Title: Kiriakou Reports on the Flawed Business Model
Show: Enema of the State
Date: 2023-01-03
URL: https://youtu.be/G8eA70X9NOU
Duration: 24:00

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[00:06] whistleblower Mark McGann disclosed more than 124 000 documents detailing how Uber flouted laws in countries across Europe duped police exploited violence against drivers and secretly lobbied governments in order to aggressively build its Global Empire the 52 year old Irishman served as Uber's Chief lobbyist for Europe the Middle East and Africa from 2014 to 2016 and oversaw government relations and public policy in more than 40 countries he was responsible for

[00:37] courting governments in more than 40 countries to convince them that Uber was the next big thing investment opportunities abounded people around the world wanted to get in on the ground floor Executives threw themselves at the company hoping to work for what they thought was the next Google or Apple and Uber presented itself as a life-changing opportunity especially for low-income people with access to a car they could work for themselves as many hours a day as they wanted this guy was the limit to what they could accomplish but it wasn't

[01:08] all that easy and the picture wasn't really that Rosy the company began facing pushback especially from taxi drivers protests erupted in Berlin London Paris and Athens courts in Germany restricted some of Uber's services and in Greece the company was banned altogether McGann was put in charge of a team that was to confront these challenges he argued that Uber was not anti-regulation it was a tech company he said using data to match Supply with demand but in

[01:39] reality it was much more than that McGann leaders said quote the Mantra that people repeated from one office to the other was the Mantra that came from the top don't ask for permission just hustle and list drivers go out do the marketing and quickly people will wake up and see what a great thing Uber is unquote in reality Uber was running roughshod over the status quo gig work in many countries offered no benefits long hours low pay and grinding work conditions Uber wasn't the great job

[02:11] opportunity it marketed itself to be the opportunity that would lift people out of poverty and to make matters worse the company's leadership knew that from the beginning finally earlier this summer mark McGann provided 124 000 pages of internal Uber documents to the Guardian newspaper which in turn shared them with the international Consortium of investigative journalists and with the most important newspapers in the Western World the documents which cover the period from 2013 to 2017 laid bare the company's tactics to established

[02:42] footholds and to win market share even if that meant violating the law and we want to bring in an Uber expert whose knowledge of the economics of Transport competition and regulation allowed him to demonstrate that Uber is incapable now or in the future of ever earning profits his Uber analysis through mid-2017 was incorporated into his Transportation Law Journal article called will the growth of uber increase economic welfare I want to welcome Hubert Horan welcome to the show

[03:15] you're an expert on Uber and on Transportation tell us in brief where you think Uber stands right now as a company in our society is it something indispensable and that will be with us for a long time or is it the type of company with a business model that is outmoded or just can't last for very long Uber is phenomenally unsuccessful against any measurable objective criteria you can think of economic Financial transportation

[03:45] uh it's racked up 31 billion dollars in losses it took 11 years to produce the very first dollar of positive cash flow no one at Uber or following Uber can produce a plausible Story how those massive years of losses can suddenly be turned around and become years of large and sustainable profits it's now producing less taxi service at much higher prices than traditional

[04:16] taxis did the ones that it drove out of business before it started um all of its claims that its stock would be highly valuable because it would achieve Amazon type profitable growth in its Core Business um which is to say Urban transport and then profitably explained into lots of other businesses have been proven to have been total nonsense uh Uber keeps claiming that oh we had problems in the past but those were fixed four years ago when we changed

[04:47] CEOs but in those four years Uber has done nothing to act fix its awful basic economics are all ride sharing companies operating on this same broken business model lift is concentrated in the domestic U.S in a narrower set of markets than Uber but it's the identical business model yes and it it's losing money uh and has no plausible story um an even better example is DD in China

[05:19] which actually achieved the virtual monopoly market dominance that Uber was trying set out to achieve 10 years ago and it still can't make money so there's no evidence anywhere on the planet that this kind of business model from Mr pure standpoint uh finances can can produce anything um my research which started six seven

[05:52] years ago was was basically focused on that question Uber's underlying business model was always incapable of either improving the transport service in big cities or generating the kinds of profits that investors needed um it's claims about technological advances were never demonstrated and were always false uh its business model is actually less efficient and higher produces at higher costs than the all the traditional taxi

[06:24] business model did it never had the kind of big scale and network economies that allowed other Venture Capital backed firms to quote grow into profitability after initial losses now the old taxi industry had lots of problems that as everyone knows but Uber's business model didn't fix any of them uh Uber's business model couldn't profitably produce lots of additional drivers at low fares on Saturday night when Peak demand hit or when it rained

[06:56] all of Uber's early popularity and growth was driven by billions and billions in unsustainable investor subsidies it's trying now those subsidies have basically run out and it's raised fares enormously but there's no evidence that the mass Market that Uber and these other companies are pursuing will ever pay the true cost of the service

[07:27] you could be a tiny tiny Niche serving wealthy people um but the mass Market that was the heart of the Uber business model can't be served properly it's uh the extent that it's improved which reduced its losses let me not say improve profitability it's almost entirely driven by squeezing driver compensation has nothing to do with scale economies or improved

[07:58] efficiency it is simply cutting driver pay what's wrong with the business model and is there a solution they've been producing those 31 billion in losses over time if there was a solution I think they would have found it by now I think they would have found it years ago I don't think there's a solution but I think the evidence that they can't produce money you know suddenly make this service profitable is the real

[08:31] demonstration um a niche high-priced taxi service that is limited to the pockets of highest demand in the city is not a viable business they're trying to scale back to that which again reduces the cash drain but doesn't make it a profitable business if you research Uber you won't find anyone who says oh yes here is what

[09:02] Uber could do to become sustainably profit no one has made other than just sort of scratching their belly and and announcing wishful thinking no one can lay out here's how they improve the economics here's how they improve revenue or here's how they improve efficiency and productivity to make it work and again if there was a way they would have done it is it only a matter of time before Uber and these other similar companies just collapse well the the anomaly here is

[09:33] that Uber had an unprecedented level of investor funding in its earliest years I think it was Uber's pre-ipo funding I might not get the remember the number exactly right with sixteen hundred times more funding than Amazon had before its IPO Amazon and Facebook and companies like that lost money at first but they quickly got

[10:05] to becoming cash flow positive and they funded their growth out of user Revenue Uber was never able to do that um all of those subsidies again were designed to sort of create the impression back in 2014 and 2017. oh Uber has found a way that no taxi company had found in a hundred years to

[10:35] to produce service way more service higher quality service and at much lower prices that was all false it was just they were subsidizing all the trips they were subsidizing drivers they were subsidizing everything uh they were using those subsidies to fool investors into thinking that it had Amazon type growth economics and oh yeah we lost money last year but just like Amazon notice that will will soon be you know spouting more money than we can count

[11:06] um the subsidies eliminated competition from all of the prior traditional taxi operators so there was no alternative the subsidies funded all the massive political lobbying and PR programs that that LED politicians to eliminate all the industry oversight that had protected consumers you know enforced labor laws um and led the mainstream media oh

[11:37] Uber's the greatest thing since my spread my friends all love it and it's all this technology and efficiency is really wonderful but those subsidies the power in the early popular meant the mainstream media never actually investigated and yes they've all been proven to be complete garbage subsequently but no one's going back and written oh all those stories we told you about Uber in 2016 2018. they were totally wrong

[12:09] how does Uber squeeze its drivers um well step one you create a quasi Monopoly and again think of uber and Lyft if you're looking at the U.S situation as a duopoly that's driven the traditional operators out of business so we're the only game in town Uber aggressively lied to drivers in its early years there were press releases

[12:40] literally Uber press releases saying Uber drivers in New York are 90 000 a year complete dishonesty and and all sorts of other things and there were FTC fines for some of this statement but uh so all of a sudden these drivers are now work driving for Uber go back eight years or whatever they're getting okay pay they're getting better pay than the old company would do because of those subsidies Uber's now owns the market it

[13:13] simply turns around and cuts the bank you know how much of each customer dollar does the driver get it's been cut back and cut back and cut back and the drivers have absolutely no recourse they they lied to drivers oh you'll have total flexibility as an independent contractor to only drive when you feel like well no that was a lie too because the drivers who didn't respond to the Uber's demand for drivers when they

[13:43] needed them simply got fired you know and and you can't operate it was always a lie you can't operate a large-scale transportation company or probably any other kind of company on Purely casual workers who show up when they feel like that was always nonsense um and Uber knew throughout this that you know um the mainstream media um it's wealthy users who liked it the

[14:15] most didn't care what drivers were being paid they didn't care that they'd been squeezed down to minimum wage level they didn't care that lots of them were sleeping in cars in order to make ends meet and Wall Street actually thinks those are wonderful things that kind of transfer of wealth from labor to Capital even if it's the most marginal labor in an urban Marketplace to Silicon Valley investors that's how capitalism ought to work

[14:48] they think it's wonderful so no one was going to push back you know whenever you know those politicians who were being handled buckets of cash by Uber lobbyists and who gutted all of the protections that had existed for decades and decades when you know the Democratic process somehow hell wait a minute this isn't working we you know minimum wage doesn't cut it let's put some basic Protections in let's beef up Uber's exploitation false claims about

[15:21] independent contractors as you saw with California Proposition 22 they spend unlimited cash to beat those back you know Uber had more lobbyists in California than the entire banking industry Uber had more lobbyists in Nevada than the casino industry this was not free markets at work this was a Silicon Valley funded company where the investors were looking for the

[15:54] kind of riches Amazon and Facebook had generated going to politicians with lots of cash saying please pave the way so we have unlimited power over workers and consumers thank you Hubert but don't go away we're going to a short break and when we come back we answer the question how vital have Mark mcgann's Revelations been to Hubert's work analyzing Uber's less than transparent business practices you're watching the whistleblowers stay tuned

[16:24] [Music] [Applause] welcome back to the whistleblowers I'm John kiriaku we're discussing Mark McGann The Whistleblower who exposed illegality at Uber we want to welcome back our Uber expert Hubert Horan welcome back Hubert we're discussing Mark mcgann's Revelations here on this program how vital were his Revelations to your own work the guardian series that included

[16:57] mcgann's statements were actually accurate but they were simply reminding the public of stuff that had been widely reported five six years ago you know the magnitude and importance of all of those lobbying all those things I quoted you about the magnitude of lobbying in California and Nevada that had been in the Press at the top

[17:27] um everyone knew that dozens of major politicians had been working actively to help Uber in return for those donations programs like gray ball explicitly designed to obstruct law enforcement that had been on the front page of the New York Giants um open efforts to intimidate critical journalists on its ongoing programs to pay academic to produce totally indefensible findings that it knew no

[18:00] one would ever critique properly but it could then incorporate into its PR programs that had been reported years ago so nice to have a reminder of all that stuff um but especially in the U.S it's not going to uh overcome the magnitude of the lobbying cash and the legal changes no

[18:30] one cares what do you know about Uber in the developing world its position in those kinds of countries is somewhat Limited um I'm not sure if it's how it's South American coverage would really split out between the large wealthier city is the Sao paulos and santiagos and Buenos Aires

[19:01] Bogota of the world versus less developed parts of those countries uh stuff elsewhere they failed Uber failed in China they failed in Russia they failed in Southeast Asia so there are other local companies following this um with probably a little more sensitivity to the laborer and transport issues in those things but as I mentioned in terms of DD in China none

[19:34] of them are will Uber ever break up Urban transport it has humongous economic problems that's why the New York City subway and the Denver bus system and services whether it's in Mumbai or Moscow are not private sector businesses funded by investors hoping to

[20:04] get fabulously rich their publics their quasi-public services the benefits produced by Urban transport be they expressways or transit buses and taxis has always been a small part of that are fundamentally the economics are awful and Uber as I said Uber didn't solve any of those problems it's Urban transport why anyone thought

[20:35] that Uber after 100 Years of every Urban Transport Service being a public sector operated and funded service was suddenly a way for Silicon Valley investors to get rich is incomprehensible but that's what happened oh we have an app we have technology technology can solve every problem known to man and everyone in the urban transport industry in every country in the world in every city and everyone was

[21:07] too stupid in the last hundred years to see that if you just put it on an app the economics will be totally transformed the totally stupid people were the Uber investors who bought that and all of the politicians and media observers who swallowed that Hook Line and Sinker without thinking about it if you go back and read all the stories about Uber's growth no one ever talked to anyone who knew anything about Urban

[21:37] transport it was all technology stuff technology is cool but technology cannot and has not transformed Urban transport into something that will spit off returns for speculative investors we've covered so much here any final comments to wrap up what we've discussed I'm I'm always asked to speculate on the future and I hate doing that um

[22:10] if people say well what's going to happen one if nothing else in the world change the investor cash could probably last another four or five years there is no political force anywhere in the more developed world to say this was a mistake we have to restore the kind of Taxi industry we had in 1990. we have to roll back what Uber did there's there's no support for that

[22:42] not because it's a bad idea but politically there's no support for that to the extent so if everything else there would be muddle along maybe being cash break even and constantly trying to shrink back with service in cities continuing to deteriorate prices continuing to go up the issue for Uber is the stock price if its investors suddenly wake up

[23:13] tomorrow and said this is never going to be worth anything we're not going to ever become profitable we're not going to experience Amazon growth and bail owns stock and I don't think that again all these folks have drunk enough Kool-Aid to not be able to look think about that critically but if you look at the collapse of the broader Tech bubble which is happening that's caused a lot

[23:45] of people in other contexts to say oh this technology stuff was not as wonderful as the press releases said oh these companies that grew fast without any sign of profitability that was really dumb and none of them turned into successes no you know none since Amazon 15 20 years ago if they're that and pressured by higher interest rates and an overall decline in stock the stock

[24:15] market uh you no longer have massive Federal programs basically designed to increase stock market speculation and inflate those kinds of bubbles if that kind of bursts from those kinds of external forces I think that is more likely to be what drives changes than anything else Hubert Horan thank you so much for joining us that's all we have for you today this has been the whistleblowers I'm John kiriaku we'll catch you next time
