May 19--Sometimes "disruption" isn't all it's cracked up to be.
The D-word is much beloved of Silicon Valley venture investors and gurus. It signifies the arrival of new technologies that expose long-accepted business practices as nothing but cobwebbed old habits, while pointing the way toward nirvana for consumers, workers and, yes, shareholders. The promise of a disruptive business model can be worth billions of dollars in putative investment valuation.
But the term also can mask a vacuum at the heart of the business model, a substitution of hype for content. That may be what underlies the developing fall of Theranos, the Silicon Valley purveyor of an ostensibly "disruptive" blood testing technology that has turned out to be inefficient and inaccurate.
Theranos boasted a private-market valuation of $9 billion last October when it came under the scrutiny of the Wall Street Journal, which reported that the firm had struggled to show that its technology works and suggested that it may have been misleading the public, and possibly government regulators, about the effectiveness and accuracy of its blood tests. On Wednesday, the Journal reported that Theranos has voided or issued corrections of tens of thousands of blood-test results it produced over the last two years, including many from its ostensibly revolutionary technology and some that became the basis of treatment decisions by doctors and patients. Theranos hasn't commented.
Theranos is not alone as a Silicon Valley high-flier brought low by realities on the ground. This year, Zenefits, an electronic health insurance broker for businesses, has allegedly run afoul of state insurance regulators nationwide by allowing employees to sell insurance without being licensed, while the building managers of its San Francisco office have complained about discarded alcohol containers and used condoms.
LendingClub, a publicly traded Uber-like loan broker that brings small borrower and investors together online, has suffered management turmoil and, like other online lending services, come under scrutiny from federal regulators; over the last year its market value has fallen from more than $7 billion to about $1.4 billion.
Then there's Uber itself, the ride-hailing service that still reigns among Silicon Valley "unicorns" (companies valued at more than $1 billion) with a private market valuation north of $60 billion. Uber's business model depends on flouting price- and safety regulations developed for the taxi industry, lowering prices and increasing convenience for customers, often at the expense of drivers. But it's facing intensifying pushback: Voters in Austin, Tex., recently upheld that city's mandate on background checks for Uber drivers, and drivers themselves have moved toward unionizing to combat alleged exploitation of their status as independent contractors.
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