Uber can't live up to the ex­pec­ta­tions it set

The Pak Banker - - OPINION - Me­gan McAr­dle

IN record time, "Uber for X" has gone from big-money ven­ture-cap­i­tal pitch to tired old joke. Ev­ery­one wants to write an app that dis­rupts some big in­dus­try. How many peo­ple are suc­ceed­ing? Not many, ar­gues Farhad Manjoo. Park­ing, gro­cery shop­ping and take­out are just a few of the many in­dus­tries that have been pitched as ripe for dis­rup­tion, of­fer­ing con­sumers bet­ter ser­vice at lower cost. And that pitch ac­tu­ally seemed to make sense, when ser­vices were still in the first flush phase of their VC in­fu­sions, and of­fer­ing their prod­uct at a loss in or­der to build a la­bor force and cus­tomer share.

Now, how­ever, they look a lot more like high-end ser­vices for af­flu­ent con­sumers will­ing to pay a premium for con­ve­nience. There's noth­ing wrong with that, of course. If high­end con­sumers are will­ing to pay some­one to bring them stuff, and that some­one is happy earn­ing the money, then this is great news for the Amer­i­can econ­omy. On the other hand, letting the highest-in­come con­sumers pay some­one to pick out their gro­ceries, rather than pick­ing them out them­selves, is not ex­actly a revo­lu­tion­ary dis­rup­tion of the gro­cery in­dus­try. It's a mod­er­ately con­ve­nient ser­vice de­liv­ered at a premium cost.

Why don't these busi­nesses look more like Uber, which has si­mul­ta­ne­ously in­creased the avail­abil­ity and con­ve­nience of taxi ser­vices, while low­er­ing the cost? Manjoo sug­gests that it's be­cause Uber was dis­rupt­ing a taxi cartel that was able to ex­tract sig­nif­i­cant eco­nomic rents from cus­tomers, made pos­si­ble by heavy pro­tec­tion from lo­cal reg­u­la­tors.

Gro­ceries, park­ing and take­out, on the other hand, are more like nor­mal com­pet­i­tive in­dus­tries. Sure, an app might stream­line things a bit, adding enough value to let busi­nesses ex­pand their reach or lower their prices a bit. But since the app it­self has to take a cut in or­der to pay back those in­vestors, there ac­tu­ally isn't much room to de­liver mas­sive sav­ings.

This ex­pla­na­tion makes sense to me. But a nig­gling doubt re­mains at the back of my mind: Does even Uber live up to the hype of be­ing "Uber for X"?

I've been writ­ing about Uber since close to its in­cep­tion, and I'm a big fan of the ser­vice. Its orig­i­nal in­car­na­tion as a method of sum­mon­ing black cars was revo­lu­tion­ary for those of us who live in neigh­bor­hoods with­out re­li­able taxi ser­vice or a clear and safe route from the sub­way at night. (This no longer de­scribes my neigh­bor­hood, ac­tu­ally, since there's been con­sid­er­able res­i­den­tial devel­op­ment over the last few years. But at the time Uber launched, my near­est Metro stop was in the mid­dle of a sea of of­fice build­ings that tended to be de­serted af­ter 7 p.m.)

But in the years since its launch, Uber has fo­cused on mak­ing taxi ser­vice not merely more eas­ily avail­able, but also cheaper. UberX is con­sis­tently cheaper and more re­li­able than a DC taxi, and that's pretty much what I hear from peo­ple in ev­ery other city where Uber op­er­ates, with the lone ex­cep­tion of Lon­don.

Part of this suc­cess is un­doubt­edly be­cause lo­cal taxi car­tels had a lot of in­effi- ciency built into them. The value of a New York taxi medal­lion has cratered since the ar­rival of Uber, and that rep­re­sents eco­nomic rents that were be­ing trans­ferred from driv­ers and cus­tomers to the medal­lion own­ers. Since those medal­lions pre­vi­ously sold for up­wards of a mil­lion dol­lars, there's room for Uber to take a healthy por­tion of those rents while still of­fer­ing driv­ers and pas­sen­gers a bet­ter deal.

But the more I talk to Uber driv­ers, and read the mes­sage boards, the more I won­der if we aren't in a bit of a golden mo­ment for Uber -- the mo­ment while there's still a lot of in­vest­ment money to sub­si­dize op­er­a­tions, and be­fore driv­ers re­al­ize that wear and tear on their cars is ac­tu­ally an enor­mous hid­den cost that needs to be ac­counted for in cal­cu­lat­ing their hourly earn­ings.

I say this be­cause I've started to hear driv­ers talk about peo­ple they know who dropped out be­cause of the wear and tear on their cars -- some­thing that I never heard a cou­ple of years back, even though I of­ten asked about it. (Yes, in the height of all jour­nal­is­tic clichés, I usu­ally in­ter­view driv­ers.) It also shows up on bulletin boards like Glass­door.com. The vol­ume of com­plaints about wear and tear on the cars seems to be ris­ing, of­ten cou­pled with com­plaints about the fare and re­im­burse­ment cuts that Uber has pushed as it tried to break even. This is ob­vi­ously far from sci­en­tific data, but it makes a cer­tain amount of sense.

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