Uber

= a company that uses a mobile application to find available private cars for people looking for an alternative to taxi cabs.

Description

Mark Pesce:

"This trip I got to experience a brand new car service, Uber. Designed to work with a high-end smartphone, it is an app that shows your location on a map of San Francisco, along with cute icons showing nearby Uber cars. You request a pickup, then that request gets transmitted to those cars; when one of the drivers agrees to pick you up, the other car icons disappear, and you see that driver’s icon make its way across the map, toward you. It’s wonderful, because it takes all the mystery out of a car service - you know how far away the car is, and how long you’ll have to wait.

While Uber is pleasant for the passenger (it costs anywhere from one-time to three-times a normal taxicab), it’s a complete revolution for the drivers. Limousine drivers live by their bookings, which are generally spaced well apart; hence, the drivers often have some unpaid downtime. Those drivers can now launch the Uber app on their own smartphones, bidding for jobs as they come in. They can earn 50 per cent more on a shift, because they’re more fully utilised. By taking the inefficiencies out of the system, Uber was able to create a rival taxi service in San Francisco with nothing more than a few computers and a smartphone application. They didn’t need to buy any cars, hire any drivers, or lease any office space.

Uber is expanding, moving into Silicon Valley’s Palo Alto, New York and Austin, Texas -- where you can to book a pedicab through the service. As the service expands, taxi companies throughout the developed world won’t know what hit them: Uber (or an Uber-clone) will quietly move into their markets, completely disrupting the business. When it comes to Australia, the oligopoly of Macquarie’s CabCharge won’t stand a chance. This is the new way of doing business: radically more efficient, more money to the drivers, and better customer service." (http://www.abc.net.au/unleashed/45026.html)

Discussion

How Uber is Changing Limousine and Transportation Economics

Excerpted from Mark Pesce's Next Billion Seconds:

"Limousine drivers like Charles love Uber, too. Before the service launched, those drivers would spend half their time doing nothing, idling their hours while waiting for the next pickup call to come in. Drivers now add Uber jobs to their regularly scheduled pickups, nearly doubling their earning power within the same eight-hour shift. Mobiles have given limousine drivers the same economic acceleration that mobiles gave the fishermen of Kerala fifteen years ago – creating a highly efficient market which satisfies an increased demand, dramatically improving the earning potential of everyone connected.

Economists recognize that when a sudden change in market dynamics produces a burst of new wealth it encourages people to enter the marketplace. A ‘gold rush’ begins, as everyone looks for a way to vacuum up some of the new-found fortune. Most markets have ‘barriers to entry’ – to be a fisherman, you need a boat and rigging and nets and a crew; to be a driver you need a rather pricey limousine. These barriers make it difficult for the market to become immediately overcrowded, but the lack of competition increases the incentive for everyone already participating in the market to maximize their productive behavior. The more productive you can be within a closed but growing market, the more you will earn.

For Uber drivers, this means putting their limousines where they’re most needed. But they’re not alone in this, so the busiest parts of the city are also those with the greatest supply of drivers, which means drivers still have to wait for jobs. Even closed markets can be locally oversupplied – particularly where participants within a market can smell all the money to be made.

Uber drivers run a companion version of the smartphone app that Uber customers use. This app allows them to bid on pickups, but does not reveal the location of any of the limousines around them, competing for the same business. Uber’s drivers have less information than Uber’s customers. As a consequence, limousines tend to cluster, because drivers don’t know that they’re all converging on the same small – and presumably lucrative – area.

My driver Charles has a solution for this dilemma: he owns two mobiles, and runs both Uber apps. The driver app delivers pickup requests, while the customer app reveals the locations of any limousines nearby. “One evening I came into the city,” Charles reports, “and there were four limousines within a block.” Knowing this, Charles moved on, finding another, under-served area of the city, and got plenty of work.

Uber may not want its drivers to know about the location of other drivers, but it wants to reveal that information to its customers, so drivers simply poke holes in the wall that separate the two sides, peering through, and learning where to position themselves for greatest profit. The drivers use all information on offer – from every source – to give themselves the greatest advantage.

Charles says he’s one of the few Uber drivers using his smartphone to give him the inside track with a degree of omnipresence. It’s a technique new to him, and he doesn’t say whether he thought it up himself, or if he copied it from another driver. Either way, as Charles’ success becomes more visible, his peers, watching what he does, will copy his keys to success. What he knows will be replicated throughout the fleet of drivers until this exceptional behavior becomes pervasive and normal.

Soon, Uber will either need to provide drivers with all of the information drivers provide to Uber, or every Uber driver will use two mobiles, one for orders, and another for omnipresence. As drivers learn more about one another, they learn how to avoid economically damaging behaviors, such as clusters. The drivers self-organize, spacing themselves throughout an area in a way which generates the greatest economic advantage for each individual. They will act as a unit – as if they all answered to a common mind – although they have no central command, accept no controlling influence, and simply work to maximize their own financial interests. This emergent behavior – seen first along the Kerala coast – is the inevitable consequence of connectivity." (http://thenextbillionseconds.com/2012/03/13/19-loop/)

How Ubers Algorithmic Monopoly is Destroying Open Cab Markets

" it’s important to recognize just what Uber actually represents. Uber started out named UberCab, and ‘uber’ is a German word which means ‘over’ or ‘better than’ or ‘the ultimate’. So UberCab meant, the ultimate cab. At the core of Uber’s strategy has been lobbying and advocacy to make sure that it can get into regulated cab markets. And this is so Uber can ‘disrupt’ and destroy them.

A healthy cab ecosystem relies on expectations of a market (with price-fixing by political authorities, mostly taxi commissions). There have to be people trying to hail cabs, and cabs driving around to find customers. As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.

Open cab markets aren’t gone, but they will die eventually. They will go the way of open cattle, pig, and chicken markets, which mostly don’t exist anymore due to concentration in the meat market (read The Meat Racket for a great understanding of what happens when markets are captured by big business).

Uber’s ascendance hasn’t come without controversy. A lot of people are focused on the company’s use of surge pricing, which is when the company charges more money to customers because there is ostensibly high demand, such as during snowstorms or during New Year’s eve. It’s a controversial practice, to say the least.

The CEO of Uber, Travis Kalanick, has responded by basically saying ‘deal with it, it’s market-pricing.’ His argument is that higher pricing brings more drivers into the market, matching supply with demand. It is the optimal way to get as many people home as possible.

His argument, though, is phrased somewhat oddly. Kalanick notes “we are not setting the price, the market is setting the price.” But then, non-ironically, immediately adds “we have algorithms to determine what that market is.” In other words, the prices his company sets in the markets that his company controls are somehow, well, natural. So complaining about this is like complaining about the rain.

This is, of course, absurd. Uber is aiming for an algorithmic monopoly, control of a market through contract pricing. That the contract pricing is done with a complicated algorithm doesn’t make it a market, it just makes it complicated. Standard Oil would love this rationale.

There are three big issues with Uber’s model.

One, Uber controls all of the information in this so-called ‘market’. One of the premises of a market is relatively balanced information on the part of both the buyer and the seller. But Uber is neither a buyer or seller, it’s a broker. And as a broker, it shows the buyer and seller only what it wants to. Its algorithm is not regulated nor is it transparent, so neither the buyer or the seller has any credible information. This isn’t a market, it’s a monopoly. It’s a special type of monopoly, an algorithmic monopoly. It may mimic market-style pricing, or it may not. That’s up to Uber.

We’ve already seen that Uber withholds supply to drive up prices, as illustrated by a text message encouraging drivers to stay home so pricing would surge. Uber denies doing this, but even the denial proves the point that Uber absolutely controls all aspects of the ‘market’. Here’s the company’s PR on the text message debacle.

...

"The company wanted to reward new drivers…." But wait, how is ‘rewarding drivers’ consistent with market pricing? Markets don’t reward anyone, they simply clear at a price. So the answer is, it’s not a market, it’s contract-pricing controlled by Uber.

Right now, the only competitive force working to constrain Uber is the open cab market (well there’s politics, but that’s being swept away effectively). As this disappears, will Uber’s algorithms, aka the magical market, adjust as well? I think we can count on it. Uber believes in supply and demand, and when Uber is the only supply, well…

The second problem is simpler to explain. Cab drivers have a history of discrimination, whether it’s not picking up African-Americans or refusing to go to certain neighborhoods. Uber solves this problem, as Latoya Peterson explains in Racialicious. Here’s a sample comment.

A good example of race, class, and gender intersecting and the cost of racism and sexism. As a black woman I don’t get discriminated with Uber and feel safer than hailing a cab since my ride is tracked but if I couldn’t afford Uber, oh well. I take Uber all the time and have never been sexually harassed or treated rudely like I have the many times I’ve taken cabs in DC over the past 10 yrs.

Getting rid of racism is a good thing. But in eliminating one problem, this service introduces another. You have to have a smartphone and credit to use Uber. As Uber displaces the regular cab market, racism as a screen for cab drivers will decline. But the new screen, which will be contained in the magic market, aka Uber’s algorithm, will be whether you have a credit card and a smartphone. That means you can’t give someone twenty dollars for cab fare. It means that an entire slice of the population simply can’t get into Uber’s magic market.

And three, Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.

Uber is a fascinating and convenience-inducing shift in urban logistics, for now. I’ve used it. But what the company is really doing is supplying a governing service, replacing taxi commissions, and taking a fee for doing that. This means no input from the public, and since the public seems to hate politicians these days, maybe that’s what people want. But still, to the extent that there is interest in democratic decision-making, algorithmic monopolies are something antitrust authorities should watch. Right now Uber is wringing a lot of inefficiency out of the taxi industry. But eventually it will have so much power that it will introduce problems of its own." (http://mattstoller.tumblr.com/post/82233202309/ubers-algorithmic-monopoly-we-are-not-setting-the)