Uber CEO Dara Khosrowshahi | E1226

Top Insights

"We want to be the next hour company. Next hour go anywhere, next hour, get anything."

• Uber's delivery business is a $1B+ run rate per week. Their investments in Uber Eats kept the company afloat during the pandemic.
• Due to Uber's flexible model, drivers ' earning potential rises over time as they come to understand where and when they should drive to make the most money.
• Uber is driver-agnostic. They will use whatever driver (AI or Human) that best helps them move goods and people.
• Uber is no longer "addicted to discounting" in order to drive volume. They are focused on creating product-market fit by designing scalable systems.

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Guest: Dara Khosrowshahi | @dkhos

• CEO, Uber (Sept. 2017-Present)
• Board Seats: Expedia Group, Grab, Aurora

Previously:

• Expedia CEO from 2005-2017
• IAC CFO from 1998-2005
• New York Times Board of Directors (2015-2017, left when he joined Uber)
• Tripadvisor Board of Directors (-2013)

Adjusting After the Pandemic

• Wait times have gone up on Uber due to the supply-demand mismatch as more people are hailing rides

"The way I like to talk about it demand is a fast twitch muscle and supply as a slow twitch muscle, the supply of drivers and couriers always adjusts, as any market does to demand, but it just adjusts more slowly."

• Due to the mismatch, it is essentially permanent surge pricing to attract more drivers to the platform.
• Median driver earnings are $35- 40 per hour in most cities right now.
• Uber's target is 4-5 minutes on average and they are "above that right now"
• Surge pricing is incredibly important to deliver a good service and match supply and demand. In Las Vegas where surge pricing was not allowed, the reliability of the product was horrible.
• To prevent harsh customer reactions, Uber has limited surge so it doesn't go over 5-10x.
• Customers get accustomed to 'magical experiences' quickly. Now customers are not satisfied if the car does not show up in 5 minutes.

Why People Drive for Uber

"Flexibility is by far the top feature if you're a driver or courier. It's why people work on our platform."

• Drivers like to choose when, where how they want to earn.
• Drivers also are allowed to be "promiscuous" and work on multiple platforms.
• The number one reason why drivers have been hesitant to return to the platform is safety.
• Not all drivers like being independent drivers, in Dara's estimation, 10-15% would rather work full-time as employees.
• The flexibility unlocks unique working opportunities versus employee alternatives.

"If you're a barista at Peet's making coffee, you can't decide all of a sudden that you don't feel like showing up for morning rush. [You cant say,] 'on the way home, I'm going to go work at the Starbucks because it's closer to home, I'll come in whenever I want. I'll leave whenever I want...' Peet's needs you there during rush hours, at a particular store, at a particular time." - Dara Khosrowshahi

• Driver's earning potential rises over time as they come to understand where and when they should drive to make the most money.

"Essentially drivers or couriers make what they put into the system... one of the cool things about open system you essentially earn relative to your productivity as well."

Portable Benefits - Independent Contractor Plus

Key Benefits of Different Models

• Independent Contractor (IC): flexibility, directly linked to productivity
• Traditional work: safety net protection, health care coverage, etc

"To a large extent, that was what prop 22 in California was all about, which is how do you retain the best of both worlds?" - Dara

• Uber is calling the combination "IC Plus"
• In the UK there are actually 3 designations, IC, Worker, Employee
• Worker = IC, plus pension benefits, some vacation benefits, etc.
• Uber's goal is to have "portable benefits", that are not simply tied to how much time is worked on one platform, but all time worked across different contracts.
• The vast majority of drivers & couriers work far less than 40 hours a week.
• Uber has created a powerful free-market labor system where people can work by "pushing a button."
• Dara acknowledged that for some people (~10%), driving for Uber is not working as well as it should. "Usually, they're working in the wrong place, or they're working at the wrong at the wrong times, and we just have to be more prescriptive and helping them out." (example: waiting at airport for 45 minutes to eventually be assigned a 15 minute ride)

Antifragile: the UberEats business

• Prior to the pandemic, some were pushing for Uber to be a "pure-play" rideshare app and only pursue the UberBlack, where there was the highest profit margin.
• The is actually a lot of overlap in the technology and processes to manage Uber rides & UberEats.
• Jason Droege pushed heavily to keep investing in UberEats & delivery.
• In March 2021 Uber's delivery business was at a billion dollars of gross bookings (total order value) per week.
• Uber expects their "take rate" to be ~15% long-term, this is after paying couriers.

"I think people sometimes forget that the mobility business pre-COVID was profitable, and actually had 30% EBITDA margins, and was able to pay for 100% of our corporate overhead. It was really our investment in the Eats business, pre-COVID that was causing the losses." - Dara

Other bets & interesting tidbits

• Uber is offering free rides to and from vaccination appointments. They are working with the White House to make that possible.

Uber Freight

• Freight is still a very offline business (90%), with high margins for brokers who manage the relationships with truckers.
• Freight is more complex than rides & delivery because of the billing and documents involved.
• Uber’s network effect: more riders leads to more demand for drivers, more drivers leads to better, faster, cheaper service which brings more riders on to the platform etc.
• Uber Freight’s network effect will be the same: more shippers, leads to more demand for truckers, more truckers leads to better service and pricing, which allows Uber to take down the margin while helping truckers actually get paid faster, better, and improve their experiences (drive down wait times, incorporate feedback on bad actors).

Self Driving

• Uber sold off its self-driving business (ATG) to Aurora, for a ~26% stake in the Aurora. This allows Uber exposure to autonomous technology, and focus what Uber is best at which is "building networks, real-time supply, demand, pricing, and matching."
• Uber sees autonomous as complementary to humans. They are driver-agnostic. Uber will use whatever driver (AI or Human) best helps them move goods and people.

Uber Pool

• Still holds the possibility of the never-ending ride.
• Dara likes the concept of Uber pool & it fits Uber's objectives.

"The issue with pool was our company got addicted to discounting to drive volume, and didn't work hard enough, in perfecting the product to drive volume."

Uber Bus

• Uber is testing high-capacity vehicles (like sprinter vans) in Egypt to see if they can make that system work efficiently and drive costs down.
• Uber is always looking for ways to bring down the cost of getting from A to B.

Delivery Acquisitions - Becoming a Super App

• Drizly - $1.1B - Feb 2021 (alcohol delivered in 60min)
• Postmates - $2.65B - December 2020 (food, delivery, alcohol)
• Cornershop - $459M - July 2020 (Grocery shopping platform, described by Dara as the Instacart of Latin America)

Strategy

• The opportunity is all of local commerce, like prime for anything in under one hour.

"We want to be the next hour company. Next hour go anywhere, next hour, get anything."

• Uber intends to mostly grow organically but will make strategic acquisitions when they can rapidly accelerate growth.

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