Case Study: The Uber-ization of Everything

Rowena Pagarigan
IS 326: E-Commerce
CUNY SPS: Fall 2018
 In the case study, “The Uber-ization of Everything” (Laudon & Traver, 2016, p.

3-6), the proliferation of the gig economy is discussed, with a focus on Uber, the

company that popularized the business model behind its operations.

Uber uses an on-demand e-commerce service business model in which they

provide the platform for customers (riders needing a cab service) and workers (drivers)

to connect and transact via a mobile app. The company earns revenue by receiving a

percentage of all transactions called a service fee while the drivers are paid the

remainder of the balance. The on-demand service model can be further categorized

under the B2C business model, market creator. In Laudon’s E-commerce, a market

creator is defined as “businesses that use Internet technology to create markets that

bring buyers and sellers together” (2016). Companies that run an on-demand service

model can fall under two subcategories: the aggregator or the marketplace. The main

differences between the two, according to feedough.com, are branding and control. “An

aggregator is the one who provides the services under its own brand name, fixes the

prices, and takes the guarantee of the quality provided” (Pahwa, 2018).

Uber’s success in this market was built upon becoming an intermediary with a

unique value proposition that appealed to both the customers and workers. The appeal

for drivers is the ability to work for themselves by using a resource they already had. For

customers, the draw is in the convenience and usefulness of the app and the services

within, as well as the competitive rates Uber is able to offer. The company is able to

capitalize on virtually not having a sizable overhead due to the nature of the business.

The equipment (automobiles) is provided for by their workers (independent contractors)

complete the service cycle.

The gig economy is a term used to describe the shift in the labor market which

emphasizes a focus on companies hiring temporary workers, freelancers, or

independent contractors for short-term engagements (or gigs). While Uber and other

on-demand service pioneers such as Airbnb and TaskRabbit have revolutionized the

new business model and inspired many other start-ups to follow a similar framework,

their success is not without its share of controversy.

***

Disruption of its traditional counterpart

Uber’s mainstream success has resulted in the disruption of the taxi and livery

service industry. The lack of regulation for Uber and similar on-demand rideshare

services means that they are not beholden to the same set of stringent rules as a

traditional taxi service. For starters, this means that local governments cannot impose

livery fees, limit the amount of drivers operating, or require adequate background

checks on their drivers. Furthermore, Uber’s strong branding lends itself to a perceived

value of lower fare rates in comparison to other traditional alternatives.

The true cost of the side-hustle

Aside from using its platform, Uber has shifted traditional company

responsibilities to its drivers. Drivers operate and finance their own vehicles, mobile

phone, data plan, insurance as well as pay out-of-pocket for maintenance and fuel.

Their classification as independent contractors also means they have to pay self-

employment taxes.
 In the event the prospective workers do not have a reliable vehicle to use for the

job, Uber offers a car lease program through partnerships they have developed with

automobile dealers. Critics have likened this feature to a predatory subprime lending

program targeting those who have poor credit scores and/or inadequate capital for a

down-payment. Speaking with some Uber drivers who used the leasing program, The

Guardian had published an article which stated, “she could barely drive enough hours to

make the car payments” (Levin, 2018). Bloomberg published a similar article in which

they consulted with finance experts:

“I'd say the cost is greater than the benefit for your average driver," said

Mark Williams, a lecturer at Boston University's business school who

reviewed the terms of a blank lease agreement provided by Uber, along

with some average weekly lease payments and a driver-reported account.

"The terms, the way they're proposed, are predatory and are very much

driven toward profiting off drivers rather than to facilitate an increase in

drivers” (Newcomer & Zaleski, 2016).

As for worker compensation, Uber’s claims that they only take 25% of the fare

(service fee) is misleading. An additional booking fee is charged per ride that goes

directly to Uber. The company had lowered its prices which translates to drivers having

to drive longer distances to make a certain amount of money. As Ridester.com reports,

“Despite claiming to take just 25 percent commission on rides, ridesharing companies

like Uber actually take up to 42.75 percent of their drivers” (2018).

Inadequate background checks put customers at risk

an adequate vetting process for current and future drivers. While the new CEO, Dara

Khosrowshahi, have recently updated their policy on background checks, its efforts are

still fragmented and insufficient. They only require fingerprinting in New York, for

example, because “they are subject to the same standards as cab drivers” (O'Brien,

2018). They have no plans to implement this policy company-wide anytime soon

because “Uber argues that fingerprint checks are ‘an unnecessary burden and cost’ that

would make it harder to recruit drivers to the platform” (Bonazzo, 2018). Such

statements are disconcerting, considering that a CNN investigation revealed “at least

103 Uber drivers in the U.S. who have been accused of sexually assaulting or abusing

their passengers in the past four years” (O'Brien, Black, Devine, & Griffin, 2018).

***

While proponents of the gig economy tout it as an effective means of

supplementing one’s income, the growing discontent of its workers say otherwise. Uber

and companies of its ilk have undeniably transformed business and the labor market,

setting a precedent for future start-ups. In doing so, it has presented new challenges

concerning regulations, policies, labor rights, and public safety. Advocates for worker

rights are concerned with its socioeconomic impact. A successful industry modeled and

supported through impermanent gigs will increasingly replace long-term gainful

employment, inevitably contributing to economic insecurity.

Bonazzo, J. (2018, April 12). Uber’s new background checks are useless without this

key component. Retrieved from https://observer.com/2018/04/uber-background-

checks-fingerprinting/

Laudon, K. C., & Traver, C. (2016). The revolution is just beginning. In E-Commerce

2016 (12th ed., pp. 3-6). NOIDA, NY: Pearson Education Limited.

Levin, S. (2018, March 21). Homeless, assaulted, broke: drivers left behind as Uber

promises change at the top. Retrieved from https://www.theguardian.com/us-news/

2017/jun/17/uber-drivers-homeless-assault-travis-kalanick

Newcomer, E., & Zaleski, O. (2016, May 31). Inside Uber's auto-lease machine, where

almost anyone can get a car. Retrieved from https://mashable.com/2016/05/31/uber-

auto-leases/#YfZH1bDZ5mq9

O'Brien, S. A. (2018, April 12). Uber tightens driver background checks. Retrieved from

https://money.cnn.com/2018/04/12/technology/uber-safety-update/index.html

O'Brien, S. A., Black, N., Devine, C., & Griffin, D. (2018, April 30). CNN investigation:

103 Uber drivers accused of sexual assault or abuse. Retrieved from https://

money.cnn.com/2018/04/30/technology/uber-driver-sexual-assault/index.html

Pahwa, A. (2018, January 15). The on demand economy | how on-demand companies

work? Retrieved from https://www.feedough.com/the-on-demand-economy-101/

Ridester.com. (2018, August 30). Uber fees: how much does Uber pay, actually? (with

case studies). Retrieved from https://www.ridester.com/uber-fees/