In mid-2014, the Australian government, fearing for the safety of its citizens, banned Uber from operating legally in Queensland, New South Wales, Victoria and Western Australia. To enforce the ban, undercover inspectors who conducted sting operations on the ride-hailing company were given the authority to impose an on the spot fine of up to $1,700 for both the drivers as well as the passengers.
Theoretically, these tough measures should’ve gotten Uber off the street. Yet, if you wanted to, you could still get an Uber at these states within minutes today.
How could this be?
The real answer lies in Uber’s tried-and-true war winning strategy.
It is a strategy that is undeniably ingenious, shrewd, and unethical.
It is a strategy whose real worth, all told, is $41 billion.
Trouble Down Under
In May 2014, the Australian government issued a cease and desist against Uber, warning them to kill their operations in Australia immediately or risk having legal action brought against them.
Uber ignored the threat.
A few months later, when the Australian government decided that enough was enough and that they were done putting up with Uber’s reckless behavior, they began a series of sting operations against Uber. Undercover inspectors would request rides on the Uber app on their phones – just like any other customer – but once the cars arrive, the inspectors could issue a fine of up to $1,700 to the driver for unauthorized driving and $1,366 for providing unlicensed taxi services. There was no limit on the number of times a diver could be fined.
Soon, Uber got wind of the sting operation… and began one of their own in retaliation.
When the undercover inspectors tried to conduct another sting operation against Uber divers a couple months later in August, they noticed an anomaly: they could no longer book from their Uber apps.
As it turns out, Uber had blocked the inspectors’ numbers and consequently, their Uber accounts. Without an Uber account, the entire sting operation fell apart.
“No covert activity was done today, Uber locked third phone due to [infringement notices] being issued yesterday,” Department of Transport staffer Scott Hall said in an email obtained by ABC News. “Time was spent purchasing new credit cards, activating gmail accounts, and setting up two more phones […] covert activity will re-commence tomorrow.”
Uber defended their actions by citing “unusual activity” with the associated accounts when an inspector questioned why his account was suspended. “It’s currently under investigation and will remain banned until we get to the bottom of it,” the representative added, perhaps facetiously.
Uber, by all accounts, won the war against the Australian government: since then, its market share has grown by more than 700%.
This isn’t the first time Uber used this callous strategy against a government who didn’t welcome Uber’s presence in their country. And if history is any indication at all, this won’t be the last time either.
Welcome to Uber’s world, where laws and regulations are just hurdles waiting to be jumped.
Uber, having just raised another $4 billion to bring their overall valuation to $41 billion, is on a tear. Investors The Michael Report spoke to late last year said they expect Uber to IPO at a valuation of $50 billion to $100 billion in a few years. In context, that would make Uber more valuable than existing companies such as Microsoft ($63 billion), Google ($56.6 billion), Coca-Cola ($56.1 billion), IBM ($47.9 billion) and McDonald’s ($39.9 billion).
Why does Uber, whose raised their previous round just a mere seven months ago, need so much money?
This may strike many as something out of the ordinary, considering Uber, unlike many startups in Silicon Valley today, is insanely profitable (their most mature market, San Francisco, brought in more than $500 million for the company last year).
But dive a little deeper, and the truth comes out: everyone wants a piece of Uber… because Uber is the ride-hail market. Lyft and a bunch of other ride-hailing companies used to have a chance, until Uber clobbered them. Uber, quite literally, defines the ride-hail industry. But Uber did not get there overnight.
First conceived in 2009, Uber has faced an avalanche of opponents in the form of what its founder, Travis Kalanick, described as the “taxi cartels”. These taxi industries, having been around for decades, were not used to having competition. Previous attempts to challenge the monopolized taxi industry were warded off by local regulators, who often received kickbacks in exchange for legislative help.
But Uber was nothing like what the taxi industry had seen before.
Flanked by the most advanced PR team of any company and a small army of political operatives led by one of the smartest politicians from the Obama campaign, David Plouffe, Uber blew its competition so far back that it’d be difficult to see them from the rear-view mirror of an Uber car.
After analyzing Uber’s strategy over the last two years, it became clear that the most crucial thing Uber ever did to cement their lead was to create a cookie-cutter strategy for winning any city in the world into their arms. While the taxi industry reigned in chaos, Uber constantly doubled down on their strategy, and it eventually worked: Uber is now more embedded into the fabric of society than the taxi industry it sought to displace. As BuzzFeed News puts it, Uber “almost single-handedly managed to convince regulators across the country to create a new framework for the industry as a whole to operate within legally.” In fact, Uber did so by employing the same strategy they did in Australia everywhere else.
The Uber playbook comes in six stages, and here’s how it usually goes:
- Uber will enter a new market without prior notification to the host country. Once Uber has recruited a number of drivers, it will start to make some noise and generate excitement within its potential customer base. Repeated tactics include recruiting “ambassadors” who will help spread the word in exchange for free credits as well as offering new customers a free first ride (this is where the money becomes important! While Uber isn’t charging the customers, the drivers still need to get paid… and so Uber will have to dip into its deep pockets and pay them itself).
- The government of the host country catches wind of the unauthorized Uber operation, and issues a cease-and-desist, threatening legal action should Uber refuse to comply.
- Uber ignores the cease-and-desist, citing the fact that customers want Uber to be there.
- Authorities, increasingly annoyed, begins a sting operation against Uber, where drivers are fined for a couple grands if they’re caught operating under Uber’s banner. Uber tells its drivers not to worry, since the company will pick up the penalties for them. Uber will often also offer to cover any legal cost or repercussions a driver might receive from the authorities, since it can afford to do so. This is where, once again, Uber’s truckload of cash comes in handy: it needs it to fight the regulators off.
- On a state level, Uber’s army of political operatives will push for new legislations that would legalize its operations. Most of the time, they win and get what they want.
- Uber will then hire more drivers, increase its marketing reach and more or less dominate the entire market.
Usually, this is where the battle ends. And it’s not a bad place to end: Uber is in 55 countries serves 170 cities domestically and hundreds more internationally.
Financially, it is projected to earn a net revenue of $2 billion this year, five times more than 2014’s $400 million.
It is no wonder that when Uber clashes with regulators, Uber wins out just about every time.
Where other ride-hailing operators cower in fear and wait for regulatory approval before entering a new market, Uber dives head-first – and its financial record shows.
How Much Longer Can Goliath Last?
In the emails ABC News obtained, Lance Maxwell, a transportation official, asked, “How long is [Department of Transport and Main Roads] prepared to continue to throw resources at this activity (referring to the sting operations)?”
The answer came days later, when Queensland’s Transport Minister Scott Emerson announced in a press conference that the government would not be changing its approach since ‘[the government is] determined to ensure that [they] enforce the regulations [they] have in place. Those regulations are there to protect the safety of passengers.”
Since May, only 95 Uber drivers have been fined, compared to the thousands currently working for the company. Meanwhile, Uber continues to show profitable growth in all Australian market, some of which are only a couple months old.
When Uber first got started five years ago, it was the David fighting an incumbent Goliath.
Today, the roles are reversed.
[Image credits: Forbes/TMR]