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Is UBER Doing Bad By Doing Good?

Lessons on Disruptive Innovation and Adaptation

Is UBER Doing Bad By Doing Good?

Katia Arias 1 comments

Disruptive innovation is a great thing. In fact, we need this type of innovation to offer better products and services in time. The catch is, however, when a business model seeks to “disrupt” an existing system, the adjustment period can be very tough and harshly unbalancing for those disrupted. Which, in turn, raises the questions of “does innovation do more bad trying to do good? Or, “Is the “bad” more an excuse for big corporations to keep the status quo?”

The incredibly successful carpool platform known as UBER was officially launched in San Francisco, California in 2011. Built as a mobile application, the founders intended to shift the cab services from the “market economy” into the “shared economy”, where every-day car owners could put their car to work and those who were carless could get a pleasant ride for cheap.

In theory it all seems great, more jobs have been created and people get cheaper rides. Why then, are there so many parties fighting against new e-based models?

twitter-picture

Source: twitter.com/WetpaintMena

The primary allegation comes from the taxi industry. The fact that UBER drivers don’t have to face the strict regulations taxi drivers do creates a competition gap that is perceived as unfair.

According to an article from Bruegel.org, taxi licenses can cost as much as $1M in the USA, which, in turn, creates an entry barrier to the industry and keep the competition in check. With UBER previously requiring no license, taxi license prices went down by almost 30% in some states and taxi drivers were slowly being kicked out of the market. In Toronto, Canada “drivers have lost a third of their business since 2012” due to this issue.

On a similar note, fixed ride rates have also given UBER a significant advantage over the cab industry. UBER drivers are allowed to “surge price” and fix their rates depending on demand volumes and time of the day/year. Cab drivers, on the other hand, depend on the government for pricing regulations and are limited to an hourly wage.

Source: bizjournals.com

Source: bizjournals.com

So, even if it is understandable why Taxi drivers consider their UBER counterparts a “scam”, the cab industry complaints went further to say UBER was unsafe and even threatening to passengers since drivers were not required to fulfill background checks and driving tests like taxi drives do.

Taking everything into consideration, UBER has advanced its application requirements by requesting a proper background check along with a vehicle check and a city-specific set of regulations.

The second allegation, though, comes from drivers themselves. Although UBER currently employs 160,000 drivers who seem happy with the job, many find it to be below decent standards.

UBER drivers get paid after every ride but 20% of what they make goes back to the company. On top of this they are responsible of covering gasoline, repairs, insurance and registration costs plus any depreciation. Drivers are also required to own a smartphone (unless they rent from UBER for $10/week) and do not receive proper worker compensations for they are considered contractors and not employees.

Source: Uber.com

Source: Uber.com

Taxation is the third allegation. UBER does not withhold any taxes; therefore drivers are responsible to pay the IRS their individual dues. Nonetheless, even if problems with tax debt and taxation loopholes are mostly each driver’s responsibility, a lot of the blame has fallen on UBER as a corporation. Country governments blame the corporation from stealing millions in taxes and covering it up with the “contractor model”.

In London, for instance, a ruling was put in place in 2016 stating that UBER had to pay drivers the minimum national wage along with vacation time to cover proper taxation. Also, the company was no longer allowed to declare its drivers as “self-employed” and it had to provide worker benefits.

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Finally, there’s a legal question of whether individual driver insurance can pay for any major road accident and of who takes care of issues such as discrimination or assault during the ride.

It is clear that big lobbyists and corporations that have found themselves disrupted by the new model are strongly committed to see it fall. Many drivers and users have also built their cause. UBER, however, stands strong. And why is this? Because even if there’s many allegations, demand is still high.

Both the taxi industry and the country governments need to see UBER as part of something bigger and inevitable. Like Amazon and FedEX revolutionized the consumer goods and delivery industries, UBER has already revolutionized transport and there is no turning back. What can be done is set regulations in place that help those disrupted cope with the adjustment and the disruptors comply with federal laws.

In every city UBER operates the system works differently. Therefore, it would be beneficial for UBER to build relationships with government to better understand worker, taxes and benefits rules. Also, it would be good to set mutually benefiting agreements with insurance companies to help drivers cover accident costs (which is being done), create basic benefit plans for contractor drivers (which would be very new but necessary as innovation moves forward), set in place customized taxation plans and new corporate forms for tech businesses to avoid loopholes. Every company and its contractors must abide to laws regarding sexual assault and other social issues. And finally, help the taxi industry by allowing flexible pricing regulations that enables them to compete without ripping off passengers through loopholes.

 

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1 Comment

Katia Arias

November 2, 2016 at 5:43 pm

[…] Read More: Is Uber doing bad by doing good? […]

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