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On surge pricing: Travis Kalanick, CEO of car-service app Uber, says the company makes 'sure people see it and understand it before they accept.' Shaleece Haas for The Wall Street Journal
Some year in the near future, Travis Kalanick could transform the car-service app Uber into a multipurpose logistics conglomerate, delivering an array of physical products around cities in addition to people.
For now, though, he's still fighting in the trenches. A serial entrepreneur at the helm of Uber Technologies Inc. valued at $3.5 billion, Mr. Kalanick rang in the New Year squabbling with Twitter users over surge pricing, an algorithm Uber uses to charge customers more money during times of high demand. One rider tweeted that a $35 fare ballooned to $262. Mr. Kalanick, Uber's co-founder and chief executive, defended the practice as a method of finding the "market price." He says he is also working to make surge pricing fairer by only raising rates in neighborhoods with the most demand.
Meanwhile, in another test for Mr. Kalanick, Uber's aggressive expansion goals—less than four years old, the San Francisco-based company operates in 65 cities—have been stymied in several potentially lucrative markets. From Paris to Miami, regulators and taxi commissioners see the startup's rise as a threat to their model, setting up legislative battles.
Uber doesn't share its total revenue or number of users, but a screenshot of the company's internal dashboard recently leaked to the blog Valleywag showed it could be making more than $20 million a week in revenue (though it may keep only a portion of that). Uber says rides on its service are generating more than $100 million a year each in several top cities, though it keeps only 20% of that after paying out its drivers.
Mr. Kalanick, 37 years old, talked recently about how he handles criticism, what makes Uber stand out in Silicon Valley, and why he's not planning on an initial public offering any time soon. Edited excerpts:
WSJ: What do you say to customers who are unhappy about surge pricing?
Mr. Kalanick: We make sure people see it and understand it before they accept. If they accepted it and then they're upset that they accepted it, I think that's just people getting used to dynamic pricing in transportation.
If you're going and buying a hotel room, you know that prices can change. You know that if you don't buy it now, the price could go down or it could go up. You know that if you buy a flight on the day before Christmas, it's probably 10 times more expensive than two weeks after Christmas. You're OK with that and you understand it. But in ground transportation, there's been fixed pricing for 100 years. Because of that, there's an education process.
WSJ: As you add more of a supply of drivers, will there be less of a need for surge pricing?
Mr. Kalanick: To some degree. We can help smooth out the curves. But at the end of the day, Friday night is three or five times bigger than a Sunday night in any city around the world. And if you've got enough supply on the system so that we were perfectly supplied on a Friday night for as much demand as a city could ever throw at us, then the rest of the week you have drivers not making a living.
WSJ: One of your competitors, Lyft, recently started surge pricing and it's giving the extra profit from that directly to drivers. You still take a cut of 20% of the total. Why not give it all to drivers?
Mr. Kalanick: We are a business. We have to have a business model. And I think it's pretty straightforward to say, we're a broker and we just get a 20% cut. Everybody understands it. Every time you add complexity to your business model, it just makes it harder for suppliers and your partners to understand it.
WSJ: How big is your company now and how many employees do you expect to have a year from now?
Mr. Kalanick: We have 550 employees. That's approximate. We're definitely going to be well over 1,000, maybe in the 1,500 to 2,000 range [by the end of 2014].
WSJ: What are you learning about how to handle rapid growth?
Mr. Kalanick: I have a list of the hardest, most challenging problems that our company needs to solve and I start at the top and work my way down. And I have a list of the coolest most fascinating things that we can invent and I start at the top of the list and I work my way down.
WSJ: What's the Uber hiring process like?
Mr. Kalanick: Simulating what it's like to work together is the best way to determine whether somebody has the raw talent to not just do the job but to grow into something bigger. It's not about doing 15 interviews with 15 different people.
WSJ: What makes working at Uber different from other startups?
Mr. Kalanick: If you were to compare us to a lot of Silicon Valley companies, a lot of them have bought into the lore that engineers are everything and everything else is secondary. I don't think that's what's going on at Uber. We have two turbines in our company: One is engineering, and the other is operations. And so our business people are on equal footing with our engineering and technology culture. Cars are moving because of what we do, so there's an imperative to go beyond just the technology.
WSJ: Is your growth still limited by regulations? What's your approach to entering new markets and working with local regulators and governments?
Mr. Kalanick: We go to a city when it's legal. We do well. And when we do well, we have regulatory issues. People try to change the law so that it's harder for us to grow. They're basically trying to protect the taxi industry. The taxi industry lobbies government to basically outlaw competition. And we see that in most cities that we go to.
What we do is we try to give our customers a voice. They speak up on their own behalf and they speak to the politicians that represent them, the city officials that represent them. And what we've found is that city officials are sensitive and are responsive to the needs that our customers have.
WSJ: France just passed legislation favoring taxis that says car services must wait 15 minutes before picking up passengers—more than double Uber's normal wait-time. Can you operate in countries that impose rules like this?
Mr. Kalanick: This chapter is not completely over in France. There's an appeals process that I think still needs to play out. But when it comes down to it, a 15-minute rule, if highly enforced, just doesn't work. That's obviously a problem. But we're working hard. And keep your eye on our customers making their voices heard and this general process that's going to be under way in France. We're still optimistic.
WSJ: How close are you to holding an initial public offering?
Mr. Kalanick: We don't have any plans right now. We're just growing a business. We're only three-and-a-half years old.
Write to Douglas MacMillan at douglas.macmillan@wsj.com