Uber: the $50 billion brainwave

Uber the $50 billion brainwave

By Steve.

Uber has changed the way we travel. Now, its controversial CEO, Travis Kalanick, wants to revolutionise our roads – with driverless cars

Jordan Kretchmer remembers what Travis Kalanick was like before Uber was Uber. Kretchmer was a 25-year-old college dropout with a lot of ideas, and Kalanick had even more. He was in his early thirties, an engineer who talked like a sales guy, smart as hell and high on life. He wore a cowboy hat and referred to himself as the Wolf, after the cold-blooded, coolly rational fixer played by Harvey Keitel in Pulp Fiction. He was tireless – always on the move, always thirsty.

They met in 2009 in Texas at the music, film and tech festival South by Southwest and bonded at an all-night “jam session” about the future of the internet. That night in Austin was a sort of satellite version of the round-the-clock ideas salon Kalanick routinely held at his three-bedroom house in San Francisco. These gatherings were full of young people like Kretchmer who had come up through the wreckage of the first dotcom bust. They were entrepreneurs who knew about hustle, who saw opportunity even in the muck of a desperate economy and were going to take advantage. This is what drew them to Kalanick, and vice versa.

Although Kalanick had been a start-up guy since high school, he was a grinder, not a mogul. He had made enough on his last start-up, RedSwoosh, which helped media companies deliver big files on the web, to buy a house and do a bit of angel investing. Uber, the on-demand transportation app that he co-founded with Canadian entrepreneur Garrett Camp in 2009, was still more or less a toy, a personal limo service for the founders and their friends in San Francisco. When Camp asked Kalanick to run Uber full-time, Kalanick said no. Uber was “super-crazy freakin’ small”, Kalanick tells me when we meet. “I was not ready to get in the game and give 100 per cent or 150 per cent,” he says.

Back in those days, if Kalanick liked you, he’d invest in your company, and if he thought your idea was big enough, he’d come to your office one or two days a week and work for free, says Kretchmer. At his house as many as 15 entrepreneurs at a time would debate business ideas as well as drink his beer, eat his food, play his Nintendo Wii, and stay the night if they wanted.

Stories about Kalanick’s generosity seem at odds with the portrait of the man that has emerged since Uber launched in 2010. Kalanick has been routinely described as a callous capitalist, the kind of guy who jacks up prices during natural disasters. Peter Thiel, the technology investor, has called Uber “the most ethically challenged company in Silicon Valley”.

“He is an incredibly aggressive person,” Kretchmer admits of Kalanick. But, he adds, “He’s building one of the most important companies of all time.”

About that last point there is little room for debate. In five years, Uber, which dispatches low-cost taxis and limousines operated by independent drivers, is likely to be the fastest-growing start-up in history. It has more than 1 million active drivers and a market valuation of £32 billion. It is currently in 342 cities across the world. It is a global phenomenon that is redesigning urbanites’ relationship with the world around them, transforming their smartphones into control pads for their harried lives. Uber is the first company since Google with a service so popular that its name is in regular use as both a noun and a verb.

Uber’s classification of its drivers as independent contractors has sparked international conversations about the changing nature of employment. It has been seen as a stand-in for the excesses of global capitalism, prompting violent protests in Paris and Mexico City. In London it has been engaged in a long-running battle with the Licensed Taxi Drivers’ Association, which argues that Uber drivers do not have to operate under the same restrictions and rules as black-cab drivers. Two weeks ago, the High Court rejected the LTDA’s claim that Uber’s mobile app was illegal.

All of this controversy has come at the price of Kalanick’s reputation. The 39-year-old has been presented in an almost cartoonish light, coming off as either an Ayn Rand-esque Superman or a moustache-twirling villain, or both. And yet Kalanick has wooed some of the most august financiers in the world to give him, essentially, a blank cheque. Key staff members from some of the world’s best-run organisations, including Facebook’s head of security, President Barack Obama’s campaign manager and a large number of university researchers working on driverless car prototypes, now work for him. Kalanick’s latest plans include conquering India and China; transforming Uber into a car-pooling service, and then further reinventing itself – and how the world’s cities operate – by introducing a fleet of autonomous vehicles.

If Uber is the apotheosis of the current technology boom, its roots date to the first dotcom frenzy, when Kalanick, who’d grown up middle class in Los Angeles’ San Fernando Valley, was an ambitious 21-year-old computer engineering student at the University of California. In 1998, with a few months to go before graduation, he dropped out to join the founding team of Scour, a file-sharing service that pre-dated Napster. The least geeky member of the group, Kalanick was put in charge of product, business development and marketing.

Kalanick, a natural salesman who sold knives door-to-door as a high-school student one summer, helped bring in investment from Michael Ovitz, co-founder of the huge LA-based talent agency CAA, and Ron Burkle, the supermarket magnate. Ovitz, among the most feared Hollywood players at the time, gave Kalanick a crash course in hardball business tactics. Not only did he insist on an onerous 51 per cent share of the start-up for $4 million from him and Burkle, he sued Scour as a negotiating tactic when the company looked for other investors. Being under Ovitz’s wing exposed Kalanick to the worst of late-Nineties management wisdom. Executives at Ovitz’s companies would routinely hand out copies of Sun Tzu’s The Art of War. If people struggled, personally or professionally, they were told that it was because “you’re a Peter and not a Howard” – that is to say, a weak-willed conformist, like Peter Keating in Ayn Rand’s The Fountainhead, rather than its individualistic hero, Howard Roark.

Scour grew to have millions of users, largely because it offered movies as well as music. Inevitably, it was served with a lawsuit from nearly every major record company and movie studio. The damages, $100,000 per file, added up to as much as $250 billion.

The lawsuit put Ovitz as a Hollywood player in an awkward position. He declined to fund the company further, and the studios suing Scour informed any potential investors that they’d risk lawsuits if they helped Kalanick and his friends. Scour was forced to file for bankruptcy.

“You learn quick in that business how deals are done and not done, and how you can get run over,” Kalanick says. “You learn a lot about that.”

Kalanick rebounded by starting “a revenge business” to turn the companies suing him into customers. His idea was to transform Scour’s consumer file-sharing technology into an enterprise software product, RedSwoosh, which would make it cheaper for media companies to deliver big video files on the web.

It sounded better than it worked. Bandwidth prices fell rapidly in the early Noughties, and the dotcom bust meant there was suddenly less enthusiasm for big investments in streaming video. RedSwoosh shrivelled to just Kalanick and one other engineer. Kalanick moved in with his parents. “We thought he was crazy to keep going,” says Dan Rodrigues, who had been Scour’s CEO. But, he adds, “We all believed that if anybody could do it, Travis could.” Through little else but the sheer force of his personality, he eventually landed an investor, entrepreneur and film producer Mark Cuban, rebuilt a team and, finally, in 2007, sold the company to his much larger rival, Akamai, for $23 million. It had been a hard six years.

Three years later, University of California graduate Austin Geidt recalls landing her first job at a tiny start-up called Ubercab in 2010. The company then consisted of four employees in a 10ft x 10ft cubicle. Geidt remembers a meeting in Kalanick’s living room to decide the future of the business.

“What kind of brand do we want to be?” Kalanick asked. A debate ensued that would last until past midnight. One person argued that Uber should focus on luxury. “We’re gonna do airplanes and helicopters. It’s luxury all day, all night.” Somebody suggested that Uber could advertise the service with images of attractive women in front of nightclubs.

Kalanick bristled. He was beginning to see Uber not as a “super-crazy freakin’ small” premium product, but as a wild maths experiment. In the early days, Camp and Kalanick assumed that they could disrupt the high-end limousine business by replacing dispatch services with an app. What they did not appreciate initially was the effect low prices would have on the service.

The thing to do, Kalanick argued, was to make the service a low-cost accessible luxury. “If Uber is lower priced, then more people will want it,” he explains. “And if more people want it and can afford it, then you have more cars on the road. And if you have more cars on the road, then your pick-up times are lower, your reliability is better. The lower-cost product ends up being more luxurious than the high-end one.” Kalanick had been resisting Camp’s overtures to become CEO, but it was this insight that got him excited: Uber could be huge.

All that struggle and setback from his first two start-ups set up Kalanick almost perfectly for what was to come.

The first battle came on the very day he was named CEO in late 2010. Ubercab had been issued a cease-and-desist order by the city of San Francisco, which accused the start-up of operating as an unlicensed taxi company. Uber’s executives faced fines of $5,000 per ride and 90 days in jail for every day they stayed in business.

Kalanick didn’t flinch. He kept the cars on the road, dropped “cab” from the company name, and scheduled a meeting with the city’s Municipal Transportation Agency to explain his position that Uber was not a taxi company but rather a technology service for independent drivers. Debate about Uber raged on Twitter.

Kalanick responded to Uber’s new, controversial status by amping things up. He’d attended President Obama’s first inauguration and took up the mantle of libertarian firebrand. When critics attacked Uber’s so-called surge pricing policy, a system akin to the scheme used by airlines and hotels to raise prices when demand is high, the CEO who’d been fanatical about lowering prices began publicly mocking customers who complained. “I like p***ing people off,” he said in one interview. When asked about competitors, he said, “If you’re sleeping, I’m gonna kick your ass.”

Kalanick looked a jerk to many outside the company, but he was dynamite with the financial press, who portrayed him as the ultimate insurgent (“Silicon Valley’s rebel hero”, as Fortune put it). Venture capitalists fell for Kalanick, too. Bill Maris, the managing partner of Google Ventures, says he started trying to invest in Uber as early as 2011. He had to wait until 2013, when he gave Kalanick what amounted to a blank-term sheet and told him to name his price.

Kalanick wanted more than $250 million at a valuation of a little less than $4 billion, a huge figure for a three-year-old company. Maris agreed to the deal on the spot.

On the fourth floor of Uber’s San Francisco headquarters, there is a 2ft-wide walking track, delineated by a stencilled pattern of the San Francisco city grid, running around the perimeter of the open-plan office. It’s a quarter of a mile long, and it’s where you’ll find Kalanick when his mind is in motion, which is to say pretty much all the time. In a typical week, he does 40 miles, or about 160 laps. “That’s just how I think,” he says, compulsively screwing and unscrewing a bottle of iced tea that he finished half an hour earlier.

Kalanick still seems, to borrow one of his favourite words, “fierce”, but there is also something slightly cowed about him these days. Maybe it’s his grey beard, or the way his shoulders slump when he sits, or how his hands seem to shake as he talks. He’s been hurt and made angry, his friends tell me, by the barrage of negative press that has presented Uber as a malignant force. “I’m OK being seen for who we are, but it’s not clear to me that’s always what people have written,” he says. “We’d prefer to just be helping people get from point A to point B, but when the company starts to succeed, in a city, or in a country, or around the world, you start to get brought into more and more of these political debates.”

This new, subdued Travis Kalanick claims he’d never heard of a libertarian before he was branded one. This seemed to me a significant overcorrection from the badass anti-government crusader he has played for the past few years. Kalanick is not the kind of person who clings to beliefs, or even a fixed sense of himself. “He has an inner circle whom he opens up to, and then an outward personality and image he projects of a hard-charging disrupter who takes no prisoners,” says a longtime friend. That duality, the friend says, “is part of why he’s been successful”.

Kalanick’s natural state is debate, says Uber’s chief technology officer Thuan Pham. “What Travis infuses in the company is that the best ideas win. You have to be willing to step on toes to make sure the idea is heard, and you’re supposed to only be loyal to the idea.”

Some Silicon Valley founders pride themselves on being visionaries; Kalanick exults in an ability to read the data, revise and adapt. He likens running Uber to driving a car without a clear destination in sight. “You’re going down the highway, and it’s a bit foggy,” he says. “You’ve got to keep your eyes on the road and your hand on the steering wheel. You can only see so far ahead. But if you keep solving interesting problems, you get somewhere you didn’t expect.” I found this admission refreshing in light of the absolute certainty that most CEOs project. It also felt like the most honest thing that Kalanick said during our entire interview, and the only time he really broke character.

Kalanick tends to micromanage certain parts of the business – pricing, for instance – but the company’s local general managers, who tend to be hustlers hired in his own image, are given wide latitude in figuring out how best to attract drivers and riders to the service. “I don’t make decisions unless I’m all the way in the details,” says Kalanick.

He expects everyone else to follow that example. Local staff members are allowed access to almost all of the company’s data, meaning that a marketing manager in Jakarta can instantaneously call up the overnight revenue for cars in London or look at what happened in Chicago when the company gave out free ice cream.

Of course, there have also been negative repercussions to this hands-off approach. In Lyon, France, a local general manager launched an Ubercade-like promotion in October 2014, but one with a misogynistic bent. “Who said women don’t know how to drive?” an Uber Lyon blog post teased (it was cancelled immediately). The following month, at an ostensibly off-the-record dinner with media power brokers, an Uber business-development boss suggested that Uber should fight back against bad press by investigating the personal lives of those who criticised the company. The news went viral almost immediately.

Kalanick was not the mastermind behind these blunders, but he had set the tone that produced them, once referring to his company as “Boob-er” for its success in improving his luck with women, and his public declaration that Uber planned to “throw mud” at its critics.

The gaffes have been described by some as evidence of a morally rotten company, but they’re more a symptom of Uber’s wild growth. The company more than quadrupled the number of cities it served in 2014. Kalanick was no longer the young gun trying to make it happen; he and Uber were big time.

To Kalanick’s allies, the dinner, and Kalanick’s subsequent apology (via a tweet-storm), represents a turning point. It was the first time Uber had taken a punch without throwing one in return.

David Plouffe, the former Obama consigliere, now serves Kalanick in a similar role as Uber’s chief strategist. The first public unveiling of this Plouffe-ified Travis Kalanick – who now, Boob-er days behind him, lives with his girlfriend, violinist Gabi Holzwarth, and their goldendoodle, Yobu – was at the company’s five-year anniversary celebration in June. The event was stage-managed like, well, an Obama campaign rally. Close supporters warmed up the crowd; a cast of camera-ready Uber drivers had been invited to be on hand; there were balloons. It was all impeccable, but for Kalanick’s inability to replicate the president’s soaring rhetoric. He read from a teleprompter, sometimes stumbling over words, and he kept a tight hold on the lectern. “I realise that I can come off as a somewhat fierce advocate for Uber,” Kalanick said. “I also realise that some have used a different A-word to describe me.” He barely mentioned the taxi industry at all, choosing instead to frame Uber in a grander narrative. “Uber isn’t just the better choice for drivers and riders and commuters; it’s the right choice for cities and all the people who live there.” The speech was good; the speaker looked miserable.

“It’s not my natural state of affairs to have a scripted thing,” Kalanick tells me. “When you’re a start-up guy, you have to be really lean and scrappy. But as you get perceived to be big, you can’t have that same kind of scrappiness.”

His word choice – perceived – makes me wonder if Kalanick sees Uber as a big company or not. Are you an underdog?

Kalanick hesitates, as if he knows that the answer is no, but he wants it to be yes. “I mean, we’re an underdog in China, right?” he says. “The thing is, how do you build a company where you’d still feel small, even as you get bigger?”

Kalanick’s answer to these questions is a series of audacious initiatives including his push into China. Over the past year, he has been throwing money into UberPool, a new service that pairs up riders on the same route and charges them a reduced price. He is investing heavily in driverless cars. In July, Kalanick announced that Uber would invest $1 billion to grow its business in India.

Kalanick’s persistent impulse to bet big has been expensive. Uber has raised more than $8 billion to date, but it will need more. Recently leaked documents show that it is losing more than a dollar for every dollar it takes in. Uber claims to be profitable in dozens of markets, and it could close this shortfall if Kalanick were willing to focus on generating profits in the company’s most mature cities, but that’s not how Uber’s CEO rolls.

He tells me that he sometimes fantasises about relocating to China. “That’s where the action is,” he says. “There are certain things in life where you have to go for it – just for the sheer adventure of it, and also for the potential,” he says, his eyes widening. “Part of being an entrepreneur is going to places that go against what the conventional wisdom might say. And when you win, well, you’ve won, right?”

The future is driverless
Tech giants are convinced car ownership will soon be as outdated as the telephone box. The race is on to launch the first self-driving vehicle – and Uber wants to take the lead. By Bridget Harrison

Travis Kalanick may be known as the man who has reinvented the act of hailing a taxi. Now his sights are set on a greater prize – the entire car industry. The Uber CEO is working towards a world where there will be no need for Uber drivers or, indeed, for car ownership at all. In their place, a fleet of self-driving vehicles summoned at the tap of an app to take customers wherever they need to go. Essentially Kalanick wants to cut out the middle man – or, as he puts it, “the dude in the car”.

“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,” he told the Code Conference in the US last year. “When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle. Even if you want to go on a road trip, it would just be cheaper. The magic there is that you bring the cost down below the cost of ownership, for everybody, and then car ownership goes away.”

For a battle-hardened Silicon Valley entrepreneur such as Kalanick, this is about staying at the forefront of game-changing technological research. He’s not about to stand by while competitors reap the rewards of what it is predicted will become a multibillion if not multitrillion dollar industry. “Google’s doing the driverless thing. Tesla’s doing the driverless thing. Apple’s doing the driverless thing. The question for a tech company is, do you want to be part of the future or do you want to resist the future?” he said in an interview on US television last month.

Kalanick is entering a crowded field. In addition to the tech companies, traditional car giants such as GM and Mercedes are piling millions into research in this area. A number of cars are already able to maintain a steady speed without assistance, stay in lane, stay a safe distance away from cars in front and even park themselves.

But there’s a sticking point for traditional car-makers. It is in their interest to keep people buying cars – albeit safer and more user-friendly – not dispense with those drivers altogether. It is the tech companies such as Uber, Apple, Google and electric car company Tesla that are envisioning a world where car ownership is replaced by autonomous vehicles that arrive on demand.

To this end, in February Uber opened its own Advanced Technologies Centre in Pittsburgh after poaching 40 top researchers from the city’s National Robotics Engineering Centre at Carnegie Mellon University – one of the world’s leading research centres into robotics. Kalanick reportedly doubled researchers’ salaries and offered six-figure bonuses to the defectors. Work at Uber’s new Pittsburgh research centre includes producing better maps and safer guidance systems for cars – with the mission to produce Uber’s very own fleet of self-driving vehicles. In May this year, a modified Ford loaded with sensors and cameras was spotted on Pittsburgh’s streets.

At Google, a team led by a former director of the Stanford Artificial Intelligence Laboratory and co-inventor of Google Street View has already tested its driverless technology in Toyota Priuses, Audis and Lexus SUVs. They’ve already clocked up about one million miles on public roads, and continue to put in 10,000 miles each week. (These have not been without mishap. So far, 11 “minor accidents” have been reported, although none could be blamed on the car, according to Google.) In May 2014, the internet giant presented its own design of driverless car that had neither a steering wheel nor pedals. The company wants to make such vehicles available to the public by 2020.

Meanwhile, Apple is working on its own top-secret electric-car project, reported to be “ready to ship” in 2019. Its own modified automated vehicle has been sighted in tests on San Francisco streets.

But there are still challenges to overcome. Radars, lasers and cameras currently used by car-makers have grown so sophisticated that the vehicles can easily monitor the road in all directions – even beyond where the eye can see. The problem is the unpredictability of mere humans – when pedestrians and cyclists do something unforeseen, for example. They also need to understand regional differences. Drivers in one city behave differently from drivers in another. The unspoken rules of the road are subtle and, potentially, hazardous.

Beyond the technology, there are legal issues. Currently, even the most automated of cars still requires a driver with a full licence behind the wheel on public roads. Those US states that permit autonomous-vehicle tests demand that a human be present in case of emergencies.

But Travis Kalanick is determined. Last month, he told delegates at aWall Street Journal conference: “Some cities are going to allow it [self-driving cars], and then they’re going to be the bastion of the future, and the other cities are going to look like they’re in the Middle Ages.”

Uber drivers, too, are getting rattled by the vision of a world where they will no longer be needed. But Kalanick is typically bullish in the face of yet another wave of moral criticism. “Look, this is the way the world is going,” he has said when challenged on the subject. “If Uber doesn’t go there, it’s not going to exist either way. The world isn’t always great.”

And Uber is not afraid of a fight when it comes to regulation. In August, the company held a joint press conference with Arizona governor Doug Ducey, in which Ducey unveiled an executive order supporting the testing of self-driving vehicles, “regardless of whether the operator is physically present in the vehicle or is providing direction remotely”. It requires that Arizona’s driverless-vehicle pilot programmes take place on university campuses. But it also directs the state’s department of transportation, department of public safety and “all other agencies” to “undertake any necessary steps” to support the testing and operation of self-driving vehicles on public roads in the state.

This means that when Uber does reveal its self-driving taxi, it will legally be allowed to take paying customers around the Arizona university campus. The company, meanwhile, announced a $25,000 donation to the university and committed to fund research into self-driving technologies there.

Engineering magazine IEEE Spectrum found that Uber has also recently approached a disused military base that is now a testing facility for autonomous vehicles in California – where Apple is also reportedly considering testing its own self-driving car.

What is clear is that Kalanick is a man on a mission, and the race to introduce autonomous cars is all part of his instinct to subvert. “We’re a tech company, so we’ve said, let’s be part of that,” he said last month. “It’s a super-exciting place to be.”

The ability to summon an Uber cab without that dude in the car is unlikely to be too far in the future.

The Uber numbers
The company now operates in 61 countries and 342 cities across6 continents.
Almost 3 million Uber trips are taken daily.
The company expects to take $10.84 billion (£7.1 billion) in bookings this year.
Its estimated value is $50 billion.
In the three years since it launched in the UK, there have been 20 million trips here.
Uber is signing up more than 100,000 new drivers every month.
Uber is most popular in Chengdu, China, where drivers make the highest average daily number of trips.
Uber is banned in at least eight cities and throughout Spain, the Netherlands and Italy.

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Published
Mar 10, 2016