The Wheels Come Off Uber

Not surprisingly, the financial press has been all agog about the drama of Travis Kalanick’s forced departure from Uber’s CEO position yesterday, fixated on salacious insider details.

That means journalists largely have ignored what ought to be the real story, which is whether Uber has any future. I anticipate that Hubert Horan will offer a longer-form treatment of this topic. Hubert had already documented, in considerable detail in his ten-part series, how Uber has no conceivable path to profitability. Its business model has been based on a massive internal contradiction: using a ginormous war chest to try to achieve a near-monopoly position in a low-margin, mature business that is fragmented geographically and locally.

Monopolies and oligopolies are sustainable only when certain factors are operative: the ability to attain a superior cost position through scale economies, which include network effects, or barriers to entry, such as regulations, very high skill levels, or high minimum investment requirements. Neither of these apply in the local car ride business. Even if Uber were able to drive literally every competing cab operator in the world out of business due to its ability to continue its predatory pricing, once Uber raised prices to a level where it achieved profits, new entrants (or revived old entrants) would come in. Uber will thus never be able to charge the premium prices (in excess of the level for a traditional taxi operator to be profitable) for the very long period necessary for Uber to merely be able to recoup the billions of dollars it had burned, mainly in subsidizing the cost of rides, let alone to achieve an adequate return on capital. And that’s before you get to the fact that systematically much higher prices would mean fewer fares and thus lower revenues and profit potential at the new pricing level.

Uber’s managerial upheaval of the last few months mean its decay path is sure to accelerate. I’ve been following the business press for over 30 years. I can’t think of a single case where even an established, profitable business with an solid franchise has had so many top level positions vacant, and for such bad reasons. As reader vidimi quipped, “With no CEO, CFO, COO, and CIO, uber is coming very close to becoming a self-driving company.” And that’s not even a full list.

For instance, world-class flack Rachel Whetstone, recognized as a key force in rebuilding the Tories’ brand in the UK, quit in April. The heads of engineering departed for failing to disclose a previous sexual investigation; the head of product and growth was forced out over a sexual impropriety at a company function. And in a scandal that will have a much longer tail, Uber’s former head of its driverless car unit, Anthony Levandowski, has had his case involving alleged theft of intellectual property from Google referred to the Department of Justice. Kalanick was deeply involved in Levandowski’s sudden exodus from Google. It seems implausible that Kalanick didn’t know Levandowski was making off with boatloads of files. If the case does lead to a criminal prosecution, it is hard to see how Kalanick could escape scrutiny as a potential criminal co-conspirator.

The closest analogies I can think of to Uber’s level of senior departures in the last six months don’t come close in terms of number and seriousness. Investment banking powerhouse Salomon Brothers, hailed as the King of Wall Street in the mid 1980s, had its chairman/CEO, vice chairman, president, and head of Treasury bond trading forced out by the Fed in 1991 over a Treasury bond auction market rigging operation. Warren Buffett, who already had a stake in the firm, came in as chairman and CEO for nine months. Salomon as a top Wall Street firm had strong and if anything overly independent profit center managers. Yet Salomon never fully recovered and was sold six years later.

More recently, Barclays had its chairman, CEO, and president forced out by unwisely choosing to challenge the Bank of England over the Libor trading scandal. Barclays weathered that crisis better that Salomon had because among other things it was considered to have, and apparently did have, a very deep bench at the top level.

What has happened at Uber is orders of magnitude worse from a managerial perspective. This is an immature company in every sense of the word, despite its huge valuation. Some of the top executive departures, such as of its recently hired COO, brought it to help the company grow up, its CFO and its head of communications, were voluntary. That’s not what you see in Silicon Valley stars on a winning path. Confirming that picture are rumors of insiders being cashed out at valuations well below that of recent fundraisings.

And particularly worrisome is the resignation of Uber’s chief financial officer, Gautam Gupta, at the end of May, when Uber announced $708 million in quarterly losses. Gupta curiously appears to be leaving voluntarily (he’s serving till July; someone turfed out would have been shown the door immediately), yet appears to be going from a high profile and presumably well-remunerated post to join a no-name “startup in San Francisco”. A CFO departure is often a red flag, particularly when it is abrupt and mysterious. It also appears that these events roughly coincide with the decision of the investor that orchestrated Kalanick’s ouster, Benchmark, to move against him. From the Wall Street Journal:

But a few weeks ago, partners at Benchmark began hatching a plan to pressure Mr. Kalanick to resign, according to the people familiar with the matter. Benchmark’s partners, who include Uber’s longtime board member Bill Gurley, were concerned that the firm’s reputation would be sullied by all of Uber’s problems, these people said.

And Vanity Fair confirms what ought to be obvious: that Kalanick’s defenestration was not about sexual harassment or its dangerously immature culture. Amazon is a famously toxic place to work, but Bezos gets away with it because the company is lauded as the epitome of a successful technology company. Kalanick was seen increasingly as an obstacle to getting an IPO done promptly:

Virtually everything moves fast in Silicon Valley, but there are a few rare exceptions. The path to taking a company public, for instance, remains insanely protracted and slow. …According to several people close to both Kalanick and Uber investors, Kalanick’s demise was mostly motivated by the board’s goal of bringing Uber public at the highest possible valuation….

For now, they’re focusing on hiring a C.E.O. who can help settle the rocking ship and then take Uber public so that they can add another comma to their personal net worths….As Axios’s Dan Primack wrote, “Someone close to Uber recently said to me: ‘It’s wrong to say that Uber doesn’t care about women. It doesn’t really care about people, and women are people. It’s incidental.’ ”

The wee problem is it will prove impossible to effect anything resembling a turnaround at Uber. As Hubert Horan pointed out, the very culture that made Uber a success is now its biggest liability. And as a result, investors don’t appear to have a plan for how to straighten out Uber. From the Financial Times:

Among Uber’s dozens of outside investors, opinion is divided over whether the sudden exit of Mr Kalanick will really help right the company after months of turmoil…

“It will be difficult for the company to function after losing its entire C-suite,” points out one investor.

And before we get to the lack of a shared view among the outside investors as to where to go now, there is the additional problem that Kalanick still controls about 60% of the votes. What executive in his right mind would become the CEO of a company where there are certain to be ongoing power struggles within the board? Either one who is sorely deluded or out to take Uber for a ride for by taking a very sweet deal for what is likely to be at most a one-year gig.

This was also a troubling section in the Financial Times story. Notice from the link above that depicted Gautam Gupta, the financial executive whose resignation Uber announced in late May, as the chief financial officer. He was apparently a placeholder that investors didn’t see as having the necessary expertise:

One area of particular concern is Uber’s finance department, and the investors who demanded Mr Kalanick’s resignation also asked in their letter that the company immediately hire a chief financial officer.

Uber has been without a CFO for more than two years, during which time that department has been led by Gautam Gupta, Uber’s head of finance, who is leaving next month.

Uber may simply have been fabulously paranoid about revealing any more than it needed to, but some of the tidbits out of Uber raise further worries. For instance, Kalanick had maintained he wanted Uber to stay private as long as possible. That may be a fad with some unicorns, but it’s not the way for a shareholder to maximize his net worth, so it’s a preference that raises questions about the founders’ ulterior motives. Needless to say, that desire put him at odds with his investors.

Similarly, in its last round of financing, to rich suckers individuals, Uber managed to produce 290 pages of blather that not only failed to include net profits but even revenues! Deutsche Bank and JP Morgan refused to market the private offering to their customers. Uber was also considering “non IPO” via buying a shell company. The last time I saw that trick used was with penny stock scammers in Florida.

From Hubert Horan via e-mail:

I remain amazed (but not surprised) that not a single one of the dozens and dozens of articles, either after the Kalanick “leave” or the Kalanick sacking, mentioned the company’s multi-billion dollar profit problem. I obviously understand that many of the stories wanted to take a very narrow factual approach (“Uber announced yesterday…”) approach, but none considered financial results to be relevant facts, and most of them actively gave the impression that Uber’s problems were strictly “cultural”/governance, and gave the strong impression that no one thought there were any problems related to competitiveness or finances.

Even with an open rebellion of investors, no one as much as hinted that concerns about earning returns on the $13 billion they’d invested might be part of their motivation. Even Sarah Lacy, who ought to know better, insists Uber is still worth billions above and beyond the value of their Didi stock, and seems to think Uber becomes the next Yahoo that slowly fades into oblivion over many years because its core operations remain basically ok (but can’t justify the historic valuation). Since it has been 7 years the investors need to get roughly $25 billion when the company is finally sold/merged/whatever just to save face (it will still be seen as a major failure). Not gonna happen, especially after the Waymo case and another year of huge losses.

Uber has absolutely no path to sustainable profits. No two people in what is left of Uber management/Board could agree on a financial turnaround strategy would require, and some appear to have achieved clinical levels of delusion. If King Solomon showed up on Market Street tomorrow, he couldn’t come close to saving the company, and would run as fast as he could once he saw the mess. None of the names being floated make any sense because their alleged skill sets aren’t useful given the company’s actual problems. You can imagine my reaction when I saw suggestions for bringing someone from the airline industry. I’m sure they can find some new hires, like the new Board member (from Nestle) or the woman from HBS, because all they know about the company and the industry are the glowing stories they’ve read in the paper. I watched those kind of people join the airline industry for decades. Failure rate was 100%.

Someone needs to do a “this isn’t like any previous big company turnaround ever in history” story. As Yves mentioned, past cases of mature companies with a stable core business and lots of positive inertia are totally irrelevant. Previous examples where you can quickly cut operations back 25% and raise prices in order to get the cash flow needed for a more serious restructuring don’t apply. There were no past cases where the failed previous regime still had total voting control of the board.

Or shorter:

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  1. Colonel Smithers

    Thank you, Yves.

    This article should be required reading for the cheerleaders over here, Blighty, who think UK versions of Uber or uberisation, a term (of abuse?) used in France, are what will save the UK in the 21st century, especially after Brexit. City AM, a free sheet for wannabe masters of the universe, but useful only as tonight’s fish and chips wrapper, is a particular enthusiast of the concept. Perhaps, Macron should read it, too, as he says he wants France to be like a start-up.

    Rachel Whetstone, her hubby and some other associates advised Cameron and dispersed to Silicon Valley and Shoreditch, just around the corner from my office at Spitalfields, after the 2015 general election and Cameron’s defenestration a year later. They are (still) touting firms like Uber as the saviours of the UK. One often writes about it in the London Evening Standard, now edited by Osborne. Whetstone’s husband worked at Downing Street in t-shirt and flip flops.

    Cameron and Osborne, and Brown to an earlier and lesser extent, were suckers for these types. If it was not for the techies, Richard Florida, Cass Sunstein and Richard Thaler were the fonts, but really pseudo intellectual cover for neo-liberalism in the way that the Kagan clan provides cover for neo-imperialism.

    Genuine question: Why does it seem that most people who I know use Uber and AirBnB are women and / or neo-liberals?

    1. PlutoniumKun

      Why does it seem that most people who I know use Uber and AirBnB are women and / or neo-liberals?

      Not being a woman, I can’t give a first hand answer, but in my experience women really value being able to pre-vet and identify a driver. I know thats why so many of my female friends love the mytaxi app – even if its as easy to walk out and hail a taxi they prefer the safety of being able to know the drivers name and face first. For the same reason, I know parents who like that feature if they need to get a taxi to ferry their kids somewhere*.

      I think its also probable (I don’t know if there are stats on this), that women simply use taxis more than men, so are maybe more cost conscious. I think the reason why neolibs love Uber is self explanatory.

      *incidentally, this works both ways. A taxi driver told me that most drivers like the security they get from having a clear record of the rides. There was a case a few years ago in Dublin where a taxi driver was the victim of a false sexual assault claim (a teenager who concocted a story of being kidnapped by a taxi driver in order to explain to her parents why she was home so late). It was from tracking phone data that the police were able to exonerate him.

      1. DJG

        PlutoniumKun: Yes, a woman just mentioned to me a few days ago that, for women, having a record of the driver and being able to track the ride from start to finish, can be a factor.

        On the other hand, I find the ad campaign by Yellow Cab in New York to be telling: Two women in a Yellow Cab asserting to the viewer that they feel safer in Yellow Cabs.

      2. Colonel Smithers

        Thank you, PK.

        Fair comment.

        I just thought there was a novelty value to it and said ladies, being a bit neo-liberal, their way of socking it to “bolshie” cabbies. One is often sending me links to sign petitions in support of Uber’s lobbying efforts.

      3. FluffytheObeseCat

        Yes. The ability to pre-vet also matters with Airbnb, although it’s not as acute as with transport. Women quite commonly (in my 30+ years of adult female experience) don’t get treated as well by staff at mainstream hotels as men do. I’ve certainly been talked down to when trying to politely dispute billing at the end of a stay, i.e.

        After a few incidents of being slighted or shortchanged in hotels and motels, I was happy to give Airbnb a chance. I still find that I stand a much better chance of getting an uninterrupted night’s sleep at an Airbnb home than in a multi-room, professionally run hotel.

        I realize it’s the done thing here at NC to consider Uber and Airbnb entirely equivalent in rottenness, but I don’t. I have been less abused by Airbnb to date, than by many ‘mainstream’ providers within the lodging business. If Airbnb remains too much in the Silly Valley bro mode….. I’ll switch my business to VRBO or similar. Airbnb is not the only booking service out there.

        My single attempt to use Uber – during a driving rainstorm in San Francisco – resulted in a canceled ride. I ended up walking uphill ~10 blocks from the Caltrain station, and I removed their app from my phone. But, I don’t dislike livery booking services as a matter of principle either. I’ve been mistreated by cabbies over the years as well.

        It’s just a woman thing.

        1. lyman alpha blob

          I realize it’s the done thing here at NC to consider Uber and Airbnb entirely equivalent in rottenness…

          For me the rottenness isn’t due to the service they provide. It’s the fact that their business models are based around breaking the damned law with impunity. Throw around some bul**it 10 or 11 digit market cap figures and suddenly you’re not a criminal in the eyes of the authorities but an entrepreneur!

          If they were forced to play by the same rules as everyone else, they’d be worthless in a hurry.

        2. Jen

          Admittedly I am a sporadic traveler, mostly work related for conferences, and some regional travel for races (I row), all in the us. I make a point of staying off the beaten path and have found plenty of good places to stay without ever venturing into air bnb. I’ve certainly encountered places that had attitudes about single female travelers, but they have been few and far between. As for uber, wouldn’t touch it with a ten foot pole.

      4. Yves Smith Post author

        This is ignorant. With any city with regulated cabs, the hack number of the driver is displayed. In NYC, you also have the cab number on the top of the cab. They are required to record the start and stop of each ride and you get a receipt with the pickup and dropoff time and fare (ie the meter forces their record to tie out to the start and stop of the ride).

        I’d rather be able to complain to a city government than a private company any day of the week.

        1. PlutoniumKun

          Yves, thats not always the case this side of the Atlantic. Taxi drivers (hackney cabs) have to have their livery number up, but you can’t read that until you are in the car. Minicabs (a separate class of private hire vehicles in the UK) have less regulation. When I lived in London it was common practice for women to ask a friend to make a visible show of noting the registration of a minicab when they were picked up at night. There have also been cases of ‘fake’ minicab drivers monitoring the radio and picking up fares, this happened to me once on an airport ride. I had the uncomfortable task of apologising on the phone to the angry driver who was waiting for me while a very unpleasant guy driving me pretended not to notice (I was in too much of a hurry for my flight to demand he bring me back).

          Having said that, even if there is no safety benefit, in recent months I’ve had two female colleagues comment that they feel more comfortable knowing the driver who is coming to pick them up – completely anecdotal I know, but thats what they said.

          1. Yves Smith Post author

            I simply cannot relate to this attitude. I’ve taken cabs all over the world, including in Zagreb and Caracas. The only place it was unsafe to get a taxi was in Johannesburg, where anyone, male or female, was at risk of being kidnapped and so you always called a car service.

            1. PlutoniumKun

              I think its the difference between urbanites and others. As someone who’s lived all my life in cities it would never cross my mind to feel anything other than safe in a taxi, but – I’m not sure how else to put it, but the people I have in mind are from the outer suburbs or rural areas and probably read the Daily Mail too much. A lot of people – and this I think is made worse by regular media and social media – think the world is a lot more dangerous than it actually is.

            2. Dael Morris

              No idea where you where using taxis in Johannesburg, but I live there and people use them all the time. The issue with meter taxis vs Uber in South Africa is one of vehicle quality – regular taxis are often in a terrible state of disrepair – and standard billing. For reasons of poverty many taxi drivers negotiate the fare after the fact, having switched off the meter during the ride. This makes people uncomfortable and the significance of predetermined costs and easy payment loom large for Uber. Security failures, however, apply to both, as recent newspaper reports make evident. If there’s the impression of greater security with Uber, it’s a mistaken impression.

              1. Yves Smith Post author

                This is was in 1997, and I was warned by an American buddy who did business there (big hulking guy who’d sometimes get in bar fights) and the people at my client in Jo’burg not to take a cab because kidnappings by cab drivers were pretty common.

                1. Dael Morris


                  Honestly? Kidnappings have never been a big thing. Killing is much more straightforward and local crime on tourists tends to oscillate between the practicality and straightforwardness of mugging and the practicality and straightforwardness of killing. Interesting to hear that there was a layer of urban legend being traded.

                  As a medium-size semi-hulking guy who served in the conscript army as a paratrooper, has been in bar fights, and who lived very rough on the self-same streets for some time, I attest this by my mark: X.

                2. Dael Morris

                  Basically, South Africa resembles Brazil in some startling ways, in part because of the neoliberal trajectory that both have tried to follow in different ways, and because of the colonial/racial legacy that separates people by both class and ethnicity, but that expressed itself in different crimes.

          2. lyman alpha blob

            You mentioned that people like to know the driver’s name and face first. I initially read the latter part as ‘race’ and now can’t help but wonder if that has something to do with it.

            Never taken an Uber so I’m wondering if you can hail a ride, refuse it once you get the driver’s info, and then hail another one? If so, I’d LOVE to see the stats Uber has on people who aren’t accepting the first available ride and the demographics of the drivers who are refused. That could possibly put the lie to the claim that people use Uber due to the greater convenience compared to a regular cab.

            1. PlutoniumKun

              To be honest, the ‘race’ thing crossed my mind too, but I’ve no idea if that is the case.

        2. Silas Barta

          You don’t understand why someone would be more assured by a name, face, tracked position, trip record, and GPS tracking of rider position throughout, than a generic hack number and opaque regulatory process they have to re-learn for every city?

          Well, okay, but that’s more an indictment of your empathy than a vindication of your core point. Not everyone is a world traveler well versed in the art of hailing cabs.

          1. Yves Smith Post author

            You seriously think Uber will be on your side if there was any trouble with getting that info or doing anything about it? Look at the rape victim in India. Uber’s incentive to make the passenger out as crazy and exaggerating are strong. Cab drivers are required to log the start and end of their trip locations and times, which can be tied to the fares on their meters, which also record trip starts, endings, and fares, which means the trip sheet needs to be accurate? Tell me what does the detailed GPS tracking add in the event of trouble? Not much from what I can tell.

            On top of that, did you miss that Uber driver ratings are utter unreliable, that it’s common for passengers to hop in and say, “5 for 5” as in “I’ll give you a 5 rating if you give me a 5 rating”?

            Finally, did you forget that Uber knows were you went and its app ALSO sucks down your contact info, as in your entire address book? Pray whom to you think they are selling THAT to?

            1. Tim

              I drove a cab in a tough town, St. Louis, while I was in grad school. First, getting a hackney license is almost impossible if the local police see anything in your records or they decide they don’t like you for pretty much any reason. Second, seasoned drivers and dispatching companies make sure bad eggs lose their jobs quickly and permanently for even minor transgressions (except maybe taking a slightly longer and costlier route as long as it’s at least a second faster).
              The business isn’t full of saints, it’s simply that everyone’s interests are aligned to keep things on the up and up.

              I’m also sure that no cab drivers would video a fare and post it on YouTube just because the fare was acting like a complete narcissistic jack-off – so even Kalanick would have been safer in a cab.

              I can’t speak to all places or times, but there is very little to be worried about in a cab and safety can’t possibly be a reason to prefer Uber.

              I do use Uber occasionally now because it’s easy and because it makes me feel good to know that rich people all over the world have gotten together to subsidize my travels.

    2. templar555510

      I agree with you Colonel about Cameron, Osborne et al being ‘ suckers for these types ‘ . It makes them feel they are cool. But our Head Girl doesn’t fit the mould so maybe ( fingers crossed ) the day of the political grifters – Blair and Cameron being the exemplars – has passed. If it has the big question is ‘ what comes next ? ‘ There is a rather melancholy feeling in the air at present .

    3. oho

      >>Why does it seem that most people who I know use Uber and AirBnB are women and / or neo-liberals?

      TL;DR—both are dirt cheaper and odds are that your last Uber-Lyft driver appeared less dodgy than your last cab driver and had higher odds of being a person from your peer social class (ie middle-class, college-educated).

      don’t flame the messenger, it’s all about class. you may be a post-enlightment humanist, but most people ain’t

      1. Duquois

        That is why my father likes Uber. He says he know no crab pickers (literally) have been in the car so it is therefore more clean. Being from a college town myself, I find this argument less relevant. College kids puke in whatever picks them up.

    4. Eclair

      My one example from my family, of Uber users, seems to confirm your observation, Colonel. My daughter and her family live in Hoboken, NJ; both she and her spouse work in the City and the kids’ school is there also. Although they all use public transportation on a regular basis to get to work and school, she has been a happy Uber user since its inception, for late nights at work, evenings out and, for the kids, when they are at school for evening activities, especially if they are not traveling with at least one other of their friends.

      I confess I have accompanied her twice when she has hailed Uber; felt like a scab crossing a picket line.

    1. RenoDino

      I think tipping will kill 30% of their business. Along with cheaper rates, this was the other big pricing advantage. Just knowing you are not allowed to tip someone in this beaten down service economy is like dying and going to heaven. No one will believe them when they say the tip is linked only to the trip and not the rider, and if I’m a big tipper, I want better service the minute I hail my ride. As times grow more desperate, Uber will probably start taking a cut of the tips as an administrative fee if they don’t do it on day one.

      1. oho

        >>> think tipping will kill 30% of their business.

        there’s a lot less social stigma in not tipping a driver. And Uber normalized not tipping—as Uber PR conveyed the impression to the public that drivers earn a living wage via the base fare (with the media largely ignored the rebuttal from drivers).

        And as everything is via credit card, drivers don’t know whether or not someone tipped via credit card until after the payment clears. (as if the concept of tipping with cash, or even having carrying a few bucks, is alien to many, many people)

        1. Quanka

          You aren’t factoring in that — lets argue over the numbers but for arguments sake lets say 50% of Uber’s business is the NeoLib type (Tech = awesome) while the other 50% are average folks who are looking for the best deal in true American Consumer style. Tipping will automatically hit Uber’s bottom line the latter category, especially if you factor in surge pricing.

          Tipping will even the scales (not entirely but somewhat) between the tech taxi companies and traditional taxi companies. Remember – Uber is already hemorraging money and can’t afford any hits to their pseudo-dominant market position.

          The more they look and feel like a taxi company the less they have a pathway to profitability. So how to do reduce a 0% possibility further? Just faster.

      1. Anon

        It’s no longer the 1950’s; when the modes of travel suggested were part of a families options. Today, public transportation in many areas is clumsy; riding a bike on streets clogged with cellphone-distracted drivers is lethal, and walking ten blocks to the local ballfield for practice has become a trek of 5 miles to the Regional Rec Complex. I’m sure sharing arrangements with parents still exist today (I just wish they would stop speeding through my neighborhood!).

        1. Arizona Slim

          My mother lives two doors away from an elementary school. Back in the day, when I went there, I had to walk. Oh, the agony!

          Nowadays, the little dears are driven to school. At breakneck speed (until they hit the School Zone flashing lights) on a narrow two-lane back road. Mom refers to the twice daily rush hour as The Mommy Parade.

  2. Nameful

    “Uber’s former head of its Waymo driverless car unit, Anthony Levandowski”

    Slight correction here:

    Waymo is Google’s (Alphabet’s, actually) self-driving unit, which has sued Uber. Levandowski left Waymo, and founded Otto (a company that “intended” to develop self-driving trucks) which promptly got acquired by Uber.

    1. Yves Smith Post author

      Ooops, and I actually knew that and looked up articles to find the spelling of Levandowski s name and had only Waymo re-lodge in my brain! Fixing!

  3. Chauncey gardiner

    “…but Bezos gets away with it because the company is lauded as the epitome of a successful techology company.”

    honestly, i have stopped reading after above. You think Bezos is any better than Kalacnik? Or that so-called CEO of Yahoo? All of them are just simptoms od one very sick society.
    Financialy Uber is not any worst than Amazon but Bezos clientele is coming from the National Security State while Uber’s are ordinary people.

    1. Yves Smith Post author

      It appears you have a reading comprehension problem. The saying “is lauded” means unnamed parties are doing it, which happens to be true whether it offends your tender sensibilities or not. A statement of fact does not imply endorsement.

      1. Arizona Slim

        And this is why I keep coming to this blog. Moderators who really know how to play hardball when they have to.

        Go, Yves! Get ’em, tiger!

        1. H. Alexander Ivey

          Moderators who really know how to play hardball when they have to.

          And this is why I put my money where my eyeballs are. ?

  4. Ed

    Uber is rated as one of the most beloved and popular brands in the free world by taste makers so all these little hiccups aren’t going to change anything. Nobody wants to use anything but Uber. We are in a post profit economy so “losses” don’t exist as such.

    1. Stephen Gardner

      It’s only post-profit for the little people. For what George Carlin called “the real owners” it never was and never will be a post-profit world. They exist only to extract profits. It’s like blood for vampires–it’s what keeps them alive.

    2. Duke De Guise

      Gee, are “taste makers” related to “thought leaders?”

      Because, if so, I hate them, too.

      1. Arizona Slim

        Me too. I’m also developing quite a bit of hostility toward “entrepreneurs” and “innovators.”

        1. Sue

          I watched two Elon Musk’s long interviews. I won’t discard anytime soon he is a Blade Runner replicant. A quasi perfect android promoting the rise of the machines

    3. Sue

      You are delusional about your profit-loss scheme. I will say I do not feel bad for the investors. Money is cheap to them and very expensive to most of us.

  5. oho

    And for economists/pundits/the Fed who wonder—-gee, why isn’t wage inflation exploding in the age of Uber

    Another aspect of Uber—-pretty much everything is outsourced to a third-party provider except core management functions and those who audit the work of the providers. With Lyft, they outsource almost as much as Uber. And of course, a lot of this work ends up in India (not picking on India to pick on India, but because it’s the fact).

    Result: often shoddy customer service and driver support.

    Source: when I was a driver gave lots of rides to employees/contractors of Uber and Lyft. back when Uber/Lyft employees loved to boast about their employer.

  6. anonymous

    Yves – This whole series has been incredible to read. Hats off to you and Hubert.

    Re: Barclays, while they did bring in the bench in 2012, the current CEO, COO, CFO, CRO and CIO were all hired into their positions directly from JPM.

    1. Colonel Smithers

      Thank you.

      I agree about Barclays. I was there from May 2014 – June 2016, as the JPMC gang arrived.

    2. Yves Smith Post author

      The point was that unlike Salomon, Barclays could continue operating just as before even with so many top-level losses in a short period. They didn’t have to run and get an outside to plug the management holds immediately.

    3. Dael Morris

      Agreed. I find this brilliant and am very grateful for the detailed breakdown and analysis provided.

      Personally, as I’ve said to people before, my guess is that the VC community (a) treats Uber as a beachhead for the destruction of labor laws, which has other benefits, and therefore sees a portion of that investment as sunk, and (b) is gambling on recovering their investment when a public offering is made, before real world evaluation kicks in.

        1. Duquois

          My county just passed additional taxes/requirements for short term stay businesses like AirBnb.

          1. David Carl Grimes

            I’ve tried AirBnb once. I think it’s great if you stay in one place for a week or longer. It can be a hassle to get and drop off the keys to the apartment because you have to make arrangements with the owner who may or may not have a job and may or may not be available at the time convenient to you. The cleaning fees can also be substantial and it can be a hassle leaving the apartment in the same condition you found it in to avoid being dinged for cleaning fees.

            For shorter stays, I prefer to stay in hotel or B&B.

            1. JoeK

              I haven’t found AirBnB room prices to be economical at all any of the several times I’ve checked. Maybe just my bad luck.

          2. Arizona Slim

            Here in Pima County, the meanies at the County Assessor did some sleuthing through the local AirBnB listings. Which were re-classified as rental properties. Ka-ching. Higher property tax rates.

            There was much unhappiness among the local AirBnB listers.

    1. GW

      AirBnB is providing access to unique assets. There is – to a degree – a moat around each individual asset aka. location, location and location. Supply is limited, assets not fungible and can be increased only at high up-front cost. Unlike Uber AirBnB can make money. Upside is limited however as they are imho. in the travel portal/platform business however at the moment with some network and stickiness advantage. They may follow the path EBay is going if they are not careful if they do not manage growth and quality.

  7. Jus"Thinkin

    Funny how your mind works. When I read “sold/merged/whatever” I read it as submerged/whatever.

  8. Tim

    There is a simple solution for fixing Uber. They need to hire back the lobbyists to wine and dine all the state and local pols to reinstate regulated fares at a level where Uber can make a profit. Anyone want to take bets that they go through some version of this during their death dance?

    One of the most destructive trends during my life has been creating a new standard that requires perfection from unions, regulations, standards and anything that protect the rest of us. Uber attacked and destroyed the protections for the taxi industry far too easily. Of course the industry and regulatory structure were imperfect, but it looks like the Supermen were unable to do better.

    1. Quanka

      Apparently — note to Obama — better PR only gets you so far. Let’s hope the undoing of Uber is to Plouffe the way some unforetold event is to the undoing of the legacy of the Obamamometer. I know one person who won’t have any trouble getting his hands on some Cuban cigars notwithstanding the latest idiocy from the Trump administration.

  9. Sutter Cane

    If Uber fails to go public, or if the IPO tanks, will that event finally mark the popping of the tech bubble? And with it, the domino collapse of the stock market and housing bubbles (to badly mix metaphors) along with It?

    Once tech companies in the Bay start downsizing, housing prices there will start to collapse, with a ripple effect eventually reaching Austin, Denver, Portland, and other secondary bubble towns. A general downturn that eventually hits stocks in general and deflates the “everything bubble?

    Or does everything just keep chugging along as-is with no end in sight? I’ve been a bear since the 2008 crisis and have only been consistently wrong, while looking around and thinking “Is everybody taking crazy pills???” so at this point I fully expect Uber to continue indefinitely with no comeuppance.

    1. oh

      I think there are signs that the bubbles are coming to an end. A small interest rate hike recently appears to have put on the brakes for the stock market.

    2. RabidGandhi

      Ejecting Kalanick provides the perfect scenario for preserving the mythology you mention. Since, as noted copiously here, none of the news stories refer to the actual problem of Uber et al. not having profitable business models, this entire affair will be dismissed as a problem of not having “the right people” ride the unicorns, instead of questioning unicorns themselves. “Uber is a great idea but Kalanick fostered the wrong corporate culture” is the perfect explanation for the deluded cheerleaders who have inflated this bubble from the start.

    3. Adrienne

      Bay Area real estate is already showing signs of ill-health. My Mom has lived on the Peninsula for over 50 years, and been a keen RE market-watcher (as are all local homeowners). She sold her luxury condo in Menlo Park last year to a Chinese family, sight unseen, in two weeks, for more than the asking price (she moved to a retirement community). This spring, houses in the same neighborhood are moving slowly and are selling below asking price. The condo development has traditionally been attractive to older folks downsizing from the “big house,” but those places aren’t selling so good now.

      We both agree her timing was perfect. She’s now encouraging her friends to sell while they can still get a good price. If (when) Uber tanks, look out.

  10. none

    Someone on yesterday’s Hacker News thread said Uber’s bet seemed to be on using its huge cash pile to build self-driving cars and get rid of all those expensive human drivers. Thus the Lewandowski saga and all that. All hail our new robot overlords.

    1. Yves Smith Post author

      We’ve written before how self-driving cars are a fantasy. They’ll take infrastructure changes to work. The place they will happen first if they will happen at all is long distance trucking. A city is the worst place to try to implement this technology. I don’t even want to dignify this idea even though I probably should debunk it occasionally.

      1. none

        Well nobody said the self-driving strategy was going to be successful. It’s just the imagined path to profitability that they seem to be pursuing, that would explain some of their actions.

        Meanwhile I guess Kalanick has gone “Galt”?

      2. yan

        To further drive this point: I went to a conference on “connected smart cities” yesterday and not only roads will have to change, some guy from Hitachi was telling the audience that an autonomous -but not driverless- car needs data transfers of at least 25 GigaBytes per hour in order to properly function.

    2. oho

      >> get rid of all those expensive human drivers.

      as if all the ultra-HD mapping, processors, 5+G connectivity, and programmers are free.

      and don’t forget laborers to clean robo-cars. otherwise they’ll turn into a 1982 London/NYC phone booth.

      1. skippy

        The thing with tech replacing humans is that it makes the maths easier, MBA wet dream.

        disheveled…. yet none think of the long term demand issue, profit today myopia.

  11. voteforno6

    First of all, thank you for the continued reporting on Uber. It has been insightful, informative, and quite revelatory – particularly for someone with rather limited exposure to economics.

    I do have a question – for a company to issue an IPO, aren’t there some mandatory disclosures that are required? If their finances are as dire as have been reported, wouldn’t that come out during this process? If there are some investors that are pushing for an IPO, then it seems like Kalanick and others have to be misleading them about the company’s finances as well. Going public seems like it would be a massive pump-and-dump scheme by some of the insiders.

    1. Lois

      I agree – fantastic reporting! I’ve always stayed away from using Uber based on reporting about the lack of regulation, but this series was so eye opening about how much money they lose – I.e. Not a sustainable business at all!

      One question – is there a way to get an Uber tag or article that lists all 10 Hubert articles plus this one? I have so many friends who use Uber and just rave about it, plus say things like the drivers make enough without tips! Plus they think it must be profitable because it is everywhere (non-finance friends – I’m an accountant). I’d love to send out one link where they can read it all.

    2. Yves Smith Post author

      Yes, you have to provide among other things, audited financials, as well as a much more extensive discussion of the details of the business operation than in an annual report. The required SEC form, an S-1, typically results in a long prospectus. The SEC also reviews the IPO documents before allowing the company to go public.

      1. Quanka

        Exactly why Uber will never file an IPO. Apparently the business press (outside of H.H. and NC) didn’t bother to do their homework. This is the point I keep hitting to my MBA and NeoLib friends, you know those master of the universe — outside of an outright monopoly (which HH has shown will not happen in this industry) … how exactly do they make money?

        They dont. And they wont file an IPO as a result. Or they will and you should short it from Day T minus 1.

        This is the equivalent of a kindergartener trying to file a business plan and the press ate it up, “hook line and sinker” as they say.

  12. Knifecatcher

    That HBR article made a great analogy in comparing Uber to Napster. I’m going to be repeating that comparison from now on. If you build your company on ignoring laws and regulations it doesn’t matter what technical innovations you build in the meantime. Eventually you’ll be shut down and other companies will figure out how to take advantage of your innovation in a legal way.

    1. Sue

      Good point. Kalanick thought too that he could dominate markets in any country without the opposition from the economic agents who were making a living in those markets. Think of Spain’s major cab driver’s strike last week

  13. Ash

    I think most VCs etc see (or want to see) Uber as too big to fail and so want to believe and so are looking more for a redemption story than for analysis.

    These are folks famous for investing on a 30 second elevator pitch and 5 “slides” of a pitch deck, who prefer investing in 20 years, and early 20 year old than in 40 or 50 or 60 year olds, and who literally invest like herd animals, based on what the other VCs are investing in, trying to get in with the early crowd to signal their importance.

    So what they want is an Uber redemption story that will sound great to investors and the press to turn this ship around.

    That’s why Uber is stacking it’s new execs with women, so they can sell the story all the bad stuff was because of Travis and his bros and they are now all gone and we have a feminist friendly company valued at $70B with the yugest of markets.

    What do they care of long term profitability? They just want the elevator ride to continue from one VC sucker like Saudi Arabia to the next. They will flip their shares on the IPO and be gone.

    In light of that, I’d like to suggest that if Sheryl Sandberg turns Uber down, there is an obvious woman to lead the company, who came to the state department, swiftly understood all it’s complexities and led, she has faced sniper fire, she is ready for that 3 am call, and she won the popular vote which would be just what is needed to assure Americans it’s time to leave the driving to Uber.

    Hillary Rodham Clinton for Uber CEO. She’s tan, rested and ready. And it’s her turn, again.

    1. Yves Smith Post author

      Sandberg has turned Uber down in Bloomberg. Said she wasn’t leaving Google but gave a self-serving interview about how she knew what it would take to fix the place, as if its only problem was the macho culture. Help me.

      They ran out of rich suckers. Last round of fundraising was to the only money dumber than the Saudis: wealthy US individuals.

      1. Ash

        Hacker News has a thread on what would you do to turn Uber around, and no one has suggested “find a model that lets you pay the drivers”.

  14. Lynne

    Last night, I heard a commentator say that Uber was a failure (along with Lyft) because they did not understand that their real customers were the drivers, and that the service needed to be set up to deliver (no pun intended) riders to the drivers and not the other way around. He predicted that there would be replacement companies that would succeed as soon as they realized that. Never heard that before…. The news anchor was speechless after the comment.

    1. PhilM

      This is a terrific point. The same way that for the owners of strip clubs, the real customers are the strippers, who pay for the opportunity to market their services in a regulated space.

      The basic principle is that the people who create the market are the big winners. This has been true since feudal lords created a regulated space for people to trade.

      After a while, the bourgeoisie gained enough power to regulate their own spaces.

      That was a sign that they had won the class war in their zone of operations: at first, the cities that gave rise to European culture during the Renaissance; later, regional states; now, entire continents.

      The corollary is that people who talk about the importance of “free markets” have completely missed the fundamental point: that all markets are political. There is no such thing as a free market–as soon as one exists, it exists because of force and regulation. The only thing you can do is compare the efficiency of the markets in their major function, which is safe co-location of suppliers and purchasers, and the relative suppression of anti-social behaviors such as fraud and coercion.

      Uber is an absolutely perfect test case for that. Fascinating to watch how people distort or co-opt existing markets for short-term profit, to the long-term harm of the society as a whole. This is truly Yves’ finest subject area: it is just as it was with the bankers. She nails the business fundamentals and the politics here every time, and it has shaped the way I, for one, view the world of economics, just as did “Popular Delusions…”

    2. JTFaraday

      Honestly, I think the app was a great idea. But there is nothing about the app that isn’t readily imitated by those already providing a regulated environment for drivers AND riders. I think it’s not so hard to see this. Uber quickly become very substantially about destroying that regulated environment, and that’s why the usual suspects dumped piles of money in their laps.

      It was an ideological wet dream, and that’s why so many people reacted so negatively to it.

  15. ChrisPacific

    According to one article I read, Kalanick’s 60% control was conditional on his continuing in the CEO role:

    Amassing voting rights will not help Kalanick win in all situations. For matters that are put only to a board vote, such as whether to remove top executives, each of Uber’s seven voting members has one vote. And Kalanick will not control the voting rights associated with the employee stock options if he steps down or is ousted as chief executive, leaves the board, or is no longer dedicating the vast majority of his professional time to Uber, under the terms of the employee buyback agreement.

    If this is accurate then it suggests that removing him as CEO will hand effective control back to the board, and may in fact have been the only option available to them to achieve that outcome.

    1. ChrisPacific

      Also from that article:

      The agreement also obligates Uber to buy back an employee’s stock at a price that tracks the value of the company’s common stock, as determined by an outside party, and that price is locked in for the life of the payout. Uber’s valuation has skyrocketed over time, to nearly $70 billion. More employees may take the buyback deal now amid worries that the current management troubles could affect the company’s valuation.

      So as if things aren’t bad enough, Uber could be obligated to buy a lot of its own stock at vastly unrealistic prices in the near future. I think any Uber employee who is eligible for the buyback and doesn’t take it right now needs their head examined. That said, the combination of billions of dollars of investor cash with minimal adult supervision probably means that most techies there have led a fairly cossetted existence (the males at least). A lot of them probably feel they are doing good work and will naively assume that will translate into profits and success.

    2. Yves Smith Post author

      Wow, this is a key detail and I will amend the article to include that.

      But even one of seven board members can cause a lot of trouble. Witness Ted Turner at Time Warner.

  16. David Barrera

    It was primordial for Uber to remain private. They never lacked the necessary funding -even newspapers reported how Kalanick turned down money from pop culture celebrities!- and Uber’s modus operandi was about willingness to incur losses in exchange for a winning position on a specific technology which no one knows when it can be implemented (politically and from a macroeconomic viability view). This,then, excluded the IPO possibility for the obvious reason of having to show short-term positive earnings and the reason that the company still very “long-term castles-in-the-air valuations” could not be sustainable under a public company status. Uber’s pricing -and other strategies- for its core car riding operations, for example in China, confirm how the company could not and did not want to go public. Also the losing battle against Didi for the Chinese and the South East Asian markets fits to perfection my above narrative: Uber’s aspirations could only succeed under its having an incredible sway over the ruling political powers. Its main objective to prevail above Didi would have required more than economic acumen; it would have required membership to Li Keqiang’s inner club. Let’s face it: the so-called Kalanick’s culture can possibly get away with testing driverless vehicles without authorization in some US cities or with using “deceiving psychological techniques” on drivers/contractors or with uncontrolled testosterone pouring on female employees; but it did not seem at any time to have enough political influence (nor internationally, nor domestically) to leap from its driverless unit research and temporal partnerships with automakers to a one-to-come market reality that could make the private investors worth their investments.
    BY THE WAY, I love this article by Ives.

  17. Kevin Carhart

    Can the story of Uber’s entire lifespan be brought to bear on expectations and assumptions the next time around? In other words, when a cartoony logo for a “new” app is just suddenly there one day, and somehow has the money to take out advertising on the sides of city bus stops, pushing themselves into the public’s consciousness, let’s put an albatross around their necks called Uber and Theranos. The biased startup-press and the company’s marketing-communications will always want to portray them as brand new, with no continuity with the past. The uncanny new phrase “origin story” is part of that. “Why would you tar and feather us with something Uber did? That’s completely different people, nothing to do with us! Prior to our origin story, we didn’t exist!”

    The founders are always entirely new people, yet if you listen to the remarks of the top 50 sharing-economy and other startup figures over the past 5-6 years, they sound coached. There are similarities in their playbooks and how they talk about their playbooks. Maybe they have lawyers, VCs in common, or they studied with common business school profs? The point of asking these questions is to say can we bring the continuity to bear when the project is still new and they are enjoying the “benefit of the doubt” and that it’s “early days yet,” to try to prevent some of the harm that startups cause, rather than just punishing it after the fact?

    1. Bobby Gladd

      I guess Mike Judge and his peeps have got it right. “Silicon Valley HBO” is increasingly seeming to be less farcical/slapstick than I nominally first thought (they had me at Season 1.1 with the Kid Rock thing, LOL). I’ve been covering the Health IT space for the past 5 years or so for my little blog. The startup/VC sessions I’ve seen have me nodding and laughing as I’ve been recently watching Judge’s series. It’s the same schtick over and over.

    2. Blennylips

      You’ve not heard of Y-Combinator? Been coaching since 2005.

      Y Combinator created a new model for funding early stage startups.
      Twice a year we invest a small amount of money ($120k) in a large number of startups (recently 105).

      Last April they started a startup school (how meta!) lists their startups, many cute logos!

      At random, here is a “dead” one:
      SpoonRocket — S13 — Dead — Most convenient meal ever.

      1. Kevin Carhart

        Fascinating. I was vaguely aware of the incubators. I sure as hell had never seen the list laid out like that.

        Innocent people actually get hurt by these pilot projects sometimes. Homejoy is also on the list, and they folded over their classification suits! Liss-Riordan sued Homejoy. Yet, she didn’t sue the Y Combinator. Do general partners of capital firms bear legal responsibility for wrongdoing by portfolio entities, ever? Who designs a controversial strategy like misclassification? Is Adora Cheung of Homejoy doing it on her own, or is the incubator strongly encouraging her to?

        Thank you Blennylips. As you say, this is not new, but it seems like a missing link in how to think about the phenomenon. Nobody is being upfront about it. When the cute logo appears around town (in large urban downtowns especially), it does not come out and say “Another fine startup from Y Combinator! From the makers of, Homejoy, they folded over wage theft!” Dear me, surely not, that is Cheung’s responsibility, and hers alone!

      2. Kevin Carhart

        One more thing: I was curious about the Form ADV. The latest ADV for Y Combinator ( ) does not mention any startup by name, so apparently there is a shielding layer. There is a section where you have to give your disciplinary history. But apparently that only refers to securities law violations involving the adviser’s advice. Wage & hour violations by a portfolio entity is apparently not in the category that the adviser has to discuss as a scrutiny of themselves. Maybe Homejoy is old news (went out of business around 2 years ago) but there is absolutely *NO* commentary about trouble of any kind in this ADV. They clicked the radio buttons and gave the bare minimum. So there is a lot more going on on the other side of the moat, which they aren’t mandated to disclose, so they don’t.

  18. allan

    Judge says San Francisco can subpoena Uber for driver information [Reuters]

    A California state judge said on Thursday that San Francisco can demand from Uber records containing the ride-hailing company’s driver contact information, the city attorney said.

    San Francisco City Attorney Dennis Herrera last month sought a court order compelling Uber Technologies Inc to comply with the city’s demands for information about the company’s drivers. The city Treasurer and Tax Collector’s Office wants the names, addresses and driver’s license numbers of Uber’s drivers.

    Superior Court Judge Richard Ulmer in San Francisco said in court that he will rule that the tax office has the authority to subpoena Uber for the information, Herrera said in a statement. The official ruling was expected as early as late Thursday.

    Uber had provided the city with the driver information for more than two years, but stopped in December. The company argues that the request violates driver privacy and could endanger drivers’ safety.

    Like Uber for irony.

  19. paul

    apologies,my html skills are rusty.
    Probably good enough for uber.

    I’ve never driven a car but I have a vision how nobody should without travis’s dispensation

  20. Doug Wenzel

    Uber has only succeeded because it helps to have a much better fixed and variable cost structure, all built on breaking all the the rules, plus a bottomless well of VC money subsidies. There was a study that showed that riders saw $1.60 in perceived value per dollar of fare in a Uber ride. Just one problem – those 60 cents were about equal to Uber’s losses – and that’s without counting all the expenses cabbies are saddled with. The moment Uber has to charge enough to make a profit and to stabilize the population of drivers (at some point the churn has to slow, because they will run out of drivers), and the moment cities have lost all their cab revenue, and instead want a cut of Uber’s action, the party is over.

    Don’t think the move to driverless vehicles will solve the problem, because the investment involved in that fleet will be huge.

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