Today, rideshare drivers may work for Uber and Lyft within the same hour. That’s because they aren’t employees of either company. They’re paid as …
An exterior view of the headquarters of Uber in San Francisco, March 1, 2017. (Eric Risberg, File, AP)
California millennials who embrace socialism while enjoying the conveniences created by capitalism are about to get a rude awakening. That’s because the state’s lawmakers are considering subjecting the gig economy to rules designed for a 1950s factory.
The current job market looks very different than it did six decades ago, when a worker might stay in the same job for years. Today, rideshare drivers may work for Uber and Lyft within the same hour. That’s because they aren’t employees of either company. They’re paid as contractors.
Drivers for ride-hailing services aren’t the only workers with this type of arrangement. Barbers, truck drivers, construction workers, massage therapists and even freelance writers often work as independent contractors. People agree to structure their employment that way for a variety of reasons, but one benefit is flexibility. When individuals work for themselves, they have more control over their schedules.
The freedom provided by these arrangements creates significant benefits for consumers. For instance, arriving in a new city used to mean an expensive taxi ride or renting a car you’d use only to get to and from your hotel. No more. Now, travelers can simply pull out their phones and use a ride-hailing service. The use of these technologies has made both Uber and Lyft multibillion-dollar corporations.
But Democrats in the California Legislature are on a path to upend this arrangement. A proposal that’s already passed the Assembly would force Uber, Lyft and many other companies to classify their workers as employees instead of independent contractors.
This would eviscerate the business models of ride-hailing companies — and, in fact, that’s the point. Uber, Lyft and others would become responsible for a host of new costs, including payroll taxes, unemployment taxes and paid time off. Analysts with Barclays have estimated the change would cost Uber and Lyft more than $3,600 per driver, as reported by Business Insider. The analysts warned that if these regulatory burdens are imposed, it “would potentially bankrupt both Uber and Lyft.”
The concept in this bill would upended employment relationships of barbers, real estate agents and other independent contractors, too. The bill exempts them, however, in a brazen attempt to limit political opposition. The unions pushing the bill are targeting Uber and Lyft because, among other reasons, the bill would make it much easier to unionize drivers.
The proposal would essentially eliminate a service in California that has become a big hit with millions of Americans, particularly younger ones. It’s one thing to voice your support for big government in theory. It’s another to endure the consequences when an overactive administrative state — doing the bidding of protectionist special interests — shuts downs or dramatically increases the price of your favorite ride-hailing service.
Let’s hope millennials know whom to blame if California insists on overreaching to stifle and limit innovation.
The gig economy is beginning to define America’s employment system. Uber and Lyft (and others) changed the way people work. There’s the positive …
The gig economy is beginning to define America’s employment system. Uber and Lyft (and others) changed the way people work. There’s the positive – work when you want for as long as you want – and negatives – minimal pay and no benefits. Eventually, that could all be automated. That’s the future Chance Agency’s Neo Cab explores.
“A close friend of mine was a part of the initial Lyft beta (when Uber was still black cars and limos), and we interviewed dozens of drivers, delivery folks and other gig workers to gather ideas about the entire ‘app worker’ space. Driver forums were also a key part of helping us to borrow terminology,” begins Patrick Ewing, creative lead at Chance Agency, the small developer working out of San Francisco on this PC game project.
Ewing works as an engineer in Silicon Valley, where many of these app gigs originate. With tight perspective on how things evolved, all of the disruption sparked the themes of Neo Cab. “I feel like I’ve become more and more critical of the “disruptor” mindset that’s so prevalent here. We’ve seen companies like Uber or Lyft start off with a deal that seems extremely fair for drivers – keep 100% of your pay, work whenever you want- and then gradually change the deal after they’ve cannibalized the existing businesses,” explains Ewing, stating Uber’s wages, after maintenance and gas, come to roughly two cents per mile.
“I still have a lot of engineer friends who are seeking to disrupt the next major American industry including friends at Lyft, Uber and Tesla, and I wanted to tell a story about life on the other side of the API, the folks whose lives are upended when jobs start to pay less or, all to soon, are eliminated entirely,” writes Ewing.
Earning a living in Neo Cab
All of this feeds into the world of Neo Cab, a near future where automation pushed human workers aside – except for one. That’s where this story focuses. Art director Vincent Perea creates a world of dystopian blues, but not the usual rundown aesthetic. In fact, the world looks quite beautiful in terms of city life.
“It’s actually a utopia, if you’re a tech worker!,” begins Ewing. “But at the same time, something is missing. The streets are empty, as people stay cooped up in their apartments, interacting with the world through apps. The cars are empty- driverless Capra vehicles cruise around waiting to be summoned for a pickup. And that moody lighting is, in part, to show the emptiness that many people are feeling.”
Looking on at an automated world
It’s surprising to passengers in Neo Cab to see an actual person behind the wheel. Most of the driving is handled by a corporation’s drone vehicles. Keeping a sense of humanity matters in this world. Interaction is rare, but the key gameplay component. Ewing isn’t subtle about Neo Cab’s possible future scenario. It’s bleak.
“It’s the feeling of disconnection that comes from working not in a physical location with other people, but via an app for a faceless corporation,” begins Ewing. “It’s the constant, low-level panic of coasting by with little to no savings, dependent on your employer for the security of basic healthcare. It’s reducing a conversation between two human beings into a star rating, or the kind of compression that comes with trying to sum up your personality in a dating profile. Automation is just the next frontier, where even basic interactions with people in your neighborhood- a taxi driver, the owner of the corner store, your mailman, your boss are gradually replaced with software interfaces.”
“I hasten to add that we’re not luddites here,” notes Ewing. Neo Cab is harsh, but Chance Agency sees the positives yet to come from technology expansion.
“There’s no doubt in our minds that ultimately, self-driving cars will save a lot of lives by cutting down on human error. Our critique is basically a two parter- first, that by increasingly mediating all human interaction through software, we’re getting lonelier and more robotic *as people*. Secondly, that the massive productivity gains of the information age, and the coming automation age, haven’t been fairly distributed. We’ve seen wealth centralizing at the top, the price of fundamental components of human well-being like healthcare and education skyrocket, and people continue to work 40 hour weeks and labor under massive debt. Neo Cab’s world is just a slight exaggeration of this- it’s where automation could take us if we don’t course-correct on a systemic level,” writes Ewing.
A beautiful world with a lot of ugliness under the surface
During development, some of their sci-fi ideas became real world headlines according to Ewing. There’s also a little irony in their location. “As we started development, our neighborhood here in the Mission became a hot-bed of AI vehicle testing. You can’t walk more than a few blocks without a weird jerry-rigged startup vehicle with whirring LIDAR turrets awkwardly waiting for you to cross the street,” Ewing writes.
It’s as if Neo Cab’s development is happening in the first-person.
Uber UBER and Lyft LYFT burst into the IPO scene in 2019 after years of speculation about their growth and prospects. But investor sentiment at …
Uber UBER and Lyft LYFT burst into the IPO scene in 2019 after years of speculation about their growth and prospects. But investor sentiment at launch and thereafter haven’t lived up to the hype. That’s because the market is waking up to the fact that these companies don’t have a convincing roadmap to profitability and possibly, an unsustainable business model.
It’s also likely the reason that Uber accounted for around 49% of venture capital exits in the second quarter of 2019, driving total VC exits to $138 billion, or the highest level since 2012. VCs typically are early investors in new ventures that cash out partially or wholly when the venture is acquired by a larger company or goes public through an IPO. The enthusiasm with which they cash out obviously has an impact on sentiments on the stock.
Even if they do, it doesn’t automatically mean that the company is not going places. In 2012 for example, Facebook FB was the biggest driver of VC exits, but look where it is now. Could Uber be one day where Facebook is now? Could Lyft? That’s a big question that boils down to the business model.
A business model is effective when the underlying objective is strong, or when there’s a big or complex problem it solves. This is especially true for a technology company, since technology can presumably calculate faster than humans.
The problem that Uber, Lyft et al are trying to solve is possibly best defined as connecting drivers with riders, which requires that it ensures optimal drivers at optimal locations to cover most rides. Now, while software can provide us with algorithms to create a technical possibility of an ideal situation, the company offers drivers flexibility in accepting rides, which tends to skew the equation. To ensure that it still works, the company needs oversupply of drivers. This is one problem.
The second problem is to do with the need to ensure that drivers operate flexibly, or as independent contractors. If drivers become permanent employees, the company must pay benefits like social security, unemployment insurance, health benefits, a minimum wage and the right to form a union, which will of course increase cost significantly. That’s why the Assembly Bill 5 (AB5) that seeks to codify a California Supreme Court ruling from 2018 is so important.
In that case, the court ruled that delivery firm Dynamex had misclassified its workers. It also laid down three principles that define an independent contractor: A) they must be “free from the control and direction of the hiring entity” in their work; B) must perform work outside the “usual course of the hiring entity’s business;” and C) must usually be engaged in an independent job or business of the same nature as the work they do for the hiring entity.
This puts a large number of tech startups on the spot because they employ delivery individuals for their central business who have no enterprise of their own, without benefits. Moreover, they just don’t make enough to pay benefits. Uber and Lyft are in the same boat. So we are seeing them lining up for exemptions, backed by the California Chamber of Commerce.
This week, the Labor, Public Employment and Retirement Committee of the California Senate voted in favor of the bill, 3 to 1, so it is very likely to go through.
The third problem is to do with the human element. Technology companies are accustomed to picking the brains of engineers and paying them a percentage. This amounts to a lot because the product is highly valuable. Engineers are also personally involved with their projects. Patents are issued in their name and can significantly add to their prestige and recognition.
This is very different from a job like driving, which doesn’t involve a whole lot of innovation. Drivers are therefore focused on increasing their pay, irrespective of the value of the good they offer. This focus takes them to at least try to game the system. For example, it’s very common for drivers to go offline in quiet periods and online again when surge rates are on. So this is in tension with the original objective of providing a service that covers most rides.
The fourth problem is that the only person paying is the customer. So the customer finds that as has always been the case, it’s hard to quickly hail a cab especially in quiet periods. The only time there are a lot of taxis available is when surge prices are on. Moreover, even the cost of regular rides is going up exponentially (as Uber/Lyft raises prices). To make matters worse, because they have sucked out drivers from the traditional taxi system, those taxis are also relatively scarce and so, more expensive.
So the result is that the problem the ride-sharing companies were trying to solve isn’t solved and they have in fact created new problems.
The California bill doesn’t automatically apply to the rest of the country. But California has an outsized impact on the industry because most tech startups are headquartered there and most of them hugely exposed to the state. Uber is relatively better off in this respect because it operates not only in other states, but also in 60+ other countries.
As far as the rest of the market is concerned, one can only hope that level 5 automation of cars comes sooner rather than later. But even then, we’ll have to take a wait-and-see approach because there could be teething problems.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it’s predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks’ 3 Best Stocks to Play This Trend >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Uber and Lyft may be able to absorb these costs for a short time if investors still think there is hope for the company. But the IPO debacle — in which it …
The companies are already unprofitable, and facing strict regulation.
One of my favorite things to ask rideshare drivers is whether and how they calculate their earnings: Do they keep track of hourly wages, how important are incentive bonuses, how do they maximize fuel efficiency and minimize expensive wear on their car, etc. The answers vary wildly, as do the reasons that people drive. Some do only infrequently, as a way to make extra money; some drive as a placeholder in between jobs; some drive more or less full-time (setting their own hours, of course).
Unsurprisingly, those who drive the least tend to worry the least about their “wage.” On the other end of the spectrum, I once had a fascinating hour-long discussion with a driver — the type of guy who trades stocks at home and is actually good at it — who told me about the second Prius he bought for driving, his elaborate balance sheets, and, most interestingly, how he refused to share his trade secrets with other drivers.
The upshot of all of this is that it’s remarkably difficult for rideshare drivers to make minimum wage, which has led to the recent push in the California assembly to reclassify them as employees, rather than independent contractors. This would mandate minimum wages, health benefits, and sick leave — and could cost Uber and Lyft hundreds of millions of dollars.
Which would be fine if these companies were enjoying healthy profit margins off of unregulated labor. But, as Josh Barro asked of Uber in a New York magazine article, “does this company not like money?” It doesn’t seem to. Uber lost about $3 billion last year (Lyft, a much smaller company, didn’t do any better, losing $911 million.
In its S-1 filing, or prospectus for investors, before its disastrous IPO, Uber outlined exactly how it expects to continue losing money. In essence, Uber sells its product below cost in an effort to crowd out other market competitors, who are also selling their products below cost. And even if competitors start selling at cost or are driven out of the market, Uber still must sell below cost, to compete with public transit and private cars.
The other factor driving Uber’s losses in that its vaunted “surge pricing” mechanism has been partially rolled back. This practice — matching driver supply with rider demand by decreasing pay when demand is low and increasing it during peak hours — created a double backlash. Drivers would be deterred from coming back to work after a low-paying day, and riders had an even more negative reaction to large price spikes. Without this at the center of Uber’s strategy, it’s left selling consistently below cost in an effort to maintain a workforce and ridership.
So Uber is effectively a middleman for a money transfer from venture-capital (VC) firms to consumers. It takes a loss on every ride, subsidized by a massive valuation that looks increasingly like a fairy tale.
Some reply that Uber will be fine; it just needs to hold out until the coming introduction of self-driving cars. But that just makes this a race against time: Mandates on disability compensation, minimum wage, and overtime could drive up labor costs 30 percent, making it difficult for Uber to survive until technology renders drivers unnecessary — whenever that ends up being.
Uber and Lyft may be able to absorb these costs for a short time if investors still think there is hope for the company. But the IPO debacle — in which it significantly underperformed its private valuation — shows that confidence may be waning.
California’s bill is expected to be heavily modified and of course would apply only in one state. But California accounts for a sixth of Uber’s and a quarter of Lyft’s business, containing the critical Bay Area and Los Angeles regions, which are dense and car-centric enough for ridesharing to make a tolerable profit margin.
And if the bill is a model for the nation, especially the urban and progressive areas where ridesharing is most common, Uber and Lyft could be bubbles on the verge of popping. They both have flawed business models. They expanded far too quickly due to massive valuations. And they face an increasingly hostile regulatory environment, from London to New York to San Francisco.
The “gig economy” was hailed or reviled as the future of employment: flexible, bare-bones, crowdsourced. But the “side hustle” (in Uber’s words) dream has faded, as drivers discover that expenses such as maintenance and gas severely eat into their earnings and realize they’d prefer a traditional job with benefits.
The struggles of gig apps are emblematic of a larger weakness in the tech sector. Armed with ever-increasing amounts of capital, VC firms have embraced the “blitzscaling” approach — rapid expansion in an effort to capture an overwhelming market share. Last year, 81 percent of the ventures that went public had been unprofitable the year before. The last year this happened? 2000, the year before the dotcom bubble burst. Blitzscaling can lead to large-scale success, but also to the replication of fundamental flaws at scale.
It’s somewhat startling to think that these companies, which transformed how urbanites got around (and how drunk teenagers got home safely) could someday go away. I use Uber frequently along with public transit; its disappearance might force me to take a long-overdue trip to the DMV to get my license.
In the end, the changes to the urban landscape will probably be for the good. The congestion problems plaguing so many cities may be alleviated, and public transit, less obtrusive to pedestrians and environmentally preferable to cars, could finally have its day in the sun. Car ownership is down among young adults, and a less car-centric environment would favor the pedestrian and the neighborhood over the car and the suburb. And I could stop worrying about the ratings drivers give me.
An East Hartford woman is accused of spending almost $2,300 on Uber on her grandmother’s credit card without permission, according to police.
According to East Hartford police, in January, Harris’ grandmother reported that between Dec. 14, and Jan. 24, someone spent about $1,500 on Uber using her credit card. She suspected her granddaughter, Harris, was responsible and believed she took a picture of her credit card to use for the ride-hailing service.