Uber

= a company that uses a mobile application to find available private cars for people looking for an alternative to taxi cabs.

Description

Mark Pesce:

"This trip I got to experience a brand new car service, Uber. Designed to work with a high-end smartphone, it is an app that shows your location on a map of San Francisco, along with cute icons showing nearby Uber cars. You request a pickup, then that request gets transmitted to those cars; when one of the drivers agrees to pick you up, the other car icons disappear, and you see that driver’s icon make its way across the map, toward you. It’s wonderful, because it takes all the mystery out of a car service - you know how far away the car is, and how long you’ll have to wait.

While Uber is pleasant for the passenger (it costs anywhere from one-time to three-times a normal taxicab), it’s a complete revolution for the drivers. Limousine drivers live by their bookings, which are generally spaced well apart; hence, the drivers often have some unpaid downtime. Those drivers can now launch the Uber app on their own smartphones, bidding for jobs as they come in. They can earn 50 per cent more on a shift, because they’re more fully utilised. By taking the inefficiencies out of the system, Uber was able to create a rival taxi service in San Francisco with nothing more than a few computers and a smartphone application. They didn’t need to buy any cars, hire any drivers, or lease any office space.

Uber is expanding, moving into Silicon Valley’s Palo Alto, New York and Austin, Texas -- where you can to book a pedicab through the service. As the service expands, taxi companies throughout the developed world won’t know what hit them: Uber (or an Uber-clone) will quietly move into their markets, completely disrupting the business. When it comes to Australia, the oligopoly of Macquarie’s CabCharge won’t stand a chance. This is the new way of doing business: radically more efficient, more money to the drivers, and better customer service." (http://www.abc.net.au/unleashed/45026.html)

Discussion

How Uber is Changing Limousine and Transportation Economics

Excerpted from Mark Pesce's Next Billion Seconds:

"Limousine drivers like Charles love Uber, too. Before the service launched, those drivers would spend half their time doing nothing, idling their hours while waiting for the next pickup call to come in. Drivers now add Uber jobs to their regularly scheduled pickups, nearly doubling their earning power within the same eight-hour shift. Mobiles have given limousine drivers the same economic acceleration that mobiles gave the fishermen of Kerala fifteen years ago – creating a highly efficient market which satisfies an increased demand, dramatically improving the earning potential of everyone connected.

Economists recognize that when a sudden change in market dynamics produces a burst of new wealth it encourages people to enter the marketplace. A ‘gold rush’ begins, as everyone looks for a way to vacuum up some of the new-found fortune. Most markets have ‘barriers to entry’ – to be a fisherman, you need a boat and rigging and nets and a crew; to be a driver you need a rather pricey limousine. These barriers make it difficult for the market to become immediately overcrowded, but the lack of competition increases the incentive for everyone already participating in the market to maximize their productive behavior. The more productive you can be within a closed but growing market, the more you will earn.

For Uber drivers, this means putting their limousines where they’re most needed. But they’re not alone in this, so the busiest parts of the city are also those with the greatest supply of drivers, which means drivers still have to wait for jobs. Even closed markets can be locally oversupplied – particularly where participants within a market can smell all the money to be made.

Uber drivers run a companion version of the smartphone app that Uber customers use. This app allows them to bid on pickups, but does not reveal the location of any of the limousines around them, competing for the same business. Uber’s drivers have less information than Uber’s customers. As a consequence, limousines tend to cluster, because drivers don’t know that they’re all converging on the same small – and presumably lucrative – area.

My driver Charles has a solution for this dilemma: he owns two mobiles, and runs both Uber apps. The driver app delivers pickup requests, while the customer app reveals the locations of any limousines nearby. “One evening I came into the city,” Charles reports, “and there were four limousines within a block.” Knowing this, Charles moved on, finding another, under-served area of the city, and got plenty of work.

Uber may not want its drivers to know about the location of other drivers, but it wants to reveal that information to its customers, so drivers simply poke holes in the wall that separate the two sides, peering through, and learning where to position themselves for greatest profit. The drivers use all information on offer – from every source – to give themselves the greatest advantage.

Charles says he’s one of the few Uber drivers using his smartphone to give him the inside track with a degree of omnipresence. It’s a technique new to him, and he doesn’t say whether he thought it up himself, or if he copied it from another driver. Either way, as Charles’ success becomes more visible, his peers, watching what he does, will copy his keys to success. What he knows will be replicated throughout the fleet of drivers until this exceptional behavior becomes pervasive and normal.

Soon, Uber will either need to provide drivers with all of the information drivers provide to Uber, or every Uber driver will use two mobiles, one for orders, and another for omnipresence. As drivers learn more about one another, they learn how to avoid economically damaging behaviors, such as clusters. The drivers self-organize, spacing themselves throughout an area in a way which generates the greatest economic advantage for each individual. They will act as a unit – as if they all answered to a common mind – although they have no central command, accept no controlling influence, and simply work to maximize their own financial interests. This emergent behavior – seen first along the Kerala coast – is the inevitable consequence of connectivity." (http://thenextbillionseconds.com/2012/03/13/19-loop/)

How Ubers Algorithmic Monopoly is Destroying Open Cab Markets

" it’s important to recognize just what Uber actually represents. Uber started out named UberCab, and ‘uber’ is a German word which means ‘over’ or ‘better than’ or ‘the ultimate’. So UberCab meant, the ultimate cab. At the core of Uber’s strategy has been lobbying and advocacy to make sure that it can get into regulated cab markets. And this is so Uber can ‘disrupt’ and destroy them.

A healthy cab ecosystem relies on expectations of a market (with price-fixing by political authorities, mostly taxi commissions). There have to be people trying to hail cabs, and cabs driving around to find customers. As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.

Open cab markets aren’t gone, but they will die eventually. They will go the way of open cattle, pig, and chicken markets, which mostly don’t exist anymore due to concentration in the meat market (read The Meat Racket for a great understanding of what happens when markets are captured by big business).

Uber’s ascendance hasn’t come without controversy. A lot of people are focused on the company’s use of surge pricing, which is when the company charges more money to customers because there is ostensibly high demand, such as during snowstorms or during New Year’s eve. It’s a controversial practice, to say the least.

The CEO of Uber, Travis Kalanick, has responded by basically saying ‘deal with it, it’s market-pricing.’ His argument is that higher pricing brings more drivers into the market, matching supply with demand. It is the optimal way to get as many people home as possible.

His argument, though, is phrased somewhat oddly. Kalanick notes “we are not setting the price, the market is setting the price.” But then, non-ironically, immediately adds “we have algorithms to determine what that market is.” In other words, the prices his company sets in the markets that his company controls are somehow, well, natural. So complaining about this is like complaining about the rain.

This is, of course, absurd. Uber is aiming for an algorithmic monopoly, control of a market through contract pricing. That the contract pricing is done with a complicated algorithm doesn’t make it a market, it just makes it complicated. Standard Oil would love this rationale.

There are three big issues with Uber’s model.

One, Uber controls all of the information in this so-called ‘market’. One of the premises of a market is relatively balanced information on the part of both the buyer and the seller. But Uber is neither a buyer or seller, it’s a broker. And as a broker, it shows the buyer and seller only what it wants to. Its algorithm is not regulated nor is it transparent, so neither the buyer or the seller has any credible information. This isn’t a market, it’s a monopoly. It’s a special type of monopoly, an algorithmic monopoly. It may mimic market-style pricing, or it may not. That’s up to Uber.

We’ve already seen that Uber withholds supply to drive up prices, as illustrated by a text message encouraging drivers to stay home so pricing would surge. Uber denies doing this, but even the denial proves the point that Uber absolutely controls all aspects of the ‘market’. Here’s the company’s PR on the text message debacle.

...

"The company wanted to reward new drivers…." But wait, how is ‘rewarding drivers’ consistent with market pricing? Markets don’t reward anyone, they simply clear at a price. So the answer is, it’s not a market, it’s contract-pricing controlled by Uber.

Right now, the only competitive force working to constrain Uber is the open cab market (well there’s politics, but that’s being swept away effectively). As this disappears, will Uber’s algorithms, aka the magical market, adjust as well? I think we can count on it. Uber believes in supply and demand, and when Uber is the only supply, well…

The second problem is simpler to explain. Cab drivers have a history of discrimination, whether it’s not picking up African-Americans or refusing to go to certain neighborhoods. Uber solves this problem, as Latoya Peterson explains in Racialicious. Here’s a sample comment.

A good example of race, class, and gender intersecting and the cost of racism and sexism. As a black woman I don’t get discriminated with Uber and feel safer than hailing a cab since my ride is tracked but if I couldn’t afford Uber, oh well. I take Uber all the time and have never been sexually harassed or treated rudely like I have the many times I’ve taken cabs in DC over the past 10 yrs.

Getting rid of racism is a good thing. But in eliminating one problem, this service introduces another. You have to have a smartphone and credit to use Uber. As Uber displaces the regular cab market, racism as a screen for cab drivers will decline. But the new screen, which will be contained in the magic market, aka Uber’s algorithm, will be whether you have a credit card and a smartphone. That means you can’t give someone twenty dollars for cab fare. It means that an entire slice of the population simply can’t get into Uber’s magic market.

And three, Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

Uber is a fascinating and convenience-inducing shift in urban logistics, for now. I’ve used it. But what the company is really doing is supplying a governing service, replacing taxi commissions, and taking a fee for doing that. This means no input from the public, and since the public seems to hate politicians these days, maybe that’s what people want. But still, to the extent that there is interest in democratic decision-making, algorithmic monopolies are something antitrust authorities should watch. Right now Uber is wringing a lot of inefficiency out of the taxi industry. But eventually it will have so much power that it will introduce problems of its own." (http://mattstoller.tumblr.com/post/82233202309/ubers-algorithmic-monopoly-we-are-not-setting-the)

The real Uber experience from a driver point of view

Claire Callahan Goodman:

"As a former software developer, I was interested to see how the apps work together to get the closest driver to the rider as fast as possible. The first thing I found out was that Uber’s software sometimes wildly underestimates the number of minutes it takes to reach a rider. The driver has 10 seconds (and sometimes less) to accept a request, which shows the number of minutes to reach the rider. If you accept the request, you see the address of the rider. About half the time, the number of minutes estimated is substantially less than the real time it will take.

Let me give you an example. I received a request indicating it would take “three minutes” to reach a rider. I was in downtown Oakland and the rider was north of the Berkeley campus. With stoplights and traffic I knew it would take 15-20 minutes to reach the rider. As I began driving, I phoned the rider and gave him my ETA. He canceled to try again for a closer driver – and I don’t blame him.

This happened to me over and over again that night. At one point, I was on Piedmont Avenue in Oakland, and I kept getting ride requests “three minutes” away – that is, three minutes away from Piedmont Avenue in Berkeley. Could it be possible that Uber’s GPS software does not use map coordinates to calculate distance? It certainly seemed to be true, considering that this same error happened all night, until I finally logged off in order not to get “dinged” for too many cancellations.

Having accepted a rider, the driver has no idea of the destination. The rider(s) get in, and tell you where they’re going. I often had four riders at a time. Many times, I drove two miles to pick up four college kids and drive them six blocks to a different pub. This was a typical experience in my college town. That’s a money-losing ride.

If you accept each ride request sent to you, you will end up a long way from home. You must then go “offline” and drive home. This is standard taxi driving – but for less money.

I didn’t want to do this job full-time. Hourly rate is what mattered to me. Uber kept me very busy, but the software malfunctioned at least 50 percent of the time, leading to cancellations when I let the rider know the real ETA. Uber has lots of hidden charges and fees. However, since I was driving during “surge” hours, with back-to-back riders, my hourly rate should reflect the best hourly rate one can earn, driving for Uber. Bottom line: After subtracting all their charges and fees — plus Uber’s 20 percent — driving for Uber during surge pricing, with a constant flow of riders, pays less than $10 per hour. Then you must deduct insurance, fuel, maintenance and taxes. At least for me, driving for Uber is not worth it. And that’s a shame. Because I know the area, speak English and communicate professionally with riders. But I also demand closer to $15 per hour.

Also, considering the company’s huge profits, Uber owes it to the little guys doing their driving to provide much better software, real-time accurate time estimates, and a usable GPS for drivers who don’t have one in their car. To initiate a call to the rider, you now have to dial a number. This should not be necessary. The driver app should have a button for “call rider.” Drivers should not have the option to text a rider while driving! They have one now.

It’s physically painful to read about Uber’s ridiculously high earnings. They charge less than taxis for the same service, then deduct their 20 percent before paying their drivers. The driver assumes the expense of insurance, fuel and maintenance. I can only assume the other drivers have not done the math. This business model could work, and the quality of drivers would be much better, if Uber reduced its percentage of the take to 10 percent. That will only happen when enough drivers do as I have done — and quit.

I only tried using Uber as a rider once. I had to get to a local hospital for minor eye surgery, but I was not supposed to drive myself home. My first Uber request resulted in an estimated “nine minute” wait. After waiting 20 minutes, I called the driver, who did not speak any version of English I am familiar with. He claimed to be relatively near my house but was unable to tell me how he was going to get there. I canceled and tried again. This time I got a young woman who also apparently didn’t speak English well. After waiting, again, I called her too. Asking where she was, I was given two wildly different answers, in quick succession. Nonetheless, I asked her if, from her current location, she knew how to reach my address. She admitted she had no idea. Her lack of ability to understand me made it impossible to give directions. Neither of these drivers called to let me know they weren’t coming, or to ask how to get to my location. I drove myself." (http://www.salon.com/2014/11/30/i_quit_miseries_of_an_uber_driver/)

The Rise of the Precarious Contract Worker

BY KYLE CHAYKA:

"It’s ... creating a new, precarious branch of the labor force in the name of innovation and job-creation.

Take the race to disrupt the taxi industry, for example. Uber and Lyft are competing in the hot contest for market share to make more cars available to more people for more money—some of it flowing to the individual drivers, of course, but with the companies as the main beneficiaries of capital. The two businesses are constantly undercutting each other, offering new deals and better services to customers—but not to their drivers, who form a vital yet underserved part of their business plans.

Several months ago, Lyft launched in Brooklyn, where I live. To promote the service, the company offered riders 50 free rides—as long as the rides were under $25 each and you used up your 50 credits within two weeks of signing up. Though the launch was a little buggy, coasting around the city in free cars was great, and the drivers loved it, too. The initial subsidy meant that the drivers who were early adopters never went without a fare, and users were likely to spend more time and money on the platform than they otherwise would have.

Lyft and Uber both market themselves in part as a way for amateur drivers to take on taxi work as a kind of wholesome, self-driven small business, like the postindustrial equivalent of selling vegetables out of a home garden. The Lyft honeymoon had the giddy feeling of being given free money for parties on both sides of the user/driver relationship. Several drivers even told me about users who had them start a ride, cancel it when it neared the $25 mark, then restart the cycle while they were still in the car, linking together multiple free trips to cover larger distances. (The app makes spending money frictionless; it also made not spending money frictionless.)

Everything was great. And yet the Lyft drivers were not quite what the company portrayed them as. Lyft and Uber both market themselves in part as a way for amateur drivers to take on taxi work as a kind of wholesome, self-driven small business, like the postindustrial equivalent of selling vegetables out of a home garden. In Brooklyn, where Manhattan’s yellow cabs are scarce and private car services dominate the landscape, many of the drivers who jumped to join the new digital workforce were actually those who were already in the market.

In each smartphone-hailed car I’ve ridden in here, the driver has been juggling a collection of devices that wouldn’t look out of place on the desk of a technology company chief executive. There’s an iPad emerging from a stand near the shifter, an iPhone with an app running mounted on top of the dashboard, and yet another phone in the driver’s hand. One machine is for Lyft, the other for Uber, the last for the car service that likely rents them their car. In my experience, there’s no such thing as a pure Lyft driver. Rather than working for a single taxi company, these drivers are hustling between several services that each provides them with just a portion of an income and no stability whatsoever.

This is what Kevin Roose calls Silicon Valley’s “contract-worker problem” in New York magazine. “The freelance model is being abused,” Roose writes, “with workers being treated as if they were on payroll without getting any of the benefits afforded to payrolled employees.” It’s also called the “1099 economy”—normal full-time employment practices are being disrupted as more and more workers transition to a time- or commission-based pay scale.

The structure has its benefits, chief among them allowing workers to set their own hours. But in the grand scheme, the optimism with which CEOs approach how they have apparently liberated blue-collar workers is delusional. “We can’t tell [drivers] what to do or how to do their job,” Steven Hsiao, the CEO of Spoonrocket, a company that delivers fresh-cooked meals to San Francisco residents using contracted drivers, told Roose. “They’re their own entrepreneurs.”

The comparison is laughable. Entrepreneurship comes with a huge amount of risk and precarity. That’s fine when you’re buoyed by useful technology skills, experience, and stock holdings, as Hsiao doubtless is. When you’re a driver whose “entrepreneurial” endeavor depends on the whims of the companies you’re working for—who are themselves backed by unstable venture funding—the benefits of being your own business seem less desirable.

Companies like Uber, Lyft, Homejoy, and Fiverr are platforms for labor the same way Twitter and Tumblr are platforms for content. And both content and labor have become devalued as a result of their growth." (http://www.psmag.com/navigation/business-economics/uber-lyft-homejoy-dangerous-rise-temporary-technology-worker-91270/)

Uber feeds on class inequality

Leo Mirani:

"There are only two requirements for an on-demand service economy to work, and neither is an iPhone. First, the market being addressed needs to be big enough to scale—food, laundry, taxi rides. Without that, it’s just a concierge service for the rich rather than a disruptive paradigm shift, as a venture capitalist might say. Second, and perhaps more importantly, there needs to be a large enough labor class willing to work at wages that customers consider affordable and that the middlemen consider worthwhile for their profit margins.

Uber was founded in 2009, in the immediate aftermath of the worst financial crisis in a generation. As the ride-sharing app has risen, so too have income disparity and wealth inequality in the United States as a whole and in San Francisco in particular. Recent research by the Brookings Institution found that of any US city, San Francisco had the largest increase in inequality between 2007 and 2012. The disparity in San Francisco as of 2012, as measured (pdf) by a city agency, was in fact more pronounced than inequality in Mumbai.

Of course, there are huge differences between the two cities. Mumbai is a significantly poorer, dirtier, more miserable place to live and work. Half of its citizens lack access to sanitation or formal housing. Another distinction, just as telling, lies in the opportunities the local economy affords to the army of on-demand delivery people it supports. In Mumbai, the man who delivers a bottle of rum to my doorstep can learn the ins and outs of the booze business from spending his days in a liquor store. If he scrapes together enough capital, he may one day be able to open his own shop and hire his own delivery boys.

His counterpart in San Francisco has no such access. The person who cleans your home in SoMa has little interaction with the mysterious forces behind the app that sends him or her to your door. The Uber driver who wants an audience with management can’t go to Uber headquarters; he or she must visit a separate “driver center.” There is no denying the seductive nature of convenience—or the cold logic of businesses that create new jobs, whatever quality they may be. But the notion that brilliant young programmers are forging a newfangled “instant gratification” economy is a falsehood. Instead, it is a rerun of the oldest sort of business: middlemen insinuating themselves between buyers and sellers.

All that modern technology has done is make it easier, through omnipresent smartphones, to amass a fleet of increasingly desperate jobseekers eager to take whatever work they can get." (http://qz.com/312537/the-secret-to-the-uber-economy-is-wealth-inequality/)

More Information

How much do drivers really make ?

• http://www.slate.com/articles/business/moneybox/2014/10/uber_driver_salary_the_ride_sharing_company_says_its_drivers_make_great.html

• http://nypost.com/2014/11/02/ubers-claim-of-90k-average-pay-for-drivers-is-overestimated/

• http://www.businessinsider.com/how-much-money-uber-drivers-really-make-2014-7

• http://beta.slashdot.org/story/210435 : Taxi Medallion Prices Plummet Under Pressure From Uber