THE BLOG
12/08/2014 02:05 pm ET Updated Feb 07, 2015

Can Uber Fix Itself?

Bloomberg via Getty Images

Online car-booking company Uber has recently lurched from one public relations crisis to another, including bizarre comments by an Uber executive about taking revenge on critical journalists.

But Uber's problems run far deeper than that.

This week the company is dealing with the fallout from rape allegations against one of its drivers in India and has now been banned in New Delhi. The New Delhi government's response, although extreme (after all, you would have to ban all means of public transport to ensure complete safety for everyone), is only the latest pushback against Uber by markets that the company has entered.

Other markets where the company is facing serious challenges or outright bans include France, Germany, Spain, Belgium, the Netherlands, and Nevada.

It is arguable that this is happening because of Uber's aggressive growth strategy of barreling into new markets with little regard for local laws or issues, expanding at a breakneck pace, and worrying about the fallout later. Other allegations against the company include low standards of recruitment for new drivers, poor training, a mercurial customer rating system which can penalize good drivers, and an indifferent attitude towards passenger safety and privacy.

So why won't Uber, which is reportedly worth a staggering $40 billion on projected revenues of $10 billion, clean up its act?

Partly because its growth strategy, which companies like Google and Microsoft have also used in the past, has worked so well.

Like Uber, Google faces problems in Europe. The European Parliament has called for a breakup of Google in response to complaints about anti-competitive behavior, including burying search results for rivals and preventing advertising partners from patronizing other sites. Ironically, one of Google's most vocal critics is Microsoft, which has been accused in the past for using its dominance in the personal computing market to undermine competitors and limit choices for consumers.

Despite these difficulties, neither Google nor Microsoft has been seriously hurt and continue to exercise considerable market power. What these companies understood early on was the value of taking over markets as rapidly as possible and creating a household name that would give them a competitive edge in the future.

Uber seems to be following a similar playbook, creating a brand that is instantly recognizable and is becoming synonymous with being able to find a cab anywhere, anytime with minimal hassle.

However, the crucial difference is that unlike Google and Microsoft, Uber doesn't actually produce anything that can stand on its own merit. It's hard to see how the company can exist without a good relationship with its drivers, the trust of its passengers, and the cooperation of local authorities. Also, as the New Delhi example shows, a strong brand is a double edged sword -- when things go wrong, the brand itself can become a target due its outsize stature.

What this implies is that in order for the company to succeed, it needs to start listening to its different constituencies and focus on the integrity of its service and responsibility towards its existing communities rather than just pumping up its brand with lots of money and the addition of new markets.

Given its size and the strength of its idea, Uber has the potential to become a blue chip company that can disrupt the car service business in a positive way, but first it needs to do some serious soul-searching.

An alternate version of this article appeared in FORTUNE.com


Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.