Uber’s New CEO Is in a Lose-Lose Situation

August 31, 2017, 6:45 PM UTC

Does new Uber CEO Dara Khosrowshahi really know the full extent of what he is taking on?

Uber is not going to be an effective monopoly such as Facebook, Google, and Amazon. Investors have been keen to support Silicon Valley firms but are they being taken for a ride with Uber? It’s questionable they will ever see a return on their investments.

For starters, Uber founder Travis Kalanick has a tight grip on the business through his founder voting shares and control of three board seats, and is looking for a chance to reclaim his old job.

For Kalanick, a new CEO could be an ideal fall guy for a number of underperforming investments. There are also significant doubts as to how effective the Uber model will be in creating profits once the investor-funded subsidies to drivers and passengers ends.

Kalanick has presided over a macho and sexist culture, and Uber faces litigation from all angles: for driverless car know-how theft from Google-owned Waymo; from drivers’ legal attempts to make Uber an employer; and in the last year, 48 allegations of driver sex attacks on passengers in London alone.

Poor publicity is losing Uber trade as plenty of competitive alternatives exist such as Lyft in the U.S., Grab in South East Asia, and Ola in India. Plus in overseas markets, many local competitors have now developed apps and also have low costs.

In many cities, original taxi cab businesses have reduced their fares and improved their service. In more regulated markets such as France, Belgium, and Spain, Uber has been effectively banned. Once its investors tire of stumping up cash, Uber may find life increasingly difficult.

Uber investors are also up against China’s Didi Chuxing which has raised $21.5 billion from investors against Uber’s $12 billion. Didi has beaten Uber in China, and now partly funds Grab in South East Asia, Lyft in the U.S., and Ola in India. Only taxi customers and drivers are going to benefit from the enormous investor subsidies being thrown at the ride-hailing industry. Certainly the chances of investors making any real return will depend on keeping belief going and exiting before either Uber or Didi have to produce profits to justify their valuations. Expect an IPO very soon; Khosrowshahi reportedly told employees Wednesday that Uber could go public in the next 18 to 36 months.

Khosrowshahi will also have to contend with inevitably disappointed investors, who are going to start asking about a return on their funds. Uber’s current valuation of $50 billion looks a tall order in such competitive markets, where customers and drivers can switch firms so easily. Many Silicon Valley firms have struggled to turn promise into cash, such as Twitter, Yahoo, LinkedIn, and now Snap. Kalanick cannot help himself, as business founders will not normally let go unless forced out by investors. Frequently they would rather destroy the business than leave.

In the end, though, most founders do leave or are moved aside by investors. But in Silicon Valley founder shares change the rules. Unfortunately in this case, Kalanick’s unique status might negatively affect the future of the company he created—as well as that of its new CEO.

John Colley is a professor of practice at Warwick Business School.

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