Uber’s investors never expected that their returns would come from superior efficiency in competitive markets. Uber pursued a “growth at all costs” strategy financed by a staggering $20 billion in investor funding. This funding subsidized fares and service levels that could not be matched by incumbents who had to cover costs out of actual passenger fares. Uber’s massive subsidies were explicitly anticompetitive —and are ultimately unsustainable— but they made the company enormously popular with passengers who enjoyed not having to pay the full cost of their service.
The resulting rapid growth was also intended to make Uber highly attractive to those segments of the investment world that believed explosive top-line growth was the only important determinant of how start-up companies should be valued. Investors focused narrowly on Uber’s revenue growth and only rarely considered whether the company could ever produce the profits that might someday repay the multibillion dollar subsidies.
Most public criticisms of Uber have focused on narrow behavioral and cultural issues, including deceptive advertising and pricing, algorithmic manipulation, driver exploitation, deep-seated misogyny among executives, and disregard of laws and business norms. Such criticisms are valid, but these problems are not fixable aberrations. They were the inevitable result of pursuing “growth at all costs” without having any ability to fund that growth out of positive cash flow. And while Uber has taken steps to reduce negative publicity, it has not done—and cannot do—anything that could suddenly produce a sustainable, profitable business model. [...]
In reality, Uber’s platform does not include any technological breakthroughs, and Uber has done nothing to “disrupt” the economics of providing urban car services. What Uber has disrupted is the idea that competitive consumer and capital markets will maximize overall economic welfare by rewarding companies with superior efficiency. Its multibillion dollar subsidies completely distorted marketplace price and service signals, leading to a massive misallocation of resources. Uber’s most important innovation has been to produce staggering levels of private wealth without creating any sustainable benefits for consumers, workers, the cities they serve, or anyone else. [...]
In the early 1990s, a coordinated campaign advocating taxi deregulation was conducted by a variety of pro-corporate/libertarian think tanks that all received funding from Charles and David Koch. This campaign pursued the same deregulation that Uber’s investors needed, and used classic political propaganda techniques. It emphasized emotive themes designed to engage tribal loyalties and convert complex issues into black-and-white moral battles where compromise was impossible. There was an emphasis on simple, attractive conclusions designed to obscure the actual objectives of the campaigners, and their lack of sound supporting evidence.
This campaign’s narratives, repeated across dozens of publications, included framing taxi deregulation as a heroic battle for progress, innovation, and economic freedom. Its main claims were that thousands of struggling entrepreneurial drivers had been blocked from job opportunities by the “cab cartel” and the corrupt regulators beholden to them, and that consumers would enjoy the same benefits that airline deregulation had produced. In a word, consumers were promised a free lunch. Taxi deregulation would lead to lower fares, solve the problems of long waits, provide much greater service (especially in neighborhoods where service was poor), and increase jobs and wages for drivers. Of course, no data or analysis of actual taxi economics showing how these wondrous benefits could be produced was included. [...]
Developing powerful competitive breakthroughs is hard. Figuring out how to generate strong positive cash flow from them while fighting established incumbents is even harder. Uber’s innovative strategy was to skip all this really hard stuff. The company’s strategy was to use an unprecedented level of investment funding to bulldoze its way directly to industry dominance and exploitable market power, and create a growth trajectory that would allow it to demand an Amazon/Facebook-caliber equity valuation. This strategy was bolstered by a hyperaggressive, monomaniacal, growth-at-any-cost culture, by PR techniques that masked Uber’s losses as well as its lack of competitive advantages, and its open pursuit of unregulated industry dominance.