How Uber conquers a city in seven steps
The tides are turning on the poster child of the gig economy. Uber’s “disruptive” approach has up until now attracted investors like flies, leading to its valuation snowballing to $69bn. However, a string of allegations about sexual harassment, intellectual property theft and driver manipulation have called into question the aggressiveness of its expansion practices.
Consumer rights activist group SumOfUs has mapped more than 100 alleged incidents from news reports on a website called whyeveryonehatesuber.com to argue how Uber’s bulldozer approach to entering new markets sees it sidestep regulators, bully competitors and mistreat employees. These have been distilled into a seven-step playbook outlining the ride-hailing company’s modus operandi as it colonizes cities across the world and disrupts their transportation economies.
“Uber plays by its own rules – [it has been accused of] shortchanging drivers, [avoiding] local taxes and sometimes laws by hiding behind an army of expensive lawyers and lobbyists,” said Carys Afoko, communications director of SumOfUs. “And now, we’re exposing it.”
Uber did not respond to a request for comment.
1. Bulldoze into a market
Uber enters a city without seeking permission from regulators or officially clarifying its position. When questioned, the company will argue that existing regulations do not apply to its business model.
This started with Uber’s first market, San Francisco, in 2010. City agencies ordered the startup to cease and desist for operating without a taxi license or insurance. Uber ignored them and published a blog post stating that state regulations hadn’t been written with Uber’s “cutting edge transportation technology” in mind.
After facing similar tensions in Boston and Washington DC, Uber CEO Travis Kalanick described city officials as obstructive pencil pushers.
“Every city we go to eventually the regulators will make something up to keep us from rolling out or continuing our business,” he said at a TechCrunch conference in 2012.
2.Recruit drivers aggressively
There’s no Uber without a critical mass of drivers, so the company offers $1,000 sign-up and referral bonuses to lure them away from legacy taxi firms. For those who don’t have their own car, Uber’s Xchange leasing program allows even those with low credit scores to get deals on vehicles. However, drivers who opt for these financing deals can end up paying high prices. “The lease terms are awful, you could buy the car for what they are being leased for, or maybe even less,” said financial analyst Greg McBride, who looked at the figures for the Associated Press. In response Uber said the program offers weekly rentals, flexible leases, traditional leases and purchase discounts through some carmakers.
According to arch rival Lyft, one of Uber’s more grubby tactics include allegedly ordering and cancelling more than 5,000 rides from Lyft in order to make drivers think the service was less reliable and to drive passengers looking for available cars to Uber. Uber denied the allegations.
3. Convert riders into a political base
Uber seems so cheap because the company subsidizes fares using a seemingly bottomless pit of venture capital. The economics blog Naked Capitalism suggested that because it lost $2bn, but only made $1.4bn in 2015, users were effectively paying a fare that covers just 41% of the cost of the ride, which helps establish a support base of thrifty fans.
The company also appoints local figureheads to build grassroots support. For example, when Uber was struggling with regulators in Calgary it recruited philanthropist and Dragon’s Den star W Brett Wilson as its first driver in a “pop-up” service which offered users free rides if they made a $5 donation to a community charity.
“We think Calgary is a great place for Uber, but antiquated regulations are keeping you from getting an affordable and reliable ride,” said the company in a blog post.
Grassroots support is strengthened with high-profile PR stunts, including delivering puppies, kittens and ice creams.
“These are great marketing gimmicks, but behind that fun facade is a company that [has been accused of] undercutting competition, dodging local regulation and undermining its drivers,” said Reem Suleiman, a campaigner at SumOfUs.
4. Buy political influence
Uber tripled federal lobbying efforts in 2016, spending $1.36m – a whopping $890,000 more than in 2015. These efforts focused on modernizing existing laws, including pushing to allow federal employees to use ride-hailing services when travelling on official business.
Uber also spends big lobbying local politicians, including spending $3.3m in Albany and New York City between 2013 and 2016. A large chunk was spent in the first half of 2016, as officials and lobby groups argued over the levels of insurance rideshare firms would be obliged to provide drivers.
In California, Uber spent almost $1m on lobbyists – more than double spent by Facebook and Apple – over two years from 2013-2015, with efforts focused on whether drivers should need commercial license and be classified as employees.
For a brief period, Uber had a direct line into the president, with CEO Travis Kalanick joining an advisory board to the Trump administration. This backfired, prompting public outrage and the movement to #DeleteUber. He quit the board in February.
In addition to corporate lobbying, there’s the more covert lobbying of the media. This reached a characteristic low in 2014 when a senior Uber official suggested hiring opposition researchers to dig into the personal lives of critical journalists and use the information to discredit them.
5. Ignore regulations or fight them
Once Uber is in a market, it continues to clash with and ignore regulators. According to the New York Times, who spoke to four current and former Uber employees, the company developed a tool called Greyball which used data from the app to identify city officials and ensure they couldn’t book a car to scrutinize the service. This was used in Portland in 2014 when the city was carrying out a sting operation against the startup, which was operating without a permit.
Uber said it was denying ride requests to users who violated its terms of service. The mayor of Portland Ted Wheeler saw it differently: “I am very concerned that Uber may have purposefully worked to thwart the city’s job to protect the public,” he told the Times.
Uber has also fought hard against giving drivers, who are categorized as contractors, employment rights such as minimum wage, holiday and sick pay. This has triggered protests and legal action across the US and Europe.
Drivers in California and Massachusetts settled with the company in return for a $100m pay-out and the right to get warnings before having their accounts deactivated. In a landmark case in London at the end of 2016, an employment tribunal ruled drivers should be classified as workers. Uber has, of course, appealed that decision.
The biggest regulatory middle finger took place in California, where Uber started testing its self-driving cars late last year without a $150 permit. [Uber said it didn’t need them because “since the cars have people in them monitoring movements”.] When several of its semi-autonomous cars were caught running red lights, the state ordered their removal from the road – an order Uber openly defied, blaming the traffic light violations on “human error” and suspending the people monitoring the cars. Amid a barrage of criticism in the first few months of 2017, Uber decided to play nice with regulators and acquired the necessary permit in March.
“Uber accepts regulations when those regulations don’t undermine the company’s profitability and interfere with the company’s bottom line,” said Suleiman.
6. Remain bullish in the face of protest from competition
The legacy taxi industry takes a big financial hit when Uber strolls into town, and so drivers often resort to protests, roadblocks and, in extreme cases, violent protests (as happened in France, Indonesia and Mexico where Uber drivers were attacked. Taxi companies complain that they are forced to comply with local regulations, while Uber uses hotshot Silicon Valley attorneys to wriggle free.
Uber takes these in its stride, even using the protests as a marketing opportunity. On the day London’s black cabs staged a protest that gridlocked the city in July 2014, Uber ran an ad campaign describing itself as the “car service that’s keeping London moving”. Uber later reported an 850% surge in sign-ups.
7. Reduce fares, increase commission
Once Uber has established dominance, it slashes fares and increases its commission. The company uses “Uber math” to argue that this increases drivers’ income by reducing downtime. However, drivers have reported that their earnings are slashed without warning – often falling below minimum wage.
A lawsuit filed by an Uber driver in Los Angeles in April 2017 accuses the company of regularly showing higher upfront fares to riders than it does to drivers, and then pocketing the difference in addition to taking its usual cut from the driver. Uber hasn’t yet responded to these claims.
These alleged practices explain why a report by a British MP based on interviews with more than 80 drivers described their treatment by Uber as like Victorian-style “sweated labor”.
Rinse and repeat
SumOfUs has called for the company to listen to the demands of its drivers, be more transparent with customers about where their fare goes, pledge to abide by local laws and pay its fair share of taxes and address its toxic work culture head-on. The activist group has also set up an online petition demanding the resignation of Travis Kalanick.
“Getting rid of him won’t solve all of Uber’s problems, but it’s certainly a start,” said Suleiman.
Uber did not respond to a request for comment.