The naked tech-sector emperor

A toxic culture may not be the reason that Uber’s CEO was ousted.

Travis Kalanick’s departure from Uber followed the firing of more than 20 staff after an internal investigation into sexual harassment and gender discrimination complaints, and an inquiry by former US Attorney General Eric Holder, who recommended Kalanick’s responsibilities be “reallocated”.

For a time, Kalanick’s vision and freewheeling management style seemed a successful strategy, taking Uber from startup to US$68 billion empire in less than eight years. But as the company gears up to go public, business commentators suggest that despite year-on-year growth in both revenue and bookings, the tech sector’s emperor is actually naked.

The day after Kalanick’s forced resignation, Pulitzer Prize-winning journalist and blogger Michael Hiltzik said his departure would give the company a better chance of shedding its reputation as a “howlingly bad” place to work “unless you’re a young white male”, but that it would expose the fundamental unprofitability of Uber’s business model.

“Kalanick had persuaded his backers and an uncritical tech press that, trust him on this, the endgame would be glorious … Uber rode his self-confidence to a putative value of $70 billion. But the redefinition of Uber will have to confront reality, which is far less rosy than the myth.”

The size of its ongoing losses is gobsmacking. In the last three months of 2016, it lost a whopping US$991 million. Although that loss narrowed to $708 million in the first quarter this year, the Atlantic reported that it was ultimately concerns over the bottom line – not the CEO’s style or the company’s toxic culture – that cost Kalanick his job.

In May, Australian company director Hamish Douglass, who runs the $37 billion Magellan Financial Group fund, described Uber’s capital-raising strategy as a Ponzi scheme. “When I look at Uber … I think of it as one of the most stupid investments in history,” he told the Australian Financial Review. “The probability of this business going bankrupt in a decade is 99%.”

Analysts who question Uber’s purported value say investors’ subsidies on rides cost the company $2 billion in 2015, with suggestions the true cost of each trip is at least 50% higher than is charged. Without that subsidy, they asked, is the business model even viable?

“What’s the real cost of an Uber trip? The passengers don’t know and we don’t know,” Hiltzik wrote. “That’s because customers pay only a portion of the fares shown on their smartphone apps: much, if not most, of the cost is covered by the company’s venture investors. What happens when that well runs dry? The fares will rise and one of Uber’s selling points – its price advantage – will narrow or disappear.”

Uber’s future profitability depends on its solving the technology issues for selfdriving cars, but its efforts to do so are said to be in turmoil, with departures of engineering staff to rival firms, and tensions within the company’s self-driving division.

Although robotic cars are being used in Pennsylvania, Arizona and California, they still have drivers to take over when necessary. In March, two Uber engineers were inside a driverless car that crashed in Arizona after colliding with another vehicle. Though the Uber car was found not to be at fault, a tech expert said it “could have done better”. get out there.’ So a large part of the Christchurch fleet was Joe Public doing extra hours at night.” This led to the same policy being introduced within the week in Auckland and Wellington.

The value of shares in the co-operative societies that run taxi companies has also fallen. One share entitles the buyer to put one cab on the road. In most companies, the shareholders own more than one share and lease out the benefits. Sometimes, two family members will lease one cab, working maximum hours by driving it 24 hours a day for six days.

Auckland Co-op limits the shareholding to 700, meaning 700 cabs. Wellington Combined Taxis has 497 shares and 497 cabs. Pre-Uber, shares cost up to $110,000 each in Auckland. The shares are fully subscribed now, Wilkinson says, but when they are available, they sell for $80,000-90,000.

He believes Uber drivers stay in the job only about six or seven months, and that level of churn explains why Uber has to have such easy entrance rules.

Proposed law changes to make the P endorsement process cheaper and quicker are expected to be passed before the election, but it’s still not known when they’ll take effect. Wilkinson says there’ll still be vetting to ensure only “fit and proper people” get the endorsement, but the two NZQA standards and area knowledge test will go.

He agrees one of the standards, related to understanding the operating rules of a taxi driver, is now unnecessary, partly because the rules have been simplified, but says the other, about work hours, breaks and how to fill out a log book, is important. “Those rules are there for safety, but the Government, for the sake of getting the cost down, has said, ‘No, you don’t need to do that any more.’”

Wilkinson predicts the cost of a P endorsement will drop from more than $1500 to $100-150.

Gallagher says during MacDonald’s Disputes Tribunal process, Uber NZ’s Menzies said neither Uber NZ Technologies Ltd nor he personally had any authority to represent the Netherlands-registered Uber “other than in a marketing and support role”.

“The New Zealand entity now claims that no legal trading entity exists in New Zealand from which redress may be sought or against which New Zealand law may apply,” says Gallagher. “It can’t be acceptable to the Government or the New Zealand public that a global multinational can simply take the money and run.”