A toxic culture may not be why Uber’s CEO was ousted

by Donna Chisholm / 21 July, 2017
RelatedArticlesModule - Uber CEO

Former Uber CEO Travis Kalanick. Photo/Getty Images

Travis Kalanick’s departure from Uber followed the firing of more than 20 staff after an internal investigation into sexual harassment and gender discrimination complaints, and an inquiry by former US Attorney General Eric Holder, who recommended Kalanick’s responsibilities be “reallocated”.

For a time, Kalanick’s vision and freewheeling management style seemed a successful strategy, taking Uber from start-up to US$68 billion empire in less than eight years. But as the company gears up to go public, business commentators suggest that despite year-on-year growth in both revenue and bookings, the tech sector’s emperor is actually naked.

The day after Kalanick’s forced resignation, Pulitzer Prize-winning journalist and blogger Michael Hiltzik said his departure would give the company a better chance of shedding its reputation as a “howlingly bad” place to work “unless you’re a young white male”, but that it would expose the fundamental unprofitability of Uber’s business model.

“Kalanick had persuaded his backers and an uncritical tech press that, trust him on this, the endgame would be glorious … Uber rode his self-confidence to a putative value of $70 billion. But the redefinition of Uber will have to confront reality, which is far less rosy than the myth.”

The size of its ongoing losses is gob-smacking. In the last three months of 2016, it lost a whopping US$991 million. Although that loss narrowed to $708 million in the first quarter this year, the Atlantic reported that it was ultimately concerns over the bottom line – not the CEO’s style or the company’s toxic culture – that cost Kalanick his job.

In May, Australian company director Hamish Douglass, who runs the $37 billion Magellan Financial Group fund, described Uber’s capital-raising strategy as a Ponzi scheme. “When I look at Uber … I think of it as one of the most stupid investments in history,” he told the Australian Financial Review. “The probability of this business going bankrupt in a decade is 99%.”

Analysts who question Uber’s purported value say investors’ subsidies on rides cost the company $2 billion in 2015, with suggestions the true cost of each trip is at least 50% higher than is charged. Without that subsidy, they asked, is the business model even viable?

“What’s the real cost of an Uber trip? The passengers don’t know and we don’t know,” Hiltzik wrote. “That’s because customers pay only a portion of the fares shown on their smartphone apps: much, if not most, of the cost is covered by the company’s venture investors. What happens when that well runs dry? The fares will rise and one of Uber’s selling points – its price advantage – will narrow or disappear.”

Uber’s future profitability depends on its solving the technology issues for self-driving cars, but its efforts to do so are said to be in turmoil, with departures of engineering staff to rival firms, and tensions within the company’s self-driving division.

Although robotic cars are being used in Pennsylvania, Arizona and California, they still have drivers to take over when necessary. In March, two Uber engineers were inside a driverless car that crashed in Arizona after colliding with another vehicle. Though the Uber car was found not to be at fault, a tech expert said it “could have done better”.

This article was first published in the July , 2017 issue of the New Zealand Listener.

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