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The Path to Uberfication

August 31, 2015
Editor(s): Sean Brown
Writer(s): Tony Chen, Vicky Du, Sharon Sun, William Wang

The transportation network company Uber have revolutionised the way drivers connect with passengers. Although battling numerous court cases and causing global strikes, the six year old company have expanded into 70 different countries and is threatening the monopoly of the seemingly untouchable taxi industry

 Introduction

Uber’s rapidly growing global presence aims to create a direct pathway between consumers and drivers through the use of their app, which makes trips not only more efficient, but also reduces travel cost. However all this convenience comes with a few flaws, as there are several safety concerns circulating around Uber, as most drivers do not have necessary certifications. Furthermore, the introduction of Uber has also decreased demand for the taxi industry, as their customers are being stolen right from their own streets. This has created further issues with Uber from a legal standpoint. Uber acts as a P2P system that eases communication between drivers and riders, however such benefits do not come without complications.

Consumer Benefits

The popularity of Uber has been soaring since it expanded into the Australian market in 2012. From consumers’ perspectives, Uber outweighs traditional taxi services due to several reasons. Primarily, low cost is the major reason that attracts consumers. In Melbourne, Uber provides two different types of services, UberX and UberBlack. UberX is the budget version, which has a base fare of $2.35 and charges $1.15 per kilometre, or $0.40 per minute if it is under 11 kilometres per hour. With UberX, it only costs $44 for the passenger to get to Tullamarine airport from the CBD. However, the luxury UberBlack has a much higher price with a base fair of $10.

UberX fares from CBD

Uber is the pioneer of the so-called ‘sharing economy’, and although it still faces numerous competitors, Uber currently owns the largest market share in the e-hailing industry. Uber outweighs traditional taxi services, as well as its competitors. Its Australian competitors include goCatch and ingogo. Similar to Uber, the apps themselves are not service providers, they are just intermediaries between customers and drivers.

In addition, this ride sharing service also provides convenience. Through the Uber app, users can keep track of the location of car on their smartphones.

On top of that, fare of the ride is automatically deducted from users’ accounts once they arrive at the destination. This is a win-win situation for both consumers and Uber drivers. Consumers don’t need to take cash or credit card with them and drivers don’t need to worry about unpaid fairs. Uber’s feedback system also enables consumers to rate every ride with Uber, which in turn contributes to a higher quality service. Instead of calling and waiting endlessly for a taxi service, the Uber app allows users to get a car at any time regardless of the location.

However, despite all the convenience Uber provides, safety concerns have emerged in many cities. There have been several reported cases stating women were sexually assaulted or raped by Uber drivers and even though these were rare cases, one cannot neglect the potential risks of taking Uber.

Australian Regulatory Concerns
In terms of market regulation, the Australian taxi industry is heavily constrained in comparison to the Uber ride sharing service. To qualify as an authorised taxi driver, individuals must pass a series of hurdles. Evidently, an Australian driver’s licence must be held, however there are medical tests, English language requirements plus criminal background checks that must be undertaken. In addition, once qualified, the taxi vehicles themselves must carry insurance and undergo regular safety inspections. Comparatively, Uber drivers and vehicles only hold private insurance and there are no similar mandated inspections upon a medical or criminal history basis. The classification of drivers as ‘private contractors’ and not officially ‘employees’ also circumvents worker compensation and insurance laws (not to mention the fact that ride-sharing services are technically illegal in Australia).

In addition to the other regulatory requirements a driver must also hold a taxi licensing plate. These are issued by the government in limited figures, placing a quota upon the number of drivers, which has led to them becoming incredibly valuable (in Sydney these plates peaked at a value of $425,000 in 2011). In fact rarely actually held by the driver, these lucrative plates are usually bought by investors and leased out to drivers for an annual fee. As Uber has entered the market and reduced the profitability of taxis, plate owners have seen their investments fall in value – in 2014 the value of a Sydney taxi licence was at a six year low of $375,000. Within the industry, this has also contributed to growing resentment against the service.

The culmination of all this suggests that while Uber may indeed have a technological innovative advantage, the firm benefits substantially from employing a free-market business model in a heavily regulated industry. This creates a clear dilemma for policy makers. All taxi regulation is administered for the benefit and safety of consumers and drivers, yet these costs are harming the efficiency of the taxi services resulting in higher prices and dissuading consumers. It appears that there are two main options to level the competitive field. This first would be to strip back on official taxi legislation, increasing the leverage of market forces, to increase the efficiency of ‘cabbies’. The other would be to force similar regulative restraints upon Uber. However, as already alluded to, several countries have taken a third option: completely banning the service from operation.

Global Problems with the Law

The taxi-hailing app’s rapid global rollout has not come without a number of complications with the law –in the form of restrictions, bans, lawsuits, suspensions and strikes. It is currently operating in 57 countries in just six years. Uber claims it is not a taxi service; instead it is a transportation network service offering its technologies to connect drivers with customers and taking a 20% farm-out fee. This unique set-up is their argument’s basis for forgoing taxi licence undertaking by many of its drivers. This act has caused many controversies with the law, especially in heavily regulated markets.

Not only does Uber have to deal issues from outside the company, its own drivers have also filed a class action lawsuit, where either one person or a group of people sue a company or institution on behalf of a larger group of people who share the same predicament, against the company for all 160,000 drivers in California. Silicon Valley, the start-up location of Uber’s ‘Uberfication’ has ironically become the starting point of the motion by Uber drivers. They claim they have been misclassified as independent contractors and should be entitled to expense reimbursement such as gas and vehicle maintenance.  The lawsuit also challenges Uber’s mantra of telling passengers that ‘there’s no need to tip’ drivers and using alleged deceptive marketing, leading passengers to believe a tip was included in rides whilst not giving drivers any extra income.

In March 11, this year the judge overseeing the case, Judge Edward M. Chen of the federal district court in San Francisco agreed with many of Uber driver’s arguments on why they should be properly classified as employees and denied Uber’s motion for summary judgement. Uber insists that it is only providing a platform to network drivers to passengers and their drivers do not meet the requirements as employees. The reclassification could cost Uber tens of millions of dollars. The lawsuit is still undergoing. 

Conclusion

The introduction of Uber has created many benefits to the consumer population. However, investors and taxi industries are paying the costs for such convenience. This unfairness has called legal action upon Uber, which has caused some governments to partially or even sometimes completely ban the app from being utilised. Additionally, the constant fear of personal safety still remains with these low cost taxi drivers. There are definitely many great conveniences Uber has brought to consumers globally, however the real question is whether the benefits can actually outweigh the negative aspects that accompany the company.

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Sean Brown
Editor
Tony Chen
Writer
Vicky Du
Writer

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Vicky Du's Articles
Sharon Sun
Writer

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Sharon Sun's Articles
William Wang
Writer

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William Wang's Articles