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

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:

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.

During construction, the Allston Mass. Pike project must address commuters’ needs

/
As part of the state’s $1 billion reconfiguration of the Massachusetts Turnpike in Allston, Transportation Secretary Stephanie Pollack recently announced that a narrow strip of land known as “the throat,” will be considered for an at-grade option in addition to a proposal to rebuild the highway viaduct by Boston University.

COVID-19 Silver Lining: MBTA Takes Advantage of Ridership Lull to Accelerate $8.5 Billion Modernization Program

Pioneer Institute congratulates the Fiscal and Management Control Board (FMCB) and MBTA management for taking advantage of the precipitous ridership declines due to the COVID pandemic to dramatically accelerate ongoing construction projects.

Survey Suggests Demand for Telecommuting After COVID-19 Crisis

Citing an avoidance of the commute and more flexible scheduling, nearly 63 percent of respondents to Pioneer Institute’s survey, “Will You Commute To Work When The COVID-19 Crisis Is Over?” expressed a preference to work from home one day a week, and a plurality preferred two to three days a week, even after a COVID-19 vaccine is available. Respondents cite social isolation as the biggest drawback of remote work. The survey was conducted from April 22nd to May 15th, and received responses from over 700 individuals.

Study Highlights Transit Agency Best Practices in Response to COVID-19

The MBTA is taking a number of important steps to mitigate risks associated with the coronavirus, but some transit agencies around the country - from Philadelphia to San Francisco - have done significantly more, according to a new study that highlights the best practices of U.S. transit systems in response to COVID-19.

Open Letter to MA Governor Charlie Baker Regarding Boston Commuters from Points West

/
In an Open Letter to the Massachusetts Governor, Pioneer Institutes presents its concerns about the I-90 Allston Multimodal Project, and its impact on those who will be most affected during the project’s construction

A Control Board Equipped for the Next Phase of MBTA Reform

In a new policy brief out today, Pioneer Institute calls on the Massachusetts Legislature to extend the life of the MBTA’s Fiscal and Management Control Board beyond the current fiscal year ending on June 30, and adjust it to address the agency's new challenges.

Employers should offer commuter benefits to employees

/
There is no single solution to solve our traffic congestion crisis, but offering employees commuter benefits programs, which bring economic and environmental benefits, among others, can help.

Pioneer Urges MassDOT to Reconsider At-Grade Throat Option for I-90 Allston Multimodal Project

Pioneer's new Public Comment calls on the Massachusetts Department of Transportation to revise its Scoping Report on the I-90 Allston Multimodal Project and recommend an additional option to the Federal Highway Administration.

Dynamic pricing for the Expressway

/
By Jim Stergios & Conrad Crawford Published in The Boston…

An easy transportation fix? Commuter benefits

/
This op-ed appeared in The Boston Business Journal on October…

Study Finds Revived Merit Rating Board Taking Steps to Carry Out Statutorily Mandated Duties

The Merit Rating Board’s recent adoption of a regular meeting schedule, and related resolutions, are important steps in light of that Board’s 1976 governing statute.

Pioneer Institute Announces Winner of 29th Annual Better Government Competition

Pioneer Institute is pleased to announce that Los Angeles Country Metropolitan Transportation Authority (LA Metro)’s program, “Operation Farm Team: Global Transportation Infrastructure Workforce Initiative” is the winner of the 29th annual Better Government Competition. The theme of the 2019 contest was, “Moving People, Moving Goods, Moving Forward,” focusing on innovations that prepare America for the future of transportation.

Study Calls for Easing MBTA Procurement Restrictions and Beefing Up Project Management Capacity

Reforms needed if T is to achieve increased capital spending…