Uber And The False Hopes Of A Sharing Economy

At its inception, Uber touted itself as a shining example of the “sharing economy” described by Jeremy Rifkin, in this now famous book, The Third Industrial Revolution. As time has passed the reality has been radically at odds with a sharing economy. Among the many issues that have emerged has been the legacy of Uber’s ugly corporate culture, secret apps used to confound regulators, and to intimidate journalists, a Justice Department investigation of illegal practices, including 200 Uber employees conspiring together to attack Lyft’s operations. The proverbial chickens have come home to roost, as municipalities around the world have begun to regain control of transportation policy within their jurisdictions, and the inflated valuations of these unicorns begin to deflate.

Regulating Ride-Sharing: New York May Be The Model For The Future

Writing On The Wall: London and Vancouver Moving In A Similar Direction

At its inception, Uber touted itself as a shining example of the “sharing economy” described by Jeremy Rifkin, in this now famous book, The Third Industrial Revolution. As time has passed the reality has been radically at odds with a sharing economy. Among the many issues that have emerged has been the legacy of Uber’s ugly corporate culture, secret apps used to confound regulators, and to intimidate journalists, a Justice Department investigation of illegal practices, including 200 Uber employees conspiring together to attack Lyft’s operations. The proverbial chickens have come home to roost, as municipalities around the world have begun to regain control of transportation policy within their jurisdictions, and the inflated valuations of these unicorns begin to deflate.

From the Wharton Newsletter/Podcast, August 14, 2018

The largest market for Uber, Lyft and other ride-hailing app companies — New York City — last week had its first successful attempt at regulating the growth of the nascent industry. On Wednesday, the New York City Council passed a series of bills, notably one that places a one-year moratorium on the issue of new for-hire vehicle (FHV) licenses. Other bills establish minimum wage levels for ride-hailing service drivers; require FHVs to submit data on ridership with penalties for failure to do so; and create driver-assistance centers to provide counseling services.

New York City had little option to act, especially after a similar move by Mayor Bill de Blasio fell apart following intense lobbying by Uber. Increasing road congestion by cars was the biggest contributing factor to the passage of the bill capping new licenses, corroborated by a decline in subway ridership. The number of FHVs in the city had grown from 65,000 in 2015 to about 130,000 currently. Uber is the biggest gainer, as shown by its almost hockey-stick growth in ridership.

New York City took the right steps to regulate the FHV industry, according to Wharton professor of operations, information and decisions Senthil Veeraraghavan. “This is the right way to go,” he said. “This is a great experiment that we’re [witnessing].”

“They had to do something,” noted Wharton management professor John R. Kimberly. “This is part of an obviously much deeper story … and the timing seems to be right.”

The move to ensure that drivers receive a minimum pay of $15 an hour after they cover expenses is also significant, said James Parrott, director of economic and fiscal policies at the New School’s Center for New York City Affairs. He had worked on an extensive study for the city’s Taxi and Limousine Commission that looked at the ride-hailing sector and its growth, and in particular its impact on driver earnings.

Kimberly, Veeraraghavan and Parrott discussed the implications of the legislative actions governing New York City’s for-hire vehicle industry on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

“This is the right way to go. This is a great experiment that we’re [witnessing].”–Senthil Veeraraghavan

Incentive to Improve

The establishment of a minimum pay for drivers is an important incentive for ride-hailing app companies to increase the utilization of drivers’ time, said Parrott. Drivers currently have a passenger in the car for only about 36 minutes of every hour, which means they don’t have a paying passenger for 42% of their time, he added.

Up to now, Uber’s business model has been “to flood the streets with cars,” since the firm gets a commission based on every fare, Parrott said. “There’s been no incentive for them to better utilize the drivers’ capital,” he added. “Keep in mind; this is an industry where the capital investment in the rolling stock – the cars – is entirely put up by the drivers. The pay standard gives them an incentive by allowing them to pay a little bit less if they make better utilization of the drivers’ time.”

The city will use the year ahead to study congestion levels in the city and find ways to redress that, including through congestion pricing mechanisms. Last week’s actions took a step in that direction with a surcharge on cabs below 96^th Street ($2 per ride for medallion trips and $2.75 for ride-hailing app cabs). It will also allow the city to monitor how the pay standard works out, and how the ride-hailing app companies make better utilization of drivers’ time, Parrott said.

“Even if you increase utilization by 10 percentage points – from 58% to 68% – you would only increase average wait times across the city about 20 to 30 seconds,” said Parrott, citing his study’s findings. “We sense that most people can live with that.”

According to Parrott, the number of Uber trips in the city increased 100% in 2016 and 70% in 2017. Going forward, he said that figure could probably grow another 40% over the next year, “even without any additional cars on the street – just from increased efficiency.” Those increased efficiencies could come from a variety of quarters, including urging part-time drivers to go full-time and recruiting some of the drivers from the non-app services, such as the traditional livery car segment that has no minimum pay standards.

“Uber and the drivers are on both sides of the story,” noted Veeraraghavan. Riders want low waiting times, which can be achieved with more vehicles. But drivers want fewer drivers, because that would allow them to get better pricing, he said.

“Granted it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem.”–John Kimberly

Worsening Congestion

Parrott said New York City had first started talking about capping Uber and Lyft cars in 2015, drawing “heavy pushback” from the ride-hailing industry at that point. Between then and now, the number of trips using ride-hailing apps has skyrocketed to 600,000 a day, which is more than five times the level in 2015, he noted. A 2016 study by the mayor’s office proposed several remedial measures including those to reduce congestion, improve air quality, protect drivers’ interests and enhance passenger experiences.

Parrott said that while the city bears some responsibility for not acting sooner on the unbridled growth of the FHV industry, it faced a different climate when it attempted that in mid-2015. Uber at the time controlled 90% of the market in the city as opposed to 66% now, he pointed out. Suicides by six cab driversalso highlighted the “economic crisis” and changed public opinion in favor of the changes, he said.

“Theoretically speaking, there’s always a gap between what firms will want to optimize and what society wants to optimize,” said Veeraraghavan. “And it’s hard for individuals to see what’s optimal for this society.” However, as city residents have begun seeing the impact of the FHV industry’s growth — including on public transportation ridership numbers — they now have had a better understanding. “So we have a redo from 2015 to 2017 … and we’re seeing better support for this.”

“Granted, it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem and to figure out how to solve it,” said Kimberly.

Congestion in New York City has worsened in recent years with not just the influx of cabs, but also other vehicles “providing instant service for a variety of needs that people believe they have,” including delivery vehicles, said Kimberly. “The density of tourists on the sidewalks is so great it spills over into the street – that slows down traffic and makes it hard for cars,” he added. The option of levying congestion pricing is being seriously considered also at the state headquarters in Albany, he noted.

At the same time, “the growth of FHVs has meant that there’s much better transportation access in the outer boroughs, so the city doesn’t want to diminish that newly available service,” said Kimberly. “And yet the city also has a great interest in making sure that the drivers are able to remain economically viable to meet their expenses and to earn a decent living.” Higher wages would also enable drivers to work fewer than the 10-12 hours a day they now put in, he added, and that would have safety benefits as well.

“If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty….”–James Parrott

Congestion pricing will also help fund investments in maintaining and upgrading the city’s aging subway and public bus system, Parrott said. The decline in mass transit ridership is not just because of the growth of the FHV industry, he noted; commuters are turning away because of “under-investment and under attention to adequately maintaining the mass transit system.”

Uber’s Leadership Challenge

The changes also highlight a “leadership challenge” for Uber, said Kimberly. “They have hundreds of markets around the globe, and each market has its own political configuration, and its own way of doing business,” he noted. “When you think about the challenges of operating an enterprise like Uber on a global basis with all the local idiosyncrasies that need to be taken into account both economically and politically, it’s a really interesting [problem].”

Uber, which is currently valued at about $62 billion, is said to be preparing for an initial public offering of its stock next year. “If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty about the potential prospects for the company,” said Parrott.

Uber’s impact on employment is also large, Parrott noted. Uber drivers are not legally considered employees, but if they were to be treated as full-time equivalent (FTE) employees, Uber would be the largest private-sector employer in New York City, with about 35,000 FTEs, he said. “[Ride sharing] has become a huge enterprise in New York City, and it and it’s not what people usually think of as gig work where you are doing this to supplement other income. We found that 80% of the drivers bought their cars mainly for the purpose of providing transportation services, and two thirds of the drivers are full-time drivers.”

Parrott noted that both Uber and Lyft embraced the pay standard proposal. But Kimberly thought they had little option in the matter. “I don’t think it’s by accident that they’re embracing the pay standard,” he said. “Left to their own devices, they probably would not have done that. But there’s been so much social criticism – and valid criticism – of their models that they’ve really had no choice.”

Uber is Enron Deja Vu: Culture Trumps Strategy

For over a year now I have blogged here about the red flags flying about Travis Kalanick and Uber. Many investigative articles have been published over this time, in the New York Times and other publications, which have raised disturbing questions about Uber, Kalanick and some members of his team. The Board of Directors has finally taken action but it feels like its a day late and a dollar short. Why did it take so long? I have bluntly used the epithet that “Uber is Trump,” but now on reflection, it is more apt to describe Uber as Enron the sequel, and “deja vu all over again.” Remember the audio of two Enron electricity traders laughing about “screwing grandma?” That is Uber.

A Silicon Valley Tragedy

Remember Enron’s “Smartest Guys in the Room?”

An early photo of Uber’s management team

Why did Uber spin so wildly out of control?

Culture Trumps Strategy

So as the current management adage says, culture trumps strategy. This is not simply about the bad behavior of a few individuals and that eliminating them will solve Uber’s problems. The aggressive, confrontational business strategy is itself an integral and inextricable part of the problem. Some have said that Uber has a good business model and deserves to succeed. I dispute that. Jeremy Rifkin’s Third Industrial Revolution describes his vision for a new sharing economy. The book has been read by world leaders and praised for its insights into a bright new evolving economy. Uber and other companies like it have morphed the sharing economy into something ugly.

Uber morphed the sharing economy into “the gig economy,” epitomized by jobs without security or benefits, and the now viral video of Kalanick berating an Uber driver who was going bankrupt. SFGate also exposed the Uber operating strategy of psychologically manipulating drivers to work more hours than intended. The central principle of Kalanick’s business strategy is what he euphemistically describes as “principled confrontation.” Uber enters a market without following any existing rules or regulations, simultaneously entering into negotiations with municipalities which are typified by stalling tactics from Uber, and no intention to conclude an agreement. Uber’s goal is to take over the market by force, making any agreements with municipalities unnecessary. While pursuing its strong-arm goal, Uber has used a software tool, Greyball, to evade law enforcement. Uber is now under criminal investigation for the use of Greyball. Even the notion that Uber somehow improves traffic congestion has been debunked by a Northwestern University study commissioned by the San Francisco Transportation Authority which found that ride sharing has a heavy negative impact on San Francisco’s traffic congestion. See www.sfcta.org/TNCsToday

Uber is also facing a major lawsuit from Google for expropriating Google driverless car technology by hiring one of Google’s engineers. Uber has now fired the engineer in question, but the firing itself may be a circumstantial admission that its intent was to steal Google IP. In another case, nearly 200 Uber employees were encouraged to use fake ID, burner phones and credit cards to sabotage Lyft, by booking and then quickly canceling more than 5000 rides with Lyft. Then there is the matter of what can now only be described as pervasive sexual harassment within Uber. Adding to all of these issues, local communities have begun to resist Uber much more aggressively. In one example, a protest movement in Oakland is opposing Uber’s plan to open offices in Oakland. There are other examples dotted around the World. Finally, there is the unresolved matter of the status of Uber’s drivers as “independent contractors or employees” which is nearing a final decision in California state and federal courts.

Clearly, Uber’s business strategy is driven by its ugly corporate culture. Stepping back to consider the complete picture, Uber’s business strategy looks to me like a house of cards.

Uber’s Leadership Conundrum

Those who know me and my blogs here know that I am a student of Harvard Business School professor John Kotter and his philosophy of leadership with humility at its core. Uber presents a leadership conundrum for me. I was interested to hear BackChannel journalist Jessi Hempel express the same point tonight on PBS Newshour. Uber obviously urgently needs to change its culture, yet without the wild aggressive culture defined by Kalanick, the question remains whether Uber can survive? It is not clear to me that humility could turn the Uber cultural battleship. There have also been a number of business articles suggesting that changing a corporate culture is far more challenging than changing a corporate strategy. So I am left to ponder Peter Drucker’s Four Quadrants of Managerial Behavior, and Quadrant Four’s “high task, low relationship” model for Uber. I learned this in Intel’s M Series management courses years ago. The course used the case study of the film “12 O’Clock High,” a demoralized B-17 bomber unit as its example. Gregory Peck arrives as the new unit commander and begins by “kicking ass and taking names.” A similar case would be George Patton’s arrival in North Africa to take command of a demoralized tank unit. My sense at the moment is the only best hope is that somehow an interim leader at Uber will have the latitude to take whatever actions he deems necessary to right the ship. Such a solution seems doubtful at the moment.

Business Ethics Missing in Action

This morning on NPR’s Morning Edition, Nina Kim interviewed the Director of the Markulla Center for Applied Ethics at Santa Clara University, Kirk Hansen. The Center is named for early Intel and Apple executive, Mike Markkula. Mr. Hansen said that “Uber will undoubtedly become one of the most important business case studies” to emerge from Silicon Valley. Hansen went on to point out that founders of startups are often not capable of taking the company to a mature large company, and that it may be necessary to remove or reassign the founder. In the case of Uber, this is impossible because Kalanick and his founder group have the majority of shares. This contrasts with most startups legal framework, where the investors or Board may hold the right to remove the founder in specific circumstances.

The Smartest Guys in the Room

As a grey-haired Silicon Valley alumni, I am personally offended and outraged by what has happened at Uber. I am deeply ashamed. Over the years I have worked for some well-known SV companies, startups, VC firms, and my own consultancy. I have personal knowledge of things that happened that were not kosher, and I have been present in situations where the ethics were not the best, but nothing in my Silicon Valley experience rises to the level of Uber. Something has gone wildly out of control since my time with how we conduct ourselves in business, and it is now tarnishing the history and reputation of fifty years of Silicon Valley achievements. From my own personal experience working at one wildly successful company years ago, and after rewatching the Enron documentary video, “The Smartest Guys in the Room,” the answer is simple: too much money.

Source: Uber CEO Kalanick likely to take leave, SVP Michael out: source | Reuters

TECHNOLOGY NEWS | Mon Jun 12, 2017 | 4:22pm ED

By Heather Somerville and Joseph Menn | SAN FRANCISCO | Reuters

Uber Technologies Inc [UBER.UL] Chief Executive Travis Kalanick is likely to take a leave of absence from the troubled ride-hailing company, but no final decision has yet been made, according to a source familiar with the outcome of a Sunday board meeting.

Emil Michael, senior vice president, and a close Kalanick ally has left the company, the source said.

At the Sunday meeting, the company’s board adopted a series of recommendations from the law firm of former U.S Attorney General Eric Holder following a sprawling, multi-month investigation into Uber’s culture and practices, according to a board representative.

Uber will tell employees about the recommendations on Tuesday, said the representative, who declined to be identified.

The company is also adding a new independent director, Nestle executive, and Alibaba board member Wan Ling Martello, a company spokesman said.

Holder and his law firm were retained by Uber in February to investigate company practices after former Uber engineer Susan Fowler published a blog post detailing what she described as sexual harassment and a lack of a suitable response by senior managers.

The recommendations in Holder’s firm’s report place greater controls on spending, human resources and other areas where executives led by Kalanick have had a surprising amount of autonomy for a company with more than 12,000 employees, sources familiar with the matter said.

Kalanick and two allies on the board have voting control of the company. Kalanick’s forceful personality and enormous success with Uber to date, as well as his super-voting shares, have won him broad deference in the boardroom, according to the people familiar with the deliberations.

Any decision to take a leave of absence will ultimately be Kalanick’s, one source said.

The world’s most valuable venture-backed private company has found itself at a crossroads as its rough-and-tumble approach to local regulations and handling employees and drivers has led to a series of problems.

It is facing a criminal probe by the U.S. Department of Justice over its use of a software tool that helped its drivers evade local transportation regulators, sources have told Reuters.

Last week, Uber said it fired 20 staff after another law firm looked into 215 cases encompassing complaints of sexual harassment, discrimination, unprofessional behavior, bullying and other employee claims.

SILICON VALLEY SHOCK

Even a temporary departure by Kalanick would be a shock for the Silicon Valley startup world, where company founders in recent years have enjoyed more autonomy and often become synonymous with their firms.

Uber’s image, culture, and practices have been largely defined by Kalanick’s brash approach, company insiders and investors previously told Reuters.

Uber board member Arianna Huffington said in March that Kalanick needed to change his leadership style from that of a “scrappy entrepreneur” to be more like a “leader of a major global company.” The board has been looking for a chief operating officer to help Kalanick run the company since March.

The debate over Kalanick’s future comes as he is also facing a personal trauma: His mother died last month in a boating accident, in which his father was also badly injured.

Michael, described by employees as Kalanick’s closest deputy, has been a recurring flashpoint for controversy at the company.

He once discussed hiring private investigators to probe the personal lives of reporters writing stories faulting the company. Kalanick disavowed and publicly criticized the comments.

Michael will be replaced as the company’s top business development executive by David Richter, currently an Uber vice president, the company spokesman said.

Alongside Uber’s management crisis, its self-driving car program is in jeopardy after a lawsuit from Alphabet Inc alleging trade secrets theft, and the company has suffered an exodus of top executives.

One Uber investor called the board’s decisions on Sunday a step in the right direction, giving Uber an “opportunity to reboot.”