What Is Uber Doing With All That Cash

There’s a pattern in tech IPOs where the company, preparing to go public, makes a significant acquisition which is used to direct the growth narrative.

• Facebook acquired Instagram building it’s mobile presence and signaling the start of it’s social conglomerate strategy
• Twitter acquired Bluefin to link to TV (and the advertising $ there)
• Google acquired Applied Semantics which was the core of AdSense

When a firm IPOs, it’s the first chance the wider community has to get a look at its books. The market then estimates the growth ceiling based on current operations. To build the valuation you need to show how you intend to grow the business and convince your investors that there’s still money to be made.

If you’re already valued at $62.5b that could be a tall order. No matter what the PE ratio is, people will argue that it’s too high or too low and given the low asset base, the market may struggle to find comparators and to value the stock correctly.

So what about the $11b in cash raised so far? Sure some of it has gone to expansion (in China in particular) but don’t be fooled into thinking that Uber has a growth at all costs strategy. Travis Kalanick and the executive team have seen enough companies crucified for unprofitable growth that have served as a warning to ensure that they can demonstrate solid fundamentals before they IPO. But let’s say that they have burned through 25% of that raised amount (remember, China was on track for $1b/y, 12m a go).

That leaves $8b sitting around and while it might make strategic sense to build a warchest (and thus prevent your competitors from raising it) , the market is not going to reward Uber for having cash laying around.

Which brings us back to an acquisition, the Carnegie-Mellon (self driving cars) and the Decarta (mapping software) purchases future proof and create independence for the existing product offering but neither create that growth story. I’m going to look at two options; there are lots more, like “do nothing” or “grow internally” but I want to focus on acquisitions:

1. Acquiring a competitor (Didi, Grab, Lyft, Hailo etc.)

There isn’t a lot of precedent for this pre-IPO (even Instagram was more of a complementer than a competitor to Facebook) and Uber already has a presence (or has demonstrated it is able to build on) in any market they choose. Plus you’re inviting accusations of monopolistic behavior which is one of the tools that Uber uses to attack incumbents in the market.

This becomes more plausible if you look at non-core services, like UberEATS. Uber was late to market with their food delivery product and is going to have to capture marketshare from direct competitors (Deliveroo, FoodPanda, Ele.me) as well as existing incumbents (the current home delivery system). The tech is similar and Uber doesn’t benefit from the scale of it’s other operations (at this stage) so it’s undifferentiated and late to market, not the growth story that investors want to hear.

2. Diversifying Further

When people are asked “what does Uber do besides move people?” the response is UberEATS but UberRUSH might be the one worth having a close look at. Just like food delivery, package delivery is hyper competitive but here Uber can leverage the scale of their network. They already have the liquidity of vehicles on the streets, moving people, so it makes sense to pickup and dropoff packages that are on the way.

This forms a virtuous cycle, by transporting packages and passengers you can increase utilization (more  at a lower cost because you are moving both at once. There are some elements to manage around time-criticality (I don’t want to stop for a package when I’m late for a meeting) but this can be done with price discrimination.

This also sets Uber up for a really exciting end point with the UberRUSH product. If you can nail the last mile delivery, there’s a strong incentive to vertically integrate and this is where the acquisition space gets really interesting. Imagine if Uber decides to connect all of their last mile delivery services by acquiring a logistics company. Uber keeps the local distribution centres and the international connections and divests the rest giving them end-to-end solution that delivers internationally but leverages their existing system for last mile delivery. That should allow them to significantly undercut the incumbents on pricing and they’re right back into the familiar pattern of being the disrupter but without nearly as large a regulatory overhead.

This is particularly important in markets where there is strong resistance to regulatory change. Uber can establish and grow the delivery market which provides them with a driverbase that can be quickly converted to passenger transport giving them scale much quicker than competitors in the event of regulatory change.

The other thing to like as an investor is that an end-to-end delivery solution has the potential to give Uber a much larger slice of the revenue pie. Typically Uber receives 25-30% of a passenger fare but with a delivery service they would be providing the bulk of the value and could demonstrate to the market that they are capable of capturing additional value from their product line.

What Does The Future Look Like?

Imagine it’s your birthday and your mom (in California) wants to send you cookies (in New York). She bakes them and packages them up, then she opens the UberRUSH app and in 3 minutes a driver is there to collect the box. Meanwhile at your end, you get a notification saying that there is a package from your mom that you can get delivered any time after 3pm. When the cookies get to the distribution center closest to you in New York there’s another message confirming the delivery time and asking if you’d like it delivered to your location or to somewhere specific. There’s final a notification when the vehicle is arriving outside work and less than 24 hours after they were baked, those cookies are in your hands, along with a birthday card.

That’s a growth story I’d invest in.

 

Disclaimer: I worked for Uber until April 2016. To my knowledge, there is no internal plan as described above, this is just a thought exercise by me, based on what I think Uber should do, for my own edification.

3D Printing 2.0 – Democratizing Design

So this was not the blog I imagined I’d be writing post-MBA. That’s right, it’s all done, graduation has been and gone and I’m currently reflecting on the experience and trying to write down some insights that aren’t obvious so I can share them with you and close out that chapter but… I’ve gotten side-tracked, in a good way, but it’s consuming processing power like cookie clicker when you hit the trillion cookies/sec mark in v1.035 (incidentally, if you’re OCD best you stay away from that one. It’s awesome but it’s been running on my desktop for ~20 days now and I dream of golden cookies)

I briefly mentioned it in a couple of previous posts; a new start-up idea around 3D printing (additive manufacturing is the pro term here but I like 3D printing because most people, by which I mean my parents, have an intrinsic understanding of what that is and if my parents understand it then it’s being explained right) but the more time I spent on it, the better it got. It’s ended up with me enrolling friends and family, meeting new people who love the idea or want to work in the same space and the idea has evolved so I thought now was a good time to share it a little further and get some feedback.

I’m going to go high level to start with and address the headlining topic, 3D printing is awesome, it allows you to print anything you want, out of a ton of materials (flexible and rigid plastics, metals like titanium, aluminium and gold, human cells, wood, sand), truly amazing stuff. But like any tech, there are some catches. Firstly, you’ve got to have some skills. You need to be able to CAD stuff (or at least model it in 3DS or blender or something), you also need to have access to a printer and with that you need access to some time and patience because it’s still trial and error for a lot of things. You design something, you hit the print button, you go over to the machine, you watch it build the first 3mm and then it starts drooping because your overhang is too large or your layer thickness is too fine or any number of issues. So you throw that one out, go back to your model, change the design and you try again.

This is fine for enthusiasts and tinkerers (the vast majority of the market who currently own a printer) because that’s part of the experience and you’re doing it because you love it and you’re excited about it. But for the market outside of that select group, it needs to be simpler. This is where professional groups come in who can take your model and print it for you and further to the skills requirement above, if you can’t CAD then you can contract someone who can or license prints of things that they have designed.

So this is where the market is right now, sites like shapeways, sculpteo and cubify all have these online stores where you can buy objects designed by someone else and either print them yourself or get the site to print them for you.

I like to think of these guys as 3D Printing 1.0. They’re using the technology and trying to make it available for others but they’re kind of missing the point: buying cool stuff is awesome, buying customized cool stuff is even better but the end-game here to be able to make it yourself so that what you see in your imagination is what you (or some third party fulfillment group) print.

To do this we need to talk about tools, specifically CAD. I don’t have a lot of experience with modeling tools like blender so I’m not going to say a whole lot about them but if that’s your area of expertise, tell me if it’s the same experience for you. CAD is a tool, designed for a specific job, initially allowing for the digitization of 2D drawings and then and over the years it’s evolved to become a tool for development of 3D models. It’s incredibly powerful and you can’t be an engineer without being able to CAD your ideas because that’s how people expect you to communicate them. But that really only works for us engineers. We’ve been taught to think in a particular way to make it easy for us to create 3D models using the existing system. But there’s a pretty significant barrier to entry here in terms of learning to use the software proficiently and this is a problem because that barrier is what’s stopping people outside of that early adopter/engineer/tinkerer community from adopting 3D printing.

The problem is recognized, people and companies are taking steps to try and fix it. Products like DesignSpark, Google Sketchup, TinkerCAD and AutoCAD’s 123D suite make some stuff easier or cheaper to do but we’re boxed in by who we are and the way we think. We’re engineers so we’re trying to make a better CAD program without thinking about whether it’s the right tool for the job and I’d like to argue that its not.

It comes down to a fundamental understanding of the differences between the way an engineer designs things and the way everyone else does:

1. Complexity: if you’ve got a tool that can make anything then it’s probably going to be pretty complex. For anyone but advanced users, complexity is scary, not only because there’s all this stuff there and what the hell does it do but you also create a sense of “dammit, one of these buttons probably does what I want to do with a click if only I could figure out which button to push” for the user which causes all sorts of cognitive dissonance. Don’t make the user feel stupid.
2.  The Paradox of Choice: unless you, the user, know exactly what you want then you’ll end up paralyzed by choice, both technical and design based, because the software you have will let you do everything. There’s a really interesting book called The Paradox of Choice (great overview via this TED talk) that I read recently (finishing the MBA = start working on the book backlog!) which I would highly recommend as it talks exactly about this problem and how it’s going to affect your users.
3. Attention: all of this stuff takes time and if you’re not an expert the temptation of “I wonder if someone’s already done it somewhere else?” is massive. Now your user is off to hunt through forums or 3D Warehouse for ready-made components and bam, they’re gone and so is the experience.

Advanced CAD packages are important, some people need access to that functionality because that’s what they do for a living. They need that. But the mass market doesn’t. I’m going to make another completely unsubstantiated prediction here and say that the people that are using CAD already are most of the people that are ever going to use it. You’re not going to convert the mass market to those sorts of tools because they’re not interested. They need a different tool.

So here’s where I think the 2.0 will go; web-based tools that help you build a specific product. Let’s say you’re a Dungeons and Dragons player (I know it’s a bit of a stretch but if you’re having trouble, just imagine you’re me, but shorter and less verbose) and you’re about to start a new game. There’s 5-6 of you playing, one person is the dungeon master running the campaign and the rest are players with characters. A lot of time and effort goes into creating those characters, you need to chose a race, and a class then skills and feats and equipment etc. You probably want to spend some time on the backstory too, right, so that your character has some motivation and intention behind what they are doing. So you, the young dwarven miner-warrior are the sole survivor of an orc raid on your isolated mountain quarry that left you badly wounded (I don’t know, you lost your hand or something) and you’ve sworn a blood oath to destroy the leader of the orc clan. Now in your head you can probably picture what your dwarf looks like, he’s short and bald (or maybe he has a mohawk) and he’s missing a hand and his weapon is a mining pick salvaged from the collapsed mine. Sweet.

At this point you’ve invested at least an hour, probably more. Over the course of the next 18 months you’ll play one night a week with your dwarf and he’ll become something special to you. He’ll have character flaws and adventures and will the basis for the engagement you have with the party and the game. He will be important, specifically he’ll be important to you (and to a lesser extent, to those people you play with).

But there’s one last piece before you start playing, most table top games these days use miniatures to represent characters and monsters and also include some sort of terrain around them. So off to the local gaming store you go with the picture in your head of what you dwarf (“Grum’zak”?) looks like. And you get to the store and there are all these blister packs with dwarves in them, and every friggin’ dwarf has an axe or a crossbow. There’s 20 or the little bastards and all of them are in the same stoic pose and every one is kitted out in platemail. And inside, your imagination and engagement die a little. Because you have to make do.

Now agreed the story here is pretty specific but although the details and product might change, the underlying need won’t. Whether it’s model trains, dungeons and dragons figurines or toy army men, we have a tool here, in a 3D printer, that can create exactly what we imagined. The hardware is there, all that’s needed is the software, something that’s easy enough to use that anyone can make a character in 10 minutes that looks just like they see it in their head. Computer games have been doing this for years, you can change the hair color and style but you don’t have to have spent 4 years at an engineering or design school to do it. These guys have hit the nail on the head, customizable but within limits. There’s enough variety to be unique but this is balanced against overwhelming the user with choice, hell I know guys who have bought games just for the character creation process (eg: City of Heroes).

So this is what 3D Printing 2.0 will be; giving users the ability to design and hold their product so that it’s what they imagined. As many of you will know, this is what I’ve been spending my time doing over the last couple of months, specifically for people who want to make their own characters for dungeons and dragons. If you’re interested, we’ll be starting a closed beta sometime soon so if you’re interested in participating, drop me a line.

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Authors Note: I’ve used some fairly broad strokes of the brush to describe what’s going on here. There are exceptions to the 1.0 movement I’ve laid out. For example 3D Systems bought MyRobotNation who allow you to build awesome custom robots and then there’s sites like Zazzy.me and Sandboxr who are already playing the the user created design space but in terms of where the market currently sits, I think this is a reasonably fair assessment. If that doesn’t sit well with you, let me know why in the comments.