Story of Uber
After getting into an argument over the fare with a local cab driver in Mexico, Travis Kalanick jumped out of the moving cab. The incident would leave him with a dislike for conventional cabs. A few years later, he founded Uber. Under him, Uber – went from 3 drivers to 3.9 million drivers, became the highest valued private company in the world and made him a famous billionaire, all within seven years. Then, he was fired. The Uber Story offers inspiration, but also warns about the consequences of pushing the limits too far.
The Uber Story formally began in 2008, when Travis Kalanick and Garrett Camp met at LeWeb, a tech conference in Paris. Like all seasoned entrepreneurs, both had founded a string of failed start-ups, before hitting pay-dirt with Red Swoosh (acquired for $19 million) and StumbleUpon (acquired for $75 million) respectively. They talked about the idea of people hailing rides using their phones. After this brief discussion, both of them returned to California.
In 2009, Camp began working on the ride hailing service as a side project and roped in Kalanick as a partner. They bought the domain UberCabs.com. After creating a working platform to hail rides, UberCabs had a beta launch in San Francisco with 3 luxury cars, in 2010. Platform businesses have a very interesting phenomenon called Network Effects. As the number of users on a platform increases, sellers flock onto that platform in order to sell their products and vice versa. Amazon is a prime example (no puns intended) of such a phenomenon. These businesses manage to corner 70-80% of the Market Growth without using any predatory tactics. Uber became one such “natural monopoly” in San Francisco. The timing for Uber couldn’t have been better, smartphone usage was increasing rapidly. People found Uber to be very convenient. Word-of-mouth helped Uber grow immensely. Drivers and users, flicked to Uber. However, it soon received a cease and desist order in San Francisco, for using the word “cab” in its name. The solution was simple; it went from UberCabs.com to Uber.com.
With Kalanick as CEO, Uber grew, and it grew exponentially. To fund its hunger for growth, Uber raised $11 million from Benchmark Capital in 2011. The money was used to fund operations in new cities. The business model of outsourcing cars and drivers through contracts, helped keep investments and costs low. Unlike traditional cab firms, it did not have to pay any employee benefits to its drivers. Cab firms have to pay hefty license fees to run cabs in a city. Since Uber did not register itself as a Cab Company, it was free of these shackles. Legal loopholes helped Uber push through these issues.
By 2012, Uber had launched a new product called UberX for low cost rides. Uber got into the relatively less affluent market segment. In the same year it expanded to Canada and the UK. By 2013, people could use their personal cars for sharing rides on UberX. It became a great combination of the gig economy and the sharing economy. By the end of 2013, Uber raised $258 million, which valued it at $3.5 billion. This was 22x the original amount it had raised just two years back in its first round of funding.
This blistering growth came at a cost. Journalists wrote articles about the extremely aggressive culture fuelled by Travis Kalanick. The culture was called “toxic”. Despite these rumours, Uber raised $1.2 billion at a valuation of $40 billion in the same year. It also launched UberFRESH, which would later pivot to become the famous food delivery platform UberEats.
By 2015, even though Uber was still growing at a fast pace, the tide had started turning against Uber and Kalanick. Protests against Uber became common. Cab unions protested against Uber for disrupting their business. Uber drivers protest against Uber for not offering any employee benefits and a minimum wage. Uber’s rivals like Lyft, Ola, Didi Chuxing and Grab Taxi, formed an alliance as a means to confront Uber. Despite these issues, Uber again raised $2.1 billion at a valuation of $65 billion. It had become the highest valued private company in the world.
Despite the investor optimism, Uber did not have a single profitable year since its inception. The continuous expansion, high rebates for customers and incentives to attract drivers ensured that costs remained high. While some markets matured, other markets continually needed large investments. Investors expected Uber to spend money on marketing. Once captured, the market could be capitalised on. However, in the real world, with similarly well-funded competitors, this was an incredibly difficult task. All competitors kept taking losses to keep the prices low and the customers happy. Uber finally decided to exit a few businesses. It sold its South East Asia business to Grab. The China business was sold to its rival Didi Chuxing.
Another controversial issue that Uber faced since its beginnings is Surge Pricing. Surge pricing jacks up ride prices during periods of high demand. Prices sometimes move up to 2-3x of the normal price range. In recent years, Uber has capped its surge pricing during blizzards as a means to appease customers.
The year 2017, would prove to be the worst for Uber. It was fighting lawsuits filed by cab companies and Uber drivers. At the same time, the continuous allegations of a “toxic culture” at Uber led to a federal level investigation into Uber. The resultant reports accused CEO Kalanick of fuelling the hyper aggressive culture in order to increase productivity. Kalanick took a sabbatical leave to understand these issues. Two weeks later, he resigned as CEO of Uber.
Under its new CEO Dara Khosrowshahi, Uber has gone into clean up mode. This is necessary for Uber. It has become a public company with an IPO in 2019. With public shareholders and 22000 employees, Uber cannot continue with its startup image and growth-at-all-costs mind set.As of 2020, neither Uber, nor its competitors are profitable. Travis Kalanick has moved onto other projects. While he is still hated by some, Uber certainly wouldn’t have achieved such scale without someone as intense as him. Uber says it plans to become profitable quite soon and has been cutting losses by selling some of its businesses to competitors. We all hope that this iconic company does well.
Published by Montu Chaudhary