Almost two months after it was revealed by the NYT that Uber had used a deceptive tool called "greyball" to deceive and circumvent official authorities, CEO Travis Kalanick may be in trouble again following a new expose by the NYT's Mike Isaac (who may ot may not have a grudge against Kalanick) writes that in 2015 Uber was "on the verge brink of implosion" after Apple had learned that Uber was spying on its users.
Below is the key excerpt in the comprehensive profile which is a must read for anyone seeking more insight into the motivations of the CEO of the world's most valuable private company:
The idea of fooling Apple, the main distributor of Uber’s app, began in 2014. At the time, Uber was dealing with widespread account fraud in places like China, where tricksters bought stolen iPhones that were erased of their memory and resold. Some Uber drivers there would then create dozens of fake email addresses to sign up for new Uber rider accounts attached to each phone, and request rides from those phones, which they would then accept. Since Uber was handing out incentives to drivers to take more rides, the drivers could earn more money this way.
To halt the activity, Uber engineers assigned a persistent identity to iPhones with a small piece of code, a practice called “fingerprinting.” Uber could then identify an iPhone and prevent itself from being fooled even after the device was erased of its contents. There was one problem: Fingerprinting iPhones broke Apple’s rules. Mr. Cook believed that wiping an iPhone should ensure customers that no trace of the owner’s identity remained on the device.
So Mr. Kalanick told his engineers to “geofence” Apple’s headquarters in Cupertino, Calif., a way to digitally identify people reviewing Uber’s software in a specific location. Uber would then obfuscate its code from people within that geofenced area, essentially drawing a digital lasso around those it wanted to keep in the dark. Apple employees at its headquarters were unable to see Uber’s fingerprinting.
As Issac notes, "the ruse did not last. Apple engineers outside of Cupertino caught on to Uber’s methods, prompting Mr. Cook to call Mr. Kalanick to his office. Mr. Kalanick was shaken by Mr. Cook’s scolding, according to a person who saw him after the meeting."
... when Mr. Kalanick arrived at the midafternoon meeting sporting his favorite pair of bright red sneakers and hot-pink socks, Mr. Cook was prepared. “So, I’ve heard you’ve been breaking some of our rules,” Mr. Cook said in his calm, Southern tone. Stop the trickery, Mr. Cook then demanded, or Uber’s app would be kicked out of Apple’s App Store. For Mr. Kalanick, the moment was fraught with tension. If Uber’s app was yanked from the App Store, it would lose access to millions of iPhone customers — essentially destroying the ride-hailing company’s business. So Mr. Kalanick acceded.
Putting aside the topic that Apple could easily crush a $70 billion business by merely deciding to take it off the Apple store which deserves its own discussion, at its core, the NYT's profile reveals just just how willing the driven, pardon the pun, Uber CEO was to not only approach the thin line that breaks the rules, in some cases illegally - but on more than one occasions cross it altogether. As Isaac states, "in a quest to build Uber into the world’s dominant ride-hailing entity, Mr. Kalanick has openly disregarded many rules and norms, backing down only when caught or cornered. He has flouted transportation and safety regulations, bucked against entrenched competitors and capitalized on legal loopholes and gray areas to gain a business advantage. In the process, Mr. Kalanick has helped create a new transportation industry, with Uber spreading to more than 70 countries and gaining a valuation of nearly $70 billion, and its business continues to grow.
But the previously unreported encounter with Mr. Cook showed how Mr. Kalanick was also responsible for risk-taking that pushed Uber beyond the pale, sometimes to the very brink of implosion.
Some, such as Mark Cuban, were impressed by his relentless drive to win at all costs:
“Travis’s biggest strength is that he will run through a wall to accomplish his goals,” said Mark Cuban, the Dallas Mavericks owner and billionaire investor who has mentored Mr. Kalanick. “Travis’s biggest weakness is that he will run through a wall to accomplish his goals. That’s the best way to describe him.”
Others, however, were less impressed:
Mr. Kalanick’s leadership is at a precarious point. While Uber is financed by a who’s who of investors including Goldman Sachs and Saudi Arabia’s Public Investment Fund, Mr. Kalanick controls the majority of the company’s voting shares with a small handful of other close friends, and has stacked Uber’s board of directors with many who are invested in his success. Yet board members have concluded that he must change his management style, and are pressuring him to do so.
He has publicly apologized for some of his behavior, and for the first time has said he needs management help. He is interviewing candidates for a chief operating officer, even as some employees question whether a new addition will make any difference. He has also been working with senior managers to reset some of the company’s stated values. Results of an internal investigation into Uber’s workplace culture are expected next month.
In addition to "fingerprinting" users, Uber appears to have been actively involved in some - apparently legal - corporate espionage against its biggest competitor Lyft. The NYT reports that Uber "devoted teams to so-called competitive intelligence, purchasing data from an analytics service called Slice Intelligence. Using an email digest service it owns named Unroll.me, Slice collected its customers’ emailed Lyft receipts from their inboxes and sold the anonymized data to Uber. Uber used the data as a proxy for the health of Lyft’s business. (Lyft, too, operates a competitive intelligence team.)"
Slice confirmed it sells anonymized data (meaning that customers’ names are not attached) based on ride receipts from Uber and Lyft, but declined to disclose who buys the information.
In other words, Uber was using legitimate means to track the revenue of its competitor. That's not all: it appears that there is trouble in paradise, and as the NYT notes, "Uber’s “driver satisfaction rating,” an internal metric, has dropped since February 2016, and roughly a quarter of its drivers turn over on average every three months. According to an internal slide deck on driver income levels viewed by The New York Times, Uber considered Lyft and McDonald’s its main competition for attracting new drivers."
As a result, Uber tried to either win over Lyft's drivers, or simply frustrate them.
To frustrate Lyft drivers, Uber dispatched some employees to order and cancel Lyft rides en masse. Others hailed Lyfts and spent the rides persuading drivers to switch to Uber full time.
After Mr. Kalanick heard that Lyft was working on a car-pooling feature, Uber also created and started its own car-pooling option, UberPool, in 2014, two days before Lyft unveiled its project.
That same year, Uber came close to buying Lyft. At a meeting at Mr. Kalanick’s house, and over cartons of Chinese food, he and Mr. Michael hosted Lyft’s president, John Zimmer, who asked for 15 percent of Uber in exchange for selling Lyft. Over the next hour, Mr. Kalanick and Mr. Michael repeatedly laughed at Mr. Zimmer’s audacious request. No deal was reached. Lyft declined to comment.
Isaac writes that the rivalry between the two car hailing companies remains in force. In 2016, Uber held a summit meeting in Mexico City for some top managers, where it distributed a playbook of how to cut into Lyft’s business and had sessions on how to damage its competitor.
This is also roughly the time Uber starting using the previously noted Grayball feature. After The Times reported on Greyball in March, Uber said it would prohibit employees from using the tool against law enforcement.
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What is the take home message for Uber, its aggressive CEO and investors in the company which most recently was valued at $70 billion? Perhaps that as long as Uber keeps growing and gaining market share from legacy businesses, its investors and perhaps authorities, will ignore Kalanick's transgressions much to the chagrin of its competitors, and of course taxi cabs. However, with Uber continuing to burn through massive amounts of cash even as its revenue keeps growing. This is what Bloomgberg reported recently:
The good news is that the ride-hailing giant more than doubled gross bookings in 2016 to $20 billion, according to financial information Uber shared with Bloomberg, and net revenue was $6.5 billion. Uber’s business is indeed massive and getting bigger. In the last three months of 2016, gross bookings increased 28 percent from the previous quarter to $6.9 billion. The company generated $2.9 billion in revenue, a 74 percent increase from the third quarter.
However, adjusted net losses were $2.8 billion, excluding the China business, which it sold last summer. Losses in the last three months of 2016 rose 5 percent over the same period to $991 million.
Furthermore, Uber declined to report first-quarter numbers, saying they were in line with expectations but that the company hasn’t yet presented them to investors. While the rate of sales growth compared with losses is encouraging, Uber is still losing a significant sum, said Evan Rawley, a business professor at Columbia University. “That’s a lot of cash to burn in a quarter." Jeff Jones, the company’s president of ridesharing who resigned last month, previously joked to staff that he joined Uber expecting P&L, meaning a profit and loss statement, but only found an L.
Bloomberg also calculated that Uber has burned through at least $8 billion in its lifetime. The company said it has $7 billion of cash on hand, along with an untapped $2.3 billion credit facility.
Aswath Damodaran summarized it best: "Uber is a one-of-a-kind company, in good ways and bad ways. It’s going to be a case study... This is a cash-burning machine."
Our sense is that as long as Uber remains a "growth story" if only on the top line, investors will forgive Kalanick virtually any transgression. However, if and when the top-line plateaus and the company continues to burn billions, all that will change. Then, and only then, will Kalanick's future be in jeopardy, because once the spectre of revenue decline, or even worse, a down round assuming no IPO emerges, a scapegoat will have to be found.
Meanwhile, the list of transgressions building against Uber's CEO keeps growing, and now we can add both customer and corporate espionage to a list which includes...
- Another tale of sexism and unacceptable workplace behavior in Silicon Valley company has emerged. This time it's at Uber, according to an explosive blog post published on Sunday by a former company engineer named Susan Fowler Riggetti.
- Uber's newly-hired VP of engineering Amit Singhal was asked to, and did, resign recently after the company learned from Recode that he was accused of sexual harassment shortly before leaving Google a year ago. Here's more on the difficult position of former employers in this case.
- A video showing Uber CEO Travis Kalanick rudely arguing with a long-time driver at the end of his ride was published by Bloomberg. "I need leadership help," Kalanick said in an apology he issued shortly after.
- Susan Fowler Rigetti, the former Uber engineer who wrote of discrimination, said she's hired attorneys after a new law firm began to investigate her claims. Uber confirmed it has hired Perkins Coie, which reports to former A.G. Eric Holder, who's leading the investigation.
- Uber said recently that it will finally apply for a DMV permit to test self-driving cars in California after its cars' registrations were revoked in December because it refused to get the permit.
- Charlie Miller, one of the two famous car hackers who joined Uber's Advanced Technology Center in August 2015, announced he's leaving the company.
- The New York Times uncovered a secret Uber program called Greyball, through which the company uses software and data to evade law enforcement in cities.
- Keala Lusk, a former Uber engineer, published a blog post detailing how her female manager mistreated her, signaling that the company's problematic culture isn't limited to the men who work there.
- Ed Baker, Uber's head of product and growth, resigned. Though the reason is unclear, he was allegedly seen kissing another employee three years ago, which was anonymously communicated to board member Arianna Huffington, according to Recode.
- A report outlines a trip by a group of Uber employees to a Seoul karaoke-escort bar in 2014, which included company CEO Travis Kalanick and his girlfriend, Gabi Holzwarth. After arriving, several male employees picked escorts to sit with, and went to sing karaoke. Uncomfortable, a female marketing manager, who was part of the group, left after a couple of minutes, while Holzwarth and Kalanick left after an hour.
- California regulators have recommended that Uber be fined $1.13 million for failing to investigate and/or suspend drivers who are reported by a passenger to be intoxicated. The state requires ride-hailing companies to have a zero-tolerance policy for driving under the influence of alcohol or drugs.
- A new report says Uber used a secret program dubbed "Hell' to track Lyft drivers to see if they were driving for both ride-hailing services and otherwise stifle competition. Only a small group of Uber employees, including CEO Travis Kalanick, knew about the program, according to a story in The Information, which was based on an anonymous source who was not authorized to speak publicly.
Finally, in light of Kalanick's recent sexual harassment accusations, the following reminder from the NYT will hardly make for a favorable impact: "Mr. Kalanick discussed how Uber had boosted his desirability with women in an interview with GQ, calling the company “boob-er."