Wednesday, 21st June

By Geoffrey Smith
June 21, 2017

Good morning.

Travis Kalanick, visionary and pantomime villain, has resigned as CEO of Uber—under pressure from shareholders, as the New York Times, which broke the news, would have it.

The NYT said that five of Uber’s biggest investors—Benchmark, First Round Capital, Lowercase Capital, Menlo Ventures, and Fidelity Investments—were convinced that Kalanick’s decision to take an indefinite leave of absence last week didn’t go far enough as a response to the governance scandals that have engulfed it this year.

It’s not yet clear which of those scandals contributed most to their decision. There are enough to choose from: the lawsuit by Alphabet unit Waymo that accuses it of stealing self-driving car technology; its toxic workplace culture; its systematic evasion of corporate responsibility for the welfare of its drivers; and so on, and so on.

However, it seems at first sight strange that these things alone would force such a seismic shareholder revolt. Uber’s investors have been well aware of Kalanick’s vision and his management style from the start, after all, even if they underestimated the whirlwind of negative publicity that they could generate. (The circumstances of board member David Bonderman’s resignation hint at a degree of indulgence for the cultural concerns.)

It’s impossible for outsiders, who don’t have access to Uber’s books, to know. But it’s hard to avoid a suspicion that Uber’s business model is simply not living up to its initial hype.

The assumption was that its unprecedented success in fund-raising would see it through to the day when it had an effective monopoly and could expand its margins accordingly. But its opponents have been more resilient than seemed likely at first. Its price advantage, built on pushing out costs such as insurance (or, if you prefer, safety) and social security onto others, is being challenged increasingly in courts in the U.S. and Europe. After being initially dazzled by the promise of the disruptive new model, regulators around the world have wisened up quickly to its negative side-effects—traffic congestion, public safety, and erosion of the tax base—and are now much more sensitive to the complaints of incumbents.

At the same time, the barriers to entry are not high enough to allow Uber to achieve a monopoly. From China and India to the Middle East and Europe, it faces opponents with similarly deep pockets, sometimes in partnership with automakers whose very survival depends on rising to the challenge from the disruption of mobility. You can reasonably ask what Uber Eats is supposed to do that a handful of other delivery services don’t already do. All of these operational challenges would tax a focused and functional management, which Uber manifestly does not have right now.

Fortune‘s Adam Lashinsky, whose new book Wild Ride: Inside Uber’s Quest for World Domination chronicles the company’s rise and stumbles, came to the conclusion that Kalanick was at once Uber’s biggest asset and its biggest liability. The shareholders have taken the liability in hand. The biggest issue now is–what’s the long-term value of the remaining assets?

More news below.

Geoffrey Smith
@geoffreytsmith
geoffrey.smith@fortune.com

(Alan Murray is taking a hard-earned break and will return on Monday.)


Top News

The Bin Salman Supremacy

Saudi Arabia elevated 31 year-old Prince Mohammed bin Salman to Crown Prince. He’s now in charge of policy on everything from oil to defense, and has strong views on both. ‘MbS’ is the man behind the Kingdom’s plan to float Saudi Aramco and reorient its economy away from oil. That plan is in serious trouble at the moment: reports last month suggested that bankers can’t conjure up a valuation for Aramco that suits him. Right now, the oil market cares more about resurgent output in war-torn Libya and Nigeria than a new de facto Saudi king. That may change before too long: MbS is also a foreign policy hawk who called for the “battle” to be taken to Iran, a point not lost on Iranian politicians after the IS-linked terror attacks in Tehran earlier this month. Reuters

Stock Markets Slide on Oil Patch

Coincidence or not, Salman’s ascension comes at a time when the world oil market, and Saudi’s strategy for keeping it stable, is in disarray. Crude prices plummeted to a seven-month low overnight and, at $43.55 a barrel, are now below where they were before last November’s OPEC-led deal on output restraint. They’ve also dragged stock markets across the world down this morning. The output deal was extended in June through March next year, but it has evidently lost all of its power to support prices. As of last week, U.S. producers were still adding drilling rigs, continuing to enjoy the free ride that Saudi and, to a lesser extent, Russia are giving them. The clock on that play is ticking down very fast now. Bloomberg

Handel Edges Georgia Race

Republican Karen Handel won the special election for the 6th District of Georgia, a largely symbolic contest that assumed wider importance after the Democratic Party threw millions at trying to make it a referendum on President Donald Trump. The failure of their candidate, John Ossoff, by a margin of 48%-52% illustrates the limits of a narrow anti-Trump agenda ahead of next year’s mid-terms. However, given that the Republican margin of victory in the district was over 20% in November, the result is no cause for celebration for the GOP either.  Fortune

The Macron Revolution Eats Its Children

France’s new President Emmanuel Macron is riding out his first crisis in some style. Having ridden to power pledging to drain France’s political swamp, he was under pressure to take a firm line with the first inevitable reports of corruption in his own ranks. Luckily for him, his emphatic election victory allowed him to do just that. So far this week, he has purged Richard Ferrand, the man who ran his campaign and was set to be his chief enforcer; Defense Minister Sylvie Goulard (who was supposed to charm the Germans into consolidating Europe’s defense industry under French leadership); and now, as of Wednesday, Justice Minister Francois Bayrou, a veteran centrist who made the mistake of thinking his support was indispensable. Business will hope he can deal with the economy just as decisively. Bloomberg



Around the Water Cooler

Toshiba Plays It Safe With Chip Sale

Toshiba’s board has chosen a consortium led by a Japanese state-backed investment fund as the preferred buyer for its flash memory chip business. However, the consortium has told it to resolve its legal dispute with Western Digital before the deal is done. Western Digital, which jointly operates Toshiba’s main chip plant, has sought a court injunction to stop its partner selling the business without the U.S. firm’s consent.  Fortune

The Potential of Waste

Waste is arguably the great scandal of the modern food industry. Some studies suggest that up to half of the food produced in developed markets doesn’t make it into the stomachs of consumers, due to anything from conservative expiration labeling to the supposedly unappealing look of twisted carrots. It sounds like an opportunity, and for Daily Table founder Doug Rauch, it is. His nonprofit grocery store occupies a space between food banks and the main street food retailers, a space that feels instinctively much larger than a single store. You can read Beth Kowitt’s profile of Rauch and his company here. Fortune

When Robots Met A-Shares

MSCI, the company that produces the indexes that form the benchmark for thousands of investment funds, approved the inclusion of 222 mainland Chinese stocks in its influential Emerging Market Index. That expands the potential pool of capital for the Chinese market and offers U.S. (and global investors in general) broader exposure to the world’s second-largest economy. It also enhances the interconnection of China’s financial markets with the rest of the world’s, well before Chinese standards on disclosure, free-float, and corporate governance have conformed to global ones. What happens when a herd of robot-managed passive funds meets the kind of liquidity or regulatory shocks that China habitually throws up will be interesting to watch, to say the least. It’ll be even more interesting when China’s A-shares get the weighting that their paper value argues they should have. Fortune

Furnace in Phoenix

Nearly 50 flights out of Phoenix, Ariz. were cancelled Tuesday thanks to scorching temperatures across the Southwest. American Airlines said the aircraft used by its regional American Eagle brand have a maximum operating temperature of 118 degrees, while Phoenix’s forecast for Tuesday included a high of 120 degrees. Hot air is less dense, and that makes it harder for jets to get off the ground. If not an Inconvenient Truth, it was at least truly inconvenient. Fortune

 

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