What is Uber?
You have just finished a fancy dinner in New York City with a close friend and it was exactly what you needed after a long work week. The only issue is its Friday night and there is not a single available taxi in sight. You reach into your pocket for your phone and “unlock” a whole new world. With a quick click of your “Uber” app you are on your way to setting up a ride home-quick access to a safe and convenient way home. But how could it be that easy? How does this work?
Uber is a new form of a business model that is profit seeking, but depends on a certain kind of balance between collaborative consumption and technology. Collaborative consumption can be defined as a socio-economic system built around the sharing of human and physical resources. There is a wide range of examples of collaborative consumption, but “…they all share similar underlying principles essential to making them work…critical mass, idling capacity, belief in the commons, and trust between strangers” (Botsman and Rogers xvi). In this paper I will explore Uber’s unique business model that relies on this collaborative consumption, trust, and belief in the commons.
Botsman and Rogers characterize participants of Collaborative Consumption into two groups. The first role is the “peer provider” who provides the assets to rent, share, or borrow. The second role is the “peer user” who is the one consuming the available products and services. In the case of Uber they act as a middle man between these roles. A well-known song may come to mind when you click your Uber app-“Matchmaker” from Fiddler on the Roof. That is exactly what Uber is, a matchmaker for people to find a mutual need-someone who needs a ride and someone who is looking to drive. What are the motivations for the providers and users? Some Collaborative Consumers are optimists and forward thinkers and others have a practical urgency to look for a better and more efficient way of doing things.
“Making car sharing sexy, not sorry”
In Botsman and Roger’s book, Whats Mine is Yours, they specifically discuss the car sharing community. Their description of this specific Collaborative Consumption, “Making car sharing sexy, not sorry,” is one that fits Uber’s business model very well. Uber has created a business model that allows its riders to feel a sense of safety, convenience, and status. By differentiating themselves from taxi companies by offering their riders options of cars and easy hailing (or lack of) they dominate this industry. Uber says, “Choice is a beautiful thing-get a ride that matches your style and budget” and therefore offer five different levels of cars. These five options consist of UberX, taxi, black, SUV, and LUX. Joel Makower, “a green garu”, commented in a recent article, “can you imagine when we reach a point where not owning a car becomes the ultimate luxury and its own kind of status symbol?”(116). Uber has successfully aimed at the target market looking for this status and convenience and have offered it in a way that not only benefits themselves and their riders, but also their drivers who are making the most of their idle time. Uber has made their services a resource available to a wide array of people and one that many people benefit from. Although Uber is creating opportunities for drivers it is questionable how ethical their recruitment strategy for drivers is.
In recent news Uber has been accused of booking rides through Lyft, Uber’s top competitor, and then unceremoniously cancelling them. It is believed that Uber did this in order to gain market share by contacting Lyft with the intentions to poach their drivers. Uber ambassadors have gone to the extreme measure of getting in the back of Lyft cars and pitching a business deal to the driver with the intentions of recruiting them to work for Uber. Peter Theil, co-founder of pay pal, said, “Uber is the most ethically challenged company in Silicon Valley” and disagrees with the actions they have taken to gain market share. Uber is perceived to be on the line of how intensely companies should be allowed to compete. It is difficult to judge whether this makes Uber “the most ethically challenged company” because technically they are not breaking any laws. Although these actions do raise questions about how trustworthy their relationships are within the “match making” community.
There is a common misconception that Uber is a taxi company, but in reality they are a technology company. Without Uber’s innovative technology and data they would not be close to as successful as they are, in fact they would not exist. Uber’s efficient use of collaborative consumption allows them to take advantage of idle time and use resources that are available to them in order to benefit the company, drivers, and people looking for a ride. Uber connects people with their cities. This connection makes more places accessible creating more possibilities for their drivers and their riders. Additionally, Uber has created a “cashless” transaction for both its drivers and riders, which further increases the convenience of the system. As a whole Uber’s value derives from several different aspects of its business: the screening that it does of the drivers and cars to ensure safety and comfort, the price and payment of the service, and the convenience that it offers to its customers and employees. This value that Uber has created all relies on an effective safety system and trustworthy relationships.
Uber ensures the safety of their drivers and customers by taking several different steps. In order to ensure that the drivers are reputable they perform extensive background checks that go back as far as the law allows them and ongoing reviews of the drivers’ motor vehicle records throughout their time at Uber. Furthermore, passengers can check the driver’s profile that is on the app which tells them the driver’s name, license plate number, rating, and gives a picture of the driver. Every customer is given the opportunity to rate their driver anonymously and give any feedback in order to ensure that Uber is in touch with how their drivers are performing and aware of any safety concerns that their riders report. Uber is not only concerned about the safety of their customers, but also of their drivers. Therefore drivers are given the opportunity to rate their customers after they drive them in order to report any uncomfortable situations that they felt their safety was being put at risk.
It’s great that Uber allows both ends of the deal to rate each other-riders rate drivers and drivers rate riders, but what is being considered when these ratings are made? In a recent report by PC World, it was expressed that Uber drivers are getting it all wrong and in fact the whole original purpose of this rating system is not being properly used. The original purpose of this aspect of the business model was to ensure the safety of the drivers and avoid putting them in situations that were unsafe. PC World got insight from a driver that riders are being rated on much more shallow things like tipping and convenience. An unofficial forum for Uber drivers expressed that they deduct at least one or two stars if riders have drivers pick them up on a busy corner, keep them waiting for more than a few minutes, give an inaccurate address, or show little effort to engage in conversation. Drivers look at the ratings that riders have before agreeing to pick them up and often times will opt not to pick up a passenger if they see that they have a low rating (PC World).
There are many regulations that taxi companies abide by, which can act as a barrier to entry for other companies trying to get into this market. Although Uber has recently been threatened in places like Virginia and Maryland that they are going to have to start to also abide by these regulations they refuse to. In Maryland the Public Service Commission stated that they would begin to treat Uber like a taxi company and hold them to the same regulations. Uber responded to this by saying they would opt to abandon their services that are offered in Maryland. Even though Uber does not follow the same regulations as taxi companies all of their riders are insured from the minute they are picked up until the time that they are dropped off. Riders are insured by Commercial Liability Insurance, which covers three basic categories: Bodily Injury, Property Damage, and personal injury. It is important to note that Uber does acknowledge many of the regulations that taxi companies are held to, but in their own way since they are self-governed.
Uber as a commons
The idea of “the commons” is a term that is used to describe the resources that are available to all of us and it dates back to the Romans. The Romans defined certain things as res public, which means “things set aside for all of us” such as public parks, air, water, culture etc. Elinor Ostrom, an American Political Economist, has done much work regarding the commons and her work “..clearly speaks to the ways that people can self-organize themselves to take care of resources that they care about” (Botsman and Rogers 90). In the case of Uber, they are self-organized in a way that takes care of their drivers, riders, and the safety and convenience of the ridesharing community. In order for collaborative consumption to work in regards of Uber it is important that their belief in the commons works successfully with their technology, ecology of their users, and trustworthy relationships.
Being that Uber is a technology company, their technology is what makes their use of the commons and collaborative consumption so successful and efficient. Without a trustworthy and efficient technological system they would not act as a resource available to such a wide array of people. Uber has implemented a system that allows their riders to be comfortable with setting up an account that maintains personal information such as a phone number, credit card number, address, etc. Their app not only acts as a convenient way to “match make” a ride, but more importantly in a safe way.
The motivation to use Uber may be diverse across their customer base, but it seems to be a common trend that price and convenience is a major incentive. Taxis charge riders per mile when moving and per mile when idling. Uber charges riders per mile and minute whether they are idling or moving (except in Philadelphia, where Uber charges per minute only when the speed drops below 11 MPH). After a study it was proven that despite this difference in pricing strategies, Uber was still more economically friendly for their riders. Another reason for a price difference is riders often tip taxi drivers, but riders do not have to tip Uber drivers. Since Uber is a cash free transaction and their pricing is modeled in a way that drivers are getting a higher rate than typical taxi companies their drivers are able to make a larger commission (businessinder).
In order to successfully self-govern shared resources it is crucial that a sense of trust is present. In the case of Uber, the different participants of Collaborative Consumption are putting trust in someone that they do not know. Uber as the company has to trust their technology and safety implementations to accurately depict how efficient, ethical, and safe their company is functioning. Uber can be thought of as a matchmaker platform that that creates the right tools and environment for a safe and trusting community that allows the people involved to exchange resources.
In Elinor Ostrom’s Building Trust to Solve Commons Dilemmas: Taking Small Steps to Test an Evolving Theory of Collective Action, She concludes that as long as scholars continue to believe that all humans are self-interested maximizers in all aspects of their lives “…the importance of building trust and reciprocity among users of a commons is not viewed as important.” The building of this trust and reciprocity is viewed as important in situations when humans have a higher probability of sharing commons in the future, their actions are known or reported to others, and cooperative actions do lead to increased payoffs. The growth of trustworthiness when participants are motivated by these three different factors resonates strongly with Uber. Without a community of trust and reciprocity, Uber would not be able to successfully execute their business plan. Ostrom’s three motivations for building this community can be applied to Uber because the riders and employees know that their actions are being reported and observed by others. By participating in ride sharing they are helping cut down on the amount of vehicles on the road, which in the end leads to higher payoffs because drivers are able to make the most of their idle time and. Lastly, riders are able to find the use of the car without having to own one personally (Ostrom 224). Although it would make the most sense for drivers to act in an honest and trustworthy way like Ostrom proposes recent media coverage about drivers rating riders has unveiled something different.
Is Uber ethical?
The different roles that people play in Uber all “self-govern” themselves in a way. The Drivers self-govern themselves because they choose when they are available and want to drive and are given the opportunity to review their customers, which could potentially have an effect on who they service. The riders self-govern because they can choose who they want to be picked up by and what level car they want. Lastly, Uber as a whole self-governs because they do not have to follow the regulations that traditional taxi companies have to and therefore are held to their own standard that they created for themselves as a company. If Uber decided to act dishonestly they would deteriorate their company’s reputation and everything that is represents in their business model. In order to self-govern a commons it is crucial to act ethically. In Moral Markets by Paul J. Zak he comments, “Many individuals place a high value on character virtues such as honesty and integrity for their own sake, and are more than willing to sacrifice material gain to maintain these virtues” (Zak 301). Since Uber doesn’t technically have “employees” but rather drivers it gives the sense that each person’s actions are held to a more individual standard and poor judgment and behavior would reflect on themselves. With that being said it is equally as fair to say if a driver were to act dishonestly it could have a huge impact on Uber. As seen in the recent media coverage Uber has been involved in behavior that can be considered dishonest, which reflect very negatively on them and effects their role as a commons. It is interesting to note how the company’s success relies very much on the “individual” roles and behaviors of the drivers.
Are the actions of the drivers that rate rider in this way honest and trustworthy? No, because drivers are disregarding the original business model and purpose of the ratings. If a driver rates a passenger based off a characteristic that they did not appreciate it can affect that passenger’s chances of getting picked up the next time they arrange a ride using Uber. In this case it is important for Uber drivers to carry out the character virtues that Zak describes- be willing to sacrifice material gain in order to act ethically and act as a resource that is supposed to be available to all Uber users. It is unfair for Uber drivers to give passengers a lower rating if they do not tip them because one of the main purposes of Uber is to create a “cashless transaction” that incorporates the tip for the driver in the overall price. This is unethical on the drivers end because they cannot expect something like this from riders when it goes against the company’s business model.
Uber allows and enhances the convenience of a form of transportation that we have been doing for a long time. Uber’s business model implements Ostrom’s insight on the commons, which ultimately allow for collaborative consumption where individuals get the “use” they in need of without having to own a car. Additionally drivers are making the most of their idle time and their “resource” that they can use to benefit others. In order for Uber to run as an ethical company and act as a commons it relies on the actions of its drivers and riders. After researching the company’s business model and learning what value they want to bring to the world it is clear that they have the right intentions. It is in the events that their drivers fail to create trustworthy relationships with the company and its riders that red flags are raised. This further supports the importance that trust and actions play in a commons. Uber has the ability to act as a great resource that can benefit many people, but in order for this to be taken fully advantage of it is crucial that all aspects of Uber share the priority of creating trustworthy relationships and the character virtues that Zak brings to light.
Important balance between trust and business
Uber’s unique business model that implements collaborative consumption and work as a commons relies on their ability to gain and maintain trustworthy relationships. It is important for society as a whole to gain trust in each other to successfully be participants of collaborative consumption. Uber’s recent media coverage has unveiled a side of the company that you will not see if you visit their website. How transparent is the company if they are not clear on how they recruit their drivers or what rider ratings are based off of? Ultimately Uber is not technically doing anything wrong, but for a company that is self-governed it is important that all individuals involved hold themselves to a high standard and carry this out through their behavior.
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