Thursday, June 15, 2017

"Can Uber Ever Deliver? Part Ten: The Uber Death Watch Begins"

While there are some silly stories on the Ubster* going around over the last couple days, I'm leaning toward this take at Grasping Reality in February. As linked in "Uber's Master Plan, The Short Version":
[and now Slee at Grasping Reality]
It sounds like Ben Thompson is falling for the Uber bait and switch. Stages of which:

– Uber has a nice business as a status product (Uber Black Car ~ 2010)

– Uber Black may not be profitable, but Uber will displace taxis and be hugely profitable because of technology-driven efficiencies (UberX: 2014-2015)

– UberX may not be profitable, but UberPool will lead to new efficiencies in mass transit (2015-2016)

– UberX may not be profitable, but Uber is a logistics company and will rewrite the rules of delivery (UberEats, various speculative stories, 2013-2015)

– UberPool may not be profitable, but when Uber displaces car ownership the scale of the market will make it profitable (2016)

– Uber with drivers may not be profitable, but driverless cars will make Uber profitable (2014-)

– Driverless cars may not be profitable, but Uber is looking into flying vehicles (2016) The Uber makes losses while maintaining credibility for bringing “the future” in some form or other.
And just so you know, we were on top of the flying vehicles:

Uber to Challenge Airbus in the Autonomous Electric Flying Taxi Business
As the only analysts covering the nascent as-yet-theoretical autonomous electric flying taxi market we intend to be the the go-to source for all things autonomous electric flying taxi and/or theoretical....
There's a reason that, while countless electrons were burned on a billionaire board member's stupid joke, our Uber story the day of the big board meeting was:
"...New York Uber Drivers and “others similarly situated” Have Been Deemed Employees..."

However, minor confession, I couldn't resist The Register's headline:
...In other Uber news:
Culture Colonic Cleanses Kalanick
And here's today's headline story from naked capitalism:
By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants
On June 13th Uber announced that its Board had accepted all of the management process recommendations of a study led by Eric Holder of the law firm Covington & Burling.[1]  Uber also announced that CEO Travis Kalanick would take a temporary leave of absence and that SVP Emil Michael, Kalanick’s closest confidante, had been dismissed.  The intent had been to turn the tide of highly negative stories on Uber since the beginning of the year.
Earlier installments in this Naked Capitalism series refrained from predicting  Uber’s future. However, given a business strategy that depended on achieving global industry dominance, the critical question was always : could Uber achieve that dominance before it burned through its massive $13 billion war chest? Until recently it seems likely that it might, but recent events now strongly suggest that the answer may be no.
While Uber’s finances are currently secure (in April it was reported to have roughly $7 billion in cash on hand out of the $13 billion originally provided by investors), it is increasingly difficult to see how Uber can survive in the longer term. For any company to rebound from a major crisis, it must have correctly identified its major problems and workable solutions, and installed strong, positive leadership that staff and other stakeholders can trust to navigate near term turmoil successfully. Uber has done none of these things.
For an immature company like Uber that has always been highly unprofitable to survive a crisis, it must have a clear, widely understood plan that will rapidly reverse the multi-billion dollar losses of recent years, as well as  maintain the goodwill of customers, suppliers and outside industry observers through the turnaround process. Recent events have badly undermined goodwill. There is no evidence that Uber has a credible profit turnaround plan. None of the alternative strategic paths that one can imagine appear to have much chance of success.
Mature companies facing crises of culture and executive leadership usually have the cash flow and management depth that will give them the time needed to make major personnel and strategic changes. Uber does not have that time, as it has been burning through its cash for seven years, and its executive ranks have been decimated.
Before laying out Uber’s existential crisis, let’s quickly summarize recent events....

...Recent events have badly undermined public goodwill towards Uber and the “narrative” explaining Uber’s path to profitability is no longer credible
As discussed in parts eight and nine of this series, Uber’s public goodwill depended in large measure upon a carefully developed PR/propaganda campaign designed to explain its inevitable success, and divert attention from the lack of evidence of profitability or competitiveness. Among other things, that narrative claimed Uber’s global dominance would be driven by cutting edge technological innovations that were so powerful they could overwhelm incumbent competitors anywhere in the world and could eventually displace car ownership, that startup losses would soon give way to robust profits just like other technologically driven startups, that its meteoric growth was the result of consumers choosing their vastly superior services in competitive markets, and resistance to Uber’s growth was entirely due to people fighting to preserve a status quo dominated by an Evil Taxi Cartel and corrupt regulators.

Until the events of this year, no one in the mainstream media bothered to scrutinize, much less question Uber’s story. But enough doubts has been raised in the last couple years as to whether Uber was really an avatar of economic progress so that Fowler’s description of a deeply flawed company was immediately and universally accepted. Last week’s Indian rape revelations effectively killed the effort to convince outsiders that the company’s only problem was a few bad actors who liked to hit on female staff and should similarly destroy any remaining perception that Uber management can be assumed to be wise or trustworthy.

It is not clear whether Uber will enjoy even a brief respite from its tsunami of negative publicity, as there may be further leaks of past bad behavior. In addition, court findings that Kalanick or other A-Team members had actively conspired in the Google IP theft would be far more damaging than any of Fowler’s statements.

Uber has no ability to earn profits within a competitive taxi industry
Uber could restore its credibility by presenting a convincing strategy to reverse its enormous losses. But no one at Uber has a credible plan and none of this week’s actions move Uber closer to developing one.

As previous installments of the Naked Capitalism Uber series have documented in detail, Uber’s real problem is that it is a staggeringly unprofitable company with fundamentally uncompetitive economics. It lost $2 billion in 2015, $3 billion in 2016, and another billion in China. It is a higher cost, less efficient producer of taxi service than traditional operators; all of its growth is explained by these multi-billion dollar subsidies as it has flooded markets with additional capacity offering unprofitably low fares.

It has none of the scale or network economies that allowed other startups to quickly grow into profitability. In its fifth year of operation Facebook had achieved 25% profit margins; in Uber’s fifth year its profit margins were negative 149%. Absolute Uber losses have continued to worsen with recent growth. Margins improved somewhat in 2016, but only because Uber unilaterally reduced driver compensation by $1 billion, leading to news reports of drivers sleeping in the cars in order to make ends meet. Uber never had any hope of profitability in a competitive market, even at its present scale.

Uber’s original strategy for investor returns required global industry dominance but this may no longer be achievable
Travis Kalanick’s goal was to build Uber into a globally dominant urban transport company. Its $68 billion valuation reflects the hope that–once dominant–the ubiquity of the Uber platform and market power over passengers and suppliers would give it the kind of power Facebook and Amazon now enjoy. But those companies achieved quasi-monopoly power by inventing entirely new products that people hugely valued or by figuring out how to provide services massively more efficiently than any existing competitor could....

*Why Uber Will Still Dominate
We Are All to Blame for Uber