Uber Economics


The crowd livery company Uber’s riding hot. It’s latest market valuation is $17 billion. Not bad for a company that connects freelance drivers to customers via mobile apps.

Uber’s success showcases the latest avatar of valley entrepreneurship. Uber doesn’t own anything tangible. The car belongs to the driver, the roads belong to the city. Uber merely connects the driver to the consumer, both of whom are free-agents. It’s more like Ebay than Easycab. What Uber (and Ebay and Google and Facebook and…) owns is data, which allows it to answer questions such as:

  • Who uses Uber and when?
  • Where do they live?
  • Where do they work?
  • Most importantly: Who are they?

Just as Google isn’t a search company but a machine learning company, Uber isn’t a taxi company but a machine learning company. Uber’s data is more valuable to its financiers than the taxi service itself. The young and well-to-do customers that use Uber are a goldmine for every advertiser: Target wants to sell them T-shirts and real estate companies might want to sell them houses. It’s important that Uber make money from it’s rides, but that’s not at the heart of Uber’s valuation. Late stage capitalism is about information, not manufacturing.

DRIVING INTO THE SUNSET

The Uber Myth

One of the great modern myths is the good guys — the FBI, the national guard, the marines — riding into the city and defeating those holding the city to ransom. That’s Elliot Ness defeating Al Capone in the Untouchables. Or George W. Bush defeating Saddam in Gulf War II, and now Uber defeating the medallions in Taxi Driver II. Now that the movie is over, we can all ride into the sunset. Except:

  • What about all those “communists” and civil rights activists hounded by the FBI?
  • What about all those undiscovered WMDs?
  • What about all those uninsured drivers?

A friend of mine who drives for Uber told me that Uber just slashed prices by 30%. Now it’s about half as expensive as the local taxi. That’s great for the customer, and even better for Uber, if it can attract more people to it’s service. Unfortunately, it’s a 30% wage cut for the driver. Uber might make more money by slashing prices, but it’s drivers make less.

CONSUMER CAPITALISM

Uber isn’t unique in this respect. It replicates the logic of the information economy in general. I am not sure if that logic is appreciated widely, so let me spell it out:

  1. Forge a direct link between the company and the consumer. Cut labor out of the equation.
  2. Focus on the customer. Argue that you’re improving their lives immeasurably.
  3. Outsource “real work” to contractors and freelancers rather than employees.
  4. Focus relentlessly on efficiency and cost cutting.

Labor costs are some of the biggest costs for a business. As long as laborers are employees they have some legal protections, but contractors have none. They are hired and fired at will and there’s downward pressure on wages all the time. Forget about health care and other benefits. Driving for Uber is a dangerous way to make a living.

Still, drivers are people and there will be public pressure to treat them with a modicum of decency. Why not get rid of them altogether? The natural denouement of Uber Economics is the end of labor. Consumer capitalism isn’t predicated on labor; it prefers robots for manufacturing and data for matching consumers to their needs. Uber is a perfect test case for this utopian future. Uber’s customers need a ride that’s safe and convenient. Why not replace drivers with driverless cars? A double whammy for Uber: no more pesky human beings protesting unfair treatment and a flood of data streaming from a fleet of driverless taxis. What more could they want?

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