This is part two of my eight part series titled “The Peer-to-peer revolution.” Over the course of an eight week period I will be sharing my thoughts on how peer-to-peer transactions are reshaping the world we live in. And I don’t use the term revolution simply for drama. OK, partly for drama. But I call this a revolution because the peer-to-peer movement involves a dramatic power shift. This power shift, like all the ones worth writing about, redistributes power from the top to the bottom.
Last week I wrote about how peer-to-peer transactions were impacting the housing market… it was quite a marathon of a blog post. I believe I crossed the 2,000 word mark. Coincidentally, I read a study this week that says any article you write should be 300 words or less because nobody reads more than 300 words on the internet. Yikes! And my previous “How to write your first blog post” article referenced 600 words as the recommended maximum. I’m doing this all wrong!!
I’ll try to stay under 2,000 words this week as I talk about the role of peer-to-peer transactions in the transportation industry. The simplest example of peer-to-peer travel which I can present has been around for a long time in the rideshare section of Craigslist. On this site, you may post your travel plans and offer to give people a ride if they are willing to share in the fuel expense. Craigslist doesn’t make any money on the deal, they just connect the drivers and passengers. It’s a very straightforward peer-to-peer transaction which benefits both parties without and middleman. The only downsides are 1) it generally only applies to long-distance travel and 2) you have to deal with the “scariness” of traveling in a vehicle for an extended period of time with a “stranger” off craigslist. Beware the danger of strangers! I believe it is because of the “stranger factor” that this travel tool hasn’t gained mainstream traction.
While craigslist remains in the shadows of the internet, other companies are gaining a lot more market penetration. The company which I’d like to talk about today is Uber. There are some others businesses like Lyft, Sidecar, and Flywheel, but Uber has the biggest reach and has gained the most attention. Uber describes itself as a “transportation network company.” In the simplest terms – they are a gigantic taxi service with over a million drivers in more than 300 cities in 60 countries. Sounds big, right? There are more Uber cars in New York City than taxi cabs. And as you may expect, the NYC taxi drivers are pissed.
Why? Because Uber is kinda sorta not totally but is a tiny bit illegal. Well – it’s legal. But borderline illegal. What? See – Uber drivers don’t pay taxes or licensing fees (cab drivers do), they don’t undergo training (cab drivers do), and they don’t carry special insurance (cab drivers do). And they don’t drive yellow cabs, the drivers use their own vehicles. In avoiding all these extra costs, Uber is able to offer lower prices than taxis, which threatens to make extinct the existing cab services. And while they may be breaking the law in some places, it’s nearly impossible to prevent them from operating, because all the transactions happen through the internet.
And it’s not just NYC drivers that are pissed. Some airports, even in San Francisco where Uber is headquartered, have banned Uber drivers from picking up passengers. In France, the taxi drivers went on strike and started burning piles of tires in the streets. People are not happy with Uber – unless of course you are a passenger.
Getting a ride with Uber is simple and maybe even a little fun. You take out your phone, open the Uber App, and can immediately see all the active Uber drivers on a map. You enter your desired destination into the map, and the Uber drivers can choose whether or not to offer you the ride. Keep in mind that the phone already knows where you are located. The software tell you about how long it will be until your driver arrives and you can even track them on the map as they approach you and then boom – they are in front of you. You get in the vehicle, they already know where you are going, they are using a GPS to get you there, and everything moves seamlessly with the power of technology. Even the payment process is handled using the phone – no cash ever exchanges hands.
And it works great as long as nothing goes wrong. What happens if something does go wrong? Therein lies a lot of Uber’s power, they aren’t responsible for shit. The drivers are not their employees – all Uber drivers are considered independent contractors. As I mentioned, the drivers are using their own cars, their own insurance, and pay for their own gas. Uber’s role is simply providing a platform to connect these independent contractors with their customer: you.
And being an Uber driver sounds pretty appealing, too. Their driver recruitment ads read “Drive with Uber – Drive your car and be your own boss.” Damn, if that’s not the American Dream? The power and freedom and independence of being behind the wheel blended in with being a boss. Almost doesn’t feel like you’re a taxi cab driver, you’re an entrepreneur! That is the beauty of being an Uber driver, you can turn your dispatch system on and off whenever you want. Sounds great, right? It can be. But supply and demand is a son of a bitch, especially in this fast-paced industry.
Remember – Uber drivers are only getting paid while they are actively transporting passengers. This may not be economical if you live in a place where people don’t use Uber as much. Or you may be in an area where Uber is used extensively during certain times of day – think Thursday nights, Friday nights, Saturday nights – when drunk people need a ride. At these times, you can make a lot of money driving for Uber. Of course you’re working some late hours, but the reward is there. During other times of day, there is much less demand and you may spend your time sitting in your car making zero.
Just like we did with Airbnb, let’s analyze specifically how and where Uber gets paid: what part is free, and what part did they monetize. They connect you with a driver for free and the driver arrives at your feet without any money being exchanged. But once you agree to take the ride and enter the vehicle, Uber begins collecting money just like a taxi meter, with your phone logging all the travel information in real-time.
Just like with Airbnb – the potential to squeeze Uber out arises. Why not offer the driver cash and cut Uber out of it? This would be a true peer-to-peer ecosystem much like the Craigslist rideshare program. Unlike Airbnb, however, the incentive to “cheat” Uber is much lower. This is what would have to occur to cut Uber out of the deal: the user requests a ride, a driver accepts and drives to the users location, the two (at their first encounter) negotiate a cash deal giving each party about a 10% benefit, the user cancel their ride, the Uber driver turns the dispatch system off temporarily, and then transports the passenger to their destination. Why only 10%? Because Uber takes a 20% cut, so to make it beneficial to both parties, the savings would benefit would be about 10% to each. Mathematically, there is not much incentive to cut Uber out of the picture. But damn, wouldn’t’ that be nice? Wouldn’t that be a true peer-to-peer system?
Why am I such a pain in the ass ripping everything apart to see how to screw peer-to-peer innovators like Airbnb and Uber companies? Because it’s fun! And because it is these gaps that create opportunities for innovation. And maybe Uber has it coming?
Why?
Firstly – there has been a lot of complaints from Uber drivers about Uber reducing their pay. The drivers claim they can no longer make a living with their new wages. I can’t really argue a lot with Uber here – they make you an offer for work, if you don’t like the pay, don’t take the job. Maybe I’m being too conservative.
The real reason I don’t really care about the Uber drivers concerns about pay cuts is because I am much more frustrated with Uber after I realized their long term business strategy, which is very scary. Uber is NOT interested in creating the peer-to-peer transportation revolution. Uber’s goal is to monopolize transportation and fire all the drivers as soon as possible. What? Yes – their goal is to remove all the workers completely from the process. They just happen to be presenting themselves as a peer-to-peer provider along the way to help get their infrastructure setup.
This is not just my conspiracy theory bullshit, this is real stuff. This summer it was revealed that Tesla Motors CEO Elon Musk and Uber CEO Travis Kalanick were in discussions of bringing Tesla’s automated cars to the Uber platform. In fact, the number that was thrown around was 500,000 cars by 2020. Uber’s goal is not to have a peer-to-peer transportation revolution – their goal is to have the system in place to support an automated transportation system that will not have any human drivers.
So the peer-to-peer revolution in transportation will end in a monopoly? Yikes. Did I just contradict my own statements? Did I just point out that the peer-to-peer transportation revolution is not real? That this is just a front for a bigger scheme? It’s hard to say. But, just like with Airbnb, I think part of the solution lies in what value proposition Uber is really providing us. Much like Airbnb, Uber is relying, in some way, on the fact that we don’t trust one another. Uber is connecting the user to the driver. But they are not just matching us up with available cars. Even though Uber drivers are unlicensed, untrained, and uninsured for transporting passengers, there is still a level of comfort that comes with the idea we’re getting a ride from someone who isn’t’ a “total stranger.” Sure, taxi cab drivers are strangers, but they have some sense of connection to the system because of their yellow car and license. But the Uber drivers don’t have that credibility to fall back on – we take comfort in knowing, “at least this stranger is someone vetted by Uber.” And we pay for that trust by giving Uber 20% of the transaction.
In five years, Uber will have access to automated cars which can replace their drivers. All the systems will be in place to implement this maneuver. Maybe, in the beginning, they will keep drivers on as chauffer’s or hosts. But inevitably, they will cut the driver out. This will remove all opportunity for these drivers to participate in the peer-to-peer economy. There is always discussion about technology taking jobs away from people. This is particularly interesting because, if you recall, Uber doesn’t consider their drivers as employees. They are independent contractors – remember, you are your own boss and you drive your own car. If Uber replaces all its drivers with automated cars, suddenly Uber will own all the vehicles and they will swiftly shift to taking ownership of all the means to produce transportation. Uber has cleverly build their global robot transportation system using your cars and your labor. Oh ya, and a phone app. Yikes!
So the challenge is out there –can we develop a software platform that connects drivers with passengers to all them to carry out their own transactions? To out the middle man and empower the drivers further? Will people trust a system like this? Maybe, like Airbnb, the system can use social media to prove people aren’t murderers (both driver and passenger)? But the race is on – are we able to innovate toward a more peer-to-peer system before the power shift swings drastically in the opposite direction?
Will the term “public transportation” one day mean that we received a ride from some random member of the public?