Blog Ipsa Loquitur

Om Malik, in the New Yorker: Silicon Valley Has an Empathy Vacuum.

Silicon Valley’s biggest failing is not poor marketing of its products, or follow-through on promises, but, rather, the distinct lack of empathy for those whose lives are disturbed by its technological wizardry. […] If you are Amazon, you have to acknowledge that you are slowly corroding the retail sector, which employs many people in this country. If you are Airbnb, no matter how well-meaning your focus on delighting travellers, you are also going to affect hotel-industry employment.

Otto, a Bay Area startup that was recently acquired by Uber, wants to automate trucking—and recently wrapped up a 120 mile driverless delivery of 50,000 cans of beer between Fort Collins and Colorado Springs. From a technological standpoint it was a jaw-dropping achievement, accompanied by predictions of improved highway safety. From the point of view of a truck driver with a mortgage and a kid in college, it was a devastating “oh, shit” moment. That one technical breakthrough puts nearly two million long-haul trucking jobs at risk. Truck driving is one of the few decent-paying jobs that doesn’t require a college diploma. Eliminating the need for truck drivers doesn’t just affect those millions of drivers; it has a ripple effect on ancillary services like gas stations, motels, and retail outlets; an entire economic ecosystem could break down.

Malik’s argument is more nuanced and richer than “it’s the economy, stupid” and I encourage you to read it, but let’s stick to the economic bit for a second. When those two million truck drivers are all out of work, that money doesn’t just disappear. It goes into the pockets of Otto’s founders and investors, of which there are significantly less than two million. Even if the driverless trucking industry turns out to be Otto and their two hundred biggest competitors, that’s a staggering concentration of wealth in the hands of a very few.

Save Your Fork

And that doesn’t even cover the worst offenders. In 2014, Kevin Roose described a category of startups called Profitless on Purpose. His personal highlight was a startup named SpoonRocket, which delivered a sirloin and roasted cauliflower lunch to his front door in 11 minutes for $8.

But SpoonRocket doesn’t have to make money, because it’s just raised $10 million in venture capital expressly so it can keep its prices low. The metric its investors care about right now is user growth, not profits. And if, indeed, the company is selling meals for less than they cost to make, those investors are willing to fill the gap. […] They’re simply taking millions of dollars in venture capital with the hope of keeping prices low, pushing rivals out of the market, and eventually finding a way to turn a profit.

There are several worrying things about this new, profitless-on-purpose way of doing business. First is that the while some of the money used to fund money-losing start-ups comes from rich Silicon Valley investors, some large amount of it comes from public pensions, college endowments, and other, more modest sources. Lyft backer Andreessen Horowitz, for example, has gotten investments from the Imperial County, California, Employee Retirement System and the University of Michigan; the Tennessee Consolidated Retirement System invests money with SpoonRocket backer General Catalyst.

If you asked them, I’m sure that firefighters in Memphis and public schoolteachers in El Centro would have no idea that their retirement funds are being used to lower the price of my delivery lunches and rides across town. But that’s exactly what’s happening. And when these venture-backed price wars happen in dozens of high-end service sectors all at once, you have a strange cultural phenomenon in which Main Street dollars are being used to finance the lifestyles of cosmopolitan yuppies.

SpoonRocket ended up raising $13.5m in total before shutting down in March 2016. It was acquired for an undisclosed sum by another startup, iFood, which has $92m of other people’s money. Got that? The one startup that spent investors’ money to (unsuccessfully) stay afloat is now owned by the other startup with even more money.

But Wait, There’s More

Now, I like to pick on technology, and Silicon Valley and startups everywhere are a convenient punching bag; but Wal-Mart has spent decades hollowing out businesses in Middle America (and then leaving). And Barnes & Noble killed your local bookstore while Starbucks killed your local coffee shop. People who lived in your town used to own these businesses; now many of them just work in someone else’s. You don’t have to be a card-carrying Marxist to see how this could be upsetting.

I’m still trying to wrap my head around the populist support for Donald Trump, and understanding that cool apps, record stock market highs, and annual GDP growth hasn’t trickled down to Middle America seems like one important element.