Uber’s issues: Road blocks or simply speed bumps?

By Beth Lawrence

The sharing economy is all the rage today with companies such as Airbnb, Lyft and Uber disrupting traditional industries from hotels to taxis. San Francisco-based Uber is arguably the most prominent peer-to-peer business in the world.

The popular ride-sharing app allows customers to request a cab from a smartphone and track its approach on a map. The five-year-old company is reportedly already valued at a breathtaking $40 billion. It was valued at $17 billion just six months ago. In a recent blog post Uber CEO Travis Kalanick said the company is now operating in more than 250 cities in 50 countries, a huge increase from last year when the company was in just 60 cities in 21 countries. Measured by number of rides, it’s six times bigger today than it was 12 months ago.

But Uber has hit more than a few bumps in the road. It has encountered strong opposition from the taxi industry in cities around the world, including Chicago. But that was to be expected. What was more surprising was the onslaught of public relations nightmares that have plagued the company in recent weeks.

Critics and customers have questioned Uber’s privacy policies after the company published that it tracked customers’ one-night stands, which it referred to as “Rides of Glory.” It came under fire again when an Uber executive suggested funding opposition research to run smear campaigns against journalists who write negatively about the company. This week Uber’s service was banned in New Delhi after allegations that a driver raped a passenger. And Dec. 10, the company removed a driver in Chicago who has been accused of sexually assaulting a passenger in Lincoln Square.

Kalanick addressed these recent public relations blunders Thursday in his blog. “This kind of growth has also come with significant growing pains,” he wrote. “The events of the recent weeks have shown us that we also need to invest in internal growth and change.”

Kalanick tried to give the recent scrutiny a positive spin. He said “taking swift action is where Uber shines” and that change will lead Uber to become “a smarter and more humble company that sets new standards in data privacy, gives back more to the cities we serve and defines and refines our company culture effectively.”

Could these stumbles derail the ride-sharing giant?

Customers are certainly noticing. Twitter posts are piling up with the hash tags #ubershame and #ubergate after the recent assault accusations.

Brayden King, an associate professor of management and organization at Northwestern University’s Kellogg School of Management, said such mistakes can make or break startups. “For a company that depends so much on the word of mouth and the trust that customers have, significant damage could hurt their brand and ability to retain customers,” King said.

The negative attention doesn’t seem to be affecting investors’ assessments of the company. Uber just closed a $1.2 billion round of funding.

Even so, Uber is trying to improve the company’s perception in some unorthodox ways. It recently launched a canned food drive that encouraged customers to donate two cans of food during their ride to earn a chance to win $5, $25, or $500 in Uber credit. Another offer allowed customers the option to ride with a military veteran driver who would be paid the full fare of the ride instead of sharing a portion with the company. And perhaps the most unconventional promotion the company has rolled out is the delivery of a nurse via Uber to customers’ homes to administer free flu shots.

Kellogg’s King attributes the company’s quick success to low overhead rather than clever marketing. Uber’s labor and maintenance are outsourced to drivers, making costs much lower than a traditional taxi company. Uber drivers also carry less liability insurance, an issue that particularly irks established cab companies. Its new business model has allowed Uber to grow quickly—possibly too quickly

“I think they’re experiencing some growing pains,” King said. “They’re still acting like a small tech, data-intensive company.”

The company’s executives likely are experiencing the rush that comes with newfound wealth and power, he adds. “I think they were feeling their hubris and didn’t think about the impact it would have on them.”

To be sure, Uber is collecting extraordinary amounts of data about its consumers. When a driver picks up a rider, he or she already knows the customer’s name and star rating given by other drivers. And that’s just the beginning. With all the data the company stores about customers’ habits—departures, destinations, dates and times—it can learn so much more. Conceivably, Uber could learn the schedules of customers, including things they might want to keep secret.

King said the collection of data is not all bad. It can be used to improve customer service, but it’s also potentially dangerous because it can create huge vulnerabilities. Customer data could be stolen if the company is hacked, or as Uber demonstrated recently by sharing the “Rides of Glory” information, data could be used in unseemly or unethical ways.

“An established company with a significant PR firm would never have done something like that,” King said.

In response to these privacy issues, Uber spokeswoman Lauren Altmin said the company’s privacy policy applies to all employees. “Access to and use of data is permitted only for legitimate business purposes,” she said. “Data security specialists monitor and audit access and use of the data on an ongoing basis. Violations of this policy do result in disciplinary action, including the possibility of termination and legal action.”

So what’s next for the ride-sharing giant?

Uber’s CEO said the new $1.2 billion in financing will “allow Uber to make substantial investments, particularly in the Asia Pacific region.” And it’s expected that the company will be going public soon, likely in 2015.

But more immediately, King thinks Uber will become “more sensitive to managing their reputation.” That likely will include developing internal measures to improve the company’s public image as well as hiring some outside PR help, he predicts