Uber: How A $120-billion Valuation Affects Incentives, Habits and Even Your Mood?
[Written by Valentin Preobrazhenskiy, Founder and CEO of LATOKEN]
Missing a turn… sure, it can happen to everyone. Just a simple accident. But was it an accident when taxi drivers took longer routes to steal your money in the absence of Uber’s fixed fares? What about the insanely high prices of the “airport taxi mafia” in the days when no app was able to connect you with drivers from outside the airport territory?
Maybe the Uber driver’s mistakes are not a mere accident. Maybe there’s a systematic reason why local taxi apps poach qualified drivers and clients from global players.
In the last few weeks, US banks have told Uber — the world renowned peer-to-peer ridesharing company — that it could become a $120 billion enterprise if it goes public. Some venture capitalists agree with this estimation; some do not. The disagreement comes down to a single factor: the role of local ride-hailing companies, currently a huge threat to Uber’s global expansion.
Once traded at the stock exchange, Uber’s stock price could weigh in investors’ fears regarding the company’s ability to fight local competitors. Following this line of thought, if bears would push the stock price lower, Uber’s management might be forced to cut down expenses. The money that Uber would not get due to a negative sentiment in the market could pass to companies offering a brighter future. If small/mid-sized companies get access to investment in the capital market, they would get enough resources to put up fights with big players in terms of product development and labor force.
Transmission of Incentives
This is how the transmission of incentives work, reallocating resources from the capital market to the product, labor, religion, and even the marriage market. A transmission that pushes over 7.2 billion people to do something beneficial for humanity, ultimately increasing chances of survival.
The transmission of incentives has played a major role in the development of the world economy, taking the economic growth rate from 0.01% up to 3.00% in the past century.
The development of the capital market is easily comparable to the human mind and it is unique ability to predict the future, and send stimuli to our muscles to prevent us from dying.
Scottish economist Adam Smith referred to the transmission of incentives as the “invisible hand”. Two centuries later, Nobel Prize laureate Douglass North started to connect incentive structures with neurobiology.
Depression and emotional downshifting are related to our neural circuits, which are constantly adapting to the structure of incentives. Investors have the power to accelerate changes in that structure by reallocating money, time, and energy to guarantee better future uses.
By backing Uber as a project years ago, investors were also killing thousands of cab companies, changing values, and breaking the time-tested habits of taxi drivers. Many taxi drivers might have experienced a state of depression — in other words, the destruction of no longer useful neural connections in favor of a new incentive structure. However, many of them were able to put themselves together and adapt to a new market.
Old bad habits, such as grabbing you by the arm to offer you a ride, driving you in circles, or trying to cheat you on price were eliminated by simply implementing programmed fares.
This article is also a result of the transmission of incentives. The capital market gave me resources to create a product — an exchange that enhances capital market efficiency.
Let The People Decide
So perhaps Uber is burning people’s money, time, and energy while offering less benefit for the future, whereas Grab or Gett are providing more for the world.
We can find out — perhaps with your help — by placing Uber on our exchange. Then investors, who anticipate such an outcome of events, will play to lower Uber’s share price and boost Grab and Gett.
Assets traded in stock exchanges account for only a fifth of a total of $500 trillion of assets. Prices, allocation of resources, and incentives are less accurate for illiquid assets.
But there is a way to increase liquidity for private companies like Uber, real estate projects, and other traditional assets worth nearly $200 trillions. New technologies offer a unique chance to automate bureaucratic procedures behind the figures you see in your online banking.
Those same technologies can provide access to 3.5 billion people to the financial system without banks involvement.
Nowadays, everyone with an Internet connection can easily access global payment systems. This is exactly why the number of participants in the financial system will jump from about 4 to 5 billion people faster than expected only a few decades ago.
We and the financial system face the challenge of expanding the liquid asset market from $100 to $300 trillion, while increasing the number of traders and participants in the financial system by 1 billion.
Despite not being an easy challenge, it is one possible to win. Coinbase, one of the companies already contributing with solutions, has been recently valued at $8 billion. Nasdaq is starting to master blockchain technology, but don’t expect them to learn how to work with end users in the short term.
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