UBER NIGHTMARE: How everything could go wrong for the world's hottest new company

Uber is the most valuable private tech company in the world right now.

In July, Uber closed a $US1 billion round of funding from Microsoft and Indian media company Bennett Coleman & Co.’s investment subsidiary.

The new funding valued the company at $US50 billion, making Uber the most valuable private tech company in the world. Since it was founded five years ago, Uber has raised an astounding $US8.2 billion in funding.

Uber’s $US50 billion valuation also means that Facebook is no longer the only company to have a valuation of that level before going public.

But Uber isn’t infallible. The company has competitors, it’s working through regulatory battles, and it relies on independent contractors. So we decided to look at some of the nightmare scenarios Uber could potentially find itself facing in the future.

More public relations blunders could cause public opinion of Uber to shift.

In 2014, Uber put its foot in its mouth several times. In November at a dinner for 'influencers,' an Uber executive named Emil Michael suggested the company could theoretically dig up personal information on reporters who are critical of the company. BuzzFeed Editor-in-Chief Ben Smith then reported on those comments.

BuzzFeed also reported that a New York City Uber executive had tracked one of BuzzFeed's tech reporters without her permission, a breach of Uber's privacy policy (the policy was later posted to Uber's website in light of these incidents). The executive in question, Josh Mohrer, was investigated for spying on the BuzzFeed reporter, and according to Uber has since been disciplined for his actions, but has kept his job.

Lyft reported it had its best week ever during the same week that Uber's executives were caught up in all that drama. If that's any indication, future public relation blunders could cause public opinion of Uber to shift, and consumers could choose rival companies over Uber.

Uber needs its drivers for now -- but drivers don't need Uber.

Maya Kosoff/Business Insider

Uber relies heavily on a team of drivers, independent contractors who work for the company.

Groups of these drivers across the country have protested the company in the past year. They're upset with Uber's competitive pricing, which affects drivers' incomes. Some have said they're barely making minimum wage. They don't understand why Uber hasn't integrated a feature to let them accept tips from customers. They're terrified of Uber's five-star rating system, and say that even one bad rating could be enough to knock them out of Uber's driving system and prevent them from driving for the service in the future.

Uber's drivers are volatile. They aren't required to work for Uber; they can stop and start whenever they want. They know they have options -- there are alternatives for them within the same space, like driving for Lyft or Gett. Some could get out of the black-car driving game altogether. If Uber's drivers were, as a group, to suddenly up and stop driving for the company, Uber might feel it.

Its drivers can also be a liability for the company.

Sonu Mehta/Hindustan Times via Getty Images

Drivers are unpredictable, and can occasionally be a liability for Uber.

An Uber driver in San Francisco was charged with vehicular manslaughter after killing a six-year-old girl in San Francisco on New Year's Eve last year. In September 2014, an Uber driver was accused of smashing a passenger in the head with a hammer and driving away. That same month, an Uber driver in Orlando was accused of groping a female passenger and then blaming it on the way the woman was dressed.

The list of stories about Uber drivers behaving badly goes on. It's not unique to Uber -- taxi drivers don't have a totally clean track record, either -- but city taxis aren't in the public eye the way Uber is. Additionally, city taxi services usually don't promote themselves with the same level of security screenings that Uber promises to hold its drivers to.

Some customers who say they have been assaulted by drivers are taking legal action. A woman who was allegedly raped and beaten by her Uber driver in Delhi, India, tried to sue the company in US court (She later dropped the suit). While Uber has the money and time to deal with lawsuits like these, they could still take a toll on the company.

Google's self-driving cars could run Uber off the road.


Bloomberg has reported that Google is 'going to war' with Uber. According to Bloomberg, Google is actively seeking its own car-hailing technology. Google is also, famously, researching self-driving cars. Bloomberg's report indicated that this could topple Uber, bringing self-driving cars-on-demand to roads before Uber ever has a chance to get into autonomous cars.

The Wall Street Journal later reported that Google was simply testing an internal program, a carpooling service for its employees, and that the entire issue had been 'blown out of proportion.' Additionally, this internal service 'isn't associated with the company's driverless car program.'

And though Uber has a seemingly bottomless war chest of funding, Google has a $US446.4 billion market cap.

In the future, Uber CEO Travis Kalanick has said, its drivers will be replaced with driverless cars. Earlier this year, Uber announced it was partnering with Carnegie Mellon University to research self-driving cars. It's no secret that autonomous cars are an area Uber wants to explore. But if Google could eventually get there first and do it just as well as Uber can, it would give Uber a run for its money, or at least create some competition.

Uber could lose out in Asia.

Simon Song

Uber's December fundraising round -- in which Uber raised a massive $US1.2 billion -- was intended to allow Uber to 'make significant investments, particularly in the Asia Pacific region.'

However, a global car-hailing startup alliance could cripple Uber's efforts there.

Didi Kuaidi -- Uber's biggest competitor in China -- and Lyft, Uber's biggest US rival, recently announced the two companies were teaming up to take on Uber.

The strategic partnership will let the companies share technology, product development, and local resources, and when US users of Lyft go to China (or when Didi users come visit the US), they will be able to pay in their native currency on each app.

But this global alliance against Uber could extend beyond just the US and China, ostensibly giving Uber a run for its money.

According to The Wall Street Journal, Lyft and Didi are in talks to expand their alliance with other Asian ride-hailing companies: India's Ola and Singapore's GrabTaxi.

Ths isn't entirely unexpected. Earlier this year, BuzzFeed News reported that Softbank Capital, which has funded on-demand ride-hailing startups GrabTaxi and Ola, was behind a global alliance to take on Uber. Executives at both GrabTaxi and Ola, which are Asia-based companies that use taxis instead of private drivers, told BuzzFeed News they were working on 'forming a global alliance of regional players.'

Though Uber operates in a number of Asian markets, including Beijing, Bangkok, and Tokyo, Uber has faced obstacles in Asia. South Korea has vowed to shut down Uber's operations in the country. As TechCrunch notes, 'Korean law doesn't allow technology companies to store payment data as part of their purchase workflow, but instead requires consumers to retype their information with every purchase, ostensibly for security reasons.'

By providing a similar service that is familiar with local laws and cooperates with local governments, this alliance could kneecap Uber in Asia, a huge potential market that relies heavily on taxi services.

Nobody knows what Uber's IPO will hold.

Chris Ratcliffe/Bloomberg via Getty Images

After its $US1 billion round of funding in July, Uber was valued at $US50 billion -- the highest valuation of any private company. As early as this year or next, Uber could go public. But some analysts say Uber's huge valuation could present the company with a lot of expectations Uber may struggle to meet.

One such expectation: 'Analysts say Uber must at least double its current market value at the time of its IPO to satisfy investors, which would put the company in the same league as Facebook, which was valued at $US104 billion at the time of its public offering,' says Heather Somerville, in a bearish story about Uber in the San Jose Mercury News.

Aswath Damodaran, a professor of finance at Stern School of Business at New York University, told the Mercury News: 'By raising this amount of money, they are setting themselves up to be the next Facebook. Does Uber have the potential to be the next Facebook? Absolutely. But keep in mind the first big disrupter might not always be the winner.'

Whe Uber files for its IPO -- which it will, especially given that the company reportedly has a deal with Goldman Sachs that says if Uber doesn't go public in four years it will have to pay interest to Goldman Sachs -- Uber will have to disclose its finances. Company filings may show that Uber's not growing as fast as investors thought it would.

As a public company, Uber will also not be allowed to make the same public relations missteps that it's made in the past.

Uber is reportedly losing a lot of money.

David Paul Morris/Bloomberg via Getty Images

Uber has traditionally been tight-lipped about its finances, but a leaked document, obtained by Gawker, suggests the $US50 billion company is wildly unprofitable.

The documents that Gawker obtained, which appear to show Uber's profits and losses for 2012, 2013, and some of 2014, suggest the company is losing a significant amount each year.

Uber's net revenue in the first and second quarters of 2013 was a combined $US32 million, according to the document, and its numbers for the second half of the year were about $US72 million, bringing its 2013 annual revenue to $US104 million in total.

Gawker's documents also show that while the company's revenue has been growing quarter over quarter, its losses are also increasing. Its losses in 2012, according to Biddle, totaled $US20.4 million. In the first half of 2013 the company lost more than $US15 million.

That's not totally surprising, and it certainly doesn't mean the company is in any grave danger.

Many tech companies that raise a lot of money aren't profitable, and many go public while they're in the red. Just look at Amazon.

'Shock, horror, Uber makes a loss. This is hardly news and old news at that,' Uber told Business Insider in a statement at the time. 'It's the case of business 101: you raise money, you invest money, you grow (hopefully), you make a profit and that generates a return for investors.'

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.