FutureStructure

Daunting Challenges Ahead for New Uber CEO

Expedia’s Dara Khosrowshahi was voted in by Uber's board as Uber co-founder Travis Kalanick's replacement.

by Carolyn Said, San Francisco Chronicle / August 29, 2017
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(TNS) -- He ran a global online travel marketplace that shook up a hidebound industry in the face of regulatory onslaughts.

That’s Uber co-founder Travis Kalanick in a nutshell — but it’s also a fair description of his expected replacement, Expedia’s Dara Khosrowshahi, whom Uber’s board voted in as CEO on Sunday.

Now Khosrowshahi must bring those skills to bear at Uber, the world’s most valuable private technology company, succeeding Kalanick, who was forced out in June after months of turmoil at the ride-hailing upstart.

“Expedia’s business, while it may not seem similar on the surface, is actually quite closely aligned to what Uber does,” said Michael Ramsey, research director at the research and advisory firm Gartner Inc. “Ultimately, both are business models around bringing underutilized assets together with demand, to really optimize supply and demand.” For Uber, it’s car seats; for Expedia, it’s hotel rooms and airplane seats.

Those similarities, as well as Khosrowshahi’s expertise in both management and technology, including a degree in electrical engineering; his knowledge of the Internet world; and his reportedly calm, thoughtful personality, drew widespread praise for his selection from investors, analysts and others.

“He’s super thoughtful, deliberate, a long-term thinker who’s not afraid to lose money in the short term,” said Mitchell Green, a partner in Lead Edge Capital, which has a multimillion-dollar investment in Uber. “I think he’ll be a really good counterbalance to Travis.”

Khosrowshahi, 48, has not officially accepted the job, although Expedia Chairman Barry Diller emailed the staff on Monday to say that he believes Khosrowshahi will move to Uber. Expedia’s stock, up about 34 percent for the year, sank 4.5 percent on the news.

Bradley Tusk, an Uber investor and early adviser, sees even more parallels between Khosrowshahi’s experience at Expedia and the ride-hailing world.

“He had to fend off all kinds of regulatory challenges; the hotel industry was always trying to put new taxes on travel bookings, but at the same time they are his partners, too,” Tusk said. “Entrenched interests don’t want to give up without a fight. Expedia had lots of competitors and a complex dynamic, not dissimilar to what Uber faces.”

Of course, Uber’s current challenges are so myriad that they resemble a corporate game of Whac-A-Mole. What should Khosrowshahi hit first? There’s fixing a toxic corporate culture and low employee morale; filling a raft of empty executive positions; ending a bitter war on the board of directors, with Benchmark Capital suing Kalanick for alleged fraud; resolving a looming lawsuit with Alphabet’s Waymo, accusing Uber of stealing robot-car trade secrets; and pursuing profitability so Uber can go public.

“Boards are so unpredictable, and this one seems as if they’re at each other’s throats,” said Alice Armitage, director of the Startup Legal Garage at UC Hastings. “It’s hard to know if he’ll have the force of personality to navigate that.”

Another challenge will be working with his predecessor. Kalanick retains a board seat — although Benchmark’s suit seeks to jettison him — and owns 10 percent of Uber’s stock and 16 percent of its voting rights.

But Khosrowshahi is used to dealing with difficult personalities — including the man who made him CEO of Expedia, Barry Diller. “He’s like a homing missile to the weakest part of any logical argument that you have,” Khosrowshahi said about Diller in a 2005 Seattle Times interview. “He gets to the point very quickly, and he pushes.” That resembles descriptions of the often abrasive Kalanick.

“Travis is a visionary who built a $69 billion company,” Tusk said. “For Dara, figuring out that relationship will be important.” At the same time, Khosrowshahi must keep Kalanick from meddling in day-to-day operations, several observers said.

The board’s selection of Khosrowshahi was reportedly unanimous despite word that Kalanick had preferred another candidate, General Electric Chairman Jeffrey Immelt.

Kalanick is close to Diller, sources said. After his ouster from Uber, Kalanick spent a week on Diller’s yacht in Tahiti — which may have helped him learn more about Khosrowshahi.

Several observers said that Khosrowshahi, coming from a more innovative company culture, seemed a more apt choice than either Immelt, 61, or the other leading candidate, Hewlett Packard Enterprise CEO Meg Whitman, also 61.

Immelt and Whitman both came from mature corporations not known for fast-moving innovation. “Neither of them seemed like logical choices,” Ramsey said. “They were like hiring a soccer coach for a baseball team. I think people at Uber will respond better to (Khosrowshahi’s) leadership.”

Khosrowshahi has experience with backing two Uber-like companies. He personally invested in Convoy, a sort of Uber for trucks, which competes directly with UberFreight, the company’s long-haul logistics division. He may have to divest that stake.

And he spearheaded Expedia’s investment last year in Wingz, a ride-hailing service that specializes in airport trips. Expedia led an $11 million round in the small San Francisco company, which has spread to 30 markets. Wingz previously had $2.7 million in backing.

“He’s very knowledgeable about ride-sharing,” said Geoff Mathieux, Wingz co-founder and CEO. Khosrowshahi made a point of personally using Wingz, he said, while Expedia added a feature allowing travelers to book airport rides with Wingz. “His vision was clear that this is not a winner-take-all market,” Mathieux said.

At Expedia, Khosrowshahi faced bruising competition from Priceline Group but was credited with turning things around, in part with an acquisition spree that included two travel rivals, Travelocity and Orbitz; vacation-rental company HomeAway; Australian booking site Wotif; and German hotel-comparison site Trivago.

While acquisitions may not make as much sense for Uber, observers said they expect that he might pursue more international partnerships, similar to those Uber forged in China and Russia, in which it took a stake in local companies, while ceding them the ride-hailing market in their country. “Partnerships in other regions would continue to stem losses,” Tusk said.

But at the end of the day, Uber’s biggest challenge remains the most basic of all: make money.

Despite all its struggles, Uber continues to see strong growth in ride bookings, which doubled in the second quarter compared with the same time last year. Its losses also narrowed year over year; it lost $645 million, a 14 percent change from 2016, on adjusted net revenue of $1.75 billion.

“All the guys who invested earlier want to get some of their money out,” Ramsey said. “To go public, Uber at least needs to show a path to profitability, although they’ll get a big pass as long as they continue to show growth.”

©2017 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.