The Story of Uber
Uber’s disruptive technology, explosive growth, and constant controversy make it one of the most fascinating companies to emerge over the past decade. The eight-year-old company has rocketed to become the highest valued private startup company in the world. Valued by investors at $69 billion, it exceeds the market cap of giants such as General Motors (GM), Ford Motor Company (F) and Tesla Inc. (TSLA), even though the company has suffered billions in losses in recent years.
Founders Meet in Paris
Uber’s story began in Paris in 2008. Two friends, Travis Kalanick and Garrett Camp, were attending the LeWeb, an annual tech conference the Economist describes as “where revolutionaries gather to plot the future".
In 2007, both men had sold startups they co-founded for large sums. Kalanick sold Red Swoosh to Akamai Technologies for $19 million while Camp sold StumbleUpon to eBay (EBAY) for $75 million.
Rumor has it that the concept for Uber was born one winter night during the conference when the pair was unable to get a cab. Initially, the idea was for a timeshare limo service that could be ordered via an app. After the conference, the entrepreneurs went their separate ways, but when Camp returned to San Francisco, he continued to be fixated with the idea and bought the domain name UberCab.com.
UberCab Takes Shape
In 2009, Camp was still CEO of StumbleUpon, but he began working on a prototype for UberCab as a side project. By summer of that year, Camp had persuaded Kalanick to join as UberCab’s ‘Chief Incubator’. The service was tested in New York in early 2010 using only three cars, and the official launch took place in San Francisco in May.
Ryan Graves, who was Uber's General Manager and an important figure in the early stages of the company, became CEO of Uber in August 2010. In December 2010, Kalanick took over again as CEO, while Graves assumed the role of COO and board member.
The ease and simplicity of ordering a car fueled the app’s rising popularity. With the tap of a button a ride could be ordered; GPS identified the location and the cost was automatically charged to the card on the user account. In October of 2010, the company received its first major funding, a $1.25 million round led by First Round Capital.
In October of 2010, the company received a cease-and-desist order from the San Francisco Municipal Transportation Agency. One of the main issues cited was the use of the word “cab” in UberCab’s name. The startup promptly responded by changing the name UberCab to Uber and bought the Uber.com domain name from Universal Music Group.
Uber Takes Off, But Soon Faces Losses
2011 was a crucial year for Uber’s growth. Early in the year, the company raised an $11 million Series A round of funding led by Benchmark Capital and it went on to expand to New York, Seattle, Boston, Chicago, Washington D.C. as well as abroad in Paris. In December at the 2011 LeWeb Conference, Kalanick announced that Uber raised $37 million in Series B funding from Menlo Ventures, Jeff Bezos, and Goldman Sachs. In 2012, the company broadened their offering by launching UberX, which provided a less expensive hybrid car as an alternative to black car service. The latest round was in June, 2016, when Uber raised $3.5 billion from Saudi Arabia's Wealth Fund.
Uber is not public and isn't required to report its earnings publicly, but in April, 2017, Uber opened up about its financial for the first time to Bloomberg, and reported a global loss of $3.8 billion for 2016. This includes losses from its China business, which it sold the summer of 2016 — without it, net adjusted losses were $2.8 billion. The company also told Bloomberg that the more it shifts to its UberPool — the carpooling service — the faster the revenue grows, and this shift made the fourth quarter of 2016 a little brighter with a revenue increase of 76%, while losses increased 5%.
Uber Faces Opposition
During its expansion, Uber has met fierce resistance from the taxi industry and government regulators. As part of their strategy to mitigate the opposition, the company hired David Plouffe, a high-profile political and corporate strategist who worked on the Obama's 2008 presidential campaign.
In 2014, taxi drivers in London, Berlin, Paris and Madrid staged a large-scale protest against Uber. Taxi companies have claimed that since Uber avoids their expensive license fees and bypasses local laws it creates unfair competition. The case was heard by Europe's top court in December, 2016.
Most recently, in New York, it surfaced that Uber had mistakenly charged drivers commission based on pre-tax earning as oppose to after tax earnings — at a cost of tens of millions of dollars to New York drivers. The company said it was an accounting error, and it was committed to pay its drivers back in full as quickly as possible. The issue does raise questions about the fairness of who ends up paying the taxes.
Driver's advocacy groups have argued for some time that Uber is avoiding a tax at the expense of its drivers, something the New York Times found evidence to support. The paper estimated it could have cost drivers hundreds of millions of dollars.
For related reading, see; Scandal-Ridden Uber Loses Its President and Key Engineer (TGT, GOOG).
Surge Pricing Backlash
Uber uses an automated algorithm to increase prices based on supply and demand in the market. On New Year's Eve 2011, prices soared to as much as seven times standard rates, fueling negative feedback from users. Surge pricing triggered outrage again during a snowstorm in New York in December of 2013. More recently Uber committed to cap surge pricing during several blizzards in New York City.
Competition from Lyft
Competition has been ferocious between Uber and its closest rival Lyft. In 2014, both Uber and Lyft claimed that drivers and employees engaged in sabotage by regularly hailing and canceling rides on each other’s services. Kalanick also openly admitted to trying to undermine Lyft’s fundraising efforts in a Vanity Fair article. (For more, see: Key Differences Between Uber and Lyft)
Uber has merchant delivery programs such as its food delivery service, UberEATS and a same-day courier service called UberRUSH. Uber also offers UberPool, which allows drivers to pick up multiple riders on one ride, which makes it a cheaper option compared to UberX and UberBlack.
The Bottom Line
Like Google (GOOG), Apple Inc. (AAPL) and Tesla Motors (TSLA), Uber is also gearing up for a future of driverless cars. The company is currently planning to get a permit for its self-driving cars in California. However, the road has been bumpy so far, especially since Alphabet Inc's (GOOG) Waymo sued Uber for theft of self-driving technology.