Is Uber a $50Bn "Bubble"?

Almost exactly a year ago, I interviewed the GM of Uber at Connections 2014, Salesforce's Marketing Cloud conference that takes place each year. Having returned home from New York this morning after just attending Connection 2015, it occurred to me how much has changed in just one year...

Analysts like to remind us that 90% of the world’s data was created in the last 12 months. A year is a really long time in the technology industry. But it’s easy to detach ourselves from such vast numbers without any stories to give them context, especially concerning the drama and hype surrounding unicorns like Uber.

So, for what it's worth ~ here’s my take on this story…

This time last year we were all super excited about Uber, as they were not only pioneering the sharing (collaborative) economy, but had become the world’s fastest growing company in the process. Depending on how you slice the figures, it was estimated that Uber was adding 50,000 jobs to the global economy every month. I got the chance to ask Uber how a car service app managed to capture everybody’s attention so quickly at Connections 2014 and I was met with an interesting answer;

“Uber is not a car services company it is a financial services company”.

It makes perfect sense really. Uber don't own anything. Neither do they have any drivers as employees. Uber are asset managers who simply take a slice of the revenue generated from connecting a customer, to any Uber-registered driver willing to provide them with a service. It’s a stunningly simple business model without any proprietary technology that is particularly unique. Much of the sharing economy populated with brands such as TaskRabbit, AirBnB and Instacart operate within a similar model.

"Uber is a $40Bn lesson in building for how the world should work instead of optimizing for how the world does work”. Tim O’Reilly

At it’s core, Uber isn’t actually that unique. It is essentially just a collection of third party databases and service providers cleverly engineered into an app that is beautifully simple to use. I’ve over simplified it here, but all the services that Uber provide beyond dispatch are provided by other vendors. Salesforce for marketing, Twilio provide communications and messaging, payments are managed by Braintree and maps are provided via Google, Apple and Bing.

Hailo and Lyft provide a similar service, but through more ethical business models and a slightly less aggressive route to market. Is it their ethics and their caution which has stunted their growth, or are we not giving Travis enough credit for doing something special with Uber?

Uber is now worth almost 20 times the value of Lyft and Hailo put together.

Uber has been such a dramatic success story, that I now find executives in 2015 regularly using the term “Uberized”. It’s a bad word and in a complete sentence it sounds even worse... “We must move fast and out-innovate our competitors before we get Uberized”. Yuk.

"What we maybe should've realized sooner was that we are running a political campaign and the candidate is Uber. And this political race is happening in every major city in the world. And because this isn't about a democracy, this is about a product, you can't win 51 to 49. You have to win 98 to 2." Travis Kalanick ( Vanity Fair)

Fast forward to 2015 and opinions about Uber have shifted substantially. Of course they remain at the epicenter of the “disruptive economy”, as the car service brand that owns no cars, but their last 12 months have not exactly been un-eventful. Aside from the scandal involving Uber digging up dirt on journalists who weren’t complimentary about them, Uber has now been banned from many cities around the world.

“[Uber] has a misogynistic culture, and that it has too little respect for privacy”. Vox.com

Uber's corporate culture has always been tolerant of breaking rules in order to succeed, but when I hear my CEO Marc Benioff talk about how we are in the middle of a “trust revolution”, telling journalists at the World Economic Forum in Davos that the world has a “trust crisis”, I believe it is companies trying to out-Uber each other who are causing the problems. Even PR firm Edelman stated that 2015 is the widest that the gap has ever been, between consumer trust, brands and governments.

Providing a fantastic service is one thing. It is certainly a great service promising potential drivers a great income. I was with Uber in New York this week and they are trying to attract new drivers by running bus and billboard ads “guaranteeing $35,000 net revenue every 6 months” to new drivers.

But when I hear about Uber creating a multi-billion dollar business at the expense of customer experience or employee satisfaction I get uncomfortable. The key to running any successful technology company, or any business at all for that matter, is being able to create more value than you capture. Data is valuable. I read last night that some companies are now using social listening software and Facebook analytics to target critically ill people, and sell their information to drug companies for up to $3000 per name. Perhaps the drug companies can help find a cure. Perhaps these data explorers are providing a useful service? The value exchange here is very murky.

Ethically Deep But Morally Grey?

I heard this term from a great interview between an ex-Facebook executive and Bloomberg's Emily Chang on Studio 1.0. [Watch the clip here]. Many companies like Uber genuinely do want to make the world a better place and provide good experiences, but being disrespectful with people’s data, or not providing enough value to the drivers who provide their revenue, makes for a shaky business model. But how easy for me to say that watching from the sidelines…

“There's been so much corruption and so much cronyism in the taxi industry and so much regulatory capture, that if you ask for permission upfront for something that's already legal, you'll never get it”. Travis Kalanick ~ Founder of Uber

This is why the precedent that is being set in the US is now is so interesting, where Uber lost a case before California’s Labor Commissioner challenging Uber to treat it’s drivers like employees. At the moment, drivers pay for their own car, cover their own insurance and pay all their own expenses, even though they are essentially Uber employees. This law could force Uber to treat them as employees, resulting in Uber becoming weighed down with all the responsibilities and operational costs that beset any traditional employer.

In this first case of a single driver seeking reimbursement of his expenses, the commissioner ruled that Uber should have taken on the full responsibilities of an employer. Anticipating that this might happen, collaborative startup HelloAlfred took the step last year of turning its contractors into full-time employers, to avoid potential litigation and to try and evolve their own business model into something more sustainable.

If Uber are forced to incur this extra responsibility, their burgeoning army of freelance drivers who look to Uber’s app for work will probably find their potential earnings are not quite to level that they expected. This will all no doubt out a huge dent in one of the internets most profitable business models.

Two of the most respected media companies are already taking wildly different views on this outcome:

• Bloomberg suggest this could be the end of Uber.
• Fortune argue that “It Won’t Kill Uber to Treat Drivers Like Employees.

We won’t find out whoever is [mostly right] for some time, but it just makes the future of this disruptive economy even more uncertain than it already was. It was only 6 years ago that Uber was founded, opening the floodgates for many look-a-like companies and apps, and the tech world is moving so fast that it is hard to know what will happen next week, let along next year. We think things are moving fast now but the digital universe will apparently be 40 times bigger by 2021! When I consider all this and then I listen to bankers like Paul Achleitner talking philosophically, it makes me wonder if we are not careful, perhaps the technology industry could find itself in a crisis in the same way that the banks did back in 2008.

“Self regulation, no matter what you do, is just not going to be good enough for tech companies”. Paul Achleitner, Chairman, Deutsche Bank

It all makes for a fascinating debate and one that is playing out right before our very eyes. I expect we’ll be discussing this in many different ways over the next few years, and telling stories about how we were right in the middle of it to our grandkids. The truth is, none of us really have any idea what is going to happen. If we did, we'd be building our own unicorns...

All we do know, is that the principles of doing good business haven’t really changed over the last few hundred years. So no matter which direction all of this takes us in, the companies who we will still be admiring (and doing business with) in the next six years, will probably be the ones that put their customers first and are transparent about how their data is used. In my opinion, these will be the significant brands who are “creating more value than they capture”.  

What do you think?

* If Uber wants to IPO soon as it looks like it is preparing itself for (and champion driverless cars), then addressing trust and ethics issues needs to be done much sooner rather than later...