The week began with a terribly embarrassing video of Uber CEO Travis Kalanick being a jerk to one of his drivers, and ended with a bombshell report about a secret and legally questionable program used by Uber to evade government scrutiny globally called “Greyball.” For any other company, this confluence of bad press would have seemed catastrophic. For Uber, it was just another week in February.
Uber has been engulfed in a new scandal almost every week for the past month, and every single day for the past two weeks, from allegations of a toxic, misogynistic workplace to the revelation that its self-driving cars were malfunctioning and possibly running on stolen technology.
It’s shady business — even for a business with a reputation for shadiness
Let’s be clear: Uber’s problems didn’t just materialize out of the blue this past January. Uber has been burning through capital, pissing off drivers, alienating riders, and generally wreaking havoc since its inception over six years ago.
Uber’s combative streak served it well in the beginning, when its goals were to decimate the traditional taxi industry and barnstorm its way across the globe, gobbling up market share in its relentless quest to become everyone’s de facto mode of transportation. But now the company’s chickens are coming home to roost, and Uber appears to be at a loss for what to do.
“They have dug themselves a very deep hole,” said Freada Klein Kapor, a partner at the venture capital firm Kapor Capital; she and her husband, entrepreneur Mitch Kapor, are Uber investors. “Now they have to say, ‘We really really mean it. We really really want to climb out of this hole no matter what it takes.’ Because it’s not going to be quick, it’s not going to be easy. But it is doable.”
Uber now faces battles on multiple fronts, making it difficult to devise a strategy that adequately addresses each one. And as each day passes, more and more unseemly details about Uber’s business practices emerge.
How can the company improve dangerously low morale among its employees when Susan Fowler, the former engineer who’s viral blog post ignited the investigation into systemic sexism, is now complaining that Uber has hired an outside law firm to investigate her? Uber claims the firm is reviewing Fowler’s claims, not her life, and will report to former Attorney General Eric Holder, who is reviewing Fowler’s allegations. Still, this fits a pattern for Uber, which has a history of hiring outside groups to investigate its opponents. It’s shady business — even for a business with a reputation for shadiness.
How can Uber win back disenchanted drivers when it’s simultaneously suing the city of Seattle to block the implementation of a law allowing gig economy workers to unionize? The company recently — and perhaps toothlessly — named 2017 “the year of the driver.” Yet it continues to keep fares low and resist efforts to include a tipping option in the app. Uber’s disruptive effect on the labor market in the US is still being examined, but the early data is mixed. What’s clear is that Uber isn’t being forthcoming about the quality of life it offers. The Federal Trade Commission recently found that Uber had lied to drivers in 20 cities about earnings and vehicle financing. Some drivers sleep in their cars so they can work grueling, back-to-back shifts to earn enough money to survive.
How can Uber reassure investors that it can become a profitable company when it heavily subsidizes its fares? Recent reports indicate that riders only cover around 40 percent of each trip, with Uber covering the rest. “This is critical because it suggests we’re dealing with a charity case in disguise,” Izabella Kaminsky wrote in the Financial Times last year. Uber’s currently valued at $70 billion; CEO Travis Kalanick is said to be waiting until that figure reaches an unprecedented $100 billion before going public. But venture capitalists say that in-fighting could scare away top talent, which could ultimately harm Uber’s long-term prospects.
And how can Uber win back customers when it can’t seem to shake its reputation that it cultivated from the very beginning? No matter how many times Kalanick apologizes and cries and promises to change his ways, it’s going to be hard to make people forget about all the other times he’s acted like an utter buffoon. (See: “Boob-er.”) He’s the face of the company, and while he’s certainly not the only Silicon Valley prodigy to build a multi-billion company on the ideals popularized by Atlas Shrugged author Ayn Rand — that greed, selfishness, and winning at all costs are okay as long as they’re put toward the goal of changing society — he has since become the most public face of it.
Rumors are already beginning to swirl that Ryan Graves, Uber’s first employee and its current director of global operations, will be forced out as a way to appease those clamoring for scalps in the wake of Fowler’s allegations. Uber’s first head of human resources, Renee Atwood, reported to Graves, not Kalanick, throughout her tenure, according to Recode’s Johana Bhuiyan.
But Atwood and other managers felt that Graves wasn’t “experienced enough to appropriately handle the company’s increasingly complex people operations,” Bhuiyan reports. Graves was also involved in the company’s use of “Greyball,” software used to hide its vehicles from law enforcement. An Uber spokesperson declined to comment on rumors circulating around Graves.
Some current and former Uber employees say Graves’ departure would be too little too late: they say he hasn’t been that involved in the company’s day-to-day operations for the last six months and his departure would have only a minimal impact on the company’s cultural issues. Kalanick’s resignation, on the other hand, would signal a real change. “Steve Jobs left Apple, and Apple survived,” one ex-Uber employee told me.
Barring some additional shoes dropping about Uber’s internal operations, Kalanick is likely to remain in the top spot. He fought hard to get Uber to where it is today, and that combat mentality has served him well in his battles with the taxi industry and government regulators. But because Kalanick’s pugilistic side has been front and center for so long, this softer, gentler side we’re starting to see — the crying, the apologies, the promises to seek outside help to make him a better boss — become that much harder to swallow.
"If you spend all your time fighting, sometimes you get a fighter mentality," Jason Calacanis, Inside.com founder and an investor in Uber, told CNBC this week.
Kalanick is reportedly seeking a number two executive to serve alongside him, according to The Information. How a much power is given to this second in command in Kalanick’s fiefdom will be closely examined by investors who are hoping to see real internal changes.
Bradley Tusk, a consultant who has been called “Uber’s political genius,” found fault with this article’s hypothetical premise: can Uber be saved? “It's not in a place where that's a question designed to be anything other than clickbait,” Tusk told The Verge. “The company has work to do around its management and culture but so do most tech companies. What investors ultimately care about is innovation, and between disrupting taxis, rental cars, trucks, and car ownership, there's no startup better at innovation than Uber.”
But is that what customers care about — you and me and everyone else who’s finding it harder and harder to give a company like Uber their business? Tusk had a quick answer there, too: “Uber has work to do around that, but 99 percent of decisions in ride-sharing are based on speed, not politics.” In other words, as long as Uber remains faster than the competition, it will stay on top.
If Uber can contain these scandals and keep its head down, maybe it can successfully ride out this stretch of bad news — that is if nothing else breaks that casts the company in a negative light. This is one theory that’s currently crystallizing among sources close to the company. The problem, though, is that would do nothing to address the more existential threat it faces: the ability to recruit top talent and grow as a company.
“Customers are finicky and fickle. There have been a lot of companies that have done stupid shit in the past.”
“If they can’t build an organization on par with Facebook or Google, then they’re not going to be able to make good on promises they’ve made to investors,” a former Uber engineer told The Verge. “Customers are finicky and fickle. There have been a lot of companies that have done stupid shit in the past that you think would be reprehensible, but are just not... People realize that bad stuff goes on, but it’s not necessarily everything about a company.”
Despite its revenue growth, Uber continues to hemorrhage cash. The company was on track to lose $3 billion in 2016, according to Bloomberg and others. On paper, the company is more valuable than General Motors and Twitter combined. But if the company continues to lose money, investors speculate that Uber will seek to take a larger percentage from each fare for its per-trip commission and reduce driver bonuses overall. Taken together, both of these actions would reduce drivers’ take-home pay. As noted by Uber driver-turned-blogger Harry Campbell, this is already starting to happen. So much for 2017 being the “year of the driver.”
And the eventual switch to driverless cars won’t improve things as much, according to financial documents obtained by The Information. Uber’s accountants crunched the numbers and determined that eliminating drivers completely will only increase net profits by 5 percent. That’s because the company assumes that cities will try to set the costs of autonomous trips. Uber will also have to shift its identity from a technology company to a vehicle fleet management company, with all the additional costs from maintenance and insurance that go with it. This won’t be cheap.
Of course, all that assumes that Uber has a self-driving car future. Uber currently has autonomous vehicles picking up passengers in Pittsburgh and Phoenix (and perhaps San Francisco soon enough). The allegations put forward in the lawsuit by Waymo, the Google spinoff, arguably represent the biggest threat to Uber’s long-term survival. Waymo claims that — in collusion with Otto, the self-driving truck startup started by VP of Engineering Anthony Levandowski and acquired by Uber in 2016 — conspired to steal and replicate Google’s self-driving car technology. Uber calls the allegation “baseless.”
“From Uber's perspective, it has mounting losses, has had a dearth of recent fundraising, and is facing serious allegations of an internal culture gone astray,” says Raj Rajkumar, a professor of engineering at Carnegie Mellon University, who collaborates with General Motors. “And now a lawsuit from a company with a lot of credibility and much bigger pockets.”
Rajkumar adds, “The core problems with the current business model of subsidizing drivers and riders... [will] catch up with them. The debate about their aggressive culture — where apparently there is strict emphasis on performance and deadlines, and very little on mutual respect, integrity and diversity — will further intensify. At the end of the day, the big question would become whether the board and the investors take any action.”
Waymo is bringing this suit under the Defend Trade Secrets Act, which gives plaintiffs the right to ask a court to bring an immediate, temporary restraining order against Uber’s robot car and truck experiments, as well as seize the products of the trade secret theft. That means Google could win ownership over Uber’s fleet of driverless vehicles.
The image of one of its executives in handcuffs could send Uber spiraling
Both companies could be reluctant to take things to that level, especially if it involves a long discovery process that gives the government license to poke around in their R&D operations. Still, former prosecutors and trade secret experts told Wired that Waymo could refer the case to the FBI, which could result in huge fines for Uber and possible jail time for Levandowski. The image of one of its executives in handcuffs could send Uber spiraling.
How did things get so bad? In many ways, Uber is its own worst enemy, said Brishen Rogers, a law professor at Temple University who studies the social cost of ride-sharing. “This is another example of the company disregarding very basic, foundational rules around employment and fair play in markets,” Rogers told The Verge. “It is very frustrating to see, because I think the company is genuinely innovative, but keeps getting in its own way.”
It’s hard to predict what harm all these allegations against the company will have in the long term, especially since Uber has global operations, and norms around sexual harassment that are, unfortunately, quite different in many countries. That said, the public tends to view allegations of sexual harassment and discrimination more negatively than allegations of unpaid wages or stolen trade secrets, which helps explain why Uber moved into action so quickly.
“There’s a lot of smart people there,” the former Uber engineer said. “It’s like, seriously guys? This is the kind of shit we have to deal with? We have enough problems already. Why are we fighting ourselves and causing all these problems?”