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View from Washington: As Uber’s IPO hits astronomical heights, does size still matter?

Uber's IPO is raising questions as to whether the 'gotten big fast' Silicon Valley company is still technology's best way forward.

Despite the megabucks scale, Uber’s impending IPO is proving a deliberately low-key affair.

The implied valuation - to be finally priced in a range from $80bn-90bn (£62-70bn) – is actually below initial nine-figure expectations. The company’s plans to boost income are then vague when it comes to market verticals, but worryingly specific when it comes to workers - the prospectus makes explicit reference to reducing driver incentives further.

It is also hard to shake the feeling that Uber has not yet overcome serious questions over corporate governance and practices. Controversial founder Travis Kalanick has stepped aside as CEO but remains a director. Meanwhile, the company continues to lose huge amounts of money at the operating level ($1bn in the last quarter, although the final results were dragged into profitability by disposals), suggesting that while new CEO Dara Khosrowshahi is nurturing a ‘nicer’ company, it still isn’t so demonstrably transformative as to justify even the reduced price tag.

However, it is not simply the case that Uber is a victim of its history. When the final IPO price is revealed and the stock begins to trade next week, analysts will also be looking for evidence that high tech is undergoing a more fundamental shift. Are the days of ‘Size matters’ and ‘Get big fast’ over?

For online companies – and Asia’s offline-to-online companies also – the last few years have largely been about a business’ ability to scale, both in terms of active users and the number of markets in which it competes. They have also been about achieving that while remaining a ‘flexible’ employer (with Uber a poster child for the controversial ‘gig economy’).

Facebook, Amazon and Google have all been lauded by investors for hitting such benchmarks, reaching user counts bigger than nation states and establishing subsidiaries in fields as diverse as virtual reality, autonomous vehicles and organic food.

Uber’s prospectus and strategy acknowledge this. The company hopes to expand into e-payment platforms (PayPal is taking one of those ‘strategic stakes’ alongside the IPO), its own self-driving cars and, basically, a heck of a lot more than getting you or your dinner from A to B. All the while, the battle for riders and burger deliveries continues to chalk up counts (if not profits) in the tens of millions.

Perhaps unfortunately for Uber, the trend does seem to be turning away from all this. Facebook and increasingly Google both seem set on collision courses with global regulators, with their sizes (and their managers’ perceived inability to manage such sizes) at the core of the problem. Amazon’s staffing practices are fuelling more truly negative media coverage than anything The National Enquirer could mug up.

Still more remarkable is that many of the protests are coming from the tech giants’ own staff. Uber’s relations with many of its own workforce are such that drivers in at least eight cities plan to shut down their Uber apps on May 8 (next Wednesday), just two days before the company’s stock is expected to start trading.

We will see how all this pans out in about a week – for once, it might actually be worth keeping on eye on one of those business channels. If the IPO does go south – and Uber’s rival Lyft is already down 20 per cent against its IPO price from the end of March – it may not be entirely a bad thing.

I use (and value) Uber a lot. I find it hard to wish the company ill. At the same time, if a, say, ‘muted’ or ‘middling’ reaction to its launch forces the markets to rethink the wisdom that only megastocks are typically suitable for IPO, it might actually be for the best.

One of the sharpest brakes on innovation since the dot-bomb crash at the beginning of the century has been the absence of any trading market for mid-value listings. With most newer companies therefore forced to gear toward trade sales than the prospect of standing on their own, the temptation to focus on R&D that will elide with a potential new owner’s products, rather than developing disruptive ones that can grow organically, has probably become too great. The pendulum needs to swing back.

So, it could be an interesting week.

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