Nobody should feel sorry for Travis Kalanick.
The former chief executive of Uber Technologies Inc. – who famously berated an Uber driver on video earlier this year for complaining about pay – walks away from his job with a well-deserved reputation for being a jerk, but also with a board seat and a few billion dollars in stock.
Save your sympathy instead for the five big investors who banded together to oust him on Tuesday. They appear to be hoping that his departure will help the company begin a new, better era.
More likely, though, Uber's bad patch is just beginning. While the spotlight in recent months has focused on Mr. Kalanick's caustic personality, the long-term threats to the company are unrealistic expectations and an iffy business model.
At its best, Uber is capable of delivering a cleaner, more pleasant alternative to the smoky, patched cabs that patrol many city streets. That is why venture capitalists have poured in, propelling Uber's valuation in the private market to nearly $70-billion (U.S.) earlier this year.
But the more you think about Uber's basic business proposition, the more puzzling its stratospheric valuation looks.
On the one hand, the company is supposed to offer cheaper fares than traditional taxis on many routes. On the other hand, it is also supposed to provide drivers with a flexible, well-paid opportunity for self-employment that beats working for traditional taxi companies. On top of all that, the company is supposed to deliver a big payday to its early investors whenever it decides to go public.
Taken all together, it's a package of promises that simply appears too good to be true.
The traditional taxi business, at least in North America, is a steady earner but not one noted for huge profit margins. It employs lots of recent immigrants, precisely because they have few other employment opportunities. It often relies on broken-down vehicles, presumably because there's little payoff for investing in better rides. It is, in short, a tough, penny-pinching business.
How is Uber supposed to change that? Through the miracle of the market. Its software, at least in theory, provides an open, transparent machine for matching drivers and riders.
The problem is that you can't transform a lacklustre business into a great one simply by making a market more transparent or more open. The trick only works if there is fat to be cut and inefficiencies to be wrung out of the system.
But the taxi business doesn't offer that many obvious cost-cutting opportunities. No matter how ingenious the software, you still need one car and one driver to transport a passenger from point A to point B.
Uber's results provide lots of reason to be skeptical about whether the company can ever generate profit to match its hype. In 2016, it lost $2.8-billion on net revenue of $6.5-billion. In the first quarter, it lost $708-million on revenue of $3.4-billion. That is ugly math.
So what has kept its investors so extranced? Uber's biggest ally appears to be Silicon Valley's firm belief that traditional businesses must, by definition, be backward and therefore capable of being improved by a dose of high-tech, no-holds-barred hypercapitalism. Uber's name, with its vaguely Nietzschean overtones, as well as Mr. Kalanick's professed fondness for Ayn Rand, plays to the tech community's fondness for seeing itself as the brilliant disruptor of staid normality.
The reality, though, is Uber has been operating more like a goon than a world beater. So far this year, it has had to pay tens of millions of dollars to its drivers in New York after overcharging them for 2 1/2 years. It fired more than 20 employees after an investigation into sexual-harassment claims and it still faces a criminal investigation into a software tool that it used to evade regulators in Portland, Ore. Meanwhile, its president, its chief business officer and its head of communications have all left the company.
The five big investors who demanded Mr. Kalanick's resignation will be glad to see him gone. But their biggest problem isn't over how to lose a CEO. It's about how to find a profit.
Ian McGugan