Uber cited as example of the sharing economy, but its vast revenues suggest otherwise
A new generation of start-ups has sent the world into a frenzy. At the forefront of the movement – like a flaunting, radiant cover model – is the ride-sharing technology company Uber.
It is valued at about $50-billion, making it the most valuable start-up in the world, and some say the fastest-growing.
Leaked financial results show that the company had gross bookings of $3.63-billion in the first half of last year, and its net revenues are expected to more than double this year. It has managed to raise more than $9-billion in funding and increased its market share from 15% to 46% in the United States in just one year.
It has earned its own verb (“Let’s uber!”) and more recently has become part of a catchphrase that suggests its hyperbolic presence. It’s “the uber-fication of everything” and refers to an expectation that other industries will be disrupted and transformed in similar ways to those that were affected by the ride-sharing trailblazer.
Uber presides over the so-called sharing economy, which thepeoplewhoshare.com describes as “a socioeconomic ecosystem built around the sharing of human, physical and intellectual resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organisations.”
Key to Uber’s business model is the fact that it invites partner-drivers and does not employ them. That means taxi drivers registered with other companies can become approved Uber drivers as well, supplementing their traditional business with driving opportunities from the ride-sharing app.
But it seems that many traditional taxi drivers would rather “uber” full-time. Drivers in busy areas say they are making good cash. Three in the Cape Town City Bowl area independently made the same estimation: that they are turning over R32 000 a month, and significantly more during peak periods.
One traditional taxi driver recently picked up a passenger from the airport at 11pm, and said it was only the second trip he had made all day. He had been “working” since 4.30am. Asked if he had considered joining Uber, he said: “Yes, I would like to. But there is a one-year waiting list.”
Uber Africa says waiting times vary, but other drivers wanting to enter the network in South Africa also estimate it takes about a year.
The company has no doubt eaten into the traditional taxi market share, but Uber could not be drawn on figures although it added: “Uber has already enabled economic opportunities for 4 000 more people since we launched in South Africa, and facilitated one million trips in 2014 and two million in 2015.”
Uber has borne the wrath of its counterparts and lawmakers in various parts of the world by legally escaping much of the red-tape and institutional costs that traditional taxi companies are required to shoulder. But Uber Africa is insistent that it does play its part socially.
“Uber partners are responsible for their own tax affairs. However, we give them the necessary information to report based on national requirements,” said Samantha Allenberg, the spokesperson for Uber Africa. “Uber’s system is bringing transparency and traceability to an industry that is almost entirely cash based, and where there are concerns of under-reporting for tax purposes.
“Uber complies with all applicable tax laws, and pays the relevant tax in every territory it operates in … Uber is investing in the South African market. We are not a virtual operation – we employ a local operations teams and provide economic opportunities for partners in the local economy.”
And new business innovations are springing up in its wake. One example is DriverSelect, a new online platform that allows Uber drivers to browse for cars that are available for rent. “It’s like Airbnb for the Uber world,” said Howard Moodycliffe, chief executive of DriverSelect. “Our aim is twofold: to provide a platform that gives Uber drivers the ability to choose a rental car that works for them and to provide an efficient way for car owners to advertise their cars and to select drivers they want to rent to. We’re giving owners the absolute flexibility to create the deal that they want to.
“We are on hand to guide them as to which deals work best,” said Moodycliffe. “It is important for owners to understand that their deals will be viewed alongside all of the others on the platform. What we bring to the Uber ecosystem is transparency for both Uber drivers and car owners.”
Dylan Chazen, a diesel fitter in Johannesburg, has just invested in an Uber-approved vehicle which he is going to rent out through DriverSelect. Owners typically charge drivers between R2 000 and R3 000 a week for rental, and between 25 and 50 cents a kilometre on top of that. The revenue that the driver earns, less the weekly rental, is paid by Uber directly into the driver’s bank account. Through an interface between DriverSelect and Uber, Chazen will be able to see key information about any driver interested in renting his car, including their star rating, how many trips they’ve made in the past year, and their average earning over that period.
Chazen has opted to pay DriverSelect a further management fee of 12% (of the driver’s weekly earnings) for them to fully manage his car. That way, DriverSelect will handle any vehicle fines, accidents, or late night phone calls from the Uber driver renting his car. They’ll also monitor the maintenance needs of the car, ensuring it complies with Uber requirements and reminding Chazen when it is due for services. After taking into account the fees, insurance and the monthly instalment for the car, Chazen hopes to make between R3 000 and R4 000 profit per month. “If Uber goes down then you’re stuck with the car, but that’s about as much as you need to worry about,” he said. “The risk is very low.”
The sharing economy sounds almost communistic in nature, but some argue that it is having the opposite effect – that it’s creating a bigger gap between the haves and the have-nots; that the masses are creating a new “monarchy”, which wields extreme economic power and controls markets and prices.
On the face of it, participants in the sharing movement appear to be getting something out of it: in a study involving 90 112 people conducted by Crowd Companies, 75% of “sharers” mention convenience and more than half say that price is a driving factor.
But several analysts argue that there are only a few real winners.
Andrew Leonard, a staff writer for the online magazine Salon, says that the sharing economy is being proselytised in much the same way as the early internet “gift economy”. “This amazing information-sharing network, built from code that anyone could modify or copy, would benefit all of society,” Leonard says. In the same way, “sharing apps, we are told, builds trust between consumers and service providers. Sharing our stuff also conserves resources.
“But there’s one crucial area where the linkages between the gift economy and the sharing economy break down. Reciprocity. The sharing economy doesn’t work quite the same way. The most high-profile sharing economy apps are designed to generate significant profits for a relatively small number of people.”
Proponents of this argument could point directly to aspects of Uber’s business model as a case study. Take “surge pricing technology”, which means you pay more for a ride when demand is high. The model has infuriated some users, who last year complained about being charged up to R3 000 for a ride on New Year’s Eve in Cape Town.
The flipside of this is that charges drop when demand is low. Earlier this year, Uber announced it would cut fares by 20% in the major metros for the winter months.
On the face of it, it’s benefiting consumers, but some partner-drivers argue that they are bearing the brunt of the profit-chase.
Niel Smit, a partner driver in Stellenbosch, published his concerns on Fin24. “Initially it was a very ‘sweet deal’ earning income whilst being available for trips. Later that was changed and changes just escalated, changes announced without prior notice, or very short notice, without any deliberation with partner-drivers,” he said. “It seems to us that Uber makes changes that benefit them very well but the brunt of that is paid by the partner-drivers in longer hours, more maintenance and higher fuel usage.”
And then there are Uber’s grand plans: eventually to sit at the helm of a driverless operation. The company has recently unveiled a self-driving vehicle and will roll out a driverless project in Pittsburgh, Pennsylvania, next week. If the long-term plans succeed, Uber’s 1.5-million partner-drivers will suddenly find themselves without a partner and income.
Artifican intelligence commentator Scott Santens thinks Uber could potentially be directly responsible for eliminating more than 10-million jobs in the US alone.
Uber’s founder, Travis Kalanick, has said the company simply “has to” get the self-driving concept right in order to survive. But if it does, who will really be doing the sharing?