Will former Expedia CEO build Uber Freight or double down on people transportation?

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The new CEO at Uber has a huge job ahead of him. He has to restore company morale, cut costs, address a lawsuit from Google's sister company, continue to accelerate growth, and refocus the company on a path of prosperity. The challenge is not insurmountable, but challenging for anyone, not to mention an outsider. 

The question remains, will Uber Freight continue its current path of growth or will the new CEO attempt to refocus the company back to its core roots in consumer transportation? No one would blame him for wanting to get the company focused on what it does well - providing efficient and quick service for consumers to hail a car. Even last-mile deliveries are more closely related than over-the-road freight. The new CEO has both an operator background and was a CFO in a former life, suggesting a level of financial discipline that is not found in most entrepreneurs.

The newly appointed CEO of Uber, Dara Khosrowshahi, served as the CEO of IAC Travel before joining Expedia and helping build  that company into one of the most respected brands in America. He currently boasts a 93% approval rating on Glassdoor.com, suggesting he is a good fit to establish a positive culture at Uber.  He’s made smart acquisitions of competing properties in tangential markets and kept those brands independent, while using much of the same back-end technology. The company sports a portfolio of brands such as Travelocity, Expedia, Orbitz, Hotels.com, Homeaway, and Hotwire.com. What is common about all of these brands is that they are people-travel centric and focused on optimization of internet-based travel. 

A travel booking CEO makes perfect sense for the role as CEO of Uber, a company that is one of the largest providers of transportation services for people around the world. Expedia’s brands use big-data and computer algorithms to provide users with low-cost and quick travel choices.

The outstanding question for readers of FreightWaves is what impact does this decision have on the fledgling freight division? Only time will tell, but Expedia is narrowly focused on serving people travel and does not have a significant presence in other types of businesses beyond travel. 

Industry analyst John Larkin of Stifel, speaking to FreightWaves earlier this year about the nature of startup freight businesses in general and not Uber specifically, noted that moving freight is a different animal from other businesses. “The issue is Uber disintermediated the taxi industry so quickly and easily that the thought is if you can move a person, why can’t you move a pallet,” he says. “The [startup’s founder] may be a terrific technologist but not understand the business of moving freight.”

From all appearances, things at Uber Freight appear to be scaling up. According to industry sources FreightWaves staff spoke with, Uber Freight’s volume continues to accelerate and they are planning to expand into other regions across the U.S. They continue to push accelerated payment for fleets, paying in seven days or less. 

Uber Freight had a large presence at GATS this past weekend with a force of at least 20 representatives present and sponsoring a large event for drivers. The company has also been featured in a number of media outlets regarding its push into freight, including in an article on FreightWaves

Many rival brokers and larger carriers would breathe a sigh of relief at the thought of not having to compete against a company with seemingly unlimited cash that isn’t required to make a profit by its investors. Uber has been known to subsidize its go-to-market buildout by offering customers incentives to drive adoption and on the other side paying drivers higher than market rates to build up capacity. The belief is that they are doing this in the freight market, making it challenging for competitors to either secure capacity as readily as before and more difficult to secure rate increases as in year’s past, although according to Larkin and other industry sources, contract rate increases are starting to take hold. 

Regardless, digital freight brokerage is here to stay. According to industry sources, Convoy is currently in the lead as it relates to freight bill volume among the pure-play digital freight brokers. Having raised an eye-popping amount of money ($62M in its most recent raise) from investors like Jeff Bezos, Reed Hoffmann, Henry Kravis, and Bill Gates, Convoy is able to fund growth by using investor cash to gain market-share and beef up its technology to optimize freight transactions. 

Julian Counihan, founding partner of Schematic Ventures, a seed-stage venture capital fund, told FreightWaves, “the ‘Uber for freight’ category is very visible and has received a lot of attention. I believe that if you have capital … you can build a successful freight brokerage. The question will be, does the investment make financial sense? To achieve venture returns on a freight brokerage investment priced at a valuation multiple far above public comparables, these businesses will have to demonstrate new technology to drive radical margin improvement and reach never-before-seen levels of growth - things large, sophisticated freight brokers have been attempting for years."

The fact is, despite these billions of dollars flowing into the industry, many – if not most – of these companies will fail.

A 2012 study by Harvard Business School senior lecturer Shikhar Ghosh looked at over 2,000 venture-backed companies from 2004 to 2010 that raised at least $1 million. Their success rate? 25%. According to Fast Company, 75% of those firms failed, and as many as 40% never returned a dime to investors.

If that trend holds up, of the 59 global deals announced so far this year, 45 will fail. And that’s only part of the problem. Larkin notes that many of these startups – primarily the brokerage startups – are running into industry giants like Coyote and C.H. Robinson with established clientele in an industry that is built on relationships.

“They haven’t actually been laying down,” Larkin says of the biggest industry players. “They’ve been developing their own Uber-type platforms. The criticism is that transportation has been a late adopter of technology. I think the transportation industry is sitting up and taking notice. You have people like J.B. Hunt investing $500 million [in Hunt360]; C.H. Robinson’s [investment] in Luminosity; and XPO is investing a huge amount in tech.

“I think some of these smaller companies don’t realize …that is not inconsequential competition,” he adds. “It is the best of the best.”