Ac­count­ing gaffe at the firm is not unique in tech sec­tor, where growth is prime fo­cus.

Los Angeles Times - - BUSINESS - By Makeda Easter

To err is Uber. That’s the be­lief of tech in­dus­try ex­perts af­ter last week’s rev­e­la­tion that the ride-hail­ing gi­ant un­der­paid New York City driv­ers tens of mil­lions of dol­lars. They say the gaffe — which Uber de­scribes as an ac­count­ing er­ror — il­lus­trates the com­pany’s rapid rise and the poor over­sight and man­age­ment this fast-paced growth had pre­vi­ously con­cealed.

Uber chalked up the er­ror to 2½ years of mis­tak­enly cal­cu­lat­ing com­mis­sions based on the gross fare be­fore de­duct­ing taxes and fees, rather than net fare. Uber said each af­fected driver would re­ceive about $900 in resti­tu­tion.

An Uber spokes­woman said the com­pany has un­der­gone a review process for this par­tic­u­lar er­ror and has yet to find an­other in­stance of mis­cal­cu­la­tion a dif­fer­ent city.

But it’s not the only al­leged billing is­sue at the San Francisco firm. Uber is fac­ing law­suits al­leg­ing that it de­lib­er­ately short­changed driv­ers and over­charged pas­sen­gers.

Tech in­dus­try ac­count­ing er­rors aren’t unique to Uber. Over the last year, Face­book has suf­fered a host of mea­sure­ment is­sues, in­clud­ing find­ing an er­ror in the way it cal­cu­lated the av­er­age du­ra­tion of videos viewed on its plat­form and mis­charg­ing ad­ver­tis­ers for clicks on cer­tain ads.

It may seem coun­ter­in­tu­itive that com­pa­nies that built their busi­nesses on data and key­strokes can re­peat­edly fail at bean count­ing, but in­dus­try ex­perts say such over­sights are not un­usual in the fast-mov­ing tech­nol­ogy in­dus­try, in

which firms so value growth they may let other busi­ness in­ter­ests lag far be­hind.

Tech com­pa­nies have no­to­ri­ously avoided adding any bu­reau­cracy that could in­hibit ex­pan­sion into new mar­kets or shifts in di­rec­tion. But it comes with a trade-off, said Ter­rence Hen­der­shott, a pro­fes­sor at UC Berke­ley’s Haas School of Busi­ness.

“If you think about tech com­pa­nies try­ing to grow fast, their fo­cuses might be more on growth than be­ing sure to get ev­ery­thing just right,” Hen­der­shott said.

Growth-ori­ented strate­gies can help start-ups quickly be­come mas­sive — just look at Uber, which in eight years has amassed a pri­vate mar­ket val­u­a­tion of nearly $70 bil­lion, mak­ing it the most valu­able start-up in the world.

But there’s a down­side if other busi­ness units don’t keep up.

Mea­sure­ment er­rors can prove dif­fi­cult to catch, es­pe­cially in the tech world, where con­sumers and even busi­ness part­ners aren’t nec­es­sar­ily privy to a com­pany’s in­ner work­ings.

“These com­pa­nies are enor­mously pow­er­ful,” said Jan Daw­son, an an­a­lyst at Jack­daw Re­search. “We will have to trust them to a very good ex­tent that they are be­ing hon­est and ac­cu­rate.”

But will con­sumers and driv­ers still trust Uber?

That’s a real ques­tion given Uber’s re­cent track record. Apart from the cal­cu­la­tion is­sue, the com­pany faces al­le­ga­tions of ram­pant sex­ism within its ranks, a crim­i­nal in­ves­ti­ga­tion over a tool said to be used to evade au­thor­i­ties in cities in which Uber lacked per­mis­sion to op­er­ate, ac­cu­sa­tions of trade theft from a Google­owned self-driv­ing car firm, a spate of ex­ec­u­tive depar­tures and even a vi­ral video of Chief Ex­ec­u­tive Travis Kalan­ick be­rat­ing a driver.

All the in­dus­try ex­perts con­tacted for this ar­ti­cle be­lieve Uber’s cal­cu­la­tion er­ror was an ac­ci­dent (“Sloppy as op­posed to malev­o­lent,” said Wed­bush Se­cu­ri­ties an­a­lyst Michael Pachter). But Uber’s rep­u­ta­tion pre­cedes it — mean­ing this er­ror could fur­ther fuel dis­trust in the com­pany among cus­tomers and driv­ers.

Eden Gil­lott Bowe, pres­i­dent of cri­sis and rep­u­ta­tion man­age­ment firm Gil­lott Com­mu­ni­ca­tions, said Uber needs to clean house now to en­sure that there are no fur­ther scan­dals or set­backs.

“Oth­er­wise,” she said, “it’s a death by a thou­sand cuts.”

Seth Wenig As­so­ci­ated Press

THE AC­COUNT­ING er­ror in­volv­ing Uber driv­ers could dam­age the com­pany’s trust among cus­tomers.

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