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13 min read

    13 min read

    Harry here.  Uber’s had a ton of bad press over the past couple months, but I’m not sure it’s having much of an effect on passengers.  For the most part, Uber passengers still love the service and most of their interactions happen with drivers – not the company itself.  Today, RSG senior contributor John Ince shares a story on Uber’s future, an update on their COO hunt and how Austin is managing without TNCs like Uber and Lyft.

    Is Uber doomed? If RideAustin and upcoming lawsuits are any indication, Uber may be headed for decline. So how can Uber stop this, and what's next?

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    Uber Is Doomed [Jalopnik]

    Sum and Substance: If there is one quote that sums up the ethos of Uber, it might be this cut from the company’s firebrand CEO Travis Kalanick: “Stand by your principles and be comfortable with confrontation. So few people are, so when the people with the red tape come, it becomes a negotiation.”

    But after a month marked by one disaster after another, it’s hard to see how Uber’s defiant, confrontational attitude hasn’t blown up in its face. And those disasters mask one key, critical issue: Uber is doomed because it can’t actually make money. 

    After a discombobulated 2016, in which Uber burned through more than $2 billion, amid findings that rider fares only cover roughly 40 percent of a ride, with the remainder subsidized by venture capitalists, it’s hard to imagine Kalanick could take the company public at its stunning current valuation of nearly $70 billion. And now, in the past few weeks alone, Uber has been accused of having a workplace that fosters a culture of misogyny, accused of stealing from Google the blueprint of a successful self-driving system, and has lost 200,000 customers over ties to President Donald Trump and how it responded to a taxi driver boycott.

    Yet even when those factors are removed, it’s becoming more evident that Uber will collapse on its own. Barring a drastic shift in the company’s business—an implausible rollout of self-driving car fleets across the U.S., an increase of fares by three-fold, or a complete monopolization of the taxi and ride-hailing markets—Uber’s lifeline is shrinking.

    Its business model could collapse if one court case, and there are many, goes against it. Or perhaps more pressing, if it simply runs out of cash. Uber’s long had skeptics, and it’s not innovative to paint Kalanick, 40, as the boogeyman of Silicon Valley, where unseemly savants exist in vast supply.

    The Contractor Problem – One of the biggest issues that has left Uber’s business model hanging in the balance is its resistance to classifying its drivers—there are reportedly 600,000 in the U.S.—as employees, not contractors. If Uber is a house of cards, this is a key part of the foundation that, once removed, would demolish the structure. 

    Indeed, the company has said reclassifying drivers could “force Uber to restructure its entire business model.” The result of its opposition to readjust has been entirely expected.

    Without the perks and protections that an employee may enjoy—health care, benefits, gasoline and work reimbursements, vehicle maintenance, all of which could reportedly total as much as $730 million—complaints from drivers have piled up, ranging from low pay to new services like UberEats (a loathed food delivery service that’s reportedly set to lose over $100 million annually) and UberPOOL, its carpool option which increases the company’s take per-ride, lowers the take-home pay for drives, and is understood to be quite a drag for drivers and passengers alike. Drivers themselves said as much in a recent, disastrous question-and-answer session with Uber’s president.

    My Take:  This is perhaps the most hard-hitting and cogently argued article in this new genre of anti-Uber stories that has emerged recently in the media. The essential message of the article is that without some fundamental changes in the way it does business, Uber is in big trouble.  Let’s hope that whoever Travis Kalanick hires as his new COO got the memo and gets the message.

    Related: What Are The Top Issues Facing Uber Drivers in 2017?

    Uber Future Uncertain as CEO Travis Kalanick moves to hire ‘peer’ [San Jose Mercury News]

    Sum and Substance:  With Uber in the midst of an intense public backlash over allegations of sexual harassment, outrageous leadership behavior and a pattern of flouting the rules at all costs, CEO Travis Kalanick confirmed Tuesday he is looking for a second in command. 

    A week after Kalanick acknowledged he needs to “fundamentally change as a leader and grow up,” the company founder said he will hire a chief operating officer — effectively surrendering to an outsider a portion of the power he holds over his $68 billion empire.

    But some industry experts wonder whether a new executive will be able to change the offensive aspects of Uber’s aggressive culture without sacrificing the spirit that drove the company to become the world’s most valuable startup.

    “There’s an enormous amount of risk here,” said Steve Blank, an expert on startup companies and an adjunct professor at Stanford University. “The question is: How many billions of dollars of valuation is lost for every one of these stories?” Whoever Uber hires to work with Kalanick likely will start by laying down new guidelines such as codes of conduct, hiring policies, travel policies and procedures for green-lighting new projects, Greeley said. That may mean Uber’s most off-the-wall ideas, such as its “flying cars,” will be reined in.

    At this point, it’s unlikely Uber’s investors would try to replace Kalanick, Blank said, because the tech industry tends to associate success with abrasive personality traits reminiscent of leaders like Jobs. “As long as your investors feel they’re making money, they’ll deal with the behavior,” he said. 

    Even if Uber’s investors wanted to kick Kalanick out, they may not be able to. Uber’s board has three insider members — Kalanick, co-founder Garrett Camp and senior vice president of global operations Ryan Graves, according to a person familiar with the board’s structure. The remaining four seats are occupied by Arianna Huffington, Bill Gurley of Benchmark, David Bonderman of TPG Capital, and Saudi Arabia’s sovereign-wealth fund, the person said. 

    While it’s unclear exactly how much voting power Kalanick, Camp and Graves have — as a private company, Uber can keep those types of details close to the vest — the person said it’s unlikely investors could replace Kalanick unless at least one of the other insiders agreed to the shake-up.

    My Take:  My first reaction to this move is “What took you so long?”  That’s not necessarily a dig at Travis Kalanick. It’s just a statement about how big Uber has become.

    Uber has shown astounding growth rates and it simply makes sense to bring in professional management talent to oversee the operational aspects of the company. Every other successful tech startup has done this – Microsoft hired Steve Ballmer.   Apple hired Pepsi President John Sculley (okay, that didn’t work out so great). Google hired Eric Schmidt.  Facebook hired Sheryl Sandberg.  The big question now is who will Uber hire?  Your thoughts?

    SXSW showed us the future of ride sharing, and it’s not Uber [The Next Web]

    Sum and Substance: Where is Uber? Lyft? What the fuck is RideAustin? These are just a few of the questions you find yourself asking when stepping off a plane in Austin, Texas. Austin is one of a handful of places in the US that have banned both Uber and Lyft from doing business within the city. I won’t get into the reasons, it’s been done before, but essentially a disagreement in how both operated led the city to fund its own ride-sharing service, RideAustin. 

    RideAustin is but one of a handful of local ride-sharing apps, but Austinites tell me it’s the most popular. Drivers seem to like it too. The app is essentially a clone of Uber, only without the shitty business behind it.

    Uber, if you aren’t aware, has a bit of a reputation. Aside from rampant bro-culture, the company is known to put the squeeze on drivers with price drops that benefit the company, while often leaving the driver with poverty-level wages (after expenses). It’s killing drivers, but the price drops are spurring Uber’s growth. It is, after all, a difficult company to compete with on pricing. And as long as drivers keep going along for the ride, it’s not going to stop anytime soon. 

    I found this true in a recent comparison at CES. A cab from the airport to my hotel was a whopping $33, while an Uber from my hotel back to the airport — during a busier time, with more traffic — set me back $13. That’s not a sustainable business, and you can tell as much with a quick look at just how much Uber has burned through in its attempts to scale. $8.8-billion, in case you’re wondering.

    So far, the company isn’t anywhere close to making money, and investors wonder whether the model will ever be a profitable one. Short answer: no. 

    Uber simply can’t be a profitable company without raising prices, but raising prices opens the door to competitive services like Lyft, and taxis, the industry stalwart. And then there’s the issue of drivers, which Kalanick seems to be pissing off en masse with the apathetic attitude toward employee, sorry, contractor wages….

    There’s a better way.  Thousands of SXSW-goers discovered the magic of RideAustin, thought it’s safe to say many didn’t recognize it as the future. Unlike Uber, RideAustin is a non-profit. It charges $2 off the top, and the driver keeps the entire fare — including tip.

    This isn’t a model Uber can compete with, even though rides are competitively priced. The approach gives municipalities all the control to operate a safe and efficient service, while minimizing financial incentive and providing drivers with a stable, and competitive, income. Cities also have the ability to run the program as they see fit, including regulating the number of drivers on the road, safety and licensing requirements for said drivers, and ensuring quality of service for all those that use it.

    It’s not perfect. An outage this week left potentially thousands — our editorial team included — stranded for hours when the app got overloaded and shut down. Still, the program is in its infancy, and SXSW is a major event — RideAustin representatives assured us it wouldn’t happen again, and in fairness, it hasn’t. RideAustin does tick a lot of boxes, though. Properly screened drivers? Check. Efficient service with an easy-to-understand app? Check. Low prices when compared to traditional taxis? Check. Fair wages for drivers? Checkmate. Once other cities catch on, Uber is toast.

    My Take:  Very interesting article, with a perspective that few have yet considered.  What if ridesharing isn’t addressed so well by the for-profit model, i.e. Uber, Lyft, Sidecar, Juno, but rather using a nonprofit model that works closely with municipalities to address many of the issues that drivers and regulators are so concerned about – pay equity, public safety etc?

    Apparently RideAustin is getting a lot of things right, especially for a nonprofit without a lot of resources at its disposal, like, say… Uber. Okay, there was a glitch during SXSW – but that was temporary and I suspect they learned a lot.

    Maybe Uber’s greatest threat isn’t the taxis, or Lyft, or Google/Waymo, or Tesla, or GM, or Didi, or Ola, but simply the local city council working with concerned citizens who put their heads together and fashion a response that is better than Uber/Lyft in nearly all respects, except enriching those few investors who manage to sell their shares before the market catches on to what’s really happening.

    JudgeOkays $27 Million Deal With California Lyft Drivers [CourthouseNews]

    Sum and Substance: SAN FRANCISCO (CN) — Despite objections from dissatisfied drivers, a federal judge Thursday said he would grant final approval to a $27 million settlement for roughly 163,000 former and current California Lyft drivers. 

    During a Thursday hearing, U.S. District Judge Vince Chhabria declined to hear objections raised at a December hearing by the Uber Lyft Teamsters Ride Share Alliance, or ULTRA. The Teamsters argued that the settlement failed to adequately compensate full-time drivers and forced workers to waive their rights to sue for violations of the Fair Labor Standards Act. Chhabria said he would address those objections in his final settlement order. 

    Class attorney Shannon Liss-Riordan said 95,000 claims were filed. She said part-time drivers would receive $1 to $2 per hour for each hour they worked in ride mode, and full-time drivers would get $2 to $4 per hour for each hour in ride mode. “People who have driven the most will get thousands of dollars, which is a pretty fair deal,” Liss-Riordan said. 

    The class includes all Lyft drivers who gave rides to passengers in California between May 25, 2012 and July 1, 2016. Class counsel also requested $3.68 million in attorneys’ fees, less than 14 percent of the settlement amount. Outside the courthouse, a small group of Lyft drivers railed against the settlement, saying such deals allow companies like Lyft and Uber to take advantage of workers classified as independent contractors and to pay less than minimum wage.

    San Francisco native and Lyft driver Edward Escobar called the $27 million deal “a slap on the hand” for Lyft, saying some drivers have to sleep in their cars to earn an insulting $1.50 per ride in one of the most expensive cities in the nation.“This kind of behavior of putting corporate profits head of people is unacceptable,” Escobar said, speaking through a megaphone in front of the courthouse. 

    Liss-Riordan said she understands that some people are upset class attorneys did not press claims that Lyft improperly classifies drivers as contractors and denies them employment benefits. But she said she had to weigh the $27 million offer against risks of litigation. “I’m on the side of all these people,” Liss-Riordan said after the hearing. “I strongly believe these companies are not following wage laws. Uncertainty in how this case would fare made a $27 million settlement a fair deal.”

    In September last year, the Ninth Circuit reversed a ruling on Uber’s arbitration agreements, upending a potential $100 million settlement with Uber over similar claims of misclassifying drivers as contractors and violating labor laws. Liss-Riordan said that “unfortunately” the U.S. Supreme Court has allowed corporations to elude labor class actions by using arbitration agreements, which require workers to waive their rights to seek justice through courts or participate in class actions. “That’s the main issue,” Liss-Riordan said. “Congress should pass the Arbitration Fairness Act.”

    Sum and Substance:  This case seemingly has been dragging on forever, but actually it’s only a few years. In any event, the resolution of this case is another feather in Lyft’s cap.

    The Uber equivalent of this case (also litigated by Shannon Liss-Riordan) is still in the courts and remains a cloud hanging over Uber’s future. That Lyft had the foresight to dispose of this case – rather than adopting Uber’s more confrontational approach – is further evidence that the moral framework of the management team is a key determinant of long term success in business.  As for the drivers, well, I can’t wait for my check to arrive in the mail.  Hopefully it will be enough to get my car washed.

    Readers, what do you think of this week’s round up? What do you think of RideAustin expanding into more cities and displacing Uber and Lyft? Would you drive for a nonprofit or would you prefer driving for Uber and Lyft?

    -John @ RSG

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    John Ince

    John Ince

    John Ince is a former Fortune reporter and Wall Street banker. He has about 1,000 rides under his belt driving part time for Uber and Lyft.  He’s writing a book about his experiences entitled:  Travels With Vanessa:  A Rideshare Driver Tries To Make Sense of It all - For a sneak peak visit the link above.

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