His new book, “The Upstarts,” looks at Uber’s and Airbnb’s journey to become successful companies.
“Changing the world” is a cliché, especially when you’re talking about Silicon Valley companies. But Uber and Airbnb have indeed changed cities, both in the U.S. and abroad. They disrupt, to employ another Silicon Valley cliché. And that’s what makes them such a great topic — for a book and for a podcast. Brad Stone, the author of “The Upstarts: How Uber, Airbnb, and the Killer Companies of Silicon Valley Are Changing the World,” joined Kara Swisher for a talk about the book, about Silicon Valley and about the future.
You can read some of the highlights from the interview at that link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of their conversation.
If you like this, be sure to subscribe to Recode Decode on iTunes, Google Play Music, TuneIn and Stitcher.
Kara Swisher: Today in the red chair is Brad Stone, an old friend of mine and a fantastic journalist who now writes for Bloomberg Tech. He’s the author of several books including “The Everything Store: Jeff Bezos and the Age of Amazon.”
He has a new book out called “The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World.” Apparently they’re changing the world again. I’m so sick of this changing world. Brad, welcome to Recode Decode.
Brad Stone: Thank you, Kara.
Are you required to say, "Changing the world" on book titles, because I haven’t written one in a while.
It is a contractual obligation.
I did, I think I had a ‘changing the world’. I think I did on my AOL book. My god, it’s horrible. I’m not going to have it on my next one, it’s going to be like “Fuck S —”
What is the next one?
It’s called “Fuck Silicon Valley,” really.
Awesome.
At least I ... No, I’ve got a good one, you’re going to be surprised. It’s not what you expect. They wanted me to write a fictional novel of Silicon Valley and throw everybody under the bus, but ...
I can’t wait.
I don’t want to do that.
That sounds like fun.
Yeah, I’m not doing that. I don’t have the time to do that and I don’t want to ... I just don’t think it’s worth it. I’d rather throw a lot of other people under the bus.
Let’s talk about you and your book. Give your background a little bit so people who don’t know Brad Stone ... Everybody in Silicon Valley does, you’re a great a tech reporter, you worked at the New York Times, a whole bunch of places. Talk just very briefly about your background.
Yeah, thanks, Kara. I think we probably first met when I came out here for Newsweek in the late ’90s.
Newsweek? Wow.
Yeah.
Yeah, I was here. I had just gotten into —
I saw the up and then the down, and then remarkable rebound. I went to the New York Times.
When did you get here, do you know?
’98.
Oh, so the late —
Yeah, so I get a little —
Right before the fall, right?
A little taste, right, for the first boom. Then I was at the New York Times and covering a couple of companies including Amazon. For a long time it just struck me that no one had written the great Amazon book and so that was now 2013, so a couple years ago. After that one, I just thought, it being a sort of punishing and at times thoroughly demoralizing effort to publish and promote a book, I thought, “Well, naturally, I just have to do this again.”
Yeah, exactly. I haven’t gotten up to it since the ’90s.
Being a masochist, I went right back in, and the first thought was to kind of do something like [Mark] Leibovich had done for D.C., right?
Right, right.
Which is incredibly hard because he’s a remarkable writer.
You’re also not mean enough, Brad.
There’s that possibility, that I’m too nice.
Leibovich is mean, which is why I like Leibovich.
But, he does it with style, right?
Yes, he does.
Uber and Airbnb were always going to be kind of ... I had this idea of having three or four plot lines and those were going to be two.
Mm-hmm, intertwined.
A couple things happened. Actually, in the original conception I wanted to make Andreessen Horowitz one of the focuses too, and then of course Tad Friend did that remarkable story in the New Yorker, but really what happened was Airbnb and Uber, when I started this in early 2014, they just took off, like almost nothing we’ve ever seen. And we’ve seen a lot of companies take off.
Sure, 100 percent.
Not only in revenue and employees and venture capital, which was itself remarkable, but in the amount of conflict and controversy that they left in their wake.
And fate, really. They’re the two companies, if you had to pick two, who’ve done rather well, in terms of — there’s been so many, but these are the two that have gone across the country, not just here in Silicon Valley. Snapchat would be the third.
Of course changing the world is a cliché, but they have changed cities. The way that we get around, the way that we travel between cities, the options that we have. So it kind of happened organically that I just began to focus on this.
To focus on them.
Yeah, at the same time as I started, you know, I work at Bloomberg, I write for Businessweek.
Yeah, you have a day job.
I run the tech coverage at Bloomberg, but this has been my kind of passion project.
You talk about the conception of this, the upstarts, they’re not upstarts anymore but they started as that. They’re sort of scary power players at this point from what I can tell from the way they behave, and they’re very different.
Let’s talk about these killer companies, it’s kind of an interesting way to put it. They’re the new Silicon Valley. Everyone’s always talking about the new Silicon Valley, but it’s pretty much the old Silicon Valley with new companies. A lot of the same players and stuff like that, so talk about what you’re talking about in killer companies, what is that conception? Maybe it’s just a marketing thing for your book.
Perhaps a little bit of both. These are particularly Uber and Airbnb. The book, it’s not just about the two of them, but really the industries — home-sharing and ride-sharing — and similar companies in each and some of the winners but also many of the losers. I spend a little bit of time exploring why the companies that were doing smartphone ride-hailing before Uber, why they failed. Fundamentally, they have been externally disruptive, and to a taxi fleet owner in New York City or a [taxi] medallion owner, these are killer companies. They have in some ways really undermined their living, and so they’re disruptive. It was maybe a little bit harder with a Google or a Facebook to identify exactly who was killed.
They’re silent killers. Oh, they killed.
They killed; they’ve left some remarkable carnage.
Amazon killed, they’ve all killed.
Yeah, but these guys, there’s really been no illusion, they have come after rather large industries, and also we talk about moving the realm of digital into the physical world.
In the analog world, yeah.
Yeah, and that’s what these companies have done, and they’ve had to deal with all sorts of regulatory obstacles that the past generation of entrepreneurs haven’t.
No, they just killed them from a digital point of view by demolishing and then replacing.
Yeah, I think they’ve had to be different. We’ve both interviewed the likes, early on, of Mark Zuckerberg and Larry Page and Bill Gates, and these are not charismatic communicators, right?
No.
They’re a little Asperger-y. But I would say Travis [Kalanick] and Brian [Chesky] are cut from a different mold. They’re storytellers, they’re charismatic, they’ve had to be politicians when called upon, and they’ve woven together political coalitions and activated their customer base. So I think there is something different about these guys.
Let’s talk about each of them. As you know, I wrote a big profile on Travis and had spent a lot of time with him and interviewed him several times onstage. Talk about Uber first because Travis is sort of the exemplification of Uber, but it started in a very different way, much as many companies did. He wasn’t the original CEO or really the creator of the idea. He was around and important to it but it was really Garrett Camp, who had created it, StumbleUpon. Talk a little bit about the beginnings of Uber, for people who don’t know.
Yeah, to me, reporting that, it was all new, right? They, like so many companies, they’ve obfuscated the beginnings because Uber is Travis’s company, right?
Mm-hmm. It certainly is now, yeah.
The emergence of Uber X was really the most important pivot maybe in the history of Silicon Valley. It’s a vast majority of Uber’s revenues, and so that flexibility and the rapid growth and the fighting the battles, it’s all Travis. You can’t take any credit away from him.
No, it was like Steve Case and AOL, it was someone else you’ve never heard of.
Exactly. It is funny how history does repeat itself. Every company has the silent founder. I spent a lot of time with Garrett and the remarkable thing is, Uber was inspired by a scene in “Casino Royale,” the James Bond movie. There’s actually a Sony product placement of James Bond following his car around and Garrett saw that. He had recently sold StumbleUpon, he had a —
Rich and bored.
Yeah, rich and bored, and also dating and trying to get places in San Francisco and he wasn’t an enthusiastic driver. He had a lot of anxiety around parking and driving. As you remember, taxi service in San Francisco was horrible. Pretty soon he started to call black-car drivers and then thought of that scene in “Casino Royale” and that was the inspiration, but that was early and it took a couple of years.
He actually subcontracted the work developing it to a friend, a University of Calgary classmate who was Mexican, who then subcontracted out to some Mexican engineers. Travis was a buddy and was an adviser, so was Tim Ferriss — who you just had on the show — and Steve Jang. Pretty soon — it almost took a year of development to just get something that worked. Partly, the iPhone was on AT&T, it didn’t work well, GPS wasn’t ready. They tried it in New York City, it didn’t work. It wasn’t until I think maybe two years after Garrett had had the original idea that they turned it into a business.
Right, they like to tell their Paris story, which is their little Pez thing of eBay.
I think that was important because Garrett had had the idea of buying some cars. That is when Travis started to work on him as an adviser. Why buy these physical assets, why don’t we just enlist drivers and give the app to them? That was hugely important.
What I loved was, at the time, Travis was taking some time off, but he had an idea for an Airbnb-like company called Pad Pass, which was going to be a network of high-end, furnished apartments.
That’s right, I remember that.
And so he didn’t think the Uber idea was all that big.
Right, which is interesting. He did get excited about it later, but again, he wasn’t the CEO for a long, long time. What’s interesting about it, though, is what motivates someone like him — and you’re going to read a little bit from a section about him — but one of the things that I saw — I went and visited his parents and his home and his room and it was interesting to see.
One of the things I found him different from others was that usually there’s these young sort of earnest founders, semi-inarticulate, and they’re very much the same. This was someone who had tried and failed with several companies. I think it’s the failure of his previous companies. One was a Napster-like company, before Napster. The second one was just an, eh, you know?
He worked years on it and then he finally did sell it, but it was an enterprise company.
All his friends were getting rich and he was sort of older.
He did okay in the end but he paid for it, right?
That’s right, he was frustrated and angry. I think he saw his friends getting hundreds of millions. He felt like a loser in a lot of ways. I feel like rage really did motivate him in a lot of ways.
To me, the turning point for Travis and Uber was the cease and desist that Uber got from San Francisco in the fall of 2010. Suddenly it’s a fight.
Right, which he likes.
He loves a fight. Uber — it was called UberCab at the time — and there was some ambiguity with the taxi and limo regulations in the State of California. There was the head of the MTA, Christiane Hayashi — I talk about her a little bit in the book and what her motivations are at the time — and she’s like the archetypal patsy commissioner. There’s one of her in every city and every country around the world, and she was blazing mad because the taxi drivers were blazing mad and there was an injustice. At the same time, she was protecting an industry, not the consumer.
It wasn’t doing the best for the consumers.
It was doing a horrible job.
Right, exactly.
She had a meeting with Ryan Graves and Travis, at the time an adviser, and they found her to be antagonistic and she found them to be incredibly unpleasant. And suddenly it’s a fight and he just loves it.
Right, he does that. It’s so funny because his parents are lovely. When I met his parents, I’m like, “Where’s the asshole parents?” because you know what I mean, like, you can’t grow one like that without [a role model].
In looking at the other companies that tried this and failed, like Cabulous and Taxi Magic, they didn’t have a Travis and they tried to work from the inside and they were too nice.
Right, exactly. Yeah, that was a key part of their success was his pugnaciousness. Read the section you wanted to read about Travis. This is about him when he decides to become CEO, because again, he was an adviser for a long time and had hired different people and they were running it, but it wasn’t him.
Right, okay, so the fight with Christiane Hayashi and the City of San Francisco had started, they had gotten the cease and desist, which had Ryan Graves’s picture on it because he’s the CEO.
Right, they were going to arrest him or something.
Yeah, the fines are going up. I’ll start reading and you just tell me when I’ve gone on for too long. “Kalanick was now prepared to devote himself fully to another entrepreneurial adventure. He stopped angel investing, curtailed his advising of other companies and even broke up with a long-time girlfriend. He also showed early flashes of belligerence toward competitors, an auger of the conflicts to come. Quote, ‘They will be getting into one of the most complex businesses I’ve ever seen for all the wrong reasons and they will sorely underestimate the pummeling they will go through at the expense of my bare knuckles,’ he emailed a friend who was pointing at a tweet critical of Uber by a potential rival. Kalanick signed off with, ‘Bleeding Uber blood.’”
Oh, dear. Wow, that sounds like him.
That’s an internal email. I got a bunch of them in the book and they’re just revealing of a guy who believed in the mission and fought for it, and ultimately, Uber would not have been successful without it.
Was there a negative to this personality trait, do you think? It really did carry them there compared to others.
Yeah, I think there were a couple of negatives. One, in places around the world where perhaps the taxi interests were a little stronger, places like Europe, it backfired. They had executives get arrested, they had ride-sharing services shut down, they spun their ... They came in guns blazing and it was counterproductive. Then the other thing is, they were foot on the accelerator for so long and they should have done better at getting in front of the obvious.
Regulatory issues.
No, no. I mean like background checks and safety issues. You have a business that’s dependent on drivers, non-professional drivers ...
Not being murderers, yes.
... looking at phones in their cars and people have gotten hurt. I think Uber, early on, probably — and they would probably admit it — could have done a better job on things like background checks and safety checks and technology that ensures safe driving.
This was one of the big issues was this heat, this rush, into growth.
That’s right.
Didn’t think of the consumers, didn’t think of the possibilities of dangers to consumers.
And, was fueled by Travis’s competitiveness, because ride-sharing was started by Lyft and Sidecar and Travis thought it was illegal. I talk about that in the book. Really they lobbied for the PUC in California to shut Lyft and Sidecar down. It was only months later when that never happened that he was interested.
“Oh, that must be a good business.”
Yeah, Uber started it and it was his ferociousness and really unwillingness to see the ride-hailing category that Uber had pioneered yielded to anyone else, that they flung themselves into this rapid growth. Literally, there were casualties and then it ended up in some parts of the world being counter-productive, they came in too hot.
They did definitely, and some of the criticism seemed to get to them a little too much, their famous Emil meltdown with the BuzzFeed reporter. Have they recovered from that, have they learned from that? To explain it, they essentially threatened another journalist, Sarah Lacy. She had been writing some very critical stories on dangers to women and why would these privileged white men understand why women might worry about things like this. Not just that, but that there were serious dangers and this was a misogynistic company.
I think that’s really the essence and they weren’t thinking about the safety and people should be clear about that and so Emil [Michael] seemed to, as usual, walk right into it and threaten her and Ben Smith from BuzzFeed. Have they moved beyond that? Have learned something from that? Because it really, that to me was the ...
I think I call that chapter, and I work out the whole thing. It’s like, yeah, Uber’s Rough Ride, it’s 2014, and no it wasn’t just that. It was the tracking of your reporter, right?
Yes, right. Johana Bhuiyan.
Johana, right.
She was working at BuzzFeed at the time.
Right, with the God View tool.
Which many companies had done, I remember Facebook had that controversy in the beginning.
Right. It’s just a complete absence of privacy protection inside a fast-moving company. And there were other mistakes, like the tweeting of some sexist images by Uber Team in France.
The company has matured remarkably and, yeah, we could let them off the hook by saying, “Oh, they were young and moving quickly,” but they had raised a lot of venture capital and they’re in a business that requires a good [public face]. It’s a public service, moving people around, and so they should have been more mature and they should have spoken with more maturity. I think the fact that they were a kind of shoot-from-the-cuff company back then, it was a complete manifestation of Travis’s personality; he’s just a fighter.
I do think in this case we shouldn’t quite let them off the hook.
No, I don’t think so.
The issue is it’s not like there’s ... You get the wrong search and they make some dumb thing. You’re not hurt by that.
Right. No, people are dying.
A lot of these companies, you think of Theranos, you can think of a lot of them.
Yeah, and we’ll make the connection to Airbnb, but there have been people who have died in Airbnbs, and I don’t let them off the hook in the book. I think one of things that Travis has always said to his CTO, Thuan [Pham], is, “Anything you can predict I expect you to handle.” A lot of the drawbacks, a lot of the difficulties that Uber has had, have been completely predictable and they handled them poorly, so by their own standards they made a lot of mistakes and I think that they would admit that.
I want to talk about Airbnb in the next section, but talk about the money that they raised. It’s enormous, what is it right now? $20 trillion?
It’s extraordinary. It’s over $10 billion. I would say that we have a better standard for it in the history of tech, but Amazon — it wasn’t as much but certainly, and they went public early — but they raised all sorts of debt in secondary stock offerings. In a way, these guys are all disciples of Jeff Bezos. The difference with Uber is that it had some big competition, Didi in China and Lyft here, that also had access to the capital markets.
Which Didi, he handed them their hat there quite a few times.
Then the environment that we’re in with all this overseas capital coming into the U.S. and the sovereign wealth funds and so the money was there at good terms and Travis and his board availed themselves of it and it’s, you know, it’s amazing.
Yeah, so where are they going now? IPO?
Most certainly.
With Goldman Sachs.
It does seem that way, yeah. I think the existential question for Uber is obviously self-driving cars, right?
Mm-hmm.
I can’t think of another business where we can say, “Uber’s strength now might mean nothing. It could literally be zero in a decade."
Which Travis addressed in an interview with me, which I think he regrets saying.
He said, “It was,” rather brusquely, “For drivers.”
Yes, I said, “What do you think about self-driving cars — this was right at the dawn of self-driving cars. He said, “You know, the real problem, I think, is the guy in the front seat, we got to get rid of him.” That’s essentially what he said.
Yeah, and that’s in the book and actually that ... Was that All Things D or Recode by then?
Recode.
Okay, so that Code was very significant because Sergey also is at that Code.
Showing off the self-driving car.
Yeah, and he ... It’s all in the book, and you’ll enjoy this because it was almost, it was what they communicated to Uber beforehand. They basically said, “We’re going to launch a competitor,” then they pulled back on that but then it was also Sergey onstage with either you or Walt basically dismissing the partner, Uber.
After is when Travis goes and decides that Uber needs to make the investment in driverless cars. I think that was smart because this is a reset for the industry, and if Uber could lead in driverless cars, it has an incredible future. If it’s Google or Ford or GM then they’ve got problems.
Right, absolutely, but one of the things I was thinking of, let’s just be clear, Google’s a big investor. Several parts of Google are big investors in Uber, so it’s an interesting problematic situation. They took David [Drummond] off the board, right?
Yep, Uber’s working on its own mapping service to try to get off the Google platform and so it’s, they’re — to use the horrible term — frenemies.
Frenemies, yeah, it’s sort of like the Apple-Google kind of thing. How do you think about their move into self- driving? They’ve had some ups and downs, again, but it’s a big-ticket item for a smaller company. They’re still a small company no matter how you slice it, and self-driving cars is a huge capital investment no matter how much money they raise. When you have, again, the GMs, the Googles, Apple seems to be ... You’re not clear where Apple is on this. You know, I always thought they would just get bought by one of them and become the reservation system.
They’re so expensive now, who’s going to buy them?
Yeah, right.
I’d say this, I’d say it’s amazing what you can do when it’s an existential crisis, when it’s your future and your whole business and Google ... It’s not Google’s business, it’s not Apple’s business. It’s the car company’s business, but we can both be sort of privately pessimistic about the chances that they’ll become real technology companies. In that respect, I think Uber has a tremendous advantage. They’re well capitalized, they’ve got an amazing business that could fund the research and everything is hinging on it. In some ways I think they’re the company to beat. At the same time, Google, it had a 10-year head start but then there’s not a great track record there at maintaining talent and what is now called the window.
Yeah, they’ve already lost. Yeah, they’ve lost Chris Urmson and others.
They’ve got way more problems, right.
They have Waymo problems, that’s very funny, Brad. A little pun from Brad.
The low-hanging fruit. So I think Uber has some challenges, but I wouldn’t count them out.
How do you look at them when they’re going into other ... I just did an interview with the product guy, I’m blanking on his name, who was talking about vertical lift and just all kinds of other vehicles for people.
Are we talking about UberEATS or ...
No, no, no. This is a vertical lift and takeoff, it’s a helicopter.
Oh, I look at them as marketing trivialities.
Right, that they’re trying to do things, but other places like ...
It’s interesting, Jeff Holden from Amazon is working on some of that stuff for Uber now.
Yeah, Jeff. It’s Jeff.
Yeah, so it’s not completely frivolous, but as Ashlee Vance and I reported over the summer, Larry Page has two companies ...
In vertical lift and takeoff.
Z-Arrow and Kitty Hawk are working on, basically, flying cars.
Flying cars, right.
I think that Uber has seen that and they know that they need to ... Their business is urban mobility.
Moving people around.
Yeah, and so they need to be in any change.
To finish up on Uber, how do you look at the world thing, because they’ve got a real competitor in Didi, and at the same time they had a little truce with them this summer after quite a bit of ugly fighting, as I’m sure you are subjected to all their different dueling press releases.
Oh, yeah.
You know, “I hate them, I hate them, I hate them ... And, now we’re partners. By the way I still hate them,” like, “Shh.”
Right, but Uber left the Chinese market with a significant position, I think 17 percent.
Sure.
That’s a tremendous outcome.
Of course, they say what we really want to do ... I’m like, “Mm? Maybe not.”
No, I think it was hard for Travis.
Mm-hmm, he really wanted to compete there.
I think he thought Uber was a global network. Actually, it’s a good point, because I think that Uber had this belief that it’s superior technology would win, but we look at the strength of Lyft and there’s a bunch of companies in New York City and you just start to conclude that maybe good enough is good enough, that as long as the car’s there within four minutes there are going to be a lot of players and if that’s the case ...
Right, Austin’s a good example now. There’s been tons of local players since Uber and Lyft were kicked out.
If that’s really the case and Uber doesn’t really have the kind of network effects Airbnb clearly enjoys, it’s a fight, it means it’s a fight in every city. That means they can’t lift fares to a more natural level. Uber lost $3 billion in 2016.
It was given that.
Maybe that does not get better.
Right, well Amazon went on and on for years doing that, right, until they figured it out. Now they’re the darling. We’ll talk about Amazon in a second, but what do you think their prospects are then, speaking of that? They are losing money, they are, but they’re so popular, they’re so useful. I think it’s one of the apps that people have in common across the country as opposed to just Silicon Valley. It’s really, everybody who uses an Uber knows what it is.
Yeah, and the $3 billion from last year was in large part because of China, so I think the financial picture improves. I don’t think they get the profitability because they’re still fighting a lot of these local incumbents, plus the well-capitalized Lyft. On the positive side with things like UberEATS, it’s beginning to take hold and the package delivery and everything else, they have created a sort of urban mobility layer that they can start to take advantage of. Look, it’s changed my life and the fact that you can go to any country and instead of the concierge scrawling your address in Chinese on a card, you open one of these apps and it has, again cliché employment, it’s changed the world. I think, ultimately, they’re in a fairly good position. They’ve got an extremely professional management team and a board, obviously, and they have their challenges, but I guess I’m still optimistic about the future of Uber.
Interest in going public?
I would say just Travis seems to have ... Is not in a rush by it.
No.
I’m going to guess 2018 for Uber.
Me, too.
2017 for Airbnb.
For Airbnb?
I think that happens a year sooner.
All right, we’re going to get to Airbnb next, but right now in the red chair we have Brad Stone, he’s a journalist from Bloomberg Tech but he’s the author of several books and his new book is called “The Upstarts: How Uber, Airbnb and the Killer Companies of the New Silicon Valley are Changing the World.” That’s a mouthful, but when we get back we’ll talk about Airbnb. We’ve just talked about Uber, now we’ll talk about the second company, the nicer Airbnb.
By the way, if you keep pointing out my subtitle is too long, I’m going to point out that this chair that I’m sitting in is not red.
No, it is not, thank you. All subtitles are too long, so I will give you a break.
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We’re here with Brad Stone, well-known Silicon Valley journalist and also author of a new book out called “The Upstarts: How Uber, Airbnb and the Killer Companies of the New Silicon Valley are Changing the World.”
We talked about Uber, let’s talk about Airbnb. A very different CEO, couldn’t be nicer. Brian Chesky literally couldn’t be nicer.
Yes, but I would say that one of the themes in this book is that they’re not so different, that they have bended the rules and pushed forward aggressively where they needed to. He’s every bit the entrepreneur Travis is.
Sure, absolutely.
Yes, he does a much ... Airbnb’s game is strong, right? They have created a mystique around what Craigslist was doing 20 years ago.
Sure, “Sharing, community, it’s so good for you.”
There’s an evangelism and a spirit that you might find almost in some religions, right?
Mm-hmm.
I think that’s been useful to them to create a bond with their community and to enlist political support in the places where they’ve needed it.
Absolutely, and they’ve got their ups and downs and we’ll get to that in a minute. I remember meeting them when they first started, the three or four founders. I think there was four at the time, they had a coffee shop down in SoMa and they had just had some success with one of the conventions or something like that, and had really just started it. It seemed it was one of those things, I remember thinking, “This is a really good idea,” like, “That’s a really interesting idea.” I think their big challenge was getting people to have people in their house and think of that differently. I thought, “Young people probably would do this kind of thing.”
It was definitely a different tone and tonality, even though they immediately got into big trouble with a lot of things. Remember, I guess it was the orgies, there was all of kinds of things, people wrecking the apartment and all kinds of anger by rental advocates ... Rent advocates in cities, that soon became a real problem for them, and they didn’t really know how to react to it initially, so talk a little bit about that, when they started.
Sure, well, the first thing is that there were people already doing this, there was a site called Couchsurfing.
Couchsurfing.
However, the name is even similar to Airbnb, but they made a huge error, which is they were registered as a nonprofit and they were extremely idealistic and it wasn’t a great experience. The one thing that Airbnb had was, Brian and Joe were designers, and they did a great job. They also had Nate Blecharczyk, who was the CTO, who I describe his history as a high schooler and at Harvard as really a creator of tools for spammers. As a result, he was what we now call the growth hacker, very clever, kind of ingenious, but all these tools to build Airbnb’s audience in the early days, including cleverly getting their hooks into Craigslist, which had a much larger audience. They spent years, they literally spent one year before Y Combinator just getting rejected. That’s what they did all year, and so they finally emerge and around 2008 ...
Around the election.
Well, right, the election, they did the conventions as you mentioned, they went to Obama’s inauguration. Then they start to get some traction. Immediately two things happen, the Samwer Brothers cloned them.
Which is sort of a right of passage, right?
Right, yeah, and then an apartment in the East Bay gets trashed and the owner ...
Boy, was that a story.
Right, and the owner starts blogging about it. Right, they handled that pretty poorly. It’s funny, the similarities with Uber, but the first thing that they did, perhaps persuaded by their legal counsel, is to try to evade accountability.
Responsibility.
The internet community just wasn’t going to let them get away with it, and Brian, to his credit, pivoted fairly quickly and came back and did something that he does now. We see with the questions around African-Americans and minorities getting discriminated against on Airbnb. They’re fairly good at just accepting responsibility and pledging they’re going to do better, and talking to their community in a sympathetic way.
Right, which is interesting, which is funny because I’ll never forget during that time, I did an interview with him at some random event and I think the orgy thing was coming out; someone had an orgy at someone’s apartment. There were condoms everywhere.
Is that wrong?
Yeah, I live in San Francisco so it’s just fine. I remember him going, he goes, “You know, people have been having orgies at hotels for years now.” I was like, “I like the answer for me, but for you?”
Probably not the right answer.
His point was that the things that hotels are attacking him about have been happening at hotels. Like all kinds of the same crime.
It’s a little bit worse.
Death, orgies, whatever it was. It was like, “People aren’t thinking of hotels like that.”
It’s also not really true.
Most people don’t.
Hotels have to conform with a lot of regulations. They need to put carbon monoxide monitors and CO2 monitors in hallways and rooms, and there were Airbnbs that did not have that.
Right.
Airbnb, early on, did not do a great job of warning its hosts what their obligations were, vis a vis safety or local regulations. They didn’t want to, because they didn’t want to slow down the growth of their supply.
Right, “We don’t really want to check, we don’t want to protect.”
Right. “We can do it. It’s too hard. We don’t want to.” But really, they didn’t want to slow down. Airbnb ... Unlike Uber, Uber took advantage of some regulatory ambiguity. Airbnb in New York City was always illegal. There is a law that’s not really meant to address home-sharing, it was more about the big, illegal hoteliers that were popping up and taking advantage of European tourists and whatnot, but the laws were there. You could not rent your home, if you weren’t there, for less than 30 days. Airbnb didn’t ... It had a big market there, a big community. It didn’t want to stop that. It felt the law was unjust, which it might have been, but nevertheless they were all systems go. I talk about some of the people, the hosts, who get evicted or that there are some who get sued by the city and have two years of legal drama.
Everyone tries to celebrate it as the best thing ever, and it is, I use it all the time. That’s another thing I use all the time, but when you use it you start to think about, not to the detriment of hotels because I could care less about it. They either get better or cheaper or something, I’m not really worried about them as much, although I do think about the workers and things like that. I’m more, people in a neighborhood where you’re in a building and there’s people you don’t know who they are and there is an element of, “This is not so safe.”
Yeah, that sort of negative externality.
Right, exactly, and so you start to think, “Do I really want my neighbors to do it?” but I don’t have control. On the other side, I’m like, “Well, people can make extra money on the side, it’s really good.” Then I think, “Ah, there’s enough rent in San Francisco.” It definitely creates a lot of, like more than most businesses. Especially in San Francisco, rents are so high that it does force rental properties off the market, although the San Francisco rules are horrible around rentals. It’s a fascinating thing because you like this product, the same thing with Uber, and you have issues with them. You start to go, “Mm?” That you don’t have maybe with ... Maybe you should have with other businesses.
Just full disclosure, I use Airbnb all the time, too. Next week, I’m staying at an Airbnb in Brooklyn as I launch the book. At the same time, yeah, if I had tourists going into and out of my neighbor’s home at two in the morning, I wouldn’t like that. I actually think that you’ve identified why, Uber seems to be having fewer regulatory problems now — ride-sharing has gotten critical velocity in North America — and Airbnb seems to be having more problems.
It flew under the radar but in some of these dense cities which now just has a general problem with housing stock, where rents are high, we’re seeing big pushback. Not just San Francisco and New York City where they’ve been losing battles, but you’ve got little towns on the coast like Laguna Beach where it’s basically illegal. I do think that Chris Lehane now runs their policy department. I think Airbnb has a lot of work to do to find an equilibrium of cities and they’ve had all successes in some cities where ...
How does that happen? It seems like there’s no particular answers unless we have adequate housing for people. Cheap and adequate housing.
What they’re doing is they’re identifying a number of nights where it’s going to be suitable. Let’s say, I think in San Francisco now, you can only host for 90 nights a year. The city council tried to move it to 60.
They did.
That got vetoed.
They’re quite hostile to Airbnb.
They are. A lot of it’s emotional. Housing is an emotional issue.
Yes, I’d say it certainly is.
Politicians said, “Right, we’ll use it as a weapon.” It’s tied up in inequality and, of course, there’s ...
It’s also an actual problem.
It is, it’s a very real problem, but I don’t think Airbnb has caused the housing shortage.
Right, but it’s just another brick in the wall.
It’s a contributing factor, probably a small one, but genuine, a genuine nuisance sometimes for people in communities that don’t ... That live in residential communities. I always say that it’s great that we have Fisherman’s Wharf in San Francisco because it takes all the tourists and gets them out of our communities.
For a little crab.
For a little simulation of San Francisco. The promise of Airbnb is ...
You live in the city.
To give them an authentic experience. As a traveler I love it, and enjoying our quiet neighborhood, I don’t necessarily want it to be overrun with tourists. Even though you could add another factor, they do bring a lot of economic activity to neighborhoods.
Sure, absolutely. Talk a little bit about where they go from here. Again, they also didn’t do themselves any favors when they put up those ads and said, “We’re paying taxes. You’re welcome.” I’m like, “I’m sorry, I pay taxes. I don’t ask for a ‘you’re welcome,’ but you can give me one.”
That was a big mistake.
As they’re starting to expand — and going public this year, as you’re saying — what are their challenges?
First of all, that’s a guess, I don’t know, but we recently reported at Bloomberg that they’re profitable now, or they were in the second half of 2016.
That’s profitable-profitable? Not Ebitda profitable? Which profitable is it?
I’m sure there’s some disclaimers there in the profitability, but they’ve got a professional CTO right now and it does feel like they’re laying the groundwork. They’ve got some regulatory questions to sort out for sure, and then this expansion into trips, which is a great idea.
Explain that, Experiences. They asked me, “Kara, do you want to come to an Experience?” I’m like, “Absolutely not. I do not want to.”
Go collect some mushrooms. The idea is Airbnb is a platform to find lodgings and they’re going to offer you more around a trip.
Tours.
Tours, meals, restaurant reservations and maybe one day book your flight for you. Yeah, so now they’ve got a great foothold in the enormous travel industry and this is a horizontal expansion.
Do you think that’s a good idea?
Yeah, it sounds like a great idea, and there’s a mission behind it that I kind of buy into, which is that a lot of travel experiences today are corporatized. We go to Mexico and we stay in a resort with a bunch of other Americans. Are we really experiencing the country? Are we getting served something artificial and paying a lot for it? I think that is what the travel industry has become. If they can come in and create experiences that do seem authentic and it’s people serving people and not companies serving people then I think there’s a great opportunity there.
You’re going to read another section about Brian [Chesky] and Travis Kalanick being similar. I literally could not imagine. I want to hear this.
I don’t know if it’s a similarity, it’s more like these stories are intertwined in my book and that these guys learned a lot from each other.
Sure, that’s nice.
“In the years following their first meeting in New York, Brian Chesky and Travis Kalanick struck up a sporadic friendship. A few times a year they would go out to dinner in San Francisco, first by themselves, then with other entrepreneurs or with their girlfriends, to discuss their companies’ twin successes and their common experiences battling regulators and lawmakers. Quote, ‘I think we learned a lot by watching each other,’ Chesky says. ‘There are so many people in the world that can relate to who share your position.’ Employees of both Airbnb and Uber remember these dinners well. Says one Airbnb exec, who was also close to Uber employees, quote, ‘Brian would come back saying, ‘We have to be tougher,’ and Travis would come back saying, quote, ‘We have to be nicer.’”
I got peanut butter in your chocolate and chocolate in your peanut butter.
Yeah, exactly. There’s one other, let me just summarize one other episode from the book which is, this is at a time when Airbnb is considering an expansion into other markets. This is years ago and it seems like they might have looked at actually acquiring Lyft. Travis barges into The Battery, this club in San Francisco, and walks up to Brian and says, “I hear you’re going to buy Lyft.” Brian denies it and says, “No, no. It’s not our business, our business is trips.” Travis says, “Our business is trips.”
Oh?
They have a nice laugh about it.
Were they going to buy Lyft?
It never became real.
Uber was almost going to ... I think Uber just pretends to buy it, just to fuck with them.
I’ve got that scene in the book. There was a dinner with John O’Farrell at Andreessen Horowitz and Amil and Travis and John Zimmer from Lyft. Lyft wanted a larger percentage of Uber than Travis is ever going to give and it went nowhere.
Yeah, well, I’d say also Andreessen Horowitz missed that opportunity to invest in Uber, didn’t realize Travis would say “Go screw yourself,” which they weren’t used to.
A big mistake.
Yeah, it was a big mistake and then Shervin Pishevar, you know, now is enjoying the fruits of that. What’s interesting about that is the idea of doing your own fate with venture capitalists, like that pushing back on them. I think a lot of these times a lot of these entrepreneurs are in control. Can you talk about that?
Yeah, I think the connection between ... The missed opportunity between Andreessen Horowitz and Uber is interesting. They misjudged Travis, right? He is someone who from the very beginning, almost the beginning, where he became CEO, saw what a huge opportunity he had. Andreessen Horowitz, not only did they not see the extent of the Uber opportunity back then, and few people did, but I think they also, they misjudged Travis. He didn’t fit, he didn’t look like a Mark Zuckerberg or a Larry Page. He is pugilistic, he probably doesn’t make all that great an impression the first time he’s presenting to them. Not only did they lowball him, they tried to put in a big option pool and at the last minute he pulled out. It probably goes down as one of the biggest misses in Silicon Valley history. Andreessen Horowitz was founded on the idea that it would get the big hits every year and, look, they made up for it. They invested in Lyft.
Right, what are Lyft’s possibilities? It seems to me ... I had a dinner for Jeff Zucker, he wanted to meet some Silicon Valley people and I had Dick Costello there and John Zimmer came over and he was like, “You know, Kara,” this was early, he goes, “Think about it. A car is 80 percent empty, and that’s just bad for the environment.” You know, because there’s one person in it, there’s five seats or whatever. Anyway, he’s going, “We’re here to help humanity and blah, blah, blah.” He walks away and Dick Costello turns to me and he goes, “Trav is going to fuck with that guy all day long,” like, “He’s dead; dead meat,” because he was so nice and so earnest. Talk about Lyft, because they managed to hold on.
A couple of things ...
It’s not bad for Uber to have a competitor.
It’s amazing how Travis ... He might never admit this, but I think he got a lot of his idealism and some of Uber’s mission from listening to John [Zucker] and Logan Green, the CEO of Lyft.
Yeah, both of them.
They were talking about the empty seats in cars and highways and traffic.
I know, and they truly believe it.
Yeah, well, and that’s their background.
Mm-hmm, yeah, they started with the nonprofit.
I think Travis rightly identified that. Look, people have been predicting Lyft’s death from the very beginning. I think it goes back to what we were saying before about certain services, as long as they’re good enough, you can’t outspend someone into oblivion. An Uber board member might say that Lyft’s existence is just a reflection of this capital environment and the fact that capital is so easy to get and Lyft has been able to raise money and do irrational things. Lyft says it’s on a path to profitability. I think it says something about the market that it might not be a winner-take-all and that is a problem for Uber.
You feel Lyft ... There’s been all the rumors of selling and everyone’s reported back and forth and back forth and back forth.
I think it seems natural, perhaps, that GM might one day buy them and we might look at this year as just a protracted negotiation between Lyft and one of its largest shareholders, GM. It’s funny, Lyft is not that differentiated from Uber, but they have in people’s minds created a different brand for themselves.
He’s super-nice.
There’s not only one rental car company and there was never only one taxi company.
Sure, absolutely. It’s interesting because Lyft is ... They’re more chatty. I have to say I like Uber better. I’m like, “You stop talking to me right now.”
“I’m on my phone.”
I once by accident got in an Uber Pool and I literally want to kill myself.
That’s awesome.
You know, “Blah, blah, blah,” and unfortunately in San Francisco he was stopping at startups and people do, they know me.
Oh, so they’re pitching you in the car.
They were like ... And I was like, “Oh, my God. What?”
That’s awesome.
It’s funny how Uber defaults to Uber Pool. It’s easy to make that mistake.
I was too freaking old when I was 22 for sharing cars but I get that ...
That’s not my thing to do.
Some people love it, they want to flirt and date. I just really want to be left alone and not speak to anybody.
When we get back we’re going to talk a little bit about what’s coming next and where these things go. Not just these companies, but you have such a perspective on Silicon Valley, so when we get back we’re going to talk about that and I’m going to have Brad make some predictions and give advice to companies, if you don’t mind.
I’m looking forward to it.
[ad]
We’re here with Brad Stone, a journalist who writes for Bloomberg Tech. He is also author of a new book out called “The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley are Changing the World.”
Brad, let’s go a little bit broader now. I would be remiss, because you wrote a book called “The Everything Store: Jeff Bezos and the Age of Amazon”, which got Jeff and everybody pissed, which was great. Since then Amazon’s never been bigger. It’s really amazing. It feels like Amazon’s everywhere. As you know, the Echo is my favorite thing of all time, right now for this week. Talk a little bit about them and then where things are going in Silicon Valley in general because I think you’ll have a neat perspective on that.
Since “The Everything Store” came out, I think the market cap of Amazon is up by a factor of three. I’d like to say I predicted all that but it really, it is .... Yeah, it’s the everything company right now. Despite the criticism of the culture, and the New York Times did that famous piece, and I get into it a little bit in the book. How it’s a thankless culture and people burn out and the average tenure is short and sometimes people don’t have nice things to say. All that’s true, but you have to give ... There’s something about it that has yielded a kind of decentralized innovation.
Well, completely customer-focused. I don’t know how else to put it. It’s just like you’re never displeased with Amazon. I can’t think of the time, and when it happens ...
Yep, they give you your money back.
Fixed immediately. It’s a little like Nordstrom, and I remember thinking in Seattle when I first met Jeff when he had like five employees or something small like that, he talked about Nordstrom, which was a big, at the time, was a very iconic ... I was there to see Nordstrom when I was also there to see him and so it was interesting that they’re both from Seattle in a weird way. Where did they go, what is their ... Do you think they ...
I think that if we’re getting into irresponsible predictions, I say it’s Amazon that becomes the biggest company in the world one day and is maybe the first to a trillion dollar market cap. Every new fulfillment center, every time they get closer to the customer, it’s not like Apple, where they have to reinvent that the next year to compete.
Right, you just get better and better.
It’s progress. So in the newsletter I called it the Flywheel of Doom. As they get closer, it’s shorter delivery, there’s more variety for people in terms of instant delivery.
It anticipates. I’m expecting Jeff Bezos to show up at my house with a toothbrush, “Kara, it’s been a month. You need to change it.”
He might do that.
“Hi.”
I think that unless you’re a Nordstrom or a Costco and have something to differentiate in retail you go away. I don’t see how you compete with Amazon and the ingeniousness of Prime and the way it locks you into their ecosystem. And look, all you need to do to predict the future of Amazon is to get a Prime customer to open up their Amazon account and to look at the spend over annual spend every day. It’s more and more.
I like it every day.
You know what? It’s better. Maybe it’s less expensive.
The boxes.
I sort of have this vague ...
You need to do something about the boxes.
Yeah, and the trash, for sure, but you have this vague idea that it’s less expensive, it may not even be but it’s just convenient and then you start to get impatient with even standing in line somewhere.
It’s interesting, because I literally bought something I could have gotten at the Walgreen’s down the street. And I was like, “What am I doing?” I almost bought toilet paper and I said, “No, I shall not. I shall hold out for the ... I will walk home with my giant thing of toilet paper.”
Then you look at the new businesses and the TV shows are pretty good. They’re not quite as good as Netflix’s but ...
They’re good.
They’re good.
Are you kidding? They’re good.
Yeah, “The Man in the High Castle,” “Transparent” is excellent. There’s one, “Red Oaks,” that I loved, and the “I Have an Echo,” as well, “The Heat.” This says something about Amazon, they get creamed on the phone, just humiliated.
Creamed, that was a good phone.
Now they have rebooted that device strategy and are leading in this whole new wave.
It amazes me that they beat Google and Apple, still beating Apple.
Apple got to Siri before Amazon got to Alexa and Google which should be ...
Not really, you don’t have a useful Siri device.
No, and Google, which should own that because what are they if not an AI company, has copied Amazon.
Sure.
You know, to me it gets back to Bezos.
Although there’s something about ... I haven’t used the Google device, but I don’t want them in my home. But I don’t mind Jeff spying on me. I guess I don’t know what it is.
That’s okay.
I’m like, “Eh, what is he going to hear?” Like, “Who cares?” He’s selling me shit so I don’t care, but Google I’m like, “Uh-uh.”
That’s interesting.
Can’t have Larry Page snooping around my house.
They’re a little too good is the problem.
They know everything. They know where I go, they know what I use.
Amazon knows everything you buy.
I don’t care, so does Safeway. You know what I mean, it’s not ... I feel ... I don’t know, it’s ridiculous. It’s a ridiculous thing.
I was just going to make one more point, which is Jeff is the smartest guy in the busine