Will Tesla's Elon Musk Kill Uber? Thinking Demand-side Economics This Week

Leading up to the BIA/Kelsey NOW Conference, which will debut in San Francisco this June, we’re kicking off a regular series of blog postings on the Local On-Demand Economy (see our white paper). Twice per week, we’ll wrap notable news, fundings and executive moves in the LODE world.

(Click below for full stories)

Does Elon Musk’s Future Include a Place for Uber?
Uber may be the “greatest job creator” in the world right now, adding 50,000 drivers a month since the beginning of the year. But consider Tesla Founder & CEO Elon Musk’s vision of a world without drivers. In an interview at an NVIDIA conference this week, Musk said: “”In the distant future, I think people may outlaw driving cars because it’s too dangerous. You can’t have a person driving a two-ton death machine.” He predicts driving will eventually be illegal.

Bus rides, by contrast, may not be good LODE targets
Leap Transit launched its high-end bus service in San Francisco this week. A roughly 15-minute ride costs $6 and includes coffee, wi-fi and techie luxuries including an onboard concierge of sorts, according to this entertaining article from The Atlantic’s CityLab. This very unLODE model requires a steep capital investment in buses that appear to include reclaimed wood walls and Starbucks-like seating.

FundBox tackles the accounts receivable space
Accounts receivables delays cost small business significant lost opportunity the longer they drag on. If they can get paid faster, the revenue can be redeployed for growth, marketing and other purposes. FundBox, a San Francisco startup announced a $17.5 million round of financing from Khosla Ventures, Ron Conway’s SV Angel and other individual investors, to address this painful business problem.

Meanwhile, is syndication working magic for BuzzFeed?
At South by SouthWest in Austin, Texas, this week BuzzFeed founder Johan Peretti explained that he has effectively outsourced his site hosting to social networks where his company’s content is shared by users. While BuzzFeed.com attracts approximately 200 million users each month, its syndication network, which includes Facebook and Twitter, generates 18.5 billion impressions a month.

FULL STORIES

Does Elon Musk’s Future Include a Place for Uber?

Uber may be the “greatest job creator” in the world right now, adding 50,000 drivers a month since the beginning of the year. But consider Tesla Founder & CEO Elon Musk’s vision of a world without drivers. In an interview at an NVIDIA conference this week, Musk said: “”In the distant future, I think people may outlaw driving cars because it’s too dangerous. You can’t have a person driving a two-ton death machine.” He predicts driving will eventually be illegal.

That would be a problem for Uber, which depends on its growing legion of drivers to volunteer their cars for service. In fact, if the drivers weren’t willing to share their cars, in addition to shouldering the cost of buying and maintaining the vehicles, Uber’s model would collapse. The company doesn’t carry a fleet cost, which has made it possible to share 80 percent of revenue with drivers, who appear to be flocking to the opportunity to make some extra cash. Operating as a market maker in exchange for a 20-percent share of revenue is a diabolically good business model.

Should Musk’s vision come to pass — it strikes us as a challenge to his own company’s driver-centric marketing and just a very bad attitude about what a person should do with a two-ton death machine — would Uber vanish?

It’s a compelling thought problem in Local On-Demand Economics, because the answer may not be a simple “No.” Rather, in the autonomous vehicle era it is possible that a car owner could literally send their car to work for them while they stay home, or just ride along to collect the fees and talk with riders. We don’t predict this will come to pass any time in the foreseeable future, but it does suggest that companies that facilitate demand-aggregation may be immune to some forms of obsolescence. Whether individuals volunteered their cars or another firm stepped up to provide the fleet while Uber continued to provide riders, there is a clearly defensible position for demand aggregators in local markets.

Bus rides, by contrast, may not be good LODE targets

Leap Transit launched its high-end bus service in San Francisco this week. A roughly 15-minute ride costs $6 and includes coffee, wi-fi and techie luxuries including an onboard concierge of sorts, according to this entertaining article from The Atlantic’s CityLab.

This very unLODE model requires a steep capital investment in buses that appear to include reclaimed wood walls and Starbucks-like seating. The Leap bus runs a relatively fixed route rather than responding to demand where it is occurs. Moreover, Leap seems to have added human labor costs to the bus-riding equation, since each bus requires a driver and a staffer who helps people find their seats, connect with the wi-fi network and serve or sell coffee and juice on the 15-minute ride.

What do you think? Is bus service susceptible to demand aggregation? We’ll be polling the audience at BIA/Kelsey’s NOW Conference on the topic. Add your thoughts in comments.

FundBox tackles the accounts receivable space

Accounts receivables delays cost small business significant lost opportunity the longer they drag on. If they can get paid faster, the revenue can be redeployed for growth, marketing and other purposes. FundBox, a San Francisco startup announced a $17.5 million round of financing from Khosla Ventures, Ron Conway’s SV Angel and other individual investors, to address this painful business problem.

FundBox’s business is a familiar one, to which the company has added some “big data” analysis. Many traditional lenders finance AR balances and new competitors will certainly emerge. The company analyzes SMB creditworthiness by examining census and business data before deciding to provide financing. This reduces FundBox’s risk and increases the likelihood it will collect most or all of the debts acquired. Example fees on FundBox’s site range from five percent to seven percent, roughly 2.5- to four-times credit card fees — Fundbox fees are inclusive of bank transfer fees to the SMB’s account, but do not offset credit card or other fees the merchant may have paid at the time the AR balance was generated by a transaction.

As noted above, taking a 20 percent carry on demand aggregation is a great business. FundBox’s approach bears a stronger resemblance to the short-term consumer loan industry.

BIA/Kelsey believes accounts receivable financing will ultimately become a thing of the past as the “logistical last-mile” is built out over the next decade. Instead of existing as separate services from the transaction processing system supporting an SMB, AR will be optimized out of demand-side businesses with improved processes. In the short-term, however, FundBox will do big business and have the opportunity to build business relationships that allow its financing engine to be integrated into new local, regional and national services.

Meanwhile, is syndication working magic for BuzzFeed?

At South by SouthWest in Austin, Texas, this week BuzzFeed founder Johan Peretti explained that he has effectively outsourced his site hosting to social networks where his company’s content is shared by users. While BuzzFeed.com attracts approximately 200 million users each month, its syndication network, which includes Facebook and Twitter, generates 18.5 billion impressions a month. However, Peretti said, none of that additional traffic is currently monetized. Instead, it provides new traffic to BuzzFeed, where ad impressions yield his company’s revenue.

“Our goal is to be indifferent to how people find our content and where they find it,” Peretti said in a session called “Lessons from BuzzFeed.”

For those of you counting, the traffic converting to BuzzFeed.com from its syndication reach is approximately 1.08 percent of the total impressions the company’s content generates.

The next step, Peretti said, is to incorporate “native advertising” in the content feeds, taking payment for placement in the syndication stream BuzzFeed produces. Reach is critical to spreading messages, which is critical for marketers to understand, but segmentation and engagement at that scale will be controlled by the social networks.

“Native ads” could be screened by social networks in the future, allowing only editorially vetted articles through to users. BuzzFeed’s business model will be judged in the crucible of its business development efforts, in which it has far less leverage than its syndicators. Better filters and personalization tools for consumers may obsolete the reach-at-all-costs model.