Uber is a great success; you can tell because competition has sprung from all corners, and scads of new companies say they’re going to be “the Uber of X.” Along with great success comes great myths, which inform a set of assumptions about how Uber got to be Uber. The myths are all derivatives of the broadly accepted narrative of how tech companies start and grow. In every case I’ve examined, fact-based history contradicts these myths and explodes what “everyone knows” about Uber and every other tech company. I’ve explored this theme in a couple of cases, and I’ve just had the opportunity to question an early Uber driver, whose story provides fascinating insight on just a small part of what really happened.
Recruiting the first drivers
My driver was one of the first handful of drivers in the New York City area. Uber is a network-effect company, i.e., customers need access to a large pool of drivers, while drivers need business from a large pool of customers. How do you get that started? Of course I don’t know the whole story, but I did hear how my driver informant was recruited.
He was sitting in his car near Madison Square Park in Manhattan with a half hour to go before his ride would appear. Someone knocked on his window. He rolled it down, and it was two people who wanted to talk with him about a new way to get rides. It started to rain, and he invited the people to sit in his car, for which they were very grateful. He ended up signing up for their service, encouraged by a $1,000 signing bonus, and further encouraged by being paid $35 an hour just for keeping the app on his phone. He was then paid $1,000 for each additional driver he referred who signed up, and a further $1,000 when that driver took their first ride. That’s how a critical mass of drivers was recruited even when there was little work for them to do.
Here’s the part of the story I found most impressive: the two people who recruited him were … the head of Uber NYC and Travis Kalanich, the co-founder and CEO of Uber.
Yes, the big boss himself, personally walking the streets of NYC and hitting on strangers. Wow. For every 1,000 bosses who puts up one of those stupid pyramid-on-its-head charts
during a company talk to say how he’s just there to serve the important people on the front lines, there might be a couple like Mr. Kalanich who act on it and get into the trenches themselves.
Recruiting the first customers
Uber today is an easy way to use an app to call for an on-demand car service. It’s all “get me a ride now. As in, now.” At the start, it wasn’t that way at all! It was mostly for really long rides, like from NYC to Boston or Philadelphia, and the rides were often round trips with a big wait in the middle. This is a tiny minority of all rides, but one that was typically arranged way in advance by phone. With Uber, you could get someone to pick you up in half an hour or less, which was great compared to the alternatives. It also meant that having just dozens of drivers available was OK.
It was only as the population of drivers and customers grew that shorter trips with shorter lead times made sense – and the long-trip buyers were an ideal starting population as customers for that, so it evolved naturally.
Evolution of the service
Here are some tidbits about how the service has evolved.
At the beginning, drivers were screened thoroughly. For example, every candidate was shown a map of Manhattan with no street names. A pin was placed on the map, and the driver had to name the streets. If you didn’t get them, you were out. The screening has gone way down over time.
The cut taken by Uber has ratcheted up sharply. It started at just 10%, moved in a few steps and is now up to 38%. A huge difference.
As the number of drivers and customers grew, Uber provided a “heat map” in the driver’s app to show where drivers were needed and where there was an excess, which helped drivers position their cars to best effect. A subsequent version of the app dropped this feature and replaced it with congestion pricing. My driver misses it, and thinks a new version is coming out with the heat map restored.
The policies and standards for drivers have evolved quite a bit, something which is also visible to customers with the addition of Uber-X and evaluations of drivers – I learned that drivers can also evaluate customers! My informant says the evaluations are on the whole helpful – one incident reminded him he always has to inspect the passenger seat when someone leaves, for example, something he had been neglecting.
In spite of all the changes, my driver/informant loves Uber. The main reason is he has control. He can start and stop any time. He can work more and make more money, or take time off any time he needs to, without asking anyone’s permission.
Observations
It appears that Uber did a very smart thing I have seen other companies do: pick a sub-market in which they could get traction, and then evolve into the actual, larger market they probably had in mind all along. The sub-market enabled them to get to a critical mass of drivers and riders with less friction.
It's easy to focus on Uber as enabled by an app, or Uber as a marketplace. Those things are true. I think of them as being good choices (the app) and reasonable thoughts (marketplace), but somehow not essential.
For the consumer, Uber provides the convenience of hailing a cab (no advance planning, scheduling, committing) with cars that you can't see. It would work just as well if you used your phone to dial a number, gave your location, and then were told how long you'd have to wait for the driver. An on-demand car service.
For the driver, Uber provides control over time and money, as my informant made clear. When you drive a cab, you sign up for a shift. With a car service, someone schedules you. With Uber, the driver can opt in and opt out whenever it meets his needs, whatever those may be. Whether he got rides from an app or from someone calling him, the result would be the same.
Conclusion
Every company has a different story. Uber is no different. Even a narrow and limited glimpse into the factual history of Uber reminds us that every company ends up having a myth-based story that explains its success, and that if you’re going to learn something useful from their success, you have to find and pay attention to the facts. AND, the facts of similar companies that failed.
Comments