Travis Kalanick is finding out that Silicon Valley doesn't appreciate pointing.

Photographer: Chris Ratcliffe/Bloomberg

Uber Gets the Silicon Valley Treatment

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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What happens when you’re pushed out of the tech startup club?

Witness Uber’s latest controversy -- sparked when BuzzFeed revealed that an Uber executive, Emil Michael, tossed around the idea of running smear campaigns against journalists who don’t toe the Uber line.

In conversations I've had since with tech executives and investors, two themes pop up again and again. Many of them are surprised that the incident unleashed a tsunami-size wave of Uber hatred. Bay Area people in particular seem concerned that the public will stop rooting for Uber -- or, perish the thought, even all of Silicon Valley! -- because of Uber's latest flirtation with thuggery.

“What [Michael] said is not the right thing to do obviously, and it brings negative press to the Valley that could hurt everyone else,” says venture investor Semil Shah. Uber’s problems have started to taint the startup world, with USA Today calling the Uber gaffe just more evidence of all that’s wrong with tech’s “bro culture.”

The backlash speaks to the tech world’s boyish clubbiness and to how the veneer of success, especially in Silicon Valley, is sometimes granted as much as it’s earned.

Take, for example, the recent spate of valet apps. Some of them let users reserve spaces in garages. A few apps, though, let users reserve public parking spots that other people squatted on. That particular idea stirred up some bad press. One investor told me that investors and insiders, seemingly en masse, stopped supporting the parking idea. Maybe it was the press. Maybe it was the fact that selling public space isn’t what the sharing economy is all about. The venture then went quietly into that good night.

But that’s just one tiny parking app. What about a huge company like Uber that has reach in 48 countries and has taken in more than $1.6 billion in venture funding from powerful firms like Benchmark Capital? Will Uber lose support from the very tightly-knit cohort that spends its days funding the Valley's dreamweavers?

The big dogs of Silicon Valley, many of whom have invested in Uber’s rival, Lyft, are already denouncing Uber's actions in the national press. In a recent interview with CNN/Money Peter Thiel (a Lyft investor) called Uber “the most ethically challenged” company in the startup world and one on the cusp of “going simply too far” when it comes to breaking the rules.

Uber, Thiel allowed, could be the next Napster -- a company that “broke all the rules, it disrupted, and got shut down.”

Other venture folks and tech figures who aren’t investing in Uber's rival have also taken to Twitter to encourage people to drop Uber.

Entrepreneur and former venture investor Peter Sims has been venting his frustrations about the company for months. First he revealed that Uber had given party guests access to his personal data so they could spy on him for laughs. Then he wrote a long excoriating post saying:

 I’ve come to believe that Uber is in a very precarious position right now. Uber leadership not only consistently acts as if it is not only above the law, they act as if they are above everyone and every ethical norm.

The problem Sims lays out is more than just a culture problem. It’s an investor problem. He uses Groupon as an example of what happens when venture investors ignore obvious signs of a toxic culture because they want to make a huge return.

At this point in time, the company that Uber reminds me of the most is Groupon three or so years ago. At that time, Groupon was on top of the world. In 2011, as Groupon’s IPO approached, the Wall Street Journal reported that the company would be worth up to $25 billion

Groupon’s atrocious and immature leadership took the company down with it. Today, Groupon’s valuation stands at $4.4 billion. But, while many investors lost their shirts on the company, what’s worse are the countless employees and stakeholders who suffered from the exodus after an awful morale set in.

Even though it feels like the Valley's cool kids have pushed Uber further and further from their high school lunch table, that’s largely because this latest problem is so fresh. Uber’s investors, like Groupon’s, are an influential group with a lot of money at stake. It’s doubtful that they’ll require Uber to change its corporate culture in any meaningful way.

One VC (who passed on investing in Uber and regrets it to this day) tells me that investors are loathe to remove founders or complain too loudly about them, even if they think they’re terrible, because they don't want to further damage perceptions of the startups they've funded. Why do anything to hurt your chances for a lucrative exit?

When Uber’s executive fantasized about smearing journalists, it had the unfortunate side effect (for Uber) of making reporters target the company. Even the journalists who don’t cover technology were suddenly interested. Just what is this Uber? And suddenly all of the negative stories that have dribbled out from Uber's headquarters over the past two years -- the stories of risky subprime autoloans, of deceiving a local Los Angeles paper, of  sexual assaults and a hammer attack -- all burst to the fore.

It was one thing when it was tech blogs dogging the company, but now papers with huge audiences have started getting in on the game. Maybe that’s why the Uber hating seemed all-of-a-sudden, rather than a problem that’s been building over time.

Both the Wall Street Journal and USA Today ran a round up of the company’s most reprehensible behavior. The list was so long that neither publication could capture it all. The Guardian wonders if Uber is “the worst company in Silicon Valley.”

Oy. No good. What kind of customer would be comfortable using a service like Uber now?

Remember, Uber is special because it was the right company at the right time. It’s the most elegant expression of how real life, mobile devices and payments are coming together to make our phones a remote control for the way we live.

Yet Uber’s underlying software is replicable. Uber refuses to make its drivers actual employees, and those drivers can always go to a competitor that offers a better deal. Consumers aren’t locked in either. So if a mass group of consumers (not just those that obsess over industry blogs like TechCrunch and Valleywag) now see Uber as a company that doesn’t respect their safety, their data or their drivers, they can drop Uber from their trusted group of apps. Other options are available.

Still, I don’t think that Lyft and other competitors are fit to compete with Uber just yet. Their software is horribly buggy, which is a bigger impediment to success than who has the biggest driver fleet. Uber is reliable, if nothing else. Lyft’s estimates for when drivers will arrive are inaccurate, its GPS tools are wonky and the app is tricky for drivers to use. (Remember, Uber drivers can switch and work for Lyft at the drop of a hat and so far they haven't.)

Even if Uber overcomes this latest public relations fracas and continues its path toward a big successful public offering (and I do think it will), that won’t be the end of the story. After it goes public, Uber will still have to contend with even greater scrutiny, a different club of investors and potentially bigger waves of backlash.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Timothy L. O'Brien at tobrien46@bloomberg.net