Beyond Uber
The conventional cab-licensing route must be reviewed
The Transport for London (TfL) Authority recently decided to revoke Uber’s licence to operate in the city. TfL says Uber’s conduct “demonstrates a lack of corporate responsibility in relation to a number of issues which have potential public safety and security implications”. The ride-hailing company has launched a public campaign against the revocation while admitting “we got things wrong”. In terms of the specifics, TfL says that the company did not inform the police about multiple incidents of sexual assault on passengers by drivers, and also that Uber has unacceptable standards for background security checks and medical clearances. TfL is also unhappy about the possible use of Uber's notorious “Greyball” app, which is designed to shield vehicles from regulators — it does so by identifying police and other local regulators and conceals Uber vehicles using the app.
This is not the first time Uber has been banned. It has met the same fate in Italy, Denmark, Hungary and Bulgaria, in the British Columbia province of Canada, in Alaska state (US), and in Australia’s Northern Territory. In several other countries — Finland, France, Spain, Holland and Taiwan — it has faced investigations and has been suspended for flouting regulations. There is also an ongoing US federal investigation into Greyball. The company also faces accusations of rampant gender bias and of concealing incidents of sexual harassment inside the organisation. Drivers have complained about sundry practices. Founder and majority shareholder, Travis Kalanick, was sued by investors and forced to resign as the chief executive officer, for “concealing at least six instances of malfeasance”. Uber is also facing trial for allegedly stealing intellectual property from Alphabet’s autonomous vehicles division, Waymo.
Adding to the drama, Uber has lost bucketfuls of cash even as it has grown. Between January and June this year, Uber had losses of $1.35 billion while generating $12.1 billion in gross global revenues. It still had $6.6 billion of cash on hand by June. There has been a huge churn in senior management with many key executives leaving in the wake of the scandals. It has been forced out of China by competition from Didi Chuxing, which bought out Uber’s China business. In Russia, it has been forced to merge with local player Yandex, which now runs the Russia business. It also faces competition from Ola in India, from Hailo and Mytaxi across Europe and from Lyft in the US.
So why is this unlisted company still valued at $70 billion and considered a market leader? Because it was the first to identify that conventional taxi services failed to service the supply-demand mismatch, and it found a revolutionary solution. Urbanisation is a global phenomenon and public transport systems are stretched by growing populations. Most municipalities license fewer cabs than required. Most cities also restrict fares to metered rates. At the same time, smartphone penetration has shot up and GPS-based mapping services are ubiquitous. Uber cleverly used those to deploy free vehicles to meet the supply gap, calling itself the “Airbnb of taxis”. The Uber app connects free vehicles with people who need rides; the fare algorithm “surges” or dips to cater to differences in supplydemand. While Uber rides are often cheaper than metered taxis, surge pricing induces drivers to cluster into areas wherever there is a sudden rise in demand, or vehicles are in short supply. This concept has now been adopted by its competitors.
The latest controversy highlights both the positive and negative aspects of Uber's controversial business model. Uber has been in trouble with regulators in many jurisdictions for multiple reasons and it has, by all accounts, a terrible corporate culture. But despite the controversies and misdemeanours, it remains among the most valuable of businesses. This is because it identified and met a demand that isn't satisfied by conventional public transport. The truth is ride-hailing apps are here to stay even if Uber is taken down by its transgressions. Municipal planners must review the conventional model of cab-licensing and adapt it to take heed of the needs of growing urban populations.