TechScape: Uber’s easy ride is over

Why the tech giant’s aggressive approach to growth may only encourage future startups. Plus: the latest in Elon’s Twitterverse

A massive leak of confidential internal documents about Uber has cast new light on the strategies the cab-hailing company took to reach the top of its game. Goodbye “fake it till you make it”, hello “break it till you make it” – the rules, the law, and anything else that stands in your way.

From our lead story:

A leaked trove of confidential files has revealed the inside story of how the tech giant Uber flouted laws, duped police, exploited violence against drivers and secretly lobbied governments during its aggressive global expansion.

The cache of files, which span 2013 to 2017, includes more than 83,000 emails, iMessages and WhatsApp messages, including often frank and unvarnished communications between Kalanick and his top team of executives.

There is an awful lot here. There’s political wheeling and dealing, of course: Peter Mandelson helped Uber reach the Russian elite; Emmanuel Macron, then-economy minister, helped with the French. The former EU digital chief helped with the Dutch. Documents also suggest that George Osborne, meanwhile, “was a private supporter of the US company’s efforts to grow its business in the UK, just as the company simultaneously positioned itself to avoid future UK taxes.”

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While it was buddying up with politicians, the company was also building infrastructure to avoid the legal ramifications of its launches – which often came several years before the company would eventually be permitted to operate. A “kill switch”, built into its systems, let the company lock out local offices from its corporate network, preventing secrets being seized in police raids.

And there’s also the fallout of its aggressive tactics. As protests against Uber raged around the world, the company’s own drivers were put in harms’ way: one report, during aggressive protests in western Europe, put the number of injured drivers at 18 in a day, with “three relatively serious cases involving taxi violence including one badly damaged car and two beaten-up drivers”. The response of co-founder and then-chief executive, Travis Kalanick, is “startlingly frank”, write the Guardian’s Felicity Lawrence and Jon Henley, and focused on the company’s battle with the French government: “‘If we have 50,000 riders they won’t and can’t do anything,’ he wrote. ‘I think it’s worth it. Violence guarantee[s] success. And these guys must be resisted, no? Agreed that right place and time must be thought out.’” Kalanick’s spokesperson “questioned the authenticity of some documents”, the reporters say, and that Kalanick “never suggested that Uber should take advantage of violence at the expense of driver safety” and any suggestion that he was involved in such activity would be completely false.

Uber’s response has been to shift as much of the blame as possible on to Kalanick, who left the company under a cloud in 2017. “Five years ago, those mistakes culminated in one of the most infamous reckonings in the history of corporate America. That reckoning led to an enormous amount of public scrutiny, a number of high-profile lawsuits, multiple government investigations, and the termination of several senior executives,” the company said in a statement. “It’s also exactly why Uber hired a new CEO, Dara Khosrowshahi, who was tasked with transforming every aspect of how Uber operates.”

To call the 2017 removal of Kalanick a reckoning serves to obscure the fact that Uber has never really had to look head-on at the tactics that earned it its place in the world. As tech analyst Benedict Evans put it: “Uber’s public, avowed strategy was to launch where the service was [more or less] illegal and bully politicians into approving it, rather than lobbying first, on the theory that lobbying wold [sic] fail unless you’d already shown people the service.”

‘Burning the burn’

The fall of Theranos prompted hand-wringing about the tech industry’s tendency to fake it til you make it. Where is the line between making bold promises and misleading investors? The legal saga that followed the collapse of that biotech company has revealed that the answer is, at least, “somewhere before ‘running labs filled with fake machines that don’t work’”. But if Theranos had actually invented the machines it said it was working on, then the early years would have been written off as mere stumbles, not as fraud.

But the fall of the old Uber did little to halt the rise of the company, and didn’t prompt the same questioning about whether “break it till you make it” was itself a questionable approach. Just like Theranos, the company isn’t alone in taking that approach. If the rules stop your company from growing, complying with them is only one option: another option is break them, then grow so fast that when the punishment does come, it’s trivial compared to the advantage you gained.

Uber’s defence was always that, even if it was breaking the rules, the rules were wrong. Taxi legislation was built for a different age, the company would argue in cities around the world, and needed to be rewritten to allow for nimble firms like itself. But Kalanick’s insight was that the argument was much more likely to succeed if the nimble firm was already popular and widely used, rather than a simple paper-lobbying procedure. And so the tactic was born: enter a market, grow rapidly, then fight to retroactively legalise your business.

There were more conventional aggressive business practices alongside: in October 2014, for example, the business was subsidising driver wages in Berlin by almost five times as much as customers were paying. “Uber burned through cash to ‘buy revenue’, in the phrase of the presentation. At the same meeting a senior manager gave a talk about ‘burning the burn’ – that is, cutting subsidies.” Buying revenue wasn’t just about securing repeat customers who would stick with the company even as price slowly rose; it was also about buying passionate users who would write to local politicians to campaign for continued access to their cheap taxis, even while the company was making plans to remove the subsidy.

Uber’s easy ride as a company is now over, and the years when it heavily subsidised riders have left a permanent mark on cities around the world. But even if its explosive growth peters out, and it survives as just a normal taxi app, it’s hard not to think that the example it sets for future entrepreneurs is a bad one. Break it till you make it, and you too might be cast out in a “reckoning” that still leaves you dynastically wealthy. Not much of a downside, is it?

Elon continues

So Elon Musk is now trying to pull out of buying Twitter. Maybe I was right when I said I was wrong, and he actually was bullshitting all along. “I am making a firm offer to take this company private” isn’t a very good joke for a typical CEO of a public company – it’s probably illegal, for one thing – but Elon Musk isn’t a typical executive. He’s already made the joke once before – why not make it again!

The pretext for pulling out of the deal is so flimsy as to be barely worth paying hundreds of lawyers thousands of dollars an hour to get down on paper. Musk, who said he was buying Twitter to tackle the spam bots, now says he is pulling out of buying Twitter because the site has too many spam bots. Pull the other one.

A more pressing question is whether he changed his mind for boring reasons: Twitter is worth less than it was; Tesla is worth less than it was; selling Tesla stock to buy Twitter at $54.20 is now an extraordinarily bad trade for Musk when once it was just a silly one – or for more interesting ones: has three months of being subject to endless discussions of moderation policy and political disputes-by-proxy made him realise that it wouldn’t be very fun to become the dude everyone is shouting at?

Either way, the immediate question is whether or not Twitter can force him to close the deal, or merely summon up a fine in court. On paper, they have a good shout at the former, experts agree, since Musk doesn’t have a leg to stand on. But the Delaware Chancery court, where the case will be heard, doesn’t tend to love mandating “specific performance” – that’s forcing the deal through – and may be happy to settle for a hefty breakup fee, which would leave Twitter in a significantly worse position than if Musk had instead just downloaded some new video games when he got bored.

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Alex Hern

The GuardianTramp

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