Home Business Uber on the crossroads: CEO Dara Khosrowshahi faces a gig-economy revolution

Uber on the crossroads: CEO Dara Khosrowshahi faces a gig-economy revolution


Dara Khosrowshahi logs on to our Zoom name from his house workplace in San Francisco, sitting bolt upright in a chair designed for hardcore video avid gamers. It was a latest reward from his spouse, Sydney, who stated he’d spent so lengthy sitting in his workplace currently that he would possibly as nicely be comfy.

Over the previous few months, Uber’s chief govt has lobbied into his webcam on behalf of the way forward for his firm and the trade it helped create. The gig economic system, the place the roles got here quick however the norms and protections of standard work disappeared even sooner, is now dealing with challenges from labour organisations and politicians.

I’ve been to Khosrowshahi’s home earlier than however solely to face exterior. In June, I watched as a caravan of Uber drivers crawled previous, honking and hollering. A 73-year-old man named Vernon, a full-time Uber driver, stated he couldn’t afford to look after his dying mom. Two different drivers held up a banner: “A thief lives right here,” it learn.

Khosrowshahi wasn’t there to see it. He and his household had been at their second house off the coast of Seattle. Their San Francisco property has since been blurred out on Google’s Road View — a request of his safety element, Khosrowshahi assumes, apparently unaware. “I’d say it’s one of many much less comfy elements of my job. I’m comfy with the general public curiosity in me as a CEO. I’m uncomfortable with the general public curiosity in myself and my household or the place I stay.”

Khosrowshahi, 51, has been in charge of Uber since 2017. He took over when the corporate was falling aside because of a toxic tradition left behind by its co-founder, Travis Kalanick. Kalanick was the sort of man Silicon Valley used to worship — a disrupter. When constructing Uber, he’d run roughshod over laws and opponents. He was altering the world. Everybody else was simply too sluggish to maintain up.

Former Uber chief Travis Kalanick in San Francisco in 2018. The company’s co-founder, he resigned in June 2017 after a string of scandals
Former Uber chief Travis Kalanick in San Francisco in 2018. The corporate’s co-founder, he resigned in June 2017 after a string of scandals © Getty Pictures

This angle created an organization that upended world transport, decimating the licensed-taxi enterprise. Earlier than Uber, the joke goes, we had been afraid of strangers on the web. Now we summon them to select us up. At this time, Uber has about 5 million drivers on its platform globally.

By 2015, Kalanick had created a start-up price greater than $50bn. However he additionally created the circumstances for the compounding scandals that finally led to his ousting. In February 2017, whistleblower Susan Fowler wrote a weblog submit that detailed an environment of sexism and sexual harassment. Kalanick apologised. The identical month, dashcam video footage obtained by Bloomberg confirmed a livid Kalanick telling a financially challenged Uber driver that “some individuals don’t wish to take duty for their very own shit”. He apologised once more.

When information emerged of Uber’s deception of public officers, by means of the creation of particular software program that cloaked the motion of Uber drivers in cities the place it was banned, it was the third main scandal in a matter of weeks. An inner investigation, led by former US attorney-general Eric Holder, led to the sacking of greater than 20 workers. By June, Kalanick was gone.

Uber wanted somebody who might salvage the corporate and drive it in the direction of a blockbuster stock-market debut. It wanted somebody with expertise of dealing with giant companies with out drama. In different phrases, they didn’t want a disrupter, they wanted a diplomat. They discovered one in Khosrowshahi.

“You’ve bought to offer Travis the credit score for one of many greatest disruptive tales in expertise over the previous decade,” says Dan Ives, an analyst with Wedbush Securities. “Nevertheless it was clear he wouldn’t be the one who would lead Uber to its subsequent chapter. Dara would, on the fly, take heed to traders and alter the enterprise mannequin in the direction of profitability.”

Inside three years, the brand new chief govt has rotated Uber’s repute and steered it by means of a bumpy initial public offering. However now, as politicians globally demand higher therapy of gig-economy employees, Khosrowshahi is dealing with an even bigger battle: the survival of Uber’s enterprise mannequin.

Born in 1969 into certainly one of Iran’s wealthiest households, Khosrowshahi had an upbringing of turbulent privilege. “Bullets rang by means of our home,” he remembers of the time, aged 9, when he noticed a member of the Revolutionary Guard, bursting by means of the grounds of their property to succeed in a neighbour, by chance discharge his weapon.

For his mom, it was the ultimate straw. They fled Tehran, finally transferring in with kin in Tarrytown, an prosperous village 25 miles north of Manhattan. The brand new Iranian authorities seized and nationalised the household enterprise — a conglomerate price tons of of tens of millions of {dollars}. Later, when Khosrowshahi’s father travelled again to Iran to look after his sick guardian, the federal government prevented him from returning to America for six years.

“What occurred in Iran and the revolution was very, very robust for my dad and mom,” Khosrowshahi says. “However children are adaptable. It was a special language and a special place — however acquainted meals on the desk.”

Khosrowshahi in 1999 after being appointed president of Barry Diller’s media conglomerate USA Networks, where he tried to launch a streaming service
Khosrowshahi in 1999 after being appointed president of Barry Diller’s media conglomerate USA Networks, the place he tried to launch a streaming service © Karjean Levine/Getty Pictures

Khosrowshahi attended Tarrytown’s unique Hackley Faculty, briefly going by the identify “Darren”. “It was a flashpoint second of desperation,” he says, “after the twenty fourth time that somebody requested me ‘Dara? De-rah? Kos-roe-shah-what?’ I like Dara a heck of much more than I like Darren.”

As with many immigrants in America, soccer helped him forge friendships. Later, extra of his prolonged household joined him in school, together with his youthful cousins, twins Ali and Hadi Partovi, who marvelled at his reputation. “We had no associates, we had no social abilities,” Hadi says. “And Dara was president of the category, captain of the soccer crew, among the finest college students throughout.”

Khosrowshahi’s origin story isn’t the sort usually lauded by the tech trade. There was no coding in garages or hacking in Harvard dorm rooms. He even completed his research — bioelectric engineering at Brown — earlier than beginning his profession. “I’m a closet nerd,” he says. “Perhaps not in the best way that a few of the different CEOs are, however I’ve bought a nerd in me positively.”

“I feel there was a shared sense of eager to work arduous to regain what our household misplaced within the Iranian revolution,” Hadi Partovi says. A number of family members, together with the twins, turned formidable forces in American tech. However Khosrowshahi initially took a special path, turning into an analyst at funding financial institution Allen & Firm in 1991, earlier than becoming a member of billionaire media magnate Barry Diller’s USA Networks.

There his makes an attempt to construct a streaming media service didn’t take off however the younger govt had made his mark. “He instantly impressed as somebody with not solely a mind, however with some grace and willpower,” says Diller.

In 2005, when Diller’s conglomerate IAC spun out journey website Expedia, Khosrowshahi was promoted to CEO. He quadrupled the corporate’s worth over his 12-year tenure.

When the time got here to substitute Kalanick at Uber, Khosrowshahi was very a lot an out of doors wager. He was up in opposition to Jeff Immelt, then of Normal Electrical, who based on press studies on the time fluffed his presentation in entrance of the board. Meg Whitman, the previous boss of Hewlett Packard Enterprise, misplaced out after boardroom politicking backfired. Khosrowshahi was the remaining viable candidate. Throughout his pitch, aware of the kind of particular person he could be changing, he insisted he alone make the choices. “There can’t be two CEOs,” certainly one of his slides learn.

That Christmas, at an Uber occasion for members of the press, Khosrowshahi stood on a chair to introduce himself and labored the room. Khosrowshahi was, Diller says, “on the opposite aspect of the moon” from Kalanick, who at first saved his seat on the board however quickly stepped down and bought all his shares. (Kalanick didn’t reply to a request for an interview.)

With the enterprise and expertise worlds watching, Khosrowshahi set about salvaging Uber’s repute. First, he tried to instil new firm values, changing commandments comparable to “All the time be hustlin’” with “We do the right thing. Period.”

Media magnate Barry Diller says of Khosrowshahi: ‘He immediately impressed as someone with not only a brain, but with some grace and determination’
Media magnate Barry Diller says of Khosrowshahi: ‘He instantly impressed as somebody with not solely a mind, however with some grace and willpower’ © Susan Goldman/Bloomberg Information
Former Department of Justice attorney Tony West was brought in to restore the company’s reputation. ‘Uber was very much a poster child for people who wanted to point to what had gone wrong in tech,’ he says
Former Division of Justice lawyer Tony West was introduced in to revive the corporate’s repute. ‘Uber was very a lot a poster youngster for individuals who needed to level to what had gone improper in tech,’ he says © Tasos Katopodis/Getty Pictures for Uber Elevate

To assist with that transition, he brought in Tony West, a former high-ranking Division of Justice lawyer, as chief authorized officer. On the time, West was basic counsel at PepsiCo and had no intention of leaving, particularly given Uber’s repute. However Khosrowshahi managed to speak him into the job. “We joked, in some way, if we’re profitable or not, we might grow to be a business-school case research,” West says. “Uber was very a lot a poster youngster for individuals who needed to level to what had gone improper in tech.”

Beneath Khosrowshahi, Uber ended its coverage of pressured arbitration on sexual assault or harassment claims and settled a multimillion-dollar employee-discrimination lawsuit. A serious information breach, swept beneath the carpet in Kalanick’s time, was made public. West orchestrated the gathering of information for a security report — finally printed in 2019 — that detailed serious incidents involving Uber drivers and riders, comparable to 464 studies of alleged rape over two years within the US. It was an act of grim transparency that has but to be reciprocated by its rivals.

A row with Waymo, the autonomous-car firm owned by Google guardian, Alphabet, maybe underlined the brand new period most clearly. Uber was accused of stealing self-driving automobile expertise by Waymo; Kalanick, who was known as to testify, was accused by Waymo of knowingly colluding with a pioneering engineer, Anthony Levandowski, to depart Google and produce its tech to Uber.

Pilot models of Uber’s self-driving cars in Pittsburgh, Pennsylvania, in 2016. After a fatality in 2018, Khosrowshahi says: ‘I think we held ourselves accountable. We stopped operations, and we rebuilt from the ground up’
Pilot fashions of Uber’s self-driving vehicles in Pittsburgh, Pennsylvania, in 2016. After a fatality in 2018, Khosrowshahi says: ‘I feel we held ourselves accountable. We stopped operations, and we rebuilt from the bottom up’ © AFP by way of Getty Pictures

Beneath Khosrowshahi’s route, West pushed for a settlement and in February 2018 bought one. For dropping the case, Waymo could be given a 0.34 per cent stake in Uber, price $245m on the time, with a promise by Uber to by no means use the disputed tech. Such a deal would have been unthinkable beneath Kalanick, who stated it was “clear Uber would have prevailed” had the trial run its course.

“I feel Dara introduced much-needed grownup supervision,” says Youssef Squali, a Wall Road analyst. “It actually introduced that diplomat that was a lot wanted to navigate the corporate by means of all of the PR and all of the regulatory landmines that it was discovering itself in.”

Khosrowshahi, nevertheless, is about to face certainly one of his hardest checks but.

On November 3, Californians will vote on Proposition 22, a measure that will permit Uber — and different corporations with app-based employees — to keep away from turning drivers into workers, one thing that will require offering state-mandated advantages comparable to sick pay, paid depart, unemployment insurance coverage and healthcare. Uber presently treats its drivers as independent contractors: freelancers who cowl their very own prices for gasoline and upkeep. If one thing goes improper, they must fend for themselves. Final 12 months, California passed a law that raised the bar for corporations searching for to justify their use of contractors. Uber and different gig-economy corporations insisted they met the necessities, however a court docket disagreed, saying employees had been misclassified.

Uber and Lyft got here inside hours of suspending ridesharing within the state, sending alerts to customers and panicking drivers. It appeared an unfathomable prospect within the birthplace of the gig economic system and was prevented solely when an appeals court docket granted a brief reprieve.

If Prop 22 fails, the writing is on the wall: Uber and Lyft must reclassify drivers. That is unimaginable, they are saying, with out elevating costs and drastically decreasing the variety of drivers on the platform, significantly those that do comparatively few hours per week.

For Uber’s enterprise, the affect from a shift to an employment mannequin could be extreme. Wedbush’s Ives is warning traders that an employment mannequin might price Uber a further $400m a 12 months if applied throughout the US. “And if that they had to try this globally,” he says, “that price might improve by 30 to 50 per cent.” Uber’s whole losses on this 12 months’s second quarter, with out drivers as workers, reached nearly $1.8bn.

Ought to it lose Prop 22, Uber has mentioned potential franchising fashions with native fleet house owners, the place drivers could be employed domestically by third events who would then use Uber’s platform to get enterprise. It was a strategy adopted by FedEx in 2014 when it misplaced an identical employee-contractor court docket battle.

Uber drivers – seen here demonstrating for higher pay in San Francisco last year – are classified as freelance contractors by the company and as such are responsible for fuel and vehicle-maintenance costs
Uber drivers — seen right here demonstrating for greater pay in San Francisco final 12 months — are categorised as freelance contractors by the corporate and as such are accountable for gasoline and vehicle-maintenance prices © Getty Pictures
Protests against Proposition 22, City Hall, Los Angeles. A Berkeley study suggesting that if the measure is passed Uber drivers could earn just $5.64 an hour in real terms is disputed by the company
Protests in opposition to Proposition 22, Metropolis Corridor, Los Angeles. A Berkeley research suggesting that if the measure is handed Uber drivers might earn simply $5.64 an hour in actual phrases is disputed by the corporate © AFP by way of Getty Pictures

“We have now a sport plan,” Khosrowshahi says. “Our intent is to maintain working, to adjust to the legislation. It’s not clear what that enterprise appears to be like like, and it’s not clear what number of cities we’d be capable to function in and beneath what assemble. That’s what we’ve bought to determine.”

If Prop 22 passes, the attorney-general’s case is useless within the water and the gig economic system is emboldened. Khosrowshahi’s plan — the “third means”, as he payments it — would exempt app-based gig corporations from the brand new legislation. As an alternative, drivers stay as contractors, contributing to a profit fund primarily based on what number of hours they work. The fund may very well be drawn upon to pay for issues comparable to primary medical health insurance or paid time without work.

Drivers might be assured earnings — 120 per cent of the native minimal wage — although with a big caveat: Uber received’t depend the time drivers are ready to be matched with a passenger. When you consider that interval, a Berkeley research means that Uber’s promised $15.60 minimal an hour as a substitute turns into, on common, simply $5.64, as soon as adjusted for driver bills comparable to gasoline. Uber disputes the findings.

By the point Khosrowshahi talks to me about his plans, he’s recited them so usually he’s nearly totally autonomous — a self-driving CEO at one along with his speaking factors. “It’s at all times been our speculation,” he says, “that there’s a bunch of our inhabitants who values flexibility considerably above the advantages related to conventional labour.”

What occurs in California will closely affect how different jurisdictions deal with the gig economic system, a reality underlined by the financing behind the “Sure on 22” effort. Uber, Lyft and different gig-economy gamers have collectively put in additional than $180m, making it by far the most costly contest in California historical past. The “No” marketing campaign, against this, has raised nearly $20m.

Dara Khosrowshahi believes that success for Prop 22 in California would be the basis for the company to push for similar rules in the rest of the US and even Europe. But he says, ‘I’d like to spend less time in court if I can help it’
Dara Khosrowshahi believes that success for Prop 22 in California could be the premise for the corporate to push for related guidelines in the remainder of the US and even Europe. However he says, ‘I’d wish to spend much less time in court docket if I might help it’ © Kelsey McClellan

“Whenever you have a look at nearly $200m to $20m? Yeah, there’s an enormous hole,” says Cherri Murphy, a rideshare driver who campaigns with Gig Employees Rising, one of many labour teams in opposition to Prop 22. “However what now we have is individuals energy. The underside line is that Lyft and Uber wish to exempt themselves out of their obligations for treating their employees with dignity and respect.”

There are additionally vocal opponents inside Uber itself. Kurt Nelson, an engineer who develops its Android app, wrote an opinion piece for TechCrunch urging his colleagues to vote no. He has been drawing consideration to a Prop 22 clause that will require seven-eighths of the state legislature to agree earlier than any modifications may very well be made in future.

“Software program engineers could be terrified in the event that they couldn’t ever change their code with out seven-eighths of their co-workers agreeing,” he tells me. “It’s a part of why a number of engineers get annoyed with the federal government and legislation. They really feel prefer it’s an immutable forms that modifications too slowly. After which we have a look at Proposition 22 — it’s particularly designed to decelerate change sooner or later.”

The Sure marketing campaign corporations have benefits moreover their deep pockets. The day earlier than our interview, my smartwatch pinged with an Uber notification urging me to vote “Sure on 22”. Professional-22 promoting stalks Californians across the internet. Food-delivery app DoorDash, a part of the coalition, provided luggage printed with “Sure” messaging to eating places, successfully forcing supply drivers to advertise a measure that some say will depart them worse off.

If Khosrowshahi can win on Prop 22, additional challenges lie forward. There was a time when investors predicted Uber would command a value of more than $100bn. It didn’t work out that means. Uber’s first day of buying and selling on Might 10 2019 set an unlucky trajectory: its inventory worth fell 8 per cent, from a place to begin — $45 a share — that many felt was already disappointing. A brief rally rapidly turned a sustained stoop as Wall Road turned much less affected person with lossmaking tech companies, significantly within the wake of WeWork’s collapse. Buyers had been not glad with disruption, and as a substitute needed to understand how Uber would begin to make them cash. Many doubted it ever might. At time of writing, Uber’s share worth was about $35.

A win on Prop 22 would see Uber’s worth soar. With regulation secured in California, the corporate would look to carry related guidelines to the remainder of the US — and probably within the UK and Germany, the place politicians are simply as agitated by the employee-contractor divide. Khosrowshahi says he’ll achieve this proactively. “I’d wish to spend much less time in court docket if I can assist it,” he says. “However I do assume that we’re going to make use of this as a top level view for a dialogue that now we have on a neighborhood foundation.”

Traders at the New York Stock Exchange on the day of Uber’s much-hyped IPO in May 2019. A victory with Prop 22 would see the company’s share price soar
Merchants on the New York Inventory Trade on the day of Uber’s much-hyped IPO in Might 2019. The corporate’s inventory worth fell 8 per cent. A victory with Prop 22 would see the corporate’s share worth soar © AFP by way of Getty Pictures

Khosrowshahi additionally wants to deal with his personal repute. He’s usually seen as a money-minded govt extra comfy dealing with portfolios than nurturing new applied sciences. Whereas everybody sings his praises for eradicating Kalanick’s worst excesses, there are doubts about his credentials as an innovator, an individual who can construct on what Uber’s flawed co-founder began. “The behavioural issues that led to a nasty repute had been the dangerous a part of the outdated guard,” says one former govt. “The actually good a part of the outdated guard was that everybody was a builder, and everybody was an issue solver. Dara is neither of these.”

In reality, he has spent a lot of the previous 12 months dismantling giant elements of Uber’s enterprise, pulling out of a number of markets the place it was struggling to compete. Within the US, having misplaced floor in meals supply to rival DoorDash, Uber struck a deal to acquire Postmates for $2.65bn. When accomplished, the transfer will assist it acquire some market share. However Uber’s first alternative had been to purchase one other service, Grubhub, which was as a substitute snapped up by European group Simply Eat Takeaway. Khosrowshahi, whose repute at Expedia got here from shrewd dealmaking, regarded like he’d been outplayed.

Uber has offloaded its ebike enterprise, Soar, to scooter group Lime, in return for a stake in that firm, and it has given up on Uber Works, its temping platform. A supply confirmed it was additionally searching for a associate or partial sale on its Elevate program, an effort to construct a community of flying vehicles, following reporting this month by Axios.

On the bottom, its self-driving unit — which has already taken exterior funding — lags behind Alphabet’s Waymo, presently in use by the general public in Arizona, and GM’s Cruise. Uber has been engaged on self-driving expertise since 2015, at a value of greater than $2.5bn and marred by a fatal crash in 2018.

After I recommend that Uber has escaped any actual accountability for this, Khosrowshahi exhibits an uncharacteristic flicker of annoyance: “I feel we held ourselves accountable. We stopped operations, and we rebuilt from the bottom up. I feel that’s accountability.”

In Might, Uber introduced it could minimize nearly 7,000 jobs, with 45 worldwide workplaces marked to both shut or be consolidated. The corporate stated the pandemic was to blame, however analysts noticed a enterprise that was overdue a slimming to succeed in profitability.

To some, it felt missing in route. “When it got here to cost-cutting,” one former senior supervisor says, “we had been peanut-buttering throughout groups. Each crew needed to minimize 10 per cent of individuals, or no matter it could be. Which is the definition of not having a transparent technique.”

The transfer contributed to the departure of Thuan Pham, the corporate’s chief expertise officer. Inside the engineering groups, there may be rising frustration over Khosrowshahi’s determination to chop US employees whereas outsourcing obligations to a quickly rising employees in India. “It’s one thing that I discover fairly insulting,” Khosrowshahi says of the suggestion he’s targeted on getting low cost labour. “San Francisco doesn’t have a monopoly on expertise.”

Inside the San Francisco workplace, there may be nonetheless a suggestion that Uber hasn’t been in a position to transfer on totally. Former workers who labored intently with each chief executives cite the persistence of a detrimental, if evolving, tradition in opposition to ladies “There’s systemic sexism at Uber,” one former senior supervisor says. “Girls are interrupted in conferences — there’s a void of girls in management.”

Insiders converse particularly about disappointment round Khosrowshahi’s determination to face by chief working officer Barney Harford after a 2018 New York Instances article prompt he had made inappropriate feedback about ladies and minorities. “I feel that shocked all of us,” one supply says. “We had been shocked Dara doubled down.”

After our interview, Uber stated the corporate had investigated Harford’s feedback and decided there was no proof of discrimination. Harford left the corporate in June 2019 as a part of a leadership shake-up.

Talking on Uber extra broadly, Khosrowshahi stated: “The best problem for us is combining our tradition now with a number of the good that got here from the Travis days, as a result of it wasn’t all dangerous. It might be handy or dramatic to say that it was all dangerous, however there was an actual entrepreneurial push. An actual revolutionary push.”

An Uber Eats courier in Krakow, Poland. Reflecting the shift in consumer habits prompted by lockdown measures, the company is aiming to expand  its delivery services
An Uber Eats courier in Krakow, Poland. Reflecting the shift in client habits prompted by lockdown measures, the corporate is aiming to develop its supply companies © Jakub Porzycki/NurPhoto by way of Getty Pictures

In February, not lengthy earlier than the world modified, Uber gave its inventory worth a lift by promising it could post its first ever profitable quarter — earlier than deducting for curiosity, tax and depreciation — by the top of the 12 months. Covid-19 kicked that focus on into 2021. Nevertheless it has given Khosrowshahi a gap to do one thing new and show himself. Lockdown measures imply demand for delivery is off the charts — up 103 per cent within the second quarter of 2020 in contrast with final 12 months — thanks to what’s anticipated to be a everlasting shift in client habits.

He believes Uber’s expertise in transferring meals and folks has positioned it to grow to be one thing of a “superapp”, a well-liked and worthwhile idea in China, the place nearly all of every day life is now managed by means of companies comparable to WeChat, which act as a single portal for banking, journey, gaming and extra.

In Uber’s case, it could revolve round supply. Like its rivals, it’s searching for to ramp up companies that may ship groceries and different objects to you in lower than half-hour. “It’s a good distance away right this moment however, definitely, we’re in a singular place to get there,” he says. “Ultimately, you already know, I can see a world the place if you wish to take money out from the financial institution, somebody will come and ship money to you, proper? It’ll be something that you really want delivered to your private home.”

It’s the sort of transfer, I say, that may put him in competitors with Amazon and Jeff Bezos, a person who is understood for being something however a diplomat. “I’m a child in comparison with Jeff,” he says. “I don’t assume I’m in his league but. I’ve bought a number of work in entrance of me.”

Dave Lee is the FT’s San Francisco correspondent

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