MAY 15, 2018

Dara Khosrowshahi on Building ‘Uber 2.0’

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Uber has become a household name for transportation, but its dominance hasn’t come without controversy, however. Uber’s reputation as an innovator has often been overshadowed by negative revelations about its culture. In 2017, Dara Khosrowshahi left his role as CEO of Expedia to take over Uber’s reins from founder Travis Kalanick, and get the company on the path to cultural reform, profitability and, eventually, IPO. In this episode, Dara discusses why he made the move to Uber, what he’s learning – and the role of “flying taxis” in Uber’s future.

Press Play to hear the full conversation or check out the transcript below. You can also subscribe to Office Hours on Apple Podcasts and PodcastOne.

Rascoff: Hey Dara. It’s great to see you. Thank you for talking with me today.

Khosrowshahi: Great seeing you.

Rascoff: You’ve somehow escaped my podcast microphone up until now, so I’m glad to finally get you in front of a microphone with me.

Khosrowshahi: Well, it’s about time.

Rascoff: You’ve been busy; I’ve been busy. So, I’ve known you for 25 years believe it or not. That’s how long it’s been. I worked for you when I was 18 and you were in your early 20s at Allen and Company and we were both scrub investment bankers and you taught me how to —

Khosrowshahi: You were more scrubby than me.

Rascoff: That’s true.

Khosrowshahi:  You were 18.

Rascoff: I was still in college. I guess you were — were you out of Brown probably?

Khosrowshahi: I was out of Brown at the time, thank God.

Rascoff: So, you taught me financial modeling on Lotus 1, 2, 3. That’s how — just to date both of us —

Khosrowshahi: Those were the days.

Rascoff: And so — and then of course our careers crossed paths later when at ICN Expedia, you bought my company Hotwire and then we got to work together at Expedia. So, when the whole Uber frackus and kind of horserace for the new CEO of Uber was happening, I, of course, was silently and secretly rooting for you, and when the white smoke finally emerged and you were named as the next CEO of Uber —

Khosrowshahi: The unknown third candidate was my official position.

Rascoff: Well, I couldn’t have been happier, and I immediately said to myself, “Wow, that was an inspired choice and an incredible decision,” and the reason I said that was I thought, you know, look, obviously you’ve got operational expertise from Expedia and strategy chops and business operations chops, but I felt like you were the candidate that understood people and culture the most and I thought that was probably what — from the outside looking in, anyway — Uber most needed, especially at the beginning. So, when you got the job how did you approach your priorities? Was that where you started and, if so, why and what did you find?

Khosrowshahi: It was certainly top three. So, there were three things that I knew that I had to get done as quickly as possible. One was kind of the board governance of the company going forward because there were questions on that, and it was something that had to be resolved very, very quickly. The second lesson that I’ve learned is it’s very tempting to jump into a situation and try to do everything yourself, but I had to get a management team in place. So, bringing in folks like Barney whom we work with, Barney Harford, who’s the COO who we worked with at Expedia, or Tony West from PepsiCo, those were early moves, and it was a bit of a lesson learned, which is before you get to doing stuff get people who can help you leverage yourself and can work with you.

So, that was second, and then for me culture was very much third. The company had a historical culture that, you know, was responsible for building an incredible company, but at some point went too far. Values like toe-stepping, values that, to some extent, were weaponized in an aggressive way, in an overly aggressive way, and I knew that we had to come very quickly with a new set of cultural values, norms as we call them because they drive behaviors, and we very early went to the employee base and said, “What do you think Uber 2.0 should look like? What kind of a culture are you looking for?” and that started us along this path of the new norms of Uber.

Rascoff: So, how much internal opposition was there to that? Were there people who said, “Look, of course we probably went too far and there was perhaps inappropriate workplace behavior going on, but the sense of competition, of having that edge, that’s what made us successful. Don’t water that down, Dara”? Were there people —

Khosrowshahi: Definitely, definitely, and by the way, there are good points there. And where we wound up with the new norms were a combination of some of the old values that the team really held dear to their hearts. We make big, bold bets. That’s an old value that has carried over. We think like owners. So, the values that we came up with are a combination of new and old because actually the old values created a company of huge import in people’s lives of enormous value, but there’s a saying that Reid Hoffman talks about, which is success imprints more strongly than failure, and I think the success of the company — the aggressiveness, the drive for growth at any cost — probably imprinted too hard and it was time for a change, but we didn’t want to change completely because the get-things-done-yesterday attitude, the go-get-them attitude, the controlled-now aggressiveness is something that we want to keep because there’s enormous growth ahead of us and hopefully where we can wind up is a combination of old and new that’s better than what we had, let’s call it, a year or two years ago.

Rascoff: So, of course the Holder Report helped identify the things that needed to be changed — you worked on the governance and the board and reshaped the board, you reached an agreement with investors and separation with the founder/CEO. When you developed these new values how do you then codify them around the company? How do you make sure that they’re not just posters on the wall?

Khosrowshahi: It’s still a work in progress, and I think that the putting your values down is the easy job; actually making them a part of your everyday activity is much tougher, and we’re pretty young along that process. And part of it is weaving in the values in a practical way where employees can see it on a day-to-day basis and then having it seep into actually what you’re doing. I’ll give you one example of a value that rings true in these hallways almost daily, which is a value, very simple value: “We do the right thing, period.” And most of our values have details behind them — this one, period.

Rascoff: It stands on its own.

Khosrowshahi: And I think that all of us — you, me, even our kids — they kind of know what the right thing is, and it’s demanding an expectation of our employees to say to examine what they do on a daily basis and think about personally, “Does this seem right to me? Is this right to me in terms of a representative of the company? Is this fair to our rider partners? Is this great for our – sorry, our driver partners? Is this great for our riders? Is this great for our cities?” et cetera. And I keep asking these questions and now I’m seeing our employees ask these questions as well, and that’s when values, which are words, become norms and essentially become actual actions that affect your daily decisions. So, we are early in the process, but I’m seeing signs of it happening.

Rascoff: The best descriptor of that value I’ve heard was from Aaron Levie on this podcast from Box. They have a core value at Box, which is, “Make your mom proud,” which I think is a good way of saying, “Do the right thing, period,” in a way that we can all kind of understand.

Khosrowshahi: That’s great, yeah.

Rascoff: I mean, I know that our core values at Zillow are starting to come out when I start seeing them in meetings when they’re not coming out of my mouth.

Khosrowshahi: Yes.

Rascoff: So — okay, so get the values and figure out how they can start seeping into the company. What about the business decisions that you were faced with outside of people and culture? I guess it’s been widely reported that you came in expecting or considering to shut down autonomous vehicles or the self-driving car initiative but that you were convinced otherwise by your visit to Pittsburgh. First of all, is that accurate and, if so, what is your vision of self-driving? Why is it so important to you?

Khosrowshahi: You know, I think as it relates to autonomous I wasn’t convinced one way or the other coming in, but I wasn’t sure whether we needed to be a principal in the autonomous efforts because there are lots of companies out there that are developing autonomous technology. One was I saw the capabilities of the team and the passion of the teams and whether or not it was something that we were doing standalone, the work being done there was terrific work and was ultimately going to build huge value in the future and I thought, “You know what, that’s a good bet for our company to make.”

For us, autonomous ultimately is about safety. There are over one million lives that are lost as a result of car accidents around the world. Safety is a huge issue as it relates to driving, and the autonomous technology is unambiguously going to be safer at maturity. It’s also about bringing the cost of mobility down or continuing to bring the cost of mobility down because — and making mobility available to more people on a global basis so that you don’t get mobility only if you can own a car. That’s a huge, huge cost in order to have a mobile life, be able to get around, and we think mobility and opportunity really go hand-in-hand. And for us, to some extent, the investment in autonomy is mission-led in bringing mobility to people all over the world regardless of economic circumstance, regardless of their background, and where they live.

Now, I do think that we and a number of other players are going to develop autonomous. It’s a question of how fast. What we have is we have autonomous and a ride-sharing network under one roof, and we think that developing those two technologies under one roof have structural advantages or create structural advantages that some of the other players don’t have.

Rascoff: Okay, but let me push it just for a second.

Khosrowshahi: Sure.

Rascoff: In terms of why you would need to own your own autonomous initiative. I mean, you could’ve sat back and said, “Look, I’m going to let Tesla and BMW and Mercedes Benz and these other companies develop autonomous vehicles and then whoever wins we’re going to buy a lot of those vehicles at that point.” And the extra profitability from that decision, from not investing in autonomous yourself, would allow you to achieve — more readily achieve your mission of creating mobility for more passengers. So, what is wrong with that point of view?

Khosrowshahi: It’s order of operations. We want to — we believe that we are in a better position to commercialize that technology faster because we have a team that’s specifically working on that technology and they’re not working on it in a demo way. They’re working on it in a way where we can make that technology commercial and we can feather in that technology into our existing ride-sharing network so that we have practical commercialization of this incredibly promising technology.

As we do that, don’t get me wrong, we’re going to license out that technology to the BMWs and the Daimlers and the Toyotas and the Renaults of the world. We aren’t insistent on keeping that technology on a proprietary basis, and we do want to work with as many OEMs and as many car manufacturers out there so that they can take the technology that we develop, make it their own, put it into their cars and make it available to you if you want to own an autonomous car personally or hopefully make it available on a shared basis — shared fleets that engage in our network one day.

Rascoff: Could you ever imagine licensing the technology to another OEM that then sells those cars to a competing ride-sharing network?

Khosrowshahi: Imagine? I’m not sure if we’ll go in that direction, but it’s something that we’ve talked about. But ultimately, I think car manufacturers are going to be the ones manufacturing the hardware. We don’t want to get into the hardware manufacturing business. We want to build the software and some of the hardware kits early on and ultimately we think that this technology is going to be broad-based, and we will be a part of making it broad-based.

Rascoff: I guess in a world where Netflix is hosted on AWS and one of Netflix’s primary competitors is Amazon Prime Video, anything is possible.

Khosrowshahi: Competition/coopetition I guess you’d want to call it.

Rascoff: So, but you’ve had to navigate this autonomous investment while also having a network of human drivers, right?

Khosrowshahi: Yes.

Rascoff: So how do you — what do you say when a driver looks you in the eye and says, “You’re going to put me out of a job? Within five to 10 years there won’t be any Uber drivers.”

Khosrowshahi: So, I very clearly tell them that we’re going to need more drivers five to 10 years from now. The autonomous technology — a lot of people talk about automation and replacing workers, but actually if you look at practical automation — for example, in automobile manufacturing — automation and people go together well. And we think that for a long time from today you’re actually going to have hybrid networks where there may be a trip going from A to B, which is perfectly mapped in a city that has alternative routes, the weather is good — so everything falls into place and that route can be covered autonomously. And then there are going to be routes that only drivers can take you through. There’s a gate, the mapping isn’t quite right, there aren’t alternatives, there’s a traffic accident, et cetera, where a person is better suited under certain circumstances to cover that ride. So, we think that our network is going to be a hybrid network five to 10 years from now for a long period of time.

The other factor for autonomous is that autonomous is going to take the cost per mile down very significantly for our ride-sharing networks where a ride-sharing network becomes actually competitive with car ownership. We — people think about Uber and riding sharing as being a big business. We account for less than 0.5 percent of miles driven on the road today in the U.S. In a world where autonomous becomes commercialized like you talk about we think actually the miles driven is going to go from 0.5 percent to maybe 20, 30, 40 percent, so that’s like a business that is not like 100 percent bigger; that’s a business that’s 40 times bigger.

Rascoff: Yeah, that would require a lot more drivers.

Khosrowshahi: Exactly. So even if you’re 20 times bigger and even 20 percent of your routes require a driver, you’re still going to need four times as many drivers. So, automation is going to, we think, radically increase demand for our services, and really car ownership is going to be the piece of the business that suffers. But I think drivers are going to be part of the formula for a long time.

Rascoff: Do you think your kids will own a car?

Khosrowshahi: No, I hope not. I think car ownership is a true waste. Cars are  — they are used 5 percent of the time; 95 percent of the time they’re not used. Ten to 20 percent of space in cities is taken by parking, et cetera, so you use assets much more effectively, you return green space or any space that a city wants, you give that space back to a city, I think traffic is ultimately going to be better, sharing is going to be bigger, so I think it’s going to be an unambiguous, positive factor going forward, but it will take time.

Rascoff: I think I read that you described the current state of autonomous as like student drivers, and someday they’ll become full-fledged drivers.

Khosrowshahi: Yes.

Rascoff: So, I mean, there are going to be other accidents; I mean, there already have been accidents, right?

Khosrowshahi: Mm-hmm.

Rascoff: What impact does that have on the company when there is a tragedy?

Khosrowshahi: It’s a tough impact. This was a very hard dose of reality. People talked about theoretically there was going to be an accident. It’s easy to talk about in theory; when it happens it tougher, obviously. It’s a tragedy for the family first, but we’ve taken it incredibly seriously. We have grounded the fleet, we’re working with authorities — the NTSB, NTSA — to share with them everything that we have so that they can figure out exactly what happened and why. And then from my standpoint and our standpoint we are now undergoing a top-to-bottom audit, safety audit, so that I can be, we can be satisfied that when we get back on the road we get back on the road in the most safe, efficient manner, but above all the most safe manner. And you’re right: This is — a car can be weaponized either by accident or not by accident. I want to make sure that we have done everything that we can in our power to be as safe as possible so that we can avoid something like this happening again.

Rascoff: Well, my brother died in a car accident when he was 17 and I was 15, and there’s no question in my mind that the country, the world will be a lot safer with autonomous vehicles eventually. Now it’s going to take a little while to get there, but it can save lives and I’m sure that’s really inspiring to a lot of employees. So, I’m rooting for you, but it’s going to take time and I’m sure it won’t be — it won’t go exactly as planned.

Khosrowshahi: No, certainly not.

Rascoff: So, there have been a lot of other investments that you’re making beyond the core ride-sharing business with human drivers: Uber Eats, medical delivery, I don’t even know how many other dozens of initiatives and how many billions of dollars you’re spending.

Khosrowshahi: Flying taxis; we’ve got it going on.

Rascoff: Flying taxis. So, how do you evaluate? How do you resource, allocate across all these other initiatives? How do you decide which ones to invest in, which ones not to, which ones to increase, which ones to shut down? I mean you got out of the car leasing business for example, so you have trimmed some extracurricular initiatives, but others you’ve invested increasingly in. How do you make those decisions?

Khosrowshahi: You know, the science is not perfect with those decisions and anyone who says that you can put a — define it perfectly in a spreadsheet is kidding themselves or assuming significant digits or certainty where there isn’t certainty. The core for us is the ride-sharing business and now the Eats business. The Eats business has been an unbelievably great surprise for me; it wasn’t something that I was counting on coming in, but it has expanded at extraordinary rates with unit economics that actually make a lot of sense.

So, I think the ride-sharing business, the Eats business and the autonomous unit — which is ultimately going to be a very important technology to power both — are what we call the core of the business. And then as a company we think if we are in the $6 trillion transportation space, we should be making bets on parts of the transportation ecosystem that are more risky, and those are what we call our big, bold bets. So, we’ve got a bet in freight business where we want to revolutionize the freight brokerage business, which is something that’s pretty interesting.

We’re looking at different adjacencies such as Uber Health, bringing the rides business to be HIPAA compliant — ultimately cost pretty significantly, and then some pretty cool technologies such as Uber Elevate, which is using new technology, new battery technology, and working with manufacturers to start designing the air taxi. And the technology is possible now — they are vehicles with multiple rotors, they can work in cities without being unbelievably loud like helicopters can — and these are forward-looking investments that are going to commercialize over five, 10, 15 years. But when you have — when you’re working in a space that is as large as transportation you’ve got to make those kinds of big, bold bets and we hope to continue to as a company.

Rascoff: Do you size and scope those other investments as a percent of total expenses or this is just sort of — I mean, how do you know you’re not investing too much or too little in flying taxis?

Khosrowshahi: I still probably don’t know. We scope the ultimate market size. We think that flying taxis — we scope when we believe that certain technologies are going to be commercialized, and then we make a bet on how much capital are we going to put behind this thing. And very importantly we try to organize these bets pretty darn independently, you know? If these entities are competing for the engineering resources or the attention that the mainline business is getting they’re never going to get the proper attention. So, we try to create resource pools that are dedicated to these groups, we try to create as much of a startup within Uber as we can, and then let them go and either prove themselves or, like leasing, not prove themselves, in which case they will be subject to market realities and will be restructured.

Rascoff: So, you just bought a bike-sharing company.

Khosrowshahi: Yes, yes, Jump.

Rascoff: Why did you do that?

Khosrowshahi: We thought that the product was terrific. We launched with Jump in San Francisco and we saw a couple of things. One is the Uber rider was actually pretty interested in e-bikes. The average length of an e-bike trip was 2.6 miles, and that actually has a pretty significant crossover with the average length of an Uber X trip, and we thought, “You know what, this technology could ultimately cannibalize Uber X,” and rather than having someone else cannibalize yourself, well, we should be the ones cannibalizing ourselves. And you know the product itself — when you look at the unit economics and the user NPS was just out-of-this-world great and, you know, you take those shots, and the founder is a pretty good guy too so that helped.

Rascoff: And what about scooters? They’re everywhere here in San Francisco, in Los Angeles, elsewhere, much to the chagrin of many local regulators and politicians.

Khosrowshahi: Yeah, it seems that way. You know, we’re going to take a look. I mean, I think that we are — we want to work with the local regulators in the cities that we operate in. We’re going to be working with them on a lot of different areas, but scooters seem to be something that’s pretty popular; we’ll take a look. We’re not sure exactly which way we’re going to go yet.

Rascoff: You’ve talked about trying to lay the groundwork for an IPO potentially in 2019. You were the CEO of a public company for a long time. There are pros and cons, as you know, to running a public company. What are the pros in your mind of Uber going public in 2019 or whenever it might happen?

Khosrowshahi: Well, I actually think that we are — we suffer from a bunch of the cons without any of the pros. You know, you look at how much we’re in the news, you look at how many investors we have; I have an investor call now and I’m a private company. So, I just think when I look at the pros and the cons, a bunch of the cons I’m living with now and the pro is liquidity — liquidity for investors, liquidity for employees, for me to be able to point to a stock market price when we’re bringing employees and issuing equity, et cetera. So, I figure if I’m living with the cons I might as well get some of the pros as well.

Rascoff: What about the extra transparency to competitors? How big of a risk is that?

Khosrowshahi:  You know, I think that right now there are a bunch of services out there that look at market share pricing, et cetera, so transparently there might be just a little bit more transparency, but I figure that if we’re running fast enough whatever picture our competition has of us is a picture that’s a picture of the company three to six months ago and not a picture of where the company is going now or where it’s going in the future.

Rascoff: So, one of the challenges, of course, of being public is it’s a little bit more difficult — or it can be more difficult — to make big investments in money-losing initiatives that management believes will create long-term shareholder value, but maybe short-term-oriented investors aren’t as excited about. So, how are you going to balance that issue once you’re public on initiatives like Uber Elevate and others?

Khosrowshahi: I think that if we are consistent in our activity and we explain to our investor base that we are very long-term oriented — we’re not going to be making bets based on quarterly results, we’re not going to be managing the business based on quarterly or even annual results — and then we act accordingly, but we also hold ourselves accountable that if something is not working we’re going to tell you about it. If something is not working we’re going to exit while having a long-term view. I think if we’re very clear in our own heads about how we act and we are clear with investors, we will find our own investor base. The short-term investor is going to look at the company and say, “I’d be crazy to invest in that company,” and there will be certain long-term investors who like the fact that we’re not thinking quarterly, and they’ll be the ones making bets on us. So, to some extent I think that as long as we’re clear-eyed we will define our own investor base, and it will be an investor base who will know what they’re signing up for.

Rascoff: That has been our experience, but sometimes it takes time to “find” that investor base.

Khosrowshahi: Yes, yes.

Rascoff: You know, we have generally very supportive long-term investors that are pretty supportive of us making the decisions that we think will pay off down the road, but, you know, it’s not a straight line from here to there.

Khosrowshahi: It never is. It never is in the public markets.

Rascoff: But I agree with you that the pros outweigh the cons, so I think —

Khosrowshahi: And I think you’ve got — I think it’s Jeff Bezos saying you have to be willing to be misunderstood for long periods of time, but eventually the market typically catches up to either the potential of the company or the near-term results of the company.

Rascoff: I mean look, it’s the quid pro quo that you — it’s the social compact that the startup makes with their employees and their VCs and other stakeholders when they join that, hey, hold your breath for some period of time and then there’ll be a liquid stock at some point, so it makes sense.

Khosrowshahi:  And I also think it’s very easy for companies to say, “Hey, think long-term. Think long-term.” The tough part about public company investors is they’re being marked to market every single day. So, when you tell one of these investors who can sell on a daily basis think about where things are going to be two to three years from now, you and I, as management, you and I know we’re going to be around for two to three years — at least I hope we’ll be around for two to three years. It’s natural for us to look in that timeframe. The tough part people don’t talk about is these investors in public companies right now — they’re being marked to market every single day, and, you know, all of the investment wisdom right now is saying that passive investing is the way to go. So, you and I can talk about our problems, but I think compared to some of our investor base our problems are fine. They’re problems we can take on.

Rascoff: All right, so before we wrap up I want to just run through a couple of questions that came to me from Zillow employees via Slack, and so if we can just run through a couple of these.

Khosrowshahi: Great.

Rascoff: So, “We’ve read a lot about Uber in the news, but a lot of us have friends — a lot of us here at Trulia and Zillow — have friends who currently work at Uber. Please ask Dara to share something that we haven’t read about Uber’s culture.”

Khosrowshahi: I think what you haven’t read about Uber’s culture is that, and what I’ve found, is that the employees here are true-blue believers in the mission of the company to bring transportation — dependable as running water — to everyone, everywhere. There’s this core sense of mission that we’re going to bring mobility to everybody and mobility is a human right and the folks who are here have stuck around some really, really tough times and it’s been such a great surprise for me just to see the culture that has been created here organically from the bottom up in 2017 that was a historically difficult year for the company. The people have been great.

Rascoff: Working in a mission-oriented company is really inspiring.

Khosrowshahi: Yeah, it’s awesome.

Rascoff: I think when you left Wall Street by way of IAC to go to Expedia, I mean, correct me if I’m wrong, but I think one of the things that drew you to it was the opportunity to work at a mission-oriented company.

Khosrowshahi: To be a part of something great, to be a part of a purpose that is greater than just making money is something that is just wonderful.

Rascoff: Laban asks, “Much like Zillow, Uber has access to lots of raw data like popular routes and prime time for riders. Have you considered either helping cities improve public transportation or looking at doing privatized routes in those underserved areas?”

Khosrowshahi: Absolutely. So, we are making our data now available actually to our city partners, and it is something that they’re very interested in in terms of traffic patterns, parking patterns, pickup patterns, et cetera, and we’re actively working with our city partners there.

Rascoff: Mary Weiss asks about self-driving cars. She’s excited and optimistic about it, but she’s concerned about data and hacking these cars. Is that something that you think riders will be concerned about?

Khosrowshahi:  I think it’s definitely something to be concerned about, but the good news is that these are — at least early on the hardware and the software stacks are going to be highly integrated and, you know, that’s a little tech-y but for example there’s a reason why Macs are harder to hack than Microsoft-based operating systems, based computers, because the hardware and the software stacks are different. So, I think that we should be pretty well armed early on. If you move into a different kind of software/hardware architecture there may be some vulnerabilities, but all of our systems, all of this “internet of things,” every single system out there is going to be vulnerable and it’s something to watch out for.

Rascoff: Last question. Natalie asks, “What are you most optimistic about, whether it’s related to Uber, the state of our country, the world, innovation? What are you excited and optimistic about?”

Khosrowshahi: I’m excited about Uber right now, and that’s honestly what I spend most of my time on. The company went through a really tough 2017, and the energy that I see in the hallways and the determination to get the company back on track and the sense of mission here is palpable, and I just want to be a big part of it.

Rascoff: Thanks a lot, Dara.

Khosrowshahi: Thank you.