Where technology and economics collide
Last fall, Uber hired Jeff Jones, Target’s former chief
marketing officer, to serve as president of the company’s core ride-hailing
business, with a mandate to improve relationships with Uber drivers and
counteract the company’s increasingly negative public image. But Jones couldn’t
solve those problems, and over the weekend he resigned in a way that will
exacerbate them, telling
Recode’s Kara Swisher and Johana Bhuiyan that “the beliefs and approach to
leadership that have guided my career are inconsistent with what I saw and
experienced at Uber.”
Jones’s resignation is the latest blow in what’s been a
brutal 2017 for the high-flying transportation startup, with problems ranging
from a consumer
boycott sparked by Uber’s participation in a Donald Trump advisory council
to a Google lawsuit alleging
that Uber’s key self-driving car technology was stolen, from serious
sexual harassment allegations to the revelation of a secret
program to foil local law enforcement.
Uber
CEO Travis Kalanick apologized publicly for problems at the company, saying
he needs to “grow up.” But at 40 years old, the paper billionaire has been an
adult for a long time, and experts say the steps
Kalanick is taking to address the harassment issues are woefully
inadequate.
Jones’s departure is fundamentally a sign that Uber isn’t
really trying to change its ways. The company gained initial traction in the
marketplace thanks to a pirate-ship mentality that viewed willingness to break
the rules as a core competitive advantage. Having gained enormous revenue and
visibility since it launched in 2010, it would probably have made sense to slow
down, mature, and try to transform itself into something more like a boring
utility company that maintains good relationships with drivers and regulatory
stakeholders.
Uber’s view of the marketplace, though, is that the
ride-hailing platform is just a stepping stone to a future network of
ubiquitous self-driving cars. That’s encouraged the company to plow ahead with
the pirate mentality, including perhaps stealing from Google, in an all-out
race to win the future of transportation.
It’s far from clear that a rule-breaking company with a
toxic public image at war with its own workforce can really pull this off
without imploding in the process. The taxi market really was (and is) regulated
with little concern for public safety or consumer interests. But Uber’s sense
that the rules don’t — or shouldn’t — apply to it is leading to an escalating
series of problems that could easily destroy the company.
Uber’s model is ride first, ask questions later
The classic taxicab market in the United States was plagued
with regulations restricting the supply of cabs available to be hailed in a way
that went far beyond basic safety concerns. All drivers of all cars require a
license, and all vehicles on the road are heavily regulated objects that need
to pass a battery of safety and environmental tests. Still, in all states
obtaining the permission to drive a car is a fairly straightforward process.
But in most cities, obtaining permission to not just drive a car but drive
people around in exchange for money was cumbersome, requiring access to a
limited supply of special permits.
This permit-rationing process generated extraordinary
financial returns to the owners of the permits — who, in most cases, were not
the actual drivers of the cabs — but also ensured that cabs were harder to find
than they should have been.
In cities like New York and Washington, DC, that generally
meant taxis were unavailable in lower-income and less central neighborhoods. In
a more auto-oriented city like Los Angeles, it generally meant that the
economics of the taxi industry was focused on exploiting tourists rather than
providing a service to locals looking for an alternative to driving when
heading out for a night of intoxicants.
Municipal regulation also often led to inefficiency. A
Boston cab that took a passenger from South Station or Logan Airport to the MIT
or Harvard campus in Cambridge could not, legally speaking, pick up a new
passenger without crossing back to the other side of the Charles River first.
This kind of regulatory fragmentation served no real public policy purpose, but
as each local regulator’s politics would typically be dominated by the
interests of incumbent license holders, it was very hard to get the rules
changed.
The laws were, of course, always imperfectly enforced, and
illicit “gypsy cabs” and out-of-jurisdiction pickups by real cabs were a
longstanding fact of urban life.
Uber’s solution to the basic problem was to boldly plow
ahead in a legal gray area, and then wage political battles from a position
of strength with customers already in place. As Bradley Tusk, one of Uber’s
main political impresarios, told
Vanity Fair when recounting a fight in New York, “We mobilized our
customers, over 100,000 of them, either e-mailed or tweeted at City Hall or the
city council.”
Uber’s CEO is a true-believing libertarian
This business strategy fundamentally worked.
Once Uber existed, most consumers in most cities liked it,
and most political authorities gave way to the basic idea that more ride
availability was going to make life better for most people. But while it’s
certainly possible to believe that the taxi market was excessively regulated
without believing that regulation is, in general, illegitimate (the cab market
has long been deregulated in Sweden, for example), Kalanick appears to be a
true believer in smashing the state.
Years ago, he used the cover image of Ayn Rand’s The
Fountainhead as his Twitter avatar and told the Washington
Post’s Mike DeBonis that his company’s regulatory issues bore an “uncanny
resemblance” to the plot of Atlas Shrugged.
Still, in a practical sense, Uber operates overwhelmingly in
big, dense liberal cities and needs political cooperation from Democratic Party
elected officials. To that end, Uber has always sought political connections
with blue-state politicians (Tusk was a former communications director to Chuck
Schumer and top aide to Michael Bloomberg) who can help them in concrete ways
that Republicans generally can’t. But Kalanick and his inner circle, according
to people familiar with the situation, are largely pretty hardcore
right-wingers who understand a pragmatic need to go along and get along with
progressive values without really believing in them.
Indeed, as Vox’s Tim Lee has written, Uber has consistently
applied the “it’s better to beg forgiveness than ask permission” to a huge
range of conduct that has nothing to do with rent-seeking taxi regulation:
[W]hen Uber accepted a massive $3.5 billion cash infusion
from Saudi Arabia’s sovereign wealth fund, I noted
the irony of Uber accepting cash from a government that doesn’t allow
women to drive cars and that once punished
a rape victim for being alone with a male nonrelative. And Uber didn’t
just take Saudi Arabia’s cash; it also gave the theocratic regime a seat on its
board.
Over the years, Uber has allegedly spied
on its own customers, threatened to dig
up dirt on journalists, and downplayed
sexual assault concerns.
In many of these cases, Uber has backpedaled in the wake of
a public backlash. Kalanick, for example, tweeted
out an apology in the wake of his executive’s comments about
journalists. But often, Uber only seems to take this kind of step after
becoming the target of a social media firestorm.
While this attitude was helpful in breaking through initial
taxi cartel rules, applying the principle to every situation has enmeshed the
company in an endless series of controversies that’s unusual for a
consumer-facing company.
Uber wants to make drivers obsolete
All corporate management structures enter into some degree
of conflict with their employees. At the same time, a company’s workers are
often its best allies in existential regulatory battles. Coal miners are a
stronger face of public opposition to environmental regulation than coal
company CEOs or electrical utility shareholders. And workers are not only more sympathetic
than executives but also more numerous and geographically dispersed.
A natural step in the maturation process for a company like
Uber, which faces a significant and dispersed regulatory challenge, would be to
try to recruit drivers as allies for the basic proposition that the service is
safe and useful.
Instead, Uber has resisted the notion that its drivers are
employees at all, and only
under threat of litigation came to a resolution of the basic question of
how the workforce related to the company. The settlement, in the end, was a
broadly reasonable compromise that allowed Uber to maintain the flexibility it
wanted while addressing key driver grievances and even moving toward the
creation of a formal group to represent the interests of Uber drivers. But this
was dragged out of the company as a concession, not put forward proactively as
a workforce model.
The key factor here is that to sell investors on Uber’s
sky-high valuation and lack of proven profits, the company has very openly
espoused a vision of replacing all drivers with autonomous vehicles. The
company maintains an aggressive research division based in Pittsburgh that’s
working on self-driving technology, and at corporate headquarters it’s taken
for granted that the existing hailing business is just a stool to be kicked
aside soon enough in favor of the robotic future.
That blocks the otherwise natural turn toward enlisting the
broad mass of Uber drivers as political and public relations allies. There are
other drawbacks too. Pairing an avowed indifference to a large share of the
workforce with a corporate culture that valorizes rule breaking likely encourages
misogynistic behavior at the home office, and almost certainly impedes efforts
to create a more rule-bound, publicly appealing corporate culture.
Hence the recruitment of Jones from the outside to try to
improve things, and his rapid departure as it becomes clear that problems are
too deeply rooted from him to change them.
Who wants a fleet of rule-breaking self-driving taxis?
Of course, if the bet on self-driving technology pans out,
this could all be irrelevant.
A fleet of cheaply operated fully autonomous taxis would be
a massive game changer for the company’s basic economics. And since Uber
already owns the relationship with a mass of customers, it would be very
difficult to dislodge them from a hypothetical position of leadership in the
autonomous vehicle game.
But the bet on an unproven, nonexistent technology in a
space where Uber does not have an obvious advantage over companies that are
more distinguished either in mapping and artificial intelligence (like Google)
or in actually making cars (like, well, car companies) is very much a shot in
the dark. And it’s worth asking whether Uber’s reputation for lawlessness could
be a considerable impediment.
After all, the core of Uber’s original case for brushing
aside taxi licensing regulations was that this was a fundamentally silly area
of government intervention into the economy. All of Uber’s drivers had driver’s
licenses, and their cars were all legal to drive. The basic regulatory issue
was whether legal drivers piloting legal cars should be allowed to let someone
ride in the back seat in exchange for money.
Self-driving car technology, by contrast, poses obvious
public safety hazards. Like any car, if self-driving cars malfunction, people
will die. And there is a reason there’s no such thing as an automaker that has
deliberately courted a public image as defiant of the law or the basic
legitimacy of the regulatory state — nobody would buy a car they were worried
didn’t meet basic safety standards. Recalls at General Motors a few years back cost the
company a small fortune, and led to high-profile congressional
investigations. It’s a much higher-stakes game than taxi regulation.
Reasonable people can and do disagree about what rules are
genuinely necessary for safety’s sake (the public doesn’t realize it, but cars
considered safe in Europe generally wouldn’t be allowed on the road in North
America, and vice versa), and there is a lot of low-key lobbying around the margins,
but all the players in this industry accept that there will be rules and the
rules should be followed.
Nothing about Uber’s approach to taxi regulation, labor law,
sexual harassment, public relations, or much of anything else, though, suggests
the kind of cautious attitude that would tend to give a person — or a city
council member, or a state Department of Transportation official — confidence
in the safety of Uber’s robot cars. Jones’s words, which characterized a
culture that’s so badly broken it took the person brought in to fix it just six
months to decide that he couldn’t, do not in any way suggest a company you’d
want to trust on life-or-death matters.
Uber has given life to the slogan “move
fast and break things” in a way that Facebook, which coined it, never did.
It was a perfect pitch for an early venture capital fundraising round, but it’s
a frankly terrible motto for a company that aspires to play a critical
infrastructure role in piloting fast-moving metal objects down the street.
