The Upstarts: How Uber, Airbnb and the Killer Companies of the New Silicon Valley are Changing the World

by Brad Stone

Pham’s impact at Uber was evident on New Year’s Eve, typically a night of frantic activity that had overwhelmed Uber’s systems for three straight years. ‘Thuan, if we have a system breakdown, I’m going to have an aneurysm and my death will be on your hands,’ Kalanick told him earlier that day. But for the first time, Uber’s systems survived the night relatively unscathed. A few days later, Kalanick took Pham and his team out for a celebratory dinner and offered a rare bit of praise. ‘You did a great job,’ Uber’s CEO said. Characteristically, the praise came with a new challenge. ‘From here on out, anything you can predict, I expect you to handle.’

Momentum was shifting elsewhere too. The laws passed in the Shared City agreements with cities like Portland were being flouted, just as Steve Unger had feared. They required hosts to register with their cities, but, despite the fanfare that accompanied the deals, few did. In the face of this, Airbnb refused to put in place restrictions to force compliance – for example, requiring hosts enter valid registration numbers or preventing a host from listing multiple properties. In interviews, company executives pointed out that law enforcement was not typically the domain of a private company and complained that the registration process was often too complicated and time-consuming (hosts in San Francisco had to make an appointment and then appear at city hall in person to present valid documents26). But it was also impractical for the cities to police the thousands of anonymous people using the home-sharing site, and Airbnb didn’t seem all that eager to help.

It was a historic moment but also an opportunity to see Chesky the diplomat, away from the regulatory threats and operational challenges that confronted him at home. His performance was impressive. Few Silicon Valley execs can so effectively phase shift – digging into operational complexities at one moment, negotiating with politicians the next, and then leaving it all behind to speak in relatable tones to students, other startup founders, and the general public. Chesky did this with ease, and it was a reminder of the remarkable personal skills that had propelled his company to such astounding heights.

Chesky’s answer was revealing and optimistic – perhaps overly so. ‘When there’s a cool new business on the internet, that’s great,’ he said. ‘But when the internet moves into your neighborhood, into your apartment building, and you don’t know anything about it, suddenly people assume the worst and they have a lot of fears. ‘So there’s a couple of things you need to do. The first thing you need to do is grow really, really fast. You either want to be below the radar or big enough that you are an institution. The worst is being somewhere in between. All your opposition knows about you but you are not a big enough community that people will listen to you yet. ‘You have to get to what I guess I’d call escape velocity. If a rocket takes off, there’s a bumpy ride before you get to orbit, and then there’s a little bit more stillness.

‘The second thing is you need to be willing to partner with cities and tell your story. We found the most important thing to do is to go and meet city officials. If people dislike you or if people hate you, it’s often normal to ignore them, to avoid them or to hate them back. The only real solution is to meet the people that hate you. There’s an old saying that it’s hard to hate up close. I have found that. It’s really hard to hate somebody when they are standing right in front of you.’

Electronic cab hailing caught on especially fast in China, with its crowded subways, congested highways, and chronic smog that made it unpleasant to walk or bike. But at first, the business didn’t seem like a particularly good one. Competition was fierce, and the taxi-hailing startups had to pay cabbies to help defray the cost of owning cell phones. The Chinese government, worried about any increase in transportation costs, prohibited the startups from collecting commissions on fares and in some cities even ruled the apps illegal – though drivers used them anyway, often carrying spare phones to show to inspectors if they were pulled over.

All the early Chinese ridesharing startups lost money, and the ones that arrived late to the market or tried to replicate Uber’s original strategy of starting with the more expensive but rarer black cars were critically handicapped. But Didi was scrappier than most of its rivals. When Yaoyao Taxi, a rival backed by Silicon Valley’s Sequoia Capital, won an exclusive contract to recruit drivers at the Beijing airport, Didi employees descended on the city’s biggest railway station to promote their app. Instead of imitating competitors and giving away smartphones to drivers, an expensive proposition for a capital-strapped startup, they focused on providing their free app to younger drivers who already had phones and were likely to spread the word about Didi.

In early 2014, everything changed. Over the 2014 Chinese New Year, Tencent had a huge hit with a mobile app called Red Envelope, which allowed users to send friends and family members small financial gifts for the holiday, an ancient Chinese custom. Suddenly Alibaba and Tencent awoke to a new battleground in their long-standing war – mobile payments. Managing the primary online wallet for smartphone users in China could be a powerful strategic position. So both companies scrambled to establish their payment apps. Didi and Kuaidi were turned into proxies in this mad dash. Didi was integrated into the payment feature of Tencent’s hugely popular chat app, WeChat, while Kuaidi allowed customers to pay using Alibaba’s mobile-payment subsidiary, Alipay. Both Alibaba and Tencent started funneling cash into their affiliated taxi apps, which then offered generous guaranteed payments for drivers and discounts for riders as a way to lure users to the dueling mobile-payment services.

The bill was proposed the next day, and it was as bad as Uber could have imagined. Under the legislation, Uber and Lyft could grow their supply of drivers by only 1 percent a month while the congestion study was conducted, which could take a year or more.27 Capping Uber’s supply of drivers was paramount to freezing its growth and could provide a road map for opposition forces in places like London and Mexico City. The city council planned to vote on the bill in twenty-one days.

Gang says Didi contemplated expanding into the States. Instead, in September 2015, it invested $100 million in Lyft. Then it established an anti-Uber ridesharing confederacy with Lyft and the regional ridesharing startups Ola, in India, and Grab Taxi, in Southeast Asia, all of them agreeing to share technology and integrate with one another’s apps. According to Gang, it was less about undermining Uber than about gaining negotiating leverage. ‘The purpose of them grabbing a lock of our hair and us grabbing their beard isn’t really to kill the other person,’ he says. ‘Everyone is just trying to win a right to negotiate in the future.’

Emil Michael and Jean Liu hammered out the deal terms in two weeks. Uber agreed to depart China and hand over its operations in the country to Didi; in return it got a 17 percent stake in its Chinese counterpart and a billion dollar investment from Didi; the companies also took observer seats on each other’s boards.

As for Kalanick, he would keep fighting, but from the sidelines. It was his fate to inscribe yet another set of lessons into the annals of the upstarts: Relationships matter. Ethical decision-making matters. Ignoring the established order can be a virtue – until suddenly it’s not. And presenting yourself to the world with a little bit of humility can pay off amply in the long run.