I’ll bet that you think that you know what UBER is: It’s an example of our new “sharing economy.” By sharing the use of the driver’s car, he offers you a better way to get a cheaper ride as compared to a taxi and it’s way more convenient than public transportation.
But, to me, it’s another demonstration of how technology can lower the cost barrier to enter an existing market. In this case, all you need is a car and a smartphone and you too can become a one-person taxi company.
UBER drivers are in the taxi business. They are not sharing their cars; they are selling rides. But, unlike ordinary taxi companies, they have bypassed the need to get a chauffeur’s driver’s license, commercial insurance, or a licensed taxi medallion. As well, the background check that might have been done, or not done, by the taxi company is replaced, we hope, with one done by Uber. If I were a taxi driver, or the owner of a taxi company I would be incensed. I’ve played by the rules and now I’m going to get screwed.
Obviously, this isn’t the first time this has happened. The Web has flattened the playing field for lots of businesses. Today anyone with a website can look as large and successful as the best in the category. Anyone can reach and serve customers throughout the world.
Is this good?
Clearly, in the Uber case, it depends upon who you are, and what your experience is. If you’re a consumer, you have the advantage of a lower price, and more supply, but if you’re a taxi driver, you have the disadvantage of a more competitive environment and potentially the devaluing of assets that you bought in good faith.
Of course, if your Uber ride isn’t a great experience, then the value may diminish in comparison to alternatives, but we know that while most taxis might be licensed and insured they also are typically rundown and the drivers can be scary.
There are many cases where entrenched companies with technology and capabilities that are rooted in methods that become obsolete are threatened and, as in Kodak’s case, die, as a result of the new order brought about by innovation. But, Uber is an example of a different sort. The taxi and limo industries have, over time, developed a legacy of regulatory constraints and requirements driven by municipalities and insurance companies that we all agreed to or at minimum, lived with. Frankly, it didn’t take an APP to allow the competition to taxis from independent drivers. They could have, at any time, simply decided to pull over when seeing a potential rider waving for a taxi, and offered a lower price, and possibly a nicer car. In some ways, this is the case at airports and train stations where independent drivers often attempt to snare riders before they get to the taxi line.
What Uber did though was to create scofflaws (a person who flouts the law) in such numbers that it became quickly impossible to police, not that the police were that interested in the first place. And, through technology, Uber offers a specific demographic (young tech-literate customers) who are more interested in price and more comfortable with transacting over their smartphone, an attractive alternative. This is similar to their attraction to “free” music” sharing without considering the intellectual property laws that exists.
But, in the case of “free music sharing,” the concentration of power in a few music publishers and ASCAP (who did much of the suing,) temporarily halted the practice. Eventually, however, the techies won, and the combination of distribution services like Apple's ITunes and streaming services like SPOTIFY resulted in turning the music industry on its ear, and markedly reducing the prices and revenues enjoyed by established publishers.
For Uber and Airbnb, the power of the entrenched forces are less concentrated but it is still likely that the fight will go to the Supreme Court and Uber may lose in the medium term. In the longer term, as in the music industry, it’s likely that consumers will get what they want, namely lower prices, more supply and more convenience.
For fun, I started to think of other service industries for which the power is broadly distributed and the business models can be changed in the same ways that Uber has changed the taxi industry. How about “Drinker” the alcoholic beverage business where you use your IPhone to find a nearby home that will sell you a drink? Just come on in...
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