Uber Technologies' (UBER) explosive growth and constant controversy make it one of the most fascinating companies to emerge over the past decade. The global ridesharing application, founded in 2009, disrupted modern transportation as we know it and at one point, grew to become the highest valued private startup company in the world. Ten years after Uber's founding, the company went public on May 9, 2019, though the road has been bumpy.
Uber History: Paris and Rapid Growth
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.
The concept for Uber was born one winter night during the conference when the pair was unable to get a cab. Uber was founded on a single idea: "What if you could request a ride from your phone?" 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 on the idea and bought the domain name UberCab.com.
- The world's largest ridesharing company, Uber Technologies, was founded in 2009 and quickly grew to become the world's most valuable startup.
- In 2017, Uber's corporate culture was outed for being highly hostile, sexist, and offensive, resulting in a company-wide investigation. CEO Travis Kalanick was forced to resign, along with more than 20 employees.
- Uber's IPO was one of the most highly-anticipated of the year, and the company was valued as high as $120 billion by Wall Street investors. The company went public on May 9, 2019, but fell flat: Uber made history with the biggest first-day dollar loss in U.S. history.
- Since, Uber has worked on becoming profitable and has completed some high-profile acquisitions of companies including Lime, JUMP Bikes, and Postmates. It sold its highly-anticipated self-driving car division in 2020.
UberCab: The Beginning
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, a GPS identified the location, and the cost was automatically charged to the card on the user account. The San Francisco-based startup quickly became one of the hottest companies and grew quickly. The first Uber ride was requested in 2010 and just two years later in 2011, Uber had already launched internationally in Paris, where the idea for Uber first took root.
Uber's Valuation: Funding Rounds
Uber's current market capitalization, as of Jan. 8, 2021.
First Five Years: 2009-2013
After starting in 2009 and launching its first ride in 2010, by October 2010, the company received its first major funding, a $1.25 million round led by First Round Capital. By then, Uber was already on the watchlist of many investors. 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 its offering by launching UberX, which provided a less expensive hybrid car as an alternative to black car service.
Additional Funding: 2014-Present
In July 2015, Uber became the most valuable startup in the world, valued at $51 billion after its funding rounds. In June 2016, Uber raised $3.5 billion from Saudi Arabia's Wealth Fund.
With Uber's rapid growth came many controversies that knocked down the firm's valuation from a lofty $70 billion to $48 billion in its Jan. 2018 funding round. On May 23, 2018, the company announced a new tender offer that would bump the company's value to $62 billion.
In April 2017, Uber opened up about its finances for the first time to Bloomberg and reported a global loss of $3.8 billion for 2016. This included losses from its China business, which it sold in 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%.
Earlier in 2018, Japanese conglomerate Softbank Group, along with a group of investors including Dragoneer Investment Group, successfully bid for 20% of Uber's stock at this lower valuation, a 30% discount of the last valuation figure. The deal reportedly gave Softbank 15% in the rideshare company while Uber got a powerful ally in Asia, and could help turn the tide for the company after a few very public missteps. The remaining 5% of shares reportedly went to other investors in the group. The year hasn't been all great, though, as a self-driving Uber vehicle was involved in a fatal crash. Additionally, on August 8, 2018, the New York City Council voted to put a pause on new licenses issued to ride-hailing services such as Uber and Lyft.
Uber IPO: Disappointing Feat
Uber's IPO made history as the biggest first-day dollar loss in IPO history in the United States. At one point, Uber was valued at $120 billion by Wall Street analysts, which would have made it the largest company ever to debut on the stock market. After its IPO, it was only valued at about $69 billion--only about half of its high-hopes IPO.
In 2020, Uber is struggling to become profitable, largely due to the decline in rides hailed during the coronavirus pandemic.
Uber Culture Controversy: Kalanick Out, Khosrowshahi In
2017 was a rough year for Uber. The troubles began in February when a former female Uber engineer ousted the company for its sexist culture in a 3,000-word blog post. It was alleged that Uber's corporate culture was highly hostile, sexist, and quite offensive to most people. The post quickly went viral and a number of high-level employees were let go or resigned for reasons relating to the allegations in the following months. Following the blog post, the board called for an internal investigation which became known as the "Holder Investigation" (it was lead by former Attorney General Eric Holder. The investigation resulted in 47 recommendations intended to improve the culture and work environment, and, according to Uber, the firing of more than 20 staff members.
In the following months, scandals seemed to haunt both the company and its CEO. Letters were released to the press which confirmed that sexist attitudes came from the top down — including from Kalanick himself. He was also caught on video arguing with an Uber driver about lowering fares, which did not strengthen his image in the public eye.
Simultaneously, Uber was being sued by Alphabet's (GOOGL), Waymo, claiming that a former employee of their's stole secrets relating to self-driving technology. That case was settled in early 2018. In addition to that, The New York Times revealed that Uber had used a feature that would allow it to operate in areas where it was illegal, resulting in a criminal investigation.
On June 21, 2017, Kalanick resigned after a shareholder revolt. After a little more than two months it was announced that Dara Khosrowshahi—then-CEO of Expedia (EXPE)—would take over. Khosrowshahi came to New York in 1978 with his parents to escape the Iranian revolution. He started his career in finance at an investment bank, and eventually became the CFO of IAC/InterActiveCorp (IAC), a position he held for seven years before becoming the CEO of Expedia. (Editor's note: Investopedia is an IAC owned company.) In 2020, Dara Khosrowshahi remains the CEO of Uber.
Uber's History of Legal and Policy Challenges
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 Obama's 2008 presidential campaign. Here, we chronicle some high-profile moments of Uber's challenges.
Uber's Cease-and-Desist Order
In October 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.
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 2013. More recently, Uber committed to capping surge pricing during several blizzards in New York City.
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. Uber lost its license to operate in London where the company has 40,000 registered drivers in October 2017. Transport for London (TfL) said Uber was unfit to hold a license, while Uber said the Mayor has caved to a few people who want to restrict consumer choice. On June 26, 2018, a London judge overturned the ban, effectively allowing Uber to operate under a 15-month license along with conditions.
Fair Pay and Driver Benefits
In New York, it surfaced that Uber had mistakenly charged drivers commission based on pre-tax earning as opposed 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 paying 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.
On June 13, 2017, a New York judge ruled that Uber drivers should be considered as employees as opposed to being independent contractors like the company had argued, at least in certain cases. This decision opens up for drivers to receive employee benefits, which would likely have a significant impact on the bottom line. In addition, an August 2018 restriction on licenses by the New York City Council is a blow for Uber and meant a pause on any new licenses for the ride-sharing service in the city for a 12-month period.
Meanwhile, California passed Proposition 22 during its November 2020 election, allowing companies like Uber to classify their workers as independent contractors in the gig economy, and not as full-time employees. The ballot measure is now the costliest in California history, with over $200 million spent in passing it.
Uber vs. Lyft Competition
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.
Uber's Acquisitions and Business Units
Uber has a merchant delivery program for food deliveries called Uber Eats. Uber also offers UberPool, which allows drivers to pick up multiple riders on one scheduled ride, which makes it a cheaper option compared to UberX and UberBlack. In 2017, the company in partnership with Barclays rolled out a co-branded rewards credit card in the U.S.
On July 9, 2018, it was announced Uber is investing in the electric scooter rental company, Lime, in collaboration with Alphabet Inc.'s Google Ventures (GOOG). Lime was founded in 2017 and has raised $467 million thus far. These lightweight scooters are available for rent all over cities, as customers leave them on the sidewalk for the next rider, making for a convenient and clean energy-based business model. The deal is part of a $335 million investment round, and the business is valued at $1.1 billion. Uber plans to promote Lime through its app and brand its own logo on the scooters. Uber made similar efforts with the startup JUMP Bikes before acquiring the business for reportedly close to $200 million in April 2018.
Another high-profile acquisition occurred in July 2020, when Uber announced that it was acquiring food delivery app Postmates for $2.65 billion in an all-stock deal. As the food delivery business continued to grow, including with Uber Eats, the acquisition was a strategic one in order to offset losses from the ridesharing portion of the business, which has been struggling especially during the pandemic. After the Postmates acquisition, Uber's stock hit an all-time high.
Uber Self Driving Cars
Like Google, Apple Inc. (AAPL), and Tesla Motors (TSLA), Uber was also a frontrunner in the future of driverless cars. However, the road for Uber was bumpy, starting with Alphabet Inc's (GOOG) Waymo suing Uber in 2018 for theft of its self-driving technology, which occurred the same year as the ousting of Uber's own founder and CEO. Uber hit perhaps its worst snag yet in March 2018, when a self-driving car fatally struck a pedestrian, causing the company to temporarily suspend all testing. In May 2018, Uber announced that it would halt its Arizona testing program but would conduct it elsewhere. In July 2018, Uber's self-driving cars made their return in Pittsburgh, but it was never the same.
In December 2020, it was announced that Uber would sell its autonomous vehicle business to Aurora Innovations, a startup in San Francisco that was started by the former head engineer of Waymo. Uber had invested more than $1 billion in the business at the time of the sale.
The Bottom Line
Uber is one of the most closely followed companies in the world, going down in history as once the world's most valuable startup that has disrupted the modern ridesharing and transportation industry as we know it. Though the COVID-19 has thrown a wrench in Uber's plans to become profitable, marking large losses in its ride-hailing business, the company's strategic investments in its food delivery arm Uber Eats as well as its recent California Proposition 22 win bode well for the company. Perhaps soon, time will tell if Khosrowshahi can lift Uber's valuation to its originally projected $120 billion.