Is Uber Already in the Crosshairs?

The CEO of a large insurance company once confided to me that the toughest innovation challenge he faced was that, “Every time we try to innovate, the agents turn around and kick us in the nuts.” The dance between Uber and Google around drone taxis reminds me of that conversation. Google invested in Uber in 2013 but has recently distanced itself from Uber amid indications that it is considering offering its own ride-hailing service using driverless cars. While such a service might make sense for Google and might be the way of the future, imagine how Uber’s drivers will react if Uber attempts the transition to driverless cars. Both the insurance CEO and his agents knew that the most innovative thing his company could do was to eliminate the agents as middlemen between him and his customers. This insurer was paying about 15% of its premiums to agents in commissions and bonuses. Eliminating agents would have translated into lower expenses for the insurer and lower premiums for customers. GEICO, for example, pays no agent commissions. It takes advantage of its structural cost advantage to out-market and out-price its agent-based competitors. The problem was that this insurer depended on its agents. Going from agent-mediated sales to no agents was fraught with danger. Sometime in the future, whether five, 10 or 15 years from now, Uber will confront a similar predicament as it confronts the adoption of drone taxis. Fully autonomous cars will enable Uber-quality service at much lower prices -- and at a fraction of the cost of car ownership. The only difference is that there will be no human drivers. Drone taxis are an opportunity that Uber has long foreseen. It was likely a part of the calculation for accepting Google’s $258 million investment in 2013. Travis Kalanick, Uber’s CEO, was clear about the opportunity when he told a technology conference in 2014 that: "The Uber experience is expensive because it’s not just the car but the other dude in the car. When there’s no other dude in the car, the cost [of taking an Uber] gets cheaper than owning a vehicle." And, as I discussed I a recent column, Uber just put a lot of money behind that vision. So, by the time driverless cars become viable, Uber will have had a hand in its development for a long time. But here’s the rub. By that time, Uber will no longer be a feisty startup with nothing to protect. It will most likely be a highly profitable and richly valued public company. It will be servicing millions of customers in thousands of cities across hundreds of countries all around the world. And its success will depend on the allegiance of hundreds of thousands of independent human drivers. As with insurance agents’ power over the aforementioned CEO, drivers will have tremendous leverage over Uber. Will Uber drivers accept a drone option on the Uber app? No. It is easy to imagine work stoppages and mass defections to competitors that promise not to offer drones. It is also easy to imagine intense campaigns by drivers and third parties to save drivers’ jobs and livelihoods. Uber will find itself at the very uncomfortable heart of the technology vs. jobs debate. Will Uber management have the audacity to risk changing Uber’s business model? Could Uber weather the bad publicity and potential disruption to its revenue and profits? Would its board and investors allow management to put the company at risk? Uber will be in much the same position that Kodak found itself with digital photography. Kodak had the foresight to invest in research that yielded many of the core inventions enabling digital photography. Yet it struggled for decades to capitalize on those inventions -- even as digital photography inexorably replaced film-based photography. Kodak failed even though it had immense resources, technical expertise and management talent. It failed because it could never negotiate the business model transition to digital photography. If you had a very profitable and dominant film, chemical and paper business, when would you choose to accelerate its demise? Kodak management stuck with film until the company's early advantages in digital photography no longer mattered. The iconic “Kodak moment” used to conjure up images of heart-warming pictures. It now symbolizes companies grappling with complete and utter technology disruption. Uber will no doubt have all the prerequisite resources, technical expertise and management talent to fully comprehend the strategic implications of driverless cars. Like Kodak, it will have a very long time to prepare. Do you think it will survive its Kodak moment?