Uber has had its share of success as a company. It changed the ridesharing economy, amassed billions of dollars in fundraising and outpaced every company on the unicorn list to become the highest valued startup in history–even surpassing centuries old institutions, like GM and Ford in just 5 years. Yet these feats alone may not be enough to sustain the company, whose time in the spotlight is threatened by the reality that it is losing an astounding amount of money and credibility at an alarming rate. To understand why, we must look at all layers of the company and its spate of issues over the last several years.
Legal Issues
In its quest for growth, Uber often disregarded the law and local regulations concerning its product. Subsequently, the company built a reputation for acting above the law, which is not the best way to create relationships; in fact, Uber acquired a lot of enemies in the process.
In July of this year, The Mercury News reported that the company was facing more than 70 federal lawsuits throughout the United States. While the company is likely to incur expenses due to the cost of fighting these in court (as they had done with at least 60 other cases), that is not their biggest problem. The uncertainty of legal outcomes coupled with the negative association of having done something unlawful. Given that the company has lost more than $1.2 billion in 6 months, this is a major problem.
Failed Expansion
After making its way into more than 75 countries around the globe, Uber sought to take over the biggest market of them all–China. Not only is China the most populated country in the world, car ownership percentages are much lower than those in the U.S. (the company’s largest market), and public transportation is as much a part of the culture as anything. However, Uber was not without competition.
Chinese company, Didi Chuxing–a merger between former competitors–controls the market. Founded in 2012, the company claims more than 80% of the taxi-for-hire services in the country, and has secured huge sums of money to fully dominate the industry in its battle with Uber.
After 2 years, Uber conceded and sold its business to Didi. By that time, however, the company had already spent more than $2 billion trying to gain ground, but in the end, it wasn’t working.
Investor Issues
In 2013 GV’s (Google Ventures) David Krane lead their largest investment made to date into Uber. Pumping over $250 million into the company at around a $3.4 billion pre money valuation. Furthermore according to TechCrunch this accounted for 86% of GV’s $300 million dollar a year fund. Fast-forward to today and Uber says Alphabet (Google) executive David Drummond has stepped down from Uber’s board. The move follows a report by The Information about Mr. Drummond who was being sidelined from the board for a significant period of time. Also it has been reported that Mr. Krane who is a board “observer” is not being provided timely and up-to-date information. Uber is quickly losing credibility amongst its major investors.
In June, Uber disclosed a $3.5 billion investment from Saudi Arabia’s Public Investment Fund & that includes a board seat for Yasir Al Rumayyan, one of the fund’s MDs, according to Fortune – Term Sheet. Uber has officially taken money from a government that prohibits women from driving and from a government that requires women to have male guardians and from a government whose court system has sentenced men to jail time and/or corporal punishment for the “crime” of homosexuality, that is the same punishment dealt to their citizens for political protest. Not to mention that according to declassified documents released in July by the U.S. Congress, Saudi government had a significant role in 9/11.
By naming Al Rumayyan, Uber has basically invited the Saudi government into its boardroom. No other Silicon Valley startup has a director from a repressive political regime. Mind you this is not a passive investment.
Drivers
Uber’s biggest asset is also its biggest expense: drivers. Apparently, much of the company’s losses can be traced back to drivers’ subsidies. Uber’s goal is to quickly disintermediate (nice word for fire) Uber’s more than 1 million human drivers with robots. In the next few days Uber will allow customers in Pittsburgh, PA to hail autonomous cars right from their phones. With the goal of decreasing its labor cost, and perhaps eliminate (less nice word for fire) it altogether.
To be clear, Uber is not the first company to show interest in driverless car service. Google, Apple and just about every single car manufacturer has been testing and perfecting their technology for years. Yet to no avail. The current first mover is in Singapore; a small startup by the name of nuTonomy who has already rolled out driverless taxis, and plans to expand in as many as 10 cities within the next 4 years.
Embracing this wave of the future can help Uber in the long run, it doesn’t exactly reverse the damage that has taken place. The company has burned a lot of bridges and a lot of cash trying to grow, with blatant disregard to government or people. Now with the ultimate goal of firing over 1 million of its drivers we will likely see a major backlash from their current happy labor force. The true ‘Uber Revolution’ has not even begun. I wouldn’t be surprised if we see a revolt by drivers and users alike.
Vive la Revolution.
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