Feb 29, 2016 · 5 minutes

We’ve long since stopped expecting Uber to be honest.

This is a company that pledged a few years ago it was going to operate like a political campaign and hired some of the smartest spin doctors in the business to run that campaign.

Still, like a political candidate, the company has become incredibly effective at using the media to promote its latest spin. And by looking at that spin, the rest of us can get a good idea of what is actually going on inside its $60 billion fortress.

Witness a recent Vanity Fair piece which promotes the idea that,  sure, Uber is actually getting its ass kicked in China. But that’s no big deal! Because Uber isn’t really about ridesharing, and China is just a race to the bottom. In fact, Didi should be worried that it’s winning because it’s such a bad market.

Never mind that Didi says it still has the $3 billion it raised last year in the bank and is raising another $1 billion. Indeed, the company released a statement today that in January alone it generated $800 million in gross bookings across its platform and registered more than 10 million new active users. More to the point: The company says it has broken even in more than 200 of the 400 cities it operates in.

Let’s also ignore for a moment other statements in the VF piece that simply aren’t true like that Didi is primarily just a taxi service. (More on what the company actually does here.)

No, let’s ignore the facts. Suddenly the Chinese ridesharing market is toxic. The future for Uber is in…. logistics!

No, really.

From the piece:

It remains to be seen which company flinches first as the two race to the bottom, offering ever cheaper rides in their bids to control what ultimately could be a winner-take-all market. China has proposed new ride-sharing regulations, which could potentially handicap Didi Kuaidi and Uber similarly, despite Didi’s home-team advantage. But in the end, the battle may not be worth it for Didi Kuaidi. Didi Kuaidi exists primarily as a taxi service, but Kalanick has a bigger plan for Uber. Already, Uber is beginning to show signs of transforming into a logistics company, launching its first-ever standalone app, called UberEats, for food delivery, in Toronto (the app is expected to launch in the U.S. in March). The company has also implemented UberRush, a courier service, and UberCargo, a logistics-and-delivery service, in Hong Kong. Self-driving cars are also on the way. Kalanick’s grand vision of Uber as an autonomous, end-all, be-all transportation-and-logistics service could still be the company’s saving grace in China—and around the world.

Like most things Uber, this spin wasn’t a shock to us or anyone closely following the company’s multi-year tapdance. A few months ago, I argued what was behind Uber’s sudden and seemingly half-assed attempt to get into food and total delivery logistics. I argued two thing things: First, that it was a direct reaction to how poorly things were going in China at a time when it was trying raise money at a $10 billion higher valuation. (Which it would be forced to do tapping high net worth individuals and sketchy Russian oligarchs…)

Uber’s then $50 billion valuation-- reminder: highest in Silicon Valley history-- was predicated on nothing short than global domination and Uber’s surging numbers in China were a key part of the pitch. With that challenged, and Uber needing more cash it needed a new story beyond just rest of world ride sharing to justify an even higher price.

From my piece:

What [Uber] will need is a compelling growth story. One even more compelling than the one they told back when they raised at a $50 billion price earlier this year.

And that’s an issue – depending on how smart potential investors are, at least. Because that round was predicated on Uber ruling the world…. particularly the world’s largest ridesharing market, China. Last time around, that was the rationale for why Uber needed all that cash and why it was worth $10 billion more than its previous round (which closed around the time no one got fired for threatening to “go after” me and other journalists.)

So how’s that whole world domination thing gone? Well, Uber is spending $2.5 billion – by its own admission – in India and China alone, mostly on subsidies – and it’s still nowhere close to the market leader in either spot. Yikes.

This gives Uber two choices at this juncture: The first is continue to argue the international angle as a rationale for another $10 billion increase in valuation. Argue that another – what? $1 billion? $2 billion? $3 billion? – in subsidies will get it out of the low teen market share in China, and even then just roll the dice that a company that employs the former head of the CIA and a current pentagon advisor won’t be shut down by the Chinese government...

Alternatively, Uber needs a new story. Enter the auspicious launch of something it has threatened for four years: UberEats as a standalone app.

Later, I argued that ride sharing economics weren’t working and that Uber wanted to wring more profits out of each ride, by throwing casseroles, packages, and yunno puppies in each ride.

While expected, it’s a strange message. If winning China suddenly isn’t paramount to Uber’s success, then why is it spending $1 billion a year there (and another $1 billion in India)? If it’s a race to the bottom of a winner take all market, surely Uber knows it won’t beat the local company with 80% market share and government investors right? So why keep wasting so much cash there? If logistics is the future, wouldn’t that be a better use of shareholder cash?

No answers to those questions in the Vanity Fair piece.

This is a big sea change for Uber and a tacit admission it is dangerously overvalued. For its entire life, Uber has argued its valuation was justified because ridesharing would replace car ownership the world over. With the driver economics clearly not working in the US and Uber throwing in the towel on winning China, it needs a new story if it’s ever going to make it to an IPO or the driverless future it likes to imagine.