Breaking Bad – Will Uber Blow It?

Grading Uber on Six Key Criteria for Emerging Collaborative Economy Businesses

After writing a blog post earlier this year in which I expressed enthusiasm for Uber’s business with some cautions regarding how the company needs to make friends in the world and think carefully how to disrupt the taxi/limo industry without causing excessive destruction or drawing too much flak, I was relieved to see signs that Uber might be growing up. Travis Kalanick, the company’s CEO, seemed to adopt a more thoughtful tone in high-profile interviews with Farid Zaakaria and other TV anchors, President Obama’s former campaign manager, David Plouffe, was brought on board to provide the proverbial adult supervision in its PR and lobbying activities with state and city governments, and taxi and limo associations, and the company’s business continued to grow quickly. Not so fast, Tonto.

Not only has Kalanick put his hoof in his mouth a number of times in recent weeks – notably referring to the company’s name as “Boober” to connote how easy he was finding it to attract female attention since Uber started getting worldwide attention – but we now learn that his executives and managers are taking their lead from the boss and indulging in offensive fantasies. A week or so ago, BuzzFeed reported that Emil Michael, the company’s head of bizdev, “confided that Uber might conduct ‘opposition research’ to smear critics of the company. And the list of crimes and misdemeanors goes on. The result is that a chorus of criticism has surrounded company management in recent days. Take a look at this sample, some comments being kinder than others:

“It (Uber) appears to be a company run by juveniles. .. But part of it is that there simply isn’t anybody in Silicon Valley willing to tell Uber’s principals to grow up. They have a hot company that is disrupting an outmoded industry — and, therefore, they are lionized, not matter how boorish their behavior. They are like the star football player at State U. who can get away with anything because he scores touchdowns on Saturday. Engineering talent and business savvy don’t necessarily impute maturity. .. One of the smartest things Google’s founders did was hire Eric Schmidt, a technology veteran, to be the chief executive until one founder, Larry Page, felt he was ready to run the company. Ditto for Mark Zuckerberg, Facebook’s founder, who hired Sheryl Sandberg to give the company the ballast he wasn’t ready to provide. .. Companies that never grow up tend to go the way of Groupon or MySpace, two now-faded comets. As good as Uber’s app is, there are limits to how much bad publicity it can absorb before it hurts the bottom line. .. At Uber, the inmates are running the asylum. That needs to change, while there’s still time.”

– Uber’s Rough Ride, op-ed column by Joe Nocera in NY Times, 11/22/14.

“All venture capitalists are amoral.”

– Silicon Valley forecaster Paul Saffo, suggesting why Uber’s financial backers might not discipline wayward executives (quoted in SF Chronicle, Sun 11/23/14).

“Reports of recent incidents involving Uber suggest) a troubling disregard for customers’ privacy, including the need to protect their sensitive geolocation data.”

– Sen. Al Franken, D-Minn, in a letter addressed to Uber CEO Travis Kalanick, as reported in the SF Chronicle article by Carolyn Said, 11/21/14.

“The internet relies on highly targeted ads based on massive surveillance of everything we do online. .. We’ve built a remarkably complex digital economy, and so much of our lives are being lived through it, but we haven’t let the laws catch up… What we really need are a set of consumer protection laws for the internet age.”

– Neil Richards, law professor at Washington University, author of a forthcoming book titled “Intellectual Privacy”. Richards was quoted in an SF Chronicle article by Carolyn Said,11/21/14.

When you combine these incidents and reactions with reports that Uber mounted a campaign to poach drivers from rival Lyft using street teams armed with disposable mobile phones to hide their tracks, and Kalanick’s attempts to disrupt Lyft’s fundraising by warning prospective investors that Uber would soon be seeking to raise a new round, I think it’s fair to suggest that there’s something wrong with the company’s culture. Could it turn out to be, rather like Groupon or MySpace, that Uber just fails to grow up and ends up flaming out? Could it get so stuck in its toxic attitude towards anyone who voices disagreement with the company’s behavior that it manages to persuade the world that after all we don’t really need Uber around anymore? Young companies tend to reflect the behavior and values of their founders and leaders, and Travis Kalanick does seem to have more than a chip on his shoulder. Perhaps, dare I say, even a touch of the sociopath.

Among the quotes above, the statements that I find most concerning are from Nocera. He is a long-time NYT business reporter who generally covers his subjects in an even-handed manner. To lambast Uber in the way he does here is, to say the least, notable. Alongside acknowledgements that “the Uber app is a thing of beauty”, and “What’s more, unlike many start-ups, Uber appears to be a pretty well-run company”, Nocera also observes that “the company appears to be run by juveniles”; and moreover, “As good as Uber’s app is, there are limits to how much bad publicity it can absorb before it hurts the bottom line.” Like many Uber customers, I endorse the praise for Uber’s initiative and creativity in continuing to develop a very useful service.

Back to my June post. In that article I presented some cautionary words of advice to Kalanick and his team. Here’s a brief replay. “Act like a market leader, bringing together the industry participants to agree on standards of professionalism for drivers, including training and certification. Avoid adversarial behavior toward disruptees while you are having fun disrupting an entire industry. You are the newcomers whereas these people and organizations have been making their living here for decades. Acknowledge the opportunity before you: Fragmented, inefficient industries depend on orchestrators, not dictators, to help them get through disruption. Dictating terms doesn’t work at this stage, though later on you might be permitted to operate as more of a concentrator for the revised industry. It’s crucial to find way to make a market for more than just drivers – how about taxi and limo firms, whether existing or new ones? Partner with regulators as far as is feasible. Educate drivers and companies in the benefits you bring to the industry. Keep building out your larger vision of the business, but also stick to your knitting, and keep refining your offer because barriers to entry are not so great that you will lack serious competitors. Above all, resist the nerd’s tendency to display scorn for the businesses on which you are wreaking havoc. Acts of strategic generosity will be rewarded with a more secure future for the company than if you make enemies left, right and center.”

The six sentences above that are in bold type are cautions that I want to revisit here one by one, giving the company a grade based on recent events and questionable behaviors exhibited by Kalanick and members of his organization.

1. Act like a market leader, bringing together the industry participants to agree on standards of professionalism for drivers, including training and certification. Dastardly tactics against competitors also count against you. But the company does seem to have encouraged professional standards among its contractor drivers, particularly its Uber Black limo drivers. Grade so far: D

2. Avoid adversarial behavior toward disruptees while you are having fun disrupting an entire industry. Alongside this advice, avoid the same adversarial behavior towards critics and other constituencies in the market. Grade so far: F

3. Acknowledge the opportunity before you: Fragmented, inefficient industries depend on orchestrators, not dictators, to help them get through disruption. In other words, don’t be a playground bully. Grade so far: F

4. It’s crucial to find way to make a market for more than just drivers. Uber certainly courts drivers and has made a market for many of them. But who else have they benefited in this sense? Well, one recent move has been to provide military vets with a chance to become Uber drivers, so not all is negative. But the company seems to have done very little to bring other industry participants into the fold. Grade so far: D

5. Above all, resist the nerd’s tendency to display scorn for the businesses on which you are wreaking havoc. The episodes of contemptuous behavior seem to be a recurrent issue. Grade so far: F

6. Acts of strategic generosity will be rewarded with a more secure future for the company than if you make enemies left, right and center. Right now, I can’t think of a concept more remote from Uber’s culture. Grade so far: F

Four F’s and two D’s. Hmm, let me up the ante: I smell a serious problem. Maybe the board really does need to step in and replace Kalanick with an experienced adult CEO, just as occurred at Google in the early 2000s. Kalanick may still be highly valuable as a product visionary whose external exposure might be restricted for tech conferences, maybe having his movements restricted by an ankle brace or some such device (OK, just kidding).

As I and others have noted above, Uber has a very attractive app and platform that have deservedly garnered plenty of customers around the world. It has also recently introduced a way for businesses to allow their employees to use the service via a corporate account, using its payments capabilities.

My criticisms are not, however, limited to the issues described above. I think the company’s strategy is faulty, possibly as a result of being egged on by its investors. To my mind, it’s a mistake to try to fight on every front, in an attempt to eliminate quasi-competitors such as Lyft, Sidecar and others. Their original value propositions are closer to those of the “sharing economy” than Uber’s is. Uber started off with a well-defined, professional business model as a disruptor of the limo industry, then targeted the conventional taxi business. Uber Black was a brilliant and differentiated innovation, and its Taxi and UberX (cheaper than normal taxis) services are all part of Uber’s mission to operate everywhere. But I think Uber Rides is a bridge too far into the more amateurish reaches of the collaborative economy. With such a wide range of services, I believe the company risks brand dilution even though in the short term the land-grab strategy may appear to be succeeding.

Another mistake, in my view, is related to the surge pricing – not necessarily the principle of it, but the implementation. If controlled only by the company’s “algorithms”, it can be just too punitive on passengers. Of course, you can argue, as venture capitalist (and Uber investor) Bill Gurley did in a post earlier this year, that surge pricing helps to ensure the availability of cars at all times including the most disputed times and weather conditions. But charging 300% during rush hour at 5pm on a Friday afternoon in San Francisco (which doesn’t have a serious taxi or traffic problem compared to many other cities), are you kidding!? Why not 800%? Uber says that drivers are the main beneficiaries of dynamic pricing. But since Uber still, as I understand it, takes 20% off the top, it is a key beneficiary of the surge pricing tactic. I’d be much more impressed by the company’s intentions with its pricing if they reduced their percentage as a way of showing customers that they employ surge prices for the right economic reasons. I can’t see how Uber’s cost or risk of doing business increases in line with peaks in demand. If you want to become unpopular with customers whom you have only recently attracted, try gouging them for a while and see how long that strategy benefits you.

A new controversy involving the technology on which Uber is built for Android devices, and just reported by Business Insider, states that “Uber’s Android app may be sending your private data back to the company, reports Cult of Mac’s Buster Hein. The data transfer was reportedly discovered by Joe Giron, who runs a cybersecurity firm. Cult of Mac says: ‘Digging into the app’s code, GironSec discovered the Uber app “calls home” and sends private data back to Uber. This isn’t typical app data, though. Uber is sending back users’ entire SMSLog even though the app never requests permission. It also sends call history, Wi-Fi connections used, GPS locations and every type of device ID possible. The app even checks your neighbor’s Wi-Fi and sends back info on the router’s capabilities, frequency and SSID.’ As Business Insider’s Sam Colt goes on to say, “it’s unclear what purpose this information would serve for the ridesharing company. (Read more at businessinsider.com) In my view we should wait till the smoke clears on this topic before getting too concerned. But once again, it points to the existence of real issues that may jeopardize Uber’s future growth, motivating as they do a closer look at the company’s technology and practices by politicians like Al Franken and other authorities.

To summarize, although Uber says in PR statements “Our business depends on the trust of the millions of riders and drivers who use Uber”, my biggest concern is that the company is breaking the trust of millions of customers, potential partners, regulators, politicians, and the public in general. Unfortunately, in Silicon Valley, bad behavior is not unique to Uber. Secretive, somewhat adversarial companies such as Amazon, Google and Facebook routinely violate the trust of their customers in the area of privacy, before disingenuously apologizing and hastily withdrawing the new “services” that users suddenly wake up to when they are caught with their hands in the cookie jar. But being on the fringe of the sharing economy renders trust a highly sensitive and decisive parameter for Uber’s future viability. Let’s hope that somewhere there are one or two adults who can steer Kalanick and his inmates toward the right behavior before the management team offends too many parties and the company’s lofty valuation crashes to earth. Uber’s platform is a fine innovation but the differentiation it enjoys today may be more ephemeral than they think. Remember Groupon, one of the fastest companies ever to $1bn in revenue, and now a ghost of its former self.