Amazon, Facebook, Google & Uber: Why predicting the future is risky business

6 thoughts on “Amazon, Facebook, Google & Uber: Why predicting the future is risky business”

  1. Practically every other day, I see investment site articles, such as this one—

    http://seekingalpha.com/article/2274323-should-amazon-be-trading-at-such-a-high-valuation

    —proclaiming that Amazon is doomed, DOOOOOMED, because it has an infinitessimal profits to earnings ratio. (In fact, another Amazon article from Seeking Alpha, entitled “The Hail Mary Phone,” just hit my inbox as I was typing this.) They’ve been saying that for YEARS now. I guess they think that if they keep on predicting Amazon’s downfall, sooner or later they’ll get to say, “HA! I told you so!”

    Funny, isn’t it, that Amazon doesn’t KNOW it’s doomed?

  2. Despite my belief I can understand 10k, the hidden footnotes and business models I am steadfastly stuck with no-fee index funds and don’t dabble in individual stocks.
    What Damodaran had done in the past and now with Uber is Well reasoned analysis based on known factors and accounting for uncertainties. It is not that he did not account for technology shifts as you say but likely did not assign more precise likelihoods for those scenarios.

    One shouldn’t be faulted for being wrong on predictions but only for making wrong assumptions ( committing bias induced errors) and failure to account for all possible scenarios with their likelihood.

    Taking the Uber argument to extreme, it is possible to argue every startup is worth $100B. If we looked at his portfolio, as he points out, it evens out.

    1. Rags

      I think that is the point. When making predictions and assumptions, we get too rigid in adopting models that we deem fit and don’t leave room for readjustment on both the up and the down side due to bigger changes. The model doesn’t account for precisely the things I was pointing out – networks and technology often change the arrangement of the business reality. Sometimes for good, sometime for bad. But whatever it is, it is really fast and unpredictable. So one has to leave room — and not have biases, as the professor himself says. I think not allowing for room for technological shifts is a bias in itself. Also, I am not saying that Uber is worth a 100 billion or whatever. I am saying is that you can’t assume, that the future is going to be precisely as one deems it to be.

  3. BUT FORESIGHT IS IN A SIMILAR WAY TRULY UNPREDICTABLE AND TO A GREATER EXTEENT UNCERTAIN IN THE CUT-THROAT COMPETITION IN THE CORPORATE BUSINESS WORLD…

  4. Om – excellent discussion and I agree w/ your observations. While there are no guarantees, the following appear to distinguish highly successful, disruptive businesses:
    1. As James Slavet of Greylock points out, the majority of “unicorns” (billion-dollar plus internet companies) are “digital transaction” businesses.
    2. These companies have also (a) succeeded in eliminating significant “frictions” (time, cost, risk, annoyances, etc.) in consumers’ lives; (b) aimed to become “indispensable” to customers; (c) excelled at key disciplines of innovation (esp. design-build-learn); and (d) maintained a passion and drive for disruption ordinarily associated w/ startups.

    These themes are touched on in http://bit.ly/1kAxPRZ, http://buff.ly/1nsX4FP and http://buff.ly/1iwapjk.
    Dr. Phil Hendrix, immr and Gigaom Research analyst (@phil_hendrix)

  5. Companies as verbs – a very interesting idea and it makes perfect sense. In each of the highlighted cases Google, Facebook and Uber the foundational company purpose was to transform the end user experience – for Google: as a means of search – for Facebook as a way to connect – for Uber as a way to get there. These are everyday things we consumers do: search, connect and go. These companies started in the right place – understanding consumer paths: to knowledge to relationships to just getting places. This ability to re-think a way to solve these core needs in a way completely in sync with consumers end goals, well I think this is what separates these three companies from the pack. This philosophy of starting with the customer and their needs would serve the mobile payments industry well where the majority focus on payment when all a shopper wants to do is shop. They’re trying to solve the wrong problem.

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