scott-rosenberg

The Fortune 500’s Unicorn Hedge

How much is that unicorn in the window? Forget about fearing a tech bust, writes 500 Startups’ Dave McClure (Medium) — our next bubble trouble is likely to be in the world of old-line global public companies. These firms are only beginning to realize how thoroughly their universes are changing, and how that change could cut their value. So they’re adopting what McClure calls “the Unicorn Hedge” — the strategy of buying up and assimilating billion-dollar startups, their people and their ideas. The procession of these acquisitions — Unilever and Dollar Shave Club, Walmart and Jet, GM and Cruise — shows no sign of slowing down. What’s driving such deals? The hedge is an effort to buy a little piece of the future, in case these big companies’ stake in the present gets a sudden mark-down. (The accelerating tango between BigCos and NewCos is a focus of our upcoming NewCo Shift Forum in February.)

Fortune smiles on 50 big social-change innovators. Pharma heavyweight GlaxoSmithKline tops Fortune’s second annual “Change the World” list of 50 $1 billion-or-more revenue companies leading the charge in looking beyond a profit-only mindset. The magazine says “shared-value thinking” is going mainstream: BigCos are “moving beyond often-fuzzy notions like sustainability and corporate citizenship, and instead making measurable social impact central to how they compete.” Yes, they’re doing this without sacrificing “disproportionate shareholder returns.” And a lot of them are hiring. Fortune selects its list according to an impressive methodology, yet the rankings still seem a little opaque. The list is probably most useful simply as a compendium of the wide spectrum of approaches companies are adopting, from nonprofit partnerships to corporate governance remodels to clean-tech investments. What Fortune leaves out is a sense of the fertile interplay between these mega-companies and the nimble startups and NewCo ecosystems that so often introduce the innovations the giants run with. Oh, and of course, whatever those same giants might be doing that cancels out their well-intentioned efforts.

Your Uber Ride Is Here (Sans Driver)

By scott-rosenberg

What happens to Uber’s drivers when the car drives itself? Do they just collect unemployment? CEO Travis Kalanick argues that Uber’s demand for human beings, far from evaporating, will only increase — they’ll be needed to take people where the autonomous cars can’t go, and to service the self-driving fleet (Business Insider). Meanwhile, a legal fight over the status of Uber’s drivers is entering a new phase in California, where a federal judge threw out a proposed $100 million settlement between Uber and its contractors (Quartz). That could be good news for the drivers, who are suing to be reclassified as Uber employees. (Such a change would win them benefits but potentially wreck Uber’s business model, which depends on freeing the company from owning a huge fleet and supporting a vast workforce.) Alternately, Uber could now just walk away from the settlement negotiations and gamble on winning an appeals court ruling to throw out the whole suit (Bloomberg).

To see where Uber is heading, hail a ride in Pittsburgh. Before the end of the month in that city, Uber’s souped-up Volvo SUVs will be randomly assigned to customers summoning cars on their phones (Bloomberg). And the trips will be free. For now, though, the autonomy part is still in beta; each test car comes with a backup driver at the wheel. Uber also acquired Otto, a self-driving truck startup in San Francisco founded by exiles from Google’s autonomous-car program. With Google/Alphabet, old-line auto giants like Ford and GM, NewCos like Tesla and Uber, and wild-cards like Apple all racing down the self-driving road, it’s getting crowded out there. That increases the likelihood of crack-ups along the way. It also suggests this market is neither a mirage nor a bubble.

Puncturing an Inflation Myth

By scott-rosenberg

Inflation is here — it’s just not evenly distributed. When we say “inflation is virtually flat these days,” the truth of those low numbers hides a more complex reality. Actually, plenty of prices are rising, while others are dropping (The Washington Post) — averaging out to a nearly flat decade. What’s costing more? Education. Childcare. Healthcare. Food. And of course housing. What’s costing the same or less? Cars. Furniture. Clothing. Electronic stuff. Software. And toys. As you may notice, the first list is dominated by services, the second by goods. Also: The first list is full of necessities, the second is mostly optional or luxuries. The economists who performed this study say that technological efficiencies and international trade keep whittling down the price of manufactured goods, while services don’t benefit from those cost-cutting pressures. In other words, as long as people plan to keep eating and sleeping and raising families, their cost of living will probably rise. These numbers tell us a lot about today’s political passions — and also underscore where the business opportunities lie.

Stock options for cooks and drivers, too. Startups are expanding the spectrum of ownership. At one end of this range, there’s the conventional world of corporate ownership (invest your money, get your share). At the other end lies the idealistic world of worker cooperatives. Somewhere in between you’ll find Silicon Valley’s hybrid model: share stock options with employees. Startups have traditionally used rich option packages to reward founding employees or to lure key talent. Now some NewCos in the platform economy are trying to expand that model by offering equity to their contractors (Fast Company). Josephine, the Bay Area startup that offers homemade meals from neighbors’ kitchens, plans to share 20 percent of its equity with its cooks, starting next year. And Uber competitor Juno has reserved half its shares for its drivers. Option-spreading is no panacea — worker-shareholders might find themselves facing novel conflicts (higher wages or higher profits?). But these ownership experiments are worth watching: At the least they’ll yield valuable data and map how to look for better results the next time we try to solve this problem.

Ford’s Future Is Driving Itself

By scott-rosenberg

Look, ma, no hands! What Ford’s driverless plan means. Tuesday, Ford announced it’s hitting the accelerator on a self-driving car program and aims to roll out a fleet of autonomous vehicles by 2021. (CEO Mark Fields details the plan in NewCo Shift.) Ford’s news connects three big trends in the NewCo world. First trend: Driverless cars are coming, faster than many thought, and they’re going to uproot lots of assumptions about how our businesses, cities, and lives run. Ford aims to leap straight to self-driving cars — no steering wheels, no pedals — rather than incrementally refine driver-assistance systems. The first vehicles Ford envisions will be costly, so it plans to sell to ride-hailing and sharing services initially, individuals later. (GM is a partner/investor in Lyft, but Ford has no such alliance — yet.) Second trend: Big industrial transitions like this are making BigCos like Ford return to first principles and think the way they did when they were smaller and younger. Ford CEO Mark Fields says its autonomous vehicle will have “as big an impact on society as Ford’s moving assembly line did a hundred years ago.” He frames Ford’s new plan as a refresh of the company’s populist, autos-for-everyman heritage. Ford is also increasing its Silicon Valley presence and investing in tech firms (like Velodyne, which makes distance sensors that use “lidar,” or light radar) to accelerate its self-driving program. Third trend: Ford’s move, like so much else that’s happening in business today, will speed up the handoff of decisions from people to algorithms. At the end of this road, the code that runs your car won’t only be picking routes — it will be making life-or-death choices. For a preview of that world, read up on MIT’s “moral machine” (Quartz) — a thought-experiment project that asks people how driverless cars should prioritize human lives when the cars’ brakes fail.

War is hell, and climate is war. World War III is here, and it’s not a shooting war with a foreign enemy — it’s humanity’s fight against climate change. That military language isn’t just a metaphor, writes activist-author Bill McKibben (The New Republic): The planet’s carbon-driven warming is seizing territory and causing casualties as swiftly and mercilessly as a hostile army would, and if we’re going to have any hope of stopping it, we need to launch an effort as vast, and as unified, as the one that, last century, saved the world from Hitler. What would a climate-focused version of the Second World War’s mobilization and Manhattan Project look like? Stanford researchers offer one vision (pdf). We have the technology; we need the will. The good news is, we’ve mounted this kind of all-out effort before — and it works.

Sunlight Is the Best Disinfectant For Code

By scott-rosenberg

Who will watch the algorithms? Companies today often hand decisions off to code, because code can move faster, incorporate more data, and scale better than humans. That’s great, and algorithms are frequently where innovative new players find their edge. They’re the secret sauce — and they’re typically kept secret, because the more they’re documented, the more easy it is for them to be gamed. But secret algorithms are also an open invitation to discrimination and inequity (Pacific Standard). The more we use them in fields like banking, criminal justice, or hiring and human resources, the more important it becomes to hold them accountable — to open them up so individual users can understand why they were refused that loan or job. Ever combed through the errors in your own credit report? Then you know how meaningful such auditing of algorithms and their data can be.

Apps alone don’t make cities smart. The race to wire up cities with real-time data feedback loops promises to make urban life more efficient and manageable on many levels, from transport to utilities to human services. But we should be careful not to turn this application of Internet-of-things tech into a fetish or an ideology (Boston Globe). Boston’s alliance with Waze has helped residents cope with their region’s choked roads. And it’s little wonder that cash-strapped cities might be exploring ditching municipal bus systems for Lyft and Uber (Bloomberg). But a city’s stakeholders can’t delegate tough political choices to an app. If they do, they risk roping off information that should be publicly shared, driving up the price of housing, and promoting inequality.

How to Think About Monopolies

By scott-rosenberg

The thousand faces of monopolies. Monopolies are villains because they charge “monopoly rents” — they can and often do hold purchasers hostage and jack up prices. To their owners and investors, however, monopolies can also be heroes — they make people rich (as Peter Thiel reminds us). How many of the tech-driven, city-based institutions now being built by NewCos will end up as monopolies? And should we be rooting for that — or trying to shape the rules of the game to encourage competition? For an overview of that issue, see this collection of long-form links (Redef). In the age of hyper-competitive market-winners like Amazon and sharp-elbowed platforms like Uber, antitrust law might well be outdated and ineffective. But if we want to let a thousand Ubers bloom (City Observatory), a few strategic market interventions could make all the difference. When Uber made good on its threat to pull out of Austin after the city passed regulations the company opposed, customers were upset and inconvenienced in the short run. But now, Austin has become a lab for Uber alternatives. We can’t stop innovative companies from winning new monopolies, but we can try to stop them from squashing the next round of innovation.

The rent is too damn low. Traditionally, rent is the price the owner of some scarce asset — land, an apartment, or a service no one else can provide — charges others to use the asset. But there are more creative ways of thinking about rent: You can take some commonly-owned resource, raise its price, and share the resulting income widely — as Alaska did with its oil reserves. Peter Barnes call this “virtuous rent,” and it has applications beyond public lands and natural resources. You can also imagine charging it for collectively owned digital abstractions like namespaces and other kinds of virtual real estate and goods.

What’s the True Cost of Carbon?

By scott-rosenberg

Carbon accounting passes legal muster. If we’re going to fix the climate, we have to plug it into our numbers — the statistical models and accounting books that drive decision-making in business, government, and ultimately, our lives. The Obama administration has been trying to require its agencies to include the “social cost” of carbon in all their calculations, and opponents have pushed back in the courts. Those challenges got consolidated into one big appeal, and this week, a federal appeals court upheld the White House, maintaining the rules (Bloomberg). That’s good news as we try to imagine retooling the national and global economy so it doesn’t wreck the planet — by, for example, figuring out how to transform coal jobs into solar jobs (Grist). There’ll be plenty of argument about how to price each unit of climate havoc: for 2015, the feds calculate $36 for each ton of carbon emitted. Anything is better than pretending it costs nothing at all.

Old starts to become the new young. Graying boomers at the tail ends of their careers are facing discrimination, many for the first time (Washington Post). That means more bad blood in the inter-generational grudge match between millennials and their elders, and more lost opportunities for companies that snub veteran employees — and lose their expertise. If there’s an upside here, it’s that older workers may gain more empathy for the many other kinds of discrimination so many colleagues face, and embrace diversity wholeheartedly instead of resenting it, as some do. Even if your organization believes (as Mark Zuckerberg once said) that “young people are just smarter,” and isn’t deterred by the legal or moral case against ageism, it may have to get more comfortable with hiring olds: many countries’ workforces are graying rapidly (Bloomberg). When it comes to aging, no one’s exempt.

Business is a game with rules, not immutable laws

By scott-rosenberg

We set the rules of business’s game. We can change them. As new tech and new ideas restructure our economic world, Tim O’Reilly writes, we shouldn’t just sit back and assume that the “laws of economics” will assure an optimal outcome for all. For example: Uber has designed an amazing new transportation system around the needs of consumers, business, and investors — but by failing to take into account the needs of its drivers, it’s not only making their lives harder, it’s assuring backlash down the road. The Uber world needs, among other things, drivers who can deliver good rides, and it’s not going to get them unless it treats them fairly, as stakeholders. Systems that assume humans are expendable can’t succeed in the long run: that’s a “failed rule.”

Court to FCC: If states block public internet access, you can’t stop them. A federal appeals court has just made it a lot harder for cities trying to promote municipal broadband alternatives to the cable monopolies (Washington Post). The Federal Communications Commission has tried to give these public-sector options a chance, but many states have passed laws to hold them in check, and now the courts say the states, and not the FCC, should call the shots. The ruling is more about arcane principles of federalism than the practical needs of internet users. But that won’t help people still waiting for faster speeds and better service. The FCC can still appeal the decision (Ars Technica).

Tokyo’s solution to sky-high housing costs

By scott-rosenberg

Tokyo at Night (tetedelart1855 | Flickr)

Tokyo knows something San Francisco doesn’t. Housing prices in San Francisco and other booming American cities have become ludicrously out of reach for many. Tokyo is booming too, but not the price of its housing (Vox). How’d that happen? Turns out Tokyo tends to issue a whole lot more building permits than typical American cities (Financial Times) — and increased supply keeps prices more reasonable. Both these articles blame local activists in the US for fighting development that could lower prices, and urge us to set pro-building policies nationally, as Japan does. But maybe we shouldn’t aim to cut local residents out quite so fast. Neighborhoods might embrace more construction, and help it happen more organically, if they could trust that new housing would actually bring rents down.

Doing the math on Flint’s water bill. To save $5 million, the city of Flint, Michigan, decided to switch its water supply, with well-known disastrous consequences. The total estimated bill for its error: $458 million — $58 million in direct outlays, the rest in the long-term social costs of lead poisoning via lost productivity, welfare expenses, and costs to the criminal justice system. The Columbia scholar who arrived at these numbers (The Atlantic) says he hopes such data would help decision-makers think more clearly about the costs of action vs. inaction. Typically, taking action now incurs upfront and painful costs, and that gets our attention, while the bill for inaction is easy to ignore and defer — but ends up biting back much harder. That’s a good principle to keep in mind whether you’re making choices for a city, a company, or a family.

Shorter Runways For Startups = Opportunities for BigCos

By scott-rosenberg

Deal frenzy means investors are holding back. Walmart’s acquisition of Jet.com — like Unilever’s purchase of Dollar Shave Club, and Uber’s sale of its China arm to Didi Chuxing — can be read as a sign of just how much scarcer venture capital has recently become (Wall Street Journal). Each of these operations was burning through cash, and each decided not to stick it out. Of course, the VC business is notoriously cyclical — no need to let the sound of its gears get too distracting. For anyone building a mission-driven company, the lesson here is about control. Selling to a bigger player can reward investors and employees and tack a tidy ending on a startup story. But once you hand the keys over to a new owner, the organization may wind up at a very different destination than its inspiring mission statement once mapped. Then again, big companies are getting religion around new ways to go to market — and so far this year they’re willing to pay for that privilege. Is this the start of a NewCo-BigCo trend?

Think tanks in the tank for funders. The next time you read a report from a big-name research mill, you might want to ask who paid for it. This week a New York Times series is going deep on just how broadly corporate money is shaping the studies that get published and the recommendations that get made under the esteemed scholarly logos of big think tanks. One story describes how Brookings took cash from a developer while it was promoting the company’s big San Francisco redevelopment project; another chronicles the work of an American Enterprise Institute scholar who received consulting fees from Verizon while he campaigned against net neutrality rules. These investigations aim to get your hackles up, and they should. But let’s pause before we all start chanting “Get corporate money out of our research!” We need more data, studies, and scholars taking on our intractable social problems and political logjams. If the private sector wants to pay, why not take the money — and for each new project, report where every dollar comes from? Instead of throwing out this research, let’s use real transparency to assess it, and then put it to work.

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