Thursday, June 22, 2017

"With Travis Kalanick out, we'll see the real value of Uber — and it won't be pretty"

From the Chicago Tribune, June 21:
Now that its bad-boy co-founder Travis Kalanick has resigned as Uber’s CEO, the question will be asked: Is Kalanick’s departure bad for Uber, or good for Uber?

The answer is yes.

It’s good for Uber, because the company has a better chance of shedding its reputation as a howlingly bad place to work unless you’re a young white male; and its reputation for getting its way with civic officials by breaking rules, regulations and norms. These changes, if they occur, will improve its ability to recruit talented personnel, and reduce the friction — ultimately costly — that attended its truculent entry into every new market and its continuing squeeze on its 200,000 drivers.

It’s bad for Uber, because Kalanick’s messianic sales pitch obscured the fundamental unprofitability of its business model. It’s not that the company’s humongous losses were invisible, since its venture investors undoubtedly knew the numbers and the few financial reports the privately-held company dribbled out were all written in deep red.

But Kalanick had persuaded his backers and an uncritical tech press that, trust him on this, the endgame would be glorious — after all, the company was growing incredibly fast. Uber rode his self-confidence to a putative value of $70 billion. Never mind that this valuation was based only on arithmetic, derived from the meagerness of the stake in the company purchased by the latest round of investments. In the venture world, you’re only as valuable as the last round, so the next round will tell us a lot.

Ousted as CEO by Uber’s biggest investors after a string of embarrassing controversies and scandals, Kalanick will remain an Uber director and reportedly retains a commanding share of board votes. But it will be up to someone else to define Uber for the future. The search for a new CEO is underway, and that choice will be crucial. So, too, will the filling of the numerous top jobs currently vacant, including chief operating officer and chief financial officer.

But the redefinition of Uber will have to confront reality, which is far less rosy than the myth. Kalanick promoted the impression that Uber’s current success and its world-dominating future derive from the inexorable advantages of technology. The truth is that Uber’s success is based on two unsustainable tactics: subsidizing fares and exploiting drivers.

What’s the real cost of an Uber trip? The passengers don’t know, and we don’t know. That’s because customers pay only a portion of the fares shown on their Uber smartphone apps; much, if not most, of the cost is covered by the company’s venture investors — that’s where a goodly portion of their investments has been burned up.

What happens when that well runs dry? The fares will rise, and one of Uber’s selling points — its price advantage compared to yellow-cab service — will narrow or disappear.

“Uber has not shown that it can profitably produce better taxi service under competitive conditions,” says Hubert Horan, a transportation expert who has written extensively about the company at “A battle between fragmented, poorly capitalized incumbents and Silicon Valley billionaires supplying billions in predatory subsidies is not neutral market competition.”

Can Uber continue to stick its drivers with heavy expenses? That’s doubtful. Uber forces drivers to cover their own fuel, maintenance, vehicle wear and tear, and insurance. Drivers begin to get this message after only a few months of working for Uber, at which point they discover that, net-net, they’re driving for something close to minimum wage. A company-funded study determined in 2015 that nearly half of its drivers drop out within a year....MORE
Dirty little secret: According to the company's own figures, nearly half of all Uber drivers abandon
Dirty little secret: According to the company's own figures, nearly half of all Uber drivers abandon the company within a year. (Uber)