For companies such as Uber and Lyft, the key to success is to have a large number of low-cost independent contractors on their platform and keep the innovation arm active. This simply gives them the flexibility to employ people when they need without thinking of sick pays, holiday pays, insurance and several other benefits (cost for firms) that a normal employee gets.
From the employee’s perspective, they are happy to join these employers because they do not have a full-time commitment and they can choose the time and hours they want to work.
I believe this system is fair for both parties because an employer knows where they stand in terms of their cost and an employee can earn as much as they want by putting those hours while maintaining flexibility. Be your own boss.
Threat For Ride-Sharing Business
However, all of this could be changing fast if the Californian Senate passes a bill which would force companies like Uber and Lyft to start treating their independent contractors as full-time employees.
The bill, if passed, would only enhance the nightmare Uber is currently facing: a battle with drivers’ pay and maintaining competitive fare charges . The company is paying almost a minimum wage to its drivers over in the United States, despite charging a handsome share of the driver’s labor. The company’s commission range from 20-25% depending on which jurisdiction you are looking at. Yet, its losses are colossal. It reported a loss of $5 billion last year.
Trickle Down Effect of Californian Bill
Any further increase in its cost in terms of drivers’ payment is going to hurt the company most. The fact is that if the bill is passed in California, there are always chances that it may have a trickle-down effect not throughout the U.S., but also in other countries . After all, the U.S. is mostly the benchmark for other countries when it comes to regulation.
Uber Isn’t The Only One To Face Consequences
It is important to emphasize that if the bill is passed, it isn’t only going to target Uber and its competitor such as Lyft, but also other industries which are using their platforms to employ contractors in order to lower the cost for the end-user.
Consumers Are Likely To Be Victim
Mostly, companies come up with innovative strategies to cut the cost for consumers, like how Uber created jobs for those who were seeking flexible employment and also created a market for ride-sharing (although the concept wasn’t that unique as I used ride-sharing in Beirut, Lebanon, well before Uber came into being).
Nonetheless, if the bill sees the daylight and has its trickle-down effect, I believe the cost of sharing rides is going to increase meaningfully.
Hard Push For Innovation
Technology is the ultimate solution to cut the labor cost and we have witnessed this from the agriculture to the industrial age and now on the verge of a new age: Artificial Intelligence and robots.
Yes, I am talking about going from riding a horse to driving a car to driverless cars. There is no doubt that Uber has been far more active in this space than its competitors. It raised more than $1 billion from Japan with the likes of Toyota, Softbank and auto-parts maker, Denso. The self-driving unit knowns as Autonomous Technology Group, with Uber maintaining majority control, is valued at $7.25 billion. This is the big bazooka.
The Bottom Line
To conclude, I do not believe Uber is in massive trouble from a long-term perspective. Its innovative instincts are going to keep it ahead of its competitor. The company is desperate to use driverless cars and it is only a matter of time before we see them becoming a reality.
In the short term, it needs to give a fair share to its drivers for their work by keeping a close eye on its competitor. This would aid the company to bring new drivers on its platform. Also, a competitive fare would attract a larger pool of riders.