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Is Uber’s aggressive attitude bad for business?

Uber, the popular ride-sharing mobile phone app, has developed a reputation for ruthlessness. The company's latest woes were generated by an executive who talked about hiring operatives to dig up dirt on reporters who criticize the company. Economics correspondent Paul Solman looks at some of Uber’s controversial practices and Gwen Ifill learns more from Jan Dawson of Jackdaw Research.

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  • GWEN IFILL:

    Now: the backlash against Uber.

    The ride-sharing company exploded onto the tech scene with outposts in cities around the world. But, lately, it's been getting attention for how it's built its business and the manner in which it competes.

    "NewsHour" economics correspondent Paul Solman begins our look.

  • PAUL SOLMAN:

    The ride-sharing mobile phone app Uber, which in four short years has become all the rage in more than 200 cities around the world, but growing almost as fast as its customer base, its ruthless reputation.

    This week, the Internet news site BuzzFeed reported that at an event he thought off the record, Uber executive Emil Michael raised the prospect of hiring operatives to dig up dirt on reporters critical of the company. "Might that be a P.R. problem?" he was asked. 'Nobody would know it was us," he replied.

    Michael's particular target, Sarah Lacy, editor of tech Web site PandoDaily, an outspoken critic who has called Uber management misogynistic and urged readers to remove the app from their phones.

    When the remarks became public, Michael retracted them, in a statement: "They were wrong no matter the circumstance, and I regret them."

    On Twitter, Uber CEO Travis Kalanick went him one better: "His remarks showed a lack of leadership, a lack of humanity, and a departure from our values and ideals."

    And yet another Uber executive is accused of tracking the location of a BuzzFeed reporter doing a story on the company. Brazen? Uber the top? Uber has had that rap for awhile. It has reportedly been cutthroat in its quest to expand, ordering rides anonymously, for instance, from archrival Lyft, only to cancel them. It employs contractors to lure drivers away from the competition.

    And, more generally, the company faces continued backlash from taxi owners like San Francisco's Hansu Kim, who charges that Uber doesn't face the same regulations he does.

    Might this put you out of business?

  • HANSU KIM, Owner, DeSoto Cab:

    Yes, and not just me, the entire taxi industry.

  • PAUL SOLMAN:

    Meanwhile, Uber's own drivers have taken to the street over decreasing pay.

  • MAN:

    When you actually really do the math, we're making less than minimum wage.

  • PAUL SOLMAN:

    Uber declined a request for an interview about its latest woes, but earlier this year, spokeswoman Rachel Holt told us that Uber is changing the world for the better.

  • RACHEL HOLT, Uber:

    Taxi companies have traditionally had monopolies. Everyone kind of gives the same mediocre level of service. And so what that means is, there hasn't been much incentive to improve.

  • PAUL SOLMAN:

    But now there is, which explains why almost all economists approve of ride-sharing competition and, given Uber's lower prices, why it's been a customer favorite.

  • KAITLYN STRATTON:

    I love Uber because it is so convenient. So, you can just do it right on your phone and then they show up for you.

  • PAUL SOLMAN:

    The high-tech question of the week, though, if, as they say, culture eats strategy for breakfast, will Uber's culture upend a strategy that had the company valued at a stunning $18 billion because it was transforming transportation as we know it?

  • GWEN IFILL:

    For a closer look at why Uber is under fire, we turn to Jan Dawson, chief analyst for Jackdaw Research, a tech research and advisory firm.

    Thank you for joining us.

    Let's start — let's back up a moment — $18 billion, Paul Solman just told us, is how it's valued. How did Uber get so big so fast?

  • JAN DAWSON, Jackdaw Research:

    Well, they have done it by getting out in front of a lot of their competitors, and being the first into a lot of the markets, a lot of the cities where they operate, and by spending a lot of money in marketing and promotions and subsidies to undercut the competition, to get both drivers and customers on board, and to get there really quickly.

    And some numbers leaked this afternoon suggesting that in some major cities their run rate even last December was about $200 million-plus per year in a single city in dollar terms, and that's just rapid growth, and it's come as a result of spending an awful lot to get out there quickly to sign up customers and sign up drivers, and that's driving that valuation.

  • GWEN IFILL:

    So, they created a business model that hadn't existed before, at least not in this, in ride-sharing, but did they also cover their bets by basically setting out to crush the competition?

  • JAN DAWSON:

    Yes, the problem with Uber is it's a very simple model. It's a simple app that is tied to a base of drivers and just connects the customers with the drivers and gets the car to show up when and where you need it and helps you pay for it.

    It's not that differentiated. And there's plenty of other companies. Lyft is probably the biggest competitor in the U.S. Other alternatives like Hailo in the U.K. and elsewhere, they're all very similar. And when you have a problem that is not that differentiated, you have to compete on price and you have to compete sales, essentially, and that's what Uber's done.

    It's been very aggressive around both of those things. And that's where a lot of the current problems seem to be stemming.

  • GWEN IFILL:

    Well, that's what I want to talk about. How does a company go from going — from great, that's cool, that's new, that's so easy, to, they're so arrogant, I'm going to take them off my phone? How did that make that leap? What happened in between?

  • JAN DAWSON:

    Yes.

    Well, I have to say, the problem stems from the lack of differentiation. And whenever you have that situation, you end up competing as aggressively as possible and incentivizing both your own employees and contractors who might be working on your own behalf to do whatever essentially in order to sign up customers, to sign up drivers.

    And when you have that kind of mentality and that kind of attitude, it's very easy for people to start creeping over the line between proper behavior, questionable behavior and then ultimately immoral behavior. And that seems to apply not just to third-party contractors that they have employed to try to sign up customers and drivers, but to the executives themselves as well, if the reports in the last couple days are to be believed.

  • GWEN IFILL:

    Yes.

    If those reports are to be believed, it might also suggest that there is some jealousy involved from its competitors or just poorly managed P.R.

  • JAN DAWSON:

    Yes, the problem with Uber is that there's a narrative building up now. It's not just one story here and one story there, but there's this consistent picture emerging of a sort of frat boy culture at Uber, and an overaggressiveness, a willingness to do what it takes, regardless of the consequences and of which rules might be broken, both written and unwritten ones, a willingness to use Uber's data which they have about users in inappropriate ways.

    And when that narrative builds up about a company, that's when you start to have problems, because every new story just feeds that narrative. And it's very similar, arguably, to what happens with politicians sometimes, Gerald Ford and his clumsiness, Mitt Romney and his being out of touch with the people and so on.

    These things take on a life of their own. And Uber is facing that same kind of narrative problem right now.

  • GWEN IFILL:

    What is Uber's defense in all this and how are they planning to turn that narrative around?

  • JAN DAWSON:

    Well, the irony, or perhaps the appropriateness, is that they have hired David Plouffe, who obviously has a past in the political world, to help them to manage their reputation going forward.

  • GWEN IFILL:

    The president's former campaign manager, right.

  • JAN DAWSON:

    Exactly.

    And so they're borrowing from the political world to try to solve some of these problems. And they're addressing it in two key ways. One is hitting some of these stories head on, whether it's Travis Kalanick's apology for the new story that came out this week or whether it's trying to get positive messages out there in terms of how they're transforming the transportation business, whether it's talking about all the people that they're helping to find jobs now and get an extra income, whether it's the way that they're undercutting taxis and improving customer service and so on.

    That's the positive side of the narrative, so it's both addressing negative points head on and then trying to build their own narrative, both of which are working to some extent, but not completely.

  • GWEN IFILL:

    And maybe some free coupons along the way.

    Jan Dawson of Jackdaw Research, thank you very much.

  • JAN DAWSON:

    Thank you.

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