Some Thoughts on Uber: the Good, the Bad, and the Ugly

Professor Vijay Mehrotra in the School of Management discusses the concerns of highly automated and unfettered free markets for services and what he emphasizes with his students.

Vijay Mehrotra

Uber in action feels like magic compared to the faith-based and stressful exercise of calling a dispatcher or trying to hail a cab especially here in San Francisco where there has always been a terrible shortage of traditional taxis. Beyond the convenience, I’m impressed and inspired by the way that several sophisticated technologies have been seamlessly stitched together by Uber. Among other things, the Uber experience depends on smartphone hardware and software, 21st century telecommunications infrastructure, increasingly sophisticated GPS systems, payment processing platforms, and good old email. The Uber platform – elegantly designed, smartly integrated – indeed makes the user feel empowered, lending some emotional truth to the company’s “everyone’s private driver” tagline.

So I am both joyful and amazed every time my Uber car pulls up. At the same time, there is so much about Uber that I intensely dislike. For starters, the company’s founder and CEO Travis Kalanick has a well-chronicled reputation for arrogance and misogyny. The company’s culture is known for its long hours, high pressure, lack of work/life balance, and utmost secrecy. None of this is unique to Uber, but there’s something about this particular San Francisco-based company that embodies the way that the tech industry and culture seems to have swallowed much of San Francisco almost overnight, with many of the diverse and creative people that inspired me to move here in the first place now priced out of an overheated real estate market that seems to be dominated by youngsters flush with tech dollars – all of whom seem to be constantly riding around in Uber cars.

As the company constantly expands, Uber’s reach extends far beyond its San Francisco Bay Area home base. Its basic approach is to thumb its nose at any/all local laws until eventually managing to get them changed in an Uber-friendly direction. As Tracey Lien wrote in a recent Los Angeles Times article, “It [Uber] punches itself into markets and spends big on advance teams, lawyers and lobbyists to fight opposition and gain a foothold in markets around the world.” Uber’s ambitions are vast, and its hiring of former Obama campaign strategist David Plouffe reflects the business importance of its constant combative campaigning.

Meanwhile, Uber drivers – the people who not only do the actual transporting of passengers but also are required to invest their own capital to purchase and operate the individually-owned vehicles that collectively comprise Uber’s fleet– are seeking to be treated as employees in California rather than independent contractors and have been granted the right to unionize in Seattle. Recently, Uber’s unilateral decisions to decrease its prices while also increasing its share of total revenues have led to sharp drops in income for its drivers. Its practices for screening the drivers in its network have also been under scrutiny, and its recent forays into the driverless cars suggest that they would rather not have to engage with any drivers at all.

Even though I teach in a business school, I don’t believe that highly automated and unfettered free markets for all kinds of services are inherently optimal. As Erik Sherman recently pointed out, there is “a systemic imbalance in favor of the company that can ignore or avoid regular conditions of doing business,” which sounds a lot like Uber when it enters a new market.

As a cautionary tale, consider Amazon.com. Today, Amazon accounts for more than 40% of all book sales and over 65% of all eBooks – and, not coincidentally, the number of independent bookstores is now more than 50% lower than it was when Amazon was founded.   As its share of overall book sales has ballooned, Amazon has taken advantage of its market power to aggressively push the terms of its agreements with book publishers dramatically in its own favor, and now has an outsize influence over how books get published and distributed. In fact, book distribution has from the outset been only a small part of Amazon’s vision. The real prize has been the access to reams of consumer data and the ability to analyze this data for fun and profit.

Thinking of companies like Amazon and Uber, the futurist Jaron Lanier has pointed out that “information supremacy for one company becomes, as a matter of course, a form of behavior modification for the rest of the world.” This is exactly why I talk frequently with my MBA students about the potential downside of concentrating too much power in too few online procurement and delivery channels, especially with the valuable proprietary customer data that comes with controlling all those transactions.

Yet there’s also no real case for defending the traditional taxi industry either, certainly not here in San Francisco and probably not in many other places. As Uber’s relentless expansion into new markets continues, expect to see more battles with local taxi companies and drivers – and more passengers getting on the Uber app.