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When companies invent new ways to destroy themselves

Bill Coffin | May 8, 2017

In early May, the Department of Justice launched a formal criminal investigation into the ridesharing service Uber for its use of a piece of software it designed called “Grayball.” The software was built for the purpose of showing certain users of the Uber app a different experience than other users. It sounds innocuous, in that “they must have a reason for wanting to do that” kind of way, like if maybe they needed such a thing for certain kinds of market research.

But Uber’s reason for using Grayball was no so innocent, alas. The company developed the software—which it says it only ever used sparingly, and has basically shelved since 2015—to thwart regulators who were trying to prove that Uber was operating in cities where it was either banned or not yet improved. The regulators, posing as regular riders, would try to hail Uber to gain evidence on Uber’s illegal operation. Grayball identified those users first and blocked drivers from giving them rides. It’s an ingenious bit of trickery, really. Too bad it is also clearly illegal.

News of this comes at a time when Uber has already had a difficult year. While Uber is widely known as a great product by a bad company, the company’s CEO Travis Kalanick has faced withering accusations all year for sexual harassment and the Uber work environment has been described by many alumni as toxic. And it’s a shame, really. Because Uber is a fantastic product. It took me a while to wrap my head around why you would ever need it, but after seeing some friends hail a ride late at night in the boondocks of Cape Cod, where the nearest taxi was at least 40 miles away, convinced me. Now, I use Uber whenever I need a cab, and I have never had a bad experience. As products go, it’s enormously brilliant.

Which is why news of this criminal probe, on top of Kalanick’s behavior and the company’s culture, comes as such a grave disappointment. I am reminded of the Zenefits fiasco last year, when an upstart workplace benefits company created its own internal software to allow personnel—including the CEO—to cheat on state insurance training requirements. Yes, the method devised to cheat was pretty clever, but look at what it wrought: Zenefits endured the regulatory equivalent of a sucking chest wound over its antics, and its CEO resigned in disgrace.

We might yet see the same from Uber, depending on how this criminal investigation goes. If this is something that Kalanick had a direct hand in, then things cannot possibly go well for the company. The big question will be whether this is a product that is so bulletproof that even if the company broke the law to get it all established, people won’t really care which executives get carted off to jail or fined massively for their blatant disregard for the law.

Uber could be exonerated, of course. The Justice Department might find there is not enough to warrant any kind of prosecutions and, in the grand scheme of things, this could all just as easily fade into the background, an uncomfortable footnote in the company’s turbulent early history.

But if it doesn’t, then we have another startup that was too clever for its own good, using the same thinking that enabled it to produce bold new innovations to also produce novel ways in which to break the law. Uber would not be the first company that faced regulatory difficulties because its product was so new and challenged long-established business models. But in such cases, the companies that succeed typically do so when they invite regulation, because with regulation comes legitimacy. When you custom write software to get around that very regulation, you’re not just opening the enterprise to excessive risk, you’re undercutting the very mechanism that could ensure the enterprise’s long-term establishment, viability, and success.