Diamond News

April 9, 2019

The doses of Delusionol(tm) required to believe "this time it's different" are becoming dangerous.

Here we go again, another tech bubble is expanding like a supernova and the financial media is declaring (as it does during every bubble) "this time it's different." File Tech Bubble 2.0 under memories are getting shorter or this time is never different:

The "Uber of dog-walkers" is worth a cool $1 billion pre-IPO. Or maybe it's the AirBNB of dog-walkers, but who cares? Just as any company with no hope of profits skyrocketed once it put blockchain or crypto in its name during the cryptocurrency mania of late 2017, now calling a dead-on-arrival start-up "the Uber of...." is enough to justify a billion-dollar valuation.

A scooter-rental company in a very crowded field of never-will-be-profitable scooter start-ups is worth a cool $1 billion--but heading to a $10 billion valuation because... well, it's the Uber of scooters.

Meanwhile, Uber and Lyft will never be profitable because their market is already commoditized. Companies only generate billions of dollars of profit when they scale up within a moated sector to become a quasi-monopoly with pricing power and the ability to buy up or crush any competitors. Without a defensible quasi-monopoly, margins are low and pricing power is zero.

The truth is neither Uber nor Lyft will ever be profitable: their fixed cost structure is high, their pricing power is essentially zero and there is no way to establish a quasi-monopoly in a sector with a wide range of commoditized competing transportation options.

The cost of operating a very complex vehicle will never be near-zero, and neither...

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