Salon: Strike four for Uber: Even with Kalanick’s departure, they may still end as the “Enron of the transportation industry”

by Steven Hill, Salon, June 17, 2017

CEO Travis Kalanick is out, but Uber’s problems won’t be solved with just a new hire

CEO Travis Kalanick’s departure from Uber is not a surprise to those who have been following this company for the last several years.

Since February, Uber has been rocked by one scandal after another: allegations of rampant sexual harassment at the company and of stealing trade secrets for self-driving cars from a competitor (Google/Waymo), poorly performing self-driving car experiments in San Francisco and Pittsburgh (the vehicles ran numerous red lights and were involved in fender benders, requiring constant intervention from their human drivers), and getting caught red-handed with secret software called Greyball that allowed Uber drivers to evade local authorities trying to enforce traffic laws.

No doubt as a result of all this pressure, Kalanick infamously lost his temper with an Uber driver who had confronted the CEO over constant wage cuts for drivers. The harsh interaction was captured on video and went viral on the internet.

But this was hardly the beginning of Uber scandals. Previously, I and others had written about the Uber “parade of horribles” that has dogged this company from its inception. In city after city, Uber refused to follow laws for the taxi industry, abused labor laws and its drivers, got away with using grossly underinsured drivers and faulty background checks (which the FBI estimated had a 43 percent error rate), made veiled threats to journalists and critics (recently resigned Uber executive Emil Michael threatened to hire journalists to dig up dirt on a female Uber critic), used passengers’ personal data and its tracking technology (which the company has called “God View” and “Creepy Stalker View”) to stalk its critics and passengers, and refused to pay local livery taxes that taxi companies had to pay. To top it off, when an Uber driver struck and killed 6-year-old Sofia Liu, and badly injured her mother and brother as they were traversing a crosswalk in San Francisco, Uber washed its hands of any responsibility. Why? Because it regarded the driver as an “independent contractor,” not an employee — yet the driver had a previous reckless driving record in Florida, including being arrested for driving 100 mph while passing another car on a city street, something Uber’s faulty background check failed to uncover.

So while there’s no question Travis Kalanick scaled his company to a transportation behemoth, he has done this by promoting a pirate mentality and bro culture that has led to mismanagement in numerous ways. It was only a matter of time before he destroyed what he created. Today, only four out of 10 Americans say they have a favorable impression of the company.

Beyond all the scandals, the other enormous pressure on Kalanick has been the fact that Uber is yet another Silicon Valley startup company that has failed to earn a profit. The dirty little secret is that seven out of 10 startups in Silicon Valley fail, and Uber is on track for being one of them. Uber has become popular as a taxi company for the digital age, yet it is still hugely unprofitable, losing nearly $3 billion in 2016 (and possibly another billion in China), and it has already lost $700 million in the first quarter of 2017. Despite Uber’s popularity with its users, Kalanick has not figured out a way to introduce any new efficiencies into his business model that would allow this company to provide a taxi service in a more competitive, cost-effective way than regular taxi companies. Consequently, Uber has become stuck in a pattern of using its venture capital funding to subsidize at least 50 percent of every ride in order to cut fares and try to gain a monopoly position that can drive the competition out of business. In the ultimate irony, the more customers use Uber, the greater into debt it goes.

But you can only subsidize rides for so long. At some point, the VC investors want a return on their money, or they turn off the spigot. Uber is dangerously standing at that precipice. Every startup company, including Uber’s ridesharing competitor Lyft, which also has been losing money due to subsidizing fares in order to compete with Uber, must one day face the laws of gravity. In this case that means the realities of the market, which say that a company must turn a profit. Uber has never figured out how to do that.

Uber’s only chance to survive at this point is to focus on its taxi business like a laser, increase its fares to get closer to profitability, and stop its blind pursuit of foolish ideas like self-driving cars. Most experts, including those previously bullish on self-driving technology such as the Economist, have recognized that self-driving vehicles are at least 20 years from fruition. They will not be appearing on our streets anytime soon, other than in experiments. Kalanick himself has said that winning the race for self-driving cars is an “existential issue” for his company, so he has gambled Uber’s survival on this outcome. And that spells big trouble because Uber will not be able to delete the cost of its drivers’ wages from its bottom line in time to save the company from bankruptcy at the rate that things are going.

Kalanick, in his bid to uphold his company’s reputation as a cutting-edge technology company and keep the venture capital subsidies flowing, has also launched other foolish ventures such as self-flying cars and attempts at global domination in places like India and China, where Uber does not understand the culture. Uber is still trying to find solid footing in Europe, where the company is widely despised as a serial law breaker.

Here’s my recommendation for the “new Uber” and its new leadership. Whoever replaces Kalanick should:

  1. Focus the company on being a U.S.-based taxi business.
  2. Follow former Obama attorney general Eric Holder’s recommendations to root out the destructive bro culture.
  3. Parlay its popularity among its user base to raise fares a bit.
  4. Hit “reset” on its relationship with its drivers, since it looks like it is stuck with them for a good while longer.
  5. Focus on being a law-abiding, responsible corporation that provides a good service at a price that remains affordable for customers but can also achieve profitability.
  6. Drop foolhardy futurist ideas like self-driving or self-flying vehicles that have no chance of succeeding and are a waste of its resources and attention span.
  7. Cooperate more with local officials to use the company’s tracking technology in an effort to reduce the horrible traffic congestion that is plaguing city after city. That would mean sharing data so its drivers can be tracked, and helping cities to use its technology to track traffic flows and create congestion zones like in London and Stockholm.

If Kalanick’s successor follows that blueprint, the company has a chance of surviving. If the new leadership does not do so, it will burn through its remaining $7 billion in startup capital within about four years, and then will go out of business. It will be another startup failure, but in this case a colossal collapse in Silicon Valley. If that happens, Uber’s legacy will be that of becoming the Enron of the transportation industry. I predicted this possibility in my book “Raw Deal,” and now it looks like it is very close to coming to pass.