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Businesses The Almighty Buck United States

A California Bill Could Destroy Uber's Unsustainable Business Model (vice.com) 190

Posted by BeauHD from the nickel-and-dimed-into-oblivion dept.
Last week, the California Senate's Labor, Public Employment and Retirement Committee held a hearing and passed Assembly Bill 5 (AB5), which promises to make it harder for companies to claim workers are independent contractors and increase the operating expenses of Uber, Lyft, and other on-demand companies that already find themselves unable to turn a profit. Motherboard reports: Written by Assemblywoman Lorena Gonzelez (D-San Diego), AB5 codifies the California Supreme Court's unanimous May 2018 ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles where an "ABC test" was introduced to determine whether a worker was an employee or an independent contractor. Individuals with sufficient control over how and when they did their work are independent contractors, while workers without much control are employees. While AB5 easily passed in the Assembly this May, 53-11, it has a long and ugly fight ahead of as it must pass multiple votes in the Senate then be signed into law by Governor Gavin Newsom. Each step of the way is an opportunity for companies like Uber and Lyft to intervene and extract concessions.

Uber has never made a profit and has actually lost over $14 billion in the last four years alone. In the prospectus, Uber insists that these five major metropolitan markets are essential to its path to profitability. In reality, what Uber actually relies on is the $20 billion in funding raised over the past decade and the $8 billion in new investments after going public in May. This investor welfare covers the cost of low prices that render each rideshare trip unprofitable, of driver incentives to combat the high turnover rate of drivers, and of promotions used to drive up demand. Equity research analysts at Barclays project Uber is on track to lose $3.9 billion in 2019 and if AB5 were passed, it would cost the company upwards of an additional $500 million. A drop in the bucket. But if AB5 were to become law and other states follow California's example and pass similar laws, it could constrict these companies' already narrow paths to profitability.
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A California Bill Could Destroy Uber's Unsustainable Business Model More

A California Bill Could Destroy Uber's Unsustainable Business Model

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  • So??? (Score:5, Interesting)

    by Jane Q. Public ( 1010737 ) on Friday July 19, 2019 @09:33PM (#58954720)
    On the face of it, the law appears to conform to long-existing IRS guidelines for "employee vs contractor" anyway.

    So what's the big deal?

    • Re: So??? (Score:1)

      by Anonymous Coward

      More importantly âoehow and whenâ are quite clearly a reasonable way to describe Uber/Lyft drivers.

      If anything, this makes it easier to justify their drivers are independent contractors.

      Ignoring that, Uber is buying time until it has autonomous vehicles. They donâ(TM)t want human drivers. They want people using their service to get a car that drives itself to take them somewhere.

      • Re: So??? (Score:4, Insightful)

        by Paradise Pete ( 33184 ) on Saturday July 20, 2019 @12:46AM (#58955206) Journal

        Uber is buying time until it has autonomous vehicles.

        At which point competition will come from all sides. Whatever "market share" Uber has acquired won't mean much for very long.

        • Re: So??? (Score:5, Interesting)

          by phantomfive ( 622387 ) on Saturday July 20, 2019 @02:03AM (#58955308) Journal
          To be more specific, Uber's expertise is managing large crowds of vaguely interested people. When automated cars come, they will be managing large fleets of cars. Who has expertise with that? Car rental companies, not Uber. Do car rental companies know this? They do, and they are excited and working towards it already.

          • LOL (Score:1)

            by gDLL ( 1413289 )
            You think car rental companies have experience managing complex software ? Bwhahahha

          • Re: (Score:2)

            by q_e_t ( 5104099 )
            Uber has brand recognition which may count for something, and short trips on demand are a taxi model more than a rental model. Indeed, why would I rent a car for an entire weekend for a trip if I am going to be asleep for 1/3 of it unless I want to leave lots of junk in it overnight or if I am going camping in Montana about 200 miles from anywhere. While rental companies may understand fleets they don't really understand friction-free interactions as it seems to take about half an hour of form filling and c
            • If the Cara are self driving, Under has two options: one is to manage their own fleet of self driving cars. Enterprise has a lot more experience managing a fleet of cars.

              • Re: (Score:2)

                by q_e_t ( 5104099 )
                Yes, I agree that Enterprise has more experience with managing fleets of cars, but no experience with short-term on-demand services. Neither has the complete part. However, Uber has the brand recognition in the taxi area, so might be better placed. However, if Uber runs out of money maybe Enterprise could buy it, but the current valuation of Uber would make that very difficult. Uber's investors might prefer to fund a purchase of Enterprise.

  • why would anyone bother to go after it if it's already considered "unsustainable"?'

    • The intent isn’t to go after Uber, per se - it’s an attempt to give the workers some protection they don’t currently have.

      And probably also to collect some money, I’d guess. Governments tend not to do the right thing for its own sake... unless there’s generally some other, more selfish, motive also involved.

      • Re: (Score:1)

        by Anonymous Coward

        If the intent is to protect workers, why isn't anyone taking about taxi drivers?

        They're not employees either, and taxi companies have a lot more control. (A Yellow Cab driver can't accept Red cab calls.)

        Yes, taxi drivers are currently contractors. They lease the car and hack license, paying a daily "gate fee".

        Under CA's rules, the only way that taxi companies can classify their drivers as contractors is by arguing that it's customary. If they can claim that, so can uber.

        Unless, of course, taxi companies

    • Re:"unsustainable"? (Score:5, Insightful)

      by BarbaraHudson ( 3785311 ) <barbara.jane.hudson@nospAM.icloud.com> on Friday July 19, 2019 @10:19PM (#58954874) Journal
      They hope to be profitable after autonomous cars make drivers neither contractors nor employees - just unemployed. Right now the drivers are the equivalent of Amazon's automatic Turk - cheap and disposable, just there long enough to do the job, but eventually bye-bye suckers

      • They hope to be profitable after autonomous cars make drivers neither contractors nor employees - just unemployed.

        At which point the car manufacturers and/or dealerships will likely start pitching the concept of cars as a "service". We're actually not too far off from that, new car ownership is already out-of-reach for most Americans [cnbc.com].

      • Re: (Score:2)

        by lsllll ( 830002 )
        I fail to see how this company wouldn't be making money. They don't pay for the insurance/gas of their drivers and take a good percentage of every transaction out. Their only overhead is the software they developed and the infrastructure to run it, plus the research they're putting into their autonomous car, and whatever employees they have. I just don't see how they would be losing money.

        • If you "fail to see" then you need to do more research.

          Uber isn't any more economically efficient than traditional taxis. They've only been able to grow because of ride costs being subsidized by investors, woo'd by the prospect of complete monopoly. Wooing investors and tormenting journalists are the only areas they are actually competent in, and unfortunately those are two lucrative skills.

          https://americanaffairsjournal... [americanaf...ournal.org]

          • Re: (Score:2)

            by lsllll ( 830002 )

            What are you talking about? I didn't say Uber was efficient. On the contrary, I eluded that it must be VERY inefficient, because I can't see how they should be losing money. Your assertion that the ride costs are being subsidized by investors is complete nonsense. According to this [therideshareguy.com] page, Uber takes about 30% of what they charge customers. According to your own article, Uber charged customers $45B in 2018. By that measure, Uber took in $14B for the year. Besides some employees and infrastructure, some

        • Uber and Lyft are experts at spending money - compare their headquarters to, say, that of your local yellow cab company.

          That's how they lose money.

    • Because they can do decades of damage (Score:5, Insightful)

      by rsilvergun ( 571051 ) on Friday July 19, 2019 @11:21PM (#58955022)
      in the meantime. Long term Uber wants to maintain a transportation brand until self driving cars are a thing. The only question were a) would the investor cash last long enough and b) would the government finally demand they treat their employees as such.

      The investors have also been happy to prop up Uber because Uber is eroding decades of hard fought employee protections and gains. No unemployment benefits, no insurance, no minimum wage. It's a return to piece work wages of the 1800. Assuming they can get away with it.
    • This is too funny. A woke company that hopes that its ideological leanings would translate into support from woke politicians gets a rude shock, as they go on to make it even more expensive for them to do business, even though they're operating w/ very thin margins. I'd just love to see something like it happen to other companies like Amazon, Google, Paypal, Nike and so on

    • And who decreed that it was unsustainable?

      Taxis have existed for hundreds of years in many cities. Uber merely modernizes scheduling/beckoning, dispenses with ownership of the vehicle and replaces a contractor pool of drivers with one more flexibly tapped from the unwashed masses.

      It seems right-sizing the scale of the company providing this valuable service, and choosing a sharing ratio with drivers that doesn't arouse rampant complaint are the only factors preventing the endeavor from being wildly profita

      • And who decreed that it was unsustainable?

        Considering Uber has been operating for 9 years, continuously loses money, takes on investors nearly as much as passenger revenue, it shouldn't take much investigating to reach that conclusion. Just stop uber's own manufactured narratives.

  • Meh... let's just break it and all go back to using taxis.

    • Re:Taxis (Score:4, Informative)

      by ShanghaiBill ( 739463 ) on Friday July 19, 2019 @09:53PM (#58954804)

      Meh... let's just break it and all go back to using taxis.

      Less than a third of Uber/Lyft ridership comes from taxis. Much of it is from people that would otherwise rent a car or take public transit.

      I mostly use Lyft when I am traveling as an alternative to renting a car. Lyft is responsive, pleasant to use, and inexpensive. Taxis are none of those things.

      • Re: (Score:3, Insightful)

        by account_deleted ( 4530225 )
        Comment removed based on user account deletion

        • ..checked to make sure that I had no felonies

          You checked to make sure you didn't have any felonies??

          Damn; some people shouldn't even bother trying to make up stories...

      • Or walk, or ride a bike, or... Taxis in many cities in the US are relatively rare (barring Manhattan and Chicago primarily), and when they exist they go to a few places (airports, hotels). The rise in Uber and Lyft passengers never came from people who took taxis, the market segment is basically younger people who think that buying things from their phone is a great idea. Meanwhile the rideshare vehicles are turned on all day long hoping to get a passenger, using more gasoline overall.

  • Regardless, I think the old model is dead (Score:5, Interesting)

    by jenningsthecat ( 1525947 ) on Friday July 19, 2019 @09:59PM (#58954822)

    I don't think there's any way of putting the toothpaste back into the tube here. Even if Uber and Lyft fail as a result of new legislation, they've still changed the on-demand transportation landscape permanently.

    People will no longer be satisfied with taxis as the only alternative to owning a car, car pooling, or public transit. Uber and/or Lyft may increase their prices to cover the additional cost resulting from legislation, and tweak their business models to take advantage of the fact that they can still significantly increase both the density and the geographic range of rides-for-hire over what traditional taxi companies provide. Municipalities may be forced to lower the often-astronomical cost of a hack licence so taxi companies can offer better service at a lower cost. Taxi companies may take their cues from Lyft and Uber, and change both the way they do business and the technology they use. Alternatively, cab companies and/or Uber may [insert your own prediction here]. But the pre-Uber status quo probably isn't an option.

    • I'm wrong a lot, but I just don't see it. I don't think there is enough profit left in the intersection of the Venn diagram of all existing, and possible future regulations.

    • I see people taking rideshare where other options were previously used. Walking, buses, other mass transit, even actual ride sharing (multiple people going the same way). I am not making this up, I see people taking rideshare service to go to a mass transit location that's in easy walking distance on a nice day by someone who works out in the gym. The only way these companies say afloat today is by getting investors, they're not making profits and they're not even paying their workers enough to buy their

  • The ABCs are (Score:5, Interesting)

    by FeelGood314 ( 2516288 ) on Friday July 19, 2019 @10:04PM (#58954834)
    (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

    (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

    (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    I like clear rules. They screw me and my clients. I do contract work for a specific wireless protocol. I work in my own office with almost all my own equipment. I meet A and C but B is open to interpretation. Most companies I work for the wireless code is key to their products. These companies do programming. They just don't do wireless programming for this protocol.

    • Just establish a "consulting" business and hire yourself. That solves B). And you would probably make more money too.

    • I don't think there's any ambiguity to B. The companies you do work for generally aren't in the business of being a software development company, they're in the business of building and selling networking or communications gear. You don't build or sell that equipment, you develop software.

      Contrast that with you doing work for a software consulting firm that writes firmware for the equipment your current clients build and sell. The product the consulting firm sells is software and/or the development of that

  • Hi-tech and contractors (Score:4, Interesting)

    by larryjoe ( 135075 ) on Friday July 19, 2019 @10:13PM (#58954864)

    So how does this affect hi-tech companies who employ a lot of contractors who don't come close to being contractors under this bill? The bill follows the California Supreme Court decision with three tests for independence, and most (not all but most) hi-tech contractors fail all three tests.

    "The Court adopted a standard that presumes that all workers are employees instead of contractors. The burden is now on any entity classifying an individual as an independent contractor. Under the newly adopted ‘ABC test,’ a worker is an independent contractor to whom a wage order does not apply only if the hiring entity establishes all of the following:

    (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

    (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

    (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    • I was just going to say the same thing, however....

      A) and C) can probably be defended with sufficiently obfuscated legalese
      B) is trickier, but you get around it by hiring through a contracting agency. The hiring entity in that case is the agency, so that satisfies B).

      Companies have been dodging these sorts of regulations for a long time, so they're pretty good at it. Uber and Lyft will have to learn the tricks of the trade, but they'll manage.

      • I was just going to say the same thing, however....

        A) and C) can probably be defended with sufficiently obfuscated legalese
        B) is trickier, but you get around it by hiring through a contracting agency. The hiring entity in that case is the agency, so that satisfies B).

        Companies have been dodging these sorts of regulations for a long time, so they're pretty good at it. Uber and Lyft will have to learn the tricks of the trade, but they'll manage.

        The problem with A is that it explicitly says that simply having a contract or other paperwork is not enough. If there is de facto ("in fact") control, then the worker is an employee regardless of what any contract says.

        The problem with B is that often there are recognized employees not only managing these workers but also performing similar work. So, the argument that the work performed by regular employees and contractors in the same group is "outside the usual course of the hiring entity’s busine

        • The problem with A is that it explicitly says that simply having a contract or other paperwork is not enough. If there is de facto ("in fact") control, then the worker is an employee regardless of what any contract says.

          Well, no, not exactly. It says "free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work". Control can easily be interpreted as who you directly report to, and most contractors are set up to "report" directly to their agency. They may have a liaison within the company, but if there is a complaint about the performance of your work, it goes through the agency. They cannot penalize you directly. They can't ask or

    • So how does this affect hi-tech companies who employ a lot of contractors who don't come close to being contractors under this bill? The bill follows the California Supreme Court decision with three tests for independence, and most (not all but most) hi-tech contractors fail all three tests.

      "The Court adopted a standard that presumes that all workers are employees instead of contractors. The burden is now on any entity classifying an individual as an independent contractor. Under the newly adopted ‘ABC test,’ a worker is an independent contractor to whom a wage order does not apply only if the hiring entity establishes all of the following:

      (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

      (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

      (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

      Because ... because ... because shut up! We're just trying to destroy Uber here! Don't go getting all technical and legal and equitable on us!

  • Don't Like It? (Score:3, Informative)

    by Jarwulf ( 530523 ) on Friday July 19, 2019 @11:03PM (#58954972)
    Turn off the app. The beauty of Uber is you can work as much or as little as you want whenever you want. Where is that going to do if they're forced to treat everybody like a full time employee?

    • Re:Don't Like It? (Score:5, Interesting)

      by Strider- ( 39683 ) on Friday July 19, 2019 @11:40PM (#58955090)

      The other way would be to allow drivers to set their own prices, and let uber do the match up and just take a percentage. If someone wants to uber in a McLaren and charge $25/km, so be it.

      • The other way would be to allow drivers to set their own prices, and let uber do the match up and just take a percentage. If someone wants to uber in a McLaren and charge $25/km, so be it.

        This. Done right, it would turn the Uber app into a real-time ride auction, which would naturally handle surge pricing as well.

        • This. Done right, it would turn the Uber app into a real-time ride auction, which would naturally handle surge pricing as well.

          You can despair right now of Uber doing anything right, so you should either pitch this idea to Lyft, or get crackin' on an implementation.

  • Here it is:
    (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

    (B) that the worker performs work that is outside the usual course of the hiring entityâ(TM)s business; and

    (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

    These are not odd things. Uber etc. will

    • Actually, I think B is actually trivial. Uber isn't a driving company - it's a *matchmaking* company. Its primary business is matching customers to drivers, and payment processing.

      The whole *point* of Uber is that they do not have their own fleet.

      • You're just parroting the bullshit narratives uber has written to absolve themselves of following employment and other laws.

        Did uber provide matchmaking for any arbitrary service? No. It's for driving specifically. Their own description on the app store is:

        for fast, reliable rides in minutes—day or night. There’s no need to park or wait for a taxi or bus. With Uber, you just tap to request a ride, and it’s easy to pay with credit or cash in select cities.

        The words "matchmaking" don't appea

  • never had a chance (Score:2, Interesting)

    by Tom ( 822 )

    Uber was clearly riding on the new dot-com hype and it never had a chance for longterm survival.

    First, there are reasons taxi companies operate the way they do. To just ignore them all and believe you've found the holy grail is adequate behaviour for a teenager, but not for a company. An in-depth analysis of which parts of the old business model are relevant and need to be kept and which parts are outdated, and why, and what you replace them with to reach the same goal - but that's too much serious analysis

    • Re: (Score:2)

      by sphealey ( 2855 )

      The taxi companies in my Medium City/County had a similar app (although not as comprehensive as you describe) 10 years ago. The problem is that a legitimate taxi company is going to have to charge [ taxi operating cost + depreciation for a taxi-service vehicle + driver's remuneration + profit]. Whereas Uber/Lyft just ignore the deprecation and profit and count on their drivers not understanding either the depreciation or the true operating cost of what they are doing. So the legitimate taxi company's rates

  • Er ... (Score:4, Insightful)

    by cascadingstylesheet ( 140919 ) on Saturday July 20, 2019 @08:25AM (#58955890) Journal
    ... you don't have to be Ayn Rand to think that perhaps a business model is not inherently "unsustainable" if it takes a law to destroy it ...
  • for other types of gig economy jobs, where workers work exclusively for an agency and are paid based on a contract basis, yet engage with the agency in the same way that an employee would (e.g. fielding emails, being on call, being required to do perform quality control). The key, key difference is that these "contractors" have little to no recourse as far as setting the amount they're paid (agencies refer to workers being able to choose whatever they want, when in reality there is a non-negotiable ceiling

  • They choose their own hours (both how many hours to work and when to work).
    They supply all the equipment and tools (the car, the phone etc) and get to choose what equipment to use (within some limits set by Uber).
    They are (as far as I know) free to drive for other companies as well as Uber.

    Uber does restrict the vehicles the contractor can use but that's no different to a construction company telling a contractor they can only use a power tool that has been inspected and tagged as safe.

  • This stuff is insane....

    Uber
    > Drive your own vehicle
    > Work your own hours
    > Choose your own routes or service areas
    > Can simultaneously do other things, or work for competitors.

    Contractor for Big Government jobs, often with multiple layers of sub-contractors.
    > Must use their equipment
    > Must work in specified location
    > Must work during hours specified

    But naught an investigation.... go figure.

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