Dalton Anderson (00:01.708)
Welcome to VentureStep podcast where we discuss entrepreneurship, entry trends, and the occasional book review. Uber's ride sharing service and dominance has a dark side. Today we're going to be discussing one of the most sophisticated acts for avoiding regulatory and legal action and what is coined the gray ball case. On today's agenda, we'll be discussing what is gray ball and how it worked. What were Uber's motivations for
using such a deceptive technology? What are the legal and ethical implications of gray ball? And broader questions about say corporate espionage or in this case, regulatory.
Espionage, guess. mean, it's kind of a gray area and that's why it was termed gray ball, because it's not necessarily espionage and espionage is, corporate espionage would be stealing from another company. And so it's not really doing that, but it is kind of because it's stealing.
protected areas where taxi companies have their taxi license and their license with the state and the city or however that country has it set up and.
Then Uber comes in and the taxi drivers are complaining, Uber is taking our jobs and revenue. And then the city officials try to use the app and they're like, I don't know, the app doesn't work for me. It doesn't work. I could see the cars but no one's picking me up. So I don't know where Uber in this Grayball case
Dalton Anderson (01:51.182)
lies. It's in between two worlds of corporate espionage, regulatory or arbitrage, and just general deception. And that's why it was called Grayball. But before we dive in, I'm your host Dalton Anderson. My background is a bit of a mix of programming, data science and insurance offline. You could find me running, my side business or loss in a good book.
You can listen to this podcast in video and audio format on YouTube. And if audio is more your thing, you can find the podcast on Apple podcasts, Spotify, or wherever else you listen to your podcast. Okay. So the first thing that we're going to dive into is what is gray ball. Gray ball was a sophisticated act to detect undesirables that would potentially violate
the terms and service of Uber. And really what that means is it was a way for Uber to detect people that might cause the company harm. And the people that they deemed that would cause the most harm were individuals that could regulate or take legal action on the company. So they created two apps.
there's the app that you and I would use. And then there's a different app that is on the same app store. And so you download one app, but the app is actually two apps and one app works and the other doesn't. So the app that works and the app that you and I use, it would show the cars, you could book a ride and all this other stuff. The app that the regulators were seeing was an app of which you would log in and you would see everyone getting
not getting picked up, but I guess if you were in an Uber area, you would see others getting picked up. And I read that on a story where one of the regulators was getting really frustrated that they couldn't get a ride.
Dalton Anderson (04:03.426)
but someone right next to them could get a ride and they're in the same spot. And so they were just confused. That being said, you can't get a ride, but you could see all the car activity and people driving around. And then when you'd go to book a ride, it would say no rides available or it would just take forever to book. And then it would just say no rides available.
And so the regulators really couldn't get any evidence on Uber because they were trying to get firsthand accounts of interacting with the drivers and how the app works. And you know, could take the, you could take a ride anywhere and you could operate without the licenses that are required in those areas. But it couldn't be done because there was two apps.
And they started this. They're saying. And it's not really official because there's no real date on it, but early 2014 ish area.
and
That's a while ago, right? And also the Grayball case was a notable case. And I wasn't very familiar with it because I was still in high school when this happened. And I don't know, I was thinking about other things and maybe I read about it and I don't remember. But I recently recalled this one month ago because I saw it.
Dalton Anderson (05:39.95)
And I had a conversation with some founders at ITC and ITC stands for InsureTech Conference and ITC Las Vegas, which is the one I was at is the biggest tech conference related to insurance in the world. And I was at this mixer event and I was talking to this Australian founder and her company is doing XYZ. I mean, it's a private conversation, so I'm not going to reveal all the details, but in a general sense, what
she was saying that the company would do and is going to do was illegal. And I called that out and I was just making sure that she understood that it was illegal because she was from Australia. And I basically framed it in a way like, Hey, in America, I'm not sure how different the laws are from Australia to the U S but what you're saying that you want the company to do is illegal. And she's like, yeah, I know. And I was like, okay.
Interesting. Nice. And she's like, well, think Uber, think Airbnb. If they followed every single rule from the governments that they try to operate in, they would have died. And if they didn't do any gray area activities, then they wouldn't have made it. And I would think that
the things that Airbnb and Uber have done and the value that they've created for society is worth the issues that they dealt with or the ethnical questions that they are going to be asked in the future given what they did and what they contributed to individuals or businesses or just the world. so overall, it was a net positive, I would say.
So I think that's a fair perspective, but then there there's also other types of groups that might take that in a different light and maybe go in a different direction because those two examples, no one got hurt or no one intentionally got hurt. But there are some examples where people did get hurt, right? Or the environment was hurt. Volkswagen and their
Dalton Anderson (08:03.884)
allying about emissions where they program their diesel engines to have a reduction in emissions. think I don't know how they did it, but they did something with the engine where the engine doesn't have as much fuel. Like there's not as much volume of fuel going to the engine, but it's still enough where it runs and it would meet regulations. I'm pretty sure. Then there's Purdue Pharma. Purdue Pharma really pushed for Oxycontin.
and said it wasn't addictive and it was a great solution. And then, you know how that all went. And then we have the Theranos by Elizabeth Holmes, which was some kind of testing thing related to blood and with a few drops of blood, they could test a whole bunch of different tests. And that was a complete fraud. And then we have Lumbar Liquidators who
Dalton Anderson (09:00.98)
sold a laminate from China that had carcinogens and what a large amount of carcinogens, not large amount, but of carcinogens. meant to say from from anaheide, fomataheide, messing up the word live. But anyways, from anaheide. man, whatever. It's live. There's no, there's no editing this. It is what it is. Sometimes when I'm recording,
words that I'm saying without being recorded and not being on camera are just fine. And other times, not, not so much, but anyways, so those are a couple examples of where they're pushing the
the legal barrier and in a bad way, like people are getting hurt. This Uber example and the Airbnb example, not so much. I people might get upset, but no one's really dying or getting cancer or being defrauded out of billions of dollars.
So that's just why I was interested in the Grayball case because I had that conversation with that founder and I've been thinking about that conversation ever since. And I was wondering, yeah, maybe I'll look more into this. So here I am and we're having this episode, which I thought was an interesting background on why I found it interesting. And also important to note that, Hey, it's a notable case and you might've known about it. And if you do maybe need a refresher cause it happened.
what almost 10 years ago. And I don't know about it because I was an oblivious young boy when it happened. So anyways, so how did the gray ball work? Like this gray ball system and why did they get started? So it got started because a lot of the taxi companies were complaining that there was some kind of app that was stealing their revenue, which I talked about a little bit earlier.
Dalton Anderson (11:11.382)
And then how did they actually do it? So they had a couple metrics to detect maybe these people are from the government. one of the craziest stuff when I was reading through this case and all the things that they were doing was I was like, this is almost a company in itself. Like the amount of stuff that they're doing to detect if they're a government official was
Nuts. Like first off, they're geofencing all of the government buildings. So they geofenced any government building in the city, federal buildings, state buildings, city buildings, any of that stuff. That's geofenced. so within the geofence, they called it the blackout zone. So there were no rides taken in that area or dropped off in the area. If I understood their verbiage correctly.
So they go over the geofence that the government buildings they use, which I, which I think is not overly sophisticated, but is enough there. And then the next thing that they did was they linked a new accounts to an individual and why they did that was okay. They found out or the regulars had some kind of
Dalton Anderson (12:44.566)
understanding maybe that they're getting geofence. So they started walking outside of this geofence and then calling rides there to build a case. And then Uber understood that. And then the next thing that they did was they just started just banning those accounts. Okay, this is a government account. This person is gone. So then the next thing that the regulators did was the regulators
We're like, okay, if you're going to ban my account, cause I'm using my identity, they would sign up as a fake person, but they would, would use their normal.
credit card or whatever credit card their normal bank is associated with or their government bank or whatever.
Uber understood that and they knew, okay, this one account that was banned is using a similar bank account information and card info. So let's ban that one. Okay. And then they were doing, and then they were like,
Wow. All right. What's going on here? So then they were like, well, I think it's my phone. Maybe they have something with my phone. And that was true. And that was also against the terms of service of Apple. But what Uber was doing is they were doing a digital footprint or fingerprint they would call, which is definitely against the terms of service of Apple. Once you delete an app and in Google, once you delete an app, you've got to wipe all their data. And what
Dalton Anderson (14:19.616)
Uber was doing was they were keeping, they weren't keeping the data per se, but maybe they're keeping the encryption key of that person. I don't necessarily know how it works in detail, but basically they're keeping some sort of key. So when they re-download the app, the key would match up and it would detect that, Hey, this is the same person. So the next thing that the regulators started to do is they started buying burner phones.
like just just off the market, off the shelf burner phones. And they're just downloading Uber, making a new account and then getting rides then. And then what Uber did was they just started banning all low quality phones. So anything that could be considered a burner phone, they would just ban. And then they would scour social media and things like LinkedIn or Instagram, whatever Facebook. And then they would build out these digital profiles of
the regulatory individuals and then make sure that they couldn't detect any of those people. So if like you put your profile photo or if you put your name or you had people in certain areas, they would try to detect you using social media. And they also had this thing called eyeballing, which was like detecting these
suspicious activities and then just banning you. Like if you had suspicious activity on the app, if you were making too many accounts, I wish I had talked about, but the term was eyeballing, making too many accounts or like downloading and then deleting and then downloading and deleting like such a weird thing, logging in, logging out, logging in, logging out, they would just ban you. So I find it intriguing this weird whack-a-mole situation where
The regulators knew like something was up, but couldn't necessarily put their finger on it. And then Uber had just built out what started as a simple, not sophisticated means to reduce their likelihood of getting any regulatory action or legal action taken on them by state or federal government or countries in general.
Dalton Anderson (16:43.47)
They slowly fell down this hill and they eventually became into it became this this sophisticated dark monster that they created, which is called Grayball. And the first thing that they started with the geofencing wasn't really that big of a deal. mean, like I'm just going to geofence this area.
and all these other things. But then once you start adding in, OK, now we're linking credit card information and device verification to understand that this device is related to this regulator and just shutting off their account and all sorts of things and going in on social media and scraping social media to create these regulatory digital profiles for
all these individuals and then targeting them.
Dalton Anderson (17:47.34)
That plus the eyeball methodologies, it becomes very sophisticated and is almost a fraud detection system that they built in-house just to avoid regulation.
which is a lot of work. It's so much work. And what started out as kind of childish became something way too big. And then internally people felt uncomfortable with it. And eventually there was a whistleblower and then there was the New York Times expose. And Uber was like, Hey, you got me. And it became a big deal, right?
where people were upset, they didn't feel like it was right. And at the time, 250,000 people deleted the app and said they weren't gonna use Uber anymore.
But during that, what, four years, three years time where they were using gray ball to avoid regulation, they were able to launch in so many countries, so many major cities, and the advantage that they got on their competitors or either the taxis or Lyft was massive. Just.
not even close, like tenfold more than 250,000 customers. It's not even, yeah, it's not even a comparison.
Dalton Anderson (19:21.304)
The issues that happened and the drawback was, okay, they lost 250,000 customers. They got in big trouble with countries. They had a huge brand reputational issue that on top of the frat-like, I guess frat-like isn't the best word.
Dalton Anderson (19:52.01)
I'll just say the bad work culture at Uber, the sexual harassment cases, the racism reports, the issues with aggression in the workplace and not being a fair and cooperative.
have a fair and cooperative culture. Being very aggressive in the workplace isn't the place you want to be at. And also having kegs and stuff in the office and just people slugging back beers. mean, it was sometimes a frat house, some kind of mixture of the corporate world frat house and some kind of weird, not so cool situation with the sexual harassment stuff.
And this, on top of all that, definitely put the nail in coffin with Travis Nonik.
he left, Travis was asked to resign. And I think the five most major investors in Uber insisted he resign and sell his shares and or be fired. And he chose to resign and he was given out. But if he did not resign himself, he was going to be kicked out of the company 100%. The threat was
If you don't resign on your own, you're going to be kicked out of the company and we will publicly write a letter.
Dalton Anderson (21:36.918)
requesting for your removal.
So do whatever you want, but these are your options. And I hope that you choose the easier option, but you're going either way. And he chose to leave and founded some kind of storage and logistics company related to agriculture. yeah, forgot the name of it, but it's not too important. Anyways, it's not related to this story. So I don't want to get too far off of my timeline here.
So there was the legal and public backlash. Publicly, they lost 250,000 customers, which is a drop in the bucket compared to what they got from doing these things and launching all these countries and the aggressive growth percentage that they could take. That plus subsidizing the fair cost to gather market share with the anticipation of their
autonomous vehicles coming out, which you know that went didn't go that well. And now they're going to be contracting Google for their autonomous vehicles. And they have since folded their autonomous vehicle research department. And so they'll be using Waymo, which will work great for them, at least not for the drivers. But it's it's a net positive for everyone. You know, I'd rather less people drive and then they could
do more things like hang out with their family or work in the car. I don't know. They could figure it out. We're not there yet.
Dalton Anderson (23:19.95)
So the legal scrutiny though, they did get in trouble and they faced legal action and potentially a justice probe from the US government. And the way that they were able to get out of it was that they said that they weren't targeting regulators. They were targeting people that were against their terms and service.
And I mentioned that earlier in the episode where I said the undesirables. And so they're quote unquote undesirables where people who use low end phones, people who worked in government areas that potentially had sensitive information or something along the lines of that.
people who constantly made new accounts and deleted their old accounts. People who
Dalton Anderson (24:19.544)
just did weird, weird activities on the app. Like we just don't want them. And that was their explanation and they were able to legally get out of it because they weren't necessarily targeting regulators per se. They were targeting undesirables, which is a gray area because it seems pretty clear to me that they were targeting regulators, whoever their lawyer was, the legal counsel, they did a great job. How they
twisted and turned that. And I just thought it was so funny when it came out and it was public. They're like, Hey, yeah, we, did that and we're targeting undesirables and they already had a spin on it. And my understanding of that would be, it wasn't a surprise that it was eventually going to come out, right? They knew that what they were doing was way too sophisticated for it not to be released eventually. And so
they had this whole thing prepared. They probably already had a budget for what they had to do with lobbying and all these other things related to after this backlash to get in bed with the politicians. And so they spent close to a hundred million dollars. They spent 90 million, I'm pretty sure on just lobbying and just legal changes and these other things related to allow Uber to operate.
and also improve their public perception, which was brutal. Yeah, they spent 90 million influencing politicians and public opinion.
So where does Uber stand as far as this ethnical dilemma? Would you consider what Uber did wrong? I think so, yeah. I would think it's wrong, but is it necessarily hurting people? And where do you draw the line where, and I don't necessarily have an opinion,
Dalton Anderson (26:28.532)
on this at the moment because I'm potentially not as well versus maybe I could be in these kind of situations as maybe I get more experience where because I don't think you take the stance of like no one ever got hurt as a justification for it. But at the same time, if they didn't, then there would be no Uber and there would be no drivers and there would be no ability for people to have
financial, potentially financial freedom or a way to get out of the house or just in general way to supplement their income with Uber drives on the weekend. And I used Uber for many years after I totaled my vehicle sophomore year of college, I biked and Ubered everywhere. And then I didn't buy a car until after a year after college while I was working. And so for a good,
what three years all I was doing is biking and Ubering. And so I was biking about 50 miles a week or so, give or take a little bit more, a little bit less. And then I was Ubering longer distances. Like if it was over eight miles or something, I would Uber instead of biking. But I did enjoy the long bikes. And where I grew up was an area in Palm Beach County. And I went to school at Florida Atlantic University or otherwise known as FAU.
And that area is Boca Raton. Boca Raton is a very wealthy area with a lot of retired people who worked in investment or some professional service job where they had a firm or they did something where they were successful because it's an expensive place to live. And I'm not saying all that stuff to say, I've got it like that or anything like that. It's just that's where the school is located and that's
was I guess the school is inside of a it's in its own little bubble, right? Kind of like if you went to F FSU and I'm naming Florida schools because I'm from Florida, but FSU, Florida State University or Gainesville, I think Tallahassee is a better example. Like outside of the the university, it's not a great place.
Dalton Anderson (28:55.372)
unless you go downtown. if you're just in that general area outside of campus, it's a pretty rough area. It's not necessarily associated with FSU, the school, but same thing here at FAU. just it happens that outside of the campus, it is a wealthy area.
Dalton Anderson (29:14.962)
And that being said, a lot of the Uber drivers were successful individuals who were tired and just wanted something to do. And so they would do a couple of drives a day or maybe Monday through Friday, they'll, they'll do something at lunchtime just to get out of the house and conversate with people and just have a good time.
That's great. I mean, you couldn't do that if you needed a license. So there's a lot of factors of, of which are at play that you might necessarily not see because you don't have that perspective. So that's why I'm trying to come at this with open eyes because I don't know everything and I haven't spoken with, spoken with a lot of people who are Uber drivers. So that being said is what Uber did wrong. Let's say yes.
Should they do it again? If like if going back, if looking back hindsight, 2020, I think the results that they got were good, but I don't know if they should have. Went that deep in the path like there it was a level of sophistication where I was like, wow, this is.
this is too much, right? Where you're at what point are you just avoiding your problems instead of facing them head on? I think once they got to a certain scale, they should have been like, Hey, you know, we are doing these things that we shouldn't be doing and I'm coming to you and I would like to make these things right, right? Like we needed to grow and if we didn't grow,
we were going to die as a company and we couldn't wait for every single thing to get passed. But as far as keeping this whole gray ball thing going for four years and getting to that level of sophistication, I don't agree with that. But on the other side of the coin, if they just said, okay, I'll do whatever you say, let's go through all the proper rules and regulations, let's get everyone signed up, license, it would have never worked. So I think that there's,
Dalton Anderson (31:28.558)
a middle ground that they could approach. Maybe they did it for two years or a year and a half. They get the growth that maybe that would sustain them enough where they could raise more funding or they could get enough revenue to where they would be potentially not net positive, but not burning so much cashflow where their burn rate exceeds their speculative value.
that would be fine. And I think that would be better than the approach of just, okay, we're to just do this shady stuff for as long as we can. And then we know it's going to come out. So we're going to prepare a PR budget of close to a hundred million. We are going to have a statements aren't already our statements already made. We've already media trained the people that are going to be called in for these investigations and they're going to know exactly what to say.
Like that's a whole thing, it's all preemptive versus doing it for a year and a half and then fessing up your wrongs and then coming clean and working for a solution that works with both the taxi drivers and with Uber.
Yeah, for the both of them.
That's what makes sense to me. I don't necessarily know if I have a great answer and if you have anything to add on that, I would appreciate it because I don't necessarily know. And I've never drove Uber. I've got some friends that have drove Uber before and they liked it. They used to do it on the weekends in college to earn some cash. Or I had a friend of a friend who drives Uber and Lyft and loves it. He's been doing it for years.
Dalton Anderson (33:15.544)
So I don't know. I don't know. I have no idea. So I don't have, once again, a great answer, but that's just kind of my opinion and my thoughts on where it stands. It's definitely not the same thing as Volkswagen or Lumberliquidator, these other companies that I gave examples of earlier. And it's more related to Airbnb. Like if Airbnb would have
waited for the regulatory approval for everything they wanted to do, then would Airbnb ever be Airbnb? And did people seriously get hurt? But I don't think Airbnb had a sophisticated system of avoiding regulation, and maybe they do. I don't know, I didn't look that up. So.
I'll hold my tongue on that. I do know that they got in trouble for not including the local taxes in their platform. So the local hospitality taxes, like for cities and states, they different different tax rates and countries have different tax rates for hospitality. And those taxes are normally higher to support some of the infrastructure that these individuals are using, but not paying for.
Dalton Anderson (34:41.73)
So I think so, but I just don't know the boundaries. Where do you draw the line on a startup driving into the unknown and driving innovation and changing the public perception of what...
could be society or how will you do things? Like Uber, people would freak out if you said 50 years ago or 40 years ago, you're gonna get in a car with some random person and they're gonna drive you to where you wanna go. People are like, no way, I don't get in cars with strangers, I don't know that person. How do I trust them?
That would never have worked. And also another good example off the of my head, LinkedIn. LinkedIn wasn't an original idea. There was a different version of LinkedIn years and years ago. And if people weren't okay with having a social media presence for work, it just wasn't all right in society. Vine. Vine was a video sharing platform which is very similar to
TikTok and a lot of famous YouTubers became famous because of Vine and their Vine videos. And then Vine was shut down. They transitioned to YouTube and now TikTok has all the raise. Now LinkedIn's all the raise. so, I mean, hindsight's 2020 of course, but I don't know one, it might not necessarily be the right time for that product, either in society or with regulations.
maybe you force the times, but at what point do you call it where it's like, okay, this is too far. And I think the issue is once you're in, it's hard to get out. Like once you start a lie, when do you say, I'm not lying anymore? Or when do you stop the lie and you come clean? Because it might seem not a big deal in that moment, but then you keep going deeper and deeper and deeper. And then before you know it, you're drowning.
Dalton Anderson (36:49.632)
So I don't know what the line is. I think in majority of those examples I listed Airbnb, Uber, they wouldn't be around unless they looked over the line a bit or pushed it or maybe altered it and drew a new line and altered the trajectory of the line.
Dalton Anderson (37:14.638)
But where do you say, hey, there's no way we are doing this. This is not right. I won't stand for it. If you want to do this, I'm out. And I'm not asking that as a founder. I'm asking it more as an individual. Like where would you draw the line on what you think is the right thing and where do you see it as maybe a
Dalton Anderson (37:43.158)
a contribution to society that has a net positive effect and might be negative short term or and or how do you not
be blinded by this potential in that positive and to get there do you lose the recognition of yourself?
Dalton Anderson (38:07.564)
Right? Like what, at what point are, are you, and I'm talking to you, the listener, gonna call it where you're like, this is too far. I can't do it. I mean, an easy, easy win would be okay. If people are dying or people getting hurt financially hurt or they are, their health is, their health is deteriorating because of these services.
But is, that, do you say that is okay. All right. Well Facebook and Instagram have bad, bad effects on people for mental health or their health. Like there are, or what about video games? People get addicted, addicted to video games. So how do you have a broad, a broad statement? Okay. People are getting hurt mentally, physically, financially. Is it because they're
necessarily obsessed with what you're offering and they're getting hurt that way or are they getting hurt because
It's because your services that you're rendering are just hurting society. And I think it's apparent if you're there, but in these hypotheticals, it's hard to say.
Dalton Anderson (39:23.96)
But I think that would be an easy win if you're hurting people financially.
or physically or mentally, then yeah, I would call it then. But in the terms of this Uber example, you were hurting a small group of individuals.
The taxi licensed owners or whoever they're called, the syndicates.
you were hurting them and the rest of the people were benefiting.
So is this similar to the trolley problem where you push off the young girl or boy and isn't the trolley problem where you sacrifice one to save the many? I think it's like somebody is standing in the tracks and you could either switch the tracks and hurt everybody on the train or you.
Dalton Anderson (40:26.2)
just run over the person or something like that. I think that's how it goes. But I mean, know that someone gets sacrificed and then the rest of people live or you can choose not to sacrifice one and kill the many. And so is this just a trolley problem? Because the trolley problem to me is pretty easy. Like, yes, there is some ethical issues with sacrificing a person, right?
But if you're sacrificing one to save thousands, is it, is it that big of a deal? And I know that's a crazy statement, right? And it might be better if they volunteer to be sacrificed, but if you're in this split second decision where it's either you flip the switch up or you flip the switch down.
Dalton Anderson (41:17.378)
you got to do what you got to do. And I think that's the essence of management and making those tough decisions and being a leader is if you don't take the person out of the boat that is dead weight and weighing us down and not contributing and letting everyone else on the ship stay alive, then you're killing everybody.
I know this is like a long theoretical rant on what is and isn't the line of.
what I guess ethnically you could do when pushing regulations or pushing society.
because I find the topic quite interesting and I hope you do. And if you have any.
suggestions or commentary regarding the topic, then please go ahead. I'd love to hear your opinion. But once again, this is where we say our goodbyes. Wherever you are in this world, good night, good evening, good morning. I hope you have a great day and I hope that you tune in next week. See everyone. Goodbye.
