|The $99 Billion Idea|
How Uber and Airbnb Fought City Hall, Won Over the People, Outlasted Rivals,and Figured Out the Sharing Economy.
By Brad Stone | January 26, 2017
From Bloomberg Businessweek
In January 2009 the three founders of a little-known website called Airbedandbreakfast.com decided at the last minute to attend the inauguration of Barack Obama. Brian Chesky, Joe Gebbia, and Nathan Blecharczyk were all in their mid-20s and had no tickets to the festivities, or winter clothes, or even a firm grasp of the week’s schedule. But they saw an opportunity. Their online home-sharing company had limped along for more than a year with little to show for it. Now the eyes of the world would be on the nation’s capital, and they wanted to take advantage.
They found a cheap crash pad in D.C., an apartment in a drafty three-floor house near Howard University that, like so many other homes during that desperate time, was in foreclosure. The rooms were unfurnished save for a pullout sofa, which the three founders gave to their friend and adviser, Michael Seibel, who ran the streaming-video site Justin.tv. At night they crowded onto the hardwood floor on inflatable beds.
Their host was a tenant waiting for eviction. He lived in the basement apartment and had used the AirBed & Breakfast website to rent out the empty first floor and, to three other guests, his own bedroom, living room, and walk-in closet. Sensing a promotional opportunity, Chesky e-mailed the staff of Good Morning America about the closet, and a producer included it in a roundup of unusual accommodations for the inauguration.
By day the founders and Seibel passed out AirBed & Breakfast fliers at the Dupont Circle Metro station. “Rent your room! Rent your room!” they cried to the bundled-up commuters, who mostly ignored them. At night they met other AirBed & Breakfast hosts in the city, talked their way into inaugural parties, and answered multiple e-mails from a disgruntled customer—the guest in the basement bedroom. The woman had driven her Volkswagen bus from Arizona to D.C. with her support dog, a Chihuahua, and she wasn’t keen on the crowded accommodations. In a barrage of complaints, she said she was certain she smelled marijuana, that the juice she’d left in the fridge had been taken, and that the house didn’t comply with the Americans with Disabilities Act.
At one point she threatened to call the police. Chesky, Gebbia, and Blecharczyk sat just a few feet above her head, typing out apologetic replies.
On the day of the inauguration, they awoke at 3 a.m. to claim a good viewing spot on the National Mall. They walked 2 miles to get there, buying hats and face masks at a kiosk along the way. By 4 a.m. they’d found a space on the green in the area open to the general public, a few football fields away from the presidential podium.
“We just kind of sat back to back in the middle of the Mall and tried to stay warm,” says Chesky, the chief executive officer of the startup, now named Airbnb. “It was the coldest morning of my life. Everyone cheered when the sun came up.”
Airbnb founders (from left) Chesky, Gebbia, and Blecharczyk.
Garrett Camp and Travis Kalanick also attended the festivities that week. A friend on the inaugural committee, the investor Chris Sacca, had persuaded them to come. Kalanick, a Los Angeles native who’d recently sold his startup to web infrastructure company Akamai, made a $25,000 donation to the inaugural committee and split the expense with Camp. They were both in their early 30s and, despite the global economic meltdown, full of optimism about the transformative effects of technology. They were largely ambivalent about politics but didn’t want to miss a historic moment or, just as urgently, a seminal party.
They also arrived in D.C. fully unprepared. The night before the inauguration, they found themselves stuck in a line outside the Newseum, trying to get into a party hosted by the Huffington Post. It was windy and cold, and they had only one wool hat between them, which they took turns wearing, 10 minutes each, while frantically texting one of the party’s hosts, asking to be allowed inside.
On the big day, Camp and Kalanick woke up late. Kalanick had rented a swank home near Logan Circle on the vacation-rentals website VRBO, but it was a few miles away from the Mall, and no taxis were available. They ended up sprinting down the wide D.C. avenues. When they finally got to their seats, perched with Sacca and his high-powered Silicon Valley friends above the inaugural platform, the sweat on their bodies cooled, giving way to a chill. “By the end of the day, I was definitely sort of pre-hypothermic,” Kalanick says. “Everyone was like, ‘What’s wrong with you?’?”
At the time, Camp had been trying to get Kalanick excited about a business idea he was developing that would allow anyone with a smartphone to call a black town car with a click of a button. Kalanick was interested but not particularly enthusiastic, conceding that it was a good idea, just not a big one. He had his own startup ideas, including one that he called “Pad Pass,” a network of furnished high-end apartments.
Yet here in Washington was clear evidence that Camp’s car service was needed. A car that could be summoned, tracked, and rated via a smartphone would be a godsend for getting around big cities, especially during huge events such as inaugurations.
“See?” Camp said to Kalanick, as the crowd chanted “O-bam-a! O-bam-a!” and the world waited for the new First Family to take the stage. “We really need this.”
Camp even had a name for his high-tech car service: Uber.
That was eight years ago. Much has changed since—the president, for starters. But few companies have altered city life as deeply and as swiftly as the two started by the entrepreneurs shivering anonymously in the crowd that day. Airbnb and Uber, their headquarters only a mile apart in San Francisco, are among the fastest-growing startups in history by sales, market value, and number of employees. Together they embody the third phase of internet history, the post-Google, post-Facebook era of innovation.
They’ve attained these heights, and a combined worth of $99 billion, despite owning little in the way of physical assets. Airbnb can be considered one of the biggest hotel companies in the world—currently valued at $30 billion, about the same as Marriott International—yet it possesses no actual hotel rooms. Its founders are billionaires three times over, at least on paper. Uber is among the world’s largest car services, yet it doesn’t employ professional drivers or own any vehicles (save for a small, experimental fleet of self-driving cars). Uber is valued at $69 billion, more than any other privately held tech startup in the world. Kalanick and Camp have an estimated net worth of about $6 billion each.
Both startups offered age-old ideas (share a vehicle, rent your home) with new twists and fostered a remarkable degree of openness among strangers. And both companies have been generating nearly nonstop controversy in every urban market they enter. They’ve come to represent, at least to some, the hubris of the techno-elite. Critics blame them for destroying the basic rules of employment, exacerbating traffic, ruining neighborhoods, worsening housing shortages, and generally bringing unrestrained capitalism into liberal cities. Airbnb and Uber didn’t anticipate this degree of pushback, which might have undone less zealous, more circumspect entrepreneurs.
So how did it all happen? How did each company maneuver past entrenched, politically savvy incumbents to succeed where others had failed? How much of their success was luck?
There are two little-known chapters in the histories of Uber and Airbnb, two pivotal moments when each discovered the secret weapon that would drive its rise. Both stories are at odds with the creation tales the founders like to tell, and both are crucial to understanding how these two companies defied odds, mayors, and city councils, and became widely admired, bitterly resented, and valued into the stratosphere.
The Growth Hacker
By the spring of 2009, the newly renamed Airbnb was small and struggling. After graduating from Y Combinator, a startup school in Silicon Valley, Chesky, Gebbia, and Blecharczyk worked out of their apartment on Rausch Street in San Francisco’s South of Market district. They hadn’t solved the chicken-and-egg problem that confronts any new online marketplace: To get listings, you need customers, and to get customers, you need listings. The few apartments on the site drew few guests looking for travel accommodations, and the lack of guests didn’t inspire potential hosts to make their homes available to total strangers over the internet.
“Every day I was working on it and thinking, ‘Why isn’t it happening faster?’?” Chesky says. “When you’re starting a company, it never goes at the pace you want.??… You start, you build it, and you think everyone’s going to care. But no one cares, not even your friends.”
He and his co-founders like to recount their early misadventures trying to ignite the business. They sold boxes of presidential-themed cereal, Obama O’s and Cap’n McCain’s. While Blecharczyk stayed behind to code, Chesky and Gebbia kept trying to build up early listings by visiting New York, Las Vegas, and Miami, among other cities, and organizing meetups with any potential hosts they could find. They also cold-called property-management companies, asking them to add multiple listings to the site, then abandoned that tactic when Chesky concluded these types of listings didn’t represent “the spirit of what Airbnb was”—hosts inviting travelers into their homes and facilitating authentic travel experiences.
Screenshot taken before the company name was shortened to Airbnb.
An early Airbnb PR stunt: Presidential-themed cereal. (Cap’n McCain’s not pictured).
The official company history focuses on Chesky and Gebbia’s prodigious ability to light up an online community through clever design and their enticing ideology of a new, open, noncorporate world order. But what really got it all going was the more technical, clever, and some might say devious work of Blecharczyk.
Just 24 at the time, Blecharczyk had coded the entire site himself, using what was then a new open source programming language called Ruby on Rails. He devised a flexible, global payment system that allowed Airbnb to collect fees from guests and then remit them to hosts, minus commission, using a variety of online services such as PayPal. He’d also presciently hosted the site on Amazon Web Services, a new division of the e-commerce company that allowed businesses to rent servers via the internet only as needed, a huge cost savings that would become standard practice for an entire wave of new businesses.
“Joe and I would have crazy dreams and visions,” says Chesky of his co-founder. “Nate would find a way to make the wildly impractical possible.”
But that wasn’t the full extent of Blecharczyk’s talents. He was born in Boston, the son of a homemaker mom and an electrical-engineer dad who worked for a local industrial equipment manufacturer. His father, Paul, would have his sons do mechanical tasks around the house, and he brought home discarded equipment, such as an old Xerox copier, and encouraged them to take it apart in the backyard. “There is no job too big or too small for PB and sons,” he would say to his boys.
Soon, young Nate was consumed with computers. According to family lore, he was home sick from middle school one day at age 12, when he took a book about computer languages off his dad’s shelf and devoured it. For Christmas, he asked for a book about Microsoft’s programming language QBasic, and he plowed through that one in three weeks.
Blecharczyk ran cross-country at his Boston public high school and excelled in his classes, but at home he had a far less conventional life. After learning to code, he started writing increasingly sophisticated programs and giving them away on the internet, asking for voluntary donations. One early piece of shareware allowed computer users to place digital sticky notes on their screens. Later, another program of his interfaced with America Online, which was then walled off from the broader web, and gave programmers a way to send internet messages into the e-mail and IM accounts of AOL members.
Soon after he posted that program, Blecharczyk got a phone call. The caller had seen the e-mail tool and offered him $1,000 to write something similar. When he told his dad about the offer, Paul Blecharczyk responded: “Son, no one from the internet is going to pay you $1,000.”
Blecharczyk wrote the program anyway and got his money. He later found out his customer had himself been hired to create it and was merely subcontracting out the work (and was surely paid more than a grand). The customer then introduced Blecharczyk to his client and to other potential clients, and suddenly Blecharczyk was earning considerable money coding a variety of tools for a nascent industry. Its practitioners innocuously dubbed it “e-mail marketing.” The world came to know it as something else: spam.
Continuing with this side work through college, Blecharczyk eventually developed a suite of e-mail marketing products to help spammers organize and orchestrate their campaigns and maneuver around internet service providers that were desperately attempting to shut off the deluge. The orders poured in, as did the cash.
The spam operation earned Blecharczyk close to $1?million, he says, and paid?his college tuition and more
His company went by several names at various times, including Data Miners and, eventually, Global Leads, which he incorporated in the State of Massachusetts after his freshman year at Harvard in 2002. At first he couldn’t accept credit cards, Blecharczyk recalls, so he had customers enter their bank account details on his site, and then he printed the bank numbers on blank OfficeMax checks, wrote down the amounts he was due—typically around a thousand dollars—and went to the bank to deposit them. “Amazingly, this is legal,” he says, recounting his early success with delight. “I was literally printing money!”
At the end of every week and after every three months, he gave his parents a financial report. Naturally, Paul and Sheila Blecharczyk were mystified. “This was a whole new world,” Blecharczyk says. “I don’t think anyone really knew what to expect or what this was.”
The spam operation earned Blecharczyk close to $1 million, he says, and paid his college tuition and more. It also earned him a spot on an online blacklist called Register of Known Spam Operations, maintained by a London-based anti-spam organization called the Spamhaus Project. On its page devoted to Data Miners, Spamhaus alleged: “Data Miners (aka: Nathan Underwood Blecharczyk) is one of the main sources of broken/open e-mail relays (used by spammers), and the tools to help locate and exploit them,” meaning Blecharczyk was finding SMTP servers that had an open connection between sender and receiver, which allowed him to slip in spam e-mails. Blecharczyk says he shut his business down in 2002 to focus on his college studies, because the work was taking up all his time.
He discusses all this years later from Airbnb’s offices and is unapologetic about how he earned his first considerable fortune. “All this was new,” he says. “There were frankly no rules around it.” That is technically true—the Federal CAN-SPAM Act that made sending or facilitating spam a federal crime wasn’t passed until 2003. But for years before that, spam was a well-known scourge that frustrated e-mail users and overwhelmed internet companies.
“It’s part of being a pioneer,” Blecharczyk says. “It’s not just exciting to build things but to explore new fields and to recognize what comes with that is a lot of uncertainty. That’s very true today, and it has been true of Airbnb. It’s a whole new concept.”
“They will sorely underestimate the pummeling they will go through at the expense of my bare knuckes.”
– internal email from Travis Kalanick to an investor in 2010 about a potential rival.
When he graduated from college, Blecharczyk wasn’t just a skilled programmer but also the embodiment of a new Silicon Valley hero: the growth hacker. Growth hackers use their engineering chops to find clever, often controversial ways to improve the popularity of their products and services. Blecharczyk’s talents are recognizable behind two of Airbnb’s early, crafty schemes to usurp Craigslist, which had a far larger audience at the time.
In late 2009, a few months after Airbnb graduated from Y Combinator, Craigslist users in some cities began to notice something annoying. Whenever anyone posted a property for rent on Craigslist, even if that person had specified that he didn’t want to receive unsolicited messages, he would get an e-mail touting Airbnb. If the apartment was listed in, say, Santa Barbara, the e-mail would read: “Hey, I am e-mailing because you have one of the nicest listings on Craigslist in Santa Barbara and I want to recommend you feature it on one of the largest Santa Barbara housing sites on the Web, Airbnb. The site already has 3,000,000 page-views a month.”
All these e-mails were identical except for the city, and they typically emanated from a Gmail account bearing a female name.
Blecharczyk at home, 1999.
Photograph: Courtesy Airbnb
Dave Gooden, another online real estate entrepreneur, recognized the soaring popularity of Airbnb in 2010 and became curious about it. Suspecting what was going on, he posted a few dummy listings on Craigslist, and then wrote a blog post in May 2011 about his findings. He concluded that Airbnb had registered Gmail accounts en masse and set up a system to spam everyone who posted on Craigslist. In his opinion, Airbnb’s activity was a nefarious “black-hat” operation. “Craigslist is one of the few sites at massive scale that are still easily gamed,” he wrote. “When you scale a black hat operation like this you could easily reach tens of thousands of highly targeted people per day.”
After Gooden’s post, a few technology blogs picked up the story and Airbnb was put on the defensive. Its explanation, which is somewhat difficult to believe, was that it had hired contractors who may not have been up to the company’s ethical standards. “One of the lessons you learned is you have to be very close, provide constant management and guidance to the people you’re working with,” Chesky said when I asked him about it onstage at an industry event after Gooden’s blog post.
A few years later, Blecharczyk offered a little more detail. They’d hired foreign contractors on Elance, an online staffing service, and were paying them per lead, or for every new host that would list on Airbnb. “Many companies bootstrap themselves off of finding a user segment on Craigslist and then building a better experience,” he says. The whole effort, he insists, was ineffective because Craigslist users were typically looking for long-term tenants, or roommates, rather than vacationers. “It did not end up driving any meaningful business,” he says.
But another strategy unquestionably did. A few months after the bulk e-mailing campaign to Craigslist users, Airbnb tried a new tactic. Instead of luring Craigslist users to Airbnb, the company did the opposite: It allowed Airbnb users to take a streamlined version of their elegant listing and cross-post it with a single click on Craigslist. “Reposting your listing from Airbnb to Craigslist increases your earnings by $500 a month on average,” the site informed prospective hosts. “By reposting your listing to Craigslist, you’ll get the benefit of more demand, while still being able to use Airbnb to manage and moderate your inquiries.”
The tool, which Chesky says was originally the idea of adviser Seibel, was a boon for the company. It established Airbnb as a way to create more visually appealing Craigslist ads and, in effect, dropped ubiquitous Airbnb ads into the network of its largest competitor. “It was a kind of a novel approach,” Blecharczyk says. “No other site had that slick an integration. It was quite successful for us.”
“I have never dealt with a company as disingenuous as Airbnb has been over and over and over again”
– New York State Senator Liz Krueger
Other growth hackers noticed this and applauded it as a sophisticated technical achievement. Craigslist has different versions of its site in hundreds of cities, each with different web domains and menu formats. Blecharczyk had designed a way for Airbnb to post seamlessly onto the right site. “It’s integrated simply and deeply into the product, and is one of the most impressive ad-hoc integrations I’ve seen in years,” wrote Andrew Chen, a fellow growth hacker who now works at Uber, in an admiring blog post. “Certainly a traditional marketer would not have come up with this, or known it was even possible. Instead it [would] take a marketing-minded engineer to dissect the product and build an integration this smooth.”
Airbnb removed the tool in 2012 after Craigslist objected to these kinds of tactics, but by then it was too late. Like sucking through a straw, Airbnb was pulling listings and users over from Craigslist. It helped, of course, that its site was better designed and far easier to use and that it was constantly working to provide easier forms of payment, better mobile apps, and a safer experience where hosts and guests used their real identities and reviewed one another.
Most listings, Airbnb
- 1 Paris
- 2 London
- 3 New York City
- 4 Rio de Janeiro
- 5 Los Angeles
Blecharczyk also ran productive online ad campaigns during these early years. If people searched Google for an apartment in Boston, for example, Airbnb ads would pop up at the top of the page. Blecharczyk and his marketing team became experts at finding the cheapest and most frequently searched keywords and at generating crisp ads that sometimes directly attacked rival home-listing sites. “Better than Couchsurfing.com!” some of Airbnb’s early search ads blared. Dan Hoffer, a Couchsurfing co-founder, e-mailed Chesky to complain about this technique. He says Chesky apologized, stopped the campaign, and sent him two boxes of Obama O’s as a peace offering.
Blecharczyk pioneered a clever use of Facebook’s early rudimentary ad system, which for the first time allowed companies to tailor and target ads to the interests and hobbies that members specified in their profiles. If a user said he liked yoga, for example, he would see an ad from Airbnb on Facebook that announced “Rent Your Room to a Yogi!” If a person liked wine, he’d see “Rent Your Room to a Wine Lover!”
Facebook ads were cheap, and people tended to respond to these eerily targeted messages. By February 2011, Airbnb had passed 1 million nights booked. Less than a year later, in January 2012, it passed 4 million. The chicken-and-egg problem was solved.
It started with a tweet. On Jan. 11, 2012, almost three years after Camp and Kalanick discussed the idea for a luxury car-hailing service while freezing at the Obama inauguration, a short, cryptic message from a rider-advocacy group called D.C. Taxi Watch quoted the top taxi official in the U.S. capital.
“Chairman Linton: @uber DC is operating illegally,” it read.
At the time, Uber was operating in only six U.S. cities and was moving cautiously. Although Kalanick and his colleagues had come to distrust taxi ordinances as schemes designed to protect incumbents and their shoddy levels of service from new competition, they examined local laws closely and were flexible when required. Uber was by and large a law-abider, not a law-bender. That was about to change.
Kalanick: Granada Hills High School, Los Angeles, class of 1994.
The Uber app’s “ de?Blasio mode” was a dig at the New York City mayor.
The tweet was sent from inside the drab, postwar D.C. Taxicab Commission headquarters in Anacostia. The city’s taxi drivers had packed a normally sleepy hearing to make their voices heard. Uber’s town-car drivers, they argued, had been illegally operating for the past two months.
Ron Linton, appointed only six months before by Mayor Vincent Gray to head the taxicab commission, was inclined to agree. Linton, in his early 80s, was an avuncular policy planner and longtime reserve officer in the city police department who wore a stern disposition and an obvious toupee. He fashioned himself an agent of change and was determined to modernize the capital’s pitifully antiquated taxis, which ignored minority neighborhoods and didn’t accept credit cards. Back then they didn’t even have dome lights or a uniform color to distinguish them from other cars.
But Linton was hellbent on reforming the industry from the inside and preserving the jobs of the region’s 8,500 licensed drivers. Uber is “operating illegally, and we plan to take steps against them,” Linton assured the boisterous drivers at the meeting, which was duly tweeted by D.C. Taxi Watch.
That morning, Uber’s then D.C. general manager, Rachel Holt, was just settling into her new office. As in the other cities Uber had entered, the maze of local taxi regulations didn’t seem to explicitly prohibit the company’s service. In D.C., yellow cabs had to use taxi meters to calculate fares, while limos could charge only a prearranged fare. But there was a third classification in the bylaws, under section 1299.1 in the District of Columbia Municipal Regulations, which seemingly contradicted the other two rules by stipulating that sedans carrying six passengers or fewer could charge on the basis of time and mileage. Uber’s approach clearly qualified.
After she saw the tweet, Holt e-mailed Linton’s office asking for a clarification. She was told she would hear back within 48 hours. That was a Wednesday, and Linton was true to his word. On Friday, his office tipped local press to assemble outside the Mayflower Hotel on Connecticut Avenue. The chairman then ordered an Uber town car from the Cleveland Park neighborhood and took it to the hotel, where he was met at the circular driveway by five hack inspectors from the D.C. Taxicab Commission.
As three reporters watched, the officers slapped the stunned driver with $1,650 in fines for driving an unlicensed vehicle in the District and not having proof of insurance on hand, among other infractions. Then they impounded his car for the Martin Luther King Jr. Day long weekend. Standing in front of the press, Linton slammed Uber for unleashing regulatory havoc in the city. “What they’re trying to do is be both a taxi and a limousine,” he said. “Under the way the law is written, it just can’t be done.”
Holt, who’d arrived three minutes late to the scene after being alerted by the driver that trouble was afoot, was perplexed. According to the actual citations, Linton was going after the driver himself, a Virginia resident, not Uber, and he was doing it based on one of the city’s more arcane and senseless rules—that limo drivers must present a fare to the passenger in advance, rather than using a meter that measures time and distance. The fines seemed mostly aimed at intimidating drivers and keeping them from signing up with Uber. Nothing Linton did affected whether Uber could continue to operate in the city, much less slow its rapidly growing business there.
Over the next few months, Uber’s business in D.C. grew briskly. By then the issue of Uber’s regulatory status had fallen into the lap of a D.C. city councilwoman, Mary Cheh, the chairperson of the Committee on Transportation and the Environment.
She’s a graduate of Harvard Law and a Democrat who’d struggled for years to drag anachronistic D.C. cabs into the modern age. “Even while Uber was coming around, I was in the process of trying to reform the taxicab industry, which was in the 20th, maybe the 19th, century,” she says. She was also a pragmatist who sought peaceful compromise among many of the powerful local taxi interests in what was turning into a radioactive topic. That spring she sent a letter to Linton and the D.C. Taxicab Commission, asking them to stop towing Uber cars, and then started working toward a compromise among all the parties, including those who were increasingly incensed by Uber’s success.
Dummy fixed to a taxi during a protest in France, January 2016.
Photographer: Georges Gobet/AFP/Getty Images
What was needed, she reasoned, was an unambiguous clarification of Uber’s legal status that cut through the contradicting regulations and allowed it to operate in the city. Cheh spent the week after Memorial Day 2012 negotiating with Uber executives, and the result of those talks, Cheh thought, was an elegant short-term compromise that she called the “Uber amendments.” The regulations would give Uber legal sanction to operate. But they also added a price floor, which required Uber to charge several times the rate of a taxicab.
What happened next would mold the political tactics of Uber and many of the tech startups that sought to emulate it.
In San Francisco, Kalanick had never fully agreed to a minimum fare. Now recognizing the approaching competition from companies such as Hailo, a competitor in the U.K., and realizing that services like UberX would require aggressive price cuts, he decided he wanted to fight—to the consternation of his own lobbyists, who’d already provisionally agreed to Cheh’s deal.
Kalanick started hurling rhetorical hand grenades, labeling Cheh’s proposal a “price fixing scheme” on Twitter and accusing the councilwoman of “doing everything to protect the taxi industry.”
But Uber was going to need more than tweets to sway the D.C. City Council, so Kalanick decided to go right to his customer base. He sent an impassioned e-mail to thousands of Uber users in D.C., complaining that the City Council would make it impossible for the company to lower fares and ensure reliable service. “The goal [of the Uber amendments] is essentially to protect a taxi industry that has significant experience in influencing local politicians,” he wrote, basically accusing Cheh and her colleagues of corruption.
Then he supplied the phone numbers, e-mail addresses, and Twitter handles of all 12 members of the City Council and urged his customers to make their voices heard.
Most Uber surges during the week of Jan. 16
- 1 Los Angeles Intl. Airport
- 2 Waikiki, Honolulu
- 3 McCarren Intl. Aiport, Las Vegas
- 4 Ronald Reagan Washington National Airport
- 5 Downtown Las Vegas
- 6 Newark Liberty Intl. Airport
- 7 San Francisco Intl. Airport
- 8 Midtown New York
- 9 Portland Intl. Airport
- 10 Westwood, Los Angeles
On Uber’s website the next day he posted an open letter to the council members, writing ominously, “Why would you so clearly put a special interest ahead of the interests of those who elected you? The nation’s eyes are watching to see what D.C.’s elected officials stand for.”
Cheh was taken aback by the ferocity of the response. Within 24 hours the council members received 50,000 e-mails and 37,000 tweets with the hashtag #UberDCLove. When they arrived for the last session of the summer on July 10, Cheh’s colleagues all turned to her in confusion and fear. The overwhelming response from its customers in the capital presaged the political campaigns Uber would later mount in places such as London, New York, Florida, and California.
Cheh’s price-floor idea was gone by midmorning, and an alternative amendment was proposed allowing Uber to operate legally in D.C. until the matter was revisited at the next meeting in September.
Kalanick got plenty of advice from his lobbyists in advance of his testimony that month in the historic Wilson Building on Pennsylvania Avenue. Play it straight. Just stick to the talking points and don’t engage in a philosophical back-and-forth. The real advocacy takes place in other forums. In public hearings, try to act benign and respectful.
He started testifying at 1:15 p.m., after a morning that had included appearances by Linton, various drivers, and Hailo founder Jay Bregman, who wore a suit and tie and pointed out that Hailo worked harmoniously with regulators in London and Dublin and planned to do so in D.C. as well.
But Kalanick wasn’t in the mood for gentle courtship. Facts and intellectual arguments, not charm, were his weapons, and unlike Bregman, he wasn’t ready to kiss any political rings. Wearing a blue blazer, white shirt, and no tie, he interrupted Cheh’s first question with the words “I would disagree with that characterization.” Things went downhill from there.
“You wanted to make sure that there was a minimum fare on our services so that only rich people could use Uber, not people of middle income,” Kalanick told her.
Cheh pointed out that the proposed and discarded price floor was meant as a way to ensure a peaceful transition to a more permanent arrangement. “I know that you like to cast this as some sort of fight,” she said. “Do you understand that? I’m not in a fight with you.”
“When you tell us how to do business, and you tell us we can’t charge lower fares, offer a high-quality service at the best possible price, you are fighting with us,” Kalanick replied.
“You still want to fight!” Cheh said in exasperation. The conversation turned to surge pricing, Uber’s controversial practice of charging more—sometimes a lot more—during rainstorms, blizzards, presidential inaugurations, and other times of peak demand. “I am curious about whether that is somehow a kind of gouging,” she said. “If there’s more demand, why should the rider have to pay more money?”
Kalanick launched into an explanation of the economy of Communist Russia and how long lines formed at stores for essentials such as toilet paper. “It’s because the price of toilet paper was too low,” he said. “There wasn’t enough supply. Everybody could afford toilet paper, but they could never get it because there were too many people that wanted it and not enough people willing to supply it. And so that’s kind of the situation that gets created when you’re not able to change price.”
“So they didn’t have any toilet paper,” Cheh said with mock amazement.
“It was a rough situation,” Kalanick replied. “Look, price controls by governments, you know, they don’t always go well. In fact, I’d say 99 percent of the documented cases don’t go well.”
“But what I’m trying to figure out is why you get the advantage,” Cheh said, as she recalled standing in a long hot line in 1968 to view Robert Kennedy lying in state after his assassination and being horrified as vendors jacked up their prices for water. “I’m not sure I fully agree with you that this is really an economic mechanism that makes everybody happy!”
In San Francisco, Salle Yoo, Uber’s relatively new chief counsel, was watching a webcast of the hearing. According to an Uber lobbyist named Marcus Reese, at around this point in the testimony, she started texting him, asking him to pull Kalanick from the stand as soon as possible. “He’s in the middle of a public hearing,” Reese texted back. “I can’t just walk up to him and say you’ve got to go!”
Pro-taxi councilman Jim Graham, wearing a taupe suit and a gold bow tie, was sitting to Cheh’s right. “I’m trying to make a point,” he scolded Kalanick. “And the point that I’m trying to make is that if you remain unregulated, and the taxicabs remain increasingly more regulated, there’s a fundamental inequity to that.” He urged Kalanick to reconsider a minimum fare. “I don’t want this city to be [all] Uber. I really don’t. Because there’s too much of a history of our taxicab industry.”
“If you allow competition, what you’ll get is a better taxi industry,” Kalanick said.
“You can’t have competition where one party is unbridled and able to do whatever they please whenever they want to do it and the other party has their hands and feet tied,” Graham said. “That’s not competition.”
“That means drivers are making a better living and riders are getting a better service,” Kalanick said. “And that doesn’t sound bad to me.”
Graham said that many taxi businesses in the District were small businesses. “This is a good thing. This is something we want to protect and nurture. This is not something we want to destroy for the sake of some kind of consolidation into a big company.” Kalanick tried to interrupt him. Graham snapped, “May I be a member of this committee, please? Do you mind?”
Kalanick laughed. “Go ahead.”
After Kalanick left the stand, Graham, visibly infuriated, suggested reinstating and even increasing a proposed minimum fare. Janene Jackson, a deputy chief of staff to Mayor Gray, came up to Reese and Claude Bailey, a well-known local lawyer that Uber had also hired, and offered her own memorably harsh review of the testimony. “Never bring that guy back here!” she said, according to Reese. Later, Jackson couldn’t recall saying that specifically. “The hearing was probably a bad one, because I have no recollection of it, except that he pissed almost everyone off,” she tells me.
And yet. By December, with Uber growing by 30 percent to 40 percent each month in the capital, Cheh and her colleagues, knowing that its users were ready and willing to defend the service, succumbed to the tide of political advocacy and essentially rolled over. On Dec. 4, the Public Vehicle-for-Hire Innovation Amendment Act defined without ambiguity a new class of sedans that could be dispatched via a smartphone app and could charge by time and distance.
It passed the Washington, D.C., City Council unanimously, garnering even Graham’s vote, without debate. “The real issue is how receptive the government is to the progress of the people,” Kalanick told me a few years later. “It’s not about the city council or the government, it’s actually about how the incumbent industry is persuading them, let’s say, to do what I would consider the wrong thing.” Ultimately, he added, “D.C. was very receptive. But it took them time to see it and feel it.”
When traditional advocacy failed, Uber mobilized its users and directed their passion toward elected officials. The company wasn’t the first to employ this tactic, but it quickly became among the best at it, leveraging it in early battles with Cambridge, Mass., Philadelphia, and Chicago—and usually winning.
Kalanick had broken every rule of advocacy. Nevertheless, Uber’s lawyers and lobbyists, who’d begged him, unsuccessfully, to seek compromise and testify with humility, began to whisper in reverent tones about a new political dictate that contravened all their old assumptions. Travis’s Law. It goes something like this:
Our product is so superior to the status quo that if we give people the opportunity to see it or try it, in any place in the world where government has to be at least somewhat responsive to the people, they will demand it and defend its right to exist.
Over the years, Chesky and Kalanick struck up a sporadic friendship. Every few months or so, they would go out to dinner in San Francisco, first by themselves, then with other entrepreneurs or with their girlfriends to discuss their companies’ twin successes and their common experiences battling regulators and lawmakers. “I think we learned a lot by watching each other,” Chesky says. “There are only so many people in the world that you can relate to [who share] your position.”
Employees at both Airbnb and Uber remember these dinners well. Says one Airbnb executive who was also close to Uber employees: “Brian would come back saying, ‘We have to be tougher!’ and Travis would come back saying, ‘We have to be nicer!’?”
Kalanick’s realization may have come too late. His company's reputation as a ruthless aggressor was molded by such tactics as introducing ride-sharing in Europe, where it was expressly illegal, and adding a “ de Blasio mode” to its app over the summer of 2015. It was a dig at New York City Mayor Bill de Blasio, which showed a hypothetical alternate reality with 25-minute wait times for Uber cars, should his proposed vehicle cap be put in place. As the D.C. City Council had done years before, de Blasio meekly withdrew the proposal when confronted with a torrent of criticism and activism from Uber drivers and riders.
Uber’s top destinations, by number of rides
- 1 Los Angeles Intl. Airport
- 2 San Francisco Intl. Airport
- 3 JFK Intl. Airport
- 4 O’Hare Intl. Airport
- 5 Newark Liberty Intl. Airport
Chesky and his team watched Uber’s travails, following Kalanick’s series of defiant stare-downs with city councils and regulators, and insisted somewhat dubiously that Airbnb’s approach was different and softer than Uber’s. “They have their own way of seeking growth,” says Jonathan Mildenhall, who joined Airbnb as chief marketing?officer in 2014. “I think for us, our community and the humanity of our community actually drives a lot of the things we do. So we approach any kind of awkward situation or any challenge with a lot of empathy and a lot of open collaboration.?... We don’t want to kind of bulldoze our way into success. We actually want to partner our way in.”
Airbnb’s reputation survived this period of feverish empire building far better than Uber’s. But like Uber, when confronted by laws it found unjust, or perhaps just inconvenient, Airbnb didn’t slow down. As Airbnb grappled with unfriendly governments in New York and other cities, it turned out that the upstarts were far more alike than Chesky and his colleagues cared to admit.
From the book The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World by Brad Stone.
© 2017 by Brad Stone. Reprinted by permission of Little, Brown & Co., New York, N.Y. All rights reserved.