Tech-Away Points - Uber

What is it?

Uber is an app-based taxi service which lets users’ book and track taxis from their smartphone and combines this with the convenience of being able to pay for the journey directly from the app. Launched as ‘UberCab’ in San Francisco in 2009, Uber is now available in over 60 countries and 400 cities worldwide.

What’s the story?          

UberCab was founded by Garrett Camp in San Francisco in 2009. Prior to founding UberCab, Garrett co-founded ‘Stumble Upon’ - a website that allowed users to discover and rate web pages, photos and videos which Garrett sold to eBay for $75m in 2007.

Whilst working through his earnout period, a young and single Garrett would spend his nights out in San Fran and his days recovering. This combination would provide the inspiration for Uber:

• Nights Out – Garrett would experience the nightmare of trying to hail a cab whilst out in San Francisco, a major city where there are only 1,500 licensed taxicabs.
• Days Recovering – During a day recovering and watching James Bond - Casino Royale, Garrett was inspired by a scene where James Bond hails his self-driving car using his phone and tracks its journey to him on his phone. [Tech Away Point - Yep, Casino Royale inspired Uber]. 

Introducing Travis Kalanick – The man who would be CEO.

Born in August 1976, Travis is a serial tech entrepreneur who co-founded a peer-to-peer file sharing service called Scour (think Napstar but for video), and later RedSwoosh a peer-to-peer content delivery network, which he sold to Akamai Technologies in a $23m deal.

For character context, Travis compares himself to 'The Wolf' from Pulp Fiction, a mafia style character renowned for being ‘the fixer’ and a model of efficiency under pressure. When you reflect on the lawsuits Travis weathered during his early ventures, this nickname isn’t too wide of the mark. Two stand out lawsuits being:

1. Travis and his start up Scour were sued by the legendary Michael Ovitz (co-founder of Creative Artist Agency ‘CAA’ and later a president at the Walt Disney company) to let him invest in Scour after the exclusivity period had expired.  Yes, you read that right. Travis was sued, to accept investment from Ovitz - which he would later accept. 
2. Travis and Scour were sued by the Motion Picture Association of America for – wait for it - $250bn for ‘massive violations of the movie studios copyrights’. The suit was settled out of court for $1M cash as, under increasing pressure from all sides, Scour filed for Chapter 11 bankruptcy protection. In addition, the Motion Picture Association of America did not want copyright law to be decided in a bankruptcy court case that takes just two weeks.

So you can imagine the kind of character it takes to build technologies on the edge of what is legal and who is able to weather massive lawsuits from the of the biggest personalities / companies in the world. All in his twenties..... That character my friends is Travis Kalanick. That my friends is ‘the Wolf!’

Revolutionaries Gather To Plot The Future.

It isn’t surprising that the first time we come across Travis in the Uber story, is set in a swanky, private apartment that Travis has put on for his friends in Paris during the LeWeb tech conference (a conference described as ‘the place where revolutionaries gather to plot the future’).  

It is during this time that Garrett shares his idea for UberCabs with Travis. As Garrett would later share “I knew such a big idea would take a lot of guts, and Travis impressed me as someone who had that.”

Guts Kalanick may have had, but the energy to build another tech start-up, he did not. As Kalanick recalled “I had gone through eight years of real hard entrepreneuring. I was burned. So, I just wasn’t ready yet.” 

So, Garrett returned home, ready to go it alone and purchased the domain UberCab.com to move the project forward. That being said, Garrett never gave up on bringing Travis into the fold and in 2009, Travis relented and joined as an early investor, taking the title of UberCab’s ‘Chief Incubator’. 

Travis’ first involvement was to lead the process of making Uber’s first hire – a business development manager who could build their network of taxi drivers in San Francisco. A project delivered in true Travis style via his now infamous tweet:

“Looking 4 entrepreneurial product mgr/biz-dev killer 4 a location based service.. pre-launch, BIG equity, big peeps involved--ANY TIPS??” Jan 6, 2010. 

As chance would have it a business development exec at foursquare, Ryan Greaves would read Kalanick's tweet and respond:

“Heres a tip. email me :) ” and included his email address. 

This tweet would lead to Ryan Graves becoming Uber’s first employee and five years later, an Uber billionaire. With the team in place, Uber completed a seed round of $1.25 million led by First Round Capital and got to work. 

UberCabs launched in May 2010 and proved an instant hit with users. Connecting riders with drivers through their smartphones changed the taxi industry and so it wasn’t long, literally months, before Uber started to put pressure on the traditional taxi industry, who in turn put pressure on state regulators to clamp down on UberCabs. 

The Wolf Leads The Pack

Ryan Graves - the ‘product manager / business dev killer’, became Uber’s first CEO in August 2010 however, this would prove to be short lived. In October 2010, after pressure from the cab industry, Uber’s offices were raided by City regulators with a cease and desist order and (rumour has it) a photo in hand of Ryan Graves – a wanted man.

Fortunately for Ryan - he, Travis and Garrett were at a board meeting with First Round Capital, so were not present at the time of the raid, but this moment marked a turning point for Travis. With the pressure and legal action cranked up, Travis felt the urge to fight back. This was his calling. His “Homecoming” as he would later describe it. And so, in December 2010, Ryan Greaves moved to head of operations and Travis Kalanick became CEO. The Wolf was back. 

One of the main issues cited in the action by regulators was the use of the word “cab” in UberCab’s name. In response, the start-up dropped ‘Cab’ from the name and ‘Uber’ was born.

Uber’s Growth

• July 2010 – The first uber ride is booked in San Francisco.
• December 2011 – Uber launches in Paris, ahead of the LeWeb conference, where Garrett and Travis first discussed the concept.
• April 2014 – Uber available in 100 cities.
• April 2015 – Company launches UberEats in Chicago, LA and New York.
• December 2015 – Uber surpasses 1 billion trips.
• December 2016 – Available in over 500 cities
• May 2017 – Surpass 5 billion trips
• June 2018 – Surpass 10 billion trips
• May 2019 – Uber completes IPO on the New York Stock Exchange

Controversies

Of all the companies I have researched, Uber (by some distance) holds the record for the number of controversies. These include:

• In 2013, Uber was also embroiled in a class-action lawsuit filed by 35,000 company drivers who claimed their independent contractor status was unfair. The drivers sought full employment and the better wages and benefits. The suit was settled out of court, with Uber drivers still deemed to be contractors, although the company agreed to boost pay and perks on the job.
• In 2014, Kalanick drew criticism for calling the Company "Boob-er" in an interview with GQ magazine, making a wise crack about how the success of the company had helped him to get ‘women on demand’. 
• In 2014, a 26-year-old woman in New Delhi, India was raped and assaulted by her Uber driver. Whilst the company was publicly apologetic, it would later come to light that some executives had trouble believing the incident was true and acquired confidential medical information on the victim which was shared with directors including CEO Kalanick. 
• July 2014, It was revealed that Uber had a so-called “God View”, which allowed them to track user’s locations. This naturally raised privacy concerns, especially after it emerged that a manager at Uber had accessed the rider profile of a reporter without her permission. The company paid a $20m fine as part of a deal with the New York Attorney General in 2016.
• January 2017 - #DeleteUber. Uber was embroiled in a massive customer protest after users adjudged Uber to be profiteering from a New York taxi strike in the wake of a controversial travel ban enacted by President Donald Trump. Whilst the majority of taxi companies respected the strike, Uber continued to operate its service at JFK Airport, leading to massive social media backlash. The #DeleteUber hashtag went viral and within a couple of days, literally hundreds of thousands of users had deleted the app and/or switched to competitor Lyft. 
• February 2017, a former engineer Susan Fowler published a scathing blog post on Uber’s toxic and sexist workplace. Her blog post detailed sexual advances by her direct manager through company email and messaging platforms which were repeatedly ignored by HR.
• March 2017, Bloomberg News shared an embarrassing video of CEO Kalanick berating an Uber driver who had complained about his income falling due to Uber slashing prices to compete with Lyft. Following the release of video, Travis issued a statement apologising to the driver sharing: “This is the first time I've been willing to admit that I need leadership help and I intend to get it”.
• March 2017, (you seriously could not make this stuff up) it was reported that a group of senior employees, including Travis Kalanick, visited an escort karaoke bar whilst in Seoul in 2014. The visit to the bar where patrons select women to sing karaoke with before (typically) taking them home, resulted in an HR complaint from a female marketing manager. 
• June 2017, an independent report by the former attorney general Eric Holder, on the behaviour and culture at Uber led to the dismissal of more than 20 employees including 5 from senior management.  It’s recommendations also included a limit on Kalanick’s responsibilities at the company as well as the creation of an independent chairman and oversight committee.
• 21st June 2017, a shareholder revolt led by Benchmark and First Round Capital led to the Travis Kalanick resigning as CEO and being replaced by former Expedia chief executive Dara Khosrowshahi. 

How have they paid the bills?

By raising an UBER amount of money! Crunchbase highlights that Uber has raised over $24.7bn across 23 rounds of funding since 2010. This is summarised below:

• 2009 - Angel investors included founders Garrett Camp and Travis Kalanick,Tim Ferriss and Chris Secca. Not a bad bunch of angel investors to get you going.
• Sept 2010 – Seed Round. $1.6m @ $5.4m Post Money Valuation. Led by First Round Capital.
• Feb 2011 – Series A $14.1m @ $60m Post Money Valuation. Led by Benchmark.
• Dec 2011 – Series B $43.8m @ $346m Post Money Valuation. Led by Menlo Ventures and included Jeff Bezos and Shawn “Jay-Z” Carter.
• Aug 2013 – Series C $363m @ $3.7bn Post Money Valuation. Led by Google Ventures.
• Jun 2014 – Series D $1.4bn @ $18.2bn Post Money Valuation. Led by Google Ventures.
• Dec 2014 – Series E $2.8bn @ $41.2bn Post Money Valuation. Led by Foundation Capital.
• May 2015 – Series F $1bn @ $51bn Post Money Valuation. Included Microsoft.
• Aug 2015 – Private Investment $100m by Tata Capital (undisclosed valuation)
• Dec 2015 – Series G $7.3bn @ $69bn Post Money Valuation. Saudi Arabia’s Public Investment Fund.
• Dec 2017 – Secondary (selling of existing investor commitments / shareholding to private equity / investment funds). $7.7bn @ $48bn Post Money Valuation. Softbank and Sequoia Capital. This 'down round' effectively helped to move on management including Travis Kalanick, whilst providing Uber with runway to an IPO.

Potential

I find myself torn when it comes to Uber… Fundamentality, it is a fantastic App. Not only has it made using booking a taxi more convenient, it has genuinely changed the way I travel around. 

That being said, when you consider the financials of the business, it raises some interesting questions about the sustainability of the business and also its contribution to the ‘gig economy’. 

This being the case, I am going to set out my best and worst case scenario’s for the business over the coming years:

Best Case

My best-case scenario for Uber is based upon the following assumptions:

1. The combination of its two services Uber Rides (taxi rides) and Uber Eats in one App – will increase the average monthly revenue per App user.
2. The combination of Uber Rides and Uber Eats makes the brand ‘more sticky’, reducing the amount users toggle between Uber and its competitors (namely Lyft).
3. Uber is able to add complimentary delivery services to the platform further increasing revenue per user and maximising the capacity in its driver network.
4. Uber continues to grow its monthly active users. User growth was 22% in Q4 2019.
5. No more Boob-ers.

NB: I have ignored driver automation in my analysis as I do not believe this is realistically deliverable in the next 5 years (or even the next 10 years).

If the above can be delivered, it is not unrealistic for Uber to become profitable at some point in the coming years.

BUT..........

Worst Case Scenario:

When we look at the trading performance over Q4 2018, Uber generated a total loss of $1.2bn for the period (before a tax benefit reduced this to $865m). Roll forward 12 months, and for Q4 2019, losses were still $1.1bn despite 37% annualised revenue growth and a focus on cost savings (including nearly 1,000 redundancies across the business). 

So however you cut it, the business continues to generate massive losses. 

My worst-case scenario sees Uber continuing to bleed cash in its attempts to overcome the following challenges:

1. Low customer and driver loyalty – A significant number of riders and drivers toggle between multiple rideshare companies based upon their individual demands. As a result, competitors are able to vigorously compete against Uber in every market it serves (so much for Uber’s assumption that this would be a winner-takes-all market). For example, Uber will continue to face competition from Lyft in its home market of the US. As at December 2017, Lyft had a 20% market share however, by December 2019, Lyft had increased market share to 30%.  This is a battle this isn’t going to go away any time soon. 
2. UberEats Profitability - Restaurant delivery businesses are highly scalable but equally unprofitable. Many of the structural weaknesses undermining Ubers ridesharing profitability apply to its UberEats restaurant delivery business, which is currently engaged in a fierce food fight amongst unprofitable but well-capitalized competitors around the world. 
3. Inability to scale globally. Local network effects – not global network effects make it expensive to scale globally. Uber has already withdrawn from key international markets including China, Russia and Southeast Asia due to heavy losses and difficulties securing a dominant position against well-funded, local competitors. 
4. Employees or not employees, that is the question. Uber will continue to fight for its drivers to be recognised as self-employed contractors and not as employees. This is because of the significant increase in costs the company would incur if it was required to recognise drivers as employees. Unfortunately for Uber, this is a challenge that isn’t going to go away anytime soon.

Whatever happens across the coming years, if history is anything to go by, it’s going to be one hell of a ride (and an expensive one at that). 

Did you know?

1) Years before Uber was founded, a company in New York called Seamless Wheels, nearly stole their march, if it wasn't for a terrifying voicemail left for the founder Jason Finger.  Jason had built a successful food ordering business called Seamless Meals (seamlessweb), which worked with restaurants in New York City and delivered meals to customers who ordered online. In 2003, Jason considered leveraging the technology platform, to provide customers with the ability to order a taxi online -a service he would call Seamless Wheels. As the concept developed momentum, Jason received a eerie voicemail:

“Jason, we understand that you have been pitching a car service to large enterprises in the New York City area. We don’t think that is such a good idea. You’ve got such a beautiful family. Why don’t you spend more time with your beautiful baby daughter. You got such a good thing going on with your food business. Why would you want to move into other areas.” 

Call hangs up… And so was the idea for Seamless Wheels… 

2) The ridesharing space has given us some of the best brand names I have ever researched. 

My favourite being Homobiles – A San Francisco based LGBTQ ride sharing service which was launched in 2011 due to the discrimination experience by LGBTQ community when trying to hail CABs in San Francisco. The strapline for the company… 

“Moes gettin' hoes where they needz to goes.”

My Tech-Away Points:

1. Timing is everything. Whilst the concept behind Uber was strong, timing played a crucial part in the delivery of the service for both Drivers and Users. Known as the mobile moment, the launch of smart phones with GPS integration meant that Uber was able to deliver a service which was frictionless for both drivers and riders. For drivers, all they required was their smart phone to accept jobs and access route information. For customers, smart phones provided the ability to book a taxi from your hand, leveraging your location data and paying for your journey at the tap of a button.   In any business, it is important to evaluate your timing in comparison to your market, audience, competition and supporting technologies. 
2. If you have a vision, you have to fund it adequately. As summarised above, Uber has raised over $24bn across the last decade to fund its growth across ride sharing and food delivery. This is because Uber never intended to play small. It was always aiming for global domination and so management ensured the company was capitalised in alignment with those aspirations. That funding enabled the business to blitzscale across multiple markets whilst withstanding the inefficiencies and mistakes businesses seeking ‘uber’ growth will always make. If you have a business that you feel has the potential to deliver significant growth, it is important that you are able to back that vision with the right level of resources (once you demonstrated product market fit). No business journey is ever a smooth ride, with many lessons learned along the way, so it is important you give your business the runway to scale and learn.
3. Embrace the superpower of diversity. When building a business, it can be easy to surround ourselves with people who are ‘like us’ and who may not be reflective of the customers and markets we are trying to scale. Uber built a ‘bro culture’ that was a) reflective of the founders and b) supported the siege mentality Travis felt was needed in the early years to disrupt the establishment and face off the competition. However, this brash and one-dimensional culture would also be its downfall. I believe a diverse board sets the tone for our business, breeds innovation and inspires progression across our teams - irrespective of sex, ethnicity or background. In an increasingly connected world, I believe diversity truly is a superpower that can help us realise the full potential of our business and markets.