Uber Needs Driverless Cars

For the past eight years, Uber’s chief executive officer and cofounder Travis Kalanick played the role of disruptive entrepreneur with wild abandon—and to great effect. The company has revolutionized ground transportation in many of the world’s cities, often ignoring existing regulations, the concerns of entrenched taxi companies and many of its own drivers, and commonly accepted levels of decency in the workplace.

Now Kalanick has been ousted, and his successor will be forced to stick to a much more predictable script. Uber’s next CEO will have his or her hands full with important blocking and tackling, such as repairing relations with drivers, filling key executive positions, and leading a wholesale makeover of the company’s hard-edged culture.

“Travis has forced the board’s hand,” says longtime technology consultant and author Geoffrey Moore. “For now, the only thing they can do is become a kinder, safer, more predictable Uber.”

That’s fine for the current shareholders, mostly Silicon Valley venture capitalists, who pushed out Kalanick. But Uber has plenty of disrupting to do if the company is going to be a great stock for public investors, says Arun Sundararajan, a professor at NYU’s Stern School of Business and author of The Sharing Economy.

If the privately held company were to go public in the future at anything approaching its current valuation of around $60 billion, taking a bite out of the $40 billion a year global taxi business would be table stakes. To provide much upside, Uber would need to achieve Kalanick’s real goal: to create a service so ubiquitous and convenient that consumers would not bother buying their own cars. By tapping into the $10 trillion that people spend on new and used cars each year, Uber could become more valuable than Google or Facebook, which have become two of the world's 10 most valuable companies by disrupting the much smaller, $500-billion-a-year advertising business.

"Yes, Uber's priorities need to shift in the short term to address threats to its human-driven car business," says Sundararajan. "But they also need to keep their eye on the big prize. It's not hard to imagine Uber becoming the world's first trillion-dollar company, if Apple doesn't get there first."

Trouble is, creating this post-ownership ground transportation economy can only happen with self-driving cars. Uber lost more than $700 million last year, in large part because of the payments it makes to drivers. If the company’s business model is challenged while serving almost exclusively urban markets where there’s plenty of demand, Sundararajan doesn’t see how the company could afford to maintain an anytime, anywhere fleet of cars for consumers in rural and other underserved areas.

“To get the scale they’ll need to satisfy public investors, they’ll need to expand beyond the cities. But that can only happen after we get to totally autonomous cars.” Needless to say, that’s a long way off, he says (see “What You Need to Know Before You Get in a Self-Driving Car”).

For now, playing it safe is undoubtedly the smart move. By improving its brand and improving relations with drivers, Uber can reverse recent declines in its share of the ride-hailing market, and generate tens of billions in annual revenue by taking share from the $40 billion global taxi industry.

The company is already starting down this path, as part of a 180 Days of Change initiative that resulted from the sweeping internal investigation that led to the short-lived leave of absence that preceded Kalanick’s ouster. The company has won praise for announcing that Uber riders will soon be able to give tips to drivers. But there’s much farther to go.