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Analytics Magazine

Analyze This: Uber- good, bad side of automated free markets

January/February 2016

Analyze This

Uber: good, bad side of automated free markets

I’m impressed and inspired by the way that several sophisticated technologies have been seamlessly stitched together by Uber. At the same time, there is so much about Uber that I intensely dislike.

Vijay MehrotraBy Vijay Mehrotra

Time to roll. I’ve got to get to the other side of town, quickly, for a meeting. I pull the phone out of my pocket, click a single icon and the dot starts to flash: That’s me! They’re looking for me! Soon thereafter a detailed map appears with my location clearly indicated: They found me! With another click, a message goes out across the network, and within seconds information about my ride – the driver’s name, cell phone number, car make and model, license plate and estimated time of arrival – appears on my screen: They are coming to get me! While I wait, I watch the driver’s progress on my map, and if I need to clarify the pick-up details, I just hit another button to call the driver to sort things out. Within minutes, I’m picked up in a clean and comfortable vehicle, driven to my destination via a smart GPS-identified optimal route, and released as soon as I arrive (payment is handled automatically via credit card).

That’s Uber in action. Feels like magic, especially compared to the faith-based and stressful exercise of calling a dispatcher or trying to hail a cab (especially here in San Francisco, where there has always been a terrible shortage of traditional taxis [1]), then wondering whether the driver is giving me the runaround in order to jack up my fare, and finally fumbling around in my wallet looking for cash and hoping the driver has the requisite change.

Beyond the convenience, I’m impressed and inspired by the way that several sophisticated technologies have been seamlessly stitched together by Uber. Among other things, the Uber experience depends on smartphone hardware and software, 21st century telecommunications infrastructure, increasingly sophisticated GPS systems, payment processing platforms and good, old-fashioned e-mail. The Uber platform – elegantly designed, smartly integrated – indeed makes the user feel empowered, lending some emotional truth to the company’s “everyone’s private driver” tagline [2].

So I am both joyful and amazed every time my Uber car pulls up. At the same time, there is so much about Uber that I intensely dislike.

For starters, the company’s founder and CEO Travis Kalanick has a well-chronicled reputation for arrogance and misogyny [3]. The company is known for its long hours, high pressure, lack of work/life balance and utmost secrecy. None of this is unique to Uber, but there’s something about this particular San Francisco-based company that embodies the way that the tech industry and culture seems to have swallowed much of San Francisco almost overnight, with many of the diverse and creative people that inspired me to move here in the first place now priced out of an overheated real estate market that seems to be dominated by youngsters flush with tech dollars – all of whom seem to be constantly riding around in Uber cars.

But Uber’s reach extends far beyond its San Francisco Bay Area home base, as the company is constantly expanding. Its basic approach is to thumb its nose at local laws until eventually managing to get them changed in an Uber-friendly direction. As Tracey Lien wrote in a recent Los Angeles Times article, “It [Uber] punches itself into markets and spends big on advance teams, lawyers and lobbyists to fight opposition and gain a foothold in markets around the world” [4]. Uber’s ambitions are vast, and its hiring of former Obama campaign strategist David Plouffe reflects the business importance of its constant combative campaigning.

Meanwhile, Uber drivers – the people who not only do the actual transporting of passengers but also are required to invest their own capital to purchase and operate the individually owned vehicles that collectively comprise Uber’s fleet – are seeking to be treated as employees in California [5] (rather than independent contractors) and have been granted the right to unionize in Seattle [6]. Recently, Uber’s unilateral decisions to decrease its prices while also increasing its share of total revenues have led to sharp drops in income for its drivers. Its practices for screening the drivers in its network have also been under scrutiny [7].

Uber’s growth has been phenomenal. Though the company is less than six years old, it is now possible to hail a ride in more than 150 cities around the United States and 68 countries around the world [8]. Nor are the company’s ambitions limited to moving passengers. To date, Uber has experimented with a variety of new pilot projects that leverage its platform and driver network to provide drugstore items (UberESSENTIALS), restaurant meals (UberEATS), urgent package deliveries (UberRUSH) and even flu shots (UberHEALTH). The company, it appears, wants to be the Amazon.com of in-person service delivery. Not yet six years old and still privately held, Uber was recently valued at somewhere north of $50 billion.

Along with Uber, a number of other companies are developing specialized software platforms for matching buyers to sellers in many different industries, including food delivery, in-home services, package shipment, elder care, overnight lodging, shopping and administrative work. From my perspective, these companies are market makers seeking to optimize the market dynamics in their own favor and service delivery networks seeking to operate cost effectively on a large-scale basis to capture customers, generate profits and crush potential competitors.

Generating an expanding and relentless stream of proprietary operational data, these young firms provide analytics professionals with tremendous opportunities to put our talents to use. Indeed, in addition to the army of data scientists that it employs, Uber’s recent wholesale hiring of 40+ researchers from Carnegie Mellon’s famed Robotics Institute [9] is a vivid illustration of the value of specialized technical skills in this growing slice of the business world.

But be aware: This so-called “gig economy” in which smart software platforms efficiently match workers with tasks represents a major disruption at many different companies. As tech heavyweight Tim O’Reilly wrote prior to his recent “What’s the Future of Work?” Conference [10], “every industry and every organization will have to transform itself in the next few years” as a result of the increasing number of jobs that can be defined, transmitted and/or delivered via integrated platforms like Uber’s. We now have an estimated 53.7 million freelance workers in the United States [11].

Analytics professionals will continue to play a big role in this revolution, so it is important for us to consider not just its technical challenges but also its social consequences. Marina Gorbis, executive director of the not-for-profit think tank The Institute for the Future, calls these platforms “new operating systems” for getting work done that are “based on always-on Internet, mobile devices, social media, sensors and geolocation technologies.” She also warns that these economic platforms “could also be riddled with catastrophic bugs, pushing large swaths of the population to labor at subsistence levels, with no benefits and little predictability over their earning streams” [12].

Personally, I’m still haunted by Jaron Lanier’s ominous warnings about Siren Servers [13]. Like Lanier, I don’t believe that highly automated and unfettered free markets for all kinds of services are inherently optimal. As freelance business writer Erik Sherman recently pointed out, there is “a systemic imbalance in favor of the company that can ignore or avoid regular conditions of doing business” [14], which sounds a lot like Uber when it enters a new market. I talk frequently with my MBA students and alums about the potential downside of concentrating too much power in too few online procurement and delivery channels.

Yet there’s also no real case for defending the traditional taxi industry either, certainly not here in San Francisco [15] and probably not in many other places. As Uber’s relentless expansion into new markets continues, expect to see more battles with local taxi companies and drivers [16] – and more passengers getting on the Uber app.

Sorry, gotta go. My Uber just pulled up.


Vijay Mehrotra (vmehrotra@usfca.edu) is a professor in the Department of Business Analytics and Information Systems at the University of San Francisco’s School of Management and a longtime member of INFORMS.

NOTES & REFERENCES

  1. My friend Brad Newsham, a former San Francisco taxi driver, provides a nice description of this situation at http://www.bradnewsham.com/articles/why_so_hard.shtml
  2. https://vimeo.com/58800109
  3. See for example http://www.modernluxury.com/san-francisco/story/the-smartest-bro-the-room
  4. http://www.latimes.com/business/la-fi-0822-uber-revenue-20150822-story.html
  5. http://recode.net/2015/06/17/uber-drivers-are-employees-not-contractors-california-labor-commission/
  6. http://www.nytimes.com/2015/12/15/technology/seattle-clears-the-way-for-uber-drivers-to-form-a-union.html
  7. http://www.fastcompany.com/3050172/tech-forecast/the-truth-about-ubers-background-checks
  8. https://www.uber.com/cities
  9. http://www.nytimes.com/2015/09/13/magazine/uber-would-like-to-buy-your-robotics-department.html
  10. http://conferences.oreilly.com/nextcon/economy-us-2015
  11. “Freelancing in America: 2015,” accessible online at https://www.upwork.com/i/freelancinginamerica2015/
  12. https://medium.com/the-wtf-economy/designing-a-new-operating-system-for-work-28d1dc3e0f64?imm_mid=0dde51&cmp=em-na-na-na-newsltr_econ_20151218#.vtbs6vot4
  13. http://www.analytics-magazine.org/july-august-2014/1069-analyze-this-dark-side-of-the-digital-world
  14. http://www.forbes.com/sites/eriksherman/2015/12/10/the-gig-economy-depends-on-unequal-treatment-of-businesses
  15. Even before Uber’s ascent, the San Francisco taxi driver community had been hit by “friendly fire” from City Hall. To learn more, see http://ww2.kqed.org/news/wp-content/uploads/sites/10/2013/01/NewshamArticle.pdf
  16. For some recent highlights, see https://www.popularresistance.org/anti-uber-protests-around-the-world/

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