What Happened When Uber’s CEO Started Driving for Uber

WSJ

Apr 07, 2023

Dara Khosrowshahi and other executives realized drivers’ complaints were valid. They revamped the app, helping Uber attract workers and extend its lead on Lyft. Driver pay remains a sticking point.

After five years running Uber UBER -0.26%decrease; red down pointing triangle Technologies Inc., Dara Khosrowshahi in September got behind the wheel himself.

Using the alias “Dave K” and a gray Tesla Model Y that he purchased secondhand, the chief executive made dozens of trips as a ride-share driver in the following months ferrying people around the hills of San Francisco.

While taking a customer to the airport one evening, he had to ignore frantic phone calls from his chief legal officer who was trying to alert him that a hacker had breached Uber’s network. Another trip took him across the Bay Bridge to Oakland—and he swore never to do it again after getting stuck in rush-hour traffic back to the city.

It was the latest experiment in the CEO’s yearslong journey to reinvent driving on Uber. Along the way, he struggled to sign up as a driver, saw firsthand something called tip baiting and was punished by the app for rejecting trips. Surprisingly hard to take was the rudeness of some Uber riders.

Mr. Khosrowshahi’s moonlighting was part of a campaign by him and his lieutenants to better understand and improve Uber’s experience for drivers, whose scarcity had become a critical challenge for the company after the U.S. reopened from Covid-19 lockdowns. It marked a sharp turn for a company that wasn’t typically seen as being driver-friendly.

The campaign—code-named Project Boomerang—has helped shape what has become one of the biggest makeovers of Uber’s business since its inception in 2009.

“I think that the industry as a whole, to some extent, has taken drivers for granted,” Mr. Khosrowshahi said in an interview. He hadn’t driven on Uber before because it wasn’t his biggest priority—drivers had always been in abundant supply. The pandemic-fueled labor shortage forced a companywide introspection, he said, to “re-examine every single assumption that we’ve made.” 

Keeping up with demand

San Francisco-based Uber faced a debilitating labor shortage after the economy reopened in 2021. It figured out that it had to do more to get drivers on board than just offer them bonuses. It adopted some difficult changes that drivers had long asked for, and they paid off. 

Crosstown rival Lyft Inc. LYFT 0.53%increase; green up pointing triangle was slower to introduce new driver-friendly features and bonuses. It lost market share to Uber, and its stock valuation declined by billions of dollars. Late last month, following months of discontent among some employees and investors, Lyft’s co-founders announced they were stepping back from managing the company. They hired a new CEO. 

While Uber has long had a larger slice of the ride-share market than Lyft, its driver-focused strategy helped leave its younger competitor behind and put it in a stronger position to weather the current economic tumult, said investors and analysts. 

Uber’s ride-share revenue more than doubled in 2022, and the company posted its first full-year adjusted profit since its founding. It now commands 74% of the U.S. ride-share market, up from 62% in early 2020, according to consumer receipts analyzed by market-research firm YipitData. 

Lyft’s market share fell to 26% from 38%, YipitData show, its stock plunged more than 70% in the past 12 months, and the company has cut 13% of its staff. Uber’s stock fell less than 10% over the same period and it has shed less than 1% of its staff, defying widespread cost cuts and layoffs across the tech sector. 

Lyft said it is committed to doing the best for its drivers. It said its driver pool is growing and that January marked its biggest month-on-month jump in sign-ups since the start of the pandemic. 

“There’s always things we could have done differently or better,” Lyft co-founder John Zimmer said in an interview after stepping down last week. He said he has ferried Lyft customers on every New Year’s Eve since the company’s founding. Lyft’s incoming CEO, David Risher, said he drove his first passenger over the weekend.

Having loyal drivers makes Uber more competitive and sets it up to expand into new categories and deliver better returns for investors, said Robert Mollins, an analyst at Gordon Haskett Research Advisors. 

“I think they’ve really woken up to the fact that everything starts with the drivers and everything else just falls into place,” building on that momentum, he said.  

Mr. Khosrowshahi found the sign-up process ‘clunky’ and didn’t like that he couldn’t see the destination and projected payment before accepting trips. The company changed both.

The company continues to face criticism from drivers, activists and labor groups, who have campaigned for higher pay for drivers and more transparency over how fares are divided. Governments in the U.S. and abroad are in a tug of war with Uber over how to classify drivers and ensure them greater benefits and protections. 

“They’re very friendly to drivers when they need them, and when they have a surplus, they adjust,” said Bruce Schaller, a former deputy commissioner for New York City’s transportation department. 

Mr. Schaller said driver pay will remain a sticking point until governments can regulate how Uber compensates them. New York City sets a minimum wage for Uber drivers that factors metrics like time spent waiting for trips and driving to them. Uber sets pay across many other U.S. markets.

The ride sharing business was designed to make money connecting rides and riders without the cost and hassle of having to employ drivers. In reality, Uber and Lyft have had to keep shelling out money to attract both drivers and riders at various points—one reason why they have rarely turned a profit. 

As the economy reopened after pandemic lockdowns, riders returned at a faster pace than drivers. 

Online delivery businesses that brought groceries and restaurant food to people at home had flourished during the crisis, and gig workers had more options outside of ride-share for the first time. Uber operates in both businesses, which helped it tap some workers Lyft didn’t have, though it was still falling short of meeting ride-share demand. The imbalance pushed ride prices and wait times to record highs.

Uber at first defaulted to an old formula—financial incentives. In April 2021, Mr. Khosrowshahi carved out $250 million in bonuses to entice drivers. When the company revealed in August that year that the spending had weighed on its results, its shares tanked. 

Investors hammered Mr. Khosrowshahi on an evening call, saying he was spending too much and needed to focus on reducing costs to turn a profit.

The CEO pinged Uber’s head of driver operations, Carrol Chang, on Slack minutes later. “Getting a lot of questions,” he wrote, Ms. Chang said. “But I stand by the driver investments and fully believe it’s going to pay off.”  

Part of Mr. Khosrowshahi’s conviction came from seeing demand bounce back quickly overseas, where Uber now gets 40% of its revenue. He knew he had to move quickly to build back the supply of drivers in the U.S., its most lucrative market. 

Hopping on an electric bike

Ms. Chang had been leading the effort to get drivers to return to the ride-hailing service. Her father once worked as a taxi driver after immigrating to the U.S., and she knew bonuses were just a short-term fix. Drivers wanted not only better pay but also to be heard about other issues. 

In June that year, she held a four-hour Zoom meeting with company executives and asked them to ferry passengers and food for the app so they would understand drivers’ grievances.

Through a 227-slide presentation, she outlined how the company’s three competing objectives of keeping costs low, avoiding legal risks and attracting drivers had created what she called a “triangle of death,” paralyzing Uber’s ability to do more for workers. 

“If you try to do all of those three things at the same time, literally nothing can get through,” Ms. Chang said she told leaders on the call.  

The following weekend, Mr. Khosrowshahi hopped on an electric bike and began delivering food in San Francisco. Posing as a gig worker for the first time was a wake-up call, he said. 

Mr. Khosrowshahi struggled with Uber’s sign-up process, which was different depending on whether workers wanted to drive people or deliver food. “The whole experience was pretty clunky,” Mr. Khosrowshahi said. 

Uber soon created a single sign-up process for its workers and made it easier for them to toggle between rides and food. It began messaging couriers that they could earn more on average ferrying people.

The CEO also learned navigating bustling restaurants for pick ups was confusing, with little information provided on where to go. Uber designed a video for delivery drivers so they could find their way around restaurants, showing what they should do when arriving and how to manage the app after the food was in hand. 

Uber would often match Mr. Khosrowshahi to his next delivery while he was en route to completing an order. One time he clicked on the notification and the app started navigating him to a new address—hiding directions for the current order. New orders are now queued after existing orders, even if drivers click on them, so information about the current order isn’t lost.

On another occasion, Mr. Khosrowshahi showed up to a restaurant to pick up what he thought was one order—only to learn that it involved two separate deliveries. Uber was combining orders along the same route, but the app didn’t make that clear. The company introduced better labeling for trips that involved more than one delivery.

Mr. Khosrowshahi also ran into a problem delivery drivers had been complaining about: tip baiting. Customers would entice workers to pick up their food quickly by entering big tips on the app—but then reducing them after the food was delivered. 

Uber is still looking for ways to address the practice. It at first took away delivery customers’ ability in some places to lower tips after an order was placed, only to discover that it reduced overall tipping. People didn’t want to be stuck with big tips if their food didn’t show up or they received the wrong order.  

Mr. Khosrowshahi developed a routine: He would spend the weekends delivering food then outline glitches and possible solutions on a Google document. He would tag employees and include photos and screenshots to show the issue.

He said that earlier, Uber believed that if it attracted drivers with money, “the rest will take care of itself.” It dawned on him after his delivery stint that the company “had to fundamentally change how we built our product and do it faster than our competition.” 

Then, in September last year, Mr. Khosrowshahi tried out ferrying passengers. He bought the used gray Tesla and began picking up San Francisco riders, and soon experienced some of Uber drivers’ biggest complaints.  

One was the inability for drivers to see drop-off locations and estimated pay before they accepted a trip, a restriction that made it impossible to decide if a ride was worth their time. Uber had worried that drivers would cherry-pick rides, avoiding some neighborhoods and discriminating against riders going to those places, so it only gave the information to some drivers with high trip-acceptance rates. The company had started making moves to ease the issue in July, when it began letting all drivers in a few markets—not including San Francisco—see the information. 

When Mr. Khosrowshahi tried out driving, he rejected some trips and the app punished him by taking away the ability to see destinations ahead of time. The experience was so frustrating that he asked his team to speed up the timetable for all U.S. drivers to see destinations upfront without any restrictions. 

Carrol Chang, Uber’s head of driver operations, asked executives to ferry passengers and food to learn about drivers’ grievances.PHOTO: CARROL CHANG

To make some destinations more attractive, the company needed to change the way it calculated driver pay. Uber started measuring real-time demand at drop-off locations, to add to time and distance, in factoring pay. Drivers were paid more if they took passengers to areas that were unlikely to bring new rides, such as secluded neighborhoods.

Driver Danny Jacob dumped Lyft after Uber introduced pay and destinations disclosure in Chicago in September. He said the ability to see where he was going and the value of the ride was liberating, and Uber kept him busier because he could switch between rides and food delivery. Mr. Jacob said Uber still has a long way before it can call itself driver-friendly but the move signaled that it was willing to listen “after years of us banging our heads against a wall.”

Driver engagement at Lyft dropped after Uber’s summer rollout, according to people close to Lyft. The company’s product managers scrambled to match Uber’s changes, replicating many features months later. 

Other Uber executives were driving, too, and coming up with improvements. Sachin Kansal, Uber’s product head, found the company’s maps could be difficult to read while driving. Arrows marking turns were in colors that made them hard to see when sunlight reflected off a phone’s screen. It was simple to fix—but hadn’t come up when he tested maps in the office. 

Mr. Khosrowshahi said the industry had ‘taken drivers for granted.’

“The devil is in the details and they really matter,” Mr. Kansal said. 

Another fix: He forgot a customer’s mango lassi once, leading to a new feature that reminds couriers when drinks are paired with food.

Interacting with riders also showed Mr. Khosrowshahi how difficult the job could be for drivers. Some experiences made him feel slighted, such as when riders discussed personal problems and company secrets on speakerphone, as if there was no one else present. 

One passenger recognized the Uber CEO and asked for advice on his startup. Mr. Khosrowshahi said most riders haven’t recognized him, though, and have collectively given him a five-star rating. He said he gets nervous the nights before he drives, out of concern that his rating might dip the next day. 

He said he tries to keep riders happy by offering iPhone and Android charging cables and by playing music from the dozens of Spotify playlists that he has curated for his wife, Sydney. His latest driving playlist, named Syd 28, includes songs from Taylor Swift, Australian DJ Flume and rock band The National. Mr. Khosrowshahi is nearing 100 rides and deliveries on Uber. 

New safety features

In October, Uber trained its maps to avoid left turns at accident-prone intersections and started testing in-app video recordings of the car’s interior, a safety feature drivers had asked for amid rising crime against gig workers. 

Some consumer privacy groups worried about misuse of the feature. Mr. Kansal’s team encrypted the footage, which meant that drivers couldn’t view or store it. Uber would review the video if a safety incident was reported. 

Downloads of Uber’s driver app in the U.S. more than doubled in 2022 compared with 2019, according to analytics firm Data.ai. Lyft’s U.S. driver downloads grew 67% over the same period.

Uber and Lyft don’t disclose the number of U.S. drivers they have. Globally, including the U.S., Uber’s ride-share drivers bounced back to pre-Covid levels in September, and it ended 2022 with a record number.

From its maps to driver safety tools, “Uber was one step ahead of Lyft,” said Sergio Avedian, a driver who writes about the business on The Rideshare Guy blog for gig workers.

Drivers said they still want higher pay and are concerned Uber will change its policies when it isn’t hard-pressed for labor. The company is already pulling back on some bonuses, Mr. Avedian said. A recession could leave Uber with a surplus of drivers as consumers look to save money, he said. 

Uber has said more drivers are turning to the app as they look to make extra money because of growing economic uncertainty, but that rider demand is holding up so far despite challenging macroeconomic conditions. It said it has wound down some bonuses but that its attention to drivers’ needs will continue. 

It is working on new safety features to boost the number of female ride-share drivers and designing more efficient ways for drivers to receive ride and delivery requests at the same time. The company started giving drivers weekly summaries on how fares are divided, showing them how much the company kept and what went to tax and other charges, and said it plans to do more.

“Historically, we’ve always put a premium on the rider experience,” Mr. Khosrowshahi said. Being a non-founder CEO allowed him to challenge old decisions, he said. Uber needs to win the “hearts and minds” of drivers, too, he said.

 

 

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