This piece was originally published on Equal Times
Uber markets itself as a “disruptive innovation” that is reconfiguring global transportation markets as it extends across countries and sectors.
The hallmark of platform businesses, Uber announced it would be going public this Friday in what was expected to be one of the largest IPOs in history. But the company, which has never been profitable, has already dropped its initial targeted valuation.
Behind Uber’s veneer is a broken business model. Uber does not create jobs. Rather, it replaces jobs – opting to cut costs by using an enormous workforce of independent contractors who are not guaranteed wages, hours, benefits or social security.
Uber has taken a gamble, backed by venture capital, that these types of platform businesses will win acceptance even as they fail to obtain a social license to operate in many countries where they do business.
Investors are now deciding whether to bet on a company whose financial reports reveal heavy losses and whose business model raises significant reputational, legal and regulatory risks.
It is simply a bad bet.
Uber faces the same obstacles to profitability as Lyft, its largest competitor, which issued its IPO in March and saw its shares plummet by 31% within weeks. Both companies’ ridesharing revenue comes from commissions taken off passenger fares.
To profit, they must provide enough compensation to retain drivers, keep passenger fares low enough to undercut other transit choices, and deliver value to their investors.
THIS MODEL GIVES UBER A VERY SMALL MARGIN FOR PROFIT. TIME AND TIME AGAIN, THE COMPANY HAS RESPONDED TO THE SQUEEZE BY REDUCING WHAT DRIVERS CAN EARN RATHER THAN INCREASING WHAT PASSENGERS MUST PAY. BUT DRIVERS HAVE PUSHED BACK, ORGANISING DRIVERS’ GUILDS, CITY-WIDE WORK STOPPAGES AND CLASS-ACTION LAWSUITS ACROSS THE WORLD.
The bulk of these lawsuits have alleged that Uber misclassified drivers as independent contractors rather than employees. These misclassification suits have, at times, resulted in case law and rulings with deeper consequences for employment standards across the board.
Some courts have ruled in Uber’s favour, with harmful implications for workers in and beyond the sectors it directly impacts. Other courts, though, have imposed extensive operational restrictions or outright banned the company and its rideshare competitors. Just this week, a judgement by a Swiss court opened the way for Uber drivers to be recognised as employees instead of the sham “independent contractor” status that they are forced to accept by the company.
In 2017, the highest court in the EU issued a substantial blow, classifying Uber as a transport service and stripping away protections against national regulation that came with its previous classification as a digital service. All eyes are now on California – one of Uber’s significant markets – where legislation based on a Supreme Court ruling that narrows the definition of contractors is moving through the legislature, with significant potential implications for rideshare drivers.
Taxi drivers have also pushed back against Uber, organising strikes and working with communities to push governments to restrict ridesharing. Regulations barring some of Uber’s ridesharing services or imposing significant operational restrictions have been adopted in key markets, including Argentina, Germany, Italy, Japan, South Korea, and Spain. In 2018, New York City became the first jurisdiction in the US to impose a rate structure for for-hire drivers – responding, in part, to a wave of taxi driver suicides attributed to the spread of ridesharing.
All of this has been bad press for Uber, which has also faced sexual harassment lawsuits, gender discrimination allegations, corporate governance scandals and taxi driver strikes over the years. Yet, it does not appear to have made any impact. In short, despite a generous influx of private investment, an impressive lobbying effort and substantial legal costs, the company is still struggling both to generate revenue and win its social license to operate.
As a publicly listed company, Uber will have to maintain growth and show movement towards profitability to convince investors of its value. This can only be bad news for workers. In its IPO prospectus, the company states outright : “as we aim to reduce Driver incentives to improve our financial performance, we expect Driver dissatisfaction will generally increase.”
Uber is both an emblem of and a vector for the new platform business models. It has played a key role in establishing a model founded on the disruption of employment relationships. Yet it has not disrupted the transportation market enough to generate sufficient revenue on its rideshare services. The resistance it has faced from drivers, workers and communities has been pivotal in setting obstacles in Uber’s path to profitability.
The international trade union movement has been fighting Uber’s business model and organising to uphold workers’ rights.
As Uber transitions from a private company to one whose shares will be bought and sold on the New York Stock Exchange, the ITUC will continue to stand up for the rights of drivers to stable wages, regular hours, benefits, social security and all the other things that any decent employer should provide to the workers who are, after all, what keeps any company afloat.
Photo: Unsplash | Victor Xok