On the evening of February 5th 2017, the night of Super Bowl Sunday, Travis Kalanick, CEO and founder of Uber, the ride hailing app, took an Uber Black trip with two female friends, in a vehicle driven by a man by the name of Fawzi Kamel. Unbeknown to Kalanick, the conversation that then ensued in the vehicle was videocam recorded in full, and later posted on YouTube, much to the ire and embarrassment of Kalanick.
It displays – to the extent that a short piece of video footage can – the character of Kalanick: entering into an argument with the driver – prompted somewhat ironically by one of his female friends’ comment that Uber is currently having a hard time of it lately – over the steady reduction in fees that Uber Black drivers have been experiencing over the past several years. At its apex, the argument leads Kalanick to become dismissive, defensive and somewhat abusive when the driver claims he has, through his ‘employment’ with Uber, gone into bankruptcy and lost over USD 90 000, owing to Kalanick’s reduction of pricing per mile.
As recently as 2012, Uber Black car drivers charged USD 4.90 per mile, whereas they now charge USD 3.75 per mile. Kalanick at first denies this fact in the increasingly heated argument with Kamel, and loses patience and tells the driver, “Some people don’t like to take responsibility for their own shit.” Days later, after the video goes viral, Kalanick takes on a meeker tone, writing in an email to corporate staff, “To say that I am ashamed is an extreme understatement.” He goes on to write, “It’s clear this video is a reflection of me – and the criticism we have received is a stark reminder that I must fundamentally change as a leader and grow up.”
Undoubtedly, Kalanick had received some cogent advice that the best response to his belligerent outburst would be an admission of his faults and a focus on his desire to alter the manner in which he leads – in fact to address investors’ key concern as to whether he possesses the temperament to lead at all. Uber is now valued at USD 69 billion, and has been heavily funded by venture capitalists and institutional investors. The firm has been wracked by a rash of bad news of late – the source of his friend’s original question, which led to the argument by the way – including sexual harassment suits, claims of a toxic corporate culture, accusations of intellectual property theft, and the resignation of top design engineering personnel from the firm.
These troubles come on the heels of other fundamental business challenges that go to the heart of Uber’s business model: the status of drivers as one example, their lack of insurance cover, the reported rapes that have taken place in India, and their market share decline. As an example, Uber’s main rival in the US market, Lyft, has experienced a significant increase in market share since the anti-Uber social media campaign #deleteuber began on January 29th 2017.
According to TXN Solutions, a research company, Lyft’s market share of the US market went from 16.5 percent as at January 29th to 20.9 percent less than three weeks later. The friend’s question, whilst not being necessarily the kind of question Kalanick would have wished to face during the celebrations that mark that most endearing of American customs – Super Bowl Sunday – was nevertheless a fair one, and one that is being asked by investors and drivers not only in the US, but worldwide.
The Kalanick character analysis phase that began after the February 5th Super Bowl Uber Black ride debacle began in earnest with a Bloomberg Businessweek analysis piece that was published on February 28th and that was followed up in the Financial Times with a ‘Long Read’ piece published on March 9th 2017. Both articles detail the resignations within Uber management, and the risks to investors of having Kalanick at the helm of this behemoth of new age technology-driven commerce. But neither ask what is the more compelling question. In no way wishing to diminish the severity of sexual harassment charges, nor the resignations of top officials, nor even the courtroom battles Uber is now ensconced in through its aggressive growth tactics, the real question goes back to Fawzi Kamel’s initial point to Kalanick. The prices per mile have steadily declined over the past four years, and surely this is unsustainable.
Between the moment when Kalanick goes postal on Kamel, and minutes before that in which Kalanick is still adopting the strategy of denial, Kalanick bleats, “No, no, no. You misunderstand me. We started high-end. We didn’t go low-end because we wanted to. We went low-end because we had to because we’d be out of business.” Whilst one may be forgiven for thinking Kalanick is referring here to standards, he is not. He is in fact referring to prices when he uses the phrase “low-end”. This is the main point: Uber’s strategy, which Kalanick is executing and will continue to execute, is to use investor funding, aggressive lobbying tactics, and social media campaigns, to utterly eliminate all competition. He is doing so not by offering a superior service, but by continuing to raise funding to subsidize rides, on a massive scale and worldwide, until the competition is starved of cash, and ultimately dies.
After this has been achieved he will then be able to raise prices to whatever level he wishes, earning his investors disproportionate profits – which is why they have been happy to invest in his loss-making business in the first place – and to do so in a monopolistic world. This is the main point he his making to Kamel: hang in there and all will be good, because then we can all share the spoils of total market domination. To blame him for this – in fact to expect him to apologise for this – is disingenuous. It is the investors we should question. They are knowingly investing in a firm that is still, to this day, generating negative free cash flow. It is a firm that, despite negative free cash flow, is still dropping prices and margins. Uber is massively appealing primarily to investment for ride subsidization to an even greater extent than in 2012, when Kamel started his venture as an Uber Black driver.
The sole purpose of this investment strategy is to eliminate competition through pricing, the precise issue that the US government, antitrust lawyers, regulators, and the protectors of the freedoms of the capitalist markets have with China, and have had with Microsoft, as an example. Microsoft, after cynically embedding internet explorer search capabilities into their software bundle – which they insisted consumers needed to acquire as an embedded service – ultimately did lose a raft of antitrust cases. But by then it was too late. Their competition had been ravaged and left for dead.
If investors in Uber are happy to strangle competition in an industry as crucial as transport and logistics by knowingly supporting this business model, then they need to live with the consequences: and that is Travis Kalanick, whether he be of good moral stock or not.