This year, it’s been all eyes on Uber. The ride-sharing company went public in May, unveiled bold growth plans, and then posted its biggest ever net loss, $5.2 billion, in the second quarter of 2019.
This week we’re hearing Uber has had another round of layoffs in a desperate attempt to cut costs ahead of its Q3 results due in early November. This latest news is an unfortunate but unsurprising development in the company’s bumpy journey to become the Amazon of transportation.
Under the intense scrutiny of frustrated investors and against a backdrop of slumped shares, the seemingly unstoppable beast has finally realized it can’t keep churning through the cash. With the increasing threat of competition from the likes of Lyft in the US and Bolt in UK, it’s been aggressively spending with the view to expand into new territories, product, and service offerings, including Uber choppers, self-driving technology, and food delivery. In fact, Uber’s costs rose 147% to a staggering $8.7 billion in the second quarter, which included a sharp rise in spending for research and development.
Ahead of its Wall Street listing in May, the company, under Dara Khosrowshahi’s leadership, admitted it may never make a profit. However, six months on, Uber is frantically trying to convince investors that revenue growth will come from a wide range of products and services alongside it’s ride-hailing heritage – the core of its business that it has struggled to make profitable. The most promising of these is Uber Eats, which at just three years old brought in $1 billion in the first half of this year with a rising revenue of 80% year-over-year. Rides, by comparison, grew just a fraction at 6%. Unlike the driverless car plan, Uber Eats could likely grow profit in the near term. Done right, food delivery is a lucrative business. However, competition in this space is fierce, and once again promotional costs will be high in order to win majority market share.
The fundamental trouble with Uber, as with many Unicorns, is that it tried to run before it could walk. With lofty ambitions and stars in its eyes (flying cars, anyone?), it tried to do too much too soon, innovating in multiple areas to open up additional revenue streams without having first put in place a robust organizational structure fit for future success. They’ve focused too much on scaling and growing in the short term while developing a long-term strategy that isn’t likely to be viable for years due to factors beyond their control. Driverless cars for example, whilst widely considered the future of automotive, isn’t yet supported by the required global infrastructure to make these an imminent reality. The fact that this department was not immune to the cuts speaks volumes.
It’s time the startup grew up. What we’re seeing now with 1% of its workforce having been laid off or relocated, is Uber’s lightbulb moment; it needs to focus and shed less profitable parts of its business that don’t align with its purpose, including streamlining staff, as a final attempt to balance its books.
Khosrowshahi’s pursuit of Uber’s “new normal” comes at an unfortunate but necessary cost. The strategic redundancies in the spotlight today show the company is taking accountability and correcting the accidental repetition of work that came about due to a lack of rigor in its structure. Whilst grand aspirations and zealous innovation are commendable, without the proper business configuration and stringent medium-term planning, those ideas are going to be difficult to implement. In short, Uber grew too big too soon, hiring, and expanding without consideration of business consequence, and has now finally recognized it needs to go back to basics and ask the simple question, “If we were to start from scratch, what would we look like?”
However, the fact Uber is finally coming of age is likely little consolation to those now unemployed. And we can only hope the layoffs haven’t been in vain. Restructuring will inevitably contribute to cutting down the bottom line, but Uber needs to remember that its product is only as good as its people. If it wants to maintain its growth, it needs to start prioritizing its staff. The previous (and public) lack of consideration for its workforce is not only demotivating for current employees but a potential barrier to hiring the very best new talent that can help make the company’s vision a reality.
In short, Uber needs to remove its rose-tinted glasses and reign in its excessive spending before more of its people – and inevitably its products — become further collateral damage in its quest to be the “operating system of our daily lives.” It’s clear Uber has a vision for the future. Whether or not it’s a profitable one is still to be confirmed.
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Alyssa Altman is Transportation Lead at Digital Consultancy Publicis Sapient.