“Peer economies like Uber and Postmates seem too good to be true for the consumers: what could possibly go wrong?”

By Zoe Hall

The Rise of the Modern Consumer

The consumer community in the transportation market has been exponentially blessed with the introduction of Uber in 2009. In a bustling urban area like New York City, it no longer costs a fortune to afford a trip from LaGuardia to the five boroughs, thanks to the convenience of the ride-sharing aspect of Uber called ‘Uberpool’, allowing riders to split their fare between other riders heading in the same direction. The benefits don’t stop there — as an app, Uber allows its customers more choice over the exact location. With the addition of scheduled Uber rides, uber fare goers are now also free to determine their pick up time, as well as even the quality of their driver. This is a huge deal in an economic sense, as up until Uber’s inception, taxi drivers were virtually a credence product, meaning the consumer has no idea of the quality of their driver before they get into the vehicle. Oftentimes, especially for tourists, consumers have no idea by the end of their ride whether or not their driver ripped them off by going the long route or even by intentionally sitting in traffic to rack up the bill. With a review system in place for all Uber drivers, the risk of getting in the car with an inadequate driver is essentially eliminated; the improvement of the industry seems almost too good to be true. The quality of service benefits for the consumer from an app like Uber are extremely obvious, but what about the Uber driver? Are they getting the raw end of this new deal?

 

What is the ‘Uber Market’?

Apps like Uber have created what is now known as the ‘sharing’ or ‘peer economy,’ a burgeoning industry that expands the marketplace by providing more individualized services to consumers and using average, contracted labor to do so. These apps have expanded the consumer base for their services by catering to an individual’s needs in a manner that was not possible before, such as the designated time and pick up area of Uber, as previously mentioned. Research conducted on the company and its relationship with taxis indicates that Uber has only decreased the rate of taxi use in New York by eight percent. However, as of April 2016, in an average week Uber drives about half as many customers as the New York City taxi fleet does — this means that many of their customers aren’t being poached from the existing market; rather, the app is creating an entirely new one. For the individual consumer, this translates into lower, more competitive prices in what was once a monopoly market, a method of accountability for the services provided, and a manageable way to track spending habits.

The demand for Uber in its own market is so high that even government intervention cannot stop its development. The city of Austin, TX banned Uber last year for failing to comply with its city regulations. In response, not so much to the ban but more to their own demand for the service, city dwellers created their own Facebook version of an Uber service.  The service provided by Uber and similar apps is not one consumers are likely to give up in the near future, as these services completely reinvent the standards consumers these days expect and demand.

Ride sharing is not however the only production of the peer economy. Food delivery services like Postmates, house or room sharing services like Airbnb, babysitting and tutoring services, and car rentals can all be arranged via apps whose employment or productivity network includes practically anybody who signs up to work. But, wasn’t there a reason the taxi industry in New York regulated the number of medallions in the city? Is this new format for the industry fair to its workers?

 

What about the Labor Supply?

On the labor supply side, Uber eliminated a huge barrier to entry for taxis by eliminating the need to own or rent a medallion, as the medallions that validate the taxi car were going for up to $1 million in 2013. Furthermore, the safety and standard regulations of the federal government that taxicabs had to abide by were not required for the new service. This could make driving for Uber a very attractive job opportunity with very little risk involved in getting started. But it’s not as simple as that.

The system Uber uses to pay its drivers is simple enough. According to multiple sources, Uber provides its drivers between 70 to 80 percent of the fare they make per ride. It is estimated that drivers in New York City, without accounting for depreciation of their car’s value or the cost of gas, can make up to $30 an hour, double the minimum wage advocated for in the city right now. Along with this selling point, Uber emphasizes its flexible hours, a constant demand for their product, and lack of any person to answer to as some of the non-monetary benefits of working for them. In consideration of these aspects, the ‘producer’ side of the peer economy seems as ‘too good to be true’ as the consumer aspects.

In most cases, Uber is not a driver’s main source of income, but a job used to supplement their regular income. This is most likely because becoming an Uber driver does not require a lot of investment in order to join the team — the only capital needed is a car, which is a normal commodity for the average American. However, to my knowledge Uber offers no promotional system. There is no long term gain for working for Uber as the salary basis will consistently be based off of how many rides a driver provides. While, over time, drivers may learn helpful tricks to finding the best customers or most optimal areas to hang out in, employees will quickly find themselves at the top of their earning potential quickly — and the view from there doesn’t seem too satisfying. Uber does not provide any health insurance, car insurance, or any employee benefits of any kind. Plus, customers are never asked to tip. That is one of Uber’s main selling points to its consumers. Although historically tips were invented as a way to ensure good customer service when prices could not control the quality of service one received, and the app provides a new way to navigate this field by enabling customers to share reviews of drivers between themselves, tips in this day and age go a lot farther to humanize and strengthen the bond between customers employees. Uber does not even provide the option to tip! The only way to do so is through cash, and being cashless is one of the conveniences that Uber provides so it is literally making tips an inconvenience outside the realm that it navigates. This is just another aspect of service apps like Uber that prove its inventors were far more concerned with the well being of the consumer than the employee.

If driving is their only job, Uber drivers do get to mark themselves as self-employed entrepreneurs for working at Uber, but since most of them are working on the side for Uber it actually just provides more paperwork for tax seasons once that time comes around. So although Uber and other apps in the peer economy have provided a useful way for people to maximize their money making potential during their idle hours in between regular employment, it has yet to become a vital career path. I see that as a fast developing problem in a world that is quickly being shaped by the likes of employment apps like Uber that are heavily tech-based.

 

Who wins and who loses?

There is still room for development over the years to come within the burgeoning peer economy. There are many issues on the labor supply side of the peer economy that has yet to be resolved. These apps were created out of a need from the consumer for these services — and they just so happened to find a labor supply for the moment. But what if there comes a day when the benefits of being an Uber driver, a non-permanent and not even main priority job, don’t outweigh the costs? This is an awesome industry that is extremely lucrative, for its demand is seemingly never ending. However, as consumer satisfaction heavily plays a role in how these apps function, the provider of the services should be considered an important component in adapting the most successful version of these apps. As Uber advertises, most drivers do not have an employer to turn to when they’ve felt harassed by a customer or feel treated unfairly.

Ultimately, the problem with Uber’s supply of labor is two-fold. The innovation of time allocation created by the peer economy is certainly incredible. However, in the future there is an overwhelming sense that over-satisfied consumer demand will saturate the market as the labor supply, a far less satisfying experience, will not have the capacity to grow with it’s counterpart. Secondly, as we increasingly want to perfect the customer’s experience we risk perpetuating a classism within these industries. This starts off small — for example, as of right now the media surrounding Uber is focused on its consumer benefits, its CEOs and its management development. Eventually, if something doesn’t change, this can develop into an entire industry that disenfranchises its workers, and possibly doesn’t even have them.

 

Sources

Hartmans, Avery. “What Happened to Austin, Texas, When Uber and Lyft Left Town.”Business Insider. Business Insider, 12 June 2016.

Bercovici, Jeff. “Airbnb, Snapgoods and 12 More Pioneers Of The ‘Share Economy’ – Pg.1.”Forbes. Forbes Magazine, 14 Aug. 2014.

Reuters. “Uber Defends Business Model in Europe’s Highest Court.” Uber Defends Business Model in Bid to Avoid Strict EU Rules | Fortune.com. Fortune, 29 Nov. 2016.

Wilhelm, Alex. “Analyzing Postmates’ Growth.” TechCrunch. TechCrunch, 04 Mar. 2015. 2017.

Siner, Emily. “Can The Peer Economy Deliver Profits?” NPR. NPR, 17 Apr. 2014.

Petropoulos, Georgios. “Uber and the Economic Impact of Sharing Economy Platforms.” Bruegel. N.p., 22 Feb. 2016.