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Legal challenges cause woes for Wall Street darling Uber

Valued at $41.2 billion, on-demand taxi service Uber is both the darling of Wall Street and the bane of local regulators across the country and around the world. Liz Gannes of Re/code joins Hari Sreenivasan from San Francisco with more on the Uber boom and wide-ranging criticism.

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  • HARI SREENIVASAN:

    It's both the darling of Wall Street and the bane of local regulators across the country and around the world.

    Uber is the on-demand car-sharing service which faces legal challenges in Portland, Oregon, while it is banned from operating in some cities entirely.

    Acknowledging the competition, New York, Chicago, and Washington, D.C., are trying to fight back with their own cab apps.

    At the same time, Uber is valued at $41.2 billion, easily outpacing every other private startup. It's worth more than publicly traded companies like Delta Air Lines, Charles Schwab, or Kraft Foods.

    Joining us now to discuss the Uber boom is Liz Gannes, a senior editor at Re/code from San Francisco.

    Thanks for joining us.

  • LIZ GANNES:

    Sure.

  • HARI SREENIVASAN:

    All right, so the most recent problem and perhaps the worst problem that Uber has faced was a recent situation in India, where a passenger says the Uber driver turned off the meter, took her someplace else, and raped her.

    I mean, while this is a technology that is disruptive and it's a software company in some senses, really, the core of it is a level of trust and security that a user has to have that they're safe when they're in the car.

    So, how does this company deal with that challenge?

  • LIZ GANNES:

    Well, Uber needs to step up its background checks.

    And, in India, it doesn't look like the local systems were that great to — to authorize this particular driver.

    But that's an issue all over the world, because, as you say, I mean, this is an app on your phone, but it's an app that connects you as a passenger in — putting yourself in a car out in the real world.

    So, you really need to trust that that is a situation that you will be safe in.

    Compared to traditional taxis, though, there is a level above and beyond once you're in the car and once someone is in the system.

    I think the issue leading up to this is the background checks.

    Once you're driver or a passenger on Uber, at the end of every ride, you rate the other one on a scale of one to five stars.

    And if you don't get much below five stars, you're not really welcome in the system any longer.

    So, that is an improvement, I think, on traditional taxis, but it's — it doesn't get — doesn't get the bad guys out from the beginning.

  • HARI SREENIVASAN:

    Mm-hmm. So, while we have said that it is banned in some cities, it is working in like 250 cities.

    And the company's modus operandi seems to be that they ask forgiveness more than permission.

    They go into a market, and then that's why we're seeing some of these legal tussles.

  • LIZ GANNES:

    That's why they're growing so fast.

    I mean, I cover fast-growing technology companies. That is specifically my beat.

    And we have never seen anything like Uber come out like this.

    The company is five years old, and they're in 250 cities, and there's no way that they would be that big if they'd gone around and asked regulators and incumbents if it was OK if they joined as well.

  • HARI SREENIVASAN:

    So, let's talk a — part of the — part of the reason that we're talking about this company is its valuation, right?

    It's hard for someone at home to wrap their heads around the fact that this company is worth more than an entire airline.

    What do investors see in it, beyond just the car-sharing that we're talking about today?

  • LIZ GANNES:

    Investors are hopeful that Uber, because it is so good at connecting someone who has a need to get around town and a car that is already nearby, will be good at extending that kind of logistics to all sorts of other things, for instance, getting you your groceries or your online shopping purchases within an hour, perhaps.

    That is not something that is Uber is doing as its main business today, though it is doing a lot of experiments around that.

    But that idea of kind of instant gratification that is powered by smartphones, both on the part of consumers, but maybe even more importantly drivers, is this big technological opportunity.

    And versus a lot of these companies, especially Internet companies, Uber has a significant amount of revenue.

    They don't — they're private, so they don't disclose it. But it's up in the billions, for sure.

    And so this is a company that is actually making money that wouldn't be going out to Wall Street, if it ever does go public — which we expect it would do — that wouldn't go out saying, we will figure out the business model later.

    It's — the business model is already encoded to what — into what they do.

  • HARI SREENIVASAN:

    All right, Liz Gannes of Re/code joining us from San Francisco, thanks so much.

  • LIZ GANNES:

    Sure. Thank you.

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