What’s Uber Uber?

Whatever you think of Uber and Lyft and similar companies, the industry they attacked pretty much had it coming. Not the cabbies themselves, but the medallion owners and cab companies. The taxi business is a poster child for an ossified industry that has not changed much over the years and made minimal use of technology. How long could it really get away with that and not get targeted by the ‘new economy’?

There were a couple of factors that set this industry up for disruption.

Taxis need a license or ‘medallion’ to cruise the streets legally. Because the number of medallions is tightly controlled and limited, they cost way more than the average driver can afford. In most cities, medallions are disproportionately concentrated in the hands of a small group of owners, many of whom are investors with no connection to the industry. Taxi drivers earn a living, but just barely. The return on their labor is much less than the return on the capital used to purchase the medallions.

One big reason is because the government regulates the industry. There are various types of regulation. Some is to keep us safe such as background checks on drivers and inspections of the vehicle mechanicals. But some is intended to manipulate commerce, i.e., limiting the number of medallions available.

I am not making the argument that regulation is good or bad, but I will say this: generally, when a government tries to regulate commerce in an economy with a free market system, the free market system wins. Maybe not at first, but eventually the system finds a way around the government’s efforts to control supply and demand and/or prices.

So if you were looking for an opportunity where the government was regulating commerce, the economic benefit was concentrated in a select few and the people actually working in the system really were not making out all that well from the current set up, wouldn’t the taxi industry pop up on your radar?

The ride sharing companies win.

Until the next big disruption.

Which could be sooner than you think.

When driverless cars come along won’t you just be summoning one of them instead of a human driver? So the folks that are driving for Uber, what have they got? 5 years? 10 years at the most before the next disrupter hits?

At this point the industry really will be more like AirBnB. With AirBnB, you own the capital (a piece of property) and you rent it out. You may have to pay someone to clean it out after the rental, but otherwise it is a pretty straightforward deal: you rent your asset to someone else. Won’t it be the same in the driverless car world? You own a car that has driverless functionality and put it up on AirCarnCar and someone rents it? It leaves your garage automatically, drives over to the bar and gives someone a ride home. Then it either stays out ready for another fare or comes home to your garage for the evening. Maybe you program it to stop at the all night car cleaners before it comes home so it is all fresh for you to commute to work in the next morning.

What will all the drivers do for income at that point? Hope they don’t invest their retirement money in Uber stock.

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