A Worrisome Tech Trend

I had the chance to use Uber for the first time when I was in Seattle recently. Unfortunately, my first experience with this service was not great. The driver had trouble finding me at the hotel I was at and, even worse, had trouble following the navigation app on her iPhone while ferrying me from one part of town to another. In the end, I had to pull out my iPad and a mapping app to actually get us to the location I needed to be and got there with only minutes to spare. She admitted she was a new driver and, knowing that, I cut her a lot of slack and even tipped her well. However, as I started thinking more about this driver specifically and Uber in general, I knew something was troubling about this experience, although at the time I could not put my finger on it.

After a few days of pondering, I realized the thing bugging me is that she was just a contract driver for Uber with little training and yet I had entrusted my life into her hands. As I understand the business model, Uber drivers are contract employees who get 80% of the amount paid them and Uber gets about 20%. These drivers have no benefits and in many ways they have most of the risk. Now I know I also put my life into the hands of cab drivers and limo drivers too but they are pretty much professional drivers and, while some may also be contractors, many are actually hired by the company they work for. In the case of the limo drivers I have used, they have full company benefits.

I recently ran across an article that highlighted what I see as a problem with this idea but was having trouble articulating myself. Kevin Rouse, writing in NY Magazine a piece entitled, “Does Silicon Valley have a Contract  Worker Problem?” stated the following:

“With Uber valued at $18 billion, Airbnb valued at $10 billion, and new imitators popping up daily, Silicon Valley is clearly infatuated with the middleman model. A recent study by venture-capital firm SherpaVentures, which has invested in start-ups like Washio (Uber for laundry), BloomThat (Uber for flowers), and Shyp (Uber for packages), estimated that venture capitalists invested $1.6 billion in so-called “on-demand” start-ups in 2013 alone. SherpaVentures predicts that so-called “freelance marketplace” or “managed-service” labor models used by these companies are poised to transform industries like law, health care, and investment banking, and that fewer people have traditional full-time or part-time jobs as a result. This, in the firm’s mind, is a good thing.

“Perpetual, hourly employment is often deeply inefficient for all parties involved,” the report reads.

But increasingly, critics argue the freelance model is being abused, with workers being treated as if they were on payroll without getting any of the benefits afforded payroll employees. Some Silicon Valley insiders are beginning to worry that start-ups’ over-reliance on contract workers could come back to haunt them if they run afoul of longstanding labor rules. If that happens, these high-flying disruptors could be facing serious disruption themselves.”

We are already seeing this with Uber constantly coming up against local ordinances and regulations in place to monitor and license similar services in each community. You can imagine labor boards across the US will start taking a closer look at these business models and weighing in with their own concerns in the future. The role of contract workers is known as the 1099 economy and is by no means new. We have had contract workers probably since the beginning of time in one form or another. I also believe there is a place for them given the right circumstances. Most contract workers are self employed and fall under the various rules and regulations that guide self employment today.

The role of these contract workers in this Silicon Valley Uber model seems on the surface to be just another contractor working for an employer. However, it is a new twist on the idea and one that is concerning to many. Uber, and the other VC backed companies who use this model, give these folks minimal training, and as far as I can tell, none of these contractors are bonded. Uber and some others carry insurance related to their services but it is unclear how much of that insurance covers them vs their contractors. The recent case involving an Uber Driver attacking a passenger with a hammer underscore this issue. Although Uber touts its safety focus, if you read the small print in their terms, it clearly puts a lot of the risk on the consumer and tries to absolve themselves from as much responsibility as possible.

I know we are early in this business model’s life and much has to be fleshed out about how they work, train, pay, insure, and deploy these contract employees. After all Uber, Washio, Shyp and other similar tech companies are really logistic companies that mostly serve as a dispatcher for their workers to meet a specific need of their customers. However, they will increasingly come under governmental regulatory scrutiny and labor board investigations before we see if they will make it in the long run.

I admit I am highly conflicted on this issue. The Uber driver I had in Seattle was happy with her new job and I think she was only doing it part time to help pay for college. Many other Uber drivers and similar contract employees tied to these digital logistics services are full time and, like most contractors, are willing to carry the cost of being a contractor for the chance of making a living doing these jobs. Just the fact it brings more people into the job market is a good thing.

However, I think companies like Uber, Washio and others like them will eventually have to confront their responsibilities to their workers and their customers in better ways than they do today. How they treat these contract workers and protect their customers will determine if these types of companies stay around and thrive in the future.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

27 thoughts on “A Worrisome Tech Trend”

  1. I think Silicon valley is just playing the world’s second-oldest profession: pimping. Except established pimps usually take some care of their workers, and their customers.
    Implications are huge though: no customer safety, no workers’ rights… that’s not social progress, that’s a throwback to the time of the robber barons.

    1. Hey, obarthelemy, I actually agree with you.

      I’d add regarding customer safety, that even with licensed cabs, there are a few rogue drivers with not-so-good intentions. It seems to me that Uber-type companies make this likelihood greater.

    2. Yup. And it’s probably exploiting people who are a little desperate for employment. I won’t deny that taxi services are over-regulated in a lot of cities, usually with the complicity of the cab operators themselves because regulation has the desirable effect of limiting competition. But you can’t have the wild west going on either. A quick search on “Uber driver background check” is not reassuring.

      When a business beats the competition basically by skirting, gaming or evading existing regulations, especially safety regulations, red flags should be raised all over. Furthermore, when a business makes it appear that they are taking on a liability when the fine print says they’re actually not, those red flags should be waving vigorously.

    3. i totally disagree.

      A Driver who rely on Uber for customer is not that difference from a restaurant owner who rely on other provider for fresh food

      I don’t to understand the argument of those who continue to say that in somehow Uber need to directly employ these people as a way to get more benefits etc. when they can provide it to themselves with the 80% they get from each client.

      why to they have to rely on Uber when they can set up their own 401k, insurance premium, saving, and be self reliant just as any restaurant Owner.

      why do people keep on thinking that a centralize economy is better for people in a time like these instead of encouraging people to become smarter, more flexible and more independent

      1. The difference is, that restaurant owner still has laws they have to adhere to in order to serve the public. Uber (and a large part of the 1099/contractor economy which is what the article is about) is currently a way to skirt most of those laws.

        This is not to say that the system as it exists now is perfect and not in need of updating.


        1. that is also true for any Uber Driver as well. who by Law are require to get a driving license, vehicle inspection, Safety protocol etc.

          The argument the majority of these people are making has nothing to do with law. it’s all about centralize economize versus Freelancer

          They just want Uber to employs these people because they believe that somehow this will result in better pay + benefits, regardless of the fact that if this happens the majority of these drivers will likely receive a salary the equivalent of 50% + 20% for benefit of the commission from each consumer instead of 80% they get right now which is in no way better

          Nowadays Centralize economy work best for large corporation, Big unions and corrupt middle men who want to control the process between Labor and Capital, but it is no longer as attractive to ordinary people who have to cope with a falling middle class, Family breakdown, low salary, and a lot of economy uncertainty

          1. It has everything to do with the law, plus everyone’s understanding of the law, which is what makes this a defining moment. It is not simply a matter of freelancing vs employer. Uber is not even arguing that as far asI know. They are trying to say their system is not subject to the same rules and regulations governing the current industry. That’s a disagreement still being worked out.

            Plus, there are labor regulations and tax laws about when a company can consider someone a freelancer/contract labour vs employee. And that implications that affect the customer as well as the company and laborer.

            I’m no lawyer, but it is far too reductionist to say this is big business/labor union vs the little guy. The issue is about responsibility and public safety, too.


          2. Uber Driver are not Worker they are independent contractor who provide a service in exchange for 80% commission from each consumer.

            the majority of Consumer or even Uber driver themselves are not complaining about this arrangement or Uber Service.
            it’s the Big Taxi Union and Leftist activist who want to destroy Uber because of the challenge they face from this type of arrangement that goes against their own interest and societal dream.

            None of the argument they made are about protecting consumer,
            it’s all about wage + Benefit

          3. “the majority of Consumer … are not complaining about this arrangement or Uber Service”

            I suggest you read the article aardman linked to.

            I love Uber. I do not trust Uber drivers. As I mentioned earlier, wihtin the Uber app, I go with taxi’s first, limo’s second, and Uber drivers if I absolutely do not have another choice (taxi’s cannot participate in Uber in Atlanta from what I can tell). That is a lot of/too much liability for me to assume as a consumer.

            “None of the argument they made are about protecting consumer, ”

            That’s just simply not true, even within this article and discussion. And even if no one else is making that argument, I am.


          4. I read the article and it’s was all about wages and benefits.

            the reason Uber is ​​so popular, is because of the fact that it is a very good service that is cheaper and much more accommodating to customers than regular taxis.

            Uber can require better training and improve their customer service from their contractors without the need to employ them directly as the article suggested.

            And I think it should be legal for regular Taxi drivers to become Uber driver

          5. “it’s was all about wages and benefits.”

            Then you missed this whole paragraph:

            “The role of these contract workers in this Silicon Valley Uber model seems on the surface to be just another contractor working for an employer. However, it is a new twist on the idea and one that is concerning to many. Uber, and the other VC backed companies who use this model, give these folks minimal training, and as far as I can tell, none of these contractors are bonded. Uber and some others carry insurance related to their services but it is unclear how much of that insurance covers them vs their contractors. The recent case involving an Uber Driver attacking a passenger with a hammer underscore this issue. Although Uber touts its safety focus, if you read the small print in their terms, it clearly puts a lot of the risk on the consumer and tries to absolve themselves from as much responsibility as possible.”

            Plus the conclusion I quoted above.

            With all due respect, I suggest re-reading the article.

          6. i understand that and i agree that we need to make sure that those who use Uber are safe and provided with a Good service.

            However my argument stem from the fact that the author uses an isolated incident, something that could happen even with a regular taxi as a way to discredit the type of service such as Uber, while trying to convince us that the way to fix that is to employ this people directly which i think will be more like trying to solve a problem while creating another one that is bigger

            Uber can terminate it’s contract with any driver who violate it’s code of conduct or who receive a lot of bad review

          7. If they were really independent, I would fully agree with you, but most work exclusively for Uber and accept the prices Uber arranges for them. If you are independent you are free to choose. You can choose what prices to offer to your end-customers. You can choose if you want to work with Uber or another similar service. As long as Uber has a monopoly there cannot be any independent business for the drivers.

    4. I don’t know. I would put the cab company as the more appropriate comparison to a real pimp. They take a huge chunk, make the cab driver pay for everything they don’t own (meters, car, payment system, etc.) Kind of like how the recording industry treats their recording artists.

      Silicon Valley at least offers an alternative to that system in the same way they do for recording artists. But I would say there are a lot more issues involved for professional drivers that Uber wants to skirt that cab companies and drivers are required to pay attention to.

      We are definitely living in a defining time.


  2. You’ve really hit on two important issues in one article. Uber itself is an interesting subject. I used Uber in Chicago all the time. But I _always_ tried to hail a legit cab first, limo second, and only when neither were answering a call to my location would I go Uber. I have a lot of respect for legit cabbies. They have a lot of expenses just to be able to have that meter and the license on display. I tip well because, like food servers, they aren’t going to get rich driving a cab. For a lot of them, their only hope of paying for retirement is being able to sell that medallion. They won’t be able to retire on their fares.

    But I hate cab companies for not catching on to what technology can do for them (along the lines of the retail article Ben wrote recently.) Nothing makes hailing and paying for a cab easier than Uber, especially in an era that cabs are being accused of double charging credit card payments.

    The 1099 economy is a major part of the arts industry, especially in live entertainment. Performing arts organizations for a long time thought they could call their their performance related employees (that don’t go to the office 9-5) “contractors”. The IRS came down hard all of a sudden and for a long time. I have received calls from more than one company asking me to help them pay (read, attempt to claw back) the taxes they were supposed to pay to begin with. The delineation loosely comes down to if you are telling someone where to be for work, when to be there, and how long they are to work, they are an employee, not a contractor. And the issue is not just taxes, but also benefits like workers’ comp and other liability issues.

    A lot of companies play fast and lose with the rules because they don’t want to deal with the expense and hassle. The unfortunate part is, once you get nailed for this, it makes it harder to justify legitimate contract services. Companies would be better off doing it properly form the start, regardless of the expense and hassle. People tend to forget that the IRS has their own judicial system that is not answerable to anyone else.

    The next fight is already heating up—unpaid interns.


    1. But I hate cab companies for not catching on to what technology can do for them

      I have always felt that Uber was not a product but a feature. Sooner or later, cab companies will adopt the cab hailing technology that makes Uber so convenient. Even regarding rates, electronic payment technologies will make variable pricing easier for traditional cabs.

      For example, LINE (the extremely popular messaging service) has just introduced LINE Taxi, a Uber-like taxi hailing service. The interesting thing is that LINE will team up with Nihon Kotsu, the largest taxi company in Japan (3,300 taxis in Tokyo). This is an example of local taxi companies incorporating Uber-like hailing as a feature.

      The reason why taxi companies could not create this technology themselves is rather evident, at least in Japan. Simply, the taxi industry is fragmented and is not profitable enough to develop, introduce and market the technology (the bottleneck is probably marketing). They don’t have access to the huge venture capital that Uber was able to obtain. Teaming up with LINE solves this problem.

      As for the variable pricing that Uber offers, we have seen some of this happen in Japan in highway tolls and railway fares. It is reasonable to assume that as the technology becomes available to traditional taxis, they will also introduce similar flexible pricing schemes.

      We also have to remember the effect the economy has on the taxi business. At least in Japan, the number of applicants for taxi drivers increase when the economy is bad and they have been laid-off from their previous job. My feeling is that the global recession was a large reason why Uber was able expand rapidly, and that if the economy recovers (maybe it won’t), they will have significant difficulty hiring drivers.

      In fact, if you look beyond taxis and into other sharing apps, the sluggish economy is very likely a major driver of their popularity.

      1. One of the philosophical things I love about Uber is that it forced a conversation that needs to happen, much the same way Napster forced a conversation in the music industry. If we waited for those who are comfortable with, created, and game the system to change anything nothing would change. It is the nature of Modern systems. Much of this issue is another example of the system becoming more important than what it was created to support.

        That said, there are other things beyond business model that the system was created to support that will always need to be addressed by any company that services the public. Uber’s current system does not.


  3. What may work in Uber’s favour is how much the taxi industry already utilizes a contract model. There are a number of cabbies who own everything they need (car, meter, medallion, etc) and just hire out to cab companies.


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