Feb 17, 2016 · 15 minutes

New ridesharing service Juno wasn’t planning to do any press for a few months. But when you put an app in two thousand cars in the media capital of the word and threaten to target the glaring weak spot of  the highest valued company in Silicon Valley history… well, word tends to spread.

Yesterday we speculated about the prospects and pluses and minuses of what we knew of the app. Soon afterwards, Juno’s founder and CEO Talmon Marco emailed me, arguing that my speculation-- particularly that the company’s data collection on active Uber drivers was “creepy”-- was wildly unfair.

Despite his intention not to do press this early, Marco and I spent an hour on the phone yesterday afternoon as he explained details of Juno’s plans. The call was followed by a lengthy email exchange. At the very least Juno seems determined to have a different relationship with journalists than Uber.

To be clear: Marco’s effort is still in the very early stages. Juno hasn’t yet picked up a single passenger. He’s raised money from just the cofounders of his previous company, himself, and friends and family, and is staying silent on the funding details. It’s “in the eight figures” he told me before apologizing for the broad range in what that could be. Let’s assume the $10 million-ish low-end. That’s still a hefty amount for an unlaunched business funded by founders and friends and family.

Marco’s last company-- Viber-- didn’t raise outside capital and was sold to Rakuten for some $900 million. So he can certainly afford to bootstrap for a while. And that’s another part of his differentiation: Unlike Uber’s would-be “baller” culture, which has maximized valuations damn the consequences, Juno’s founders say they aren’t motivated by personal enrichment, because they’ve already made plenty. Proof? They setting aside half of the founder’s stock to give to drivers.

But while the equity part sounds nice, let’s be real. Drivers aren’t going to switch from Uber just for the chance of a potential payday. They’ve been burned by the promises of a startup before. And that’s why Juno says it’s taking only a 10% commission of each ride, enables tipping, and is open to drivers being contractors or being employees if they want to be exclusive to Juno.

How can they afford this? Marco wouldn’t detail a lot of the economics on the record, but a clear cost savings is in marketing. Uber and Lyft spend billions per year on incentives, signing bonuses, referral fees, passenger giveaways, artificially low subsidies to encourage growth, billboard campaigns, and many other ways to drive growth. Juno believes by launching in just one market at first, growing slowly, and building the service drivers want to succeed, they won’t need to spend anywhere close to the same marketing dollars. So far, they haven’t spent any.

Put another way: Juno will put all its money into keeping existing drivers happy, not continually bringing new ones into the funnel. And because the cut is so much lower, theoretically drivers will evangelize the service to passengers. Drivers won’t only be a “partner” in the sense of getting equity, Marco helps they’ll offset the marketing waste of other services by helping market the service themselves.

This is a bold experiment, and includes details that many people (including us!) have said the more friendly Lyft should have done as a differentiation, rather than being forced into playing Uber’s game with shallower pockets. Juno has the distinct disadvantage of launching seven years into this game, but the advantage of starting from a clean slate, witnessing what clearly hasn’t worked about the current approach.

The excitement around it has created a crazy game of telephone in the driver community. We’ve gotten tips for 24 hours that wildly conflict, inflate numbers of drivers and equity, and all sorts of other details. One thing is for sure: The entire New York driver community is talking about Juno and that excitement is spreading. This may not have been the launch Marco planned, but you can argue it’s been effective.

There’s another reason the economics may work: Marco says clearly that Juno will not engage in price wars. That means it won’t be the cheapest option. He says the experience will be better for passengers, but wouldn’t give details. Drivers have told us that includes things like alerts that a passenger’s battery may be low, they may have luggage or may have special requests and needs.

Still, not caving to the price wars is clearly the biggest gamble the new service is taking. Drivers will absolutely opt for a service that pays them more. But consumers also tend to vote with their wallets when it comes to any mode of transportation.

It was Uber who defined this battle in terms of politics. Uber would be the candidate going up against “an asshole called Taxi.” Only now, it’s clear the world considers candidate Uber the asshole in the race, especially the driver community.

If you’re looking for an electoral analogy, Uber is the rich, brash, never apologizing Donald Trump of the ridesharing world, Lyft is the sometimes bumbling, ultimately lovable Bernie Sanders who seems pathologically incapable of throwing a hard jab. Juno could be something like a Hillary Clinton. Someone who knows how to play the game, but also says the right things when it comes to controversial issues.

Only that analogy isn’t completely fair, because Juno is also the ultimate outsider as a “candidate” to compete with Valley ridesharing giants.  It’s founded by Israelis, backed by non-Silicon Valley VC money, based in New York, and enriched by Japanese cash from a previous sale.

Rather than reading more of my own analogies and speculation, here’s Marco’s own words in an excerpt of our conversation:

Sarah Lacy: Why are you going after the highest valued, most capital intensive business in the Valley just as we’ve entered a funding correction? Why now?

Talmon Marco: We are still trying to figure that out. (Laughs) We sold Viber in early 2014, and we were not obligated to stay there. Entrepreneurs are entrepreneurs and as fun as Rakuten was, it’s not the place for people like us. We like to start stuff. So we started to look at different things. Peer-to-peer lending, a lot of different things. And we started looking at this space.

We started to feel like there was a lot of dissent on the driver side towards Uber, but it wasn’t clear how bad it was. It’s difficult to gauge whether it was a few people who hate Uber or whether it was something big. We put together a focus group December 29 and 30 of 2014. We talked to over thirty drivers over a few sessions over a couple of days. We wanted to see how they feel about the space.

We realized this is not one crazy guy sending messages. Everybody we talked to, they hated Uber with a passion. We talked about our model, and the plan was not even half-baked. But we wanted to give drivers equity and make them true partners. We set up a Google Voice number and started getting calls from drivers about joining our new company. We didn’t even have a company, it was just a focus group. That’s when we thought, “We just have to build it.” There is an opening here. There is something that can be done. And it could be worthy.

There was this moment when I talked to one driver, and I asked how many hours he drove a day. He said “I drive until I make $350. There is no time limit.” That’s horrible. That’s not the way you or I conduct our lives. We might work more hours, we might work less, but we don’t have to work until we make a certain amount.

We went on to talk to passengers, and you could see the loyalty to any brand is not that high. We saw there was a sufficient opening.

We did a round of financing-- mostly us-- and late April of last year, we started developing code and started bringing drivers on board in December. We started out going into Uber cars and talking to them, but after a very short while we stopped. It was completely organic. Thousands of drivers are now in New York driving with our software. 1,000 more are registered and waiting.

When we’re technically ready, we’ll launch. From a driver population point of view, we are almost ready. We will start slow and get things right. There is nothing sinister or crazy about our service.

SL: So let’s talk about the quiet tracking of data then. Can you understand why some people would have found that creepy?

TM: I don’t know how else we would have done this. We can’t do what Uber did. We can’t launch with two and a half cars on the street and say “We’re doing this!” We need to be a fully baked company that can compete with 1,200 engineers and 10,000 servers and $10 billion in financing. We need to say we are better than they are.

[Marco explained over email that there are three modes for the app: Offline, online, and busy. Right now the app reverts to “busy” mode any time the driver is providing a ride for a rival service. In busy mode the app is collecting basic location information, but drivers aren’t available for pickups.]

The “busy” mode was not originally built for any data gathering, it was part of the way our stock compensation was going to work. Drivers earn equity depending on how much they drive and they need to be active a certain number of hours per month. If we don’t have enough work to send them, and they need to drive for Uber, we wanted a way to still count them as “active.”

We count “busy” mode as active time for the drivers, even though we make nothing out of it. To be honest, shame on me, I never thought this would be a passenger concern. I don’t know the pick up location or the passenger data. This kind of data we get TLC releases on every single taxi ride in New York City.

SL: It occurs to me the one thing you can use to your advantage is time and patience-- especially in a down funding environment. Uber has expanded so quickly, and its valuation is so high that it has to win all over the world at once. That’s hurting its economics and is causing part of this problem. Are you going to have a more deliberate strategy?

TM: It’s too early to discuss our expansion strategy. We need to be a bit more humble and walk before we run. Let’s see how things go in New York. We are going to write our playbook in New York and are going to make a lot of mistakes and learn things and then apply them to other markets.

It’s too early to predict anything else.

SL: How big is your team?

TM: One hundred people spread between New York, Minsk, Belarus, and Tel Aviv where we do architecture, product and support. We have 24/7 phone support for both riders and drivers. That’s another difference.

SL: What about price? Consumers have been taught to believe these are commodity products, getting you from point A to point B with similar apps, driven by the same drivers oftentimes.

TM: We are not looking at competing with Uber and Lyft on price. We are looking to compete on quality. We want to offer a differentiated experience to drivers, but also to riders. There is a lot to improve in this space.

SL: Is the future of this company human drivers?

TM: We believe like everyone else in this space that we’re going to have self-driving cars. Where we differ from Uber and Lyft is what happens to our drivers on that day. The answer with Uber and Lyft is they get deactivated. “Deactivated.” It’s interesting that they use the same term that’s used by the Borg in Star Trek. What we see happening on that day, is because they’ll be shareholders in our company, they’ll continue to enjoy the benefits of their work. I don’t know of any other revolution where people are replaced with machines and the people can still continue to enjoy the benefits of their earlier work.

Every single one of our drivers is eligible to become a shareholder. It’s based on how much they drive. We are in the process of filing the documentation. There are definitely SEC considerations when it comes to doing something like this.

You need to be an active driver for 24 months out of 30. This is like vesting.

SL: People are saying it’s 50% of the company? Is that right?

TM: It’s 50% of the founding shares. They’ll be the same as the founders. The drivers will get diluted as we get diluted.

SL: And, sorry, I have to ask about this strange coincidence where Uber drivers are organizing protests on Viber… coincidence?

TM: We have better things to do than organize Uber campaigns on a platform we used to own.

SL: Your rhetoric isn’t just about being fair to drivers. It’s about ethics and fairness. Uber has had many scandals beyond just cutting driver pay, is that also something you’re trying to poke at?

TM: We want to do the right thing. Every single one of us could retire if we wanted to and never work again. This is not just about making a few extra dollars. It is about doing something meaningful.  

Maybe I’m getting older. I think you can be nice to everyone. Being nice doesn’t cost you anything.

SL: So this launches to passengers this spring?

TM: We sure hope so.

When you see someone coming out of our office with this nice Juno bag, you see this happiness in their eyes and we haven’t given them anything yet. It’s only a promise right now. A hope that maybe things can be better. In many ways it’s invigorating, but it puts a lot of pressure on us to succeed. We’d be disappointing a lot of people.

* * * *

There’s an interesting coda to all of this. Late last night, I got an email from Marco telling me they were going to drop the location reporting during the app’s busy mode. I asked if this was because of the perceived creepiness factor, which frankly, I thought he rebutted pretty well already by saying it didn’t have any passenger specifics.

He answered, “I’m afraid so.” He continued:

There are lots and lots of reasons to do this. For example (and in no particular order)

- did a driver leave the device busy by mistake? If they are stationary for a long period, you'd like to ask the driver if he or she is still around. If no response - go offline.

- analyze pricing - does the pricing model make sense? Perhaps you should charge more per minute and less per mile? For example, under Uber's current pricing, a driver "waiting for an hour" In NYC will make $21. That's $13.65 after Uber's cut and taxes. From this you need to deduct operating expenses. Even without mileage that's about $6 per hour. So now that's $7.65. That's less than NY minimum wage. Maybe there is a better pricing model.

- fleet management. By better analyzing traffic patterns you can typically predict demand. If you can predict demand, you can send cars to where you expect demand will happen, reducing the need for surge and reducing driver downtime - so drivers make more and passengers pay less.

There are plenty of good things that you can do with this data. But for now, we'll skip some of it. 

Of the many ways Marco said how Juno will be different from Uber, this reaction demonstrated it clearly. When drivers, regulators, the press or anyone else has raised a concern about Uber’s actions, the company not only doesn’t make changes, but executives who have made threats to journalists or abused user data are not even fired. Uber is a company that will never alter its path-- even when the wider world has condemned its actions. Even if it should. Juno in contrast dropped a pretty innocuous feature because it “felt” creepy to some people.

It’s hard not to think again of politicians. Juno is the “candidate” seeking compromise and consensus. Uber wants only to push its agenda through at any costs.

Juno is certainly a company that listens. It’s an appealing “candidate” promising hope and change. The question is whether it’ll be a company that can execute. We’ll see this spring. There’s a reason things never really change in Washington. We’ll see if ridesharing is any different.