In my life as a professional prognosticator, I have been wrong more often than not.
There was a time when I thought Qwest was going to be the 800 pound gorilla of telecom because they had bet big on IP. Oops! They were a scam wrapped in a scandal. There was that time when I thought Hulu was a clown company. Yup, in the end I was the clown. And not to mention that time when I thought Facebook should sell to Yahoo (s YHOO) for $1 billion. Mark Zuckerberg doesn’t have to smirk at me every time I visit his sprawling campus for me to know that I was wrong — the Facebook stock price does a good job of hitting my hubris in the plexus on a daily basis.
And the worst misreading of the future just might have been my initial take on Amazon, which has gone from being a book seller to the Frankengodzilla of technology, retail and consumerism. It once just sold books, and last night it turned its storefront into an app on a phone.
The point I am trying to make is that making predictions about the future is a risky business and we are as likely to be right as we are to be wrong. And the reason for that is because we don’t know how human behavior will change or morph in the future. This is especially true when it comes to technologies, and how we use them. Ten years ago who would have thought that the i (for internet) would be more important than the phone in an iPhone?
This line of thinking was brought on by an article by Professor Aswath Damodaran, one of the smartest academics and great minds of finance who teaches at New York University. He argued this week that Uber isn’t worth $17 billion. (It’s actually $18.4 billion!) As a long time reader of his blog, I knew this would be a logical, well crafted and mathematically sound argument. He didn’t disappoint, making a compelling case about why Uber is too richly valued at $17 billion. It is hard to argue with his logical arguments, but he was less than optimistic about Facebook as well.
Ten years ago, Prof. Damodaran was also pessimistic (but equally logical) about Google, and telling Money magazine it was worth less than $15 billion. At that time, he estimated that Google would generate a total of nearly $48 billion in cash over its lifetime. As of March 31, 2014, Google had about $59.38 billion in cash, cash equivalents, and marketable securities.
In the case of these three companies, I do believe that the learned professor’s magical and astute formulas need room for something that can be hard to quantify. Back in the day when I was a pup of a reporter, I talked to him a couple of times. Later, like many others who covered companies for a financial newswire, I picked up his book, Damodaran on Valuation. It is a great book, but it doesn’t account for the recent changes in our world.
Today we live with new realities and new technology companies, which end up with opportunities and growth curves that can’t be predicted (in either direction.) A lot of traditional metrics of business don’t account for the changed metabolism and velocity of business due to presence of the network and, more lately, the concept of anywhere computing.
Google (s GOOG), Facebook (s FB) and Uber are good examples. They are three companies that are essentially internet verbs. Many companies that become verbs actually end up modifying our behaviors and companies that modify behaviors end up becoming behemoths. In the industrial economy, behavior modification of society came from being able to make physical goods at scale in an efficient and cheap manner. (Xerox used to be that company, a combination of the digital and the physical that became a verb but in the end petered out, so there is that.)
In the digital realm, companies are free from the friction of producing physical goods and as a result we see companies like Google go from zero dollars in revenues to billions at a much faster rate. The increase in the number of network endpoints — computers, phones, tablets, televisions, cars, drones, whatever — only increases the speed with which companies can find scale (if they can modify behaviors.)
Google did a good job of transforming itself from being a nice-and-clean search engine to essentially augmenting the brain, prompting Nicholas Carr to ask the question is Google making us stupid? Facebook has gone from a nice-and-boring social network to becoming an identity layer of the web. It is where nearly a billion people are depositing the artifacts of civilization in the 21st century — photos, videos and birthday wishes. Uber, too, is doing something similar — it has become a verb and is becoming a replacement for our idea of transportation.
Google benefitted from the emergence of broadband networks that allowed us to search more often and more easily. It also in the process changed the idea of online advertising from banners to more effective (and lucrative) textual advertising. Facebook benefitted from the emergence of even faster always-on networks, both wireless and wired. It allowed us to instantly become stars of our own reality shows. It too figured out a new kind of advertising potion (native advertising) and has surprised everyone.
And Uber is also benefitting from society’s shift to anywhere computing. Google became a giant because it had the most amount of data about the web and what people wanted. It used that data and created a flywheel made of the data equivalent of flypaper. Facebook, did the same, except it mapped our relationships. Both Google and Facebook didn’t start out as data-driven, but over the time have become (or tried to become) more predictive about their user’s needs.
Uber, which today is essentially using gonzo-marketing tactics and arbitraging the inefficiencies to corner the market, is also starting to accumulate data about behaviors of Uber users to eventually predict supply and demand, and one day could become so personalized that it becomes a replacement for owning a car. When getting a car to go somewhere becomes as simple as pushing a button your screen and getting someone to drive you somewhere in less time it takes to go to the parking lot, you know the very idea of transportation is going to be challenged.
Of course, it could all go horribly wrong. Legislation, radical new technologies or simply shifts in economic conditions could puncture Uber’s dreams. Drivers could decide that Uber isn’t for then and opt for another option. The quality of its ad-hoc work force (the drivers) is another big challenge for the company that upset the apple cart. Or that the senior management gets so carried away with its current playbook and doesn’t embrace the data religion.
No one knows — including me — what the future holds for Uber. As someone who has been wrong often, I can tell you one thing for sure: hindsight reminds you of your follies every day.
The good professor, in response to my tweets from last night, tweeted this:
@om I am wrong 100% of the time . I am just glad that it is not always in the same direction. Mistakes average out, bias does not.
— Aswath Damodaran (@AswathDamodaran) June 19, 2014
I will remember that for my future prognostications.
And if you’re keeping score, here are my previous articles on Uber and how it is evolving: