#uber profit

[evilroachindustrial]

Just so I can stop seeing Watcher being compared to Rooster Teeth:

Rooster Teeth had a paid subscriber model for literally their entire existence as a company.

[sillimancer]

food stamp card arrived, god bless

[gwyoi]

I need someone smarter than me and whose done the research to do a podcast episode because I very much feel like a lot of stuff we see now in the crypto and AI space are related to earlier problems in the tech industry.

[phantomrose96]

If anyone wants to know why every tech company in the world right now is clamoring for AI like drowned rats scrabbling to board a ship, I decided to make a post to explain what's happening.

(Disclaimer to start: I'm a software engineer who's been employed full time since 2018. I am not a historian nor an overconfident Youtube essayist, so this post is my working knowledge of what I see around me and the logical bridges between pieces.)

Okay anyway. The explanation starts further back than what's going on now. I'm gonna start with the year 2000. The Dot Com Bubble just spectacularly burst. The model of "we get the users first, we learn how to profit off them later" went out in a no-money-having bang (remember this, it will be relevant later). A lot of money was lost. A lot of people ended up out of a job. A lot of startup companies went under. Investors left with a sour taste in their mouth and, in general, investment in the internet stayed pretty cooled for that decade. This was, in my opinion, very good for the internet as it was an era not suffocating under the grip of mega-corporation oligarchs and was, instead, filled with Club Penguin and I Can Haz Cheezburger websites.

Then around the 2010-2012 years, a few things happened. Interest rates got low, and then lower. Facebook got huge. The iPhone took off. And suddenly there was a huge new potential market of internet users and phone-havers, and the cheap money was available to start backing new tech startup companies trying to hop on this opportunity. Companies like Uber, Netflix, and Amazon either started in this time, or hit their ramp-up in these years by shifting focus to the internet and apps.

Now, every start-up tech company dreaming of being the next big thing has one thing in common: they need to start off by getting themselves massively in debt. Because before you can turn a profit you need to first spend money on employees and spend money on equipment and spend money on data centers and spend money on advertising and spend money on scale and and and

But also, everyone wants to be on the ship for The Next Big Thing that takes off to the moon.

So there is a mutual interest between new tech companies, and venture capitalists who are willing to invest $$$ into said new tech companies. Because if the venture capitalists can identify a prize pig and get in early, that money could come back to them 100-fold or 1,000-fold. In fact it hardly matters if they invest in 10 or 20 total bust projects along the way to find that unicorn.

But also, becoming profitable takes time. And that might mean being in debt for a long long time before that rocket ship takes off to make everyone onboard a gazzilionaire.

But luckily, for tech startup bros and venture capitalists, being in debt in the 2010's was cheap, and it only got cheaper between 2010 and 2020. If people could secure loans for ~3% or 4% annual interest, well then a $100,000 loan only really costs $3,000 of interest a year to keep afloat. And if inflation is higher than that or at least similar, you're still beating the system.

So from 2010 through early 2022, times were good for tech companies. Startups could take off with massive growth, showing massive potential for something, and venture capitalists would throw infinite money at them in the hopes of pegging just one winner who will take off. And supporting the struggling investments or the long-haulers remained pretty cheap to keep funding.

You hear constantly about "Such and such app has 10-bazillion users gained over the last 10 years and has never once been profitable", yet the thing keeps chugging along because the investors backing it aren't stressed about the immediate future, and are still banking on that "eventually" when it learns how to really monetize its users and turn that profit.

The pandemic in 2020 took a magnifying-glass-in-the-sun effect to this, as EVERYTHING was forcibly turned online which pumped a ton of money and workers into tech investment. Simultaneously, money got really REALLY cheap, bottoming out with historic lows for interest rates.

Then the tide changed with the massive inflation that struck late 2021. Because this all-gas no-brakes state of things was also contributing to off-the-rails inflation (along with your standard-fare greedflation and price gouging, given the extremely convenient excuses of pandemic hardships and supply chain issues). The federal reserve whipped out interest rate hikes to try to curb this huge inflation, which is like a fire extinguisher dousing and suffocating your really-cool, actively-on-fire party where everyone else is burning but you're in the pool. And then they did this more, and then more. And the financial climate followed suit. And suddenly money was not cheap anymore, and new loans became expensive, because loans that used to compound at 2% a year are now compounding at 7 or 8% which, in the language of compounding, is a HUGE difference. A $100,000 loan at a 2% interest rate, if not repaid a single cent in 10 years, accrues to $121,899. A $100,000 loan at an 8% interest rate, if not repaid a single cent in 10 years, more than doubles to $215,892.

Now it is scary and risky to throw money at "could eventually be profitable" tech companies. Now investors are watching companies burn through their current funding and, when the companies come back asking for more, investors are tightening their coin purses instead. The bill is coming due. The free money is drying up and companies are under compounding pressure to produce a profit for their waiting investors who are now done waiting.

You get enshittification. You get quality going down and price going up. You get "now that you're a captive audience here, we're forcing ads or we're forcing subscriptions on you." Don't get me wrong, the plan was ALWAYS to monetize the users. It's just that it's come earlier than expected, with way more feet-to-the-fire than these companies were expecting. ESPECIALLY with Wall Street as the other factor in funding (public) companies, where Wall Street exhibits roughly the same temperament as a baby screaming crying upset that it's soiled its own diaper (maybe that's too mean a comparison to babies), and now companies are being put through the wringer for anything LESS than infinite growth that Wall Street demands of them.

Internal to the tech industry, you get MASSIVE wide-spread layoffs. You get an industry that used to be easy to land multiple job offers shriveling up and leaving recent graduates in a desperately awful situation where no company is hiring and the market is flooded with laid-off workers trying to get back on their feet.

Because those coin-purse-clutching investors DO love virtue-signaling efforts from companies that say "See! We're not being frivolous with your money! We only spend on the essentials." And this is true even for MASSIVE, PROFITABLE companies, because those companies' value is based on the Rich Person Feeling Graph (their stock) rather than the literal profit money. A company making a genuine gazillion dollars a year still tears through layoffs and freezes hiring and removes the free batteries from the printer room (totally not speaking from experience, surely) because the investors LOVE when you cut costs and take away employee perks. The "beer on tap, ping pong table in the common area" era of tech is drying up. And we're still unionless.

Never mind that last part.

And then in early 2023, AI (more specifically, Chat-GPT which is OpenAI's Large Language Model creation) tears its way into the tech scene with a meteor's amount of momentum. Here's Microsoft's prize pig, which it invested heavily in and is galivanting around the pig-show with, to the desperate jealousy and rapture of every other tech company and investor wishing it had that pig. And for the first time since the interest rate hikes, investors have dollar signs in their eyes, both venture capital and Wall Street alike. They're willing to restart the hose of money (even with the new risk) because this feels big enough for them to take the risk.

Now all these companies, who were in varying stages of sweating as their bill came due, or wringing their hands as their stock prices tanked, see a single glorious gold-plated rocket up out of here, the likes of which haven't been seen since the free money days. It's their ticket to buy time, and buy investors, and say "see THIS is what will wring money forth, finally, we promise, just let us show you."

To be clear, AI is NOT profitable yet. It's a money-sink. Perhaps a money-black-hole. But everyone in the space is so wowed by it that there is a wide-spread and powerful conviction that it will become profitable and earn its keep. (Let's be real, half of that profit "potential" is the promise of automating away jobs of pesky employees who peskily cost money.) It's a tech-space industrial revolution that will automate away skilled jobs, and getting in on the ground floor is the absolute best thing you can do to get your pie slice's worth.

It's the thing that will win investors back. It's the thing that will get the investment money coming in again (or, get it second-hand if the company can be the PROVIDER of something needed for AI, which other companies with venture-back will pay handsomely for). It's the thing companies are terrified of missing out on, lest it leave them utterly irrelevant in a future where not having AI-integration is like not having a mobile phone app for your company or not having a website.

So I guess to reiterate on my earlier point:

Drowned rats. Swimming to the one ship in sight.

[teachanarchy]

We Dug Into Uber's Finances. What We Found Will Shock You.

[alphacodez]

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[self-learns]

How Does Uber Make Money? Uber Business Model

Introduction: In just a few short years, Uber has revolutionized the way we think about transportation. With its innovative use of technology and disruptive business model, Uber has transformed the way people move around cities worldwide. From its humble beginnings as a ride-hailing service, Uber has become a global phenomenon, challenging traditional taxi services and establishing itself as a…

[apas-95]

Something very interesting about the framing of self-driving cars between the US and China.

In the US, companies like Uber, Lyft, or whoever, push self-driving cars with the objective of increasing their profit (but decreasing their rate of profit) by removing drivers from their cars, effectively shifting a large part of their labour costs from the driver seat to the factory.

In China, self-driving busses are designed, built, and tested with the goal of reducing the workload on bus-drivers - who, while remaining in the driver seat, now don't have to micromanage the route at all times, like using a cruise control. It is explicitly framed as a labour-saving device.

If you're interested in the socialist position on automation, there it is in practice.

[11ratsinatrenchcoat]

Real Catholics/Christians should strive to be nudists. No I will not be elaborating.

[stone-stars]

Full thread from Sam on the SAG strike and Dropout!

[ID: A thread from Sam on twitter, as follows: "A thread about the strike and Dropout production: 👇✊. I stand in complete and utter solidarity with our striking performers. I myself am SAG-AFTRA, as are others on our executive team, having come from the world of working actors. I am nothing but sympathetic to their cause and outraged by the mafia-like behavior of the major streamers and AMPTP. It is harder than ever to make a living in this industry, and that goes even for the lucky few of us who get to work on meaningful projects.

In the meanwhile… 🤑 Uber-rich CEOs and shareholders are cashing in like never before 💸 Major streamers are gambling millions on dubious projects and business models 🍾 Hollywood is hiding profits and playing the victim while drinking champagne aboard their superyachts

Dropout production is right now on hold. Because we aren't associated with the AMPTP, it's possible we may be able to reach an interim agreement with SAG that allows us to continue to produce content during the strike.

But we'll only do that, obviously, if we get the blessing of the union and the buy-in of our performers. If not, we have enough content in the can to last us a little past the end of the year.

I pride myself in that Dropout has always paid above SAG minimums. As the years go on and the company is healthier, we will strive to do even better, and then even better still. Without the talent of our performers, we are zilch. Zero. Nothing."

Attached is an instagram post from an actor reading: "The Netflix show in question is shorter than a traditional half hour. But @ collegehumor and @ dropouttv paid me MORE than that for one of their scripted series. Dropout was a brand new online platform at the time and they still managed to pay their actors more than NETFLIX for scripted short form content."

Thread continues: "Public companies don't do this for the very simple reason that they feel more indebted to their executives and shareholders than they do their workforce. It's why corporations are so often exploitative. Our industry, because our jobs are so desirable, is especially vulnerable to exploitation. Hollywood takes advantage of that by making us feel generally commoditized, cheap, and replaceable …which is ironic given just how personal our work so often is. That's why unions - and the power of collective bargaining - is so important: because public companies often won't pay their workforce any more than they're forced to.

As for me, I intend to honor my union's position that I not promote SAG productions as a performer -- even if they are produced by me. That means that I won't personally be promoting any of our shows for the time being.

Attached is a screenshot of Sam on Discord responding to the question "given the strike… what picket line chant will you be rockin'?" with "i'm a talent / CEO! me says me has got to go!"

Thread continues: "This year, instead of running a FYC campaign for Game Changer, we donated $10k to the Entertainment Community Fund in solidarity with the WGA. Today, in solidarity with SAG-AFTRA, I'm personally matching that donation with another $10,000. If you have any disposable income, I encourage you to donate as well: https://entertainmentcommunity.org. And as soon as I test negative for COVID, I'll see you on the picket line. ✊"]

[saintmachina]

These hurricanes are not an "act of God", they are not even "biblical". They are the direct result of sacrificing plants, animals, natural resources, and human lives on the altar of bottom-line profit. The uber-wealthy and influential mine the earth the exhaustion and pump the oceans full of poison and destroy the atmosphere, then have the audacity to act surprised when it results in loss of life.

I am scared for Florida and my heart is in pieces over what Helene already did to the South. But prayers and donations and even infrastructure, as essential as they are, wont change the fact that those who hold the reins of industry, politics, economics, and trade are actively killing the world.

I hope their billion dollar bunkers flood.

[socialistexan]

So, I don't want to give away too much of what I do for an actual job, but I can tell you how much of a disaster this would be because of how borked so many city's vital underground infrastructure like gas, water, and wastewater lines are.

Like, imagining a private for-profit company like Uber (which have such good track records of not trying to cut corners at every possible turn) trying to maintain underground pipe infrastructure sends fucking shivers down my spine.

One of these is going to hit an unmarked gas line trying to express deliver someone's Chipotle order and it's going to end poorly.

[senjutsunade]

Arson is forbidden. I refuse to deal with more paperwork because you had a momentary psychotic episode. Also, what new toxic concoction did you eat this time?

It is three twelve in the sage forsaken morning I have not slept I have a stomach ache and a bizarre amount of energy. Possibly the urge to commit arson as well. I genuinely cannot tell what I want in this moment.

[mostlysignssomeportents]

No, Uber's (still) not profitable

Going to Defcon this weekend? I'm giving a keynote, "An Audacious Plan to Halt the Internet's Enshittification and Throw it Into Reverse," on Saturday at 12:30pm, followed by a book signing at the No Starch Press booth at 2:30pm!

https://info.defcon.org/event/?id=50826

Bezzle (n): 1. "the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it" (JK Gabraith) 2. Uber.

Uber was, is, and always will be a bezzle. There are just intrinsic limitations to the profits available to operating a taxi fleet, even if you can misclassify your employees as contractors and steal their wages, even as you force them to bear the cost of buying and maintaining your taxis.

The magic of early Uber – when taxi rides were incredibly cheap, and there were always cars available, and drivers made generous livings behind the wheel – wasn't magic at all. It was just predatory pricing.

Uber lost $0.41 on every dollar they brought in, lighting $33b of its investors' cash on fire. Most of that money came from the Saudi royals, funneled through Softbank, who brought you such bezzles as WeWork – a boring real-estate company masquerading as a high-growth tech company, just as Uber was a boring taxi company masquerading as a tech company.

Predatory pricing used to be illegal, but Chicago School economists convinced judges to stop enforcing the law on the grounds that predatory pricing was impossible because no rational actor would choose to lose money. They (willfully) ignored the obvious possibility that a VC fund could invest in a money-losing business and use predatory pricing to convince retail investors that a pile of shit of sufficient size must have a pony under it somewhere.

This venture predation let investors – like Prince Bone Saw – cash out to suckers, leaving behind a money-losing business that had to invent ever-sweatier accounting tricks and implausible narratives to keep the suckers on the line while they blew town. A bezzle, in other words:

https://pluralistic.net/2023/05/19/fake-it-till-you-make-it/#millennial-lifestyle-subsidy

Uber is a true bezzle innovator, coming up with all kinds of fairy tales and sci-fi gimmicks to explain how they would convert their money-loser into a profitable business. They spent $2.5b on self-driving cars, producing a vehicle whose mean distance between fatal crashes was half a mile. Then they paid another company $400 million to take this self-licking ice-cream cone off their hands:

https://pluralistic.net/2022/10/09/herbies-revenge/#100-billion-here-100-billion-there-pretty-soon-youre-talking-real-money

Amazingly, self-driving cars were among the more plausible of Uber's plans. They pissed away hundreds of millions on California's Proposition 22 to institutionalize worker misclassification, only to have the rule struck down because they couldn't be bothered to draft it properly. Then they did it again in Massachusetts:

https://pluralistic.net/2022/06/15/simple-as-abc/#a-big-ask

Remember when Uber was going to plug the holes in its balance sheet with flying cars? Flying cars! Maybe they were just trying to soften us up for their IPO, where they advised investors that the only way they'd ever be profitable is if they could replace every train, bus and tram ride in the world:

https://48hills.org/2019/05/ubers-plans-include-attacking-public-transit/

Honestly, the only way that seems remotely plausible is when it's put next to flying cars for comparison. I guess we can be grateful that they never promised us jetpacks, or, you know, teleportation. Just imagine the market opportunity they could have ascribed to astral projection!

Narrative capitalism has its limits. Once Uber went public, it had to produce financial disclosures that showed the line going up, lest the bezzle come to an end. These balance-sheet tricks were as varied as they were transparent, but the financial press kept falling for them, serving as dutiful stenographers for a string of triumphant press-releases announcing Uber's long-delayed entry into the league of companies that don't lose more money every single day.

One person Uber has never fooled is Hubert Horan, a transportation analyst with decades of experience who's had Uber's number since the very start, and who has done yeoman service puncturing every one of these financial "disclosures," methodically sifting through the pile of shit to prove that there is no pony hiding in it.

In 2021, Horan showed how Uber had burned through nearly all of its cash reserves, signaling an end to its subsidy for drivers and rides, which would also inevitably end the bezzle:

https://pluralistic.net/2021/08/10/unter/#bezzle-no-more

In mid, 2022, Horan showed how the "profit" Uber trumpeted came from selling off failed companies it had acquired to other dying rideshare companies, which paid in their own grossly inflated stock:

https://pluralistic.net/2022/08/05/a-lousy-taxi/#a-giant-asterisk

At the end of 2022, Horan showed how Uber invented a made-up, nonstandard metric, called "EBITDA profitability," which allowed them to lose billions and still declare themselves to be profitable, a lie that would have been obvious if they'd reported their earnings using Generally Accepted Accounting Principles (GAAP):

https://pluralistic.net/2022/02/11/bezzlers-gonna-bezzle/#gryft

Like clockwork, Uber has just announced – once again – that it is profitable, and once again, the press has credulously repeated the claim. So once again, Horan has published one of his magisterial debunkings on Naked Capitalism:

https://www.nakedcapitalism.com/2023/08/hubert-horan-can-uber-ever-deliver-part-thirty-three-uber-isnt-really-profitable-yet-but-is-getting-closer-the-antitrust-case-against-uber.html

Uber's $394m gains this quarter come from paper gains to untradable shares in its loss-making rivals – Didi, Grab, Aurora – who swapped stock with Uber in exchange for Uber's own loss-making overseas divisions. Yes, it's that stupid: Uber holds shares in dying companies that no one wants to buy. It declared those shares to have gained value, and on that basis, reported a profit.

Truly, any big number multiplied by an imaginary number can be turned into an even bigger number.

Now, Uber also reported "margin improvements" – that is, it says that it loses less on every journey. But it didn't explain how it made those improvements. But we know how the company did it: they made rides more expensive and cut the pay to their drivers. A 2.9m ride in Manhattan is now $50 – if you get a bargain! The base price is more like $70:

https://www.wired.com/story/uber-ceo-will-always-say-his-company-sucks/

The number of Uber drivers on the road has a direct relationship to the pay Uber offers those drivers. But that pay has been steeply declining, and with it, the availability of Ubers. A couple weeks ago, I found myself at the Burbank train station unable to get an Uber at all, with the app timing out repeatedly and announcing "no drivers available."

Normally, you can get a yellow taxi at the station, but years of Uber's predatory pricing has caused a drawdown of the local taxi-fleet, so there were no taxis available at the cab-rank or by dispatch. It took me an hour to get a cab home. Uber's bezzle destroyed local taxis and local transit – and replaced them with worse taxis that cost more.

Uber won't say why its margins are improving, but it can't be coming from scale. Before the pandemic, Uber had far more rides, and worse margins. Uber has diseconomies of scale: when you lose money on every ride, adding more rides increases your losses, not your profits.

Meanwhile, Lyft – Uber's also-ran competitor – saw its margins worsen over the same period. Lyft has always been worse at lying about it finances than Uber, but it is in essentially the exact same business (right down to the drivers and cars – many drivers have both apps on their phones). So Lyft's financials offer a good peek at Uber's true earnings picture.

Lyft is actually slightly better off than Uber overall. It spent less money on expensive props for its long con – flying cars, robotaxis, scooters, overseas clones – and abandoned them before Uber did. Lyft also fired 24% of its staff at the end of 2022, which should have improved its margins by cutting its costs.

Uber pays its drivers less. Like Lyft, Uber practices algorithmic wage discrimination, Veena Dubal's term describing the illegal practice of offering workers different payouts for the same work. Uber's algorithm seeks out "pickers" who are choosy about which rides they take, and converts them to "ants" (who take every ride offered) by paying them more for the same job, until they drop all their other gigs, whereupon the algorithm cuts their pay back to the rates paid to ants:

https://pluralistic.net/2023/04/12/algorithmic-wage-discrimination/#fishers-of-men

All told, wage theft and wage cuts by Uber transferred $1b/quarter from labor to Uber's shareholders. Historically, Uber linked fares to driver pay – think of surge pricing, where Uber charged riders more for peak times and passed some of that premium onto drivers. But now Uber trumpets a custom pricing algorithm that is the inverse of its driver payment system, calculating riders' willingness to pay and repricing every ride based on how desperate they think you are.

This pricing is a per se antitrust violation of Section 2 of the Sherman Act, America's original antitrust law. That's important because Sherman 2 is one of the few antitrust laws that we never stopped enforcing, unlike the laws banning predator pricing:

https://ilr.law.uiowa.edu/sites/ilr.law.uiowa.edu/files/2023-02/Woodcock.pdf

Uber claims an 11% margin improvement. 6-7% of that comes from algorithmic price discrimination and service cutbacks, letting it take 29% of every dollar the driver earns (up from 22%). Uber CEO Dara Khosrowshahi himself says that this is as high as the take can get – over 30%, and drivers will delete the app.

Uber's food delivery service – a baling wire-and-spit Frankenstein's monster of several food apps it bought and glued together – is a loser even by the standards of the sector, which is unprofitable as a whole and experiencing an unbroken slide of declining demand.

Put it all together and you get a picture of the kind of taxi company Uber really is: one that charges more than traditional cabs, pays drivers less, and has fewer cars on the road at times of peak demand, especially in the neighborhoods that traditional taxis had always underserved. In other words, Uber has broken every one of its promises.

We replaced the "evil taxi cartel" with an "evil taxi monopolist." And it's still losing money.

Even if Lyft goes under – as seems inevitable – Uber can't attain real profitability by scooping up its passengers and drivers. When you're losing money on every ride, you just can't make it up in volume.

Image: JERRYE AND ROY KLOTZ MD (modified) https://commons.wikimedia.org/wiki/File:LA_BREA_TAR_PITS,_LOS_ANGELES.jpg

CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0/deed.en

I’m kickstarting the audiobook for “The Internet Con: How To Seize the Means of Computation,” a Big Tech disassembly manual to disenshittify the web and bring back the old, good internet. It’s a DRM-free book, which means Audible won’t carry it, so this crowdfunder is essential. Back now to get the audio, Verso hardcover and ebook:

http://seizethemeansofcomputation.org

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/08/09/accounting-gimmicks/#unter

Image: JERRYE AND ROY KLOTZ MD (modified) https://commons.wikimedia.org/wiki/File:LA_BREA_TAR_PITS,_LOS_ANGELES.jpg

CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0/deed.en

[togglesbloggle]

Why do you think tumblr will die in only a few years?

Answer with jargon: a strong correlation between recent economic shifts and chaotic choices by major tech companies is most easily explained if the 'traditional' social media platforms of 2005-2020 are mostly a zero-interest rate phenomenon.

Longer answer, with less jargon: Even though Musk's takeover is making all the headlines recently, the last year has in fact seen major shakeups at many social media platforms, so Twitter is actually part of a trend. Almost inevitably, these are cases of social media companies trying to find a way to squeeze more money out of their userbase (Reddit), cut costs dramatically (Twitter), or both. This marks a sudden departure from a much more relaxed attitude towards revenue in the Pictures Of Cats industry, where the focus was historically more on expanding the userbase to a global scale and then counting on world domination to sort of <????> and then the company would become profitable eventually.

We joke, correctly, that Tumblr has never been profitable. But the entire structure of ad-supported content curation between human users is deeply suspect as a business model; IIRC Twitter was never profitable either, and Facebook has been juicing its numbers in very shenanigany ways. Discord was actually making money on net last I checked, at least a bit, so they're not all completely in the hole. But even if you take the accounting figures at face value, none of these companies has anything like the amount of money that their cultural prominence would suggest. Instead, they're heavily fueled by investment dollars, money given by super-rich people and institutions in the expectation that fueling the growth of the company now will pay off with interest later.

So what changed?

I'm not an expert here, but I'll do my best to muddle through. The American Federal Reserve has one mandate that dominates all others (sometimes called the 'dual mandate'), and one primary tool that it uses to enforce that mandate. The goal is to maintain low (but nonzero) rates of inflation and unemployment, which in their models are deeply interlinked phenomena. The tool is 'rate hikes', or more specifically, tweaking the mandatory rate of interest that banks charge one another when making loans.

As a particular consequence of this, hiking the rate also means that bonds start paying out much better. When the rate hike goes through, that affects people who let the government borrow their personal cash- that is, people who buy bonds- as well as institutions like banks that lend to one another. A rate hike means that you, personally, can make a little extra money by letting the government borrow it for a while. The federal government of the US is a rock-solid low-risk choice for this kind of moneymaking scheme, so the federal interest rate sort of defines the 'number to beat'; to attract investors, a company has to give those investors money at a better percentage than whatever the feds are offering. Particularly since a company is a lot more likely to go out of business than the state!

To wrap this back around to the Pictures Of Cats industry: the higher the rate hike, the better your company needs to be doing (or the less risky it needs to be as an option) to attract big investment dollars. Very high rates make it very hard to convince people to invest in business activity rather than the government itself, and very low rates put moonshots and big dreams on the table, investment-wise, in a way that wouldn't otherwise be possible. Social media companies were one of these big dreams.

In the great financial crisis of 2008, the Fed took the dramatic step of reducing their rate to zero, trying to juice the economy back to life. And ever since then, they've kept it there. This has produced an unprecedented amount of funding for very crazy stuff; it's part of what has allowed so many weird new tech companies (Uber, streaming services, etc.) to get so much money, so quickly, and use that to grow to massive size without a clear model of how they're ever going to make money. This state of affairs kept going for quite a while, with no clear stopping point; that zero-interest environment has been one of the shadowy forces in the background that shaped fundamental contours and limits in how our Very Online World has grown and developed. Until COVID.

Or rather, the bounce back from COVID: we suddenly saw a massive spike in inflation and an incredibly strong labor market, as employees quit in record numbers, negotiated higher salaries, and found better work, and at the same time supply chain issues and other economy stuff caused prices to climb dramatically. Recall the Fed's 'dual mandate', to control the employment rate and inflation. This was, basically, kicking them right in the jooblies. They responded in kind, finally finally raising their rates for the first time in 15 years. For some of the people reading this, it'll be the first significant shift in their entire adult lives.

The goal, as I understand it, is to fight inflation by reducing the amount of outside investment into private companies, forcing them to hire fewer people and pay smaller salaries, ultimately drawing money out of the working economy and driving prices back down by lowering demand for everything. You get paid less, so you eat out less, and buy at cheaper restaurants when you do, so restaurants have to compete harder by lowering their prices; seems pretty dodgy to me as a theory, but it's the theory. And the first part will almost certainly work- companies are going to see less investment.

For social media companies that are still paying most of their salaries with investor dollars instead of revenues, this is especially catastrophic. Without outside investment, they're just a massive pile of expenses waiting to happen, huge yearly costs in developer salaries and server fees. This is why, all of a sudden, every social media company is suddenly making bonkers decisions. They're noticing that nobody wants to give them any more money! So they're trying to figure out how to live a lot more cheaply, to actually somehow for reals turn their giant userbases in to some kind of actual revenue stream, or both.

Tumblr is kind of the ur-example of this kind of thing, supporting a very large userbase with no coherent plan whatsoever to start paying its staff with our dollars instead of investors' dollars. When interest rates were low and Scrooge McDuck had nowhere else to hide his pile of gold coins, a crazy kid with a dream was the best alternative available to him. But now, unless something changes, he's going to notice he can just buy bonds instead, and that crazy kid can go take a hike.

That's why I think Tumblr is living on borrowed time, though I don't know how much. Like all cartoons, the economy doesn't really fall off a cliff until somebody looks down and notices they've been standing on thin air this whole time. But they always fall eventually; that's the gag.

[patrice-bergerons]

Quick FAQ on Tumblr, "Value", and the Proposed Crab Day

Motivation: I see a lot of misinformation circulating on the dash re the proposed crab day and I wanted to offer a simplified and judgement free perspective using core principles of finance.

Q: We keep being told that tumblr's been making nothing but a loss for years, and yet, if it is so unprofitable, then why is no one is shutting the website down? Is it really in need of our money if it's already owned by a multi-billion dollar corporation?

This is in fact not as much of a paradox as it appears to be because "value" in corporate finance terms is a function of present and expected future profits (adjusting for the fact that profits you expect to be earn in the near future are worth a lot more than equivalent profits expected to be earned much later in time).

This means that you can have a company or a product that is currently making a loss (i.e. costing a lot more to run than the income it generates) and it might still be worth some (or a lot of) money as long as you expect it to generate enough profits going forward. Uber for example has been making a loss for years and is still valued at billions of dollars because people think it will eventually generate a lot of profit.

Q: What does all of that mean for tumblr, specifically?

Given how unprofitable tumblr has been historically it's actually a pretty good sign that management has a plan to try and make it profitable because it means they haven't thrown in the towel yet!

But if they fail or if they decide that no matter what they do tumblr will remain unprofitable, then they wouldn't have much business incentive to keep running it. This is why participating in crab day or spending some money on tumblr in general is a good idea, if you can afford it and if tumblr is a service you would like to keep enjoying into the future. And if the answer is no to either of those questions, that's ok too--don't let anyone guilt you on this.

Even more questions-and-answers under the cut! My inbox is also open for any (good faith) questions you might have.

Q: But we all use tumblr religiously--isn't that enough?

Not quite. Tumblr's current state means that the existing userbase is not enough to make the site profitable. For that to change, either the existing userbase needs to become more profitable, or tumblr needs to get a lot more new users--or have a combination of both.

Q: Can crab day really solve all this?

Once again, not quite. A one time cash-injection is not equal to sustainable income, which is what tumblr ultimately needs. This means tumblr will still need to court potential new users and that entails some change to the design and/or the perception of the site. (I love tumblr but guys, if we are real for a second, last time I told my coworkers that, they asked me if I also had a myspace account.)

Q: So why participate then?

Because it will still help. While some change is inevitable and necessary, if we the existing users put our money where our mouth is, it would send a strong signal to management that we value the service they offer and that they should take our preferences into account in designing the site's future also. Also some cash, even if it is a one time deal,

Q: I heard people who came up with the idea are transphobic Christian fundies--do you really want to associate with people like that?

I don't. But who the blogs behind this idea, as people, are has no bearing on the merits of the idea itself.