Tag: Uber

What should we call the sharing economy

What label should we give to businesses like AirBnB and Uber?

Stop calling it the sharing economy, cries marketer Olivier Blanchard in a blog post describing how the label is inappropriate and doesn’t accurately describe the imbalances in the relationships between providers, users and the online platforms that facilitate them.

The question is what do we call the business model of companies like Uber, AirBnB and the myriad other services that take providers’ time and resources – cars in the case of Uber, homes or spare rooms for AirBnB – then make them available to people who can use them, taking a commission in the process of course.

Blanchard wonders if much of the success of these companies is because America’s cash strapped middle classes are desperately trying to find additional source of income and there is very much a strong argument for that.

More importantly, is what do we actually call these businesses? While they are potentially are as exploitative as the free labour models that have evolved in the media with businesses like Huffington Post, at least they provide some type of income even if for Uber drivers the net returns may be marginal at best.

Blanchard himself suggests the Microtransaction Economy however that’s not a satisfactory label as the transactions – which may be many thousands of dollars for some AirBnB rentals – are not always small.

Maybe we should call it the downtime economy, where we’re using the time we’re not busy or when we’re not using our homes, cars or others assets to earn income. That too though doesn’t strike me as satisfactory although it does seem to address the underlying idea these services are really only intended to supplement somebody’s earnings, not be their primary livelihood.

None of these labels though are satisfactory and maybe we have to ditch the economy moniker. It’s time to start thinking about what we really should call these businesses.

Your thoughts.

Uber becomes a US Presidential issue

Uber brings the changing workforce into the political spotlight

As services like Uber change the definition of employment, the company finds it has become an issue for the US Presidential race.

The New York Times reports how the Democratic candidates, led by Hilary Clinton, and the Republicans are carving out their positions on the sharing and on-demand economies.

Notable in the current discussion is low little support there is for the incumbent taxi companies and their drivers which shows how in most states and cities the medallion and licensing regulations have been used to stifle competition and discourage service.

For cab drivers that characterisation is somewhat unfair given cabbies themselves in many cities are exploited and are as much the victims of a bad systems as the passengers.

That the future of work and the structure of these services is now in the political spotlight, the issues raised by the new business models are going to get more examination and – hopefully – some ideas on addressing the changes needed to deal with a very different workforce in the 21st Century.

Getting fat on venture capital

Going for big investment dollars could backfire on the founders of startup businesses

“Raising money is like ordering dinner,” says startup founder Geoff McQueen about attracting investors. “If you’re only a little bit hungry, you should only buy an appetizer.”

McQueen was writing about his company, professional services platform Affinity Live, achieving its first round of funding. While the amount raised is a relatively modest two million dollars, the main gain for the company is getting some experienced business people on board.

Unlike many of the high profile billion dollar ‘unicorns’, cash flow positive businesses like Affinity don’t need large swags of cash to grow. As McQueen points out, big investment rounds put pressures on management and risks the company’s culture changing “from one of discipline and taking on the world to one of comfort and entitlement”.

Pushing out the owners

Another risk for founders is they could end up diluting themselves out of the business they’ve built, as venture capital investor Heidi Roizen points out it’s possible for the creators of a billion dollar startup to find themselves broke.

Roizen observes “venture capital is not free money. It’s debt. And then some”, something that’s overlooked by many commentators who think a fund raising – and the resultant valuation  – goes straight into the pockets of a company’s founders.

Unless it’s Google Ventures doing the investment, it’s unlikely the founders will be buying Porsches after a VC round and usually the funding goes into growing the business. For many big name startups those capital needs can be huge as we see with Uber where reports indicate the company is currently losing two dollars for every dollar it earns.

Beating the burn rates

Most businesses though can only dream of burn rates in the hundreds of millions a year and their needs are far more modest illustrating McQueen’s point about excess capital.

As we saw in the dot com bust it was the lean and focused companies that survived the downturn, there’s little to think the next industry shake it will be different. That’s why companies like Affinity Live and founders like Geoff McQueen will probably still be around when the dust and hype settles.

Creating a new class of worker

The future of work is going to need new classifications of workers

With the ‘sharing economy’ becoming more widespread and freelance workers possibly being the norm in the future, the question of how are they defined arises.

The simple answer is they become contractors after the California Labor Commission ruled for an Uber driver in a dispute over expenses incurred on the job. However it’s still possible that the level of control many of these services exert over workers may see many defined as employees.

For the ‘sharing economy’, the definition is important as the business model depends on shifting all the costs onto the contractors and customers. The service, like Uber and AirBnB, is only there ostensibly as a platform to match buyers and sellers.

Buzzfeed’s Caroline O’Connor suggests a third definition of worker, a ‘dependent contractor’. Under this category contractors would receive social security benefits, insurance and other features of permanent employment with the flexibility of being on call.

In many ways O’Connor’s suggestion is similar to the national insurance schemes of many European countries where workers contribute towards their eventual retirement or for the benefits they may receive should they be unfortunate to become sick or unemployed.

While the suggestion is worthwhile, it’s still not hard to see how the ‘sharing economy’ companies would want to put their contractors in whatever category reduces their costs and risks.

The discussion about workers’ protection and social security benefits needs to be had as we enter a period of economic change not dissimilar to the 1920s or late nineteenth Century where work patterns changed and there was substantial dislocation.

As the 1920s saw the start of concepts like unemployment and sickness benefits, we will need new employment and social security concepts develop to cater for the new economy and modern workforce.

The sharing economy’s wobbling wheels

A Californian labor ruling may curb investor enthusiasm for the sharing economy

Ride service Uber had a setback last month when the California Labor Commission ordered the company pay one of its drivers, Barbara Ann Berwick, over four thousand dollars for expenses.

For sharing economy services like Uber this is a problem as their business model depends upon shifting all the costs and as much of the risks as possible onto contractors.

Should the ruling set a precedent the economics of these services start to look shaky and could even challenge the shifting of risks to users and contractors.

Take away the new age romanticism spouted by some over services like Uber, Freelancer and 99 Designs and there’s a ruthless business model that minimises costs and risks, that low level of overheads is why these companies have been so successful in attracting investors.

For the workers, carrying the costs and the risks isn’t such a good deal. “If you work it out,”Barbara Berwick said, “if I didn’t get compensated for expenses, I’d be working for less than minimum wage.”

While the ruling makes life less precarious for drivers like Berwick, it may curb the enthusiasm of the investor community for the sharing economy.

Lake Wobegon and the sharing economy

In the world of the sharing economy every participant needs to be in the top ten percent.

New York Times columnist Maureen Dowd can’t get an Uber because her feedback score isn’t high enough.

Similarly, when the Philadelphia Citypaper’s Emily Guendelsberger went undercover as an Uber driver she too found feedback scores determined how much work a contractor won.

Guendelsberger found a driver with feedback score of 4.6 risked being dropped by Uber while Dowd discovered her rating of 4.2 meant drivers didn’t want to take her.

Both these numbers are out of five and translate to 84% for Dowd and 92% for drivers.

If you’re the type that works from the baseline of giving three out of five for delivering a service as described then adding points for exceptional performance or deducting marks for a poor experience then you’re messing with the system.

With the Uber scoring model – and one suspects this is the same with most of ‘sharing economy’ feedback mechanisms – the baseline mark is a perfect five with small increments deducted for poor performance.

Basically the curve is squeezed up to the right. Business Insider reported last year that only one percent of trips receive a rating of one or less and five percent below three.

In Garrison Keillor’s Lake Wobegon every child is above above average, it seems in the world of the sharing economy almost every participant is in the top ten percent.

Acting beyond the law

Startups need to be careful about being too arrogant in the face of laws, conventions and plain old good manners

Uber and other car services are claiming US disability laws don’t apply to them The Daily Beast reports.

It’s hard to think of how Uber can do more to alienate the community with the service pushing legal boundaries in many cities, avoiding taxes and trying to skirt employment laws.

The danger for all the new wave of companies in their trying to dodge laws is they are inviting restrictive legislation, particularly if they’ve alienated the community and electorate.

It may well be time for companies like Uber, SideCar and Lyft to start showing a bit of humility and tact. Hubris and arrogance may come back to haunt them.

Adapting to a new economy

A San Francisco taxi company reinvents itself for the app economy.

Taxis have gotten their ass kicked” says Hansu Kim, owner of San Francisco’s oldest taxi company.

Kim’s company, DeSoto, is changing the name it has held since the 1930s to Flywheel in an agreement with the taxi hailing app of the same name. The San Francisco Chronical describes how DeSoto and the city’s other taxi companies are finding times tough now Uber and other services have moved into what was a safe, regulated business.

DeSoto’s move is a sign of the times as older business models evolve; moving to an app based hailing service improves the experience for everybody in the cab industry and radically changes the economics of getting a ride across town.

The main reason for Uber’s success is being able to identify both drivers and passengers which improved confidence in the system. In turn, this changes riders expectations and taxi’s fare structures.

For companies competing with Flywheel the question will be do they participate in this service or do they create their own app. For the industry in general it makes sense to share the infrastructure but for uses it may well be in their interest to have competing apps with different levels of service.

As the levels of car ownership continue to fall, how taxi hailing and car hire apps evolve will drive the development of our cities through this century. DeSoto and Flywheel’s experiment is the start of many as older businesses adapt to a changing economy.

Business in a time of falling technology costs

The fall in computer prices shows no business or manager can assume their markets are safe

Personal Computers cost one thousandth of what they did in 1980 reports Aki Ito in Bloomberg Business.

For the computer industry that’s been both a blessing and curse; cheap systems have allowed computers to become pervasive but at the same time the collapsing prices have destroyed the business models of those who built their companies upon the industry economics on 1980 or 2000.

Software has fallen a similar amount with computer programs now costing 7/1000ths of what they did 35 years ago. Again this has dramatically changed the structure of the industry with Google and Amazon taking over from Microsoft and Adobe.

While the computer industry is the starkest example of the collapse in prices due to technological change, it’s not the only sector being affected – almost every industry is under similar pressures as margins get stripped away.

Anywhere where middlemen are exploiting market inefficiencies are opportunities for new technologies to destroy the existing business models, Uber are a good example of this with the taxi industry.

With technological change accelerating in all industries, no business or its managers can assume they are safe from shifting marketplaces or new, unexpected competitors.

 

Daily links – Chinese property developers go onto internet

Chinese internet use and smart phone manufacturers dominate today’s links along with Microsoft and Uber’s latest business changes

Today’s links have a distinctly Chinese flavour around them with a look at how the country’s smartphone manufacturers are coming to dominate their market, Tencent’s plans for global domination and how property developers are looking to the internet to save their falling sales.

Uber and Microsoft make their regular appearances to round out the links in their changes to billing and security.

Chinese property developers turn to the web

Faced with declining sales, Chinese property developers embrace – the Internet!

How Chinese smartphone makers are beginning to dominate the market

The rise of China’s smartphone makers: 10 of the top 17 smartphone manufacturers now come from China.

An interview with Tencent

Business Insider has an intriguing interview with one of the VPs of Chinese internet giant Tencent.

In his Q&A, S. Y. Lau discusses how Chinese communities are seeing their incomes rise due to the internet. One of the famous case studies of connectivity are India’s Kerala fishermen who used SMS to arbitrage their market. We may be seeing a similar story with Chinese tea farmers.

Microsoft restrict warning of patches to paying customers

In a short term money grabbing exercise, Microsoft have unveiled a plan to only inform enterprise customers of upcoming security patches. My prediction is this won’t last.

Uber cuts prices

Car hiring service Uber has cut its fares in thirty US cities while guaranteeing drivers their incomes. This is probably a move to keep competitors like Lyft at bay.

Uber and the management dilemma

Is Uber profoundly changing the economy or are even bigger forces at work that will challenge managers?

“Uber-mania reflects a profound turn in the way the global economy is organized,” writes Fortune Magazine’s editor Alan Murray.

That’s a bit of stretch as Uber’s simply an application of the technologies that are changing business and the economy;  those technologies are having a more profound effect on the role of managers in the modern workplace.

Along with services like AirBnB and Task Rabbit, are the result of the new breed of cloud, mobile and big data tools that make it easier to deploy new business models which in  themselves threaten traditional industries and their executives.

Uber’s success is in finding an industry that in much of the world has been ripe for disruption for decades; in most Western cities cab services have been regulated to protect plate holders’ incomes and often to protect corrupt local cartels.

What Uber’s disruption shows is how those tools can be deployed against cosy incumbents.

Probably the cosiest group of incumbents of all have been corporate managers; over the last thirty years businesses have been downsized, workers have become more productive and many functions have been outsourced or offshored.

Management however has largely remained untouched as the need to supervise business functions has remained.

Now those tools – particularly the smart algorithms that run companies like Google, Facebook and Uber – are coming for managers in many industries. Added to the manager’s dilemma are improved collaboration tools that allow workers and machines to communicate and make decision autonomously without the need for supervision.

Possibly the greatest change in business over the next decade will be the disappearance of the manager as software takes over.

At the mercy of machines

Automation and algorithms are changing business but they are not without risks

Automation is the greatest change we’re going to see in business over the next decade as companies increasingly rely upon computers to make day to day decisions.

Giving control to algorithms however comes with a set of risks which managers and business owners have to prepare for.

Earlier this week the risks in relying on algorithms were shown when car service Uber’s management was slow to react to a situation where its formulas risked a PR disaster.

Uber’s misstep in Sydney shows the weaknesses in the automated business model as its algorithm detected people clamouring for rides out of the city and applied ‘surge pricing’.

Surge pricing is applied when Uber’s system sees high demand – typically around events like New Year’s Eve – although the company has previously been criticised for alleged profiteering during emergencies like Hurricane Sandy in New York.

In the light of previous criticism, it’s surprising that Uber stumbled in Sydney during the hostage crisis. Shortly after criticism of the surge pricing arose on the internet, the company’s Sydney social media manager sent out a standard defence of surge pricing.

That message was consistent with both Uber’s business model and how the algorithm that determines the company’s fares works; however it was a potential disaster for the business’ already battered reputation.

An hour later the company’s management had realised their mistake and announced that rides out of Sydney’s Central Business District would be free.

User’s mistake is a classic example of the dangers of relying solely on an algorithm to determine business decisions; while things will work fine during the normal course of business, there will always be edge cases that create perverse results.

While machines are efficient; they lack context, judgement and compassion which exposes those who rely solely upon them to unforeseen risks.

As the Internet of Things rolls out, systems will be deployed where responses will be based upon the rules of predetermined formulas.

Businesses with overly strict rules and no provision for management intervention in extreme circumstances will find themselves, like Uber, at the mercy of their machines. Staking everything on those machines could turn out to be the riskiest strategy of all.