The Wall Street Journal and New York Times picked up on a story first reported by Bloomberg, that the Japanese technology firm SoftBank is considering investing in Uber.
Given how eagerly Uber has been planting press stories, it’s hard to know whether SoftBank is interested. The articles depict SoftBank as having approached Uber, which strikes me as odd. Given how well funded and visible SoftBank is, it has to have been approached repeatedly in past Uber fundraising rounds, and separately, SoftBank is certain to be solicited regularly by the big VC that have invested in Uber. Moreover, the real reason for former CEO Travis Kalanick’s ouster was that Bill Gurley of Benchmark had long led the investors who had fought with Kalanick over his refusal to let the early investors cash out even a portion of their original investment.
Gurley led the coup against Kalanick. It had nothing to to do with mistreatment of women or lawbreaking, but because the bad press was pushing an IPO further off into the future. At a minimum, Kalanick’s failure take strong enough measures to improve appearances happened to dovetail with his desire to keep the company private. So it is likely to be an open secret that Uber is open for offers.
Since then, Uber has been working hard at getting the press to put the best possible spin its affairs. For instance, at the meetup in San Francisco last week, one reader pointed out that the New York Times had run an article that presented a rosy picture of how the Uber CEO search was going: Uber Offers a Thankless Job, and the Applications Flood In. In fact, if you read the article carefully, there was no influx of star candidates for the job. Instead, it presented the search committee’s wish list:
For now, Uber’s executive search committee, which includes five members of its board, has kept the lid tight on the list of candidates….
Among those up for consideration have been Susan Wojcicki, who leads YouTube. Others include Adam Bain, Twitter’s former chief operating officer; David Cush, a former chief executive at Virgin America; the former Yahoo chief executive Marissa Mayer; and Thomas Staggs, a former chief operating officer at Disney, according to three other people familiar with the search. It was unclear what level of interest, if any, these executives had expressed in the Uber job.
And as our faithful reader pointed out, an article in ReCode a few hours earlier already said none of them wanted the job. That story did say a lot of people not up to the job were putting up their hands, perhaps lending a veneer of legitimacy to the New York Times account:
So who is interested in being Uber CEO, with the job of leading 15,000 employees? A lot of people, with lots of applications sent in and ginned up by Heidrick & Struggles ace recruiter Jeff Sanders, even if most of them are not up to the kind of challenge the task presents.
Our Uber expert Hubert Horan made another observation:
Some of the names floated (other than the ridiculous Sheryl Sandberg/Marissa Meyer mentions) seemed to be clients of these headhunters where they hadn’t had any luck placing, and wanted to keep their names in the press.
Hubert also weighed in on the SoftBank rumors. By way of background, here are the key sections from the Wall Street Journal:
SoftBank Group Corp. is angling for a piece of Uber Technologies Inc., a move that would further the grand ambitions of the tech investor’s founder and muddy the mix of alliances in the global ride-hailing business.
The Japanese technology company has approached San Francisco-based Uber about a multibillion-dollar stake, people familiar with the matter said…
Softbank is a big investor in the three largest Asian ride-hailing companies: Singapore’s GrabTaxi Holdings Pte., India’s Ola and China’s Didi Chuxing Technology Co. On Monday, SoftBank said that it and Didi would lead a $2.5 billion fundraising round in Grab, giving the startup more ammunition in its battle against Uber across Southeast Asia.
While it is rare for SoftBank to hedge its investments, an offer could mean the company hopes Uber combines its operations with Grab and Ola, as it did last year with Didi. Such a merger would give SoftBank a formidable share of the Asian market.
From Hubert:
1. Ridesharing economics in Asia aren’t any different than ridesharing economics in America. Nobody has discovered how to produce taxi service at significantly lower cost. And Asian cites have massively better public transit options.
2. SoftBank may be far more clueless than anyone in America, and is simply flushing billions down the toilet, as suggested by this quote from the Wall Street Journal story:
SoftBank founder Masayoshi Son has sought to seize hold of cornerstone technologies he expects to dictate how humans interact with the world for decades to come. As early adopters of self-driving technology, ride-hailing firms are central to Mr. Son’s strategy to accelerate a robotic revolution and generate value from his varied investments in semiconductors, networks, cybersecurity and deep learning.
3. However, the possibility still exists that it is the WSJ reporter who is utterly clueless, and not Softbank:
SoftBank may have figured out that Uber is desperate to conserve cash and is willing to abandon its losing investments in Asia for 20 cents on the dollar (let’s get Uber to stop competing with Grab and Ola following their abandonment of the Russian market)
SoftBank may have realized that Uber desperately needs new investment but any traditional Silicon Valley VC play would totally trash their valuation, and have approached Uber with an offer they can’t refuse (that would give them a big % of Uber for very little money but would maintain the fiction that they are worth $68 billion)
They are trying to set up an Uber-Lyft merger at some point in the future
4. All of these hypothetical scenarios support my longstanding theory that the people with serious money have always understood that the game totally depended on the creation of huge, powerful monopolies that “market economics” could not justify. No one can make money in Russia, Singapore, China, America or anywhere else if competition still existed. VC returns will go to whoever can create those monopolies. It is still totally unclear whether one of these artificial monopolies can actually make big sustainable profits. The point is just that its totally hopeless without the monopoly. There is still no evidence that Grab could actually achieve a monopoly in Singapore or Ola could achieve a monopoly in India. And still no evidence that the owner of a Grab/Ola local monopoly would have any ability to leverage that brand/monopoly power into other markets.
Uber has some of Silicon Valley’s supposedly best and brightest behind it, yet they now have a company bleeding cash, run by a 14 person committee, desperately in need of more money since even with their big bank account, Uber will get relatively low on funds in 24 months. If that were to occur, you can imagine that employees with better options start leaving en masse (to the extent that hasn’t already happened due to revolving door leadership and power struggles over efforts to change the culture). So it will be interesting to see how these supposedly clever investors who got themselves in this fix try to find new chumps, and who winds up getting the better deal.
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SoftBank is clueless. IIRC, FTA run a post few weeks back on SoftBanks change-the-world fund, which was massively investing into fintech companies that provided exactly zero innovation.
As far as I can tell, SB is the latest of the large chumps that will invest a lot of money into dubious schemes. I’m not against a shotgun approach in early investing -it’s a bit of a must. But some companies are duds from the inception, there’s no concievable way of them breaking even ever (not to mention making money). And if someone wants just to sponsor weird and wonderful research/philanthropy (because Uber is really just a philantropic exercise at a massive scale at the moment, except it takes money from those who need it – drivers, giving it to those who often don’t – riders), there are better ways of doing it.
One recent investment that might have some merit (though imo way overpriced) is Nvidia, which last quarter released news that they’d spent about $3bn over the past 3 years developing GPGPU chips and a software ecosystem around it, and that they were now ready to take orders. SB bought in pretty late, though (SP at around the $140 level, up from ~80-90$ less than a year ago)…
About six weeks back, I was chatting with someone who knows the principals — especially including Bill Gurley at Benchmark — about how this $70 billion Ponzi will play out.
Essentially, Gurley was/is the real founder/instigator of Uber. Travis Kalanick was someone Gurley put in place who was a suitable personality to operate Uber’s borderline-illegal ‘forced deregulation’ business model against incumbent taxi operators around the world.
Not incidentally, it’s a model that Gurley plans to try in other areas. My acquaintance says that’s the point of Uber. In any event, what my acquaintance predicted six weeks is that: –
[1] Gurley will probably put in place a suitably cosmetic female CEO. Fairly obvious.
[2] More interestingly, if things get bad enough for Uber, Gurley and other SV principals will get on the line to Jerry Brown and whomever else, and then Uber will enter history as the first TBTF unicorn.
No way will #2 happen. Uber employs only 15,000 people, most of them not in CA. The cost of keeping it alive are the subsidies to the riders, which are way too high per employee to justify support.
I was thinking of the same FT Alphaville article when I read this piece by Yves:
https://ftalphaville.ft.com/2017/07/03/2190820/masayoshi-sons-soaring-rhetoric-meets-dull-reality/
The author’s conclusion was that there wasn’t that much interesting technology to invest in. Now, I don’t completely agree with that as energy start ups must be interesting and risky (batteries, new solar tech etc), but when you look at what Softbank is plowing money into it’s all a lot of hooey like Uber. So why not another round for Uber?
Softbank has a habit of investing in major players that are already well-established: Vodafone, Yahoo, COMDEX, AliBaba, ARM, Sprint. Softbank also divested quite a lot.
I cannot figure out whether it is a clueless giant with deep pockets lured by fadish big names, or whether it is a shrewed predator going after somewhat weak or weakened preys.
I cannot figure out whether it is a clueless giant with deep pockets lured by fadish big names, or whether it is a shrewed predator going after somewhat weak or weakened preys.
Perhaps neither. Softbank bought ARM Holdings last year in July of last year for $24 billion. Now it’s selling a 25 percent stake in ARM worth $8 billion to a technology fund it’s creating with Saudi Arabia.
http://www.telegraph.co.uk/technology/2017/05/14/arm-revenues-jump-softbank-prepares-tech-fund-launch/
That doesn’t seem a stupid move. I was doing technology biz journalism in 1999-2000 when I first became aware of Masayoshi Son and Softbank, and we also couldn’t figure out what to make of them. Sure, Son is the man who lost the most money in history — $70 billion in the dotcom crash. But seventeen years later he also remains the richest man in Japan, worth upwards of $20 billion personally.
I think Son just swings big. Sometimes he wins bigly, sometimes he loses bigly.
The real objective, as Hubert mentioned in passing, may be to pick up the operations that are in markets that compete with SoftBank’s other investments on the cheap. That would provide some cash to Uber without (officially) having an impact on the valuation.
Generally speaking, Japanese companies never muse out loud about — or allow the press to get hold of — M&A plans. They will conduct vague and informal discussions with potential targets, to assess corporate ‘fit’ and gauge how well (or otherwise) the potential take-over target would compliment their core business activity.
The Japanese management culture seldom leaks. So for this to get into the media, it’ll have been Uber doing the briefings. That faux pas alone will almost certainly kill any interest from SoftBank stone dead. It’s a slap in the face to SoftBank and symptomatic of a company which would likely be seen by the Japanese as acting in bad faith.
That’s if they’d even made an approach in the first place. SoftBank may have made some enquiries and left Uber with a message of “we are really interested in your platform and how you will develop this market further and would like to explore deeper cooperation in the future”. Which Uber probably heard as being “we’re about to make a takeover bid” whereas what SoftBank meant was “we’ll let you know”.
So for this to get into the media, it’ll have been Uber doing the briefings. That faux pas alone will almost certainly kill any interest from SoftBank stone dead.
It’s a $70 billion Ponzi at this point. About six weeks back, I was chatting with someone who knows the principals — most notably Bill Gurley at Benchmark — about how it might play out.
Essentially, Gurley was/is the real founder/instigator of Uber. Kalanick was someone Gurley put in place as a suitable personality to operate Uber’s borderline-illegal ‘forced deregulation’ business model against incumbent taxi operators around the world.Not incidentally, it’s a model that Gurley plans to try in other areas; my acquaintance says that’s the point of Uber.
In any event, what my acquaintance predicted six weeks ago is that: –
[1] Gurley will probably put in place a suitably cosmetic female CEO. Fairly obvious.
[2] More interestingly, if things get bad enough for Uber, Gurley and other SV principals will get on the line to Jerry Brown or whomever else, and Uber will enter history as the first TBTF unicorn.
Is Uber an illiquid asset?
If it is. Would this be one of the assets Goldman needs more time for? For instance five more years to comply with the Volker Rule?
Has a backdoor bailout of Uber begun?
How can normal businessman compete? We have to make a profit.
The Uber report from Tucson: They recently stopped offering the Uber 101 classes at their Downtown location. These classes are for new drivers. They have also closed their Downtown office, which was hardly ever used.
I’m also seeing more local rideshare drivers with Uber and Lyft stickers on their windshields. Methinks that the drivers are hedging their bets.
Uber has three incompatible goals- (a) make Uber so inexpensive that passengers forego walking, mass transit, taxis and private car ownership, (b) be profitable enough to support its valuation and (c) have wait times measured in literally a couple of minutes, .
Can’t have all three….unless the current strategy is a stop-gap and the end game is that public mass transit literally DISAPPEARS, replaced by Uber and robo-cars.
And given Uber’s success at City Hall lobbying, I could see Uber getting rid of MTA
And the Softbank investment and Meg Whitman as possible Uber CEO might be astroturfed fake news to keep shareholders happy.
Don’t forget that there’s a lot of entrenched corporatist money tied up in public transit as well. I don’t see the Skanska’s and OHL’s of the world putting up with their gravy train getting pulled away.
Meg Whitman would be perfect since she wouldt be able to destroy any real value
http://exiledonline.com/how-meg-whitman-failed-her-way-to-the-top-at-ebay-collecting-billions-while-nearly-destroying-the-company/
These companies are, by definition, cashless and therefore play directly to this agenda of investors and banks. I don’t have the data, but, local taxi companies used to be cash businesses.
Softbank:
As early adopters of self-driving technology, ride-hailing firms are central to Mr. Son’s strategy to accelerate a robotic revolution and generate value from his varied investments in semiconductors, networks, cybersecurity and deep learning.
Do these people realize employees are also customers, and employees are the largest source of customers?
How much of their products will robots buy?
Perhaps they should read up on Henry Ford’s biography.
That’s where the #UBI much of Silicon Valley touts comes in …
#JesusFingerPistolWithAWink