Uber Business

post is of two assignments

Read the case uploaded and answer the following questions:

1. Describe Uber’s business model.

2. What are the strengths and weaknesses of this business model?

3. Who is/are Uber’s main competitors? What and who should Uber worry about? What should Uber’s new CEO, Dara Khosrowshahi, do about it? Provide recommendations, be specific.

4. As a customer, do you have any unmet needs when it comes to Uber’s payment methods?

On a sunny afternoon morning in September 2017, Arianna Huffington stood on a New York City
street looking for a Cadillac CTS. A map on her iPhone showed her the car’s position as it approached.
She saw it pull around the corner and waved to the Uber Select driver as he pulled up to her. She
hopped into the backseat of the Cadillac and nodded a polite hello to driver.
Huffington leaned back and took a deep breath. The leather-trimmed interior of the Cadillac was a
quiet refuge from the hustle and bustle of the city. At the age of sixty-six, the Greek-American media
mogul’s lifestyle showed no hint of slowing down. She had woken up at five that morning to get in a
daily fitness and meditation routine. That was followed by a morning meeting with a team of employees
affectionately referred to as her A-team (A for Arianna). Next, she headed to a Manhattan theater
for the Women in the World Summit where she interviewed Scarlett Johansson and participated in a
panel discussion with several other female corporate leaders. The Uber ride home was the least stressful
part of her day and was a vast improvement over the New York taxi rides she endured only a few
years earlier. The car arrived promptly, was clean inside and out, and the driver was polite. Uber’s
app had matched Huffington to a nearby driver, picked an expedient route, and handled the payment.
Huffington was one of Uber’s biggest fans. She had even joined the ride-hailing company’s board the
previous year at the request of Uber’s then-CEO and co-founder Travis Kalanick, whom she considered
a close friend. “What I love about Uber is that you are clearly transforming not just transportation,
but cities,” remarked Huffington during an appearance with Kalanick.1 However, over the past summer,
the $68 billion startup was testing the limits of Huffington’s affection as it continued to find itself in
the news for all the wrong reasons.
Uber had been a controversial company from the start. In 2010, on Kalanick’s first day as CEO,
Uber’s hometown of San Francisco served the company with a cease-and-desist order for running an
unlicensed taxi service.2 Kalanick shortened the company’s name from Ubercab to Uber, and convinced
the city’s regulators to let him continue operating. Seven years later, regulation was still one of
Uber’s biggest challenges. The ride service had ceased operations in Austin, Texas and several other
locations worldwide where it found itself unable to get along with authorities.
When not tangling with regulators, Uber was struggling to maintain its relationships with drivers.
In 2017, an embarrassing video of Kalanick verbally sparring with Uber driver, Fawzi Kamel, was
making the rounds on the internet. Kalanick was forced to do damage control stating, “This is the first
Professor Frank T. Rothaermel prepared this case from public sources. He gratefully acknowledges Eric Erzinger and Austin Guenther for research
assistance. This case is developed for the purpose of class discussion. This case is not intended to be used for any kind of endorsement, source
of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the author’s. © by
Rothaermel 2017.
FRANK T. ROTHAERMEL
MH0046
1259927628
REVISED: OCTOBER 2, 2017
Uber Technologies, Inc.
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Uber Technologies, Inc.
time I’ve been willing to admit that I need leadership help and I intend to get it. I want to profoundly
apologize to Fawzi, as well as the driver and rider community, and to the Uber team.”3 In Seattle, Uber
was facing the threat of drivers unionizing, which would fundamentally change drivers’ relationships
with the car-hailing service.
Finally, Uber’s image was taking a beating, making it more difficult retain customers and employees.
The company was facing, among others, allegations for tolerating a hostile work environment resulting
in sexual harassment and discrimination of female employees and a high-profile lawsuit brought
by Waymo (a unit of Alphabet, Google’s parent company) alleging that Uber stole proprietary selfdriving
car technology when acquiring a start-up founded by a former Waymo employee. Uber also
had to implement an automated system to handle customer account cancellations after the grassroots
campaign #deleteUber began circulating on social media.4 High-ranking executives were following
customers out the door. Over the summer, Uber’s communications chief, vice president of product and
growth, and a recently hired president of ride-sharing, among others, had all left the company.5 As
Uber continued to garner bad publicity, many people, including Uber’s investors had begun questioning
the company’s corporate culture and leadership. All this came to a head in late August 2017, as
Uber’s board forced CEO Travis Kalanick to resign, and appointed Dara Khosrowshahi, then CEO of
the travel site Expedia, as Uber’s new CEO.
The Cadillac turned onto Mercer Street and stopped in front of a stately apartment building.
Huffington thanked the driver and stepped out of the Cadillac. Her phone buzzed. Uber’s app was
prompting her to review the driver. Huffington dutifully filled out the review giving him a five-star
rating. As she climbed the front steps of her apartment, Huffington could not bring herself to put
Uber’s troubles into the back of her head. She was tasked by Uber’s board of directors in guiding the
new CEO through this transition period, to help make Uber a less ethically-challenged company, and
to turn around its public image. Huffington made some fresh espresso, booted up her laptop, and
began to outline some of the challenges that Uber would need to address.
A Brief History of Uber
Uber’s co-founder and long-time CEO, Travis Kalanick, began his entrepreneurial career in 1998
when he dropped out of the University of California, Los Angeles (UCLA) to join the founding team
of the file sharing platform, Scour. Scour had attracted millions of users because it offered free but
illegal copies of music and movies. The platform quickly drew the ire of movie studios and record
labels who sued it for copyright infringement. Scour’s investors declined to fund the company further
and it was forced into bankruptcy.6
The failure of Scour inspired Kalanick’s next venture, RedSwoosh. Kalanick transformed Scour’s
file-sharing software into an enterprise version that allowed media companies to distribute large files
over the web. “The idea was to take those 33 litigants that sued me and turn them into customers,”
remarked Kalanick.7 In 2007, RedSwoosh sold to a rival for $23 million, leaving Kalanick enough
money to buy a house and make some angel investments.8
In the winter of 2008, Travis Kalanick and his friend Garrett Camp were travelling together in Paris
when a snowstorm interrupted their travels. Their struggle to hail a taxi during the storm inspired
them to create a ride-hailing system.9 Within a year, the two founded Uber, a mobile application for
connecting passengers to private black-car drivers. They chose the name Uber when inspired by the
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Uber Technologies, Inc.
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idea of using a Mercedes limousine and driver instead of a regular cab — the German word uber means
“over” or “above.” By 2010, Uber raised $1.45 million and begun operations in San Francisco. Uber
expanded their ride-hailing services from the upscale black car to include lower cost everyday vehicles
(UberX), SUVs (UberXL), luxury vehicles (UberSelect), carpools with other customers (UberPOOL),
and even helicopters in certain locations. Uber has also actively pursued the wider mobile transportation
and logistics markets, introducing a courier service (Uber Rush) and a restaurant meal delivery
service (Uber Eats).
The Taxi Industry
The concept of hiring an individual transportation vehicle for a local trip goes back at least to
the horse-drawn carriages of the 17th century. Cities began regulating the industry in response to
concerns for passenger safety. Today, most cities in the United States require a taxi to purchase one
of a limited number of “medallions” that certify the taxi company is in good standing with local
authorities. Taxi drivers typically lease the medallion cab each month from the taxi company, and
are dispatched to passengers from a central office or by chance encounters on the street between
appointments.
Because of the limited supply of taxi medallions and the overwhelming demand for ride-hailing in
large cities, these medallions were a fantastic investment for decades. From 2004 to 2013, the average
price of a medallion in Philadelphia increased by 600%, and single medallions have fetched prices
as high as $400,000. In New York City, taxi medallion reached a sticker price of $1.3 million in 2003.
This created an artificial limitation on the supply side, driving up prices for taxi rides and creating
shortages of rides available, combined with notoriously poor service. But Uber and other ride-hailing
services such as Lyft would change this cozy arrangement between city officials and the few taxi
medallion owners. To wit, by 2017, the price for a New York City taxi medallion had fallen to some
$200,000.10,11
Business Model Innovation
Uber operates as a private limousine service, thereby avoiding the expensive regulatory regime
that requires traditional taxi operators to purchase a “medallion” and undergo rigorous screening
processes for drivers. Uber’s business model upended several key components of the traditional taxi
business model. Traditional taxi operators receive customers in two ways: 1) chance interactions
when the taxi is available and happens upon a customer, or 2) a scheduled appointment that typically
requires advanced notice or the customer to wait for a prolonged period of time while the taxi travels
from the central dispatching station. An Uber customer, on the other hand, requests a ride from their
smartphone app where the request is matched to a nearby driver, often in less than a minute. The
customer’s price is also typically lower than a traditional taxi. Uber takes about 25 percent of each
fare as a commission for matching the driver and passenger.12
Uber’s innovative revenue model appears to be viable because it is supported by an equally innovative
operational cost model. A traditional taxi company has a fixed supply of cabs and drivers that
are available at any given time. When demand for the cabs exceeds the available supply, such as after
a sporting event, the taxi company has no method for increasing its supply of cabs to that location.
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Uber Technologies, Inc.
Uber, on the other hand, does not own any of the cars that serve its customers (so-called “asset-light”),
nor does it directly employ any of the drivers. Instead, the drivers are independent contractors who
are responsible for providing their own vehicle.
Unlike taxis, Uber varies pricing to match supply to demand. When the demand for Uber cars
exceeds the available supply, Uber temporarily raises fares in that location. This “surge pricing”
incentivizes drivers to serve that location and encourages price-sensitive customers to shift their use
of Uber to a time with lower demand. This market-based approach to pricing occasionally results
in very high fares and consumer backlash. For example, in January 2016, Uber customer Bonnie Lieb
generated a $640 fare for a ride to Reagan National Airport on a snowy Monday morning that would
normally have cost $50 to $70. “I nearly passed out. I thought ‘This can’t be right. This has to be a
mistake. This is ridiculous,’” remarked Lieb to a reporter.13 Asked to comment on the fare, Uber’s
spokeswoman Kaitlin Durkosh said that the fare was on the high end, but defended the price, stating,
“We strive to be reliable at all times. Had dynamic pricing not been in effect, there’s the possibility
that no ride would have been available.”14 To Uber’s defense, riders do see the expected fare prior to
ordering and commencing a trip.
Uber’s substantial funding, raised from debt and equity investors (close to $70 billion), allows Uber
to subsidize fares and to attract more drivers to its platform. All this is done to create network effects
based on a large installed base of Uber drivers and users. Although Uber is still losing money as it
continues to subsidize customer fares, its revenues are increasing rapidly, from $400 million in 2014
to more than $8 billion in 2017.
If Uber is lower-priced, then more people will want it. And if more people want it and can afford it, then
you have more cars on the road. And if you have more cars on the road, then your pickup times are lower
[and] your reliability is better. The lower-cost product ends up being more luxurious than the high-end
one.
– Travis Kalanick, Uber co-founder and long-time CEO15
In 2014, the company introduced UberPool, a service that allows riders to split fares with other passengers
reducing their costs. Uber’s app matches passengers taking similar routes and combines their
trips creating a carpool. In 2016, Uber stated that UberPool accounts for more than half of its rides
in many cities.16 In 2017, Uber offered services in over 600 cities and in over 60 countries worldwide.
Two people taking a similar route are now taking one car instead of two. Not only is it much less expensive
than taking a cab or owning a car, it has the potential to be as affordable as taking a subway, or a bus,
or other means of transportation.
– Travis Kalanick, Uber then-CEO (Fast co)
Drivers
Uber refers to its drivers as “partners.” The requirements to become a partner vary with location
but generally include passing a background check, submitting insurance and license documentation,
completing a city-knowledge test, and a vehicle meeting Uber’s quality standards.17 Uber’s drivers
are legally independent contractors allowing them to choose when and where to offer their services.
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Uber Technologies, Inc.
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Uber provides drivers with commercial insurance while they are driving for the service.18 Drivers are
responsible for their own driving-related expenses including fuel and maintenance of their vehicles.
For most drivers, Uber is an opportunity to earn additional income. About two thirds of Uber drivers
are employed either part- or full-time at another job.19 Research conducted by Uber shows that
after adjusting for expenses, its drivers earn as much or more than taxi drivers and chauffeurs. For
example, an Uber driver in Boston could be expected to earn $20.86 per hour after expenses while a
comparable taxi driver or chauffeur would only earn $12.96.20 Uber’s drivers tend to be younger and
better educated than taxi drivers and chauffeurs. Exhibit 1 shows demographic data collected by
Uber compared to taxi drivers and chauffeurs as well as all US workers.
According to The New York Times, Uber experiences roughly 25 percent turnover in its drivers
every three months.21 Uber has turned to gamification to retain drivers and keep them on the road
longer.22 Uber’s driver-facing app displays metrics including the number of trips in the current week,
earnings, and the driver’s rating.23 The company has supplemented these with badges driver can earn
for providing passengers with excellent service, entertaining drives, and go above and beyond. “The
whole thing is like a video game,” explains Uber driver Eli Solomon.24
In early 2017, Uber agreed to pay $20 million to settle a lawsuit brought by the Federal Trade
Commission alleging that the company had misled drivers about earnings potential and vehicle
financing. The commission alleged that Uber had claimed that the median income for drivers in New
York and San Francisco exceeded $90,000 and $74,000 respectively, when in fact less than 10 percent
of drivers in those cities earned that amount.25 Exhibit 2 shows hourly earnings of Uber drivers compared
with taxi and chauffer drivers.
Passengers
In the spring of 2016, the Pew Research Center reported that just 15 percent of Americans had used
a ride-hailing service like Uber. Of those, 17 percent used the services daily or weekly, 26 percent
monthly, and the remaining 56 percent used them less often than monthly.26 Not surprisingly, Pew’s
research indicated that more frequent use of ride-hailing services correlated with lower car ownership.
Much like Uber’s drivers, ride-hailing service passengers tend to be younger and better educated
than the general U.S. adult population. Exhibit 3 shows the popularity of ride-hailing services by
demographic.
Growth
In December 2015, Uber announced that its drivers had delivered one billion rides since the founding
of the business. Only six months later, on June 18th, 2016, Uber announced that an additional
billion rides had been delivered – representing an average of 5.5 million rides delivered per day over
those six months.27
At the end of 2016, Uber was operating in 75 countries valued at $69 billion, making it the most
valuable privately-held startup (“unicorn,” a privately held start-up worth more than $1 billion). In
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Uber Technologies, Inc.
2016, Uber’s gross bookings (total value of fares) were $20 billion, doubling its 2015 figure. This
resulted in $6.5 billion in net revenue from the commissions Uber earned on fares. Despite its continued
growth, the company recorded a net loss of $2.8 billion for the year excluding its operations
in China (which it exited by selling its stake to Didi Chuxing).28 Exhibit 4 shows the exponential
growth of Uber’s valuation.
Growing Pains
From its beginning, Uber’s growth has been accompanied by regulatory scrutiny, lawsuits, and pushback
from a range of stakeholders, including drivers, riders, labor organizations, competitors, partners,
and politicians. Cities, states, and entire countries have fined Uber and even banned it from operating
for a range of issues including inadequate vetting and licensing of drivers, price gouging disguised as
“surge pricing,” anticompetitive tactics, improper classification of drivers as independent contractors
rather than employees, sexist ad campaigns, and implicitly encouraging its drivers to be distracted on
the road by using the app.29
Perhaps most concerning is the physical safety of pedestrians and Uber passengers. In 2013, a San
Francisco Uber driver struck and killed a six-year-old girl who was crossing the street with her family
using the crosswalk. Although Uber immediately deactivated the driver’s account, the company denied
liability for the death because the driver was classified as an independent contractor and the death
occurred between fares. The family sued Uber alleging that the driver was using the app to find his
next ride, eventually settling for an undisclosed amount in July 2015.30 In 2014 alone, several Uber
drivers were accused of groping, assaulting, and kidnapping their passengers.31
At the heart of many of these problems, is Uber’s classification of drivers as independent contractors
rather than employees. By classifying drivers as independent contractors, Uber can claim that drivers
are entitled to operate with a degree of autonomy, thus shielding the company from actions committed
by the drivers. If Uber drivers were classified as employees, Uber would be responsible for driver
payroll taxes, ensuring that drivers are paid at least minimum wage, and vehicle maintenance costs
– all of which would substantially increase Uber’s operating expenses. In 2013, Uber drivers initiated
a class action lawsuit challenging this central principle of Uber’s business model. In April 2016, Uber
announced a $100 million settlement of the case that would allow Uber to continue classifying drivers
as independent contractors. But four months later, the presiding judge rejected the settlement as
inadequate for the possible damages that could be claimed by the drivers.32
Venture capitalist Peter Thiel once called Uber the “most ethically challenged company in Silicon
Valley.”33 Thiel, an investor in Uber rival, Lyft, argues that Uber is pushing the envelope of what is
acceptable, ethical, and even legal with all its stakeholders, including its dealings with regulators, government
bodies at different levels, freelance drivers, journalists, and competitors. Echoing Thiel’s assessment,
The Wall Street Journal argues that Uber itself—rather than Lyft or old-line taxi and limo services—is
its own biggest threat, functioning as its own biggest rival due to competitive tactics and comments by
Uber executives harming the company’s reputation and becoming a liability.34
Uber’s preference for rapid expansion instead of compliance with local laws has frequently landed
it in courtrooms and the crosshairs of politicians. Uber relies on its popular support from customers
and drivers to counter regulatory interference. In 2014, Uber hired Ben Metcalfe to support “citizen
engagement across legislative efforts.” Metcalfe’s team has implemented email-based systems allowing
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Uber users to easily contact local politicians and lobby on Uber’s behalf. These tactics have been met
with success. In 2015, New York City’s Mayor de Blasio pushed to cap the number of Uber drivers in
the city. Uber created a “de Blasio” tab in their app showing the wait time customers would experience
under the proposed cap and the ability to send a form email to the mayor. After a deluge of emails
from constituents, the mayor gave up on the proposal.35
In August 2014, Uber hired David Plouffe, Barack Obama’s 2008 presidential campaign manager, as
Senior Vice President of policy and strategy to soften Uber’s public image and lobby on Uber’s behalf. In
May 2015, Rachel Whetstone was hired from a similar position at Google to replace Plouffe, who was
appointed as an Uber board member and serves as a chief advisor to then-CEO Kalanick.36 In his new
role, Plouffe advocated for Uber, seeing the company as an integral part of the transportation ecosystem.
He argued that as more and more people live and work in cities, Uber will help to address traffic congestion,
provide an alternative to personal cars in suburbs, reduce drunk driving, and provide reliable
and safe services to underserved city and suburban areas. Plouffe highlighted that one of the reasons
people remain trapped in poverty is the lack of reliable transportation, which Uber helps to overcome.
Concluded Plouffe, “I don’t subscribe to the idea that the company has an image problem. I actually think
when you are a disrupter you are going to have a lot of people throwing arrows.”37 In early 2017, David
Plouffe left Uber to join the Chan Zuckerberg Initiative, which has the goal of “advancing human potential
and promoting equal opportunity.”38
Uber had to acknowledge that it has been circumventing regulators’ efforts to crackdown on illegal
Uber services using a secret tool it had developed named Greyball. Greyball was originally intended
to improve drivers’ safety by showing fraudulent users of Uber a fake version of the app that steered
these users away from Uber vehicles by giving them wrong information. However, the tool quickly
found a new use— to thwart police sting operations in cities where Uber was operating without permission
by identifying law enforcement using Uber’s app and using Greyball against them.39 Uber
programmed its software to set up GPS rings around government offices and track low-cost phones
and credit cards linked to government accounts. Thus, when law enforcement officers posed as Uber
customers, Uber showed them dummy screens with fake Uber cars moving, none of which would stop
and pick them up. Greyball was deployed worldwide, especially in cities where Uber was outlawed.
The U.S. Department of Justice has opened an inquiry into Uber’s use of Greyball in Portland,
Oregon and Philadelphia.40 In March 2017, Joe Sullivan, Uber’s chief security officer stated that the
company would be reviewing the company’s past use of the tool and would be, “expressly prohibiting
its use to target action by local regulators going forward.”41
China
Uber began operations when entering the Chinese cities of Guangzhou and Shenzhen in 2013 with
a ride-hailing service for licensed limousines.42 In China, Uber was immediately challenged by Didi
Chuxing, a local competitor, which had the backing of internet giants Alibaba and Tencent. In 2014,
Uber expanded its services by adding People’s Uber, a new product using private drivers like its UberX
service in the U.S. The move prompted government raids on Uber’s Chinese offices by authorities who
questioned the legality of the practice. Undeterred, Uber continued operating and by June 2015 Uber
was providing 100,000 rides per day.43 “To put it frankly, China represents one of the largest untapped
opportunities for Uber, potentially larger than the U.S.,” wrote then Uber then-CEO, Travis Kalanick in
2015.44 Despite Uber’s popularity, the service was generating massive losses in China. In many cases
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Uber Technologies, Inc.
Uber was paying drivers more than the fares they were collecting.45 In August 2016, Uber announced
the merger of its Chinese operations with Didi Chuxing, in exchange for a 20 percent equity stake in
the Chinese firm – making Uber the largest shareholder of Didi Chuxing.46 With a valuation of $50
billion, Didi Chuxing is the world’s the second most valuable private start-up.
Autonomous Vehicles
The concept of autonomous vehicles goes back decades, but recent advances in computational
power, wireless communication, and machine vision and learning have made self-driving cars technologically
feasible. Companies such as Tesla and Google’s Waymo have logged millions of miles
with vehicles driving fully autonomous, but under test conditions (Level 5 Automation). Tesla vehicle
for public sale in 2017 are equipped with Level 3 Automation (see definitions of different levels of
Automation in Exhibit 5 ).
Uber has invested heavily in developing self-driving car technology, with the goal of replacing its
drivers with computers. Commenting on this strategic intent, Uber co-founder Travis Kalanick stated:
“The reason Uber could be expensive is because you’re not just paying for the car — you’re paying for
the other dude in the car. When there’s no other dude in the car, the cost of taking an Uber anywhere
becomes cheaper than owning a vehicle.”47 After an outcry by Uber drivers on social media such as
Facebook and Twitter, Kalanick backpedaled by stating that he doesn’t think autonomous cars will be
ready for widespread use until 2035.
In the spring of 2015, Uber opened its Advanced Technology Group in Pittsburgh, Pennsylvania, to
develop autonomous cars and sophisticated mapping services. Uber gained access to scientists when
it funded research at Carnegie Mellon University’s National Robotics Engineering Center (NREC). A
few months later, Uber poached entire NREC research teams with signing bonuses, twice the salaries,
and stock options. Uber built a super-modern research center adjacent to the CMU campus. The
NREC was left a shell, with its entire future in question. To add insult to injury to Carnegie Mellon,
Uber rented a billboard next to its computer science department, reading, “We are looking for the
best software engineers in Pittsburgh.”48 In September 2016, Uber piloted a fully autonomously controlled
version (Level 5) of its UberX service in Pittsburgh. The human in the front seat was merely a
required “safety driver” but did not do or touch anything.
Uber is just one of several companies working on autonomous vehicles. Alphabet, Google’s parent
company, has had self-driving technology since 2009. In December 2016, the autonomous vehicle
project was spun out of Alphabet’s moonshot research and development business unit, X, as the standalone
business unit Waymo. The company’s fleet of self-driving cars have covered over three million
miles since 2009. In 2017, Waymo began user testing its self-driving cars in Phoenix. Using a mobile
app like Uber’s, the testers can request rides from Waymo’s self-driving minivans.49
In August 2016, Uber continued its investment in self-driving technology with the purchase of the
autonomous vehicle technology start-up Otto for $680 million.50 Otto was founded only a few months
earlier by former Waymo engineers Lior Ron and Anthony Levandowski with the stated goal of creating
self-driving trucks. “From a technology perspective, we felt we can solve the problem sooner than
later because the vast majority of truck miles are on-highway miles, and highway by nature is a much
more constrained environment to introduce self-driving technology,” commented Ron. “It’s just simpler,
in general. There are no pedestrians and there are a handful of trucking corridors, so it’s easier to
map.”51 Do Not Copy or Post
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Uber Technologies, Inc.
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In February 2017, Waymo sued Uber alleging that Levandowski and other former Alphabet employees
now working for Uber had stolen proprietary trade secrets prior to their departure. In the lawsuit,
Waymo accuses Uber of conspiring to steal technology relevant to its autonomous vehicle program.
In May 2017, a U.S. district judge authorized Waymo to depose several Uber employees and inspect
Uber’s laser sensors that Waymo claims are based on technology it developed. “The bottom line is
the evidence indicates that Uber hired Levandowski even though it knew or should have known he
possessed over 14,000 confidential Waymo files likely containing Waymo’s intellectual property,” summarized
the judge.52 The stakes in this legal battle are quite high because experts predict that only
one or two technology standards will prevail for self-driving technology. Waymo wants to become the
default operating system for self-driving cars with its proprietary technology, not unlike what Google
has done with its Android operating system for smartphones and other mobile devices.
Having autonomous vehicle technology succeed is critical for Uber because human drivers are the
biggest cost factor in offering rides. Moreover, autonomous-driving technology is also expected to be
safer than human driving, resulting in fewer accidents. In addition, since smart traffic guidance can be
employed much more easily with self-driving cars that can run 24/7, 365 days a year, traffic congestion
and delays are expected to be much fewer, if any.
Traditional auto manufacturers are also investing in autonomous vehicle technology, realizing the
possibility to upend their business model. GM acquired the startup automation vehicle company
Cruise Automation in May 2016 for $1 billion.53 In August 2016, Ford announced that it was developing
a fully autonomous vehicle for ride sharing, for sale by 2021.54 Even Toyota, with its history of
building “Fun to Drive” cars, has committed to investing $1 billion to the development of autonomous
vehicles.55
Competition
I don’t feel like we’re in competition with taxi. We’re in competition with me choosing to drive my own
car.
– Joe Sullivan, Uber Chief Security Officer56
LYFT
If you look at the way the market evaluates Uber and then look at the valuation of Lyft—Lyft is a tremendous
bargain. There is room for two.
– Carl Icahn, Lyft Investor
In 2016, Lyft delivered 163 million rides, more than three times the 53 million rides delivered in
2015.57 In 2017, Lyft was valued at about $7.5 billion.58
Founded in 2012, Lyft uses an almost identical business model as Uber: a mobile app to connect
ride-seeking customers with independent contractor drivers that have been vetted by the company.
This has made the companies bitter rivals from the get-go for both customers and drivers. In 2014,
CNN reported that Uber employees were ordering and canceling large numbers of Lyft rides to frustrate
Lyft drivers and increase wait times for Lyft passengers.59
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Uber Technologies, Inc.
While much smaller than Uber, Lyft has formed several strategic partnerships that might amplify
its ability to compete with Uber over the long term. In September 2015, Lyft announced a strategic
partnership with the Chinese ride-hailing company Didi Chuxing that would allow customers to use
the Lyft app in China to hail a ride from Didi Chuxing.60 The strategic partnership allowed Lyft to
compete with Uber internationally without directly expanding operations, and came with a $100 million
investment in Lyft by Didi Chuxing.
In 2016, GM invested $500 million in Lyft. The two companies are working together to develop selfdriving
taxis.61 The alliance with Lyft allows GM to tap into the second largest mobile transportation
network globally. The goal is that GM’s cars will be deployed on Lyft’s network, ideally as self-driving
vehicles. The equity alliance with Lyft affords GM an entry into the mobile transportation and logistics
market.
In addition, the equity investment in Lyft also allows GM to hedge against uncertainty. With network
effects supporting winner-take-all dynamics, it is likely that only one, or a few at best, mobile
transportation companies survive in the long run. GM is betting on Lyft and wants to be in this new
market because the age-old private car ownership model is likely to shift in favor of fleet ownership
and management. Consumers will “rent” a car for a specific ride, rather than own the fixed asset.
Noteworthy is that private cars in the United States are used only five percent of the time, and sit
idle for most of the day. Car owners have the fixed costs of purchasing a car, buying insurance, and
maintaining the car. All this goes away with the new business model that is likely to emerge. On the
other hand, Lyft may need to learn how to manage large fleets of cars that it might eventually need to
own, a capability held by GM as key supplier to many large car rental companies.
In May 2017, Lyft struck an alliance with Waymo to develop self-driving technology and service.62
The alliance with Waymo allows Lyft to strengthen its competitive position vis-á-vis Uber.
NICHE COMPETITORS
In response to the difficulty in directly challenging Uber’s business model and previously raised
capital, many competitors offer similar mobile ride-hailing service with a differentiated business
model or target market. Zimride and Via are two examples of this.
Zimride, founded in 2007 by the founders of Lyft, facilitate carpooling at businesses and universities
by using existing social media networks to connect students or coworkers. In July 2013, Zimride
was acquired for an undisclosed amount by the rental car firm Enterprise when Zimride had 350,000
customers at 130 universities and corporations.63 In January 2015, the service discontinued its ridematching
services for the public to focus exclusively on matching drivers and riders in corporate and
university networks.64
Founded in 2012, Via is a ride-hailing app that attempts to simulate a mass transit business model
by offering low fares and encouraging ride sharing. Via customers in Manhattan, for example, pay
a flat-rate fare of $5 per ride, regardless of the distance of a trip. In May 2016, Via announced a
$100 million venture capital investment round, at an unknown valuation, to grow operations beyond
Chicago and Manhattan. At that time, Via was enabling 125,000 rides per week in Manhattan for a
total of four million rides since its founding as a company.65
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ZIPCAR
Zipcar offers its customers the convenience of having a car without the hassles of ownership by providing
short-term rentals. The company was founded in 2000 by Robin Chase who was inspired after
learning about car sharing in Europe. “My husband and I were living in Cambridge, Massachusetts
with one car. There was no way I wanted a second car because I drove so infrequently. Instead, I wanted
a car that I could rent by the hour or the day and that I didn’t have to own, so the idea of car sharing
instantly appealed to me,” explains Chase.66
Members of Zipcar’s rental service are able to use a variety of vehicles parked in convenient urban
locations for $8–10 per hour. This hourly rate includes gas, insurance, and mileage.67 The company
claims that its business has removed 400,000 cars from the road in the roughly 500 cities where it
operates by eliminating the need for members to own their own vehicles.68 Zipcar has grown to over
one million members in eight countries.69 In 2013, the Avis / Budget group acquired Zipcar for $500
million.70
INTERNATIONAL COMPETITION (OLA, GRAB)
Over the last few years multiple app-based taxi hailing companies have started operations across
the globe. One such company, Grab is operating in the Southeast Asian countries, primarily in
Malaysia, Singapore, Thailand, Vietnam, Indonesia, and the Philippines. It claims to have over 630,000
drivers on board and operates in more than 50 cities in seven countries. In India, Ola, the home-grown
taxi-hailing application, launched in 2010 has a lead over Uber in terms of average daily rides. Ola
operates in 110 Indian cities while Uber’s India operations are limited to just 29.71 With around half a
billion rides booked by cab aggregators in 2016, India has now raced on to become the third biggest
market after America and China.72
Ola and Grab have joined Lyft and Didi Chuxing in their attempt to compete with Uber globally.73
This alliance was further strengthened when Didi Chuxing participated in Ola’s Series F funding
round. Additionally, both Ola and Grab are funded well with about one and a half billion dollars in
funding from strategic investors.74 After its recent China exit, India and the Southeast Asian countries
are a frontier which Uber cannot afford to lose. Currently, Uber lags both to Ola and Grab in terms
of market share in their respective geographies. 75
Challenges
REGULATION
As Uber expands it continues to encounter regulators unfriendly to them entering their markets.
In April 2017, Denmark effectively banned Uber with a new law that makes taxi meters mandatory.76
Also in April of 2017, a Czech regional court issued an injunction against Uber’s operations in Brno,
the county’s second largest city, after the city complained that Uber drivers were not complying with
required tests or using taximeters.77
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Uber is currently defending itself in Europe’s top court after being targeted with a 2014 French law
that criminalizes the organization of illegal taxi services and restricts the use of software to find passengers.
78 In Germany, Uber is allowed as a ride-hailing service, but only when employed by official
taxis.
Regulators in Uber’s hometown of San Francisco are no friendlier to the company. The city is suing
Uber to obtain the names and addresses of drivers operating in the city. The city wants to ensure
compliance with its business registration laws that require drivers operating more than seven days
a year to register as a business and pay a $91 fee. In a statement, Uber said that it agrees that drivers
must obtain business licenses, but that the company was concerned about how the city would handle
drivers’ information.79
The law requires any business in San Francisco to register with the Treasurer and Tax Collector’s Office,
whether they’re PG&E (Pacific Gas and Electric Company, a natural gas utility) or a hairdresser. Uber and
its drivers are no different… Not surprisingly, Uber is thumbing its nose at the law. It’s time for that to
stop. Their argument that this is about their drivers’ privacy is a complete red herring.
– Dennis Herrera, City Attorney80
DRIVERS
Uber relies on some two million drivers worldwide to provide its ride-hailing services. “At the most
fundamental level in this business, we don’t succeed unless drivers succeed,” comments Caleb Weaver,
Uber’s head of public policy in Washington State.81 Despite Uber’s insistence that its drivers are partners,
the company is often at odds with its drivers. Uber treats its drivers as independent contractors,
but drivers’ groups and courts around the world are calling this arrangement into question.
In New York City, the Taxi and Limousine Commission is working on rules that would require Uber
to add a driver tipping feature to its app. The commission is working on a new rule that would make
it mandatory for hired vehicles to offer passengers the option to tip drivers using the same method of
payment that was used to purchase the ride.82 The proposal is a result of complaints brought to the
commission by the Independent Drivers Guild about falling wages after Uber reduced fares. The guild
was organized in 2016 to lobby for drivers. Uber has opposed tipping in the past as an inconvenience
to passengers. 83
In Seattle, Uber is fighting drivers’ efforts to unionize after a law allowing it went into effect in
January 2017. Uber is trying to dissuade drivers from unionizing with text messages, meetings, and
podcasts. “It’s totally impossible to know how the ordinance could limit who can drive, when you
can drive, as well as what you may be required to pay in union dues,” states one podcast from the
company.84 Union proponents argue that unionization would give drivers better wages and working
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Corporate Culture
I want to make sure that the company that we build at Uber reflects the best of anything in the workplace
so that no woman must choose between advancing her career and completely unacceptable treatment.
-Arianna Huffington85
Uber lists “toe-stepping” and “hustling” as corporate values, traits that no doubt fueled the company’s
rapid growth. However, a growing stack of unsavory news stories cast doubts on the long-term benefits
of Uber’s aggressive culture. “The question for many entrepreneurs is whether they can shift to a more
conventional leadership, while still maintaining their willingness to defy conventions,” commented
David Bach, associate dean of Yale University’s School of Management.86
In March 2017, Uber’s president of ride-sharing, Jeff Jones, resigned only six months into his tenure
at Uber. Jones commented that, “the beliefs and approach to leadership that have guided my career are
inconsistent with what I saw and experienced at Uber.”
In 2017, a blog post by a former Uber engineer went viral.87 It alleged rampant sexual harassment,
persistent mistreatment of female employees, and the company’s failure to respond to complaints. The
former employee said that women engineers in her work group dropped from 25 percent to as low
as three percent within a year because of the hostile work environment. She also claimed managers
downgraded her performance review for reporting a supervising manager for harassment. It took a
public outcry for then-CEO Kalanick to act on the allegations of sexual harassment. Uber retained
former U.S. Attorney General Eric Holder to lead an internal investigation, working with Arianna
Huffington, Uber’s only female board member.
Travis Kalanick, Uber’s co-founder, was forced to resign as CEO in the summer of 2017 under
mounting pressure by investors over his alleged role in and mishandling of Uber’s litany of ethical
challenges. In the wake of the Kalanick resignation, Emil Michael also resigned. The Uber executive
made headlines in 2014 when he suggested that Uber spend $1 million to hire private investigators to
dig up dirt on journalists who wrote damaging pieces on Uber, with a particular focus on Sarah Lacy,
of tech blog PandoDaily. When the remarks became public, Michael apologized, Kalanick decried the
attempt, but Michael was not disciplined.
Shortly after Kalanick’s resignation, Uber’s board presented Dara Khosrowshahi as the new Uber
CEO. Khosrowshahi was CEO of Expedia (a travel website) at the time of his Uber appointment. In
the meantime, Uber customers in the U.S. left in droves and started using Lyft (see Exhibits 6 and 7 ).
Decision Time
Huffington woke up the next morning to the ringing of a wind-up alarm clock on her bedside
table. She was adamant about keeping distracting digital devices out of the bedroom to ensure a good
night’s sleep. After preparing a “bulletproof coffee” she headed over to a stationary bike for her morning
workout. The half-hour bike ride gave her time to catch up on emails from her A-team. At the top
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of the list was another news article about another Uber executive resigning. Clearly something would
have to change at Uber. Huffington upped her cadence as she considered the advice she could give to
Khosrowshahi. What should Uber being doing to meet its business challenges? How could she help
the new CEO to bring some calm and certainty into Uber? And more importantly, what should she
and the new CEO do to prepare Uber for a future Initial Public Offering? In the meantime, Lyft was
getting stronger … and now has big and strong alliance partners such as GM and Waymo.
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EXHIBIT 1 Uber Drivers, Taxi Drivers and Chauffeurs, and All Workers Are For Same
Geographic Markets
Source: J.V. Hall and A.B. Krueger, “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States,” NBER
Working Paper No. 22843, 2016.
Uber Drivers
Taxi Drivers and
Chauffeurs (2012–13) All Workers (2012–13)
Age 18-29 19.1% 8.5% 21.8%
30-39 30.1% 19.9% 22.5%
40-49 26.3% 27.2% 23.4%
50-64 21.8% 36.6% 26.9%
65+ 2.7% 7.7% 4.6%
Female 13.8% 8.0% 47.4%
Less than HS 3.0% 16.3% 9.3%
High School 9.2% 36.2% 21.3%
Some College / Associate’s 40.0% 28.8% 28.4%
College Degree 36.9% 14.9% 25.1%
Postgraduate Degree 10.8% 3.9% 16.0%
White Non-Hispanic 40.3% 26.2% 55.8%
Black Non-Hispanic 19.5% 31.6% 15.2%
Asian Non-Hispanic 16.5% 18.0% 7.6%
Other Non-Hispanic 5.9% 2.0% 1.9%
Hispanic 17.7% 22.2% 19.5%
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EXHIBIT 2 Hourly Earnings of Uber Drivers Compared with Taxi/Chauffer Drivers
Source: Depiction of data from Uber.
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0
San Francisco New York Boston Washington D.C. Los Angeles Chicago
Uber Drivers (Net Earnings per Hour) Taxi Drivers & Chauffeurs (Hourly Wages)
$23.87
$12.96
$23.69
$12.54
$20.86
$14.26
$18.46
$14.53
$18.43
$15.74 $16.23
$13.92
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EXHIBIT 3 Popularity of Ride-Hailing Services by Demographic
Source: Survey by Pew Research Center, “Shared, Collaborative and On Demand: The New Digital Economy,” May 2016.
% who have used a ride-hailing service like Uber or Lyft
All U.S. adults 15%
Men 16%
Women 14%
White 14%
Black 15%
Latino 18%
18-29 28%
30-49 19%
50-64 8%
65+ 4%
HS grad or less 6%
Some college 15%
College grad 29%
<$30,000 10%
$30,000-$74,999 13%
$75,000+ 26%
Urban 21%
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EXHIBIT 4 Uber’s Valuation, 2009–2016 ($ millions)
Source: Depiction of publicly available data.
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
1/1/13 1/1/14 1/1/15 1/1/15 1/1/16 1/1/17 1/1/18 1/1/19
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EXHIBIT 5 The Six Stages of Automation (Autonomous Vehicles)
Source: Adapted from definitions provided by U.S. National Highway Traffic Safety Administration.
Level 0: No Automation. A human control all the critical driving functions.
Level 1: Driver Assistance. The vehicle can perform some driving functions, often with a single feature such as
cruise control. The driver maintains control of the vehicle.
Level 2: Partial Automation. The car can perform one or more driving tasks at the same time, including steering
and accelerating, but still requires the driver to remain alert and in control.
Level 3: Conditional Automation. The car drives itself under certain conditions but requires the human to
intervene upon request with sufficient time to respond. The driver isn’t expected to constantly remain alert.
Level 4: High Automation. The car performs all critical driving tasks and monitors roadway conditions the
entire trip, and does not require the human to intervene. Self-driving is limited to certain driving locations and
environments.
Level 5: Full Automation. The car drives itself from departure to destination. The human is not needed; indeed,
human intervention would introduce more errors than fully automated driving. The car is as good or better than a
human and steering wheels and pedals are potentially no longer needed in vehicle.
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EXHIBIT 6 Customer Perception of Uber’s Reputation Before and After Negative Stories in 2017
Source: Depiction of data from cg42 (a management consulting firm).
80%
70%
60%
50%
40%
30%
20%
10%
0%
Positive Neutral Negative
Before Negative Stories After Negative Stories
69%
43%
9%
30%
22%
27%
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EXHIBIT 7 Reasons Why Customers Leave Uber
Source: Depiction of data from cg42 (a management consulting firm).
56%
18%
12%
8%
6%
Negative News Cost Better Alternatives
Bad Experience Other Do Not Copy or Post
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Endnotes
1. Wall Street Journal. “Arianna Huffington Joins Uber’s Board of Directors,” Uber Global, last modified
September 26, 2016, https://newsroom.uber.com/ariannahuffington/.
2. Ibid.
3. Jennifer Smith, “Uber CEO Travis Kalanick Issues Groveling Memo to Staff Admitting He Needs to ‘Grow
Up’” Daily Mail Online, last modified March 01, 2017, http://dailym.ai/2lZKJQr
4. Mike Isaac, “What You Need to Know About #DeleteUber,” New York Times, last modified January 31, 2017,
https://www.nytimes.com/2017/01/31/business/delete-uber.html.
5. Georgia Wells, “Uber Communications Chief Rachel Whetstone Is Leaving,” Wall Street Journal, last modified
April 11, 2017, https://www.wsj.com/articles/uber-communications-chief-rachel-whetstone-is-leaving-1491951928.
6. Max Chafkin, “What Makes Uber Run,” Fast Company, last modified August 09, 2015, https://www.fastcompany.
com/3050250/what-makes-uber-run.
7. Ibid.
8. Ibid.
9. “Our Story,” Uber, accessed October 2017, https://www.uber.com/our-story.
10. Emily Badger, “Taxi Medallions Have Been the Best Investment in America for Years. Now Uber May Be
Changing That,” HighBeam Research – Newspaper archives and journal articles, last modified November 27, 2014,
http://www.highbeam.com/doc/1P2-37438201.html.
11 Danielle Furfaro, “Taxi Medallions Reach Lowest Value of 21st Century,” New York Post, last modified April 5,
2017, http://nypost.com/2017/04/05/taxi-medallions-reach-lowest-value-of-21st-century/.
12. Noam Scheiber, “How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons,” New York Times, last
modified April 02, 2017, https://www.nytimes.com/interactive/2017/04/02/technology/uber-drivers-psychologicaltricks.
html.
13. Katherine Shaver, “’I Nearly Passed Out’: A $640 Uber Ride For a 30-mile Trip To the Airport,”
Chicagotribune.com, last modified January 30, 2016, http://trib.in/2ysdE4I.
14. Ibid.
15. Chafkin, “What Makes Uber Run,” Fast Company.
16. Farhad Manjoo, “Car-Pooling Helps Uber Go the Extra Mile,” New York Times, last modified March 30, 2016,
https://www.nytimes.com/2016/03/31/technology/car-pooling-helps-uber-go-the-extra-mile.html.
17. Jonathan V. Hall and Alan B. Krueger, An Analysis of the Labor Market for Uber’s Driver-Partners in the
United States, National Bureau of Economic Research No. 22843, November 2016.
18. Ibid.
19. Ibid.
20. Ibid.
21. Mike Isaac, “Uber’s C.E.O. Plays With Fire,” New York Times, last modified April 23, 2017, https://www.
nytimes.com/2017/04/23/technology/travis-kalanick-pushes-uber-and-himself-to-the-precipice.html?mtrref=www.
google.co.uk&gwh=BEDD6F7DB77DC98D0DEA23FEA38B30DD&gwt=pay.
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22. Scheiber, “How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons,” New York Times.
23. Ibid.
24. Ibid.
25. Brent Kendall and Greg Bensinger, “Uber to Pay $20 Million to Settle FTC Charges on Earnings
Claims for Drivers,” Wall Street Journal, last modified January 19, 2017, https://www.wsj.com/articles/
uber-to-pay-20-million-to-settle-ftc-charges-on-earnings-claims-for-drivers-1484862070.
26. “Shared, Collaborative and On Demand: The New Digital Economy,” Pew Research Center, last modified May
18, 2016, http://pewrsr.ch/1OQaJK3.
27. Fitz Tepper, “Uber Has Completed 2 Billion Rides,” TechCrunch, last modified July 18, 2016, https://techcrunch.
com/2016/07/18/uber-has-completed-2-billion-rides/.
28. Eric Newcomer, “Uber, Lifting Financial Veil, Says Sales Growth Outpaces Losses,”
Bloomberg, last modified April 14, 2017, https://www.bloomberg.com/news/articles/2017-04-14/
embattled-uber-reports-strong-sales-growth-as-losses-continue.
29. Eva Grant and Simran Khosla, “Here’s Everywhere Uber is Banned Around the
World,” Business Insider, last modified April 08, 2015, http://www.businessinsider.com/
heres-everywhere-uber-is-banned-around-the-world-2015-4?IR=T.
30. “Family of 6-Year-Old Girl Killed by Uber Driver Settles Lawsuit,” abc7news, last modified July 14, 2015,
accessed on May 28, 2017, http://abc7ne.ws/1U6jfAw.
31. Daniel Roberts, “A Brief History of Uber Scandals,” Yahoo Finance, last modified February 22, 2016, https://
yhoo.it/2xGaOvj.
32. Mike Isaac, “Judge Overturns Uber’s Settlement with Drivers,” New York Times, last modified August 28, 2016.
33. As quoted in F. T. Rothaermel, Strategic Management, 4e, (Burr Ridge, IL: McGraw-Hill, 2018).
34. Ibid.
35. Mike Isaac, “Uber C.E.O. Plays With Fire,” New York Times, last modified April 23, 2017.
36. Tom Huddleston Jr., “Former Obama Strategist Leaves a Top Executive Job at Uber,” Fortune, May 14, 2015.
37. As quoted in F. T. Rothaermel, Strategic Management, 4e, (Burr Ridge, IL: McGraw-Hill, 2018).
38. https://chanzuckerberg.com/
39. Mike Isaac, “Uber C.E.O. Plays With Fire,” New York Times.
40. Mike Isaac, “Justice Department Expands its Inquiry into Uber’s Greyball Tool,” New York Times, last modified
May 5, 2017, https://www.nytimes.com/2017/05/05/technology/uber-greyball-investigation-expands.html.
41. Ibid.
42. Paul Mozur and Mike Isaac, “Uber Spends Heavily to Establish Itself in China,” New York Times, last modified
June 08, 2015, https://www.nytimes.com/2015/06/09/technology/uber-spends-heavily-to-establish-itself-in-china.
html.
43. Ibid.
44. Chafkin, “What Makes Uber Run,” Fast Company.
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45. Mozur and Isaac, “Uber Spends Heavily to Establish Itself in China,” New York Times.
46. Alyssa Abkowitz and Rick Carew, “Uber Sells China Operations to Didi Chuxing,”
Wall Street Journal, last modified August 1, 2016, https://www.wsj.com/articles/
china-s-didi-chuxing-to-acquire-rival-uber-s-chinese-operations-1470024403.
47. As quoted in F. T. Rothaermel, Strategic Management, 4e, (Burr Ridge, IL: McGraw-Hill, 2018).
48. Ibid.
49. Greg Bensinger and Jack Nicas, “Alphabet’s Waymo, Lyft to Collaborate on Self-
Driving Cars,” Wall Street Journal, last modified May 15, 2017, https://www.wsj.com/articles/
alphabets-waymo-lyft-to-collaborate-on-self-driving-cars-1494813169.
50. Kia Kokalitcheva, “Uber’s Self-Driving Car Plans Involve a Trucking Startup,” Fortune, last modified August
18, 2016, http://fortune.com/2016/08/18/uber-otto-acquistion/.
51. Alan Ohnsman, “Startup Otto Aims To Leapfrog To First In Self-Driving Vehicles With Big
Trucks,” Forbes, last modified August 01, 2016, https://www.forbes.com/sites/alanohnsman/2016/08/01/
startup-otto-aims-to-leapfrog-to-first-in-self-driving-vehicles-with-big-trucks/#5d43a2975e5c.
52. Greg Bensinger and Jack Nicas, “Uber Ordered to Return Documents in Self-Driving Fight
With Waymo,” Wall Street Journal, last modified May 15, 2017, https://www.wsj.com/articles/
uber-ordered-to-return-documents-in-self-driving-fight-with-waymo-1494865307.
53. K. Kokalitcheva, “Lyft Reportedly Rebuffed GM’s Acquisition Interest,” Fortune, accessed February 06, 2017,
http://fortune.com/2016/08/12/gm-lyft-acquisition-interest/.
54. “Ford Targets Fully Autonomous Vehicle For Ride Sharing in 2021; Invests in New Tech Companies, Doubles
Silicon Valley Team,” The Ford Motor Company, accessed February 06, 2017 http://ford.to/2bvEgY9.
55. Eric Pfanner and Yoko Kubota, “Toyota Setting Up Major Research Lab in Silicon
Valley,” Wall Street Journal, last modified November 6, 2015, https://www.wsj.com/articles/
toyota-to-invest-1-billion-in-artificial-intelligence-firm-1446790646.
56. Chafkin, “What Makes Uber Run,” Fast Company.
57. Biz Carson, “Lyft Tripled its Rides in 2016,” Business Insider, last modified January 6, 2017, http://
uk.businessinsider.com/lyft-tripled-its-rides-in-2016-2017-1.
58. Greg Bensinger and Jack Nicas, “ Alphabet’s Waymo, Lyft to Collaborate on Self-
Driving Cars,” Wall Street Journal, last modified May 15, 2017, https://www.wsj.com/articles/
alphabets-waymo-lyft-to-collaborate-on-self-driving-cars-1494813169.
59. Erica Fink, “Uber-nasty? Staff submits 5,560 fake ride requests,” CNNMoney, last modified August 12, 2014
http://cnnmon.ie/1mEgiat
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2:Business Law

For each of the two Fact Patterns set out below:

A. List each area of substantive law which is implicated by the fact pattern; (An area of substantive law might, for example, be Intellectual Property, International Law, Environmental Law, Employment Law, etc.)

B. Identify the legal issues which arise from the fact pattern;

C. Set forth an analysis of the facts stated in the fact pattern as they pertain to each legal issue that you identify and set forth what you believe would be the resolution of each identified issue based upon those facts. If you believe that the outcome of any issue would be different based on any facts or information that you believe are necessary to your analysis, set forth any such facts and explain why they would be important**; and,

D. If you were the trier of fact in this case, in whose favor would you rule and why? What would be the winning party’s remedy(ies) and why?

**(NOTE: You should not alter the stated facts or engage in random speculation. However, you should feel free to make all reasonable inferences from the facts as stated and set out and discuss any items of fact that you believe are not clear from the fact pattern which you reasonably believe are necessary to a full analysis of the issues.)

[FYI: The length of your answers will be up to you. You will be graded on your ability to (i) correctly identify the substantive area(s) of law which are applicable to each fact pattern, (ii) identify specific legal issues which are raised by each fact pattern, and (iii) set forth rational arguments, based on the facts and reasonable inferences, supporting your answers.]

FACT PATTERN 1: (40 Points)

WE LOVE MEAT is in the meat processing business. When WE LOVE MEAT opted to purchase the necessary equipment for a smokehouse and build a smokehouse facility at its plant, it contacted SMOKEHOUSES R US, which designs, manufactures and installs facilities for food processing, concerning the design and construction by WE LOVE MEAT of its new smokehouse facility. SMOKEHOUSES R US represented that it was an expert in this field and was fully capable of designing and building the facility in which the smokehouse equipment to be purchased by WE LOVE MEAT was to be installed, and in installation of WE LOVE MEAT’s smokehouse equipment, all in accordance with applicable codes and in a timely manner.

On January 14, 2016, SMOKEHOUSES R US provided WE LOVE MEAT with a Budget Quotation for the construction of the smokehouse facility and the installation of the smokehouse equipment which stated that the entire project would cost $60,000 and set forth the terms pursuant to which SMOKEHOUSES R US would provide goods and services for the project. Pursuant to those terms SMOKEHOUSES R US would design, construct and oversee the project including the installation of the smokehouse equipment and that all work would be done in a continuous time frame.

Based on the represented expertise of SMOKEHOUSES R US and the terms of the Budget Quotation, WE LOVE MEAT contracted with SMOKEHOUSES R US on February 1, 2016 to design, construct and oversee the project for $60,000 and paid a down payment of $20,000. An additional payment of $20,000 was to be paid when the work commenced with the balance due upon completion of the project. SMOKEHOUSES R US commenced work on February 28, 2016 and although SMOKEHOUSES R US worked on the project after February 28, 2016, by the end of June of 2016 the work was still not completed.

WE LOVE MEAT sued SMOKEHOUSES R US alleging that (1) SMOKEHOUSES R US failed to properly design, build and oversee the project, (2) the smokehouse which had been purchased by WE LOVE MEAT was installed improperly and in the wrong area, (3) that much of the work for which SMOKEHOUSES R US was contracted was not completed, and (4) the work that was done by SMOKEHOUSES R US was not done properly, and (5) when WE LOVE MEAT tried to get SMOKEHOUSES R US to repair its deficient work and to complete the project, SMOKEHUSES R US said it would do so only if WE LOVE MEAT paid SMOKEHOUSES R US an additional $75,000. WE LOVE MEAT claimed that in order to repair and complete the work to be performed by SMOKEHOUSES R US, WE LOVE MEAT had to pay another contractor $100,000 and that as a result of the failure of SMOKEHOUSES R US to perform under the contract, there was a substantial delay in WE LOVE MEAT being able to have the project completed and begin cooking and selling its products which resulted in $50,000 of lost profits to WE LOVE MEAT.

SMOKEHOUSES R US contends that (1) WE ARE MEAT only paid $10,000 at the commencement of the work and failed to pay anything further and therefore it had no duty to repair any defective work or to complete the project (2) it performed all services in accordance with the applicable standard of care and in a workmanlike manner, and (3) the evidence demonstrates that there was no deadline set for the work nor did WE ARE MEAT state that time was of the essence when it hired SMOKEHOUSES R US.

FACT PATTERN II (40 Pts).

REAL ESTATE MAKES US RICH is the owner of the Wonderful Mall. ASSET MANAGEMENT COMPANY, INC. manages the Wonderful Mall for REAL ESTATE MAKES US RICH. Mr. and Mrs. OWTHATHURTS had parked their car on the 5th floor of the parking garage at the Wonderful Mall while going to the movies at the theater across the street from the Wonderful Mall since there were no parking spaces available at the movie theater.

When the movie was over Mr. and Mrs. OWTHATHURTS went back to the Wonderful Mall to get their car and entered the elevator in the parking garage. Shortly after entering the elevator, one section of the three part ceiling of the elevator came loose and fell from its supports and landed on Mr. and Mrs. OWTHATHURTS. Mrs. OWTHATHURTS received a blow to the head, resulting in swelling and a visible bump on her head. Mr. OWTHATHURTS received a blow to the head and neck area and a laceration of his forehead.

SECTION II (20 Pts):

Facts: John, Jane and Spot start a company to develop and sell an App that enable students to “attend” classes by projecting an interactive image of themselves into a classroom that is so real that their professors think they are actually in class. John agrees to provide the startup capital for the company, Jane agrees to provide all of the necessary operating costs for the first year and Spot, who is the technological brains of the operation, agrees to do all of the research and development to create the App.

Question: Describe the legal factors and issues that John, Jane and Spot must consider when determining what legal entity, if any, they should choose and how you arrived at your choice of legal entity based on those factors and issues.

Other that determining what form their company should take, what other legal issues should John, Jane and Spot be thinking about and addressing based on the fact pattern set forth above?

business law