The first time I met Travis Kalanick, the cofounder and then CEO of Uber, he explained his vision in three blunt sentences: “One day, no one will own a car. Cars will drive themselves. And they’ll come to you at the push of a button.”
Like any venture capitalist, I hear endless pitches from starry-eyed startup founders. But this one stuck with me. Uber’s real value proposition, after all, goes far beyond ridesharing. Over the past several years, as the company’s ambitions have expanded to include trucking, food delivery, carpools, scooters and even flying cars, the message to investors has become clear: Uber can be the Amazon of transportation. Anything in the world that goes from point A to point B, whether it’s a person, a burrito, or a new sprocket for your boiler, runs through Uber. Like Amazon, Uber takes a cut of everything.
But of course, vision and reality are often two different things, and most of the master plan has failed to materialize. Dominating ridesharing in every market globally proved impossible. Even tackling the unit economics of ridesharing in the U.S. has proven challenging, to the tune of billions in annual losses. The acquisition of Postmates last week was a positive step, but until Uber can figure out how to make money on its core business, being the Amazon of transportation seems far-fetched at best.
There may be a way to do it, however—a way that combines the best of Travis Kalanick’s ruthlessness and current CEO Dara Khosrowshahi’s innate feel for public opinion. It’s a long-term play and it’s extremely counterintuitive. But the path to making ridesharing profitable may be the exact opposite of Uber’s current campaign to prevent drivers from being classified as full-time employees.
To date, Uber has aggressively opposed worker reclassification, even sponsoring a $90-million ballot initiative in California to overturn recent state legislation that turned every driver into a full-time employee. Of course they did. Opposing any regulation that threatens to add 20% in new costs makes sense. But embracing it would achieve far more.
Hear me out. Right now, just about every driver for Uber also drives for Lyft. As independent contractors, drivers can work on as many platforms as they want; accepting rides from every possible source is the best way to maximize revenue. If drivers were employees, that flexibility would go away. The people on your payroll can’t also work for your fiercest competitor. They’d have to choose: Uber or Lyft. And because Uber has more market share in just about every city in America, the logical choice would be clear. That’s a huge problem for Lyft.
Ridesharing works because of the network effect: the more demand there is from customers, the more drivers sign on to meet the demand, the faster they can respond to any request, the more that attracts both new and repeat customers, and so on. But network effects can work in both directions. Imagine if you’re Lyft and half of your drivers just deactivated their accounts because they’re now full-time Uber employees.
With only half the drivers on the road, your pickup time is now going to be twice as long. Customers notice that. And since all they want is the fastest ride at the cheapest fare, they’ll start using Uber and not Lyft. As demand for Lyft rides decreases, more drivers will switch to Uber. That increases Lyft’s wait times even more, which drives demand down further, which sends more drivers and more customers Uber’s way.
Uber, with a market cap six times that of Lyft, can sustain this game far longer. And in the end, Uber won’t have to keep subsidizing fares because Lyft won’t be able to compete on price. If Lyft can’t attract drivers, it can’t attract riders. Sooner or later, the business collapses on itself.
Stamping out Lyft may be the only way for Uber to make ridesharing profitable. Until then, Uber’s struggle to make money off its core business imperils every other facet of Kalanick’s vision, from food delivery to flying cars. Wall Street understand this, which is why Uber’s stock price has been stagnant ever since its failed IPO. Something has to give.
Yes, embracing a movement led by activists who despise Uber seems strange. Yes, actively agreeing to increase operating costs by upwards of 20% seems crazy. But ultimately, the best-case scenario for stopping worker reclassification just gets you more of the same: perpetuating a market that doesn’t really work.
Instead, Uber should lean into the progressive moment. It’s a PR masterstroke: The company continues its “we’re nice” campaign, with a twist. Of course Uber wants to help drivers at all costs, especially now! And if being nice happens to result in crushing a rival? Call it killing with kindness.
So far, Khosrowshahi’s tenure doesn’t suggest an appetite for Kalanick’s unconventional ruthlessness. But Amazon, the paradigm for Uber’s success, won by being both unconventional and ruthless. Four months into the pandemic, Amazon is the Amazon of everything more than it’s ever been. Uber is currently no one’s idea of the Amazon of anything. That can change—but only if Uber has the stomach to rewrite the rules.
Odds are, Uber will continue business as usual: neither Uber nor Lyft will fare particularly well economically or politically, and ridesharing will be continue to be a middling business. But in a global pandemic, at a moment in history when every assumption is being rightfully questioned, maybe this is the time to try something unexpected. On a macro level, the markets are already behaving irrationally. If ever Uber’s investors are going to permit higher losses in pursuit of world domination, this is the time.
If that happens, maybe Uber’s new motto can be “ruthlessly woke.” Because being tepidly conventional isn’t working at all.
Bradley Tusk is a venture capitalist, writer, philanthropist, and political strategist. Tusk was an early investor and partner with Uber but no longer holds any shares or has any involvement with the company.