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Uber Undone

Mike Isaac’s Super Pumped definitively punctures the Uber mirage

On Tuesday, August 27, federal prosecutors in San Jose charged Anthony Levandowski, formerly the golden boy engineer of self-driving cars, with thirty-three counts of “theft and attempted theft of trade secrets.”

Levandowski, who was once considered the most prized and difficult genius working in Google’s autonomous driving unit, Waymo, left the company in early 2016 to launch his own startup, Otto. Sick of Google’s bureaucracy and perceived timidity, he wanted to go independent. For a time. Otto was acquired that summer by the ride-hailing company Uber for an estimated $680 million, the result of a lengthy courtship by Uber’s then-CEO Travis Kalanick that began while Levandowski was still at Google. At Uber, Levandowski was tapped to be the chief of all things self-driving and virtually given a green light to start putting as many robot cars on the road as possible.

Justifiably suspicious, Google reexamined the circumstances of Levandowski’s departure and found that he had downloaded 14,000 confidential files to his computer before leaving the company, many related to Waymo’s LIDAR systems, an essential sensory technology for self-driving cars. Alphabet CEO Larry Page, who had previously approved paying Levandowski more than $100 million in bonuses, made the decision in February 2017 to file a lawsuit against Levandowski and Uber—a move that would ordinarily scan as “unchill” or, worse, “anti-innovative” in an industry in thrall to the cult of the engineer. As it turned out, Page didn’t look like much of an asshole.

Three months after filing, the facts of the lawsuit led Judge William Alsup to make a criminal referral to the local U.S. Attorney’s office for “investigation of possible theft of trade secrets based on the evidentiary record supplied thus far.” Shortly before settling the case with equity valued at $245 million in February 2018, an Uber lawyer told the jury that the company “regrets ever bringing Anthony Levandowski on board . . . for all this time at Uber, all Uber has to show for Anthony Levandowski is this lawsuit.” Although the lawyer couldn’t have known it at the time, that statement wasn’t quite true: as of this week, Levandowski has dragged Uber back into scandal, with the possibility of its dirty laundry being aired in a courtroom all over again. Levandowski has pleaded not guilty.

Though Levandowski was the one who downloaded the files, collected a huge payout from Google’s biggest rival, and directly inspired the lawsuit, it was Travis Kalanick who made all of this possible. Kalanick, who Waymo considers to be something of an unindicted co-conspirator, is the name at the center of the cork board, to whom all the strings of Uber’s sprawling improprieties and disasters can be traced. He urged Uber to ignore local taxi commission rules, presided over the creation of a software designed to fool city regulators, rejected any meaningful financial oversight, and built a corporate culture that became globally renowned for its callous treatment of its workers. Silicon Valley began this decade as the bleeding edge of the American economy, where new technologies were said to be building a better future for the whole planet. By its end, the American tech industry will be largely viewed as the labor-destroying, profit-hungry behemoth that it truly is. While Facebook’s inadvertent election-rigging and Google’s near-monopoly on digital advertising might draw more attention as the culprits behind that pendulum swing, it is Uber’s Randian capitalism that most transparently lays bare Silicon Valley villainy. And even from outside the C-suite, from which he was ejected in 2017, Kalanick remains its smug, unapologetic face.

Kalanick urged Uber to ignore local taxi commission rules, presided over the creation of a software designed to fool city regulators, rejected any meaningful financial oversight, and built a corporate culture that became globally renowned for its callous treatment of its workers.

Most of the facts of Uber’s ascendance and face-plant lie in public view, strewn across countless news articles; it’s hard to pick just one Uber scandal that matters when there are at least fifty others to which one can refer. Helpfully, Mike Isaac, a technology reporter for the New York Times, has assembled an expansive and lucid new chronicle. His book, Super Pumped: The Battle for Uber, will likely go down as the definitive Uber book, much in the same way that former Wall Street Journal reporter John Carreyrou’s best-selling Bad Blood is understood to be the definitive Theranos book. Carreyrou has even blurbed Super Pumped, calling it a “delicious read.”

This is deserved praise. Isaac peels back the layers of Uber, making it plain how Kalanick was able to break laws with impunity and charm investors into signing term sheets that gave him near-unbreakable control over the company. When it came to launching Uber in cities where governments disapproved, Isaac writes that “Uber’s guerilla tactics far outmatched the resources and technical acumen of government workers or taxi operators.” This included launching Uber in new markets without the permission of local regulators, paying big bucks to local lobbyists to make sure that Uber drivers could stay on the road, and financially supporting drivers targeted by government officials who were just enforcing the rules.

But when cozying up to the government suited Uber’s interests better than duping it, the company was more than happy to do so. After years of fighting with San Francisco City Hall, Uber executives attempted to persuade city officials to “shut the other companies down” when they saw competitive threats on the horizon from other ride-hailing companies. In the American market, Kalanick paid extra attention to one specific rival: Lyft. He scared off investors from backing Lyft by promising to ice them out of future Uber funding rounds. He bought billboards that showed an Uber-black razor shaving a Lyft-pink mustache, and sent employees bearing baked goods to disrupt Lyft recruiting events; the icing on them spelled out “Uber.”

Uber’s rapid growth and popularity in these early years, from its launch in 2010 to roughly 2015, made it the most attractive of a new class of “unicorn” startups—venture capital-financed companies worth at least $1 billion on paper. Kalanick’s competitive zeal and staff of ambitious young Patagonia vests were quickly growing the company’s user base. But, as remains true to this day, Uber was nowhere near making a profit.

The theory of venture capital goes something like this: a VC firm raises a bunch of money from a group of investors, usually a mix of pension funds, family offices, and so on. That money is pooled into a “fund,” which gets doled out to a group of companies over a specific time period. The VC firm hopes to give its investors a sizable return, something like 20 to 25 percent, which is roughly twice the average return of the Dow Jones index over the past decade. And the past ten years have been good to venture capital. Great Recession-era low interest rates and the Federal Reserve’s policy of quantitative easing, which saw the Fed buy “toxic assets” off the balance sheets of banks, have bulked these firms up, giving them lots of capital with which to play. Between 2008 and 2018, according to the National Venture Capital Association, U.S. venture capital firms’ total assets under management grew from $231 billion to $403 billion.

The investment opportunities have also accrued in the last decade. The launch of the iPhone provided VCs with a new generation of startups whose mobile software, the VCs forecasted, would reach billions more people directly than PCs ever could. The rise of cloud computing, powered largely by Amazon Web Services, ensured that these new companies could always afford the servers necessary to expand their footprint.

Competent and top-tier VC firms, understandably, are picky about how they spend their capital. Of the funds they raise, most of the companies they invest that money in will likely fail. The aim is to find the mega-hit, once-in-a-generation investments—Google, Facebook, Snap—whose massive returns can subsidize the rest of the crop and cement a VC legacy. This strategy favors companies that can scale up to millions of users quickly, no matter their losses (what’s called their “burn rate”), because the conventional logic is that it is easier to monetize later than it is to acquire more users.

Travis Kalanick built Uber to check all these boxes, to such an extent that investors would accept unusually strict terms for the privilege of investing in Uber. His motivations were personal. As described in Super Pumped, Kalanick was burned during the dot-com bubble by a famous investor in his peer-to-peer file-sharing startup, CAA cofounder and former Disney president Michael Ovitz. The startup became a Hollywood liability for Ovitz, who maneuvered to kill the company dead. While vengeance against Ovitz was out of Kalanick’s reach, he “never trusted investors again,” Isaac writes. When building Uber’s board, he stacked it with his allies (“In effect, Kalanick had created a powerful cabal that supported his power as chief executive”), and preyed on the desperation of prospective funders (“Outsiders were starting to have ‘FOMO’—fear of missing out—as tiny startups began to yield outsize returns”).

For a long time, everything worked. Uber suffered the occasional black eye, such as the time in November 2014 when SVP Emil Michael told a BuzzFeed News editor that it might be worth Uber’s while to spend a million dollars investigating Uber-critical journalists’ “personal lives” and “families.” But the following month, Uber went on to secure $1.2 billion in new funding at a paper valuation of over $40 billion. This nudged Uber into unprecedented territory for a VC-funded “startup”: the company was now worth, as the Wall Street Journal described it, more than Delta Air Lines or Charles Schwab.

It was around the time of the 2016 election that disaster finally struck. Having conquered the American market, Uber began an aggressive international expansion campaign, the capstone of which was the launch of Uber China in the summer of 2014. Two years and billions of dollars in losses later, Kalanick, under pressure from his investors, sold off Uber’s China business to its primary competitor. (The company would eventually be forced to sell its entire southeast Asia operation.) Bruised from this fight, which “only served to grow his persecution complex,” Isaac writes, Kalanick trained his focus on the incoming Trump administration, which might be “less likely to come after Uber,” and joined a Trump White House business advisory council.

Whatever concessions Kalanick fantasized he might wring from a Republican administration—protecting Uber from an organized contract workforce, tax benefits, assistance in overseas markets—such designs were short-lived. Something of an Uber scandal avalanche began. In January 2017, a leftist freelance writer in Chicago launched the hashtag #DeleteUber in response to the company’s apparent opportunism at the location of protests against the Trump administration’s Muslim ban at John F. Kennedy International Airport in New York: while local taxi drivers were striking in solidarity, Uber decided to forego surge pricing to attract more customers. Uber reacted clumsily: the company’s “public relations team scrambled to try and convince reporters that Uber wasn’t breaking a strike but actually trying to help protesters get to the JFK protests.” Isaac reports that the hashtag call lead “more than 500,000 people” to delete their Uber accounts in a single week.

With Kalanick gone, relieved Uber investors hoped, the company would get an opportunity to turn over a new leaf, and more importantly make them a bunch of money by finally going public.

The following month, a former Uber engineer named Susan Fowler published a blog post detailing the sexual harassment she endured at the company, in response to which Uber’s human resources team effectively told her “tough luck.” Fowler’s post went viral, and Uber went on to retain the services of former Attorney General Eric Holder, among others, to investigate its apparently pervasive gender discrimination. It was only a few days after Fowler’s post was published that Waymo filed its trade secrets lawsuit against Uber; weeks later, Isaac broke a colossal story in the Times about a software called “Greyball,” which allowed Uber in its earlier days to prevent select users from viewing Uber maps, stopping local regulators from ticketing then-illegal Uber drivers.

Simultaneously, years of pent-up Uber driver anger was being unleashed. Initially lured to Uber with subsidies that puffed up their potential income, drivers began to see their earnings stagnate, and in June of 2017 Uber was forced to roll out a tipping option, among other changes to its app. By that point, Eric Holder’s report was finished, forcing Kalanick to fire his trusted deputy Emil Michael, who was found to have brought Uber executives (including a female staffer who later complained to HR) to a Seoul escort bar in 2014. The only reason the story surfaced publicly, as Isaac describes it, is because Michael attempted to prevent Kalanick’s ex-girlfriend, who was present at the club, from talking to reporters about the episode years later. Another senior executive, Eric Alexander, who reportedly held onto the confidential medical files of a woman raped by an Uber driver in India and showed them to Kalanick and Michael, among other executives, was also fired in early June 2017. Amit Singhal, a prized executive recruit from Google, had been fired five months previously after it came out that he had been dismissed from Google after being accused of sexual harassment.

By that summer, a group had formed of Uber investors and board members infuriated with Kalanick and the PR body blows that Uber kept absorbing; Isaac identifies them as “the Syndicate.” Led by Benchmark Capital’s Bill Gurley, one of Silicon Valley’s most widely admired investors, the Syndicate schemed to get rid of Kalanick. They ambushed him at the Ritz-Carlton in Chicago, and presented him with a choice: resign, or we’ll go public with our demands. Kalanick chose to fall on his sword. After he mounted a failed comeback in the following months, Uber’s board selected a new chief executive: Dara Khosrowshahi, the bland, always-smiling chief of the travel site Expedia. With Kalanick gone, relieved Uber investors hoped, the company would get an opportunity to turn over a new leaf, and more importantly make them a bunch of money by finally going public.

On May 10, after spending nearly a decade shielded from public markets by the largesse of its private investors, Uber finally staged its initial public offering. On hand to ring the opening bell of the New York Stock Exchange was a group of more than a dozen people associated with the company: Uber executives (including Khosrowshahi), early employees, an Uber customer, and five Uber drivers.

Kalanick was nowhere to be found; Khosrowshahi had asked him not to be present on the balcony for the bell-ringing. On paper, however, Kalanick was the biggest single beneficiary of the whole affair. He was set to earn about $5.4 billion in stock that day, vaulting him to the 298th place on the Forbes 500. (One wonders about the earnings of the drivers who stood by the opening bell.) As the trading floor officially opened, Dara, as Khosrowshahi is popularly known, watched the monitors displaying Uber’s stock price, and, as Isaac reports, his face grew dark. Uber’s initial share price of $45 had fallen to $42 on its first official trade. “By the end of the day, Uber had lost more in dollar terms than any other American initial public offering on Wall Street since 1975,” writes Isaac.

With its stock market struggles (Uber currently trades at around $31 a share) and the recently announced indictment of Levandowski, one might assume that Uber’s and, by extension, Kalanick’s, reckoning is complete. Enough time has elapsed, after all, for a tell-all book to be published by a reporter from the New York Times, and two-and-a-half years into the Trump administration, Kalanick and Uber draw comparatively little attention from Facebook- and Google-obsessed Washington. Things seem stable but also bad. But the truth is that there has been no such reckoning, at least not compared to the devastation that Uber has caused.

The net effect of Uber’s presence in urban areas, multiple studies show, is that it reduces mass transit ridership, inducing a “death spiral” that prevents government agencies from raising the necessary revenue to maintain the quality of public transit systems, which further disincentivizes ridership. Taxi medallions in New York City, once valued at $1 million apiece, have become so worthless in the age of Uber and Lyft that some of their owners, often immigrants who have staked their financial future on the medallions’ value, are dying by suicide in public. The abundance of ride-hail vehicles in city streets, even carpools like UberPool and Lyft Line, has a substantial carbon footprint, according to one 2017 study, such “that current volumes of pooled rides combined with exclusive-ride trips are producing large overall increases in mileage” rather than a reduction in emissions.

Much like Elizabeth Holmes and Martin Shkreli, who were indicted for defrauding investors rather than administering fake blood tests or jacking up the price of an essential medicine, Levandowski is being prosecuted for having done something bad to a corporate entity.

And none of this accounts for Uber’s own beleaguered driver fleet, which has long reported earnings far below what drivers are led by Uber to believe they will make; the company paid a $20 million fine, the enforcement equivalent of being hit with a beach ball, to the Federal Trade Commission in 2017 for ads that inflated potential driver income. Uber drivers working in the area around the company’s headquarters in San Francisco, where the cost of living is frequently cited as the highest in America, often sleep in their cars during the week, so as not to lose commute-hour driving fares. An analysis of nearly 15,000 Uber and Lyft driver earning receipts by the automotive news site Jalopnik, published a day before Levandowski’s indictment, found that the two companies take around a third of their drivers’ total earnings—roughly 10 percent more than what they claim. Both companies disputed Jalopnik’s findings, but they declined “to provide statistically significant data sets of anonymized fares for independent verification.” Naturally, both are also fighting to kill legislation that would give their workers greater rights; Uber, Lyft, and the food-delivery company DoorDash have publicly committed over $90 million to stop a California bill that would require them to treat their contract workers as employees.

Uber investors and executives, on the other hand, are winning big despite the disastrous IPO. Bill Gurley’s Benchmark Capital, which paid about seven cents a pop for Uber shares back in 2011, earned nearly $7 billion when the company went public. Kalanick’s personal wealth is currently estimated at about $3.5 billion. His two early colleagues at Uber, Garrett Camp and Ryan Graves, are now worth about $3.1 billion and $1 billion respectively. Uber, meanwhile, is performing quite poorly. It lost more than $5 billion last quarter, and Wall Street does not appear to buy its promises about future performance. It’s not difficult to imagine what could happen to Uber in a potential recession, when people start skimping on Ubers to home and work and taking rides on the subway instead.

And the justice being served to Levandowski, who may yet wriggle out of a complicated prosecution with high-priced defense attorneys, is an unfair kind of justice. Much like Elizabeth Holmes and Martin Shkreli, who were indicted for defrauding investors rather than administering fake blood tests or jacking up the price of an essential medicine, Levandowski is being prosecuted for having done something bad to a corporate entity. After reading Super Pumped, which details all the awful things that Kalanick and his cronies have done to flesh-and-blood humans, it’s hard to feel anything other than wistful for a world in which individuals are punished for doing wrong by the workers and customers their business ostensibly serves. In the case of Uber, justice, whether it’s served warm, cold, or at all, will have ended up at the wrong table.