Monday, February 15, 2016

As expected, Uber execs dodge bullet in France but criminal case reveals flaws in expansion strategy

PARIS–During a two-day trial last week, Pierre-Dimitri Gore-Coty and Thibaud Simphal, the Uber executives facing criminal charges here, struggled to remember internal documents and management decisions. According to critics, their inability to recall important events at Uber was a case of selective memory and a poorly disguised attempt to evade justice.

Thibaud Simphal, manager of Uber France (left) is surrounded by cameras as he heads into a Paris courtroom. Simphal and another Uber exec are accused of violating France’s transportation laws.

“Again and again, they said they couldn’t remember,” Karim Asnoun, the secretary general of the CGT Taxis union, told GeekWire outside the courtroom. “They couldn’t remember an ad (campaign) that went all over. How does anyone believe that? It was like watching a trial for the Mafia.”

A representative of the taxi industry making an unflattering comparison about Uber, the flag bearer for the digital ride-hailing industry, could be dismissed as sour grapes. Uber is cutting into the revenues of taxi companies across the globe. But if rivals are having an easier time painting Uber’s management as a ruthless corporate gang, Uber has only itself to blame. As the company storms into new markets, the willingness of Uber’s leaders to flout rules has begun to catch up to them.

Pierre-Dimitri Gore-Coty (right), head of Uber’s European operations, leaves court.

At this point, Uber’s initial strategy in France appears to be a bust. In January 2015, France ordered a shutdown of UberPop, a popular service that connected users to unregistered and supposedly amateur drivers via the web. Uber, not uncharacteristically, defied the order. When taxi drivers held a protest last summer against UberPop, France’s government responded by arresting Gore-Coty, 31, Uber’s head of European operations, and Simphal, 34, Uber France’s chief. They were charged with running an illegal taxi operation, commercial deception and violating privacy laws. Soon after, Uber suspended UberPop.

At the trial last week, Gore-Coty and Simphal faced a maximum of five years in prison, but the prosecutor did not request jail time for the pair. Instead she asked the court to ban each man from operating a company for five years, a $78,000 fine for Gore-Coty, and $56,000 fine for Simphal, according to The Wall Street Journal. More hearings are scheduled and a final judgment is not expected for months.

In a statement, Uber said: “This trial–and the upcoming trial of [Uber competitor] Heetch executives, whose executives face identical charges–highlight the need for common sense reforms.”

Uber and CEO Travis Kalanick are fighters. They seem to revel in their reputations for never backing down. The big question, though, is whether it was intelligent to thumb their nose at a court order. Look where it took them: UberPop is effectively dead in France. Politicians here appear to be digging in their heels against the company. France’s taxi unions, including Asnoun’s, are demanding compensation from Uber that totals about 100 million Euros or the equivalent of $113 million USD.

Karim Asnoun, leader of one of France’s taxi unions, was in court for the criminal trial of two Uber executives.

And the court case is only the latest unflattering press that will trail the company as it enters new markets. Wherever Uber goes, regulators will read that Uber last week agreed to pay $28 million to settle a pair of class-action lawsuits that alleged the company misled the public about the service’s safety. In August 2014, The Verge reported that Uber employees systematically made phony reservations on Lyft, one of its main competitors, in an apparent attempt to tie up Lyft’s operations and drain resources. That same year, in an interview with Vanity Fair, Kalanick acknowledged he tried to undermine Lyft’s ability to raise money.

Who can say for sure whether any of this affects Uber’s relationship with customers? Still, during the Nov. 13 terrorist attacks on Paris, as people desperately tried to get home, word spread that Uber had begun to dramatically raise fees. The company appeared to be trying to cash in on a terrible tragedy. The problem was, it never happened. Uber suspended surge pricing within 30 minutes of the attack. But the enormous amount of criticism directed at the company illustrated one thing: For the public, believing the worst about Uber was easy.

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