Uber CEO Takes the Wheel: An Inside Look at Dara Khosrowshahi's Time on the Road

While taking a customer to the airport one evening, he had to ignore frantic phone calls from his chief legal officer who was trying to alert him that a hacker had breached Uber’s network. Another trip took him across the Bay Bridge to Oakland—and he swore never to do it again after getting stuck in rush-hour traffic back to the city.

It was the latest experiment in the CEO’s yearslong journey to reinvent driving on Uber. Along the way, he struggled to sign up as a driver, saw firsthand something called tip baiting and was punished by the app for rejecting trips. Surprisingly hard to take was the rudeness of some Uber riders. 

Mr. Khosrowshahi’s moonlighting was part of a campaign by him and his lieutenants to better understand and improve Uber’s experience for drivers, whose scarcity had become a critical challenge for the company after the U.S. reopened from Covid-19 lockdowns. It marked a sharp turn for a company that wasn’t typically seen as being driver-friendly.

The campaign—code-named Project Boomerang—has helped shape what has become one of the biggest makeovers of Uber’s business since its inception in 2009.

“I think that the industry as a whole, to some extent, has taken drivers for granted,” Mr. Khosrowshahi said in an interview. He hadn’t driven on Uber before because it wasn’t his biggest priority—drivers had always been in abundant supply. The pandemic-fueled labor shortage forced a companywide introspection, he said, to “re-examine every single assumption that we’ve made.” 

Keeping up with the demand

San Francisco-based Uber faced a debilitating labor shortage after the economy reopened in 2021. It figured out that it had to do more to get drivers on board than just offer them bonuses. It adopted some difficult changes that drivers had long asked for, and they paid off. 

Crosstown rival Lyft Inc. was slower to introduce new driver-friendly features and bonuses. It lost market share to Uber, and its stock valuation declined by billions of dollars. Late last month, following months of discontent among some employees and investors, Lyft’s co-founders announced they were stepping back from managing the company. They hired a new CEO. 

While Uber has long had a larger slice of the ride-share market than Lyft, its driver-focused strategy helped leave its younger competitor behind and put it in a stronger position to weather the current economic tumult, said investors and analysts. 

Uber’s ride-share revenue more than doubled in 2022, and the company posted its first full-year adjusted profit since its founding. It now commands 74% of the U.S. ride-share market, up from 62% in early 2020, according to consumer receipts analyzed by market research firm YipitData. 

Lyft’s market share fell to 26% from 38%, YipitData show, its stock plunged more than 70% in the past 12 months, and the company has cut 13% of its staff. Uber’s stock fell less than 10% over the same period and it has shed less than 1% of its staff, defying widespread cost cuts and layoffs across the tech sector. 

Lyft said it is committed to doing the best for its drivers. It said its driver pool is growing and that January marked its biggest month-on-month jump in sign-ups since the start of the pandemic.

“There’s always things we could have done differently or better,” Lyft co-founder John Zimmer said in an interview after stepping down last week. He said he has ferried Lyft customers on every New Year’s Eve since the company’s founding. Lyft’s incoming CEO, David Risher, said he drove his first passenger over the weekend.

Having loyal drivers makes Uber more competitive and sets it up to expand into new categories and deliver better returns for investors, said Robert Mollins, an analyst at Gordon Haskett Research Advisors. 

“I think they’ve really woken up to the fact that everything starts with the drivers and everything else just falls into place,” building on that momentum, he said.  

The company continues to face criticism from drivers, activists and labor groups, who have campaigned for higher pay for drivers and more transparency over how fares are divided. Governments in the U.S. and abroad are in a tug of war with Uber over how to classify drivers and ensure them greater benefits and protections. 

“They’re very friendly to drivers when they need them, and when they have a surplus, they adjust,” said Bruce Schaller, a former deputy commissioner for New York City’s transportation department. 

Mr. Schaller said driver pay will remain a sticking point until governments can regulate how Uber compensates them. New York City sets a minimum wage for Uber drivers that factors metrics like time spent waiting for trips and driving to them. Uber sets pay across many other U.S. markets.

The ride-sharing business was designed to make money connecting rides and riders without the cost and hassle of having to employ drivers. In reality, Uber and Lyft have had to keep shelling out money to attract both drivers and riders at various points—one reason why they have rarely turned a profit. 

As the economy reopened after pandemic lockdowns, riders returned at a faster pace than drivers. 

Online delivery businesses that brought groceries and restaurant food to people at home had flourished during the crisis, and gig workers had more options outside of ride-share for the first time. Uber operates in both businesses, which helped it tap some workers Lyft didn’t have, though it was still falling short of meeting ride-share demand. The imbalance pushed ride prices and wait times to record highs.

Uber at first defaulted to an old formula—financial incentives. In April 2021, Mr. Khosrowshahi carved out $250 million in bonuses to entice drivers. When the company revealed in August that year that the spending had weighed on its results, its shares tanked. 

Investors hammered Mr. Khosrowshahi on an evening call, saying he was spending too much and needed to focus on reducing costs to turn a profit.

The CEO pinged Uber’s head of driver operations, Carrol Chang, on Slack minutes later. “Getting a lot of questions,” he wrote, Ms. Chang said. “But I stand by the driver investments and fully believe it’s going to pay off.”  

Part of Mr. Khosrowshahi’s conviction came from seeing demand bounce back quickly overseas, where Uber now gets 40% of its revenue. He knew he had to move quickly to build back the supply of drivers in the U.S., its most lucrative market. 

Hopping on an electric bike