/Why Ubers delayed subscription service still lags behind competitors

Why Ubers delayed subscription service still lags behind competitors

  • Uber was late to launch a subscription service due to infighting and indecision.
  • Employees question whether CEO Dara Khosrowshahi can innovate his way to success.
  • Uber One’s launch has been a slow uptake so far, lagging behind competitor DoorDash.

At Uber, there’s been a popular line among employees explaining the different epochs in the company’s leadership.

“Travis Kalanick is Uber’s wartime CEO; Dara is the peacetime CEO.”

But after last week’s selloff of tech stocks where Uber fell 16%, Khosrowshahi’s company finds itself on war footing again. Last Sunday evening, the CEO sent a note to employees telling them Uber had entered a turbulent new chapter in its history and attempted to rally the troops.

“The goalposts have changed. Now it’s about free cash flow. We can (and should) get there fast,” Khosrowshahi wrote in the note, first reported by CNBC.

But Khosrowshahi’s style may not be right for this moment, former executives say, especially when it comes to the kinds of nimbleness and clarity that the company may need to navigate through this period of uncertainty. 

In the note, Khosrowshahi wrote that “some initiatives that require substantial capital will be slowed” though he didn’t outline what those would be. Under Khosrowshahi the company has already spun out its farthest-reaching and money-losing moonshots like self-driving cars.

“The Dara-fication of Uber feels complete,” one former high-level


UberEats

executive said after reading the note.

Uber

Dara Khosrowshahi

Business Insider / Nick Bastone


The attention now turns to Uber’s product and its vision for the app. Can Khosrowshahi innovate Uber out of this crisis of investor confidence?

Khosrowshahi’s former colleagues at Uber and his previous outfit Expedia, say his preference as a product leader isn’t to take bold bets on new ideas but to spread investments around on a number of different initiatives to see what might work. It’s a cautious approach, driven more by data than instinct. 

Today the company’s biggest product push is turning Uber into a platform or a “Super App” where people can use the apps to order rides, meal delivery, and an array of other services like groceries, car rentals, and travel experiences. 

The level of buy-in from Uber employees and the belief that Dara is committed enough to make that vision come to life is unclear.

A case study of Khosrowshahi’s hands-off mindset and the problems it caused for Uber’s product has been the internal saga around an Uber subscription plan. Despite being the largest ride-hailing and food delivery service globally, Uber’s subscription effort still lags behind a similar offering from smaller competitor DoorDash.

Beat to the punch by DoorDash

The Uber-wide subscription, now called Uber One, was a long-tested, frequently debated program inside the company, people who worked on it said. 

The offering is simple: for a monthly fee, subscribers get discounted rides, access to top-ranked drivers, and no delivery fees on Eats orders. Khosrowshahi called it out in his Sunday night memo as one of the company’s top priorities. It’s poised to be a highlight of the company’s product announcement event on Monday.

Proposed at least five years ago, its launch was piecemeal, shepherded by a revolving door of executives and technical teams, and tested at length. Its widest public rollout only happened last November. 

Current and former employees debate why it took this long. Some blame company culture: Uber is fraught with corporate politics and an overreliance on testing above taking action, argued five current and former employees who worked on the product. They ultimately chalk that up to Khosrowshahi’s inability to prioritize a strategy and foster enough collaboration among teams to execute it.

Others argue that it took time for Uber’s business, specifically on the Eats side, to grow large enough for the economics of a subscription program to make sense.

Since joining the company in 2017, Khosrowshahi has repeatedly told employees he likes the idea of a subscription business for Uber. He compared it favorably to the Costco model, where the company sells its products at cost, but makes most of its profits from member fees. 

Khosrowshahi put his then COO Barney Harford in charge of the project. Harford, though, was more interested in creating a points-based rewards program that gave people discounts and perks for using Uber. The two programs still exist in tandem, although Uber Rewards has not been a runaway hit at making people loyal to the app, according to three current and former employees.

Employees who have worked on the subscription project said executives on the Eats side debated whether a subscription service made economic sense. They argued that cutting out delivery fees for Uber Eats customers would have negatively impacted an important source of revenue and they were skeptical that subscription revenue and the incremental increase in orders from members would make up for the losses.

Then DoorDash beat them to the punch, launching its subscription product DashPass in 2018.

Tony Xu, co-founder and CEO of DoorDash speaks at the WSJTECH live conference in Laguna Beach, California, U.S. October 22, 2019.

DoorDash CEO Tony Xu

Mike Blake/Reuters


Uber employees were jolted by data showing that a significant percentage of DoorDash’s orders were coming from DashPass members, according to three people familiar with the matter. That sent the team rushing to release EatsPass a year later.

Advocates for the program lamented the fact that DoorDash had taken the bolder step and forced their hand, though they argued that the economics of subscriptions changed once DoorDash charged in.

“Things looked different in a competitive environment. It’s why we dragged our feet for so long,” said one former employee.

A revolving door of execs and internal team turmoil 

A pan-Uber subscription was still a possibility. But it stalled once again. One of the debates was that the Rides team, led by its US regional general manager Sarfraz Maredia, would have to offer a bargain that would be too costly. 

Rides and Eats business units have different budget lines. Getting both teams to feel like their bottom lines weren’t taking too much of a hit, especially Rides which has historically been the larger business, was a challenge, according to three employees involved with the project.

The Rides teams’ hesitation was reasonable, said multiple sources. Maredia communicated to the team he was supportive of subscriptions, but only if made financial sense, one of these people said.

While Khosrowshahi told employees he supported the project, he did not step in to resolve the disputes to unblock the logjam, according to three current and former employees. When employees would ask Khosrowshahi’s direct reports where he stood, the line came down that “Dara was not prepared to make that call,” said one source with direct knowledge of the matter.

It became a joke among Uber subscription advocates that it was a race to see which long-delayed project would see the light of day first: an Uber One-style membership program or Brexit. (Brexit happened first).

“It surprised me that Dara had a clear point of view from day one in favor of a subscription but relinquished that point of view to organizational structure, versus ‘I’m the CEO I can make decisions,'” said another person who worked on the project.

That contrasted with Kalanick, whose brusque and impulsive management style many employees had no desire to return to. But few questioned his willingness to make a decision.

Former Uber CEO Travis Kalanick leaves a courthouse on February 6, 2018 in San Francisco, California.

Travis Kalanick leaves a courthouse on February 6, 2018 in San Francisco, California.

Elijah Nouvelage/Getty Images


The company under Khosrowshahi has a “measure twice, cut once” mentality, said one source familiar with the matter. 

“We had a lot of history of only measuring once and that didn’t work out,” this person said, pointing to past money-losing efforts like Uber Pool.

In 2019, Harford brought on Zhenya Lindgardt, a former strategist with Boston Consulting Group as its VP of Platform and Growth. She was tasked with heading up these projects and resolving the disagreements. She reported to Khosrowshahi. 

Members of the subscription team said Lindgardt had a difficult time advocating for the subscription service amid the logjam. None of the teams, including Maredia and Jain, then Uber’s head of mobility products, reported up to her and she had no control over their individual budgets.

Harford stepped down as COO in 2019 in an organizational shake-up. And as the subscription product stalled, Lindgardt’s sway within the organization diminished, according to people who worked on the product. (Lindgardt left Uber in 2020.) Lindgardt and Harford did not respond to requests for comment.

The ragged road to launch

In the first half of 2019, the subscription team ran tests on an Uber Eats-Uber Rides subscription in the US. They presented their findings later that year with members of the team arguing that it proved the gross bookings for users went up.

While the discounted rides and free deliveries cut into the margins, the net result on profit was neutral—meaning Uber was able to grow its business without hurting its profits.

It was an alternative to Uber’s strategy of encouraging growth by offering riders incentives. Jain was unconvinced that the group had enough data, according to one source. He felt his job as product leader was to question people critically about new product launches, said another source familiar with the matter. Others pointed out that the six months of testing on the product were substantial.

Rebuffed, the subscription team began pitching the service to various international teams, who had some autonomy to test their own promotions. But as the pandemic hit in March 2020, it halted the momentum behind launching subscriptions widely across the US.

Midway through the year, as Uber began piecing together its COVID recovery plan, the Uber subscription service was tapped as one potential lever to help reengage riders. Maredia and the team supported it more at this point. The Eats business had grown substantially during the pandemic, surpassing Rides in gross bookings. Now, the idea of a subscription offering led by the delivery service made more economic sense, argued a source familiar with the matter. 

The company launched UberPass at large in the US in the summer of 2020. In late 2021 it relaunched the program, branding it Uber One. Khosrowshahi was taking a more direct involvement in subscriptions at this point and signaled to employees that if necessary he will cut through the blockage to ensure it is a priority, said one person familiar with the matter. 

Khosrowshahi and Jain are among the speakers at Uber’s upcoming product event touting Uber One.

It’s hard to determine how much the myriad delays around Uber’s subscription product will hurt it in the future. Today Uber has 8 million global subscribers, according to a source familiar with the figure; DoorDash which is predominantly in the US recently reported it has 10 million Dashpass subscribers.

People who worked on the subscription product say the saga reflected an organizational structure that was slow-moving and protectionist with a focus on near-term results, led by a CEO who expressed support for the program but didn’t oversee its speedy and wide public release.

“Ultimately as a senior leader, you have to have conviction around a few things and rally the people and take a risk. Rather than incremental management by incrementality,” said one former executive who worked closely with Khosrowshahi.

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