Uber in recent years has been offloading operations in geographies where it can't compete. Its CEO Dara Khosrowshahi, who is an Expedia board member, knows that Expedia's Vrbo, too, can't launch a frontal assault against the larger Airbnb, but has to invest into its strength. That's worked to a degree.
Uber CEO Dara Khosrowshahi spoke with Skift Executive Editor Dennis Schaal at Skift Global Forum 2021. The two discussed the theme “Finding New Strategies for the Road Ahead.”
You can watch a full video of their discussion as well as read a transcript of it, below.
Dennis Schaal: Hey everybody. Dara, thank you so much for being here in person.
Dara Khosrowshahi: It’s good to be back.
Schaal: All right. So four years at Uber, Expedia CEO for about 13 years, a bunch of years at IAC involved with Expedia before that. I was thinking when we were standing backstage there listening to the Marriott CEO, don’t you remember all those Marriott Expedia negotiations? Confess, do you miss this stuff?
Khosrowshahi: Oh, I miss it so much.
Schaal: I’m sure. The flight’s taking off around here. Hey, so I wanted to break with … [Skift] tradition because we’re known for asking tough questions. I wanted to ask you a softball question to start up.
Khosrowshahi: Thank you.
Schaal: I’m hoping you’re going to let your guard down later. Where is your favorite place to go on vacation? Is it St. Barts or the Poconos? Or do you have a favorite Uber ride that you’d like to share?
Khosrowshahi: My favorite actually Uber experience lately has been delivering for Uber. Delivering Uber Eats.
Schaal: You’ve done it?
Khosrowshahi: It’s been really cool. I have an e-bike in San Francisco and I get to spend time outside. I get to experience our product and the earnings are pretty good. I’ve been earning 30 bucks an hour. So it ain’t bad.
Schaal: So what have you learned from that?
Khosrowshahi: And I love good tippers by the way.
Khosrowshahi: Sushi orders are very good tips.
Schaal: Oh, wow. Good to know.
Schaal: Not so much?
Khosrowshahi: Good sandwich, bad tippers.
Schaal: Wow. How about vodka deliveries?
Khosrowshahi: Haven’t experienced that yet.
Schaal: Oh, okay. More to come. So turning to the headlines. Last week, DoorDash who, I guess you guys engaged in potential merger talks earlier this year, had a higher valuation than all of Uber. So what’s up with that? How do you compete with DoorDash and why does that happen?
Khosrowshahi: Well, the market works in mysterious ways.
Schaal: Always rational.
Khosrowshahi: Exactly. I think the valuations are at a different place now, but listen, from our standpoint, we control what we control, which are the metrics of the business. We’re three times bigger than DoorDash in terms of bookings and growing faster. We’re two times bigger in terms of bookings, three times bigger in terms of revenue and growing faster. And we’re the fastest growing food delivery platform in the U.S. now this last quarter based on third party data. So we’re confident in terms of where we’re going and listen, if their valuations hold true, then our stock has a ton of upside.
Schaal: Wow. So last night, Brian Chesky was here talking about the new golden era of travel. He said, workers will no longer be tethered to offices, their longer stays, people will long for connectivity, mass tourism will return, but there’ll be a subset of people that are really untethered. With all the changes that took place in the pandemic, we saw Uber Eats taking off and surging. What sorts of things do you think will be enduring among these changes and what will revert to normal as we understood it in 2019?
Khosrowshahi: I think our definition of normal is going to change. Right?
Khosrowshahi: So Uber Eats has been a huge, huge beneficiary of the pandemic. Four years ago when I joined Uber, it was at about a two and a half billion dollar run rate. It’s at a $52 billion run rate just four years later and has really grown and we were a little worried. As things reopen, we’re looking forward to the reopening, but one of the questions was, well, what’s going to happen with the Uber Eats? Audiences up significantly, basket sizes up significantly, frequency is up significantly as well. One hypothesis that we had is it’s a very sticky product, right? So we thought that people who use Uber Eats, they’re going to stick because the retention rates are actually very high. And we had a hypothesis, which is well, maybe frequency will go lower. People will choose to go out versus ordering in.
And actually, because of some changes that we made to the service, which is there’s much more available on Uber Eats, it’s not just food now. It’s grocery, pharmacy and a number of other factors. And then our investment in the membership program as well. That has actually held frequency on kind of a month-on-month basis in a very, very strong way. So we’re seeing that Uber Eats volume be sticky and actually we think that even in a post-pandemic era, Uber Eats is going to be a very healthy grower going forward. So, that one’s going to be sticky. I think if you go the rides business and the mobility business, volumes are definitely coming back. August was a bit of a pause because of the Delta variant, but we’re seeing really good signal in terms of September. One of the changes that we’re seeing is we had very significant peaks and troughs in terms of the mobility business. Let’s say weekday commute, et cetera, and the peaks and troughs tend to be now more spread out during the day.
Khosrowshahi: So the rule of you’ve got to be at work by 8:00 a.m. or 8:30 or 9:00, I think there’s going to be much more flexibility, both in terms of whether you go to work physically. But even if you’re going to work, there’s going to be a lot more flexibility about the hours, et cetera, and that actually we think creates a more healthy marketplace because the smoother supply and demand trends are for us, the more easily the marketplace can become balanced, which is good for us long term. So we’re hoping that mobility comes back. Travel isn’t back to where we want it to be.
Khosrowshahi: And then our corporate business, of course, isn’t yet back to where we want it to be. But the trends are positive there and we can’t wait to get back.
Schaal: When do you expect business travel to come back in a meaningful way?
Khosrowshahi: I would ask you the same question. I think it’s going to come back. I think that internal business travel is going to come back a little slower, but I think the minute that salesman comes to meet you in person, you’re going to know that that person wants your business more than the other person is zooming you. So I think business travel, as things open up, is going to come back. Especially on the external side.
Schaal: Right. So yesterday, you guys filed an (Securities and Exchange Commission) filing, talking about a milestone coming up that you expect in (the third quarter) regarding improved profitability in ride sharing and in delivery. So what is the significance of that?
Khosrowshahi: Well, I think for us getting to break even and then profitability is something that’s super important. I think as far as the trends go, the significance as to what’s happening right now is in the second quarter, we saw demand trends come back much faster than supply trends. We couldn’t get enough drivers onto the street. So we really leaned in in terms of spending out of our own pockets and profitability to improve driver demands.
Schaal: You provided incentives for sign ups and stuff.
Khosrowshahi: We went very deep on incentives, et cetera, because the marketplace … basically there was all kinds of surge, (estimated times of arrival) were higher than we want it to be. Prices were higher than we were comfortable with as far as the consumer experience goes. And listen, short term financials are important. But our consumer experience — Uber being a liquid dependable marketplace — is incredibly important for us, so we leaned in. And really that lean in provided a catalyst for us to get very positive momentum in terms of now driver supply, both in terms of drivers coming onto the platform and then staying with the platform and driver engagement with the platform. Earnings opportunities are dynamite. So if you’re a driver on the platform, you can earn 35 bucks an hour, completely flexible.
You’re untethered to a job, you’re untethered to a shift, you’re your own boss, so it’s a pretty good gig right now. And as a result of the marketplace coming into balance now, we believe that our mobility margins in (third quarter) are going to be equal to our mobility margins in (fourth quarter) of 2019, pre-pandemic, at volumes that are lower. So the cost base of the business is just in much better shape, which I think positions us for a post-pandemic world, really in a dynamite way.
Schaal: Right. I told 542 drivers that I’d be interviewing you today during my rides.
Khosrowshahi: Thank you for taking those rides.
Schaal: Of course. I’m a loyal customer.
Khosrowshahi: What’s your rating?
Schaal: Oh, I don’t know.
Khosrowshahi: Tell the crowd.
Schaal: I think it’s high. I’m a good tipper.
Khosrowshahi: All right, good.
Schaal: I order a lot of sushi, but they all say they like the flexibility. They all say they don’t get paid enough money. They all want medical benefits. So in the UK drivers are considered employees, they get medical benefits, right? Shouldn’t Uber be providing benefits to these contractors?
Khosrowshahi: So I think the model that we are proponents of is IC (Independent Contractor) plus, which is you get the flexibility, you get the freedom, you get to work whenever, wherever you want, earnings opportunities are really strong now. But we also want the plus of benefits.
Khosrowshahi: Now, over 70 percent of our drivers have health benefits already. They have another job that provides health benefits. They may have a spouse that has health benefits, et cetera, and our core is flexibility. So the approach that we’ve had with Prop 22 in California is we actually fund a benefits pool.
Khosrowshahi: And the drivers can use those benefits however they want. Uber is all about flexibility. So if they want to use it to buy healthcare, great. If they want to use it to pay for the next vacation, great. So that’s ultimately going to be our approach and we’re having discussions on a local basis in New York and Massachusetts.
Schaal: I was going to say my drivers in New York say, “When is it coming to New York?”
Khosrowshahi: Well, if the conversations go well, we’re certainly ready to move forward with an IC plus model and hopefully legislatures and labor, et cetera, can come along as well.
Schaal: In theory, if you were required to consider contractors as employees and pay their medical benefits, would that be the end of Uber?
Khosrowshahi: No, not at all. It wouldn’t be the end of Uber, but it would be the end of flexibility. Right, because the cool thing about Uber is the more productive you are as a driver in the marketplace, the more money you make. So you can decide, do I want to work in the core of a city, or do I want to work in peak times, or do I want to work in non- peak times because it’s more convenient for me. I know I’ll make less. You can decide how you want to participate in the marketplace and essentially you get paid based on your participation. Once you become an employer, the employee essentially has to sign up for your productivity. And the employee then has to say, “Hey, Dennis, you can work for these hours because I need maximum productivity for you in these hours?”
Khosrowshahi: So shift work becomes a reality. We will have to specify where you’re going to work. We’ll have to specify when you can take a break, et cetera, and so that is a possibility. It’s just that on a four-to-one ratio, drivers don’t want it, right? If they want a full-time job, anyone can get a full-time job right now.
Khosrowshahi: Right? So if they wanted a full-time job, they will self-select into a full-time job. We celebrate the maker economy, the flexibility for young people to be able to make money wherever they want, however they want. This is the maker economy for blue collar work. And instead of vilifying it, we should be celebrating it and we should be supporting it. And instead of trying to go back 20 years, we should try to take it to the next step, which is flexibility, earnings, plus benefits.
Schaal: So right now you could say that Uber is go and get. Go is ride sharing, get is delivery. Two apps. You’re offering everything under the sun in the Uber Eats app. Like you said, pharmacy, flowers, delivery.
Khosrowshahi: Fast and frequent. Anything that you want quickly delivered to your home.
Khosrowshahi: And a frequent use case is really the ones that were going after.
Schaal: Right. I used it in Miami. I ordered some beer and some Chinese food and it was a little awkward. It came in two different drivers and also, I was in a hotel and 30 minutes before the arrival, it said, go down to the lobby and pick up your food.
Khosrowshahi: That’s really strange. You should send me that.
Schaal: Okay. So how do these apps fit together? And for example, you own Careem in the Middle East and they have payments, ride sharing, delivery, consolidated in one app. Are you going to go that route eventually? Do you believe in the super app strategy in the west or what’s your take?
Khosrowshahi: So I think the super app strategy is more of an Eastern strategy and to some extent, if you look at an Uber app, when you open it up, you have the go, but you also have get. You can get Eats right off of the Uber app as well. The Western strategy is more of a family of apps. It’s the same strategy. You see Google has Google and they’ve got Google Maps and they’ve got Gmail, et cetera, all of it with a single identity layer, single payments layer, very beautifully integrated into the other experience as well. That’s what you’re going to see with Uber, because ultimately we think one tap go or one tap get is an experience that our users want. A super app.
Schaal: And different types of users, right?
Khosrowshahi: Different types of users, et cetera. So we will allow users to jump between apps. We will make the experience absolutely magical and seamless. But at this point, we think that separate apps are the right way going forward. Now on the earning side, which is something that’s less visible to this crowd, we have an earner super app and essentially drivers can go onto the Uber driver app. And you can earn money moving people, or you can earn money moving food, or you’ll be able to earn money shopping or delivering an iPhone for Apple to someone’s home. So on the earner side, we think having one app where you have identity, background check, et cetera, and multiple earnings opportunities coming at you, which you can either accept or not accept, we think that’s actually really, really powerful and quite differentiated from anyone else.
Schaal: Do most drivers do both?
Khosrowshahi: About 50 percent of drivers in the U.S. do both and that’s up from a third of drivers. So more and more drivers are getting comfortable with both driving people and driving things. And some have their preferences. Some say, I only want to drive people and some people like driving food.
Schaal: Right. So there’s some obvious holes in your apps. Hotels, flights. Grab, you’re on the board.
Khosrowshahi: I did say fast and frequent.
Schaal: You did. Well, there are frequent flyers.
Khosrowshahi: Yes, this is true.
Schaal: Grab in Singapore, you’re on the board. They have hotels from Booking.com and Agoda, but that’s not in your vision?
Khosrowshahi: No. I think for perspective, the average Uber user uses our services over five times a month.
Khosrowshahi: So these are very, very high frequency use cases and that’s average. So you can imagine power users using our services very, very significantly. And our market is about real time, it’s about delivery within the next couple of hours and it’s local. So we are stepping into what you would call concept travel in terms of reservations, for example. Reserving a car. Anyway, our goal strategy is anywhere you want to get from point A to B in a city, we’re going to take you. That used to be just a car hire, but we now have transit, we have buses, we have taxis, we have two wheelers, we have three wheelers. And if you want to rent a car, we will offer you car rental. We have some car rental partners, and we will offer you a car rental experience, which I think is absolutely magical, which is essentially an Uber driver will drive your rental car to you, you can pick it up and not deal with desk and being up sold to 18 versions of insurance.
Schaal: You don’t have self-driving cars and you don’t have flying taxis. And so speaking of self-driving cars, I want to ask you, how do you view what’s going to happen with that, but also it’s one of a number of areas that you took a step back from. You sold businesses, you sold the self-driving car business to Aurora, you have an equity stake. You’ve done that in a number of markets you grab in Singapore. So what’s the deal with that?
Khosrowshahi: Well, I think certainly during the pandemic, all of us went through an incredibly hard time — us included. Each did well, but our mobility business was down 80 percent at one point. It’s coming back great. You have to decide what’s core and what’s not core. Where can you truly add value? And in self-driving, we had an opportunity to merge our operation with Aurora. I’ve known Chris Urmson, who was one of the original team members at Waymo, had a lot of respect for him and we now have a very big strategic stake in that company. Same thing as it relates to Lime scooters, same thing as it relates to Joby. We now have very strong strategic partnerships in pure leading pure plays in each one of those categories. And ultimately, we think that’s the best strategy going forward. Uber is going to stick to what it’s really great at, which is building global demand and bringing together the magic of our realtime matching, pricing, routing technology. That’s what we’re great at. That’s what we’re going to stick to.
Schaal: What’s your take on what happened with Didi and their (initial public offering)? You guys lost billions of dollars on that.
Khosrowshahi: Listen, with Didi, we’re a big shareholder of Didi, but we also compete with Didi, especially in the Latin markets. I don’t have an answer. This could be the nationalization of strategic elements of the Chinese internet industrial complex and Didi may be subject to that.
Khosrowshahi: I think it’s going to raise real questions in terms of how they compete outside of China and data access, right? Listen, the companies in our industry, we have access to real time location data along with identity.
Khosrowshahi: That is something that we take incredibly seriously. We invest huge amounts of dollars in terms of keeping it safe and that is not the property of any government. And I think that for us is a big question as far as Didi is a competitor going forward and we’ll see how it turns out.
Schaal: Here’s a semi-rude question, but you can take it.
Khosrowshahi: Thank you. Only semi rude.
Schaal: Only semi rude. So I’m going to talk to Peter Kern later from Expedia. And you’re still on the Expedia board. And Expedia is on this campaign for the last year and a half or whatever to simplify the business. Isn’t this sort of a reversal of what you and Barry created over the last 13 years? They’re in the process of selling Egencia. They don’t want brands to compete against brands within the portfolio to compete against one another anymore. So how do you view that?
Khosrowshahi: I’m very supportive of the strategy. And listen, you need different strategies for different times, right? When I grew up in the travel business, the online travel business, it was a go-go days of higher and higher internet penetration of travel.
Khosrowshahi: And it was about going out there and capturing, land capture mode, right?
Khosrowshahi: The business for better or worse is maturing. Growth rates are … the internet penetration is at a much more advanced level than let’s say, grocery delivery or food delivery. And so that requires a different strategy. And I think it’ll be a mistake for Peter to pursue the same strategy that I was pursuing.
Khosrowshahi: It’s different time, certainly different environment.
Schaal: Bernstein came out with a report that said that once the pandemic is over, basically the (online travel agencies) will have exactly the kind of problems that you just mentioned. Internet penetration slowing and headwinds that they probably faced before the pandemic started. It’s not boom time in OTA land.
Khosrowshahi: Well, I think the return will be boom time and then it’ll be up to the OTAs to create their own booms.
Schaal: If you don’t mind, one more travel question. What do you think of Expedia’s position in relation to competing, coming out of the pandemic with Airbnb and Booking.com?
Khosrowshahi: Well, I think that the acquisition of Vrbo and the development of Vrbo now, and the amount of energy and investment that has gone into Vrbo which has been much more significant than when I was there.
Khosrowshahi: Has been nothing short of extraordinary. So I think that has been a huge win. And Peter and team are all in there in terms of brand in terms of capability. So I think the company — listen, Airbnb is the leader in that space, but VRBO has a very strong position in higher end homes outside of urban centers and I think that’s a great position to build on.
Schaal: Can it really build a global presence to compete with Airbnb? Because right now it seems like Expedia is picking its spots and it’s going pretty slow in terms of putting money into Vrbo.
Khosrowshahi: Well, listen, you have to pick your spots.
Khosrowshahi: If you try to do everything, you’re going to get nothing done, right?
Khosrowshahi: So I think you need to choose where you have strength, you have to choose where you’re weak and you’re going to invest to get strong. For us, Eats didn’t get to 52 billion by accident. We invested $3 billion over four years to get there.
Khosrowshahi: Right? But we said, we’re all in. We’re going to build this thing. It’s going to be worthwhile. But if you try to bet everywhere, you’re going to lose.
Schaal: Right. So we’re talking about super apps before and Tony Fernandez at Air Asia is trying to build the next super app. They just started ride sharing. They do delivery.
Khosrowshahi: Oh, wow. I didn’t know that. Okay.
Schaal: And Expedia had a joint venture with them going way back when. So you were unaware of their efforts. I was going to ask you, do they have a shot? I mean they’re selling … you could book multiple airlines on Air Asia now.
Khosrowshahi: Oh, okay. Well, if they’re competing with Grab in Southeast Asia…
Schaal: Forget about it?
Khosrowshahi: Good luck. They’ll need it.
Schaal: Interesting. What kind of learnings did you bring from Expedia over to Uber or vice versa?
Khosrowshahi: Well, I think from Expedia, Expedia had something with a turnaround when I took over. So one of the lessons there was before you get to work, you have to align on what the company culture can be going forward. I made a mistake at Expedia, which is I got to work first and I’m like, “Oh my God, we’re not aligned on culture.”
Schaal: Well, I don’t understand what you mean by that.
Khosrowshahi: What’s that?
Schaal: I don’t understand. What do you mean you got to work first?
Khosrowshahi: You try to go operationalize a bunch of stuff and make a bunch of decisions with a team that wasn’t aligned on how you’re going to work and what do you value versus not. And so, I didn’t make that same mistake at Uber. We came in, we realigned the company culture very quickly, we understood who was in, who wasn’t in and we made those changes early. So I think that was a great lesson for me. And then, I think the other lesson for me at Expedia was importance of globalization. Uber has a great global position, but basically where we can be number one, we’re going all in. Where we don’t think we can be number one in the market, we got out, which is why we got out of Southeast Asia. Making those decisions early, I think, was a great learning for me that I brought from Expedia.
Schaal: When are Uber employees going back into the office and will there be vaccine mandates to get back in?
Khosrowshahi: January and yes, you have to be vaccinated if you want to go back to the office.
Schaal: Interesting. What about (mergers and acquisitions) for Uber? Is that on the agenda?
Khosrowshahi: We have moved forward with a bunch of M and A: Careem, which has been a great deal, Drizly corner shop, et cetera.
Khosrowshahi: So I would anticipate, the stage is set for us and especially in the non-food category, we’re at a $3 billion run rate. And I’ve told the team, the goal is to get to 50. We got to 50 with Eats and we’re going to go beyond. Non-food, we’re starting at three, (and) we got to get to 50. So I think that while we will always be opportunistic in M and A, whether it’s geographical or smaller businesses that we think are interesting, the vast majority of our effort is going to be organic because we have a great base to grow off of.
Schaal: We got about 30 seconds here. Other than at Uber, where does the next innovation come from in ride sharing and delivery?
Khosrowshahi: I think you’re going to see a ton of innovation coming out of Uber. So I’m not going to volunteer others. One of the really cool things about Uber that we’re doing is actually talking about high capacity vehicle. So think about buses, all of the technology that we brought in terms of routing and pricing and matching on a real time basis. Buses, basically, run the same route. They don’t respond to real time demand and supply. We can use our technology to power other systems and, at the same time, we’re running buses in Cairo, for example. And you’re going to see more of the Uber HCV product going out. Something that’s going to take years to develop, but we have an amazing team on it and it’s something I’m incredibly excited for.
Schaal: And our time is up and we didn’t even get to talk about Uber Freight. So we’ll have to save that for next time.
Khosrowshahi: More to come. Thank you very much.
Schaal: Thanks a lot.
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