Uber is trying to be like Amazon. It’ll fail

Uber in inaction. Image: Getty.

Following TfL’s decision to withdraw Uber’s license to operate in London, there has been a widespread picking over of the ride-hailing app’s recent history – and speculation about its future. A fairly common conclusion is that Uber needs to become more ethical if it is to survive.

I want to suggest that this may not be possible. After the calamitous year Uber has had, it should not be difficult for the company to improve its reputation – simply by avoiding many of the unnecessary embarrassments heaped upon itself in 2017. However, merely improving its PR will not get Uber out of the hole it has now dug for itself. It is looking as though, in many territories such as London, Uber’s survival will rely on concrete measures to better care for both its drivers and customers.

Herein lies the problem. It is not that Uber is incapable of such ethical measures. But for this company specifically, the additional cost that is required to look after drivers and customers is likely to be too great. It all comes down to the economic model on which Uber is built.

There is a great tendency among commentators to focus on the capabilities of Uber’s app, when making sense of its explosive growth across the world. This is a mistake. Figuring that Uber’s app explains its growth is like putting the birthday cake’s appeal down to the candle on top. The engine of Uber’s growth to date has been the $11.5bn it has raised from banks and investors. The company has never made a profit, and in 2016 alone lost nearly $3bn.

These are staggering amounts, and to make sense of them we need to understand that Uber’s business model is the same as Amazon’s. Amazon became the largest online retailer on the planet by burning through huge sums of investment on the way to becoming dominant in an ever-increasing number of sectors, and a de facto monopoly in some such as books.

Now Amazon is able to use its position to generate the vast profits expected by those that funded its expansion. Effectively, what both companies surely rely on is investors subsidising the prices customers pay in the short term, in return for a long-term monopoly with higher prices.


Trump card

In reaching this point, Amazon has itself received plenty of criticism, particularly around its tax arrangements and working conditions in its Orwellian “fulfilment centres” (warehouse to you and me). But Amazon has benefited, throughout its growth, from a trump card: its use of a virtual shopfront makes its overheads significantly lower than bricks-and-mortar rivals.

Uber’s fundamental problem is that it does not have this advantage. In his comprehensive critique of Uber, transport expert Hubert Horan made a key observation about the taxi business, which separates it from retail. While shops have used economies of scale to operate first nationally, then internationally, for over a century, taxi companies have remained highly localised. The reason for this, argued Horan, is that the economies of scale are not there for the taking in this market. Some 85 per cent of taxi company costs are drivers, cars and fuel, and this applies whether you cover one city or a dozen.

Not only does Uber not avoid these costs, its model actually introduces new ones. Most dramatically, the costs of becoming established in new markets is vast. This, particularly the artificial subsidising of passenger fees/driver wages to drive growth, is the source of the $3bn net loss last year. Ultimately – whether in the form of debt or equity – these sums will have to be paid back, and then some.

Eventually, this additional cost will be felt. Either the driver has to bear it, and so is motivated to look to rival employers, or the customer does, with the same outcome. Uber’s hope must be that when it gets to this stage there will be no alternatives left to chose from.

Elusive goal

So can Uber afford to become ethical? Its growth to date has been so costly that even after the raft of regulations it has managed to sidestep, and measures forcing down the income of its drivers, it is losing billions every year. In a properly regulated market, in which Uber has to give its drivers appropriate employment protections, and passengers the safeguards they need, its goal of apparently aping Amazon becomes even harder.

If Uber can achieve market dominance before it runs out of funding, the inefficiencies in its model cease to matter. Society will simply have to carry the cost of higher fares and lower driver wages.

If it fails to achieve near monopoly status and has to continue to compete against local firms, in my view it has little hope of ever repaying its investors. For customers that travel to different cities frequently, Uber’s scale gives them a clear edge. For everyone else, is an app slightly shinier than its competitors’ clones enough to outweigh the higher fares that should come with Uber’s model?

Should Uber ultimately fail, it would open up the possibility of a taxi company fit for the 21st century: one that harnesses the possibilities of digital technologies not to enrich venture capital, but drivers themselves, in the form of cooperatives like the one currently developing in the absence of Uber in Austin, Texas.

Murray Goulden is senior research fellow at the University of Nottingham.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

There isn’t a single national housing market – so we need multiple models of local regeneration, too

Rochdale. Image: Getty.

This week’s budget comes ten years after the 2007 financial crisis. The trigger for that crisis was a loss in confidence in mortgages for homes, with banks suddenly recognising the vulnerability of loans on their books.

In the last ten years, the UK’s cities and regions have followed very different paths. This week’s focus on housing affordability is welcome, but it will be a challenge for any chancellor in the coming decade to use national policy to help towns up and down the country. Local housing markets differ drastically. The new crop of city-region mayors are recognising this, as rents in parts of south Greater Manchester are on average double the rents in parts of the north of the city-region.

When it comes to buying a home, politicians are increasingly articulate about the consequences of inequity in our housing system. But we must recognise that, for 9m citizens who live in social rented homes, the prospects of improvements to properties, common areas and grounds are usually tied to wider projects to create new housing within existing estates – sometimes involving complete demolition and rebuilding.

While the Conservative governments of the 1980s shrank the scale of direct investment in building homes for social rent, the Labour governments from the late 1990s used a sustained period of growth in property prices to champion a new model: affordable housing was to be paid for by policies which required contributions to go to housing associations. Effectively, the funding for new affordable housing and refurbished social homes was part of the profit from market housing built next door, on the same turf; a large programme of government investment also brought millions of social rented homes up to a decent standard.

This cross-subsidy model was always flawed. Most fundamentally, it relies on rising property prices – which it is neither desirable nor realistic to expect. Building more social homes became dependent on ratcheting up prices and securing more private profit. In London, we are starting to see that model come apart at the seams.

The inevitable result has been that with long social housing waiting lists and rocketing market prices, new developments have too often ended up as segregated local communities, home to both the richest and the poorest. They may live side by side, but as the RSA concluded earlier this year, investment in the social infrastructure and community development to help neighbours integrate has too often been lacking. Several regeneration schemes that soldiered on through the downturn did so by building more private homes and fewer social rented homes than existed before, or by taking advantage of more generous legal definitions of what counts as ‘affordable housing’ – or both.

A rough guide to how house prices have changed since 2007: each hexagon is a constituency. You can explore the full version at ODI Leeds.

In most of England’s cities, the story does not appear to be heading for the dramatic crescendo high court showdowns that now haunt both developers and communities in the capital. In fact, for most social housing estates in most places outside London, national government should recognise that the whole story looks very different. As austerity measures have tightened budgets for providers of social housing, budgets to refurbish ageing homes are under pressure to do more with less. With an uncertain outlook for property prices, as well as ample brownfield and greenfield housing sites, estates in many northern towns are not a priority for private investors in property development.

In many towns and cities – across the North and the Midlands – the challenges of a poor quality built environment, a poor choice of homes in the local are, and entrenched deprivation remain serious. The recent reclassification of housing associations into the private sector doesn’t make investing in repairs and renewal more profitable. The bespoke ‘housing deals’ announced show that the government is willing to invest directly – but there is anxiety that devolution to combined authorities simply creates another organisation that needs to prioritise building new homes over the renewal of existing neighbourhoods.


In Rochdale, the RSA is working with local mutual housing society RBH to plan for physical, social and economic regeneration at the same time. Importantly, we are making the case – with input from the community of residents themselves – that significant investment in improving employment for residents might itself save the public purse enough money to pay for itself in the long-run.

Lots of services are already effective at helping people find work and start a job. But for those for whom job searching feels out of reach, we are learning from Rochdale Borough Council’s pioneering work that the journey to work can only come from trusting, personal relationships. We hear time and again about the demoralising effect of benefits sanctions and penalties. We are considering an alternative provision of welfare payments, as are other authorities in the UK. Importantly, residents are identifying clearly the particular new challenges created by new forms of modern employment and the type of work available locally: this is a town where JD Sports is hiring 1000 additional workers to fulfil Black Friday orders at its warehouse.

In neighbourhoods like Rochdale’s town centre, both national government and the new devolved city-region administration are considering an approach to neighbourhood change that works for both people and place together. Redevelopment of the built environment is recognised as just one aspect of improving people’s quality of life. Residents themselves will tell you quality jobs and community facilities are their priority. But without a wider range of housing choices and neighbourhood investment locally, success in supporting residents to achieve rising incomes will mean many residents are likely to leave places like Rochdale town centre altogether.

Meaningful change happen won’t happen without patience and trust: between agencies in the public sector, between tenants and landlords, and between citizens and the leaders of cities. This applies as much to our planning system as it does to our complex skills and employment system.

Trust builds slowly and erodes quickly. As with our other projects at the RSA, we are convinced that listening and engaging citizens will improve policy-making. Most of those involved in regeneration know this better than anyone. But at the national level we need to recognise that, just as the labour market and the housing market vary dramatically from place to place, there isn’t a single national story which represents how communities feel about local regeneration.

Jonathan Schifferes is interim Director, Public Services and Communities, at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA).