Caixin
Jul 07, 2015 07:25 PM

Uber Chief Kalanick Enjoying a Fast China Ride

(Beijing) – Demand for cross-town transportation is at the heart of an urban lifestyle that's defining modern China. It's also giving the American car-hire service Uber Technologies Inc. an incredible ride.

Few are enjoying the ride more than Uber CEO Travis Kalanick, a 38-year-old entrepreneur and billionaire who started the fast-growing global app business with co-founder Garrett Camp in 2009.

Since expanding into China in early 2014 under the name Youbu – a Chinese transliteration of the English Uber – the business has been growing rapidly.

Uber is succeeding in China despite a sometimes angry rivalry between its car-hire drivers and the better-established taxi drivers who are plentiful in most Chinese cities. Clashes between the two groups have made headlines, sometimes damaging Uber's relations with local transportation authorities.

Chinese consumers, however, have shown strong support for Uber by ordering rides on smartphones and then opening their wallets. The service is popular not only as a convenient way to travel in congested cities, but also for its flexible pricing, which China's strict rules for taxi fares never allow.

In fact, Kalanick told Caixin during a June 29 interview that China is home to Uber's top three cities – Guangzhou, Hangzhou, and Chengdu – around the world in terms of rides per day. As of June, Uber had entered 11 cities in China, and Kalanick said he planned to increase the number to 50 this year.

Kalanick has big plans for business in China, where the car-hire market is growing rapidly. For example, he hopes to broaden the company's partnership with Chinese investors beyond search engine Baidu, which integrated Uber into its map service.

Indeed, Kalanick foresees a future Uber operation in China that's entirely separate from company units in other parts of the world. Nowhere else in the world does Uber have a business unique to a single country, Kalanick said, because "China is so different than the rest of the world."

"We believe that to understand how different it is," Uber's China division "should be an independent entity with separate management and separate headquarters," Kalanick said.

During the interview, the Uber chief also answered questions about Chinese consumer demand, the subsidies his company pays to support drivers, and experimenting with new app services that have nothing to do with car rides.

The following are excerpts of the interview appear below. Caixin plans to release a video of the interview soon.

Caixin: Uber has been called unsafe and unreliable by one of its Chinese competitors, CAR Inc. What's your response?

Travis Kalanick: Competitors often say unsubstantiated things in order to gain market share. In this particular case, they may have regretted the ad that they put out. At the end of the day, we focus on customers. And it's absolutely important for us to have the safest, most reliable ride out there. I think that's why so many consumers are moving toward Uber.

Have you thought about fighting back?

Even with all of the competitive tactics that have been taken, what we found is that our business continues to grow. Consumers continue to find Uber to be a great way to get around their city. So I have really instructed the team to just keep focusing on building our business, and stay focused on that. And if we're doing the right things for the consumer, everything will turn out okay.

Uber is seeking funding in China. How much capital do you want to raise, and have any investors shown interest?

We're seeing a lot of interest. More important than the exact amount (of fundraising) is making sure that we have the right kinds of partners. We could have continued to run Uber as a part of Uber Global, but it was important for us to make it a Chinese company and get Chinese investors. Just like we have Chinese general managers operating and building the business, we should have Chinese shareholders as well. So it will be in the billions. But most important is that it will be with great partners that we feel great about building our business with.

What kind of investors are you looking for?

We're looking for strategic investors that can help guide us to become Chinese, help us build our management team, interact with regulators and the government, and get more customers and drivers.

Has Uber run a business elsewhere through a subsidiary with local investors?

This is the only time we've done it because China is so different than the rest of the world. And we believe that to understand how different it is, it should be an independent entity with separate management and separate headquarters. We want to make sure that Uber (China) is authentically and thoroughly Chinese, a real Chinese company.

I spent over 50 days in China over the past six months, which shows a commitment to the operation. Honestly, as an entrepreneur, this is where so much of the exciting stuff is happening, so I just want to be here. For a company that at least started foreign, but is now becoming Chinese, the standard or the bar for being Chinese is higher than the traditional Chinese company. So we have to go above and beyond in becoming truly Chinese.

How is your partnership with Baidu going?

There are three things from a technology and product perspective that are different from the rest of the world, at least for us. One is social. Social tools, social applications that exist in China and how they work are very different here than in the rest of the world. Another is payments. And the last is maps and location.

We have made huge leaps in technology and product for us to start to localize for the Chinese market. There may be other things we still have to do to be best, but our goal is to be the best.

Some of the cities where Uber performed best are in China. Is it because of China's market scale?

It's not just because of scale. When you're talking about your first 1 million customers in each city, it doesn't matter how big the city is, there're more than enough left. But what we find is, even among the initial customers, our growth in China has gone much faster than what we've seen elsewhere.

Why? I believe it's because of the way Chinese people and Chinese social products allow people to interact and socialize and spread the word about things that are interesting. That's interesting because that means every new technology that comes out will spread faster in China. That speaks to what the future might look like. And for an entrepreneur, that means I want to spend more time here.

Do you want to build social-networking functions into Uber in China?

I think Uber is fundamentally getting people from point A to point B. If we get too caught up in creating a social experience, we'll lose focus on the fact. There are a lot of social apps out there for people to socialize. I don't think I need to jump into that. But there are certain situations where you are interacting in the car. There are some social events, some social instances with transportation, and we should be mindful of that. And we should naturally build that into the experience. But that's not the first thing we should be thinking about.

Is Uber going to stop subsidizing drivers?

When you go into a city, you have to invest in the city and invest in the service to make it work. You need to give the drivers confidence that they can make a good living. So at the beginning, you invest. But when you get really, really big, you can't do subsidies because you'll go out of business.

Is that why you have canceled subsidies in some Chinese cities?

In many cities across the country, the subsidies are going down. The way to think about it is to imagine a small business like a grocery store that's just starting. They'll give coupons at the beginning so people know to go to their grocery store. But once it's busy and there are long lines and people like the food they're getting at the grocery store, then the coupons get smaller and the business gets stable.

Are you going to drive taxis out of the market?

No, that's not how it works. Remember, we're in over 300 cities around the world. And there are taxis in every city that we're in. Taxis have an exclusive right so that if somebody puts an arm up, they can go pick that person up. Only taxis can do that. And that will be what taxis do forever. But if you look at a number of cities, the taxi numbers have stayed the same even though the cities have grown a lot. To give you an example, in New York, there are 13,250 taxis today. Seventy years ago, there were 13, 250 taxis.

Cities have grown, taxi numbers haven't. So when Uber steps into Chinese cities, it helps serve the city, not for people who are raising their arms but for people who do need to get around their city. And there need to be more of these shared cars to help people get around their cities. And remember, that's great. A fully utilized taxi or a fully utilized Uber takes 10 cars off the road because it's shared among so many people in a day. So when 15 percent of a city's space is just storing cars, imagine what's possible after you get that 15 percent back.

How did you calculate 15 percent?

It's sort of like an average. In different cities it's 10, some are 20. It depends. Los Angeles is probably 25. And that's just parking real estate ... So when you have cars that can be shared among many people in a day, you're taking cars off the road, you're reducing congestion, you're easing traffic.

Uber has encountered strong opposition in many cities. There has been open confrontations between Uber drivers and taxi drivers. Some local governments have raided Uber offices. Do you see a way out of conflicts with local authorities?

It's incredibly important that when progress and change is happening in a city, we also partner with the government for stability. General managers in these cities partner with city governments and have day-to-day relationships, so that progress and stability can come together.

How do you manage business in China?

I get involved in all the things that are important. The general managers we have for each city have a lot of autonomy, a lot of independence. I am sort of like the founder that any of them can call for the hardest problems ... I'm happy to get involved.

We try to make every marketing promotion profitable on its own, or at least break even. So we find partners that can help us do that. That doesn't mean we won't spend a little bit of money on some of these things. But generally, the culture that we've built is more about using creativity instead of money to inspire people.

You talked about reducing subsidies. Does that mean customers must pay more?

We don't really subsidize the price for the consumer. The consumer price points that we have are stable and sustainable. But on the driver side, in order to get enough drivers to be confident that the Uber system works for them and they can make a living, we have put in extra incentives when they first get started, so that they can be comfortable giving it a try.

A ride through Uber often costs less than a taxi ride. Won't that change if you stop subsidizing your drivers?

What happens is that, over time, the system gets more and more efficient. And we've seen this in hundreds of cities around the world. The key is that the driver can do many trips per hour. And if you get it really efficient, the minute he drops you off, he gets another request the minute you leave. And if you can keep doing that, then he will do many more trips per hour than maybe he would do as a taxi driver (and) he actually gets paid more. Then the price can be lower while the driver still makes more money.

We see that in cities around the world. A taxi driver who goes to the outskirts of a city – you know, the suburbs or something like that – and drops somebody off, he doesn't have a trip back. But because of the way Uber's technology works, he's much more likely to get a trip back. There's much more likely somebody is sitting at home next to where you got dropped off and they can request and he'll get a ride, he'll get another trip. In that way, because of the efficiencies that our system creates, the drivers can get paid more while the consumer is paying less.

So which one is more efficient for drivers these days, Uber or taxis?

It depends so much on a city. Really dense cities will have more efficient taxi systems than cities that are more spread out.

Are you making profits?

In North America we're making profits today, which is helpful because it helps us invest in new cities and find new places where Uber could be helpful.

Do you have a profit target for the business in China?

Of course, we have to become profitable here. This is a business. The thing is, though, I'm also very willing to invest in getting there. This is a big country. There's a huge amount of opportunity in doing business here, and so we're very willing to invest.

In fact, Uber is doing a fundraiser (in China). Uber Global will be investing a lot of money alongside new investors because we believe in what we're creating here, and we are here for the long term.

The Uber way of doing business is being followed by some companies in other fields as well.

I think there are a lot of them. We have some experiments that we're working on. So in Los Angeles, Chicago, Toronto, New York and Barcelona, we have something called Uber Eats. What happens is you push a button and somebody delivers lunch in five minutes. That's kind of interesting. The way we look at it, Uber is in the business of delivering cars in five minutes. But once you deliver cars in five minutes, there are a lot of things you can deliver in five minutes. And so that's how we think about it.

We do something called Uber Rush in New York, which is like a messenger service. We deliver packages. I almost think of us as a logistics company, which means we must predict demand ahead of time, and then make sure supply is close to where demand is about to be. And we use dynamic pricing to make sure that drivers are going to where they're needed most.

What's your vision for Uber's China operation in five years?

Five years is so long. This is our second operating year here in China. Maybe it goes back to our mission. The mission for Uber is "transportation as reliable as running water, everywhere, for everyone." Certainly that starts with moving people. But it could be moving other things too, and we're open to that.

Uber collects a lot of user data. How do you use it?

I think one of the big differences between Uber and other tech companies is that we don't sell advertising. The only thing that is important about data for us is making sure that you get a ride quickly. We have no other use for the data. And there are a whole bunch of other features that you can roll out, so that people get very comfortable with their privacy and their data.

What the algorithms are focused on is predicating demand ahead of time. Not just how much demand is in the city, but how much demand is in every block of the city at all times. And that's really what is important ... how much demand is there in the next 15 minutes. Once we know that, then we know where the cars are, and we can start helping the drivers know where they should go so they can make more trips, more fares. That part of it is called supply positioning.

The third part is the price going up and down, so that in places that are most in need of drivers, the price goes up. In places where there are more drivers than demand, the price goes down. And drivers will go to where they are needed, and they will make more money because of it.

Do you impose ceilings on prices that drivers charge?

It generally stays within a decent range. On New Year's Eve, we will give advance notice to riders that it is going to be higher than usual. So if you are price-sensitive, just stay there for an hour and then it will be calm again. We can give messages in the app to let people know this, too. If you just wait a little bit, the price will come down.

In fact, we have a feature where if you don't like the price, it says notify me when the price goes down. And so that is something we use to make sure that people can be comfortable using our product. But the reason the price goes up and down is that we need to make sure that Uber is always reliable but at the lowest possible price. So if there is more supply than demand, the price will always come down.

You've been described as pugnacious and relentless. Have these traits helped or hurt your career?

I am a fierce advocate of truth. I am always seeking the truth. And I think that makes entrepreneurs good at what they do. I like to say you can bend reality but you cannot break it ... I like understanding a reality in the finest detail, understanding its nuances and whatnot. So if I hear something that is not quite, does not reflect what I think, I will want to have a dialogue or debate about that. But I think if you meet me, and you spend time with me, you will find that what you read in the headlines about pugnacious or whatnot is not actually who I am.

Do you intend to slow down?

We are world-class marathoners. So we will push right to the edge. But it is not a sprint. So you have to endure beyond just this week, beyond just this month, and you have to find what I call the red line. You have to know where your own personal red line is. You have to stay above it a little bit ... You want to push your limits. You want to go beyond what you thought was possible, but you have to do it in a somewhat balanced way.

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