Harry here. It seems like Uber’s bad PR just keeps happening, week after week. This week, it’s the departure of a top Uber exec and the potential for more employees to flee Uber. What does this mean for Uber – and Lyft? Senior RSG contributor John Ince breaks down the news, plus some alarming news for drivers who don’t have rideshare insurance, in this week’s round up.
Uber blew through $1 million a week in an effort to make UberPool viable in San Francisco [TechCrunch]
Sum and Substance: New documents leaked to BuzzFeed demonstrate yet again what Uber is willing to do to beat the competition at any cost.
In the summer of 2015, Uber was trying to make Pool work. The success of Pool, its service that allows drivers to pick up multiple riders along a route, was a priority for the company and a key step closer to what CEO Travis Kalanick often calls the “perpetual trip.”
The perpetual trip is Uber efficiency at its Platonic ideal — riders always in transit, drivers flush with work. Unfortunately, from 2014 to 2015, that ideal was particularly far from reality. BuzzFeed’s report suggests that when Uber launched Pool in 2014, the feature wasn’t really working. Only 7.9 percent of ride initiators matched with an additional rider — Uber used to call these riders a “minion” — but the company needed a higher match rate to make Pool work at scale. The low match rate isn’t surprising for a new ride offering, but the costs Uber was willing to eat in order to make Pool work are really something else.
To get people interested in the feature, Uber poured money into Pool, deeply subsidizing the cost of the shared rides to drum up interest. Interest went up: By the week of January 5, almost 42,000 riders used Pool and nearly 25 percent of those were matched with an additional rider. On January 19, 2015, the company introduced $5 flat fares to Pool. Interest in Pool doubled and 44 percent of the 125,000 Pool riders were matched with a minion.
By June 2015, the subsidies for its San Francisco Pool project totaled up to $6 million per month, well over $1 million per week in one city alone. “HQ was telling us we could not be burning the amount of money we were,” a former employee told BuzzFeed. “We couldn’t just give out subsidies that high anymore.” By late 2015, with the subsidies that attracted riders to UberPool no longer sustainable, 26 percent of riders had left for Lyft. As BuzzFeed reports, Uber even admitted internally in a November presentation that it was “Losing SF.” …
My Take: Fascinating peek at the internal dynamics of the UberPOOL/Lyft Line products. That Uber was willing to tolerate losses of this magnitude for so long is more evidence of just how much Silicon Valley and the tech world value growth over profitability for startups. Uber’s growth figures have always been the strength of the company in the eyes of investors, but here we have statistical evidence that once Uber cut the subsidies for POOL, riders bolted en masse to Lyft Line. This was all before Uber’s recent PR nightmare. So folks, it appears this game is far from over. If Uber can be losing the battle on its home turf to Lyft, then investors need to be taking a deeper look at this company… and Lyft.
Uber posts $708 million loss, finance head leaves [Reuters, Wall Street Journal]
Sum and Substance: Uber Technologies Inc’s head of finance is leaving as the ride-hailing company reported continued big losses for the first quarter, the Wall Street Journal reported on Wednesday.
The ride-hailing company’s first-quarter revenue was $3.4 billion, up 18 percent from the fourth quarter, the newspaper reported. Uber’s first-quarter loss, excluding employee stock compensation and other items, was $708 million, narrower than the $991 million reported three months earlier, the Journal said.
Uber’s head of finance, Gautam Gupta, is leaving the company in July to join another startup in San Francisco, adding to an exodus of top officials, the report said. As a private company, Uber does not report its financial results publicly but at times has confirmed figures reported in the media.
My Take: The timing of these two event invites all kind of questions. What does Uber’s head of finance, Gautam Gupta, know that prompts his departure and what does he see ahead for the company? Was there pressure to leave and is he getting out now to protect his own reputation? All part of the ongoing intrigue that seems to be following Uber everywhere they go these days.
The risk of rideshare deception [PropertyCasualty360]
Sum and Substance: Rideshare services such as Uber and Lyft are recruiting amateurs and college students to be drivers. Considered to be the “perfect part-time solution” for students and part-timers according to a recent post on an Uber newsroom blog. And some drivers are using their personal auto policies to falsely insure commercial activities. This is the new risk: drivers who are insuring their vehicles with personal auto policies and not advising their carriers of their rideshare activities. And they’re openly sharing advice on how to get away with it with fellow drivers.
The ridesharing concept has skyrocketed since its inception in 2009. They offer lower rates than licensed taxis through the use of the drivers’ personal vehicles, escaping most commercial regulation. Uber is the largest network. According to Fortune, as of October 2016, it had over 40 million riders and 160,000 drivers. They operate in 528 cities and 60 nations worldwide. However, with most personal auto policies, ridesharing can trigger a livery exclusion. Driving for profit creates greater risks. The cars drive higher miles. More unfamiliar areas are traveled. Increased exposure to multiple, unknown passengers. With this new risk, carriers are paying costly injury and property claims because some drivers aren’t revealing their rideshare employment. And the drivers are warning their peers through chat rooms and social media.
According to a November 2016 Reddit blog, a contributor advised: “Don’t let your insurance company know that you’re driving for Uber. They did not underwrite the policy for that, and they’ll want you to pay for extra coverage…” According to a Forbes article, 95 percent to 98 percent of the drivers may be hiding the fact they’re driving for a rideshare service. A driver said, “It’s a whistling-past-the-graveyard attitude.”…
The drivers fear they will be cancelled by their own insurance carrier as a result of their misrepresentation. A contributor on the same site warned: “If you never mentioned you were doing rideshare in the police report, you may want to go with your personal insurance because Lyft won’t touch it without that deductible. Whatever you do, don’t tell your insurance you were doing rideshare. They will drop you and your insurance will go up.” …
Just the slightest circumstance can jeopardize coverage. This could tempt drivers to misrepresent the facts to their own carriers to obtain benefits under false pretenses….If any unscrupulous party wished to stage an accident to obtain benefits, what better target than a vehicle with a million-dollar policy? Better yet, with the rideshare app, the origin and destination are known in advance. The perpetrators could plan the pick-up and drop-off points, and the route in between, perhaps in a desolate area. … Another type of staged loss could occur if the driver reports a loss from a fictitious hit-and-run accident. Again, this exposes the carriers to the rideshare’s high limits for the passengers, who might participate as false witnesses.
The rideshare industry is not a fleeting concept. The companies are actively recruiting new drivers daily. The drivers themselves have methods to communicate insurance advice online. As an industry, we need to similarly keep up and adjust our processes to remain savvy against any potentially-adverse exposures.
My Take: Insurance deception is the huge elephant standing in the rideshare living room. Seven years into the development of this industry, rideshare companies are still living with the massive deception – because they have to. Uber could easily require evidence that a driver has a rideshare insurance policy, but they don’t. Why? Because they can’t. If they did, they’d lose millions of drivers – overnight. It’s just one more reason that Uber/Lyft’s business model is suspect. The only way Uber/Lyft can stay in business is by perpetuating the deception – the insurance deception.
Why Uber may see a fresh flood of departures in the not-too-distant future [TechCrunch]
Sum and Substance: Last year, we told you about the employees at Uber who were seemingly handcuffed to the company, noting that those whose shares were vested can’t afford to quit. Startup employees typically have to exercise their options within 90 days of leaving a company or else lose them, and given Uber’s stratospheric valuation, that cost had simply grown too daunting. By February of this year, Uber had struck on one way to give restless employees a way to cash out, according to Bloomberg. Those who work at the company for at least four years can sell as much as 10 percent of their shares, though to ensure they don’t rush for the exits, they are paid out over many months and have to stay at Uber during that period.
Now, according to a new report in The Information, longtime employees wanting to move on with their lives have another path, thanks to a change in how Uber handles stock options. Specifically, says The Information’s sources, Uber is dropping the requirement that employees who quit must exercise their options within 90 days or lose them; instead, the employees will have as much as several years to exercise the options after they’ve left the company. It’s a major turnaround, and it will impact roughly 10 percent of Uber’s roughly 12,000 employees who’ve been with the company for least three years, says the report. (As it notes, in 2014, the company began to issue restricted stock units, or RSUs, instead of traditional stock options.)
Given the seemingly endless turmoil surrounding the company, it’s probably fair to assume that many of those people will, in fact, hightail it despite the morale-boosting gesture on Uber’s part. While they may represent a comparatively small percentage of Uber’s overall employee base, presumably these are fairly key employees, too, given their institutional knowledge of Uber. They may have company on their way out. In separate but related news, Recode is reporting this morning that Uber’s internal investigation into a former engineer’s claims of sexual harassment and general workplace hostility will conclude by the end of the month, and that two key executives who’ve come under scrutiny as part of that investigation — board director Ryan Graves and CTO Thuan Pham — may be fired as a result.
My Take: If you work in the startup world, equity is the prize. Uber had various rules in place to delay the prize to employees and keep them at the company. But apparently they’ve changed that tune, slightly. It appears Uber is starting to recognize and be more attentive to the interests of its employees. The value of the shares will depend on when they we’re issued and at what price. If I had equity in Uber I’d sell it as fast as I can.
Readers, what do you think of this week’s round up? Do you think insurance companies are catching on to rideshare drivers? Don’t forget to check out our insurance marketplace here if you don’t have coverage yet.
-John @ RSG
