Jim Stergios

Uber May Not Be Perfect, But Do We Want To Give The Transportation Revolution A Flat Tire?

/0 Comments/in /by Jim Stergios
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

This op-ed appeared on WGBH News.

You’d be right to shake your head at how the press hyperventilated about the “thousands of customers” that were going to be inconvenienced by the so-called “Uber strike.” If you live in the real world, you would, in fact, be hard pressed to find a single customer whose wait was related to the anemic driver participation in the action. The day-after media estimates clocked in at 25 protesters in London, 25 in Los Angeles, a couple of hundred in San Francisco (Uber’s headquarters), and 50 in New York City.

It’s not as if there is no reason for drivers to register their displeasure. While Uber remains a source of needed supplemental income for its remarkably diverse drivers, many of whom are new immigrants and even green card holders, over the last few years it has taken an increasingly bigger bite out of its drivers’ earnings.

So why was a company valued at tens of billions of dollars putting so much effort in countering a few voices and signs? Even token turnout brings reputational risks, but Uber’s real concern was that such protests are the start of a slippery slope. The company knows that caps on its potential growth come from two direct threats — unions and government regulation — and they have seen this movie before in parts of Europe, where it started small and grew into big opposition to the ride-hailing giant.

Today, for example, what had been a fast-growing presence in Rome is now blocked and fading from sight. There, the local taxi cab industry was behind the opposition, but it’s the same drill. In the United States, with private sector union membership continuing to decline, labor leaders are hungry for dues-paying members.

Some of the protesters called for creation of a so-called guild of Uber drivers (a union for contractors with common interests, which would likely later aim to recategorize contract drivers as traditional employees). That, of course, touches investor concerns about the as-yet-unknown Uber business model that makes money. Today, Uber is famous for many things, including losing money. Some excuse the losses as a normal rite of passage for a tech start-up: Losing money now is part of the investment to make a lot of money later.

Leading technology thinker, Peter Thiel, opined in his book “Zero to One,” that big innovation and big money most often occur in parts of the market where the start-up is providing a new service, often without direct competitors. In this way, the company operates somewhat monopolistically by setting prices that generate profits but are not excessive; they can build scale and box out new competitors.

The tech start-ups most at risk of continued losses tend to be in markets where they are in direct competition with existing retailers or direct service providers. Established markets tend to compete on price, so such tech start-ups have to think up ways to make money in a smaller margin world. Amazon successfully became a market leader, losing money for years (which is why it has not been paying taxes) as it built itself to the level of scale where it can squeeze or, in some cases, dictate pricing to its selling partners.

In 2010 the ride hailing industry was an interesting hybrid: A direct service industry with competitors in name only, protected from new market entrants by government restrictions. There were high barriers to entry as is evidenced by taxi medallion auction prices. In 2010, a medallion could be auctioned off for $600,000 or $700,000. Today, the number is in the range of $125,000. The high margins of yesteryear are one of the potential advantages that attracted Uber to the space. Now that Uber and Lyft have gone public, they are under more pressure to make money in the near term. If Uber and Lyft have to raise prices to do that, the question becomes, what happens to their market share?

But that’s not all that interested the company and its investors. If Uber and Lyft become just another glorified cab company, they won’t generate the kind of money investors sought nor the kind of big transportation transformation the founders and now leaders of the companies seek. They have seen themselves as the start of a transportation revolution, and the real business model is premised on automated, that is, driverless cars. That’s where the big money and big innovation are. The question for both companies in the next five to 10 years is whether they will make enough money and fend off unions and government regulators long enough to make money and preserve their capital for big innovation investments that will enable them to lead the revolution.

There are more questions for regular folks like us. Will unionization and regulation stop the transportation revolution? Is the transportation revolution worth the loss of jobs it could bring? More broadly, how do we get our arms around potential job losses in low- and medium-skill sectors like ride-hailing?

 

Get Updates on Our Transportation Research

Recent Research:

MBTA retirement fund is headed for a financial reckoning

The new MBTA Retirement Fund Actuarial Valuation Report shows the fund is only about 51 percent funded. In 2006, it was 94 percent funded. A “death spiral” generally accelerates when retirement system funding dips below 50 percent.

Installing bike and bus lanes requires public debate

The problem isn’t with the concept of bike lanes but, rather, the lack of public conversation or transparency. Municipal governments are changing the infrastructure and character of entire neighborhoods and small commercial centers with little input from those most affected.

MBTA’s Runaway Crisis: Legacy of Neglect Demands Comprehensive Reform

This week on Hubwonk, host Joe Selvaggi talks with Andrew Bagley, Vice President for Policy and Research at Massachusetts Taxpayers Foundation, about their recent report entitled, The MBTA Crisis is Complicated - Fixing It Will Be Too, diving into the details on why the T is in crisis and what the public must demand of policy makers to get it back on track.

Looming Budget Crisis Reveals MBTA’s Dependency on Federal Funds

0 Comments
/
The MBTA is about to lose federal funding at a critical moment when ridership has not yet recovered. Will the state make up the difference?

Study Finds Pension Obligation Bonds Could Worsen T Retirement Fund’s Financial Woes

A new study published by Pioneer Institute finds that issuing pension obligation bonds (POBs) to refinance $360 million of the MBTA Retirement Fund’s (MBTARF’s) $1.3 billion unfunded pension liability would only compound the T’s already serious financial risks.

Study Documents The Design Challenges, Contracting Issues, And Delays Facing New MBTA Fare Collection System

This new study unearths previously unseen communications between the MBTA and its contractors, showing that the MBTA’s efforts to modernize its fare collection system, including allowing payments with credit cards and bringing “tap and go” technology to Commuter Rail and ferry lines, was riddled with technological challenges and difficulties overseeing contractors as early as 2019, culminating in a 3-year delay to the project’s full implementation.

Transit Innovation Explored: A Bus As Fast As A Train?

Hubwonk host Joe Selvaggi talks with transportation expert Ian Ollis about the findings of his new research paper, "Bus Rapid Transit: Costs and Benefits of a Transit Alternative," which examines the benefits of building Bus Rapid Transit to serve communities looking for faster transit alternatives to a car.

Study Finds Bus Rapid Transit Can Offer Cost-Effective Benefits

Bus rapid transit (BRT) incorporates unique features such as dedicated lanes to provide reliable and cost-effective service while reducing congestion and its detrimental environmental impacts, according to a new study published by Pioneer Institute.

Study Raises Concern That Annual T Fare Evasion Costs Could Rise By More Than $30 Million Under AFC 2.0

According to the Federal Transit Administration (FTA), the MBTA’s $935.4 million fare collection system (AFC 2.0) that is scheduled to be implemented in 2023 will reduce fare evasion by $35 million over a decade. But the T announced in 2021 that evasion could actually increase by up to $30 million under AFC 2.0, and now a Pioneer Institute study warns that insufficient fare enforcement could drive that figure even higher under the new system.

Pioneer Applauds MassDOT for Allston Project All At-Grade Plan

Pioneer Institute applauds the Massachusetts Department of Transportation (Mass DOT) for its decision to move forward with an all at-grade design for the “throat” area as part of the massive $1.7 billion Allston I-90 Interchange project announced yesterday by State Secretary of Transportation Jamey Tesler. Pioneer had proposed that MassDOT should revise its Scoping Report on the I-90 Allston Multimodal Project and recommend an additional option - a modified at-grade option for the throat area - to the Federal Highway Administration.

Open Letter: Extend the Term of the MBTA’s Fiscal and Management Control Board

Read Pioneer Institute's Open Letter urging policymakers to extend the term of the MBTA’s Fiscal and Management Control Board (FMCB), which is currently scheduled to sunset at the end of June.  The Letter also calls for the Control Board to continue to be made up of transit experts rather than political appointees, and recommends that an independent audit office be created that reports directly to the FMCB.

Traffic Strikes Back: New Transportation Strategies for Post-Pandemic Prosperity

Host Joe Selvaggi talks with Chris Dempsey, Director of Transportation for Massachusetts, about road and mass transit innovations that could address traffic challenges in a high-growth, post-pandemic economy.

Contracting with private providers could avert MBTA cuts

0 Comments
/
In response to a collapse in MBTA service in the winter of 2015, the newly formed Fiscal and Management Control Board (FMCB) set the authority on a course of bold reforms. The COVID-19 pandemic is once again presenting new and significant challenges to T leadership that require a rethinking of how service is delivered to stave off painful service cuts.

Pioneer Institute Statement on MBTA Service Cuts

Even as MBTA ridership and revenue have been gutted by the COVID-19 pandemic, the system remains a lifeline for so many residents in the Greater Boston area, especially those working in essential services like health care or in industries most impacted by the pandemic such as the restaurant sector.  Facing a crisis of this magnitude, T leadership must first do its all to rethink how it delivers services before reflexively making cuts.

Public Comment on I-90 Allston Multimodal Project

Last year, Pioneer Institute proposed that the Massachusetts Department of Transportation (MassDOT)  revise its Scoping Report on the I-90 Allston Multimodal Project and recommend an additional option - a modified at-grade option for the throat area - to the Federal Highway Administration (FHWA).  The Institute believed then and continues to believe that an all at-grade design will shorten construction time, lower costs, create fewer negative economic and congestion impacts, and improve neighborhood access to parkland along the Charles River.