loser.

Seeing this above I think the pattern is that the remaining professions of the future are

badly paid - good for part time/fill in doing nothing time
 - doing things that cannot be automated but require minimal knowledge/domain expertise besides 15-18yrs  (12 grades +  3-5yrs of college) of global (non-specialized) education

possibly better paid but will not survive past "singularity-like" times
 - people finding ways to automate things
 - people finding ways to replacing expensive labor for computer assisted inexpensive labor

decently paid can survive til full-singularity - will be the profession of the future
 - people creating unique things - artists of various sorts
 - people sharing their experiences - in ways that can be consumed leveraged re-lived by many others

tiny percent don't do this for the money
 - scientists finding solutions to truly hard open problems

Falling in love with problems and solutions

Just read a post, not worth sharing ... too obvious ... http://hatchery.io/how-to-validate-your-business-idea-by-testing-a-hypothesis.html .
The only thing I thought it was worthwhile keeping is sth that the article doesn't really talk about but it is in on the subtext of the subheading:
> Fall in Love with the problem, not with the solution!
The way I read this is "Unless you think you can fall in love with the problem don't start a company just because you love the solution..."

This is important for me as I am attempting to find what to do next.
I really fell in love with the problem of being able to work from anywhere...

As I am fascinated with startup ideas in the  space of home-contractors/homejoy/handibook I think I should ask myself:

Am I willing to fall in love with the problem of a worry free, time free, mindshare free home-living?
  To the extend that home-living today is forcing people to either
     + devote a good part of their lives, cleaning, pruning, fixing, painting
or  + accept to live in a rather sub-standard environment
or  + spend a ton of money in "servants" and managing servants
or  + accept a zero customization prison-cell like lack of variety (hotel, dorm etc)
  it is a problem that if not I can fall in love, I can definitely sympathize. Do I truly need to fall in love with it?

My perspective is to some extent affected by the fact that I have fallen in love with aspects of the solution:
 - I really am in love with the idea that for EVERYTHING there is a semi-automated marketplace or people or services where I can have everything ordered to be bought or ordered to be done with a search and single click
 - I really do want to prove to people that still today the majority of the professions of today DON'T make sense. They are artifacts of the past - of an era where you need a specialist in each retail store that knows where everything is and how it is called and how to price it. They are artifacts of the past - an era where  the average person couldn't practically fix everything that involves no tools by just searching an finding a youtube video for it. They are artifacts of the past - a past where you couldn't wear your google glasses and become someone else's eyes and hands and do things on their behalf.

Driving, Oil Trends

Just read this blog post
http://usa.streetsblog.org/2013/04/23/where-is-the-bottom-americans-continue-to-drive-less-and-less/
which includes some very interesting statistics about avg miles driven per capital

This almost 10% decline since 2005 together with an approx 5% increase in the avg mpg 

 based on gov figures would argue that consumer transportation gasoline usage hs dropped by 15%.

The trend will continue to accelerate. From the same gov report MPG of new vehicles has grown since 2005 by 20% !!! (from 30mpg to 36 mpg) and that is 50% higher than the avg 22mpg against used+new vehicles.

So this aggregate 15% plus decline in total gasoline use by consumers was of course burried under the 70% increase of the gasoline prices during that same period.

My projection is that the trends of decreasing oil consumption for transportation (50% of all US oil consumption is consumer (ie gasoline) transportation ) will continue and acceletate. Price increases will not be able to balance this out which will mean that the oil sector, one of the most resilient never-dying dynosaur-dominated ( rockfeller/standard oil era companies ) will be hit hard this decade.

(Note that the stock market still doesn't believe so XOM stock price just surpassed its pre 2008 crisis price reaching an all time record - almost 50% more than its price in 2005. The big sisters amount to about $1.5Trillion market cap. 

(Russia's foreign-relationship activities...etc can be better understood through this lense)

0->10B in less than 3 yrs

Zulily was founded in 2010 and now its worth 15B  (public)
Whatsapp was founded in 2009 and was sold for 16B+ 4 yrs later.
Back in 05-06 we were immensely surprised when we saw youtube, sold 1.5yrs after it was founded for 1.5B or skype that was sold for $8B 2yrs after its founding.

Today the zulily-like companies don't even make the news  (the company was close to 10B already from its IPO... almost a year ago.

We have at least two companies that grew to 100B in less than 10yrs (Google,FB).

We should expect shortly to see 10B Market Caps in less than 2 yrs, 100B in less than 5yrs and 1T (the actual singularity prediction in less than 20yrs - and google will probably be that one hitting that mark (ie 1T before it turns 20 on 9/2018).

One monkey wrench to this could be that the public stockmarket may not be able to be the place where one can find and measure the majority of  big companies..