Breaking up is hard to do

CLXXXV

Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.


Back in May, I said my relocation to London would involve picking up coverage of European efforts to regulate Big Tech. This week Oversharing is taking a detour from the sharing economy to talk about that.

It’s a good time for it. The EU recently appointed Danish politician Margrethe Vestager to an unprecedented second term as competition chief and also named her head of digital policy. Vestager made a name for herself during her first term by bringing hefty fines against tech conglomerates, including a record €4.3 billion fine issued to Google in July 2018 for restrictions it imposed on Android device manufacturers and mobile network operators to protect its dominance in search.

In the US, the word we use to talk about regulating corporate bigness is antitrust. Here in Europe, the phrase is competition policy. The questions on both sides of the Atlantic are the same: How big is too big? Is tech different? If something must be done to rein in the tech giants and reanimate competition, then what?

I survey the history of monopolies, competition policy, and current probes into dominant tech platforms in the US and Europe this week in a series for Quartz, “Taming Big Tech.” The stories live on Quartz’s members site but I’m including bits of them here. I would also be an irresponsible employee if I didn’t encourage you to sign up for a Quartz membership, which you can get for 50% off, or $49.99 for the first year, with my code ALI0299. That’s, like, a week of Blue Apron, and a much better value.

Is Big Tech too big?

Big Tech is not just big, it is inescapable in modern life. The world’s five most valuable public companies are all American technology groups—Apple, Microsoft, Alphabet (neé Google), Amazon, and Facebook. They are collectively worth $4.6 trillion.

Technology moves fast, but even by its standards these tech giants emerged in a stunningly short period of time. Amazon was founded in 1994, Google in 1998, Facebook in 2004. It wasn’t that long ago that these behemoths were seen as the underdogs. Measured in human years, Google just this year became legally old enough to drink. Facebook doesn’t have a driver’s license yet.

There is now a growing global consensus that Big Tech is too big. Google today commands 73% of the US search ad market. Amazon controls roughly half of US e-commerce and 5% of all US retail sales. Amazon also holds nearly half of global public cloud services through AWS, and is carving out a sizable chunk of search. Facebook counts 2.2 billion daily active users across Facebook, Instagram, WhatsApp, and Messenger. That’s nearly 30% of the entire global population.

How did we get here?

In the beginning, American politicians viewed monopolies and unchecked private power as a threat not only to competition but also to democracy. But sometime in the mid-20th century, America lost touch with these principles. In their place emerged a new school of thought that held that monopolies weren’t bad in and of themselves; they were only bad if their control of an industry led to higher costs for consumers. This laissez-faire framework became known as the Chicago School of antitrust, and its singular focus on how monopolies affected consumers the “consumer welfare” standard.

The Chicago School of antitrust and its consumer welfare doctrine paved the way for Big Tech’s dominance. Google consolidated the ad market through acquisitions, most notably a $3.1 billion purchase of competitor DoubleClick in 2007 that the FTC deemed “unlikely to substantially lessen competition” after an eight-month investigation. “This acquisition poses no risk to competition and will benefit consumers,” Eric Schmidt, then Google’s CEO, said at the time. Amazon bought up e-commerce competitors, often after bleeding them dry with race-to-the-bottom pricing. It also resolutely lowered prices and preached the gospel of “customer obsession.”

What’s going on right now?

In Europe, led by competition chief Margrethe Vestager:

In the US, where antitrust has emerged as a rare issue with bipartisan support:

  • Fifty attorneys general from 48 states are investigating Google

  • …and 47 are investigating Facebook

  • The US Department of Justice is scrutinizing unnamed “market-leading online platforms” over whether they reduced competition, stifled innovation, or harmed consumers

  • The Federal Trade Commission is probing Facebook on antitrust grounds

  • The US House Judiciary Committee is investigating “competition in digital markets” and has sought information from Facebook, Amazon, Google, and Apple on matters including market share, competitors, pricing strategies and algorithms, correspondence related to acquisitions, and data collection

Also in the Quartz series:

ICYMI.

Thank you SoftBank for making my week with this chart.

Famously eccentric T-Mobile CEO and Adam Neumann hair twin John Legere is in talks to become CEO of WeWork.

T-Mobile shareholders didn’t like it.

Wait I fixed it.


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Send tips, comments, and breakup stories, antitrust or otherwise, to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

How to steal a billion

CLXXXIV

Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.

Oversharing was off last week while I was on vacation in Ireland, so this issue is a recap of the past few weeks. Also, I am at Web Summit through tomorrow, moderating some panels, dodging the overly enthusiastic badge scanners, and generally hanging around in a green media wristband (“VOID IF REMOVED OR TAMPERED WITH”). If you’re also here and want to meet up, get in touch on Twitter or email me at ali at qz dot com.


Parachuting.

I spent all vacation thinking about it and decided: Adam Neumann is a genius. Maybe an evil genius, probably a charlatan, undoubtedly the corporate villain of our lifetimes, but brilliant all the same. He saw an excess of capital in Silicon Valley and a raw, unsatisfied ambition in SoftBank’s Masayoshi Son and his $100 billion Vision Fund, and he mined it for all it was worth. Adam Neumann built an office-rental empire with spa water and beer-on-tap and talk of unlocking superpowers and elevating global consciousness. He did all this while swigging tequila shots, surfing with Laird Hamilton, surfing in the Maldives, and smoking weed on transatlantic flights.

When, in the end—or maybe the middle, the story isn’t over yet—it all came crashing down, Adam had already taken more than $700 million off the table. His final exit package, as WeWork prepared to cut thousands of jobs (delayed, because it couldn’t afford the severance costs) and took thousands of formaldehyde-contaminated phone booths out of service, included a $185 million “consulting contract.” SoftBank’s Marcelo Claure reportedly told WeWork employees that the firm needed to wrest control from Neumann, and doing so came at a price.

Yes, Adam Neumann lost his company, but in the final tally he is still winning. He played capitalism to its most absurd end, and drifted away with a golden parachute: an exit package worth more than $1 billion. SoftBank, on the other hand, plowed more than $9 billion into WeWork before the WePocalypse, when it was theoretically still valued at $47 billion, and will spend roughly another $10 billion bailing the beleaguered company out. That’s an investment of around $19 billion in a company that is now valued below $8 billion; an investment “bigger than the GDP of my country where I came from,” as Claure told WeWork employees. Masa Son is $6 billion poorer. A panel talk he gave last week in Riyadh was met by a nearly empty room. “We created a monster,” Son has reportedly said of WeWork.

At WeWork, meanwhile, executives have fled. Employee stock options are underwater, and their jobs in jeopardy. “Are there going to be layoffs? Yes. How many? I don’t know. It’s day one,” Claure said at the company’s all-hands meeting last month. “We’re going to make sure that they leave with dignity, that we’re taking proper care of them, and that we’re rewarding them for them having taken a chance on WeWork.” You know what’s better than dignity? An $185 million consulting fee.

Uber Eats.

People are worried about Uber Eats. By people I mean analysts, who barraged Uber CEO Dara Khosrowshahi and chief financial officer Nelson Chai with questions about the food delivery service during Uber’s third-quarter earnings call yesterday.

Uber reported $645 million in Eats revenue on $3.7 billion in bookings in the quarter ended Sept. 30, up from $394 million on $2.1 billion in the same period last year. That means Uber kept as revenue 17.6% of its Eats bookings, the best take rate the company has reported since the fourth quarter of last year, but not nearly as good as the roughly 18-20% share it booked for most of 2017 and 2018. Khosrowshahi said Uber is targeting overall EBITDA profitability for the full year 2021.

“Our strategy for Eats is simple,” Khosrowshahi said on the call. “Invest aggressively into markets where we’re confident we can establish or defend no. 1 or no. 2 position over the next 18 months.”

Uber pulled its Eats business from South Korea last month amid intense competition. The top food delivery app there is Woowa Brothers, which Reuters reported has a 75% market share. Chai said in his remarks to investors that Uber’s decision to exit South Korea “demonstrates our willingness to exit markets with low ROI.”

Chai said Eats is “adjusted EBITDA margin-positive” in nearly 100 cities, and that more than half of that adjusted margin loss comes from 15% of Eats gross bookings in hyper-competitive markets. “The Eats market will continue to be competitive as players have raised funds to invest in growth in this fast-growing category,” he said, likely alluding to the $225 million raised in September by competitor Postmates.

Analysts weren’t convinced. “We did see a kind of disappointing Eats in the quarter from a gross bookings basis,” said Oppenheimer’s Jason Helfstein. “Can you guys talk about how far off the U.S. business is from breakeven?” asked Barclays’s Ross Sandler. “Not to beat a dead horse here on Eats, but does profitability in 2021, the way you're defining it, requires profitability or at least breakeven in the Eats business by that date?” asked SunTrust Robinson Humphrey’s Youssef Squali. (It does not, Chai said.)

They are right to be worried. An August report from investment firm Cowen estimated Uber Eats lost $3.36 on every order and would continue to lose money until at least 2024. Uber has so far been unable to wean itself from heavy spending on incentive pay for drivers, which cost it $247 million in the latest quarter, up from $200 million a year earlier.

More problematically, it remains unclear how much the typical consumer is willing to pay for food delivery, which is still something of a luxury service. A June 2016 report from Morgan Stanley found that 71% of people said they would spend no more than $5, excluding tip, for a $30 order of food that was “guaranteed to be delivered fast.” Fifteen percent said they refused to pay delivery fees at all.

“The Uber Nightmare Continues,” read the subject line of a research note from Dan Ives at Wedbush Securities, who graded Uber’s third quarter a “B-” and noted that Eats “remains a drag.” Is a nightmare really only a B-? Grade inflation, it has even hit analyst notes! As of early afternoon, Uber stock was down nearly 10% and trading below its all-time closing low of $28.87, which sounds more like a C- or D to me.

Cash positions.

Back in August, the Wall Street Journal highlighted Airbnb’s “strong cash position.” “Airbnb’s finances tell a different story than other initial public offerings from large technology companies,” the Journal wrote, contrasting Airbnb with cash-burning firms WeWork and Uber. The odd thing about the Journal article was that it never actually stated whether Airbnb itself was profitable, which, as I said at the time, made me think it probably wasn’t. Profitability is so rare among buzzy tech startups and so popular among public investors, based on the performance of this year’s tech IPOs, that you’d think any profitable startup would shout it from the rooftops.

Anyway, The Information got to the bottom of that:

Airbnb’s operating loss more than doubled in the first quarter to $306 million from the year-earlier period, previously undisclosed financial data shows, a result in part of a sharply increased investment in marketing. While that spending could bring in a lot of new business, prospective investors could be unnerved if subsequent quarters show similar losses. That could pose an issue for Airbnb, which is preparing to go public sometime next year.

The operating loss came as Airbnb raised sales and marketing spending to $367 million in the first quarter, up 58% from the same period a year ago. Airbnb also ramped spending in product development (up 51%) and operations and support (up 30%).

Airbnb last month announced its intent to go public in 2020, following pressure from employees to pursue an exit. Airbnb was founded in 2008, making it old for a ‘startup’ even by today’s standards of companies that stay private longer. Airbnb employees are anxious to see their paper gains turned into actual cash, a long-running source of tension at a company that promotes values like “create a world where anyone can belong.” Airbnb discussed private stock sales for employees as early as 2014, and again in 2016, in an effort to calm employees frustrated by the company’s apparent disinterest in going public. That tension has recently reached new heights, the New York Times reported last month, with some employees holding equity set to expire—aka, become worthless—in November 2020 and mid-2021. Airbnb CEO Brian Chesky has said the company has an “infinite time horizon,” a statement that seems unlikely to have reassured employees with equity on a finite time horizon.

Scooters!

Bird is still up to its old, Uber-like tricks:

Late on Oct. 7, the mayor of Luxembourg City received an email from U.S. startup Bird Rides Inc. saying it would roll out its service overnight. The next morning, dozens of electric scooters lined the pavements. Just over a week later, on Thursday, Bird was forced to pause its service.

“It was a cloak and dagger operation Monday night, without anyone having really been informed,” said Dany Frank, spokeswoman of the Luxembourg Transport Ministry. “The way in which it was done wasn’t great.”

Luxembourg mayor Lydie Polfer has reportedly rejected requests from seven scooter companies over the past two years, including one from Bird in June.

Uber pioneered the strategy of launching first, and asking for permission later (or never). It worked well in the US, carrying Uber to a dominant share of the ride-hail market, but proved less effective and burned far more bridges in Europe, where regulations are generally tighter and regulators less easily persuaded to abandon their existing rules in the name of ‘technology’ and ‘progress.’ Eventually, Uber learned from this. The company has been much more deliberate in its pursuit of micromobility services like bikes and scooters. Uber’s rollout of Jump electric bikes in London has been slow in part because Uber has carefully sought permission from local councils. (Jump e-bikes also recently landed in Rome and Rotterdam.) It is launching electric mopeds in Paris in partnership with French startup Cityscoot.

Bird founder Travis VanderZanden, himself an Uber alum, doesn’t seemed to have learned the same lessons, as the Luxembourg launch indicates. VanderZanden famously sent a LinkedIn message to alert the mayor of its hometown of Santa Monica to a broad deployment of scooters. “Anytime there’s new innovation there tends to be a gray area,” he told CNET in 2018. “Because of this gray area, there weren’t regulations that made sense specifically for us.”

Elsewhere in scooters, Lime could book an operating loss of more than $300 million this year on about $420 million in gross revenue, The Information reported, the cost of bad scooternomics:

The big loss in 2019 is largely due to significant expenses such as the depreciation of its scooters and how much it costs to run warehouses that repair and position the vehicles. The company has projected it would cut operating losses in half next year as the reliability of its scooters improves, while pushing gross revenue past $1 billion, according to the financial information.

Depreciation, or how long scooters last, is arguably the most important factor in calculating the profitability of scooter businesses. The early, off-the-shelf consumer hardware used by most scooter companies was poorly adapted to a shared model and broke down or wore out quickly. Scooter companies are now pursuing more durable designs with features like airless wheels, improved suspension, and swappable batteries. Berlin-based Tier mobility, for instance, just launched scooters with swappable batteries and is selling refurbished scooters from its current fleet to private customers in Germany for €699.

The trouble is that designing new scooters and optimizing operations takes cash and time, and companies like Lime have to keep the service running with the best hardware and systems they have in the meantime. Lime raised $310 million early this year at a $2.4 billion valuation. The Information reported it has spoken with investors about raising another $500 million at a slightly higher valuation, after burning roughly $200 million in the first seven months of the year.

At Micromobility Europe last month, I chatted with Wayne Ting, global head of ops and strategy at Lime, and formerly of Uber, about whether there is such a thing as too much capital, and if it’s always good to raise money. “I think the good thing about capital is that it allows companies who may need time, and experience, and just know-how to get good. It allows them that runway, so that they can ultimately become a profitable business,” he said. “But when we have too much capital, you actually take away the discipline that ultimately makes a good business.”

I’ll be talking with Lime co-founder and CEO Brad Bao in a “fireside chat” at Web Summit tomorrow if you are here and want to swing by.

Other stuff.

Uber’s Quest to Become the West’s First Super-App. House transport chair blasts Uber, Lyft for skipping congressional hearing. Airbnb probed by UK tax authorities. UK opens formal probe of Amazon-Deliveroo deal. Uber expands financial services push with Uber Money division. Yandex in talks for IPO. Ola bets on cloud kitchens. Zoox raises $200 million for self-driving cars. Marseille first major European city to limit e-scooter licenses. Uber tests ‘surge pricing’ for scooters. Los Angeles suspends Uber’s bike, scooter permits. Uber threatens to sue Los Angeles over data-sharing requirements. BlaBlaCar eyes commutes. Grab integrates with Booking.com. Lyft launches new, cheap subscription. Vacasa buys Wyndham Vacation Rentals for $166 million. Fountain gets $23 million for gig hiring. Soho House raises $100 million, insists it’s not WeWork. Wag exploring a sale. Amazon makes grocery delivery free for Prime members. Vacasa raises $320 million at unicorn valuation. Just Eat board rejects hostile takeover offer from Naspers. Instacart shoppers protest tipping policy. Why fleet-based car-sharing doesn’t work. What it’s like to work on Lime’s overnight scooter retrieval team. How progressive is the Wing, really? Bay Area Uniqlos sold out of Elizabeth Holmes costumes. What we can learn from natural short sleepers.

And a correction.

Last issue I said tenants at the new DoorDash Kitchens project will pay zero delivery fees through the end of this year. The $0 delivery fees is for customers, not tenants.


Thanks again for subscribing to Oversharing! If you, in the spirit of the sharing economy, would like to share this newsletter with a friend, you can forward it or suggest they sign up here.

Send tips, comments, and golden parachutes to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

We need more money, asap

CLXXXIII

Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.

A semi-regular reminder to please hit the ‘like’ button if you like this newsletter! It’s the small gray heart below the email header and just above the first paragraph, next to where it says ‘Public post’ (there’s also one at the bottom of the email). Oversharing runs on the community-adjusted spirit of readers like you.


We are pretty desperate.

WeWork could run out of cash as soon as next month, significantly faster than originally thought, if it doesn’t figure out some way to raise more money. It reportedly has two financing options on the table. The first is a JPMorgan-led debt package that, per Bloomberg, would be “one of the riskiest junk-debt offerings in recent years”:

A roughly $5 billion financing package led by JPMorgan Chase & Co. is the company’s preferred option, rather than selling a controlling stake in itself to SoftBank Group Corp., according to people with knowledge of the matter. The structure and terms under discussion may change depending on investor appetite. Notably, the financing may include at least $2 billion of unsecured payment-in-kind notes with an unusually hefty 15% coupon, one person said. The deal may give the venture’s top private shareholders a final chance to avoid having their stakes severely diluted…

…JPMorgan’s bankers are discreetly sounding out investors and floating potential terms for the package of debt, which could help the unprofitable startup avoid running out of money as soon as next month. The financing relies on WeWork’s largest shareholder, SoftBank, following through with a plan outlined in a regulatory filing to contribute at least $1.5 billion in funding next year, according to one of the people, who asked not to be named discussing confidential talks.

So, yeah! Option One. Option Two is a SoftBank financing package that would give SoftBank control of the company, further strip Adam Neumann of voting power, and potentially push We’s valuation below $10 billion. Obviously it is not ideal but for SoftBank it also may not be… the worst outcome? Recall that SoftBank was in talks late last year to take a majority stake in WeWork with a planned $16 billion investment at a roughly $22 billion valuation and, I’d guess, far fewer concessions around voting power. SoftBank ultimately scrapped that plan over pushback from investors in what now looks like Masa Son’s best decision of the year. Now SoftBank is once again contemplating an effective buyout of WeWork but at a fraction of the price. A late-breaking Option Three is reportedly for SoftBank to provide around $5 billion in financing to WeWork through a mix of debt and equity, but not take a majority stake.

Oh also the phone booths:

WeWork, the cash-strapped office-sharing company, has a new problem that may prove costly. It has closed about 2,300 phone booths at some of its 223 sites in the United States and Canada after it says it discovered elevated levels of formaldehyde.

The company said in an email to its tenants on Monday that the chemical could pose a cancer-risk if there is long-term exposure.

That’s right, WeWork is literally a toxic asset. (Maybe it needs a spiritual cleanse?) The company could lay off at least 2,000 people, roughly 13% of staff, as soon as this week. WeGrow is closing, abandoning about a hundred children on their burgeoning quests to unleash superpowers. Despite cashing out at least $700 million of his own shares before it all blew up, Adam Neumann has lost his billionaire status. Employees are so mad at Adam they are making memes of him.

“The atmosphere is toxic,” says an anonymous worker, who presumably meant the corporate climate but may also have been speaking from a phone booth.

Walled gardens.

Lyft is tussling with Canadian trip-planning app Transit over access to its bike rental programs. Lyft last year bought Motivate, the operator of popular US urban bike-share programs including Citi Bike in New York, Ford GoBike in the Bay Area (now “Bay Wheels”), and Capital Bikeshare in Washington DC. Lyft, like Uber, harbors ambitions of becoming a one-stop transportation app and this year has integrated these Motivate bike-share offerings into the main Lyft app.

The problem is there are lots of other apps, like Transit, that are also interested in becoming the go-to trip-planner and that have deals with service providers to pull in data from their platforms. Unlike Lyft or Uber, these trip-planning apps are in theory more neutral arbiters of your trip options (walking, public transit, car, bike, scooter, etc.) since they tend not to have a stake in any of the modes themselves.

So it was not a great look when Lyft abruptly cut Transit’s access to Citi Bike data:

At the time of the acquisition, Motivate and Transit had signed an agreement to allow users of the Transit app to unlock Citi Bike bikes, but the Lyft acquisition stalled its implementation. Then, in May 2019, Lyft celebrated the integration of Citi Bike into its core app. This was a big deal: Since the app integration, Citi Bike set several ridership records.

Transit eventually concluded Lyft had no interest in announcing the integration the company had negotiated with Motivate, so the company decided to do so unilaterally. On September 9, Transit turned on the Citi Bike API integration, which allowed data to flow between Transit and Citi Bike in a way that enabled users to unlock bikes from within the Transit app. But within three days Lyft terminated the API, disabling the feature. According to a Lyft spokesman, Transit’s move was “a violation of the terms of our agreement with them.” Now commuters can purchase a Citi Bike trip only on the Lyft or Citi Bike apps.

This wasn’t the first time Lyft took a protectionist stance on its bike-share contracts. In June, it sued San Francisco after the city invited competitors to apply for permits to operate dockless bike-share programs. Lyft has argued to me that single-operator contracts are preferable to competitive bike-share markets, which it says can lead to race-to-the bottom prices and unsustainable businesses, citing companies like Ofo and Mobike. But it’s also worth asking whether a quasi-public good like bike-share should be operated exclusively by a single for-profit company. (“Instead of making bikeshare more interoperable, Lyft purchased Motivate to make bikeshare inoperable,” Transit declared last month.)

In July, a month after Lyft sued San Francisco, the company pulled its entire fleet of hot pink e-bikes there after some caught fire while in use. The e-bikes hadn’t been restored by late September, prompting San Francisco’s local transit authority to threaten to revoke Lyft’s e-bike permit over its failure to provide the service. (Threats, they go both ways!) The transit agency gave Lyft until Oct. 15—yesterday—to get at least half of its e-bike fleet back on the road. Lyft said in an email today that it didn’t meet the Oct. 15 deadline and that it is “doing everything we can to return ebikes to service for our riders, and at the same time having conversations with SFMTA about our continued long-term investment in bikeshare in San Francisco.”

Contingent liabilities.

Uber has a big problem in London. Actually, three.

The first is that it got only a two-month license extension from Transport for London, the local taxi operator.

The second is that the employment status of its UK drivers remains unresolved. A series of court rulings deemed them “workers,” a third category that exists in the UK with rights between those of an independent contractor and a regular employee. The latest decision finding those drivers workers who qualify for rights like minimum wage and paid time off came from the Court of Appeal in December 2018. Uber has appealed to the UK Supreme Court.

The third problem is that Uber could end up owing a very nasty tax bill. In the full accounts for Uber London Limited filed last week and spotted by Izabella Kaminska at FT Alphaville, Uber said in a note on “contingent liabilities” that it “is involved in an ongoing dialog with HMRC, which is seeking to classify the Uber Group as a transportation provider,” a change that would “result in a VAT (20%) on Gross Bookings or on the service fee that the Company charges Drivers, both retroactively and prospectively.” (HMRC, short for Her Majesty’s Revenue and Customs, is the UK department that handles most taxes, some benefits, and enforcement of the minimum wage, sort of like a sprawling IRS.)

The tax thing is a Big Deal. In many countries outside the US, Uber has kept rides cheap in part by skirting local taxes on goods and services. Uber avoids VAT in the UK by defining itself as a technology platform that facilitates exchanges between consumers and suppliers, rather than a direct provider of goods and services. That shifts responsibility for paying VAT to the suppliers (in Uber’s case, its drivers) who obviously generate much less revenue and often don’t meet the threshold for having to pay VAT at all. One estimate puts Uber’s unpaid VAT at over £1 billion. (“We can't comment on any discussions with HMRC but we will always fulfil the tax obligations in any country in which we operate,” Uber told FT Alphaville.)

Uber’s tax situation, in other words, is directly linked to the employment status of its drivers. If Uber drivers are found, definitively, to be workers and not contractors, then Uber would be an employer and its revenues likely subject to VAT. Uber said as much in its IPO filing: “Losing the [employment] case may lead the UK tax regulator (HMRC) to classify us as a transportation provider, requiring us to pay VAT (20%) on Gross Bookings both retroactively and prospectively.” Not to mention all the other headaches that classifying drivers as workers would cause it.

Short order.

DoorDash is getting into the shared/cloud/ghost kitchens business with a commissary in Redwood City, California:

The company's first DoorDash Kitchens location in Redwood City, Calif., provides cooking space for Nations Giant Hamburgers, Rooster & Rice, Humphry Slocombe, and The Halal Guys. The kitchen also allows the restaurants the ability to offer food delivery to seven Bay Area cities and, pickup to 13 cities.

…At DoorDash Kitchens, up to five restaurants 400 to 600 square-feet of kitchen space, plus shared storage room. DoorDash collects monthly rent from its tenant restaurants, while the restaurants expand without the overhead of opening their own kitchens. DoorDash handles the infrastructure, maintenance, marketing, and delivery from each its kitchens.

Shared/cloud/ghost kitchens—can we just call them rental kitchens?—are currently the hottest thing in food delivery. Deliveroo has them, Uber is experimenting with them, and ousted Uber co-founder Travis Kalanick is building his next act, CloudKitchens, around them. The basic idea is that rental kitchens help restaurants expand without launching a costly second new location, or allow them to experiment with hyper-specific delivery-only concepts, like a fast-casual restaurant that offers delivery-only specialty milkshakes. Tenants at DoorDash Kitchens will reportedly pay zero delivery fees through the end of this year.

This time last year.

Ok Silicon Valley, you can save the world now

Other stuff.

Silicon Valley wants to make a profit. Tech unicorn hangover gives Wall Street a headache. WeWork barrels ahead with new locations. FTC’s top antitrust official steps down amid tech probes. Revel raises $28 million for electric mopeds. Uber launches mopeds in Paris. Wheels raises $50 million for pedal-less e-bikes. SFMTA approves major bike lanes project. SF adds scooters. Uber starts boat taxis in Lagos. Goldman Sachs haunted by Uber, WeWork holdings. Uber Eats partners with Burger King. Uber buys Latin American grocery delivery service Cornershop. Walmart expands Cornershop deal in Canada. FreshDirect up for sale. Gig economy HR app raises $11 million. Deliveroo sets up worker-advisory panel. Uber diversity chief says it’s achieved pay equity. Airbnb investigating alleged racist host in Spain. Uber lays off 350 more employees. Los Angeles Airbnb hosts fear looming crack down. Rented.com partners with Hostfully. Instacart shoppers plan protest. Inpax lays off 700+ workers after losing Amazon contract. US transportation chairman warns Uber, Lyft against missing hearing. Play CEO with this FT game. Judgement comes for fintech unicorns. The ‘Glass Floor’ Is Keeping America’s Rich Idiots at the Top.


Thanks again for subscribing to Oversharing! If you, in the spirit of the sharing economy, would like to share this newsletter with a friend, you can forward it or suggest they sign up here.

Send tips, comments, and WeWork memes to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

Blame it on the IPO

CLXXXII

Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.


IPOs.

Unicorns have lost their luster. As of yesterday, Uber was down 35% from its IPO price, Lyft down 47%, Jumia down 48%, and Peloton down 17%. WeWork, unable to sell the public on the energy of We, yanked its IPO, pushed out its CEO, put his jet up for sale, is offloading its side businesses, and plans to lay off hundreds to thousands of workers. Postmates, a food-delivery unicorn, delayed the IPO it had planned to kick off in September, telling TechCrunch at a recent conference that the markets “are a little choppy when it comes to growth companies specifically.”

Silicon Valley wants someone to blame. SoftBank, the Japanese conglomerate that pumped more than $10 billion into WeWork and also took a hefty stake in Uber, is a popular target. So are the public markets, investment banks (JPMorgan told WeWork the company could be worth $46 billion to $63 billion; Goldman Sachs and Morgan Stanley pitched Uber $120 billion), and the IPO process itself. Earlier this month, venture capitalists convened in Silicon Valley to discuss alternatives to the IPO, like direct listings that can be priced and underwritten by algorithms. Investment bankers were largely uninvited.

Less discussed has been that blame might lie with Silicon Valley itself. Many of the investors pointing the finger at SoftBank, for instance, backed the same founders, participated in the same funding rounds, and looked the other way at early signs of misconduct. Private investors ready to ditch the IPO also don’t seem terribly interested in talking about how the companies that have tanked in the public markets overwhelmingly lose lots of money. Silicon Valley is the victim of its own narrative, rather than a culpable actor in it.

The same logic was on display in how Postmates framed its decision to delay the IPO it filed confidentially for in February. CEO Bastian Lehmann told TechCrunch that whether the company might still list in 2019 “depends more on the macro than it depends on our readiness.” But he declined to answer a question about when Postmates might be profitable, saying, “We internally believe that profitability is a managed outcome.” (Postmates has promised to turn a profit in 2016, 2017, and 2018.)

In a rare display of public humility, SoftBank CEO Masayoshi Son reportedly told Nikkei Business magazine he was “embarrassed and flustered” by his track record. SoftBank is struggling to find investors to back a second massive tech fund (the Vision Fund 2) after the debacle with WeWork and underperformance of its sizable Uber bet. The sole large commitment to the new fund, which aims to raise $108 billion, is $38 billion pledged by SoftBank Group itself. But even Son has been chastened only so much. “Companies like WeWork and Uber are criticized for being in the red, but in 10 years they’ll be making substantial profits,” he said.

We used to work.

How are We doing these days, anyway?

There is a lot of good reading on WeWork, but if you can only get to one I recommend this postmortem from Reeves Wiedeman at New York magazine (and the profile of We he wrote a couple months earlier). It reveals, among other things, that Adam Neumann doesn’t know the difference between Toronto and Montreal, that newly appointed co-CEO Artie Minson has a delightfully dry sense of humor, and that the photo of Neumann wandering shoeless around Gramercy Park was actually taken before his ouster, though its poster originally claimed to have spotted him that morning. (“Adam grew up on a kibbutz and likes to walk barefoot,” an unnamed spokesperson told New York mag, of the photo. “He is a kibbutznik. Should we ask him to stop?”)

Fare play.

The ride-hail minimum wage is gaining momentum, with Los Angeles city council president Herb Wesson proposing this week that Uber and Lyft drivers earn at least $30 an hour:

"The flexibility that a ridesharing gig provides should not serve as an excuse for short-changing these drivers," Wesson said. "Earning less than $10 per hour in Los Angeles simply won't cut it. If these companies want to operate in Los Angeles, they need to compensate their workers fairly."

Wesson's proposal would require the companies to pay drivers a $15 an hour wage, along with $15 an hour for operating expenses like gas, insurance and basic wear-and-tear on a driver's vehicle.

New York City was the first to pass a wage floor for ride-hail drivers, who as independent contractors aren’t protected by local, state, or federal wage laws. In New York, drivers earn a minimum of $17.22 an hour, a figure designed to represent the local $15 hourly minimum plus expense reimbursement. Seattle is considering a similar plan, with mayor Jenny Durkan recently calling for Uber and Lyft drivers to earn the $16 local hourly minimum plus a to-be-determined allowance for benefits and expenses by July 2020.

Wesson’s proposal so far lacks the rigor of New York’s model, which was developed by economists James Parrott and Michael Reich. Los Angeles is a different city with different considerations, but $15 an hour for operating expenses feels like a large and suspiciously round number. New York’s $17.22 figure, by contrast, is based on a formula for paying drivers that builds in expense reimbursement and adjusts by utilization, or the share of every hour that a driver is working rather than waiting for a fare. By accounting for utilization, the formula imposes a natural cap on the number of drivers companies like Uber put on the road. Oversupplying drivers lowers the utilization rate, which, per the formula, increases the wage cost to the company.

Scooters!

I was at Micromobility Europe in Berlin last week and as expected scooters were everywhere:

My panel was “Capital in Micromobility,” a fancy way for saying investment in light, often electric, vehicles like bikes, scooters, and skateboards. We talked about if the scooter space is overvalued (“I think there was too much capital too early in the space,” said Martin Mignot, a partner at Index Ventures, which has invested in Bird) and whether there’s such a thing as too much capital for a company (“Too much money actually is probably what kills companies,” said Kevin Talbot, managing partner at Relay Ventures, another Bird investor. “Constrained capital provides discipline to the team”). A few days later, Bird raised $275 million at a $2.5 billion valuation and Berlin-based Tier Mobility announced $60 million in funding at an undisclosed valuation.

Meanwhile, over in Munich, hundreds of people reportedly lost their driver’s licenses after riding electric scooters while drunk at Oktoberfest. E-scooters, which were legalized in Germany in June, are classified as motorized vehicles, meaning rules about operating under the influence apply to scooter riders. Of 414 people caught riding an e-scooter under the influence, 254 lost their licenses, according to police.

This time last year.

Waymo's self-driving car operator fell asleep at the wheel

Other stuff.

Morgan Stanley, Goldman Sachs to lead 2020 Airbnb listing. Waymo testing driverless cars in Los Angeles. Fully driverless Waymo cars coming to Phoenix suburbs. Austin delivery startup Fetch raises $10.5 million. Uber CEO says business is ‘absolutely sustainable.’ Driver working 60-hour weeks for Uber is still homeless. Car2Go exiting five North American cities. Google pushing its own vacation rentals business in search. ‘How much is your privacy worth’ is the wrong question. Naspers CEO on SoftBank comparisons. Airbnb paid less than £400,000 in UK tax on £300 million in sales in 2018. LAX to ban Uber, Lyft, and taxi curbside pickups. DoorDash driver dies after being shot while on delivery. DoorDash sued over massive data breach. Instacart shakes off loss of Whole Foods. Oyo raises $1.5 billion at $10 billion valuation. Uber warns tax hikes could wreck UK business. PayPal writes down $228 million on investments thanks to Uber. Insurer James River cuts ties with Uber’s commercial auto business. Lyft adds driver rewards. Milton Keynes wants scooters. Sting Operations Help Startups Crack Down on Stolen Scooters. Florida man who hates electric scooters cuts brakes on 140 of them. The $1 billion fund that wasn’t what it seemed. Everything Is Private Equity Now. Dear Instacart Customers. A British Person Explains the WAG Wars.


Thanks again for subscribing to Oversharing! If you, in the spirit of the sharing economy, would like to share this newsletter with a friend, you can forward it or suggest they sign up here.

Send tips, comments, and kibbutzniks to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

Woe is We

CLXXXI

Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last week, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.

I’ll be in Berlin next week for the Micromobility Europe conference on Oct. 1. If you want to meet up, or just have great Berlin recs, send me an email (ali@qz.com) or get in touch on Twitter, my DMs are open.


Travis 2.0.

Adam Neumann almost got away with it.

For years, he convinced private investors that WeWork, a company that leases space from landlords, renovates it, slices it up into offices, and rents them out at a premium, was worth more than every other office-rental company. It was Neumann’s charisma, conviction, and unfettered ambition—he has spoken about WeWork Mars, running for president of the world, and becoming the first trillionaire—that built WeWork into one of the world’s most valuable startups, with operations spanning 111 cities in 29 countries, and that garnered more than $10 billion from its most enthusiastic investor, Softbank.

Then, in August, WeWork filed for an initial public offering, and in doing so exposed the curious and troubling inner workings of the company, which rebranded earlier this year as The We Company, or We.

Some, like the $900 million WeWork lost in the first half of 2019 and the outsized control co-founder Neumann wielded, were par for the course for a buzzy private technology company these days. Others, like rampant self-dealing—Neumann owned several properties he leased back to the company, received personal loans and a credit line secured by his WeWork stock, and sold the trademark to “We” to the company for $5.9 million when it rebranded—shocked even jaded startup observers.

Then there was Neumann’s very un-CEO-like conduct: smoking marijuana on a transatlantic private jet flight, handing out trays of tequila shots after mass layoffs, and making impulsive, sweeping decisions, like a company-wide ban on meat, with little to no rationale.

Last week, WeWork shelved its IPO after reports that the company’s valuation could fall as low as $10 billion, a drastic plunge from its last private valuation of $47 billion. But the drama peaked yesterday, when WeWork said Neumann was stepping down as CEO, effective immediately. Neumann will stay on as non-executive chairman of the board, while two top internal executives—Artie Minson and Sebastian Gunningham—become co-CEOs.

Neumann has lost more than a title. The Wall Street Journal reported he is also ceding majority control of the company, with his voting power slashed to 3 votes per share, down from 10. (His voting rights were previously reduced to 10 votes per share from 20 in WeWork’s initial IPO filing.) He has lost the backing of Softbank, which in the end turned on him faster than Littlefinger betrayed Ned Stark. He may even have lost a $500 million line of credit, provided by the banks underwriting WeWork’s IPO and secured by his own shares.

The stunning rise and fall of Neumann echoes the trajectory of Travis Kalanick, the brash Uber co-founder who built a multibillion-dollar company and then was pushed out by his board in 2017, amid multiple sexual harassment scandals and federal probes into the company’s conduct. Once the full extent of mismanagement at Uber and WeWork became clear, investors and the public were quick to turn against both Kalanick and Neumann. But before it all came out—the scandals, the self-dealing, the wildly inappropriate conduct—those same investors embraced the co-founders for their vision and audacity.

Arrogance, ambition, blatant disregard for the rules, a fondness for “pissing people off”—these things cost Kalanick his job. They also made Uber great. Boldness, grandiosity, zeal, and ambition bordering on megalomania convinced many people to invest in Neumann’s WeWork, and also, eventually, that he had to be removed from it.

Venture capitalists, the gatekeepers to success in Silicon Valley, often talk about investing in people not ideas. In recent years, as financing has flowed to a select group of startups in ever-bigger rounds at ever-greater valuations, the cult of the founder has grown as well. More power, more money, more unshakeable certainty in their own right to total control over their company. WeWork is the logical endpoint of this: Silicon Valley’s great unicorn bubble. Neumann’s wildest ambitions found a fellow traveler at Softbank, whose enigmatic CEO Masayoshi Son showered him with cash and told him to make WeWork “ten times bigger than your original plan.” (Yes, WeWork is based in New York, but it is infused with the Silicon Valley ethos, and backed by many of the same investors.)

Neumann became inseparable from WeWork, not only in his financial dealings with the company but in the minds of his investors and himself. “WeWork is me, I am WeWork,” he said in May. WeWork said the same in its IPO filing, albeit in more restrained, lawyerly language. “Our future success depends in large part on the continued service of Adam Neumann, our Co-Founder and Chief Executive Officer, which cannot be ensured or guaranteed,” the company wrote. “Adam has been key to setting our vision, strategic direction and execution priorities… If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.”

As I said before: Whatever you think of Neumann’s conduct—savvy salesmanship, inspiring bravado, tone-deaf ignorance, blind faith—it makes perfect sense in a world where WeWork is me, I am WeWork. In the system set up by Silicon Valley and reinforced by its most powerful investors, Neumann and WeWork were the ultimate synergy, mysteriously increasing each other’s value. Neumann set the vision, collected the checks, preached the gospel. He went to great lengths to arrange things—power, money, connections—in his own favor. And why wouldn’t he? There were no barriers to his behavior, or interest in setting them up. So long as the company grew and its valuation rose, he was winning.

Fare share.

New York City was the first city in the world to set a pay floor for ride-hail drivers; Seattle could be the second. Seattle mayor Jenny Durkan last week unveiled an aptly named “Fare Share” plan to have Uber and Lyft drivers earn the local $16 hourly minimum wage, plus benefits and expenses, by July 1, 2020.

Seattle is drawing inspiration from New York City and the work done by economists James Parrott and Michael Reich. A report (pdf) commissioned last year by New York City’s taxi regulator found 85% of drivers earned less than $17.22 an hour, a figure designed to represent the local $15 hourly minimum plus expense reimbursement. The report also concluded that “for the 60 percent-plus of all New York City drivers who are full-time drivers—and who provide 80 percent of all rides—work hours are not flexible.” So much for that!

The Parrott-Reich solution was simple and elegant. It created a formula for paying drivers that builds in expense reimbursement and adjusts by utilization, or the share of every hour that a driver is working rather than waiting for a fare. By accounting for utilization, the formula also imposed a natural cap on the number of drivers companies like Uber put on the road. Oversupplying drivers lowers the utilization rate, which, per the formula, increases the wage cost to the company. People at Uber admitted in private that the solution was so clever, it was hard to fight.

New York has since muddied the waters. In August, and at the urging of mayor Bill de Blasio—who has always seemed more interested in running for president and punishing Uber for publicly humiliating him with DE BLASIO MODE in 2015 than, say, being mayor, crafting smart transit policy, or fixing the subway—the city extended a hard cap on for-hire vehicles (arguably unnecessary, because the Parrott-Reich formula did the same thing in a dynamic manner) and enacted a new cap on cruising time (ditto).

Like De Blasio, the new policies are impressively unpopular. They are unpopular with drivers, who say a vehicle cap exposes them to predatory auto lenders. They are unpopular with ride-hail companies, for obvious reasons. Uber and Lyft have started locking drivers out of their apps during periods of low demand, to the outrage and protests of drivers. Uber last week sued the city over the cruising cap, which it called an “arbitrary rule” with a “flawed economic model.”

Anyway, back in Seattle, Durkan wants to conduct an independent study of hourly work and expenses for Uber and Lyft drivers, completed by March 31, 2020, to figure out the best benefits and expense reimbursement scheme. Her proposal also includes a $0.51 per ride charge on Uber and Lyft to fund local housing and transit projects, and a “resolution center” for ride-hail drivers.

Whether the pay model designed for New York City would translate to Seattle is an open question. New York is a tightly regulated market where the vast majority of ride-hail drivers are immigrants who work full time, and many buy or lease a car just to start working. That makes it the exception, not the norm, for the ride-hail market, whose drivers typically already own their vehicles and work part-time hours. Seattle is also significantly less dense than New York City, making a utilization approach harder from a practical standpoint. Seattle has six months to figure it out.

Golden handcuffs.

Imagine you took a job at a tech startup and got paid mostly in equity, and then against all odds that startup became successful and a Big Deal and you realized that one day your equity would be worth a lot and you would be Very Rich. And so you waited loyally, while the startup became more famous and more successful, for the day it would head to the public markets and you could cash out. But then years went by and the startup didn’t go public, and you started to wonder if it ever would, and then you realized maybe the startup was serious when it said it had an “infinite time horizon,” even though your equity had a very finite time horizon and was set to expire in less than a year. You might panic. Or write a strongly worded letter:

Last summer, several Airbnb employees wrote a letter to the online room-rental start-up’s founders.

On behalf of more than a dozen employees, they pleaded to be able to sell their Airbnb stock options. Because Airbnb is privately held, its shares cannot be easily traded or cashed in. So the employees also asked that the company go public, a move that would let them freely sell their shares, said five people who saw or were briefed on the document and were not authorized to speak publicly…

…The discontent has been exacerbated because Airbnb, which has been valued at $31 billion, doled out two tranches of employee equity that are set to start expiring in November 2020 and in mid-2021; those shares will become worthless if the company is not trading publicly by then, they said.

Part of the problem for paper-rich Airbnb employees with stock options is the taxes they have to pay when they exercise their shares. Gabriel Cole, a former employee in Airbnb’s food department, told the New York Times he spent his life savings on buying his stock after leaving Airbnb in 2015, which came with a $180,000 tax bill. Uber had a similar problem, with employees taking on debt to hang onto shares they couldn’t actually sell until the company went public. Airbnb said in a single-sentence press release on Sept. 19 that it intends to go public in 2020.

Celeb cravings.

Celebrity-favorite Postmates raised $225 million at a $2.4 billion valuation to, I guess, keep the lights on ahead of an IPO rumored to be “imminent.” Postmates has now raised nearly $1 billion to date to deliver insane amounts of food to the likes of Post Malone ($8,000 worth of Popeyes biscuits at Coachella), John Legend ($700 worth of sushi), and Kylie Jenner (more than $10,000 in total orders, including a bottle of Don Julio Añejo 1942 Tequila—also a favorite of Adam Neumann—and an order with just a bottle of Smartwater and a single carrot).

Postmates has leaned into the celebrity strategy. It has a YouTube series with Martha Stewart and pays influencers like Jenner to share their orders. But, as Forbes put it, Postmates “needs to win over everyone else.” The company has just four business days left in September to make good on its reported plan to unveil its IPO filing this month. The filing should shine more light on Postmates’ financials, including whether it has ever turned a profit. I would love if it also included some good celebrity-adjusted financial metrics, like EBAJ (earnings before all Jenners).

This time last year.

Airbnb wants hosts to get equity

Economists figured out the best way for Uber to say sorry (I forgot last week)

Other stuff.

WeWork austerity plans. Why WeWork Needs Cash. Artie Minson: WeWork’s Numbers Man. Softbank pressuring execs to take on loans to invest in Vision Fund. Inside Softbank’s CEO-fest. Background-check startup Checkr valued at $2.2 billion. Clutter buys The Storage Fox to expand on-demand storage platform. Kitchen United raises $40 million for ghost kitchen network. Kapten wants to dethrone Uber in London. Travis Kalanick invested in Indian shared kitchens company. Lyft launches redesigned dockless scooters in San Diego. Lime and Bird pull scooters from downtown Phoenix. Scooter injuries pile up in Santa Monica. Uber, but for organizing ride-hail drivers. Uber gets two more months in London. Oyo turns to AI for vacation rentals. Google contractors vote to unionize in Pittsburgh. Blackstone’s new growth equity fund is open for business. Why I’m Deleting Delivery Apps From My Phone. What if Uber isn’t a tech company?


Thanks again for subscribing to Oversharing! If you, in the spirit of the sharing economy, would like to share this newsletter with a friend, you can forward it or suggest they sign up here.

Send tips, comments, and We woes to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

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