Was The Sharing Economy Way Overblown? — With Emil Michael

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0:14Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Emil Michael is our guest today. He's the former chief business officer at Uber, and he's the chairman and CEO of DPCM Capital. And Michael joins us at a fascinating moment for the ride-sharing business and the sharing economy overall. Let's start with the fact that Uber is sitting at a market cap of$63 billion, which is less than its last private market valuation, and its share price is trading below its IPO price. And its CEO is giving rides himself to figure out why his company can't recruit drivers.

0:53Lyft, meanwhile, is down 87 % since its IPO, and its founders just resigned for quote-unquote personal reasons. I mean, come on. Then you look at Airbnb, which has effectively been flat on the stock market since its IPO years ago, and you begin to wonder whether there was a sharing economy at all, or whether zero interest rate environment investments from VCs and public market investors have propped up non-businesses this entire time? Well, the answer is not a clear yes, but it's also not a clear no, at least for some companies. I discussed this all with Emil Michael, who's had a front row seat to this at Uber and has followed it closely afterwards, and I think has some very valuable analysis that you're going to enjoy a lot.

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3:01Yeah, you were one of the first we were just talking. You were one of the first guests we've ever had on the show. and it was in the thick of COVID and we were talking about whether people were going to continue to do ride sharing after COVID ended and whether that people had, you know, we're going to just travel with their own cars. I bought my own car. All right. So I'm doing a lot less and the businesses have struggled. So actually it's maybe a pretty good place for us to start. What do you think the rebound from COVID has been like for ride sharing companies in particular? Well, if you look at the data, the revenue part of ride sharing is all the way back and more.

3:39However, I think what's buried in there is the price increases have been dramatic since pre-COVID times, if you look at sort of the same ride cost. So the number of rides probably has slowed. It's still probably growing a bit, but because the price increases have been material, the total revenue has grown. contrast that with food delivery which is sort of shot out of nowhere and was bigger during the pandemic for uber for a bit than uh rides and now that's slowed a little bit and rides is taken back over yeah i mean i gotta tell you so i was in san francisco came out of the airport and you know i had been away for a little bit i'd moved back to new york and i was so used to just getting out of the airport calling an uber or a lyft going to my house in the mission and you know it being a very easy process.

4:25The Uber, maybe it was surging or something, was over$100. I had never done this before. I walked down, went to the black car drivers and said, hey, can you take me home? And we negotiated a price, which was still double what I used to spend with Uber, but it was also much cheaper than the Uber prices. Was that a unique experience? Do you think? I know you're not there day to day anymore, but was that unique experience? Or is this sort of the par for the course right now? And if so, what does it say about the long-term trajectory of these businesses? Yeah. So two things are happening. I don't think your experience is unique.

5:04Prices are going up for two reasons. Both companies, Uber, Lyft, have said, we got to get profitable. And Wall Street has said, well, you guys have to get profitable or your stock's not going to move. So them, amongst other tech businesses, have sort of made that move to profitability, which meant raising prices. That's the easiest way to get closer to profitability, right? The second thing that's happened is there have been a ton of taxes, surcharges, fees that cities, states, and localities have added to rides. In California, Prop 22 added some costs. So there's two buckets of costs, the profitability cost and the regulatory cost has added to this.

5:49And I think that's what you're seeing kind of across the board, across the country, across the world. And what is going to happen is on the margin, it's going to make people take Ubers or ride shares less, right? It's like we learned this very early in our time at Uber, price elasticity for transportation is super important. Like you raise price a dollar, fewer people use it, just period. So I think you're going to end up having slowing growth in the number of riders because of this. Yeah. And there's also one thing you didn't mention is the fact that there's much less drivers are having trouble getting drivers on these platforms.

6:28So there's this recent Wall Street Journal article with and we got to talk about it because it has it's basically documenting Uber's CEO, Derek Oster-Shaw. He's moonlighting as a driver with Uber. And I'm just going to read you a little bit of it. So this was the first time he's been CEO for a while. This is the first time he's tried to drive Uber and he's found all these different issues. So he's this this is from the journal story. He struggled to sign up as a driver. He saw firsthand something called tip baiting and was punished by the app for rejecting trips. Surprisingly hard to take was the rudeness of some riders.

7:09And they say that it's part of a campaign by him and his lieutenants to better understand and improve Uber's experience. for drivers whose scarcity has become a critical challenge for the company in the U.S., which think about supply and demand. I think that's probably one of the issues. And here's one of the amazing lines from the story. He hadn't driven on Uber before because it wasn't his biggest priority. Drivers had always been in abundance supply. And it's one of those interesting profiles where it's like you have access, so you're trying to be nice to the guy, but as it continues to reveal details through the story, you're like, is this person really an effective leader?

7:48So I'm curious hearing about this, was this a practice that you guys did when you were at Uber during the Travis era? And had you been driving Ubers, had Travis been driving Ubers? Not to get too deep into that because I feel like that's been talked about to death, but I'm curious when you see a CEO driving for the first time this many years in and finding all these issues. What does that mean? I'd be surprised if that's the first time he's driven, but yeah, we used to drive all the time. I think Travis used to do Halloween. I would do a weekday night and the product managers would do it all the time.

8:28We had a program that asked all employees to try to do it once a year, all of them, not just product managers, including engineers so that they could feel the experience um so that would that would sound surprising uh that your biggest product uh would be something that you didn't experience um and shows a little bit of distance between the product you're building for billions millions of people around the world and your effective ability to effectively lead a company that's supposed to do that. That being said, they did make a lot of product decisions in the last couple of years, which I think have been a big mistake to both the driver experience and the user experience.

9:11And maybe they're figuring those out now. I don't know. But we have never had plentiful drivers. That's not true. There's always been a supply constraint on average at Uber all the time. It's because demand was always rising faster than supply. So again, that that's a that's an interesting quote that i wouldn't have predicted yeah and you know i guess i kind of give him credit for for i mean the the knock on him is fair that it took this long for him to get into the product and start doing this i give him credit for starting to implement some fixes the the article really gets very interesting when he starts doing delivery um so he finds all these problems in the app that they i guess confess to the journal and you know i guess it's good and transparent, but it was just astonishing to me how many glaring problems that they found.

10:03Let me read a little bit more. So this is again, Dara going through the delivery experience. I guess I shouldn't laugh. It's good that he's trying it out, but there's something comical about the whole situation. So here it is. So one time he clicked on the notification and the app started navigating him to a new address, hiding directions for the current order. New orders are now queued after existing orders, even if drivers click on them. Okay. So that's a change that he made. So information about the current one isn't lost. On another occasion, Mr. Costasari showed up to a restaurant to pick up what he thought was one order, only to learn that it involved two separate deliveries.

10:39Uber was combining orders along the same route, but the app didn't make that clear. So now the company is introducing better labeling for trips that involve more than one delivery. He also ran into a problem. This is an interesting one. He also ran into a problem delivery drivers had been complaining about, tip baiting. Customers would entice workers to pick up their food quickly by entering big tips on the app, but then reducing them after the food was delivered. And they're trying to work on fixes for that as well. I mean, that's really disgusting for people to do that, to delivery drivers. But what, so what do you think about all these problems that he's finding in this service?

11:15And also, what do you think about the fact that it's kind of taking the CEO to actually do this and sort of, you know, force down changes, you know, down the org doesn't really speak to the strength of his lieutenants, I guess. What's baffling to me is that it's been almost six years, right? So this is not one year into one's tenure. And it just baffles me as to, you know, this is the core of a product manager's job. What is going on in the product management part of this company? like you there's those tv shows the undercover boss things which are kind of you know a boss goes undercover in his own company he's like holy holy crap what's going on here and he comes back up um this is sort of so surprising and that that it's hard to put into words but but if you look at what Expedia was when he ran Expedia um and you try to translate that into the mobile world where was just sort of a lot of pop-ups and things that weren't designed for a consumer to sort of easily understand what's happening on.

12:26And in this case, drivers and delivery people are consumers of the platform too. They're users of the platform as well. So you have to make them happy. It's sort of a jumbled kind of mess. And there was a lot of tweets the other day about some of the messiness in the Uber apps as well. And I just think there's no fundamental design point or principle in the apps themselves that are organizing how new features are pushed out. It's just feature on top of feature on top of feature. And then they start conflicting with each other so as to make the thing unusable. So, again, if I were him, I'd go right to the product management team and some heads would probably roll.

13:07Yeah. So, Dara is widely viewed positively, I think, by the public. Do you think he's getting a pass? I'm kind of curious, like what you think about the public perception of him now that, but let me even read. All right. I'm going to go read the stats because I have it here on what the situation is with Uber. So the market cap is$62 billion. Last private valuation was$76 billion. It's trading at$31 a share. It was priced at$45 at the IPO. With that in mind, rate the leadership. Look, it's the tail of the tape, right? Warren Buffett, the stock price is a voting machine. And over the long term, it's a weighing machine.

13:45It's been six and a half years. Stock price is below the IPO. The stock price today at$31 is where it was in 2014. So you're almost a decade of flat stock price, right? And you could argue sort of whatever Travis and I had left him had some challenges that he did work out and he was a better diplomat and sort of was someone who the press liked a lot more. But I'd say that likability and effectiveness are separate things. Ideally, you want to be both. He clearly ranks high in the likability score. But from an effectiveness standpoint, if you're measuring by stock price, that's been a D. Right. A D minus, even when you compare it to the NASDAQ or other tech stocks.

14:39Now, the one other thing I'll mention is behalf, just to be fair, Uber's done better than Lyft. Uber's done better than Grab. Getting right into my next questions. Yeah. Uber's done better than Didi. Uber has not done better than DoorDash. DoorDash has whooped Uber on food delivery in the U.S. Um, so that's the mixed bag on that, but stock price is really the summation of all of it. And I think he says he's disappointed in it. I'm not sure why wall street isn't, uh, you know, asking for more radical change there. Interesting. What do you mean by more radical change? Well, usually, you know, when you have a stock price that's languishing as this has, and you, you promise, well, here's what we're going to do.

15:25and it's not achieved, what happens is you have some change in incentive structures. I was looking at the 10K just came out, the annual report for 2022. Stock price was down in 2022 by 20%. All the executives, all of them, made 200 % of their target bonus. That doesn't seem right. Doesn't seem right. Well, incentives are obviously not working. So the public shareholders suffer. The management team wins. And that misalignment is something that, yes, should the board be fixing that and should investors be pressuring alignment there? Yeah, I think that's one easy fix, right? Whose head rolled when they lost the food delivery war to DoorDash?

16:10What's going to happen with all these product issues that were found? Who's going to be responsible for those things? So accountability, I guess, is what I think the key thing that's missing, not just in Uber, but in a lot of public companies when management gets entrenched. Okay, so speaking of accountability and speaking of Uber's ability to, or the fact that it has crushed Lyft, there has been some accountability there. Now, the reports are that these founders are, they left to go spend time with their families or do personal reason stuff. It's amazing to me that people today are even venturing those type of excuses when you know that the business has performed miserably.

16:50And this is almost certainly a business related change. I mean, the numbers for Uber are not great. The numbers for Lyft are downright embarrassing. Lyft is down 87.96 % since it's open. They definitely had the likability thing going. I spent time with John Zimmer, who's one of the founders and one of his, a couple of times, actually, I went with him when he was driving himself on New Year's and sort of getting firsthand experience with the product. I thought he was a good guy. I mean, I do think he's a good guy, but obviously the management has not been there for Lyft. I think you had a tweet saying that you're expecting the price to go effectively to zero or something like that.

17:31So talk a little bit about the Lyft, the challenges that Lyft has had, why you think those founders are out and where you think that company is going? Yeah. So let us be very clear. So here's another stat that's really important here. Lyft in its lifetime, including its IPO, raised$8 billion and they're worth today$3.5 billion. So they're worth a fraction of the amount of money they raised. So it's been like WeWork raised all this money and it's worth less than that. That's not the case at Uber, but that is the case at Lyft. And that's a big thing to consider. The other thing to note though that's i think not intuitive alex is the founders before they went public got voting control of the company so they didn't have to go if they didn't want to maybe they were pressured but ultimately it was their choice to go because they could have voted to keep themselves in um i think you know what happened there is this is my guess right earnings are about to come out in early may for Q1.

18:30My guess is those are going to be a disaster for Lyft. They're going to show real problems. And they didn't want to be responsible for that. So they put someone new in, he'll take the heat and say, well, I'm new here, give me another quarter or two. And then also when they're on the board and not management team, they have better ability to sell their shares. So I think this is a bad sign for the whole company. And I said$5 a share plus or minus. And today it's it's about$9 a share. So we'll see what happens in a month. I said May. You can hold me accountable for that. But we always knew this was going to happen on Lyft, and I'll tell you why.

19:08And it's not because they were bad leaders or whatever. It's just the nature of ride sharing is that it has a local network effect. The more riders you have on your platform, the more drivers want to be on that platform because they get rides quicker, shorter distance between rides. The shorter distance between rides, the lower price you can charge consumers per ride and the more drivers make because they're taking more rides. That was always going to work in a zero interest rate environment. Until a zero interest rate environment was over, when there was no more cash and you start to have to make money, then you can't subsidize the riders and drivers anymore.

19:51And market share was going to start to go to 9010 and that's where it's headed in my view yeah he always talked to me that he he envisioned that ride sharing networks would be like mobile networks where you have a sprint and a verizon for instance and you decide which one you want to use you're shaking your head yeah i mean it's sort of a nonsense analogy in that you're like you know they're totally separate networks one's not dependent on the other whereas the more people and ride drivers on a ride share network the more valuable it is. It's more like a telephone network being more valuable, the more people that are on it.

20:26That's not the case with mobile because a Verizon customer can call a T-Mobile customer. That doesn't change sort of the value of either's network. Maybe that's why they didn't succeed is because they don't really understand the basic talents of network effects in business. I don't know. That seems like one candidate. Yeah. There's also been this, there's been this talking we talked about it last time you were on but it's worth updating now that that self-driving would come in and kind of save the business I mean that's basically all John was talking about was how close we were to self-driving this was 2015-2016 I think we're in 2023 and we're not there yet so how bad has the fact that self-driving is not available yet been for these companies business and their ability to prosper you know I and I still think we're seven to 10 years away from material percentages of cars being self-driving on the road, right?

21:22Travis and I always disagreed on the timeline on this. Both companies - I feel like it's always seven to 10 years. It's always seven to 10 years. It's always seven to 10 years away, right? Both companies spent a lot of money on this, but it was never going to be the savior. I think for both Uber and Lyft, it was a defense against Waymo and Google. The fear was that if we didn't do self-driving and Google did and deployed it fast. Well, that would eat rideshare. So we had to be in both camps. So we weren't disrupted. It was a, it was more defense than offense. The thing I found really strange about Lyft strategy here is that they, they did this ballot initiative in 22 to raise taxes for electric cars, which that was going to save them somehow too.

22:07So sort of these weird Hail Marys that they were doing Instead of expanding into food delivery or to Europe for rides, they're focused on autonomous and on electric vehicles, which I just think were bad, bad business choices. Yeah. I want to say for the record before we move on, John Zimmer, I've been trying to get you on the show a couple of times, sent you an email. You have an open invite. And even though I'm not at BuzzFeed anymore, I hope we can still talk. So just making it known. Yeah. Well, look, everyone says he's a nice guy. Dara is a nice guy. You know, behind the scenes, John, I've tangled with him a few times.

22:45He's pretty, you know, he has his moments as well. Yeah. Well, okay. Hopefully, John, you come in. We can talk about it. So let's talk a little bit. You brought up zero interest rate policy, which is something that I wanted to talk about. So, I mean, how does, because these companies have been subsidizing, like you mentioned, drivers and riders for so long. And of course, when interest rates were zero, you could lose money or be break-even in the markets still loved you when they looked at growth. So I'm very curious to hear from your perspective, how the raising of interest rates has changed the nature of the business for these companies.

23:18Cause you can't take those shortcuts you used to anymore and get the same benefit. Yeah. I mean, it's, it's super simple. And the way we describe it, you're like at some day, there's going to be a musical chair and, and there's going to be one last chair. And if you've been betting on zero interest rate environments and your ability to raise money and subsidize and subsidize and subsidize and not doing the efficiency thing. When that breaks, you're going to break. The valuation multiples were getting pumped because there was so much money in the system and you don't want to miss the next big thing.

23:53And entrepreneurs were rightly saying, okay, what am I going to do with this money? I got to spend it so I don't get smaller than the next guy or gal. So that ethic was a ethic about who could grow faster, which was, again, you have to play the game on the field. Now that that's changed and those multiples come down and some sense of rationality is entered into the picture, which is, well, I can invest in treasuries and get a 6 % year-over-year return, or I can invest in Uber stock. stock. And if that does not grow 6 % year over year or 10 % to account for the risk, well, why am I putting my money there?

24:32And then the money flows out from an Uber stock to there. So then your ability to spend money and raise it without being diluted is changed. So it's sort of a very natural reaction, especially in tech, which was inflated on almost any other sector in the economy. So the knock against these companies has always been that they're just, you know, VC subsidized carpool rides. And when that, when the, you know, the band stops playing, that's going to be the end of these businesses. I mean, we're starting to see that it's made it harder for them to operate. I've got you shaking your head again. So clearly you have a rebuttal here.

25:08So what is it? No, no, I was going to add context to what you said, which is you were right that those were VC dollars subsidizing it, but you had to do that because if you didn't, the other company was going to do that. But our theory of the case was we will subsidize as long as we have to and as long as the money is available. And then when it comes down to it, the bigger party is going to win when there's no more money available. And that's what I'm saying is happening today. The bigger party, because of the dynamics of the ride share market, is going to win and it can be highly profitable.

25:44And that's what I think is going to happen. You're just out of the 10K. What's the profitability picture for Uber right now? If you're using normal accounting metrics, if you start there, it's losing a couple billion dollars a year still. Now, to be fair, a lot of that is because of the stock they hold in Didi and Grab and some of these other rideshare companies around the world. those are mark to market every year or quarter. So depending on how it's, you know, it's not really a cash cost to Uber's balance sheet. So if you strip that away, then, you know, they're still losing money, especially, you know, to the tune of probably a billion dollars a year.

26:28They're paying, I think last year they paid, you know, one or two billion in stock-based comp, which is another kind of current trick that tech companies are using and taking out of EBITDA. So adjusted EBITDA doesn't include all the money you pay your employees anymore, which is something that I don't think clouds the picture a bit. Yeah. One more question about these companies, and I think we're going to start to cover some other stuff. But you mentioned DoorDash has given Uber a run for its money, or I think you said it They whipped them in North America. What has been the secret to DoorDash's ability to do so well?

27:10Tony Zhu is an entrepreneur, not sort of a, you know, caretaker, diplomat type CEO. So he is in the product. There's 0 % chance in my, I don't know, Tony, 0 % chance he hasn't made deliveries on DoorDash frequently to see what that experience is like. So they've just innovated. Some of the innovative innovations they've done that are really material. DashPass, a huge innovation, right? Because people are ordering so much food during the pandemic that if you could sign up for this 999 subscription plan and have free deliveries, it was a deal all day long. And then why would you use Uber Eats? So the loyalty they got with that, they're way ahead of Uber by years on that piece.