Uber Just Put Every Tech Company In Danger
And it’s great news for progressive consumers
A few weeks ago, President Trump sent the nation’s airports into a frenzy with a poorly conceived executive order (“Which one,” you ask? Ah, you joker, you know which one.) Taxi drivers in NYC united with airport protesters, refusing to serve the JFK area. Uber, whether in a calculated move or simply an innocent one interpreted in a certain way, turned off surge pricing around the airport, effectively working against the taxi drivers and the protesters. That, combined with CEO Travis Kalanick’s having accepted a position on Trump’s business advisory board, led to a swift backlash. 200,000 riders deleted their Uber accounts in a matter of hours, and the headlines were written just as quickly.
But let’s put the numbers in perspective. In late 2016, Uber reportedly had roughly 40 million monthly active users— so those 200,000 who deleted their account is roughly one-half of one percent of their active user base, if indeed every one of those deleted accounts represented a monthly active user. A problem, sure, but nothing to be too worried about, right? Right?…
Wrong. Uber’s genius is in its lack of infrastructure: it doesn’t own the cars (and won’t until the day autonomous driving arrives) and it doesn’t employ the drivers. Its roughly $68B valuation is based on cash flows driven by rapid growth, which in its own turn is driven by an exceptional customer experience (and it is exceptional).
But that lack of infrastructure, which let it grow so quickly and so broadly, is the exact thing that makes it incredibly vulnerable to protests. If Uber’s customers leave, they have no fallback position. The implications here are clear if we look at how our economy has evolved over the past 100 years.
Imagine that we’re in 1970, and General Motors says or does something about Vietnam that a large group of people don’t like. [Note: this is a hypothetical, the point isn’t GM’s real or imagined positions, either in 1970 or today. Don’t @ me about this example.] A boycott is organized, it gains adherents and some press, but GM doesn’t budge. A month later, there’s no impact on their bottom line. Two months go by, everything blows over, and people forget. GM continues on their happy way. Why? Because their value isn’t based solely in the consumer. They have factories, employees, investments —and in fact, the one thing GM doesn’t have is any contact with the consumer, since they only sell to dealerships. The consumer’s ability to effectively protest GM’s actions was, at this time, extremely limited.
This was the Fordist economy: invest in infrastructure, design and production, and then the end consumer buys whatever we sell them.
The digital economy is different. As Nicolas Colin has shown, today’s balance of power has been shifted, away from management and shareholders and toward employees and customers. That’s why the Uber protest was so effective, and so important in moving forward: it clearly demonstrated the fragility that lies at the heart of many tech giants, who have to win their customers over every day or risk dying, not in a few years, but even in a matter of weeks.
Because the domino effect could have been huge. With Uber’s little brother, Lyft, having a solid PR response to Uber’s troubles, Uber was truly in peril. If the customers start moving, there’s nothing keeping the drivers in their corner (and indeed, drivers can already use multiple apps at once, so they’re rightly not loyal to any one company), the investors get spooked, money keeps flying out the door, new users head toward the new market leader, the possibility of an IPO disappears, etc. There are scenarios in which Uber never recovers, instead getting stuck giving rides to Pets.com and Theranos in the eternal startup afterlife…
These are extreme scenarios, sure — but they aren’t impossible, or even improbable. And that’s why Uber and Kalanick acted quickly.
What does this all mean moving forward? Some consumers have a newfound power over many companies, a power that they never had in the 20th century’s model of production and consumption. Which consumers, you might ask?
Mainly, urban, progressive consumers. Economic value in the United States is concentrated in locations whose populations vote for progressive politics over conservative politics. As Richard Florida points out, this geographic concentration of economic power has significant implications for the very idea of the nation-state. Given this concentration of value, and thus available cash, it’s no surprise that tech companies focus on these markets. These trends will continue into the future, even if the nation-state isn’t disappearing tomorrow (pace the nuclear football).
And the current realities of national politics in the United States are difficult for liberals. The concentration of liberal populations in urban centers is a negative given the vagaries of the Electoral College (the reason why it has been two Republican presidents, Bush II and Trump I, who recently won the presidency despite losing the popular vote). Effective Republican gerrymandering over the past ten years has left much of power within individual states in the hands of conservatives as well.
That’s why it’s even more important, for the next few years at least, to recognize that in terms of economics, the power of the urban, progressive consumer has never been greater.
3 Companies, 3 Situations
Let’s take 3 examples to see how pressure can (or can’t) be applied.
1/ IBM is currently experiencing a bit of a controversy due to its claim to be apolitical, which has led to comparisons (rightly or wrongly) with the Vichy regime in France during WWII. CEO Ginni Rometty has tried to calm things with a letter to employees, explaining why she will remain on Trump’s business advisory council. So is she simply more of a Trump supporter than Kalanick?
Not necessarily. IBM has largely exited consumer markets, oriented instead toward business applications. No consumer market = no power to the consumer. It’s a tough road to try to get people to quit, say, Facebook because they have business ties with IBM.
2/ Tesla’s Elon Musk is also staying on Trump’s advisory council, despite similar pressures. But Tesla is already a public company, it sells a product that is unique on the market, and it has a significant infrastructure that holds value over time (essentially, the time to weather the storm). Specific consumer product + infrastructure = little power to the consumer, at least in the type of situation we’re looking at in this article.
[Sidenote: both IBM and Tesla do, however, face the significant pressure of keeping their employees happy. And in today’s world, where employees of the leading tech firms can and do move around largely as they like, the importance of this fact should not be discounted. So if you want to pressure those companies, it helps to be an employee or a friend of an employee ;)]
3/ Uber, we’ve already addressed. But the takeaway is this: fundamentally consumer market + little infrastructure + need to provide exceptional UX = ripe for political pressure.
There is no shortage of companies that fit this description, including 3 out of the big 4: Google, Facebook and Amazon (Apple, by virtue of their product offer + infrastructure + profit margins, is likely untouchable for now). The GAF are not, obviously, as fragile as Uber. All have diversified to a point where they will not disappear in the weeks or months to come. But the basic math remains the same: if their customers are unsatisfied and start leaving for another service, here today, gone tomorrow…they’ll be in serious trouble.
The TL;DR Conclusion
The ability to effectively and quickly push progressive agendas in 2017, while faced with Trump in the White House and a majority of states fully controlled by Republicans, is based in economic power and liberals’ relationship to tech companies. Companies in the 21st century can grow quickly and have significant power on local, state, national and international levels. But that power no longer insulates them from consumer wishes, not in terms of their products and not in terms of their political positioning.
Want to preserve the advances made by the EPA? Push your dollars toward renewable energy and away from pipelines. Want to have equal pay? Search out information, privilege companies that practice it and punish those that don’t. Want to protect LBGTQ rights everywhere? Use networks and the power of the multitude to keep people’s feet to the fire.
And rejoice! In 1970, GM was stronger than you. In 2017, Uber isn’t. Go forth and apply pressure.
Thanks to Nicolas Colin and Oussama Ammar for reading and commenting on a draft of this article.
