Monday, 11 December 2017

Book Review: The Upstarts

I've been following the development of Uber for a long time, including writing a few posts (see here, and here, and here, and here, and here, and here, and here). I haven't followed the development of Airbnb nearly as closely (and only mentioned them once on the blog, and then only in passing), but I have used the service. So, I was interested to read The Upstarts, by Brad Stone. The subtitle is "How Uber, Airbnb, and the killer companies of the new Silicon Valley are changing the world".

In the book, Stone does an excellent job of chronicling the history of Uber, Airbnb, and to a lesser extent Lyft and the other minor players in those industries. The book covers their origin stories (both real and imagined), their growth and fights with both their competitors and regulators (especially in the U.S. and Europe), their missteps (like 'ransackgate', and Uber's failure in China), and the story so far up to about the end of 2016 (which is to be expected, from a book published in 2017). Stone seems to mostly get the inside story from the key players involved, but overall the book is more of a highlights (and/or lowlights, depending on your perspective) package than a deep dive into each company and their history. Stone himself is pretty upfront about this in the introduction:
It is not a comprehensive account of either company, since their extraordinary stories are still unfolding. It is instead a book about a pivotal moment in the century-long emergence of a technological society. It's about a crucial era during which old regimes fell, new leaders emerged, new social contracts were forged between strangers, the topography of cities changes, and the upstarts roamed the earth.
I guess we'll have to wait and see if the old regimes actually fall, or whether they just stumble a little bit and continue to be propped up by regulators. This is exemplified in the final section, where Stone asks Travis Kalanick (the CEO of Uber):
When would Uber get to profitability?
Kalanick's response was pretty evasive (teaser - you'll have to read the book to find out!).

The book has a lot to offer the student of economics, with interesting discussions about Uber's introduction of surge pricing (which I hadn't realised was introduced relatively late, in 2012), Uber's pricing experiments in Boston, the price elasticity of demand for Uber (which I've written about before here), and the impact of Uber on the value of a taxi medallion in New York (which fell by more than half between 2013 and 2016, from a starting value of US$1.2 million). I realise that all of those examples relate to Uber and I'd say that is either a fair reflection of the book or my prejudices. The chapters alternate between the stories of Uber and Airbnb, but I found the Uber story much more engaging. The Airbnb story is interesting, but it doesn't have quite the same drama or the same depth of content.

The Boston pricing experiments in particular are interesting, since they directly led to the rollout of surge pricing everywhere:
...[Uber's general manager in Boston, Michael] Pao started running experiments. For a week he held fares steady for passengers but increased payments to drivers at night. In response, more drivers held their noses and stuck around for closing hours. It turned out drivers were in fact highly elastic and motivated by fare increases. Pao then spent a second week confirming the thesis by breaking Boston's Uber drivers into two groups. Some saw surging rates at night while others did not. Again, drivers with higher fares during peak times stayed in the system longer and completed more trips.
Pao now had something that the previous unfocused tests of surge pricing hadn't yielded - conclusive math... Kalanick was convinced, and surge pricing became orthodoxy inside Uber...
Overall, if you're looking for an easy read and to understand how Uber and Airbnb became the monsters they are today, this book is a good place to start. I enjoyed it, and I'm sure you would too.

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