Dara Khosrowshahi enters a small conference room in Uber’s Toronto office, greeted by a dozen drivers, keen for access to the ride-hailing company’s top executive. All but one of the “driver partners,” as they’re officially called, have worked with the company for longer than Khosrowshahi, Uber’s self-described “rookie” CEO. The new leader wants their insight on how to make the company better.
“This has been the craziest year for me professionally,” says Khosrowshahi. The former Expedia CEO joined the ride-hailing company in the wake of a scandal-plagued 2017 that saw Travis Kalanick, the company’s co-founder and then-CEO, pushed from the helm. “The company had come to an incredible place as far as creating an innovative service that I think most cities in the world want and need now,” he tells the drivers. “But also, I think we grew too fast. And along with that hypergrowth, we made our share of mistakes.” Moving on will require working with the people in this room, and others like them.
The roundtable, part of Khosrowshahi’s first visit to Canada as CEO, is in keeping with the company’s 180 Days of Change initiative, a listening tour launched in June to get driver feedback, and a nod to the company’s newfound efforts to improve transparency and culture as it matures—perhaps belatedly—from its startup to its legacy phase. In the year since Khosrowshahi’s selection, the CEO has overhauled Uber’s power structure, reducing voting rights of Kalanick and early investors on the board. He ended forced, confidential arbitration in cases of sexual misconduct, involving employees, and he rewrote the company’s values. As Khosrowshahi puts it, he’s introduced “adult supervision” to a company built on the popular startup philosophy of “move fast and break things.”
On his first visit to Canada as CEO—a year after taking the reins of the company then in crisis—Khosrowshahi sits down with The Logic to share his views on taking Uber from a ride-hailing company to a multimodal transportation business. To do so, the company will have to regain trust from disgruntled cities and forge new relationships with competitors and even old rivals.
As Uber gears up for an IPO next year, however, culture is just one factor being rejigged to ensure the company’s success over the long term. “We want to take Uber from a car-hailing service to a transportation service,” Khosrowshahi said during an address at the Toronto Region Board of Trade last Thursday—a message he conveyed repeatedly throughout the day. The ambition involves putting masses of e-bikes and scooters on the roads, partnering with public transit authorities to solve “the last-mile” problem and building out the company’s self-driving car capabilities—the reason for Khosrowshahi’s Toronto visit, where he announced a $200-million investment to expand Uber’s autonomous-vehicle development lab, which will boost the company’s Toronto workforce from 200 to 500 in the coming years.
Khosrowshahi is under no illusion that Uber will achieve all that single-handedly; it will require partnering with cities, other companies and even old rivals. “This is a $6-trillion transportation [market] we’re going after,” he says when we meet at a downtown Toronto restaurant during his whirlwind stop in the city. “Ultimately, we want to debundle all the use cases for car ownerships, especially in urban destinations. And we’re not going to be able to do it all ourselves.”
A Silicon Valley outsider, Khosrowshahi seemed an unlikely pick to lead Uber—at least the Uber we have come to know. A closer look at his time as CEO of Bellevue, Wash.-based Expedia, however, shows he knows how to steer a company out of a bind.
In 2005, a then 34-year-old Khosrowshahi was selected to lead Expedia, the world’s largest online travel agency at the time, following its spinout from parent company InterActiveCorp (IAC). Expedia, which included Hotels.com, Hotwire.com and TripAdvisor.com, grew its revenues from US$2.1 billion to US$10.1 billion during Khosrowshahi’s 13-year leadership. It wasn’t easy, of course. The company faced increasing pressure from rival agencies, particularly Priceline.com, which quickly took over the top spot.
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In response, Khosrowshahi moved Expedia’s many brands onto a common platform, allowing them to pull from the same inventory. The move helped narrow the gap between Expedia and Priceline, with both companies increasing their bookings rates by about 28 per cent in 2014. “Regardless of how old you are—young companies, medium companies, more mature companies—you really do have to be willing to think more disruptively at all times,” Khosrowshahi says during our interview. “Not just the markets that you’re entering, but your own markets as well.”
In many ways, Uber is the modern definition of disruption. An onslaught of young tech entrepreneurs are now bent on creating “the Uber of X,” a playbook for upending legacy industries in the name of efficiency. That strategy allowed Uber to grow as much and as fast as it has—the company quickly became the world’s highest-valued private startup company, valued today at US$70 billion. It’s also what nearly ruined it.
Khosrowshahi isn’t throwing out disruption theory altogether; rather, he’s turning it on his own company. He uses terms like “disaggregation” and “cannibalize ourselves” to describe the future of Uber. “I see us increasingly opening our platform and our ability to aggregate enormous demand to other sources of transportation,” he says.
That’s what the company has done with the electric bike-sharing company Jump, for instance. In February, Uber started allowing users to book Jump bikes on its app in select cities. Six months later, demand for Uber’s traditional car-hailing service dropped in those same cities. In San Francisco, for example, ride-hailing decreased 15 per cent during rush hour, as more users opted for bikes over cars. (Uber now owns Jump). “How does it make sense for us to reduce Uber usage 15 per cent during rush hour?” Khosrowshahi asks during the Toronto Region Board of Trade Q&A. Too many riders, not enough rides: “For a trip that’s four kilometres, you shouldn’t be using a thousand-kilogram hunk of metal to make that trip alone; you should use an e-bike or get [an Uber] Pool,” he says. “It’s in our interest to work with cities in a creative way in order to get people onto bikes, scooters, et cetera when the timing is right.”
The approach prioritizes longevity over immediate growth—something new for Uber, and which may seem risky, given it’s planning an IPO next year. Considering, however, the company’s cash burn-rate (it spent an estimated US$11 billion since 2009), redirecting attention to a more distant focal point may be necessary to boost investors’ confidence in the company.
That long-termism is also critical in order to regain trust from many disgruntled cities in which Uber has operated.
Under its former disruption strategy, Uber barrelled into cities unannounced, unregulated and unapologetic. “The way they entered the market last time was extremely disrespectful,” says Kristyn Wong-Tam, a Toronto city councillor and transit advocate. “They were brazen and somewhat belligerent.”
Cab drivers, their livelihoods ravaged by the rise of ride-hailing services, have protested Uber in streets and in city halls around the world, with varying degrees of success. A pilot project in Quebec, set to expire this fall, will determine whether Uber can stay in the province after years of operating illegally, according to Montreal and Quebec governments. The company was thrown out of Calgary in 2015 for bylaw violations, re-entering the city a year later when taxi bylaws were amended to be more friendly to ride-sharing operators. In B.C., then-opposition leader John Horgan called for a $20,000 maximum fine against Uber drivers in 2014, declaring, “Online companies should not be allowed to put passengers at risk and undercut our locally-owned taxi industry.” The company has stayed out of the province since. In Toronto, more than 18,000 people have signed a Change.org petition to reinstate mandatory safety training for taxi and rideshare drivers, following the death of an Uber passenger in March.
And that’s just in Canada. In August, New York City placed a cap on the number of ride-hailing cars allowed on the roads. The company faces a similar prospect in London, where it just won a legal battle for licence to operate in the city.
“Transportation is really local,” says Rob Khazzam, general manager of Uber Canada. The difference in Uber’s approach to local transportation now, Khazzam insists, is that it’s working with city regulators, rather than in spite of them.
Uber has enlisted a small army spread across Canada to aide in that effort—whether to secure alcohol delivery through UberEats in Quebec, or getting ride-sharing electric bikes on the streets in Toronto and Calgary.
Getting governments onside is paramount if Uber is to become the multimodal company Khosrowshahi envisions. Authorities in some jurisdictions are on board already. In Innisfil, Ont., a town of fewer than 40,000 people, Uber has replaced public transit altogether. The city has subsidized the service, with riders paying a base fare of $3 to $5, saving the municipality an estimated $8 million per year on transit.
“We’d love to do more of those,” says Khazzam, referring to the Innisfil project. “We’re looking at transit partnerships; we’re looking at city partnerships.”
Last week, the same day Uber announced its new engineering centre in Toronto, the company launched Uber Express Pool in the city. It matches nearby riders who are travelling to the same general area, instructs them to meet at a common pick-up location and drops them off at another common spot close to their respective destinations. In essence, Express Pool is an on-demand bus service. Rather than supporting local public transit, however, some worry it undermines it.
Wong-Tam believes car-pooling services could actually increase traffic on the roads by pulling habitual mass-transit users into individual vehicles. That could reduce public-transit revenues, she says, which in turn could lead to poorer service. The councillor is also concerned services like Express Pool would focus on “profitable routes” around the downtown core and neglect those in the inner suburbs. “The transit companies have a sense of public accountability,” she says.
Wong-Tam and others have reason to be skeptical of Uber’s sense of social responsibility. This is a company that has been militant in the past about its surge pricing policy—refusing to disable the tool, which raises rates based on supply and demand, even during states of emergency—and which, until May, forced drivers and passengers to keep any allegations of sexual misconduct confidential and out of the court system.
One of Khosrowshahi’s first priorities as CEO was to rewrite the company’s values. New to the list: “Do the right thing. Period.”
“If we start doing the right thing and we start acting differently, eventually the world will notice,” he said in an interview with Recode’s Kara Swisher in May. “Because the truth comes out in everything, good or bad.”
A slow clap builds in the overflowing gathering space of Uber’s Toronto office, where the 100-plus workers are fast outgrowing their heritage building home. The room erupts in cheers when Khosrowshahi takes the stage. With his plaid, button-up shirt, blazer and jeans, and salt and pepper beard, he looks like the adult supervision in the room of predominantly young, T-shirt clad tech workers.
Khosrowshahi is relaxed as he answers employees’ questions about his first year as CEO and his strategy going forward. He quips that he’s being pampered with manicures and massages each morning—the perks of CEO life, he jokes to the friendly crowd—and speaks earnestly about the professional choices that led him to that stage. His advice: don’t have too clear of a long-term plan. If you do, you’ll miss opportunities. That’s been his approach to Uber’s growth, too. “It’s a bit like the Amazon marketplace strategy,” he tells us after the town hall, noting the unpredictable transformation of the company once focused almost solely on books sales.
Khosrowshahi says in our interview that he’d even be open to partnering with rival company Waymo. The Alphabet Inc. subsidiary and leader in the autonomous vehicle space sued Uber last year for allegedly stealing trade secrets. In a settlement, Uber agreed to give Waymo a 0.34 per cent equity stake in the company, valued at about US$245 million, but maintained it never used Waymo’s technology in its own driverless cars. “We think the self-driving technology they’re building is promising,” says Khosrowshahi in reference to Waymo. “If the quality of the driver is there—in this case it might be the quality of a robot driver—and quality of car is up to snuff, we’ll take them in our network. We are ultimately in the network business here.”
In Toronto, that network could eventually extend to Alphabet’s Sidewalk Labs smart city project, which proposes to be the “first large autonomous vehicle-only district in the world.” “We’d be open to any partnerships in the urban planning transportation space,” Khosrowshahi says when asked about the smart city project. “I actually know [Sidewalk Labs CEO] Dan [Doctoroff] from days past, so it’s a dialogue we’d be happy to have.”
By many measures, Uber has done well in Toronto. Pizza Rustica, a casual dining spot, is one unassuming example. Despite the empty tables on the warm September evening, the back of the house is busy cranking out dishes that go well beyond Italian American fare. Much of its business, in fact, comes from its second life as a “ghost kitchen,” offering meals exclusively through UberEats under some 40 different restaurant names—a model made possible with the rise of delivery apps.
Khosrowshahi stops by the restaurant—quiet, save for the 1980s rock hits bellowing over the sound system—to see the operation in the flesh. Uber didn’t anticipate the size and form the “Eats” business would take when it launched in Toronto in December 2015, as a sort of experiment. Today, the service is in 250 cities; 8,000 restaurants in Canada alone use the app.
Uber has a natural connection to Canada. Garrett Camp, co-founder and board member, is a proud Calgarian, and Andrew Macdonald, originally from Toronto, sits on the senior leadership team, managing Uber’s America’s operations and global business development. “Mac”—as he’s affectionately referred to by Khosroshahi—spends much of his time working remotely from Toronto.
“The business is doing very well here in Canada,” says Khosrowshahi, leaning in on the high-top table. “It’s a reason why the company is ramping up its presence in the city.”
Khosrowshahi also cites the region’s deep pool of tech talent as motive for doubling down on Toronto, investing $200 million over five years in the local branch of Uber’s Advanced Technologies Group (ATG) and a new engineering centre announced last week. Chief among that talent is Raquel Urtasun, a University of Toronto associate professor and head of Uber ATG in the city. Urtasun, a coveted artificial intelligence researcher, chose to work with Uber in part because of its reach—the company completed its 10-billionth ride last month. “Imagine when the time comes for autonomous driving at scale,” she says. “There are so many people who are going to benefit from this technology.”
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Convincing Uber’s “driver partners”—whom Khosroshahi calls “the face of the company”—of the benefits of automation, however, is an obvious challenge.
Sitting in the back of a pristine Ford Edge last Thursday, an Uber driver named Yassir asked how my day was going. When I told him I was on my way to see Khosrowshahi announce the AI investment, Yassir became dejected. “So they are doing that,” he said, concerned that Uber’s self-driving car efforts signalled the inevitable end to what is, for the time being, his full-time job.
That same day, another driver, Safwan, who has been with the company for three years, told me he was happy driving for Uber, but that he wished it paid more. To earn the equivalent of a minimum-wage salary, after expenses like fuel, Safwan said he works at least 50 hours per week.
Driving with Uber is advertised as a flexible job, not necessarily a stable one. When speaking at the 2014 Recode Code conference, Kalanick, then Uber’s CEO, expressed no qualms about automating drivers out of the picture. “The reason Uber could be expensive is you’re paying for the other dude in the car,” said Kalanick. “When there is no other dude in the car, the cost of taking an Uber anywhere is cheaper. Even on a road trip.”
Certainly, paying drivers is an enormous cost to the business. Uber earned US$37 billion from riders last year, but its net revenue was just US$7.4 billion. Eliminating that cost would be a much-needed boon to the company’s bottom line (Uber turned a profit for the first time in the first quarter of 2018, largely thanks to selling its Russian and Southeast Asian operations with local competitors; it reported losses again in its second quarter). To that end, Uber has spent between US$125 million and US$200 million on its self-driving car unit each quarter of the past 18 months, according to a report from The Information in August.
To ease public anxieties around potential mass job losses from automation—a threat that goes well beyond self-driving cars—several prominent tech leaders, including Bill Gates and Elon Musk, have come out in favour of a universal basic income (UBI). But Khosrowshahi isn’t convinced UBI is the best tool to reinforce a fraying social safety net.
“The direction I would go to is make sure more opportunity is available to a greater swath of our population,” he says. “I think Uber can be a very important engine there.”
Uber is years away from having self-driving cars, e-bikes and scooters altogether replace drivers on its platform. In the meantime, the company will actually have to ramp up its manned fleet to meet growing demand. That means appealing to drivers better than Uber has in the past, Khosrowshahi recognizes. “We called drivers ‘partners’, but didn’t always act like it,” he said in a statement in May, when the company introduced sick and parental leave to drivers in Europe, who had long fought for more security. “An important part of being a good partner is being a good listener,” Khosrowshahi noted.
During an interview with Uber’s board for the CEO job, Khosroshahi was asked what his passenger rating was. He checked, and disclosed that it was 4.73 out of 5, which he reported being unsatisfied with. A year into the job, he tells us he’s improved his score, modestly, to 4.76.
It’s an incremental improvement that Khosroshahi understands will, like Uber’s own public standing, take time to rebuild.
With files from Zane Schwartz and David Skok