Uber’s pre initial public offering (ipo) valuation was as high a
1. UBER’S pre-initial public offering (IPO) valuation was as high
as $120 billion, making it the most valuable privately held
company ever. Yet when Uber had its IPO on May 10, 2019, it
was valued at $76 billion at the end of its first trading day.
What happened to the difference in valuations? Where did the
$44 billion or some 37 percent of its valuation go? Answer: It
evaporated—and many argue that the pattern of un-ethical
behavior over the years was a major contribut-ing factor.
Unicorns (private startups with a valuation of
$1 billion or higher) such as Uber are not subject to the same
public scrutiny as publicly traded companies are, which allows
them to push the envelope in their legal and ethical business
practices. A potential down-side, however, is that a track record
of ethics and legal problems may prevent a successful IPO in
the future. In the process of achieving such success, Uber’s
uneth-ical, if not illegal, activity generated controversy after
controversy. Before we look more closely at those ethi-cal
issues, we need to understand the business success that could
have tempted Uber to engage in ethical shortcuts.
Record-Breaking Growth Facebook took seven years to reach a
valuation of $50 billion for a private, venture-capital-backed
firm; Uber only took five. If we compare Uber with the car-
rental giant Hertz—which has 150 locations, a fleet of 500,000
cars, and about 30,000 employees—it’s as-tounding to learn that
Hertz reaches less than 1 per-cent of Uber’s valuation. Uber
reached its astronomical valuation because it successfully
expanded both in the
United States and globally. Today this ride-hailing company
serves approximately 600 cities in more than 60 countries
worldwide and with 100 million monthly users. As a powerful
platform business, Uber’s popularity
grew exponentially; it currently transports millions of riders
2. daily and continues to expand rapidly in the United States and
abroad. Revenues grew almost 30-fold, from $400 million in
2014 to more than $11 billion in 2018—yet Uber is not
profitable. Why? The answer is that Uber continues to subsidize
its rides to build a strong position in this winner-take-all
market. In 2018, it lost a whopping $3 billion, more than any
other startup in the year before its IPO.
Ethically Challenged?
Trailing Uber’s meteoric rise were multiple lawsuits and
accusations, often tied directly to decisions and ac-tions made
by its co-founder and now former CEO
Travis Kalanick. Consider just some of the incidents and issues
in the company’s short history: • Early disregard for laws, rules,
and regulations. Within months of its San Francisco launch, the
lo-cal Metro Transit Authority and the state Public Utilities
Commission ordered Uber to cease and desist. They called out
Uber as an unlicensed and illegal taxi service. Similar
injunctions followed in major markets, including New York
City, Los An-geles, Toronto, Paris, London, Berlin, and Delhi.
Uber’s response? Ignore all such warnings.
• Dynamic pricing. Unlike the taxi industry, in which pricing is
fixed by regulation, Uber uses dynamic pricing, following the
model of airlines, hotels, and other industries. Uber’s fares go
up or down based on real-time supply and demand. During a
snow-storm or on New Year’s Eve, short Uber rides can cost
hundreds of dollars. Kalanick argued that surge pricing
efficiently matches supply and de-mand. But many Uber users
rant online against the practice and call it price gouging.
• Punking the competition as well as its own drivers. Lyft, the
main competing ride-share company, ac-cused Uber of ordering
over 5,000 rides from Lyft
Poaching drivers. Uber brand ambassadors have been accused of
actively targeting successful driv-ers from Lyft and other
competitors and pressuring them to defect—allegedly all part of
Uber’s secret Operation SLOG (Supplying Long-term Opera-
tions Growth).
3. • Poisoning competitor’s well. Given their significant burn rate,
startups live or die based on access to capital. Kalanick
reportedly poisoned Lyft’s efforts to raise venture capital,
telling investors, “Before you decide whether you want to invest
in [Lyft], just make sure you know that we are going to be fund-
raising immediately after.”2
• Attacking critics. Uber senior executive Emil Mi-chael
suggested spending $1 million to hire private investigator s to
dig up dirt on journalists who wrote damaging pieces on Uber,
with particular focus on Sarah Lacy, of tech blog PandoDaily.
When the re-marks became public in 2014, Michael apologized
and Kalanick decried the attempt, but Michael w not
disciplined. In the wake of Kalanick’s forced resignation in
June 2017, Michael also resigned.
• Tech transfer by stealth. Uber opened its Advanced Tech
Center in Pittsburgh in 2015 to develop au-tonomous cars and
sophisticated mapping services. Funding research at Car negie
Mellon University’s National Robotics Engineering Center
(NREC) brought Uber access to the university’s scientists. A
few months later, Uber poached the entire NREC research team
with signing bonuses, twice the sala-ries, and stock options. The
NREC was left a shell, with its entire future in question.
• Allegations of sexual harassment and gender dis-crimination.
A blog post by a former Uber engineer went viral. It alleged
rampant sexual harassment, persistent mistreatment of female
employees, and the company’s failure to respond to complaints.
The former employee said that women engineers in her work
group dropped from 25 percent to as low as 3 percent within a
year because of the hostile work environment. She also claimed
managers downgraded her performance review for reporting a
supervising manager for harassment.
• Slow response. Public outcry forced Kalanick to act on the
allegations of sexual harassment, and once he acted, he went
big. He hired former U.S. Attor-ney General Eric Holder to lead
an internal investi-gation with Arianna Huffington, then Uber’s
only female board member.
4. • Operation Greyball. The New York Times exposed Uber’s use
of stealth technology for a number of years to foil law
enforcement and regulators investigating Uber and its drivers.3
In a secret operation code-named Greyball, Uber programmed
its software to set up GPS rings around government offices and
track low-cost phones and credit cards linked to government ac-
counts. Thus, when law enforcement officers posed as Uber
customers, Uber showed them dummy screens with fake Uber
cars moving, none of which would stop and pick them up.
Greyball was deployed worldwide, especially in cities where
Uber was outlawed.
• Kalanick caught on video. When an Uber driver complained to
Kalanick about recent fare cuts, he told the driver upon leaving
the vehicle, “You know what, some people don’t like to take
responsibility for their own sh**,”4 and slammed the door.
Kalanick did not realize he was being filmed by the driver’s
dashboard cam. The driver uploaded the video to social media,
where it went viral.
Waymo lawsuit. Waymo, a unit of Alphabet (Google’s parent
company), sued Uber for stealing Waymo’s proprietary self-
driving technology. When Uber acquired the autonomous-
vehicle startup Otto, its founder, Anthony Levandowski, was
work-ing for Waymo at the same time on its autonomous-
vehicle program. Waymo accused Levandowski of stealing more
than 14,000 proprietary files from the firm. Uber settled the
lawsuit with Waymo in the spring of 2018, giving it $245
million in equity and making the promise that it would not use
Way-mo’s technology in its self-driving cars. For Waymo, the
stakes were just too high. According to expert predictions, only
one or two technology standards will prevail for self-driving
technology. Waymo wants to become the default operating
system for self-driving cars with its proprietary technology.
Forced to Resign
Many of the issues described came to a head in mid-2017. In
May, the results of the Holder investigation, along with 50
recommendations, were delivered to the Uber board. In June,
5. responding to pressure from key investors, Kalanick formally
resigned as CEO. The in-vestors had expressed no confidence in
Kalanick’s abil-ity to continue to lead the company that he co-
founded. You could say the company developed a reputation
to live down. Uber’s ethical challenges were called out publicly
throughout its rise, and as early as 2014, ven-ture capitalist
Peter Thiel called Uber the “most ethi-cally challenged
company in Silicon Valley.”5 Of course, Thiel, the billionaire
co-founder of PayPal and Palantir (a data analytics company), is
also an investor in Lyft. Lyft (featured in ChapterCase 9) also
went public in the spring of 2019 (before Uber) and ended up
with a valuation of $26 billion at the end of its first trading day,
roughly one-third that of Uber. Echoing Thiel’s assessment, The
Wall Street Journal
argued that Uber itself—rather than Lyft or old-line taxi and
limo services—is its biggest threat, thereby func-tioning as its
own biggest rival. The competitive tactics and comments by
Uber executives and constant scan-dals surrounding Kalanick
were harming the compa-ny’s reputation and becoming a
liability.
Disaster Averted?
Will Travis Kalanick’s departure as CEO allow Uber to develop
a more grounded and ethical corporate culture? It may take
several years to answer that ques-tion confidently. Here are
some observations about Uber’s future.
A CYNIC’S VIEW. Critics may see the resignation of Kalanick
as just one more stunt to reduce heat and scrutiny, and unlikely
to result in meaningful change. Corporate culture is never easy
to change, this line of reasoning goes, and Kalanick, as co-
founder, remains a strong presence in two ways. First, he has
contributed too much to the company’s DNA (through the
imprinting process discussed in Chapter 11), so the company is
prone to lapses by nature. And second, Kalanick has not cut his
ties; he still remains intimately involved in the company.
Although no longer CEO and chairman, Kalanick remains a
member of Uber’s board of directors. Given this situation, some
6. observers question whether Uber has in place effective
corporate governance mechanisms, or whether its ethically and
legally questionable competitive tactics and decisions are
simply part of its larger intended strategy: to dominate the
mobile, on-demand logistics business first and to address any
remaining stakeholder grievances next.
BEYOND CYNICISM. On the other hand, business as usual for
Uber is becoming increasingly problematic. For years, Uber
seemed willing to flout rules, laws, and regulations because the
service was liked by users who didn’t want to see it be removed.
Uber’s customers were happy because they could hail rides
conveniently and cheaply, often in areas that were underserved
by regular taxis; drivers were happy because they could choose
when and how long to work. Local politicians were cautious
about throwing a monkey wrench in the works. Why make your
voters unhappy? Such tactics may work fine at the local level,
but not
beyond. Uber’s challenges are growing increasingly broader,
both nationally and internationally. Uber now fights well -
funded lawsuits instead of hamstrung municipal bureaucrats.
Uber can no longer fly under the radar. The company is so big
and established that the CEO’s boorish behavior or an
employee’s com-plaints about sexual harassment quickly go
viral on a global basis.
EYE ON THE PRIZE. Uber may be at a point in its trajectory
where investors simply won’t allow it to continue its self-
destructive tendency to cut ethical corners. Too much is at
stake. In this line of thought,
the biggest opportunity with Uber is not its current business.
Uber’s goal remains centered around self-driving cars,
supported by high-powered mobile logistics networks and
online mapping systems. In this view, its current business is
secondary. Which takes us back to Uber’s inherent disruptive
nature. With a fleet of autonomous vehicles offering cheap
rides, people don’t need to own cars anymore. When car
ownership is no longer needed, it will impact the old-line car
7. manufacturers. From there Uber might expand into the “delivery
of everything,” taking over last-mile deliveries for Amazon and
other online retail-ers. Uber might even work in concert with
shippers such as UPS and FedEx.
ONE POSSIBLE FUTURE. In this version of the future, Uber is
the primary player and provider of self-driving car technology.
It controls the platform under which customers might summon a
car to their door, and some of Uber’s current challenges would
disappear. According to Kalanick, “The reason Uber could be
expensive is because you’re not just paying for the car—you’re
paying for the other dude in the car. When there’s no other dude
in the car, the cost of taking an Uber anywhere becomes cheaper
than owning a vehicle.”6 Kalanick is pitching benefits of self-
driving technology for both the firm and the consumer. Paying
for the driver is currently the largest single cost of an Uber ride.
Not having to deal with drivers thus becomes an attractive
option not only because it saves on costs for customer and firm,
but also because it eliminates a contentious relationship once
shared between the firm and its work force (as evidenced by
driver walkouts). Globally, courts are still considering w hether
Uber
drivers should be considered freelancers or actual employees,
given the rules by which they must abide. If drivers are to be
classified as employees, Uber must pay benefits and so forth;
the cost per ride would further increase. Moreover, Uber loses
money on each ride and continues to subsidize both the
consumer and driver to build an installed base of as many users
as possible. On the regulatory front it’s reasonable to assume
that states will continue to remove obstacles to self-driving
cars and the companies that manage them. So in this future,
many of its compliance failures go away.
CURRENT CHALLENGES. But Uber has to get through current
challenges to reach its future goals. Before Kalanick resigned,
the firm engaged in perception managemen t to deal with all the
scandals and
controversies. In 2015 Uber hired David Plouffe as senior vice
8. president of policy and strategy, explicitly to improve public
relations and to lobby politicians. Previously, Plouffe had been
the manager for the 2008 Obama presidential campaign and then
a senior adviser in the administration. At Uber he pitched the
social benefit of Uber’s contribution to the transportation
ecosystem and its ability to fix traffic congestion, cut down on
drunk driving, and provide reliable and safe services to
underserved city and suburban areas—even helping to end
poverty by increasing access to reliable transportation. He also
minimized the criticisms, calling them misguided. EXODUS OF
TALENT. Plouffe walked away in early 2017. He was followed
by Rachel Whetstone, who headed policy and communications
globally; she was hired in 2015 and left in April 2017. The
number of senior executives and lead engineers that have left
Uber in the wake of continuous scandals has been a steady
stream. They include Uber’s head of autonomous-car
technology, head of online mapping, and an artificial
intelligence (AI) expert. Some cited issues with the company’s
values as the reason for their departure. When resigning after
only six months on the job in spring 2017, Uber President Jeff
Jones stated, “The beliefs and approach to leadership that have
guided my career are inconsistent with what I saw and
experienced at Uber.”8 As these executives departed before
Uber’s IPO, they left behind promised stock options estimated
to be worth millions. HOPE FOR THE FUTURE? If Uber is able
to mend its ways—and much depends on how the full board
responds to major investors—Uber has a much better chance of
realizing the future it hopes will unfold.
DISCUSSION QUESTIONS 1. Would you like to work for
Uber? Why or why not?
2. Do you agree with Peter Thiel’s assessment that Uber is the
“most ethically challenged company in Silicon Valley”? Why or
why not? Explain.
3. Some observers had argued that Uber’s greatest problem was
not any of its scandals, but CEO Tra-vis Kalanick. Now that
Kalanick no longer serves that role, how much better off is
9. Uber? Do you think Kalanick’s reduced profile will turn the tide
for Uber? Or are Kalanick’s drive and competitive-ness
necessary to Uber’s continued success, regardless of the title he
holds? If you were on the
board of directors, what would you recommend? And why?
Note: Due to his shareholdings in the company and how
ownership is structured, Ka-lanick is an Uber board member.
See www.uber. com/en-DE/newsroom/leadership/.
4. What should Uber CEO Dara Khosrowshahi do to address the
company’s poor reputation? How can he instill an ethical
culture in this hard-charging startup