Let me paint a picture for you. The year is 2008 and it’s Friday around six o’clock in the evening. You’ve had a long week at work, and you’ve just arrived back to your place in West Los Angeles. A friend calls you and says he’s out having drinks with a few of your buddies at a spot in Santa Monica. He invites you out. You’re interested.
You also want to be safe though. The place is too far to walk, and using public transportation to get there is about as laughable an idea as using a jetpack. What are your options? You could drive and be very careful to not have more than a couple drinks. But that’s no fun, and still, potentially dangerous. You could ask a friend to pick you up, keeping your fingers crossed that one of them isn’t drinking tonight, but what are the chances of that? You probably have to call a taxi – meaning you have to call the cab company, order a taxi, wait probably 30 minutes for the car to arrive, and then pay probably $15 to get to the bar.
If I were to swap one detail of this story, everything would be different. If I changed 2008 to 2015, the answer to this dilemma would be at the touch of your fingertips. Just uber over there (yes, “uber” has now become a verb). Open up the app, request an Uber car, and within a few minutes, a car will be at your door (usually a relatively nice, clean car) and someone will drive you there for half the price that a taxi would charge.
It’s not an overstatement to say that Uber has changed the world, especially for millennials like me. (Thank god I never had to experience something so truly tedious as the scenario I described earlier) Uber, and other ride-sharing apps like Lyft or Sidecar, have made life easier for all of their users. Therefore, Uber has also been valued as a $50 billion company since the service was made available in 2009. This, by the way, would make it more valuable than 80% of the companies listedon the S&P 500.
But Uber has had its share of problems, the main one of course being opposition from taxicab companies and governments who argue that the company has an unfair advantage in the market, or isn’t properly regulated. Uber’s drivers have also challenged their title as contractors and not employees bringing forth a lawsuit. Amid all the problems the company is facing right now, what will it look like in the future?
The Licensing Discrepancy
Uber is fighting all around the world, including here at home, against governments that want to limit the capacity of the ride-sharing app in their cities. Certain cities, both big and small, liberal and conservative, foreign and domestic, have banned Uber in one way or another. The cities range from Eugene, Oregon to Tuscaloosa, Alabama in the United States, to places like Berlin and Seoul internationally.
In all these places, the fight with Uber boils down to a fundamental inequity between Uber drivers and cab drivers: regulation and licensing. Whereas cab drivers are required to be licensed and registered with the city, Uber drivers (particularly UberX drivers) just have to pass a simple background check from Uber. A variety of legal issues have sprung up from this fundamental inequality between the two classes of drivers, and as a result, many cities around the world have banned Uber. The logic is sound in some ways – it’s not fair to subject one group of drivers (taxi drivers) to licensing fees and not the other (Uber drivers). Taxis are always going to be more expensive as long as their overhead (which includes licensing fees) is greater than Uber’s.
Uber is in the process of fighting these bans by agreeing to get their drivers licensed (as is the case in Germany), or by hiring legal teams to fight court ordered bans (as is the case in the United States).
It’s hard to tell exactly how Uber is going to fare in these legal battles. Because of the popularity of the app though, and the fact that it’s growing every year, Uber is becoming more and more powerful in their fight against local governments and taxicab companies. They are a freight train, and it’s hard to see the efforts of government and cab companies derailing them.
Employees or Contractors
Uber is also under attack from its own employees – or should I say “contractors.” Many people who actually drive Uber cars don’t like their classification as independent contractors, and there’s a good reason, too.
Drivers who are contractors do not get reimbursed for work expenses like gas, maintenance, and car depreciation. As employees, drivers would be reimbursed for all of these things. They would also be entitled to health insurance provided by Uber. For Uber, it saves a lot of money to not consider these drivers employees. They don’t have to provide health insurance, overtime pay, or maintenance payments. They also don’t have to pay Social Security, Medicare, and payroll taxes for their employees.
A lawsuit in Californiarecently ruled that a contractor who challenged Uber was actually an employee. Uber is challenging the decision, but if they lose the appeal, it could change the way that Uber operates entirely. Uber has a strong argument though. The definition of a contractor depends on whether or not the individual supplies his/her own materials and chooses his/her own hours. Uber doesn’t supply its drivers with cars, and drivers are free to choose their own hours.
Even if Uber loses this appeal, and a flurry of lawsuits opens up, Uber will simply change its contracts when it hires new drivers. It will make ones that explicitly forbid drivers from suing the company for benefits and expenses.
Why Not Just Get Rid of the Employees?
Incredible as it may seem, the employee or contractor question may not be a concern at all in ten or fifteen years. In February of this year, Uber announced a partnershipwith Carnegie Mellon University to set up the Uber Advanced Technologies Center. They are devoting to resources to developing a self-driving car. If Uber can develop this technology and get it passed through federal regulations (which is a big “if”), it would likely change the entire structure of the company moving forward. They would begin to phase out their contracted drivers, and instead develop fleets of cars that move passengers from Point A to Point B with nobody behind the wheel of the car. For those of us who enjoy making small talk with our Uber drivers, that will be a sad day. For a company that is attempting to quell an increasingly discontented workforce, though, it could be a godsend.
Let the Market Decide Uber’s Fate
Uber is here to stay. Like any form of creative destruction, Uber has been met with firm resistance from industries that may die as the company proliferates around the world. But even if cab drivers in France are violently assaulting Uber driversand setting their cars on fire, Uber is not going to back down. Whatever regulation has come their way, they have figured out how to survive. Whatever lawsuit gets thrown at them, they fight.
The ridesharing service is changing the world of transportation, and hopefully they won’t let the old guard of the industry get in their way. It’s true that Uber has a distinct advantage over cabs and it’s not fair. But I don’t believe the solution is to shut down Uber or make them pay the exact same licensing fees as the cabbies. How about we remove the excessive licensing fees and regulations surrounding cabs and let the market decide which one should survive and which one should die?
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