Dec 22, 2016 · 9 minutes

When I worked at BusinessWeek, I used to love meetings for one simple reason: The conference room was flanked by framed covers written by people in the Silicon Valley bureau.

One of my first editors at BusinessWeek told me I should be able to read just the first lines of every paragraph in a story and know the entire argument. Similarly, looking around this conference room, you knew who was hot when, how they faltered, and the personalities and technologies driving the Valley over the past decades.

I remember one hokey cover showing Meg Whitman and Jeff Bezos in baseball gear for opposing teams. I suppose the “battle royale” of ecommerce back in the 1990s. Pretty soon after that, it would be considered crazy to even think Amazon was an equal to eBay’s beautiful software-only, no-inventory, powered-by-PayPal model. And now, in some quarters of the Valley Whitman is blamed for introducing a consultant-heavy culture that slowed down eBay and PayPal, and it’s insane to think of anyone underestimating Bezos.

Not that this outcome was predictable. But as baseball announcers say: “This is why we play the game.”

I wonder if ten years from now, we’ll see something similar when it comes to the mobile commerce giants Airbnb and Uber. Uber has long seemed to have the “perfect store.” A service that’s so well conceived it could theoretically replace car ownership. Something that people will use multiple times a day. A team so brass-knuckled it’s hobbled and out-lobbied the entrenched taxi industry in most cities. A management team so comfortable spouting bullshit, it’s been able to raise money from everyone from the world’s best VCs to the world’s most oppressive regimes. A company that’s been willing to jettison its most closely held and overly-stated beliefs-- disruption over the government for instance-- when it got large enough it could afford to play the regulatory system better than the cab companies.

And a company that most of all got what no one else did early on: This isn’t a tech company, it’s a commodity. And wads of cash used aggressively win commodity markets.

But in 2016, those laws of gravity have stopped working quite so flawlessly for Uber.


No global domination. This was the year that it finally had to face what we’d been reporting since mid-2015 and Uber had been outright lying to most of the press about: China was not working. China was key to Uber’s growth story, because it’s the world’s largest ride-sharing market. And India-- while winnable by Uber-- isn’t nearly as juicy.

Witness today, reports that Uber is having a hard time finding drivers in a place where car ownership is low. The Journal’s lead:

How do you train a million new Uber drivers in a country where most people have never driven a car, tapped on a smartphone or even used an online map?

Uber Technologies Inc. faces that daunting task as it tries to avoid its fate in China, where it decided this year to sell its business to homegrown champion Didi Chuxing Technology Co.

The $68 billion San Francisco startup has plenty of cash and cutting-edge technology to bring to its battle in India. Also, the country hasn’t thrown up the kind of regulatory hurdles that have hindered Uber’s growth in other regions. So the company’s ability to find and teach new drivers could decide whether Uber can dominate this fast-growing market.

Exactly. Also the problem with Uber competing with homegrown, well-funded giants in South East Asia, where there are even bigger cultural problems to scaling up fast.

Meanwhile in Europe, the company is battling to be considered a technology platform rather than a cab company in order to circumvent an increasingly difficult regulatory environment. Not that the strategy has worked in the UK where a tribunal just ruled that Uber drivers had to receive many of the same benefits as employees, thus throwing Uber’s entire business model into jeopardy.

Chinks in Uber’s “us v. them” solidarity. The company has tried to argue UberEats and other delivery programs are instead its growth plan. But the Information has reported that divisions within the company are at war with themselves on that one. People close to the company have long said its “us v. them” solidarity is core to the company’s culture.

The DMV-- the DMV!-- just showed most dramatically how Uber’s old playbook doesn’t work anymore.  The growth story doesn’t actually matter if Uber can’t be a player in self-driving cars-- even Travis Kalanick has said it is “existential” to the company. And of all places the DMV-- the butt of every joke about ineffective government-- just schooled Uber when it tried it’s “ask forgiveness not permission” playbook.

From the Journal:

Uber has made a habit of testing the limits of laws, backed by the belief it can drum up support from customers who quickly begin to rely on its services. It has often been successful, persuading cities like Portland, Ore., to rewrite rules to legitimize the ride-hailing service…

But Uber’s effort to push the boundaries of nascent self-driving rules with its San Francisco test was marred by early reports of unsafe maneuvers by the vehicles and the lack of a populist backing, in part because the technology is still under development.

In a roughly 2-mile demonstration of the vehicles in San Francisco last week, Uber’s driver had to take control of the vehicle several times, including when it oversteered through a turn. A video of one of the vehicles running a red light was widely shared on social media, though Uber said the incident was due to human, not software, error.

Uber this week said the vehicles have trouble identifying bicycle lanes and was working on a software fix.

This is after Uber gave up on making its own cars, focusing instead on what it’s good at: Software and service. Oh, well.

It was a clear line in the sand from Uber’s home market: You will not skirt regulations when it comes to safety. Even tech-friendly mayor Ed Lee praised the DMV’s move to shut the program down. (Perhaps another factor here is that, post Trump, people in California might be less inclined towards multi-billion dollar corporations posing as underdogs challenging the status quo.)

Meantime, there are about 20 other companies vying for a piece of the self-driving car ecosystem, including some of the biggest in the world: Amazon, Apple, and Google. Not to mention the most respected and admired tech CEO across nearly every 2016 index: Elon Musk. Neither eBay nor Amazon faced anything like that in the early days of ecommerce.

Employees. Every tech company will tell you talent is the most crucial ingredient in winning against terrifying incumbents. And there is a full on war for what small number of engineers there are in the self-driving car market. Right now, each of these companies are poaching from each other, and many of the developers are simply leaving on their own to start companies or become “consultants.” And why not? The cost of this talent has been estimated at $10 million a head based on acquisitions like Cruise and Otto.

The result is Uber competing with big companies like Apple, Google, and Tesla for talent and competing with small startups with far more upside too. And it doesn’t help that Uber is consistently missing from lists of the most admired companies or companies you would want to work for in Silicon Valley. Worse: 73% of people in tech think Uber is overvalued, according to a survey via an app called Blind.

We’ve reported about people refusing to work for Uber based on the company’s track record and culture. But it doesn’t even make economic sense, if you think the company is overvalued. Given the talent shortage, self-driving car talent is better off joining or starting a new company and hoping for one of those $10 million-a-head acquisitions.

Cash. There is one thing that has kept working for Uber in 2016: Its ability to raise cash seemingly at the snap of its fingers. And that’s necessary, because it’s how it keeps Lyft from gaining more market share, and it’s burning a shit load of money.

The Information reported that Uber lost an astounding $800 million in the third quarter-- and that’s the result of cost cutting!

These leaks have started to call into question whether Uber’s seemingly perfect business model even works in the US.

We raised this as a concern early in 2016 when Uber upped its cut of each ride, hurting the drivers it had spend so much money recruiting. But now even mainstream business publications who’ve long bought the Uber gospel are openly questioning it.

From Fortune yesterday:

Uber has claimed for much of the year that its /react-text react-text: 257 U.S. business is "profitable," /react-text react-text: 258 but that profitability is an illusion. In fact, Uber /react-text react-text: 260 generally does not include /react-text react-text: 261 expenses related to its staffing at its San Francisco headquarters in that calculation as well as interest and the cost of stock-based compensation—all of which, when factored in, would likely make the U.S. operations unprofitable.

Despite so many parts of its core playbook failing this year, cash is still pouring in, and that is the one thing that’s consistently driven Uber’s ethos-- more than “disruption!”, more than “grow-at-all-costs!”, more than its “never-say-die!” mentalities even.

The big question for 2017 is whether recent news of two major investment banks passing on offering Uber shares to customers was a blip or the first step towards that too changing for the most highly valued company in Silicon Valley history.

Either way, if it’s going to survive this inflection point, Uber is going to need to find new ways to win.

And that brings us back to the comparison with Airbnb. A company that looks in contrast, slow moving, cooperative with the government, reasonably valued, and one that is also putting off its IPO as long as possible. A company that has global network effects that Uber doesn’t. A company without meaningful competition. A company that has moved slowly and deliberately when it comes to China. A company that doesn’t face an immediate “existential” threat. A company that isn’t competing with the largest and most deep-pocketed tech companies on the planet to survive that threat.

It’s not a shock to me that Airbnb just raised more private cash.