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Series: Expert Comment
TfL concluded that Uber London Limited was not “fit and proper” to hold a private hire operator licence.
by Kyla Jardine (Senior Communications Officer)
Experts from the Faculty of Management at Cass comment on the latest hit to Uber’s business.
Past history shows when such market disruptors, such as Uber, are forced out by regulations, the market has a way of dealing with the conflict.
“The big question is whether this will stop the disruptive effects that Uber caused in the established taxi market in London.
“On one side, the immediate effects of Uber are normalised in our daily lives by now (e.g. we’re used to ‘hailing’ a taxi through the app on our mobile phones, and the cashless system in place forced black taxes in the capital to implement credit card payments in their taxies. Now, we’re even used to sharing rides with strangers. The consumer benefits as well as the improvements in service speed and payment will continue to remain.
“Past history shows when such market disruptors, such as Uber, are forced out by regulations, the market has a way of dealing with the conflict.
“This was the case with Napster in the music industry a decade ago, which created a platform where individual consumers could share their music with strangers. Once Napster was forced out, the practice of sharing and streaming music became even more popular with ITunes and Spotify.
“I would expect that Uber or another competitor, such as Lyft for example, will make adjustments and continue to provide such services despite this setback.”
Andre Spicer, Professor of Organisational Behaviour
In the past Uber operated at the edge of the law with new technology as an alibi. Now its rogue business model is proving to be a big liability.
“The announcement that Uber will lose its licence in London is yet another potentially mortal blow to a company which is already reeling after many hits from other authorities around the world.
“The company’s business model is facing existential threats across the world. In the past Uber operated at the edge of the law with new technology as an alibi. Now its rogue business model is proving to be a big liability. It is under increased regulatory pressure in many countries: in some regions, Uber has shut up shop entirely.
“The European court of justice recently ruled that Uber was a transport company, and not a tech firm. This means national and local governments can regulate Uber as they see fit. And we know that some cities have banned Uber entirely from operating.
“Where Uber is still operating in major cities, but being treated as a regular taxi service, this causes significant increases to Uber’s costs, in many cases making it unappealing for customers. This opens up significant space for local competition. Instead of taking an Uber, we could be taking a Kabbee, Hailo or Gett very soon.
“We also must remember that Uber has been mainly losing money during most of its history and is propped by venture capitalists who are still willing to inject money into the business. Its model has been to offer cheap rides in order to build a massive driver and customer base and worry about how to make it profitable later. The plan had been to float the company soon, let the investors run with the profit while people who buy shares are left with the problems.
“In the meantime, black cab drivers will also probably be enjoying the warm feeling of seeing Uber taking another
TfL’s concerns with safety and security seem reasonable, and it should not be hard for Uber to revise its policies and practices to address these concerns and keep operating on the London market.
“This event reminds us that companies – all companies – do not have a natural right to operate on the market, but do so within constraints that we enforce on them through laws, regulations, and authorities.
“Uber has been a terrific force for innovation in the transportation market. Hopefully, this decision is not the result of pressures from interest groups that want to retain privileged positions. TfL’s concerns with safety and security seem reasonable, and it should not be hard for Uber to revise its policies and practices to address these concerns and keep operating on the London market.”
Losing its licence is another set-back for a company currently engaged in serious challenges at corporate level, such as open board battles between investors and what appears to be a toxic corporate culture.
“Uber is a great concept, and certainly has provided much welcome technological innovation in the taxi industry, with lots of value created for consumers mostly through its excellent app interface. There is also value to drivers who get guarantees of payment for each ride that was often missing in the regular taxi and mini-cab businesses.
“However, from a strategic point of view, Uber’s business model has serious flaws. In particular, we contest its claim to be just a matchmaker between two separate customer groups because it is not able to reduce the transaction costs – customers searching for drivers or drivers searching for rides – for both groups at the same time.
“To make riders happy and reduce their search costs Uber has had to bring ever more drivers on the road. Yet this increases drivers’ search costs – that is the time it takes for them to find a customer, meaning less rides per hour.
“To overcome this challenge, Uber has had to provide ongoing but not sustainable subsidies for drivers (and riders) – that might disappear if Uber gets a very large share of the market, and on Uber exploiting regulatory loop-holing, such as treating drivers as external contractors rather than employees and thus shifting the burden of their welfare onto society as a whole.
“Many feel that Uber has also generated high negative externalities for London – driving down earnings for many taxi drivers and in generating higher traffic and, to an extent, pollution and noise, again without Uber picking up the bill.
“We feel that Uber has an unsustainable strategy. In the future, we are likely to see fees to customers and riders increasing. Moreover there is a long term risk to employment. It is not surprising that Uber has been investing in self-driving cars, which basically means they’re trying to substitute drivers with technology. The reason? The drivers aren’t seen as customers (which would be the case if Uber were ‘a matchmaker’), instead they’re akin to employees.
“We are glad to see this move as the first step in regulators around the world catching up. Losing the London licence can be seen as another set-back for the company currently engaged in serious challenges at the corporate level such as open board battles between investors and what appears to be a toxic corporate culture.
“Time – and the appeal – will tell how it plays out.”
The views expressed here are those of the academic and do not represent those of City, University of London.