A case of disruption gone wrong? Uber


June 2015 – France Taxi Drivers revolt, judge arrests 2 uber officials for illegal operation

March 2015 – Netherlands – preliminary judgment that Uber must stop its UberPop service

 June 2015 – San Francisco – The California Labor Commission ruled an Uber driver should be considered a company employee, not an independent contractor

May 2015 – Mexico – Hundreds of taxi drivers protested

April 2015 –  Chicago – an Uber driver shot a 22-year-old man who had opened fire on a group of pedestrians in Chicago

 April 2015 – Brazil – Sao Paulo court backs taxi drivers, bans Uber

April 2015 –  San Francisco – an Uber driver accused of running down a bicyclist 

March 2015 –  U.N. women’s agency backed out of a partnership with Uber after a protest by trade unions and civil society groups.

January 2015 – China –  government bans drivers of private cars from offering their services through taxi-hailing apps.

January 2015 – India – New Delhi police say service is re-instated after death of woman. 

December 2014 – Spain – Uber’s temporary suspension


“Disruption” gone awry

This could be a terrific example of “Disruption” gone wrong or not.

The traditional disruption model is a company produces a product at lower cost or better features that eats away at the lower end of the dominant players market.   This model leads to little awareness of the disruption in play.  The bigger companies happily usually give away the low margin producing business initially eaten by the new entrants.

In the case of Uber we have a different story.  Uber is displacing regular Taxi drivers around the world.  Unlike the car workers in Detroit or other industries which have experienced the pain of disruption there is rarely this kind of outcry especially against the disrupter who in many cases may be the next employer these workers may have to work for.   I have met many former taxi cab drivers who are happily Uber drivers now.

So, what is the reason for the more vociferous response to Ubers entrance?  There could be many reasons:

Let’s review the Uber model and approach as it is understood by me.   I don’t claim any special knowledge of Ubers business practices other than what I’ve learned in talking to drivers and seeing the news stories everybody else has.

Uber is quite forceful

Uber has moved into 200+ cities and 50 countries setting up shop and “using” locals within a few short years.  It has definitely been a shock to many people the rapidity with which Uber has been transforming this staid and seemingly heretofore permanently unchangeable business.

Uber has been quite heavy handed in its approach to penetrating foreign and US markets.   They have been aggressive in hiring tactics, competing strategies.  Whether they are legitimate or not they have raised considerable controversy for being unique.  Lyft a comparable service doesn’t garner quite the antagonism so this could be related to Uber’s tactics and public relations.

They suffered a public humiliation recently when a VP held an “off the record” meeting in which he explained how Uber was tracking people who were critical of it and was considering revealing personal details of the riders who criticized Uber as retribution.  They VP named a specific individual who he had looked into her travel records and could harm by revealing her personal information.   He suggested a multi-million dollar program like this could help Uber clean up its reputation with media and the public.  I’m not joking.    You can look through my tweets at @john_mathon to see how I called out the president of Uber to fire this individual and to institute new policies.

The main problem Uber seems to have is that they run afoul of local regulations, ignore the system that exists and try to establish they are different and can do it their way.

Uber seeks to exist outside the regulations

They claim they are unregulated because they connect with drivers and passengers via internet and cell phone apps which are not specified in the regulations in any country explicitly.   This is merely an oversight however.  Most countries and cities which regulate things like this will rapidly add clauses regarding the types of services Uber delivers.   How to regulate them is not clear which leads to many places wanting to ban the service until they work out the laws or there becomes more of a consensus how to deal with such a service.

Uber’s model inherently is a lower cost method of providing workers which means that they consistently offer a lower cost service than local companies can offer.  This obviously disrupts the local drivers of taxis and creates demand.  They purposely avoid compliance with local regulations seeking to keep the model that they originated with no changes.   They avoid training workers as many countries demand of taxi drivers, they eschew employing locals or dealing with medallions or other local regulations seeking always to be on the unregulated outside of the definition of “taxi” services where possible by using their simple hands off approach.

Uber vs Conventional Taxis

The traditional taxi ride

I am going to start by saying I exclude London taxis.   I have had the greatest experiences in London taxis.  I have found the drivers engaging, always interesting to talk to, always knowledgable and the service, the vehicles impeccable.  I estimate in all the trips I have taken 500 taxi rides in London.   Also, I have rarely ever had a real problem getting a taxi in London.  They really are an exception in my opinion.

The rest of the world:

In my history I have been ripped off by cab drivers more times than I care to admit.  I have been taken far afield of where I wanted to go either on purpose or accidentally on too many occasions.  I have found taxi drivers all the time that I have to give directions because they have no idea how to get to my destination.   I have had taxi drivers who stink, who smell of drugs, taxi cars that I felt very unsafe with, that smelled or were unhygienic.   I am sure many of the cabs I’ve been in were in violation of several laws for motor vehicles.  I’ve had trouble communicating with drivers, drivers who I’ve fought with, drivers who seemed incompetent or dangerous to drive with.  Drivers who were rude to me and other drivers or people.  I’ve found it sometimes impossible to find a taxi because of the load or strikes even though I looked for an HOUR.   I remember several drives where I feared for my life.  I’ve been in Taxis that have had accidents while I am in them.  I have also felt ripped off even by normal taxi fares paying sometimes over $100 for a simple drive from SFO to home less than 20 miles away that is the legitimate fare in some cases.

Overall, the situation has improved over the years but it still leads me to trepidation when getting into a Taxi.  I always make sure they are a real taxi.  I have been hassled by too many hucksters seeking to rip me off.  I now track my ride all the time with a mapping app to make sure I am going to the right place or the best route.  I make sure to always insist on a meter taxi.  Even with precautions the number of bad experiences is still too many.  This is one reason I think many people want an alternative.

In Sydney recently I was shocked when locals told me they hated their local taxi drivers.   Apparently this is a common perception because I went to a comedy show in London soon after and the comedian (from Sydney) was making a lot of fun of the Sydney taxi drivers.

My Uber experience

I have taken Uber in countries all over the world in Asia and Europe as well as in America in half a dozen cities.    My experience in uniformly much better than cabs except in London.   Uber drivers are rated after each ride.  They can be booted from the system if their rating falls even a fraction of 1 point.   Several disgruntled passengers early in an Uber drivers career will doom them and their income.  As a result the system works incredibly well.  The Uber drivers have always been incredibly pleasant, talkative and helpful when needed.  They have gone out of their way to help me.

In a few of the rides the cars were maybe 5 or more years old.  Still, compared to the 10 or 20 or 30 years old some of the taxis i’ve been in they seem positively new.  I’ve noticed that Uber drivers almost always soon get late model cars usually 2 years old or less.  They have ranged from BMW’s to fancy Japanese brands.   They usually have a range of comfort features including excellent air conditioning and heating as well as being universally clean and hygienic.     I really am not being paid in any way by Uber.   This is my actual experience.

When I read of these people who have had bad experiences in Uber taxis I am not entirely surprised.   The law of averages would automatically mean that at least some crazy incidents would occur if you have millions of rides and tens of thousands of employees you are going to run into every situation possible.

I have a couple complaints.

1) I frequently have found the process of finding your Uber driver is problematic.   The Uber drivers do not get the address you are located at even if you type it in.  This is considered a security risk apparently so this means frequently I’ve been texting the driver telling him where I am and finding it costs us a couple minutes to finally get in the car.

2) I believe the surge pricing system needs to be modified.    I understand all that goes into the current system but I find it very irritating.   I have a friend who uses Uber a lot more than me.  He says that surge zones can be quite small and a taxi can move into a surge zone to “up” their fees.   He claims that he has had on more than one occasion a situation where a driver cancelled his ride only to find that surge pricing went into effect immediately and when he got the next Uber he was paying 2 or 3 times what the fare just 2 minutes ago would have been.  He claims Uber doesn’t care if drivers abuse the system this way.  I don’t know how much this is done but I avoid surge pricing.

The Uber model as I understand it

Uber recruits drivers aggressively.   This has been subject of some concern to competitors who claim they actually employ people to go into competitors taxis and recruit drivers they like, then go only a block if they feel there is no chance of recruiting the driver.

A driver for Uber usually receives a phone from Uber.  They also have many rules and standards they ask drivers to adhere to. Uber does not help pay for the vehicle, the health insurance, car insurance or anything else for the driver although I understand they do help recruit group plans and reduced rates for some policies.   Uber takes 20% of the drivers fare.    This is far less than other types of service take.  So, taxi drivers feel like they make more from Uber.   Many taxi drivers have told me they get more rides on Uber and in spite of the lower cab ride fares they make more money.   Many of the drivers drive late model fancy vehicles that would seem to be outside the price range of the drivers.   I believe they are able to deduct their vehicle on taxes in the US at least which would greatly reduce the cost of the vehicle.

The main way Uber seems to have of enforcing its regulations is the same system effectively used and created originally by Ebay.   The rating system has been incredibly effective for E-bay which has grown to do billions of transactions / day efficiently and with little problems.   I know how many transactions E-bay does because they use WSO2 software to mediate all their messages to and from mobile applications and web services and all their services.  On peak days the number of transactions routinely exceeds 10 billion.    This is a well oiled machine.   People are remarkably concerned about their reputation in such rating systems.  You can imagine for Uber where your very livelihood would be in jeopardy that drivers are going to want you to give them a 5 star rating every time.  That explains pretty clearly why the service I’ve experienced is so good.

Another important selling point to the Uber system is its “first mover advantage.”   I believe this is very significant.  One of the big advantages of Uber is that I am a known quantity on their system wherever I go.  Also, they are a known quantity to me.   I can go to Paris, Sydney, New York or one of more than 200 cities in the world where they have drivers and be assured I’m not going to be ripped off and have generally the same quality of service.  I don’t have to worry about local currency and other issues I’ve mentioned.   So, I may have 2 or 3 Taxi app services on my phone but I won’t be subscribing to every local countries App based taxi service.  I will naturally want to use the ones that work in most or all the places I go.    There is a tremendous pressure for Uber to expand to maintain its first mover advantage in as many markets as possible.

Summary Comparison

This is simple.  I get rides predictably from Uber where I may find I wait for an hour or more in some cases with traditional taxis. This is especially a problem if you, like me have to make meetings and need to be sure to get a ride.   I can take an Uber taxi anywhere in the world and not worry about being ripped off.   I don’t hassle with local currency, tipping rules or the whole money exchange process which typically adds a tedious and problematic end to the taxi ride.  I walk out of the taxi as soon as I get to the destination which is so liberating.   I have never had an Uber driver take me to the wrong location or take me on a circuitous path.   The drivers are friendly, the cars clean, in good functioning order and frequently as nice as any car you could be in.   This applies whether I have been in Paris, Asia in many countries including China, London and other places in Europe.   It applies whether in Florida or Nevada, Boston, New York.    The Uber fare is always surprisingly lower than the local comparable fair.   The only exception to this would be during surge pricing or taking a TukTuk in Asian countries.  There doesn’t seem to be a “Uber TukTuk” service.

The Riots and Objections

I’ve spoken to many people and read many articles which seem to assume that the fact Uber drivers are not regulated by some government means they must be criminals, loaded up on drugs, dangerous, unsafe.  The refrain is you don’t know who you’re getting.   However, I have no idea why people would make this conclusion.   It makes no sense as you have even less idea of who is driving a local taxi.  The Uber system like with E-bay seems to put an incredible onus on drivers to behave well far more than the assumption that people seem to ascribe to local regulatory authorities.  They also seem to attract a more intelligent driver in my experience.  However, in spite of this unassailable reality many people have an innate hostility to Uber and its service.

Let’s take each of these points I made originally and consider the validity  as objectively as I can.

1) Uber is “disrupting in foreign countries which are not used to disruption

This seems clearly to have some truth to it.  Many countries haven’t seen a Toyota come in and displace millions of workers because in most cases they didn’t have an indigenous car manufacturing industry.   Many other disruptions have happened against high tech or large industrial companies which have high paid workers who usually aren’t protected as lower paid workers are.   So most people in the world and countries are not used to disruption like this.   It has come as a surprise to many people that Uber could offer a service and succeed in their markets.  Change itself is disturbing to people not used to it.

2) Many International countries may be much less “docile” on labor rights than the US.

Uber’s model means that they don’t employ the drivers.  A driver may receive a bad rating and lose their contract tomorrow.   Uber takes 20% leaving the driver to pay for their car, health and car insurance, maintenance etc… For most drivers this seems to result in a lot more money for them at cheaper fares for passengers and Uber still hauling in billions in income but the riders have no guaranteed income.   Nonetheless, this is a win-win-win if I’ve ever seen one but the down side is that drivers have no “protection” that many countries consider important.

California recently ruled that a driver was really an employee.   California is particularly a stickler about contractors always trying to find a way to get more tax revenues.  I doubt seriously california is concerned for the drivers health care or unemployment insurance or whatever.   However, the point is valid.  If Uber employed its drivers instead of using them as contractors they would have to change the formula drastically and possibly raise rates.

In most cases, becoming an employee would mean Uber would pay your taxes and insurance costs, possibly buy your vehicle, maintain it, similar to how many taxi companies work.  Another even more significant point is that Uber’s ability to fire an employee for a couple low ratings might disappear.   It might unravel the Uber model but I don’t think so.   I think they could still find a way to make the system work.   It would take changing their system, taking on additional liabilities and costs.  A lot of regulation to deal with and more hassle but they could do this and still maintain the basics of their service.   I think some countries or states or cities will require things like this and Uber will eventually have to deal with variations in its model.

3) Politicians and others see an opportunity to gain traction with voters by siding with existing taxi drivers or nationalist sentiment

I won’t venture to accuse any individual politician but this kind of thing must be happening.

4) Graft, i.e people paid off to present obstacles to Uber

Again, I have no idea that such techniques are in play in some places but common sense suggests it must be happening.  The opposite could be happening as well.  Unfortunately in my career I have known of situations where we have lost deals because we didn’t make appropriate contributions.  Fortunately I have worked for companies who refused to deal in such behavior and I know we lost deals as a result.  The fact is such behavior is more common than may be assumed by many people.

5) Genuine concerns that Uber is trampling on people

As I mentioned earlier many people may believe that Uber in fact does trample on people.   This is basically a political point and arguing it would be a waste of time for me.  The problem for Uber is that it is unlikely they can change the political situation of all the countries they want to deal in.  So, they are going to have to make concessions to their business model eventually.  They will presumably fight this as long as they can but at cost of being portrayed as the villain.

6) The pace of change Uber is forcing on people is too fast

Obviously Uber wants to grow as fast as it can and establish a foothold wherever they can.  They are moving at a blistering pace in acquiring new markets.  They just raised in May $1Billion just to expand in China.  Uber is the largest call Taxi service in many Chinese cities already reportedly.

People in general can be resistant to change.  For a business that has seen little impact from all the technology change of the last 50 years the resistance is natural but usually people don’t start blowing things up because they fear change.

7) Ubers model is flawed and may need to adjust especially in some countries to fit in with local laws

Due to the historical facts like medallions and local regulation of traditional taxi drivers it is eminently possible that Uber has an unfair advantage.   Frequently, local taxi cab drivers are employees and have costs and taxes that Uber drivers don’t have. This is typical for disruptive companies.   It is possible Uber will have to face special taxes or other restrictions which level the playing field.

A lot of people think Uber’s advantage is in its cost structure and lower fares.  I don’t find that is important.  To me the compelling advantages of Uber are in its service as I have described.  If their fares were the same or even higher than traditional cabs I would pay for the convenience.  So, I think they have considerable room for increased costs before it would really impact the business model.   Others believe that if Uber has to change its model to employ people or other changes it will kill their advantage.  I think not.

8) Uber has become a flashpoint that isn’t the real issue but a convenient scapegoat

Frequently one issue is used to deflect from the real purpose of something.  It is very possible that some are using the fear of Uber to drive other political change for their own purposes not because of a real concern for Uber’s purported damage or risk. I find the claims of people who say they are concerned about rape by Uber drivers or lack of safety or regulation as disingenuous.  There is no reason to believe that regular taxi cab drivers wouldn’t be just as likely to be rapists or more.  An incident is San Francisco claimed an Uber driver hit a biker on purpose.  Maybe the driver did but how many incidents with local cabs who have done the same thing?

Wired magazine wrote a review that said the Uber driver knows where you live so of course you’ll give 5 *’s.   Isn’t it true if I take a taxi to my home he’ll know my home as well?  If I don’t tip him/her well or he/she is a nefarious person.  People who would do something like that would be in serious trouble.  It seems more likely it would be one of the taxi drivers I’ve been with than an Uber driver who rob my home.

The Boston.com article below is typical pointing out that Uber drivers have to pay for expenses.  They fail to mention that Uber drivers only pay 20% of the fare so they have ample income compared to regular taxi drivers to pay for these costs.

I believe that people who make these claims are either very poorly informed or have ulterior motives.   The writer of the Boston.com article never mentions experiences with regular cabs.  Have those always been perfection?

Other Articles on this topic of interest:

A look at challenges Uber has faced around the world

Uber problems keep piling on

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