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How would Google deal with Uber's massively inflated $69 billion valuation?

Would investors who bought shares be compensated with pennies on the dollar? Would some investors get more than others?

What motivates people to put in money at these absurd valuations? The hope that they'll come true just some of the time?

Uber shareholders may find pennies on the dollar to be preferable to bankruptcy.

Let them be sued into bankruptcy and then pick up the pieces afterward?

If Uber is like the other unicorn companies, the investors that gave it the massive valuation have shareholder agreements that allow them to get paid before everyone else does. Anyone with common shares (e.g. employees, etc.) would get virtually nothing.

Would suck big time but also be entirely predictable for employees with options/golden-handcuffs who end up with nothing.

And if there have been multiple rounds at multiple valuations, then multiple agreements and/or complex negotiations. It seems logical that the principle is that the outside world just isn't going to know the ratio of optimism to desperation in a high valuation - since saying "You're buy at a high valuation" is equally saying you "get the money for a low valuation first".

The investors don't control the company. Only the board does. Sometimes that includes investors but it definitely doesn't control all of them. The board is required to do what's best for ALL shareholders, even if that means lower returns for some of them.

Uber raised $9B (1). Presumably this is all preferred stock or convertible debt, which is paid out 100% in an acquisition. That means investors only lose money and if Uber is acquired for under $9B. Over $9B, then investors and common shareholders splits the proceeds according to their ownership (2).

I'm simplifying as the liquidation preference matters based on the different valuations that investors paid.

For example, if Uber is acquired for $30B, then all the investors who paid above that valuation, would get their money back first. Then remaining investors and common shareholders would get their % split of the remaining pool of capital.

1) https://www.crunchbase.com/organization/uber#/entity

2)Usually this is how it works, but sometimes the terms vary.

Further, Google Ventures invested hundreds of millions of dollars early on in Uber's life -- The eventual sale price would be discounted by their percentage ownership. E.G. if Google owns 10% of private Uber, and they offer $10 Billion for the company, their net would be $9 billion.

I think it would be a merger of equals type structure so the valuation stays academic vs. a buyout. You are correct but just to add a bit more about the board, they are pretty much the largest investors. If you look at CrunchBase other than the black female they tacked on in late 2016, it's mostly VCs, PE, and Saudis SW fund on the board. Kalanick had "controlling" shares and provisions but ultimately either through the board or indirectly, if you're not profitable (or not profitable enough) large shareholders control your fate, even if on paper they dont

Uber would totally be worth 70 Billion as an Alphabet subsidiary, but there's no way Alphabet would acquire it for that price. Put Susan Wocjicki in charge of Uber, and have her pull a Stephen Elop routine to drive down Uber's valuation to something Alphabet can afford. Then just rebrand the whole thing as Waymo.

...they would have to fold under the Uber brand. Alphabet/Google automatically gives it credibility.

Or, Google could do nothing and let Uber fail. Lyft would probably pick out the good employees. All of the drivers would just stop using the Uber app since many use both or could easily switch. The C suite would be gone by this point. At this point once self driving tech is perfected Lyft would just buy it from Google.

comparing https://www.lyft.com/cities to https://www.uber.com/cities/ it seems like there is a huge discrepancy between the cities that have lyft and those that have uber. Uber has a significant international availability.

I'm wondering, what prevents Lyft from just starting to operate in all the cities Uber already operates in? Does Uber reach individual deals with the cities to get permits?

It might be more of a support thing, although I would love to hear an answer from someone who knows more about this.

There are a few reasons this is hard.

1) I'd imagine there are significant costs to entering a new city. Uber is a two-sided marketplace so in any new city Uber needs to invest resources and time into acquiring supply/drivers and to a lesser extent users. Combine this with the operational support to maintain that marketplace and the overhead becomes non-negligible.

2) First mover advantage is a real thing so any ride-sharing network that enters a city with an established player is going to have a harder time acquiring the aforementioned supply/demand.

3) When more than one ride-sharing company is in a city it eventually turns into a subsidy war for demand. From what I have read this is what happened to Uber competing with Didi in China and resulted in massive losses for both companies.

TL;DR entering new markets is in fact pretty expensive, and far more so when there is existing competition.

It's only a two-sided marketplace if you need drivers. If Google uses Waymo tech to remove drivers from the equation, there's only one side to the market that they have to consider, which makes it a much easier proposition to enter those markets. The legal/compliance issues are probably the bigger hurdle since they can't hide behind "independent contractors" the way Uber has.

They need to spin up marketing in each locality, which is both costly and requires nuance with local colloquialisms and existing market forces (e.g., knowing what ITP and OTP mean in Atlanta, or the huge taxi market in NYC). It's probably the hardest part to scale.

They also need local support infrastructure. Lyft actually does an in-person interview with every driver, which requires a human being there. They have at least re-used resources by promoting certain drivers to a higher level that enables them to run these interviews. But bootstrapping that infrastructure requires some effort.

Between the costs, the marketing efforts, and the support infra, it's not as easy as just flipping a switch.

How many of those cities are Uber actually operating profitably in?

I took a 2hr ride across Paris at rush hour last year for $8. I'm guessing not many.

Uber relies on Google Maps for now, but they are building out their own mapping solution in increasingly more countries and have reportedly made huge investments in mapping.

https://www.theverge.com/2016/7/31/12338268/uber-maps-invest...

Uber applies some ridiculous optimizations to their map and routing often times ending a trip while in blocks away from where I need to be and leaving a confused driver (and frustrated passenger). Lyft never has this issue.

Doesn't waymo already have a deal to supply self driving cars to lyft? What would they get from Uber but a competing service?

The brand seems like a liability in this case.

Hell, if anything, i'd use this to force Uber to license the cars from Waymo, too.

They would drop lyft.

>The brand seems like a liability in this case.

Cheaper to buy.

"Google is going to increase or fully acquire Uber."

Talk about a "God's View", they'd be literally begging for regulator's attention if they tried buying Uber

So now's the time to do it, in other words.

> they'd be literally begging for regulator's attention if they tried buying Uber

How so? Regulatory attention of mergers isn't based on prospective dominance of markets which don't yet exist, in most jurisdictions.

It would be a prospective purchase in regards to autonomous driving software but Uber holds a current dominating market share in ride-sharing. They could potentially single-handedly create fear of an information monopoly and be the impetus for the fed's to look at re-writing anti-trust. It's almost too sexy of an acquisition at a time when governments seem to be losing trust in them. I could be wrong obviously, but that would just seem like a bad idea in the long term, both for the price, and for the microscope it would put on them.

> It would be a prospective purchase in regards to autonomous driving software but Uber holds a current dominating market share in ride-sharing.

Do they? Specifically, do they have pricing power? Market share (even superficially dominant share) where competitors or substitute services are present and business moves in response to relative price changes isn't market power.

I would argue against that, I couldn't think of anything more powerful in an industry than a company that could use it's tens of billions of dollars in operating profit annually to fund their efforts to dominate ride-sharing as well. You are making a good point, but although there is a fine line in regards to its prospective market power until they can make it profitable and sustain it afterward, I don't see how this doesn't lead to bad things for them down the road even if it something like this did get approval

I am not so sure.

Google and uber don't directly compete in many areas.

In order for regulators to stop the deal, there would have to be a competitive concern.

The only area that they "compete" in is self driving cars. But that market literally doesn't exist yet, so it is a hard argument to make that this would be anticompetitive.

With GV being an investor in Uber, the whole lawsuit seems very weird. Any GV partners on Uber's board? How did they not know?

I'm not sure Google wants to manage a large network of freelancers/drivers without benefits. Would look terrible when the software engineers have all the benefits...then again they could offer benefits for drivers...

I think Facebook or Apple (maybe Amazon) might want a piece of the pie. The integration would be seamless...then again who knows!

With much of the sexual impropriety stories at Uber, is it really a good PR move for Google to go ahead with such acquisition?

> With much of the sexual impropriety stories at Uber, is it really a good PR move for Google to go ahead with such acquisition?

Maybe; the problem is an HR/management one, which an acquisition in which upper management and HR are largely replaced and lower management is scrutinized under a microscope could probably resolve quickly to prevent any ongoing issues, and not keeping the Uber name in use would deal with most of the public image issues.

It's not just a problem of upper management and HR. It sounds to me like a rotten culture from the bottom up. This is not the case at Alphabet (so far as I know), so what happens when a clash of cultures hits? Usually, people that can't adapt are fired or marginalized until replaced. In such a case, is the purchase of Uber worth it or necessary?

> In such a case, is the purchase of Uber worth it or necessary?

The platform and existing customer and (at least in the transitional phase) driver relationships are not without value, and there's probably IP value as well (and, if they've really built on stuff stolen from or encumbered I by patents owned by Google, it's potentially uniquely valuable to Google, compared to other buyers.)

So, I mean, even an “acquifire” where none of the actual people employed by Uber are retained might be worthwhile, at the right price.

> It sounds to me like a rotten culture from the bottom up.

Anecdote, but the one engineer I know that works at Uber is an ex-Googler and got a 20 when rolling for kindness.

On a 3D6?

Was it a good step for Google to buy YouTube back when it was full of (way more) pirated music, movies and tv show episodes? I remember at least one article that questioned Google for buying YouTube back then, calling them out for the piracy.

That's a good point. There was a lot of speculation that they were opening themselves up for major lawsuits.

I see what you mean, but I don't think the two are comparable. Granted, my morals about copyright infringement are a lot looser than sexual impropriety.

The point being they've improved a LOT since the acquisition, and that they can do the same with Uber. I feel it's wrong to assume that Google wont do anything to fix up Uber if they do acquire them.

Not quite - the Youtube co-founders intentionally kept most of the piracy claims/problems under wraps until after the Google acquisition. Uber may have been trying to do the same with the sexual harassment, except now it's out in the open, pre-acquisition.

https://www.forbes.com/2010/04/21/google-viacom-youtube-medi...

I remember a lot of the piracy situation improving sometime after Google took over. I remember YouTube as the place you could type a movie or show quote and find a clip for that movie or show quote. Now you're lucky if you find it on YouTube, especially if you find the original clip without any oddness to it.

The single greatest "innovation" at YT was the monitization scheme and licencing deals that automatically shuffled ad revenue to the copyright holders, effectively solving the piracy issues while still allowing users to share whatever they wanted to whatever soundtrack (with some exceptions).

That innovation was mostly a financial one and probably could only have been brought about with the leverage of the existing Google ad network, and the critical mass of users using YT for music piracy. YT is a much better experience for it too.

https://www.youtube.com/watch?v=SxigNvJxGn4 Teenage Mutant Hardcore Turtles was one my favorite first memes. I was so saddened when the soundtrack was ripped out when I went to show my friends. I was pleasantly surprised to have the true sound track back after Google fixed the moneyz.

Why not? They are not complicit in this, and they can have legitimate claim to clean it up. And even some credit for the future, where they can treat new cases as "remnants from the old management". Of course, that credit will expire, but not immediately.

Meh, why would they? Better buy would be Lyft, and then just pour money and crush Uber completely.

> Meh, why would they?

I think the suggestion is based on an anticipated Uber firesale price resulting from its recent legal and HR issues.

Waymo has a partnership with lyft right now, so that would be pretty tricky

You guys are funny.

Seems like Uber's wanton disregard for law makes them a gigantic liability bomb that no big company is going to want to acquire.