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Uber’s Transformative Impact on Individuals, the Economy and Society

The Uber App
"Uber app" Image: freestocks.org, All Rights Reserved

Through the transformation of the Internet, companies have changed the way individuals consume goods and services. This is evident through the on-demand ride-sharing application Uber Technology (Uber), whose ability to capitalise on the sharing economy, disrupting economic and labour markets while also revolutionising individual’s relationships with technology. This essay will discuss Uber’s historical development in becoming a successful company, particularly through its business model that uses technology as an intermediary between customers and drivers. Through Uber’s infiltration of the taxi industry, nations have tried to regulate new economic and labour. An ecosystem diagram will highlight key actors. Through this analysis, it is evident that Uber has transformed how the economy and individuals interact with the Internet and online platforms

What is Uber? The Historical Development of the Successful Company

Launched in San Francisco, California (2010), Uber is an online platform that provides on-demand services to individuals in need of a ride (Sultana and Weber, 2016, p. 321). The idea was conceived in Paris (2008) when founders Travis Kalanick and Garrett Camp could not find a taxi throughout the night. Through this experience, the founders used software, users data, and geolocation technology to create an online platform that conveniently and safely connected users to individual’s available car space (drivers) (Munger, 2018b, p. 91). As Munger (2018a) states, the “two of the greatest successes in the new economy are high value, underutilised durable asset” (p. 55). Uber was initially called “UberCab”, with a cease-and-desist order in 2010, foreshadowing the companies strained relationship with the taxi industry and regulatory authorities (Schneider, 2017b, p. 45). Their name change to Uber Technology signified Uber’s position as a technology company and allowed for their expansion internationally in 2011, with it currently being situated in 10,000 cities.

Uber’s ability to capture the sharing economy is an important part of its historical development. The Internet and online platforms have not only facilitated the sharing of ideas, knowledge and opinion but the sharing of unproductive goods and asset (Lutz et al., 2018, p. 1472). Uber’s idea was based on sharing unused car space, with the creation of an online platform helping facilitate this exchange (Schneider, 2017b, p. 47). As John (2018) states, the rise of the sharing economy and Uber highlight the “role attributed to technology as an enabler” (p. 69).

Though Uber’s ability to tap into the sharing economy, the company has been able to provide different services using the same model. Launched in 2014, UberEATS was the first major step for the expansion of Uber, which connected customers to food option at different restaurants. However, Uber has also expanded into other ventures including UberFRESH, Uber Commute, Uber Rush and even UberBOAT within the Sydney Harbor as of 2019 (Munger, 2018b, p. 86).

 

 

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However, Uber’s ability to infiltrate the regulated taxi industry has resulted in regulatory and government backlash. Schneider (2017b, p.41) discusses how Uber’s registration as a technology company exempts Uber from the requirements of the taxi industry, which include taxes, safety checks, and license registrations. As a result, ongoing global protests starting in 2013 in cities such as London began as workers were outraged about the unfair competition Uber poses on the industry (Schneider, 2017c, p. 86).

 

Workers Protesting Uber in London
Workers Protesting Uber in London, Image: James Guppy, Some Rights Reserved

 

This coupled with Uber’s 2017 scandal, in which the company used a data collection tool called Greyball to circumvent local authorities, have created major backlash from governmental bodies. Uber’s potential violation of Computer Fraud and Abuse Act, inability to pay for licensing and employment conditions have resulted in several nations such as Austria, Hungary and France banning Uber in recent times. This was strengthened by the European Court of Justice, who not only allowed EU nations to ban Uber without consulting the body, but also clarified that the company was not just an application but a transportation service provider.

Uber’s Successful Business Model

Uber’s business model harnesses technology to increase convenience for users while decreasing transaction costs.

Many believe that Uber’s success is contributed to their ability to cut out the “middleman” (Schneider, 2017b, p. 36). However, Uber’s business model does the opposite as it “re-intermediates the taxicab market” (Schneider, 2017b, p. 36). Though Uber’s online platform, they have carried the responsibilities of the “middleman” while owning no warehouses, distribution centres or inventory that are required for the taxi industry (Schneider, 2017b, p. 48). Uber also limits transaction costs through technology in three distinct ways. These include triangulation (matching customer with driver), transfer (the seamless transaction of cashless payment) and trust (the reliability and safety of the driver and customer) (Munger, 2018b, p. 104).

The transaction cost “trust” is an important aspect of Uber’s success, particularly compared to the taxi industry. Munger (2018b, p. 75) notes that trust is now being “crowd sourced”, with Uber using specific trust-enforcing mechanism such as the rating system and tracking technology, evident in Figure 2 and the green pin point, to establish reliability instead of word of mouth about the quality of the app (Munger, 2018b, p. 75).

 

Uber role as a “matchmaker” (Munger, 2018b, p. 103) between customers and drivers sells the value of convenience within the user’s life. This is supported by a simple user interface, which gives users a variety of car services such as Uber X, Uber XL, real-time prices, tracking options and cashless card payment (Figure 2). Figure 2 highlights the easiness of ordering an Uber through three easy steps.

 

Uber's Easy User Interface
Figure 2: Uber’s user interface showing geolocation technology, different car tiers, and online card payment, Image: Dany Papineau, All Rights Reserved

Hence, the utilisation of technology creates a more convenient and fast value proposition, giving Uber an advantage over the taxi industry (Schneider, 2017b p.51). This is evident within the pricing model and transaction procedures, with Schneider (2017, p. 50) noting that prices are not significantly cheaper than other car services. However, the use of an application, “allows for a quicker, often more transparent flow of information” (2017b, p. 36).

Uber’s Place In The Internet Ecology

Amongst online platforms that provide ride on-demand services, Uber has not only been able to pioneer the space but has maintained their control over competitors. Uber’s main competitors are not the taxi companies, rather, other online platforms that similarly utilise the sharing economy. These include American based Lyft, Indian based Ola and Chinese based DidiChuxing, which are popular within their founding region. Within Western nations such as Australia, Uber has recently passed the taxi industry in preferred services, highlighting the disruptive effect Uber has had on the overall transportation industry (Figure 3).

 

The Average Percentage of Australian Who Used Each Service Within the Space of 3 months
Figure 3: The Average Percentage of Australian Who Used Each Service Within the Space of 3 months. Image: Roy Morgan. All Rights Reserved

Evident within the figure below, Uber’s largest demographic was young people between the ages of 18-24. This reflects similar trends in smartphone usage, with 97% of 18-24 years, owning a device. It is clear that young people are paving the way for Internet transformations and the adaption of technological innovation.

The Average Percentage of Australian by Age Who Used Each Service Within the Space of 3 months.
Figure 4: The Average Percentage of Australian by Age Who Used Each Service Within the Space of 3 months. Image: Roy Morgan. All Rights Reserved

Uber’s ability to capitalise on the sharing economy has resulted in exponential growth. Uber has been able to raise more than $26 billion over 25 rounds of funding, with it currently having 105 investors, ranging from Softbank, Goldman Sachs and Morgan Stanley to individuals such as Jeff Bezos. Uber has been able to establish a plethora of partnerships and sponsorships, ranging from commercial partners such as the Hilton, BMW and Qantas to charitable partners such as the McGrath Foundation. These partnerships allow Uber to diversify their revenue streams and expand their brand into further avenues.

Below is an Internet Ecology Diagram of Uber:

Uber Internet Ecology by Sansi Iyer. Some Rights Reserved

 

The “Uberisation” of Society: The Transformative Effects of Uber

 

Uber Application
Uber Application, Image: stockcatalog ,Some Rights Reserved

Uber utilisation of the Internet and technology has undoubtedly transformed individuals’ behaviours and industry structures. This echoes Uber’s classification as “disruptive innovation”, which is defined as the process in which a product or service displaces established competitors and create new markets through “primarily technology-backed innovation” (Schneider, 2017c, p. 90). Uber’s ability to completely undermine the taxi industry as well as tap into a new market of consumers exemplifies the transformative nature of the Internet.

 

The term “Uberisation” demonstrates the company’s ability to not only infiltrate low-end markets, but revolutionise the way the Internet can provide services for consumer demands. Hence, Uber and the Internet have increased the value of convenience in consumer’s lives. Schneider (2017c) explains that Uberisation is the process in which for “every consumer demand, there will be a mobile app that can service that need” (p. 58). Sultana and Weber (2016, p. 321) note that the high barrier of entry in the taxi industry resulted in the inability to adopt new technologies. However, Uber’s power to infiltrate the industry through technology highlights the disruptive impact of online platform innovation. This phenomenon is evident within the rise of on-demand apps that use a similar model to target the sharing economy.

Uber has transformed the way individuals value their privacy. To create a successful model under the sharing economy, Uber relies on underused personal data so they can monitor users behaviours and create effective algorithms (Einav, Farronato, and Levin, 2015, p. 629). However, the success of Uber has increased individuals concerns regarding privacy issues. This reflects the growing recognition of the right to privacy and in general, digital rights. In a digital rights report (Groggin et al., 2019, p. 13), it was stated that 57% of Australian respondents were concerned about the violation of privacy by corporations. This reflects growing concerns from Uber customers as the application “pits information disclosure, economic considerations, and privacy concerns against each other” (Teubner and Flath, 2019. p. 214). For example, Hayes et al. (2017, p. 1) found that Uber conducted geo-tracking on users without the application being open. Even in recent times, Uber has embraced videotaping rides, which has peaked the concern of privacy activists who state it is a “treasure chest of personal data”. Hence, privacy concerns are rooted in the transformative effects of online platforms such as Uber and their ability to collect data.

Uber’s capitalisation of the sharing economy has resulted in the normalisation of the “gig economy” which hurt vulnerable groups. Defined as the increase in self-employment and casual labour, the gig economy has taken over the labour market through major applications such as Uber (Berger et al., 2019, p. 429). This follows trends of digital forms of labour which are often “piece-work, labour fragmentation, along with the under-payment for goods and services” (Zwick, 2018, p. 680). In some ways, Uber has empowered workers to become “microentrepreneur” under new labour markets (Berger et al., 2019, p. 429).

Uber Car On the Street
Uber Car On the Street, Image: Konrad Krajewski, All Rights Reserved

 

However, this type of precious and uncertain work that Uber has normalised within the new digital economy has exploited the working-class who are willing to do work for less legal and safety protections. For vulnerable individuals such as immigrants and felons who have a lack of employment opportunities, Uber’s less rigorous background checks on drivers that are typically conducted by the government, have provided an opportunity for work (Zwick, 2018, p. 686). However, Berger et al. (2019, p.198) found that Uber’s entry into a new nation led to a 10% decrease in per-hourly wages compared to cities that Uber was absent. This hurts these vulnerable communities within society.

This has resulted in nations trying to regulate Uber’s transformation of the labour market. For example, in a case within the U.K, the judge claimed that Uber workers were not contractors, but employees as the “company fully determine the terms and conditions of employment” (Zwick, 2018, p. 685), therefore violating current labour laws. Even within the YouTube Video below, California is also currently deciding how to accurately classify this new type of employment This highlights the transformative


 

Conclusion

Uber has been pivotal to the transforming nature of the Internet. Through Uber’s use of the sharing economy, the company has been able to infiltrate regulated industries and change the nature of labour markets. Uber has also been able to sell the idea convenience to individuals. This has led to governments trying to grapple with the changing nature of labour, privacy, and society.

 

Reference

Berger, T., Chen, C., Frey, C. (2018). Drivers of disruption? Estimating the Uber effect. European Economic Review, 110, 197–210. https://doi.org/10.1016/j.euroecorev.2018.05.006.

Berger, T., Frey, C. Levin, G. Danda, R. S. (2019). Uber happy? Work and well-being in the “Gig Economy.” Economic Policy, 34(99), 429–477. https://doi.org/10.1093/epolic/eiz007.

Groggin, G., Vromen, A., Weatherall, K., Martin, F., Webb, A., Sunman, L., & Bailo, F. (2017). In Digital rights in Australia, 1- 74. Sydney University Press.

Hayes, D, Snow, C., and Altuwayjiri, S. (2017). Geolocation Tracking and Privacy Issues Associated with the Uber Mobile Application. 1-11.

John, N. A. (2018). Sharing Economies. In The age of sharing (pp. 69–97). Polity.

Lutz, C., Hoffmann P. C., Bucher, E & Fieseler, C. (2018). The role of privacy concerns in the sharing economy. Information, Communication & Society, 21:10, 1472-1492, DOI: 10.1080/1369118X.2017.1339726.

Munger, M. (2018a). “The Middleman/Sharing Economy” in Tomorrow 3.0 : transaction costs and the sharing economy (pp. 49-70). Cambridge University Press.

Munger, M. (2018b). “The Answer Is “Transaction Costs” – Uber Sells Triangulation, Transfer, and Trust” in Tomorrow 3.0 : transaction costs and the sharing economy (pp. 71-106). Cambridge University Press.

Schneider, H. (2017a). What is the economics of Uber (and of this book)? In Creative destruction and the sharing economy Uber as disruptive innovation (pp. 10-35.). Edward Elgar Pub.

Schneider, H. (2017b). What is Uber’s Business Model in Creative destruction and the sharing economy Uber as disruptive innovation. (pp. 36–62). Edward Elgar Pub.

Schneider, H. (2017c). What are creative destruction and disruption innovation? In Creative destruction and the sharing economy Uber as disruptive innovation. (pp. 63–91) Edward Elgar Pub.

 

Sultana, S., & Weber, J. (2016). “Uber” in Minicars, maglevs, and mopeds: modern modes of transportation around the world (pp. 321-323), ABC-CLIO.

Teubner, T and Flath, C. M. (2019). Privacy in the Sharing Economy. Journal of the Association for Information Systems, 20(3), 213–242. https://doi.org/10.17705/1jais.00534.

Zwick, A. (2018). Welcome to the Gig Economy: neoliberal industrial relations and the case of Uber. GeoJournal, 83(4), 679–691. https://doi.org/10.1007/s10708-017-9793-8.

Sansitha Iyer
About Sansitha Iyer 6 Articles
A Student at USYD majoring in Politics, International Relations and Digital Cultures. Love learning about new and innovate technologies that are transforming the way individuals live their lives