Hello and welcome to Oversharing, a newsletter about the proverbial sharing economy. If you’re returning from last time, thanks! If you’re new, nice to have you! (Over)share the love and tell your friends to sign up here.
I know, it’s been a while! Oversharing was on hiatus because I had no home wifi for about a month (adventures in London life… who knew you needed UK credit history to get an internet contract!). Thank you to everyone who sent concerned notes; happy to report that I am indeed alive. The off-the-grid lifestyle was pretty good: I read The Bluest Eye and half of Daniel Deronda, watched a lot less Netflix, and was generally more productive. Now here we are, back just in time for the holidays, and then onto 2020.
November was a bad month for Uber. London declined to renew its license. Seattle approved new fees on rides and a to-be-determined minimum wage for drivers. Chicago passed a congestion tax on ride-hail services that adds as much as $3 to private rides during peak hours. New Jersey hit the company with a $640 million bill for misclassifying drivers as independent contractors. India may cap the commission it takes on fares at 10%.
Uber’s share price fell 6% in November, to $29.60. Even equity analysts, a famously optimistic bunch, appeared to lose faith and lowered their Uber stock price targets to an average of around $45, the same price Uber went public at in May and has rarely closed above since.
Ride-hail companies have entered a new era, marked not by breakneck growth but by skeptical and emboldened regulators. Cities lost the first round against Uber, which strong-armed them into passing rules it wrote to suit its ride-hail service before anyone could figure out what was happening. Now cities have regrouped, and are flexing their muscles. One by one, Uber’s most important markets—London, New York, Los Angeles, San Francisco, the entire state of California—are proposing taxes and rules that one way or another make rides more expensive.
It’s hard to overstate the threat this shift poses to companies like Uber. Ride-hailing is built on regulatory arbitrage. It hires workers as independent contractors instead of employees; it circumvents many of the rules imposed on traditional taxi companies; in some countries, it sidesteps taxes on local goods and services. All these things helped make Uber’s low prices possible, and low prices are Uber’s main selling point. Closing those loopholes is bound to make rides cost more.
Uber isn’t the only company under threat. Juno, a three-year-old ride-hail service in New York, shut down in November and filed for bankruptcy protection after failing to find a buyer. Juno blamed its financial trouble on a wage floor for New York City ride-hail drivers that took effect in February, arguing it increased costs, lowered drivers’ hourly pay, and led to a significant drop in ridership. Lyft, which operates only in North America, is also exposed. Lyft and Juno both sued New York earlier this year over its driver pay rules. In California, Lyft and Uber have each pledged $30 million to fight a new law that makes it harder to classify workers as contractors.
For nearly a decade, all of these companies—Uber, Lyft, other competitors that have cycled through—prioritized growth and left profits for later. The strategy contained an implicit assumption that profits would come more easily with scale; that more cities and total bookings meant more clout with regulators; and that thin margins were fine if you ‘made it up in volume.’ The reality heading into 2020 looks precisely the opposite: more rules, more taxes, more costly protections for workers. If Uber never figured out how to make money in a decade of loose oversight, how will it fare when regulators start paying attention?
Elsewhere in Uber, the company is reportedly looking to unload its Eats food delivery business in India to Zomato, a local rival. The deal would value Uber Eats India at around $400 million and would likely see Uber take a sizable stake in Zomato, similar to deals it reached with Southeast Asia’s Grab, Russia’s Yandex, and China’s Didi Chuxing when it exited those markets.
Analysts have estimated Uber is burning something like $400-$500 million a year on its India Eats business. Analysts have fixated on the India Eats business amid fierce competition, and since Uber admitted to it being a drag on adjusted net revenue (ANR), a key financial metric.
Uber CEO Dara Khosrowshahi said in November that Uber’s strategy for Eats was to “invest aggressively into markets where we’re confident we can establish or defend no. 1 or no. 2 position over the next 18 months.” His comments came not long after Uber pulled Eats from South Korea, ceding to local market leader Woowa (which, incidentally, just sold to Germany’s Delivery Hero for $4 billion). He reiterated the strategy at a Barclays conference last week, saying, “if we don't get to a #1 or #2 position, we will look at alternatives, just like we looked at alternatives in the ride-share business in a constructive way.”
Cutting losses is a key focus for Khosrowshahi, who has set his sights on turning Uber profitable by 2021. Uber lost $1.2 billion in the latest quarter, up (down?) from a loss of $986 million in the third quarter of 2018, largely due to a hefty stock-based compensation expense.
Uber Eats is a big question mark in that profitability equation. Uber bet on food delivery as a way to diversify beyond rides and wring more value from its extensive logistics network. The reality a couple years in is that food delivery is complicated and expensive. Uber has spent hundreds of millions of dollars on incentives for Eats drivers, not to mention other Eats-specific costs. At the same time, the share of revenue Uber retains from Eats orders has been mostly lower in 2019 than the previous two years. In August, investment firm Cowen estimated Uber was losing $3.36 on every Eats order, and would continue to lose money on every order until at least 2024.
A deal with Zomato could happen as soon as this week, the Wall Street Journal reported, citing people familiar with the matter. Eats launched in India in 2017. Uber and Zomato both declined to comment to the Journal.
Here is a story about SoftBank, the giant pile of money it burned, and the man behind it all, Masa Son:
The strategy that Son and his all-male phalanx of managing partners followed seemed less about any specific technology than about placing large bets on the buzziest startups: WeWork ($10.7 billion), Uber ($7.7 billion), on-demand pizza maker Zume ($375 million), and dog-walking app Wag ($300 million). They invested in a few hardcore artificial intelligence companies, too. Portfolio companies expanded quickly, often haphazardly, leading to a collection that included high-profile disappointments and the conspicuous disaster at WeWork. SoftBank’s starry-eyed investors convinced themselves that WeWork’s outrageous operating losses and the erratic behavior of co-founder Adam Neumann didn’t matter—until potential public-market investors reminded them that, actually, they did.
Son is SoftBank’s chief executive, but also might be called Silicon Valley’s chief enabler. In addition to pouring money into startups, he imbues them with outsized ambition and confidence:
Many SoftBank-backed founders have Masa stories. These often begin with a summons to the 26th floor of SoftBank’s green-tinted glass headquarters in Tokyo or to Son’s home in Woodside, Calif., a 74-acre compound whose massive main residence features a foyer with a large marble statue of a horse and chariot. The entrepreneur might then sit across a table from Son, answer a few questions, hear that their idea is even more promising than they thought, and, by the end of the conversation, be anointed “the next Jack Ma.”
“You feel enabled, you feel euphoric,” says a chief executive officer in Asia. “You’ve been told no a hundred times, and then he says he believes in you. Every entrepreneur dreams of having that kind of backing.”
The story is worth a read. I recommend pairing it with this one on SoftBank’s questionable accounting practices. Choice quote from NYU professor Aswath Damodaran: “The more they talk about accountants the less I would trust the numbers.”
Where do they go for the winter? Into warehouses, down to southern markets, or just out on the streets like normal:
Stockholm-based Voi, founded in August 2018, operates in about 40 European cities, including 16 Nordic ones where average winter temperatures range from -6°C (21°F) in Tampere, Finland, to 6°C in Copenhagen (43°F). Voi’s “Jack Frost” winter plans include limiting scooter speeds in snow, working with local plowing companies, restricting riders to well-plowed areas and the heated streets of some city centers, and disabling its fleet in particularly treacherous conditions like black ice.
Last year, Voi suspended its shared electric-scooter service in Stockholm for just over a week in total, said Kristina Nilsson, a company spokeswoman. “We’re Swedish, we’re used to the winter,” she said, having just returned from snowy Oslo, where Voi kept a limited fleet in service. “In Swedish there’s a saying, ‘There’s no bad weather, just bad clothing.’”
Scooters are a seasonal business. Fewer people ride in the winter, when they’re exposed to the elements, than in the summer when the sun is out and the weather is warm. Bird’s gross revenue fell by about 60% in the first quarter of 2019 from the previous quarter. Even Voi’s ridership was cut in half last winter compared to the previous summer.
Scooter companies often seem indistinguishable with their monosyllabic names (Scoot, Spin, Skip) and identikit hardware, but winter has drawn some distinctions. European firms, perhaps because cold weather is a fact of life in many of their markets, have generally more robust winter scooter plans, while some of their California rivals are content to hibernate until springtime.
Elsewhere in scooters, Uber is doubling down on European micromobility, scooter companies are caught up in the trade war, Bird laid off Bay Area Scoot employees, Spin’s staff voted to unionize, San Francisco rejected Skip over a formatting error—see, I am not joking, Scoot, Spin, Skip!—and a literal e-scooter Unicorn is out of business with lots of angry customers.
WeWork is being made into a movie and a TV show. The movie will be scripted by Charles Randolph, the screenwriter behind The Big Short. The TV series will be based on a forthcoming WeBook from Wall Street Journal reporters Eliot Brown and Maureen Farrell, with Succession star Nicholas Braun playing Adam Neumann. No word yet on whether the film will cast Adam Driver as Adam Neumann, which it absolutely should.
WeWork and the now-infamous Neumann have very kindly continued to provide material for both projects: Neumann’s work for Jared Kushner on Mideast peace and offer to mentor Crown Prince Mohammed bin Salman; WeWork paying a $500,000 monthly retainer to a crisis PR firm; SoftBank-appointed chairman Marcelo Claure enjoying a Michelin-starred meal in New York City one day after WeWork laid off 2,400 employees; Neumann fleeing New York with his family and an entourage of nannies to escape the “negative energy” from his company’s collapse. WeCan’tWait.
Car2Go exits North America. Silicon Valley Braces for Belt-Tightening. WeWork looks to exit office leases. WeWork China rival files for US-listed IPO. Travis Kalanick dumps Uber stock. European court to rule on whether Airbnb is online service or real estate agent. Uber rival Bolt says nearly profitable in most markets. Half of Seattle bike-share rentals inoperable in city audit. DC awards dockless permits for 2020. E-bike startup Cowboy hits crowdfunding goal in 12 minutes. Kroger opens dark kitchens for restaurant-style meal delivery. DC attorney general sues DoorDash. Conductor execs buy their startup back from WeWork. WeWork competitor RocketSpace leaves UK. Uber rival Ola registers drivers for London launch. Uber lets drivers see where passengers are heading. Uber threatens to leave Phoenix over airport tax hike. Uber received over 3,000 reports of sexual assault in the US in 2018. Airbnb bans open-invite parties after Halloween shooting. Elizabeth Warren wants to let gig workers unionize. Instacart contractor leads worker revolt. Singapore’s Neuron Mobility raises $19 million for e-scooters. Queen Elizabeth seeks social media director. Scooter racks. Bicycle mayors. Lyft rentals. Uber Works. Wag, the dog. I Am a Patagonia Vest Warrior Who Conquers Digital Mountains of Excel Spreadsheets.
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