The Uber-Waymo case is ancient history, Instacart raises $200 million, Airbnb touts Experiences

XCIV

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. This is issue ninety-four, published February 15, 2018, a few days late because I was busy running around San Francisco and discussing concepts like a personal Buxton Index.

All over now.

After all that, Waymo and Uber settled their trade secrets lawsuit early on Feb. 9. I was not in court for what was scheduled to be a dry and largely non-public day of witnesses, but apparently it was quite dramatic. Federal judge William Alsup, always punctual at 7:30am, still wasn't there at 7:48am. When Waymo's attorney announced the settlement, people gasped. "This case is ancient history," Alsup said.

The settlement was deemed a "surprise," "stunner" and "stunning turn," but I'd argue the real surprise was that the case ever got to trial in the first place. Uber, a private company that hates having its internal affairs dragged into public view, had every incentive to settle. Waymo wanted a lot of money and maybe some sort of wide-ranging injunction that would halt or at least hobble Uber's driverless car efforts. That is nice in theory, but an injunction of that sort seemed an unlikely outcome, and a lot of money is still not very much to Waymo's parent, Alphabet née Google.

My personal and totally unsubstantiated theory is that both Uber and Waymo wanted to see Travis Kalanick sweat it out a bit on the witness stand, with his dumb texts magnified on a projector screen, and after they'd kept him there for three hours were more amenable to a deal. A second theory is that Larry Page, a named potential witness, really didn't want to testify. A third and slightly more plausible, if less fun, theory is that the case wasn't going well for Waymo, which had so far failed to establish that its "trade secrets" were in fact trade secrets, much less to prove that Uber stole them for its unjust enrichment. It's possible Waymo planned to do this in closed-door sessions, but it's also possible it didn't really have a case.

The settlement is a slap on the wrist for Uber, if that. It's paying Waymo a 0.34% equity stake valued at its series G-1 round of about $72 billion. That is probably worth somewhere in the range of $150 million to $250 million, depending on a bunch of stuff, including how much you think Uber is actually worth. Uber has also agreed not to use Waymo's confidential information in its hardware or software.

"While we won’t agree on everything going forward, we agree that Uber’s acquisition of Otto could and should have been handled differently," says Dara Khosrowshahi, and indeed the new Uber CEO is the one who comes out looking best in all of this. The settlement cleans up yet another mess that Travis left, inching Uber closer to a possible initial public offering and burnishing Khosrowshahi's reputation as resident adult-in-the-room. When people look back on this trial, they probably won't remember the particulars of forensic analysis or the suspect lidar design, with its three flat sides and one concave. They'll think instead of Travis swigging water like Marco Rubio, Travis explaining what he meant by a "pound of flesh" and "cheat codes," and "Greed is Good" being played for him in the courtroom. Another Uber problem will be remembered as a Travis problem. That's a win for Dara.

Deal exclusivity.

Instacart announced new funding on Feb. 11, $200 million led by Coatue Management that lifts its valuation to $4.2 billion. The company says it wasn't looking to raise money but that it was approached by investors in mid-December and signed a term sheet soon after.

Amazon buying Whole Foods continues to be the best thing that ever happened to Instacart. The grocery-delivery startup says it's now partnered with more than 190 retailers, including seven of the nation's eight largest grocers (by sales). Many of those grocers were driven into the arms of Instacart in a panic after Amazon announced its Whole Foods acquisition on June 16, 2017:

  • June 29, 2017: Schnucks (partnership expansion)

  • Aug. 14: Aldi

  • Oct. 4: Lowes Foods

  • Oct. 5: Costco (partnership expansion)

  • Oct. 31: Kings and Balducci's

  • Nov. 7: Kroger

  • Nov. 8: Price Chopper

  • Nov. 9: Tops Friendly Markets

  • Nov. 15: Loblaw Companies Limited (first international partnership)

  • Nov. 28: Albertsons Companies

  • Dec. 11: Supervalu Inc. (partnership expansion)

  • Jan. 9, 2018: Sprouts Farmers Market

Instacart plans to put the money toward product development, expansion (marketing and shopper hiring), and general hiring at its headquarters. The company wants to double the size of its product and engineering teams, mostly in San Francisco. There are no plans to get into the meal-kits business. Meanwhile, Amazon unveiled free two-hour delivery from Whole Foods for Prime customers in four cities (Austin, Cincinnati, Dallas, and Virginia Beach). The big question is whether that violates the "exclusive" deal Instacart had reportedly inked to deliver groceries from Whole Foods. The options seem to include: the deal was poorly written, Instacart wasn't actually an exclusive provider, and, my favorite, Amazon just doesn't care.

Yum!

Remember a couple years ago when the writing was on the wall for Grubhub, which faced immediate and devastating disruption from dozens of scrappy food delivery startups? Yes, well:

That is the two-year stock chart for Grubhub and I would say they are doing alright. The stock jumped again last week after Grubhub beat on earnings, partnered with Yum Brands to deliver exclusively from Taco Bell, KFC, and Pizza Hut, and won its employment classification lawsuit.

The Yum deal gives Grubhub, already America's biggest online ordering platform, access to a huge market that's much less familiar with its brand. Grubhub will power orders, transactions, and delivery for KFC and Taco Bell, while figuring out how to integrate Pizza Hut, which already has a robust delivery operation. As part of the deal, Yum is taking a $200 million stake in Grubhub and Pizza Hut US president Artie Starrs will join its board, which is expanding to 10 members from nine. The only food delivery startup with any sort of competing partnership is probably UberEats, which has a deal to deliver from McDonald's and was expected to be servicing about 10,000 locations by the end of last year.

The court ruling, meanwhile, resolves legal uncertainty around Grubhub's employment model. The company considers its drivers to be independent contractors, but driver Raef Lawson believed he was actually an employee during his four months of work. The court ruled that "Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long" persuaded it that he had been correctly classified as a contractor.

A ruling in the other direction could have had serious consequences for Grubhub's business model, as anyone familiar with the big Uber class-action on employment classification will recall. Independent contractors don't get benefits or a guaranteed minimum wage, making them up to 30% cheaper to hire. There is a good argument to be made for why people in these jobs might be considered employees rather than contractors, but Lawson was a uniquely terrible plaintiff. He was fired by Grubhub (and also Postmates) for breaching its terms of service by gaming the app to earn money for time he didn't actually work. For instance:

In testimony, Lawson claimed he didn't remember messing around with the app to get paid for not working.

The court found this unconvincing ("Mr. Lawson’s claimed ignorance of his dishonest conduct is not credible"). It also came out at the trial that Lawson lied on a Grubhub application in April 2017, claiming he had never worked for Grubhub before, and entering an alias ("Ray Lawson") and different email. You would think in all the Grubhub workers across the country there would be someone with a cleaner record the attorneys could have found for this case. But for whatever reason Ray, I mean Raef, Lawson was the guy.

Experience matters.

Ahead of its "biggest changes to our platform in our ten-year history" announcement on Feb. 22, Airbnb would like you to know that "Trips" and "Experiences" are doing well. Airbnb defines Trips as "a vision of delivering an entire end-to-end travel platform, powered by people." Experiences are a subgenre of Trips, activities like wine-tasting and surf lessons that locals can sell to travelers on the Airbnb platform. According to Airbnb, Experiences "has seen incredible growth" and is expected to hit an annual run rate of 1 million guest bookings in the second quarter:

This chart is supposedly the absolute number of weekly guests in the first year or so after Experiences launched compared to the same timeline for Airbnb's original home-sharing business. The point, in case you couldn't tell from the sharp upward swing of the bright red line, is to show that Experiences is growing much faster than home-sharing did when it launched in August 2009. The unlabeled red-blue line chart, by the way, is a startup favorite, and you should absolutely always trust it.

For those unfamiliar, that's the chart Travis Kalanick famously presented as evidence of Uber's growth in China. But back to Airbnb. The steep red line is hardly surprising, if you think about it, considering that no one had heard of Airbnb or home-sharing when it launched in 2009, and now a lot of people have heard of Airbnb and it can tap them to try out Experiences. You might say experience matters. But anyway yes, I look at that chart, and I definitely see "infinite time horizon." May there be many more like it on Feb. 22.

Other stuff.

Lyft hires Tesla exec as COO. E-scooter startup Bird raises $15 million. Uber signs lease for second Manhattan headquarters. Food delivery startups open kitchens. Airbnb guest pleads guilty to attempted assault of 7 year old. Airbnb blamed for bed bug nightmare. Employers want gig workers to have benefits but not be employees. Retirement savings options for the gig economy. Lyft expands commuter benefits to all Lyft Line cities. Lyft teams up with auto dealers to get cars for drivers. Inside Airbnb's Battle to Stay Private. Instacart cuts contractor pay in Buffalo. Airbnb plans new line of "select" properties. No more Airbnbs in Holland. Uber but for late-night college campus snacks. A guide to statistics in a misleading age.

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 suggest they sign up here. Send tips, comments, and unlabeled red-blue line charts to oversharingstuff@gmail.com.