Your Uber Dead Pool

Uber's week from hell is over, and it starts with Uber's psychopath in chief Travis Kalanick has been forced out by investors following revelations that he was trafficking in stolen medical records of a rape victim in order to discredit her claims:

Travis Kalanick stepped down Tuesday as chief executive of Uber, the ride-hailing service that he helped found in 2009 and built into a transportation colossus, after a shareholder revolt made it untenable for him to stay on at the company.

Mr. Kalanick’s exit came under pressure after hours of drama involving Uber’s investors, according to two people with knowledge of the situation, who asked to remain anonymous because the details were confidential.

Earlier on Tuesday, five of Uber’s major investors demanded that the chief executive resign immediately. The investors included one of Uber’s biggest shareholders, the venture capital firm Benchmark, which has one of its partners, Bill Gurley, on Uber’s board. The investors made their demand for Mr. Kalanick to step down in a letter delivered to the chief executive while he was in Chicago, said the people with knowledge of the situation.

In the letter, titled “Moving Uber Forward” and obtained by The New York Times, the investors wrote to Mr. Kalanick that he must immediately leave and that the company needed a change in leadership. Mr. Kalanick, 40, consulted with at least one Uber board member, and after long discussions with some of the investors, he agreed to step down. He will remain on Uber’s board of directors.

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The move caps months of questions over the leadership of Uber, which has become a prime example of Silicon Valley start-up culture gone awry. The company has been exposed this year as having a workplace culture that included sexual harassment and discrimination, and it has pushed the envelope in dealing with law enforcement and even partners. That tone was set by Mr. Kalanick, who has aggressively turned the company into the world’s dominant ride-hailing service and upended the transportation industry around the globe.

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In the letter, in addition to Mr. Kalanick’s immediate resignation, the five shareholders asked for improved oversight of the company’s board by filling two of three empty board seats with “truly independent directors.” They also demanded that Mr. Kalanick support a board-led search committee for a new chief executive and that Uber immediately hire an experienced chief financial officer. 

That last bit about, "Truly independent directors," seems to me to be a critique of Uber board member Arianna Huffington, who has been a steadfast defender of Kalanick.

Meanwhile, as soon as Travis is out the door, Uber adds tipping to the app, a policy whose only justification was that it would make it harder to claim that its drivers are not its employees.

BTW, in addition to the above, a recent court filing states that Kalanick knew that the recent head of its autonomous driving division had stolen documents and data from his previous employer:

Uber's recently fired CEO, Travis Kalanick, knew that his top self-driving car engineer had Google files in his possession in March 2016, according to newly filed court documents.

The admission was made by Uber lawyers as part of a response to Waymo discovery demands. Uber lawyers served the response on June 8, and it was revealed in a public court motion (PDF) filed by Waymo lawyers late yesterday.

According to Uber, former self-driving car chief Anthony Levandowski told Kalanick that "he had identified five discs in his possession containing Google information." Kalanick told Levandowski not to bring any Google information into Uber. Levandowski later told Uber he destroyed the discs, and Uber never got the discs, according to Uber lawyers.

Waymo sued Uber in February, claiming that the company had trade secrets brought in by Levandowski, an engineer who once worked at Google but quit abruptly in January 2016. Levandowski went on to found his own self-driving car startup, which was purchased by Uber for $680 million. Google has accused Levandowski, who is not a defendant in the case, of downloading more than 14,000 files that contained Google trade secrets and taking them with him. Levandowski has not denied those allegations and has declined to answer most questions, instead asserting his Fifth Amendment rights.

It's no wonder that the Harvard Business Review is calling for Uber to be shut down:

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But I suggest that the problem at Uber goes beyond a culture created by toxic leadership. The company’s cultural dysfunction, it seems to me, stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.

Uber’s Fundamental Illegality

Uber brought some important improvements to the taxi business, which are at this point well known. But by the company’s launch, in 2010, most urban taxi fleets used modern dispatch with GPS, plus custom hardware and software. In those respects, Uber was much like what incumbents had and where they were headed.

Nor was Uber alone in realizing that expensive taxi medallions were unnecessary for prebooked trips — a tactic already used by other entrepreneurs in many cities. Uber was wise to use smartphone apps (not telephone calls) to let passengers request vehicles, and it found major cost savings in equipping drivers with standard phones (not specialized hardware). But others did this, too. Ultimately, most of Uber’s technical advances were ideas that competitors would have devised in short order.

Uber’s biggest advantage over incumbents was in using ordinary vehicles with no special licensing or other formalities. With regular noncommercial cars, Uber and its drivers avoided commercial insurance, commercial registration, commercial plates, special driver’s licenses, background checks, rigorous commercial vehicle inspections, and countless other expenses. With these savings, Uber seized a huge cost advantage over taxis and traditional car services. Uber’s lower costs brought lower prices to consumers, with resulting popularity and growth. But this use of noncommercial cars was unlawful from the start. In most jurisdictions, longstanding rules required all the protections described above, and no exception allowed what Uber envisioned. (To be fair, Uber didn’t start it — Lyft did. More on that later on.)

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Rotten to the Core

Uber faced an important challenge in implementing this strategy: It isn’t easy to get people to commit crimes. Indeed, employees at every turn faced personal and professional risks in defying the law; two European executives were indicted and arrested for operating without required permits. But Uber succeeded in making lawbreaking normal and routine by celebrating its subversion of the laws relating to taxi services. Look at the company’s stated values — “super-pumped,” “always be hustlin’,” and “bold.” Respect for the law barely merits a footnote.

Uber’s lawyers were complicit in building a culture of illegality. At normal companies, managers look to their attorneys to advise them on how to keep their business within the law. Not at Uber, whose legal team, led by Chief Legal Officer Salle Yoo, formerly its general counsel, approved its Greyball software (which concealed the company’s practices from government investigators) and even reportedly participated in the hiring of a private investigator to interview friends and colleagues of litigation adversaries.

Having built a corporate culture that celebrates breaking the law, it is surely no accident that Uber then faced scandal after scandal. How is an Uber manager to know which laws should be followed and which ignored?

A Race to the Bottom

The 16th-century financier Sir Thomas Gresham famously observed that bad money drives out good. The same, I’d suggest, is true about illegal business models. If we allow an illegal business model to flourish in one sector, soon businesses in that sector and others will see that the shrewd strategy is to ignore the law, seek forgiveness rather than permission, and hope for the best.

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But because Uber’s problem is rooted in its business model, changing the leadership will not fix it. Unless the model itself is targeted and punished, law breaking will continue. The best way to do this is to punish Uber (and others using similar methods) for transgressions committed, strictly enforcing prevailing laws, and doing so with little forgiveness. Since its founding, Uber has offered literally billions of rides in thousands of jurisdictions, and fines and penalties could easily reach hundreds of dollars for each of these rides.

In most jurisdictions, the statute of limitations has not run out, so nothing prevents bringing claims on those prior violations. As a result, the company’s total exposure far exceeds its cash on hand and even its book value. If a few cities pursued these claims with moderate success, the resulting judgments could bankrupt Uber and show a generation of entrepreneurs that their innovations must follow the law.

Uber fans might argue that shutting down the company would be throwing the baby out with the bathwater — with passengers and drivers losing out alongside Uber’s shareholders. But there’s strong evidence to the contrary.

Take the case of Napster. Napster was highly innovative, bringing every song to a listener’s fingertips, eliminating stock-outs and trips to a physical record store. Yet Napster’s overall approach was grounded in illegality, and the company’s valuable innovations couldn’t undo the fundamental intellectual property theft. Under pressure from artists and recording companies, Napster was eventually forced to close.

But Napster’s demise did not doom musicians and listeners to return to life before its existence. Instead, we got iTunes, Pandora, and Spotify — businesses that retained what was great and lawful about Napster while operating within the confines of copyright law.

On top of all of this, it appears that Lyft has spent years waiting for the rocks at Uber to be turned over revealing the putrescence underneath, and has hit the ground running:

There was nothing inevitable about discomfort with Uber’s scandals driving a rush to Lyft. But Lyft, consciously or not, had correctly identified Uber’s weakness years ago. Uber was unfriendly, so Lyft would be friendly. Uber’s logo was sleek and silver and black, and so Lyft’s would be a bright pink mustache. Uber’s vision of driverless cars sounded like Skynet. Lyft painted a picture of a world with wider sidewalks and more parks.

Some of this was embedded in the company’s origins. Lyft originally distinguished itself by trying to make ride hailing a social experience. You sat in the front seat and fist-bumped the driver. Payment was made through “donations.” This was, in part, Lyft’s way of sidestepping the taxi regulations that Uber simply bulldozed past. And, to be honest, it was annoying — today, Lyft offers much the same frictionless, professionalized ride-hailing experience Uber does. But it seeded an idea of Lyft as a gentle, human company, and Lyft continued to build on that brand.

To Uber, Lyft’s business model was maddening. It took an Uber to pound through the regulations, to take the risks, to build the future. Then Lyft rolled behind with its dumb mustaches and friendly PR operation and did much of what Uber did without incurring the reputational cost.

But the wisdom of that strategy is apparent now. The risk with Uber wasn’t that it would fail at ride hailing. It was that it would lose the public’s trust. For a competitor to benefit from that stumble, it would have to be able to give anxious riders what they wanted: a ride-hailing company that really did seem nice enough, an Uber alternative you could actually trust.

I'm not sure that Lyft consciously positioned itself as an alternative to the deep inhumanity of Ubers Randian vision, but that is where it stands now, and it is in most of same markets, and right now, at least on the basis of the ads I see, Uber is begging for drivers, and Lyft is not.  (I've seen at least 20 Uber ads, and non from Lyft) for drivers over the past week.)

It sucks to be Uber right now, not because Uber has had a bad week, or because the future of the enterprise is in serious doubt, but because Uber is simply evil, much like the SS in that hysterically funny Mitchell and Webb sketch.

It sucks to be Uber right now because being Uber simply sucks.