Drivers protest Uber and Lyft ahead of their IPOs
Drivers protest Uber and Lyft ahead of their IPOs
CXLVIII
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 forgot to mention that earlier this month, March 14, was Oversharing’s birthday! It is now a terrible three-year-old. Happy birthday, Oversharing!
Deals.
Uber is buying Middle East rival Careem for $3.1 billion, with a combination of cash and debt. The company is paying $1.4 billion in cash and $1.7 billion in notes that convert at $55 a share, 12% higher than the $49-a-share investors paid in Uber’s September 2018 financing.
Careem co-founder and CEO Mudassir Sheikha will stay on to lead Careem, with Careem and Uber operating as independent brands. The deal solidifies Uber’s position in a region of some 400 million people—Careem’s major markets include Egypt, Jordan, Pakistan, Saudi Arabia, and the United Arab Emirates—and the home ofx one of its biggest backers, the Saudi Public Investment Fund, which gave Uber a previously unheard of $3.5 billion in 2016. The Saudi sovereign wealth fund is also the primary financier of Softbank’s Vision Fund, another major Uber investor. The deal is subject to regulatory approval in multiple countries, which isn’t expected before the first quarter of 2020.
Buying Careem is an important step for Uber, which has a history of ceding to its international rivals. In China, Uber sold its operations to Didi Chuxing in August 2016 in exchange for a 17.5% stake in the Chinese ride-hail company. In Russia, Uber sold to search giant Yandex, in a deal valued at $3.7 billion that gave Uber a 36.6% stake in the merged entity. In Southeast Asia, Uber sold to Grab in March 2018 in a deal that gave Uber a 27.5% stake in Grab and Khosrowshahi a seat on the company’s board. That deal received intense scrutiny from Singapore regulators, who deemed it anticompetitive and threatened to block it before issuing restrictions and minor fines to each company instead.
Each of these international mergers ended a costly battle in which warring ride-hail companies tried to best the other player first and foremost by outspending them. That was expensive for the companies but also for investors, some of whom, like Softbank, had stakes in both sides, and stood to benefit more from picking a winner than letting regional rivals continue bleeding each other dry.
Uber's situation in the Middle East wasn't any different. In both the second and third quarters of 2018, Uber pointed to the Middle East as an aggressive investment in statements to investors, and a reason for escalating losses. (Uber reported a net loss of $891 million in the second quarter last year and $1.1 billion in the third.) The competition was also costly for Careem, which had raised about $775 million, most recently $200 million from existing investors in October. At the World Economic Forum in Davos in January, the head of Kingdom Holding, Prince Alwaleed Bin Talal’s investment firm and one of Careem’s biggest investors, said the firm supported an Uber-Careem merger.
In a memo to staff sent out shortly before midnight PT on March 25, Uber CEO Dara Khosroswhahi said he’d gotten to know Careem co-founders Sheikha and Magnus Olsson. “They are first-class entrepreneurs who share our platform vision and, like us, have launched a wide range of products—from digital payments to food delivery—to serve customers,” he wrote.
Buying Careem should reassure investors that Uber won’t necessarily back out of every international market where it faces strong local competition. Khosrowshahi’s emphasis on “wide range of products” is also telling as Uber sells investors on its more-than-rides story ahead of an IPO. What is Uber these days, anyway? People like the phrase “end-to-end transportation platform,” because of Uber’s rides and bikes and flying cars, and then Eats and Freight, which transport not people but stuff. Uber also has its driverless cars effort, and an early-stage on-demand staffing business. I would call this “logistics,” but logistics isn’t a very sexy word, which is probably why we talk about “end-to-end transportation” instead. Uber on its about page says, “We ignite opportunity by setting the world in motion,” which is also a sexier way of saying you do logistics, I suppose.
Protests.
As Uber and Lyft prepare to cash in on their IPOs, drivers have renewed protests of the companies and their independent-contractor model. Last week, drivers gathered in a parking lot outside Los Angeles International Airport to protest rate changes by Uber that cut per-mile pay to 60 cents from 80 cents in greater Los Angeles. (Uber also increased per-minute rates and promotions, and said average driver earnings in LA would be roughly comparable to the pay scale it used in LA before September 2018.)
Meanwhile in San Francisco, drivers yesterday showed up at the Omni hotel, the planned site of an investor meeting for Lyft’s roadshow, only to find that no one was there. The meeting was reportedly moved to the Olympic Club because Lyft wanted a larger space. Drivers protested at the Omni anyway, decrying constant and unpredictable wage cuts they say make it hard to earn a living. “I equate it to a traditional employee being called into the office every 60 days and being told hey your wages are getting cut, click here or you’re fired,” Jeff Perry, a Lyft driver for almost three years, told Bloomberg.
In New York City, drivers are on edge after a Lyft driver died by suicide over the weekend, the ninth for-hire driver in the city to take his own life since late 2017. The driver’s death came after Lyft sued the city over the implementation of rules that set a higher floor for hourly ride-hail driver wages. “App companies are making investors rich by holding down wages to the point where drivers are killing themselves,” the Independent Drivers Guild, a driver advocacy group in New York, said in a statement.
Lyft and Uber have never had particularly good relations with their drivers. This is partly because a lot of people drive for Uber and Lyft, and everyone is never happy, and partly because ride-hail companies did a lot of things wrong on labor relations, like paying drivers well to join their services initially and then slashing pay once they were on board, or outright misleading them about how much they could earn. Of course, both companies have always maintained that they value their drivers, but saying it is one thing and paying a living wage is another. From the perspective of an Uber or Lyft, there also has never been much to distinguish one driver from another. Lyft’s drivers work for Uber and vice versa. Drivers are fungible.
Treating people as fungible turns out not to be a great way to endear yourself to them, nor does periodically cutting their pay. Uber co-founder and former CEO Travis Kalanick considered drivers an inconvenience that would eventually be replaced by automation, but the fully driverless future remains distant. The reality is that Uber wouldn’t have $14.1 billion in quarterly bookings, or Lyft $2.3 billion, without people being willing to provide rides to strangers in their cars through its app.
How do you suddenly make those people feel valued? Lyft is hoping a share program for drivers does the trick. The directed share program described in its S-1 (pp. 211-212) includes a “one-time cash bonus” of $1,000 for drivers in good standing with at least 10,000 rides, and $10,000 for drivers with at least 20,000 rides as of Feb. 25. It also says drivers in good standing with a minimum of 10,000 rides under their belt or who have served on the company’s “Driver Advisory Council” are eligible to purchase class A common stock in the IPO.
Is this as good as it sounds? A $1,000 bonus averaged over 10,000 rides is 10 cents a ride. $10,000 over 20,000 rides is better, at 50 cents a ride, but how likely is it that a driver qualifies for that? It would take two to four years of doing 120 to 150 rides a day, which Harry Campbell of the Rideshare Guy says is the high end of what a driver can complete in a city. Most drivers definitely aren’t doing that, as Lyft says in its S-1 that 91% of drivers spend fewer than 20 hours a week on its platform. The company doesn’t say how many have 20,000 rides, but I’m betting it’s not a lot.
Urban adventures.
Postmates is in the market for delivery workers. Its current Facebook ads feature a young, smiling white woman wearing a Postmates shirt and carrying a Postmates bag, with the caption “get paid while exploring your city.” This admittedly isn’t a new Postmates line—you can see it on Twitter in January 2018—but a friend sent it to me and we agreed it was ridiculous, so here I am sharing it with all of you.
Gig economy startups tell all sorts of half-truths about what gig economy work is like—see this classic piece by Jia Tolentino at the New Yorker. Postmates is in the same tradition. Get paid while exploring! Choose how you deliver! An urban adventure for the ages! I especially enjoy that the insulated bag the woman in the ad is carrying appears to be empty, which undoubtedly makes the job easier and the exploring more enjoyable.
Incidentally, if you look at all ads Postmates is currently running on Facebook, you can see the different rates they promise workers can “make up to,” presumably sorted by location, which range from $18 to $27 an hour. You can do the same thing for DoorDash, which is currently advertising slightly lower rates of up to $14 to $23 an hour and sticking with the more traditional “be your own boss” tagline. The couriers in their ads also actually appear to be carrying something in their insulated bags, a good sign for DoorDash customers.
Guerilla warfare.
Here is a story by Wired on Airbnb’s “guerrilla war” on local governments:
[W]hen Palm Beach County, Florida, a popular tourist destination, passed an ordinance in October 2018 requiring Airbnb and other short-term rental companies to collect and pay the county’s 6 percent occupancy tax on visits arranged through their sites, Airbnb sued.
Palm Beach County tax collector Anne Gannon wasn’t surprised. “We knew we were going to get sued,” she says. “That’s what they do all over the country. It’s their mode of operation.”
Airbnb for years practically demanded the right to pay taxes, which it saw as a way to curry favor with regulators and earn legitimacy as a business. The trouble was that Airbnb only wanted to pay a very specific type of tax, and wasn’t pleased when some cities passed legislation requiring it to pay other sorts of fees, like occupancy taxes. So the company fell back on its favorite tactic for dealing with cities, and sued.
Similar dramas are playing out around the country. From Nashville to New Orleans to Honolulu, Airbnb is battling local officials over requests to collect occupancy taxes and ensure that the properties listed on its site comply with zoning and safety rules. In the past five months alone, the company has spent nearly $1 million to overturn regulations in San Diego and has sued Boston, Miami, and Palm Beach County over local ordinances that require Airbnb to collect taxes or remove illegal listings. Elsewhere, Airbnb has fought city officials over regulations aimed at preventing homes from being transformed into de facto hotels and requests from tax authorities for more specific data about hosts and visits.
Airbnb’s $31 billion valuation is greater than the market cap of Hilton, and the company claims its six million listings worldwide outnumber the total rooms of the largest six hotel chains combined. It’s achieved that stupendous growth in part by dodging the rules and regulations that weigh down hotels, such as health, safety, and zoning rules, and yes, agreements around taxes.
Airbnb, unsurprisingly, doesn’t believe it should be responsible for collecting occupancy taxes typically required of hotels, or for complying with zoning and health regulations. The company leans heavily on its position as a “platform” connecting people who want to rent out a home or room to travelers looking for a place to stay, and argues the responsibility for collecting and remitting local taxes is on those hosts. And it’s not even that Airbnb is trying to avoid paying taxes. What the company is really refusing is to automate certain tax charges, so that the onus to collect them falls on it rather than the host.
You can easily get bogged down in the details, but the important point is that as Airbnb draws closer to an IPO, its legal status and relations with the cities it does business in remain, frankly, a mess.
Meanwhile in Quartz: What even is Airbnb anymore?
This time last year.
Oversharing took a break while I was in Singapore! Two years ago instead: A self-driving Uber crashes, Postmates cuts staff, and China’s Mobike pays its users to take rides
Other stuff.
Uber picks New York Stock Exchange for IPO. Lyft Tells Investors It Will Rein in Spending in 2020. Alan Krueger dead at 58. Tesla sues Zoox over alleged theft of trade secrets. Instacart cuts jobs at Whole Foods. UK Uber drivers sue over alleged breach of GDPR. Uber plans to expand trucking business to Europe. Indian Railways earns $3 million in parking charges from taxi apps. Why Airbnb might invest in India’s Oyo. Guesty raises $35 million for Airbnb property management. Glossier becomes a unicorn. Rent the Runway becomes a unicorn. Lidar startup Ouster raises $60 million. Chinese startup Tripalink raises $5 million for co-living in Los Angeles. Opendoor raises $300 million at $3.8 billion valuation. Blue Apron founder launches new food company. Handy secretly pushed Texas regulators to rewrite gig economy rules. California truck drivers could become employees under court ruling. Uber and Lyft push for congestion pricing over tax in Seattle. Meera Joshi distances herself from Bill de Blasio. Ford building new factory in Michigan for autonomous vehicles. Self-driving shuttle vans coming to the Brooklyn Navy Yard. After college scandal, prison consulting is booming. This guy rode an e-scooter as far from San Francisco as he could. Pinterest’s Pinterest. The Big Business of Living Forever.
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