The Uber app economy and disruptive innovation - Part 4
By Michael Hennigan, Finfacts founder and editor
Jun 17, 2014 - 7:09 AM

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Source: European Commission

Last week taxi drivers protesting in several European cities delivered a huge branding gift to Uber Technologies, a 5-year old Silicon Valley firm, which has a smartphone app for requesting taxis/ cabs.

Uber has no fleet and gets a cut of 20% from the fare; the app calculates fares based on distance travelled and time taken. Off-peak rates are cheaper than traditional London black cabs and there is a “surge” pricing system, whereby fares rise in busy periods and on other occasions, such as during bad weather.

A recent fund-raising valued Uber at over $18bn, enabling the firm to further expand from about 130 cities worldwide.

The Financial Times reported that more than nine times the number of passengers in the UK signed up for the Uber app last Wednesday compared with a week before, according to the company. It jumped more than thirty places in the rankings over the course of the day of protest in London to become the third most-downloaded app in the Apple’s UK App Store, according to app analytics site App Annie.

The FT's Lex has said that an average Londoner or New Yorker spends $238 on taxis each year, data from the City of New York and London’s Licensed Taxi Drivers Association show. The potential customer base is - - at the very least - - everyone living in a big city, or 1.5bn people and  $357bn in revenue.

"If profit margins settle at 10%, the global profit pool is about $7bn. If Uber can capture just half this market, its $17bn valuation is five times earnings. Cheap!"

Of course, Uber has rivals but where US startups gain an advantage is in the big single winner-takes-all home market. Then the company is ready to strike offshore and also dodge taxes!!

Where this model can cause a lot of disruption is in the rest of the transportation industry and then teh development of driverless cars is a huge threat to existing structures.

Apps like Uber have both huge positives and negatives.

Neelie Kroes, EU commissioner for the Digital Agenda for Europe, previously served as competition commissioner where she had a merited reputation for toughness, and last April she reacted with fury when a Brussels court banned the Uber app.

The Dutch national who will be 73 next month, did not mask her views with euphemistic words:

The court says Uber drivers should have €10,000 fines for every pick-up they attempt. Are they serious? What sort of legal system is this?

This decision is not about protecting or helping passengers - - it's about protecting a taxi cartel. The relevant Brussels regional minister is Brigitte Grouwels. Her title is 'Mobility Minister.' Maybe it should be 'anti-Mobility Minister.' She is even proud of the fact that she is stopping this innovation. It isn’t protecting jobs Madame, it is just annoying people! [ ]

No-one is saying that Uber drivers should not pay taxes, follow rules, and protect consumers. But banning Uber does not give them the chance to do the right thing! If Brussels authorities have a problem with Uber they should find a way to help them comply with standards instead of banning them.

Many licensed taxi drivers - - the ones with open minds that I have spoken to - - realise Uber is also a way to get more passengers for themselves, to develop good relations with regular customers.

I’ve met the founders and investors in Uber. My staff have used the service around the world to stay safe and save taxpayers money. Uber is 100% welcome in Brussels and everywhere else as far as I am concerned.

And how is this ban going to work? It is an important question. Are the police now going to spy on our phones to see when we are making Uber booking? Don't you think the police in Brussels have something better to do.

It’s not like the current system is working ... take a moment to consider the 23 recent gang-rapes of women by people posing as taxi drivers. You would think the taxi industry would be more worried by that damage to their reputation than by the threat of competition from Uber!"

In response to last week's European taxi protests, Kroes said in a blog post:

The debate about taxi apps is really a debate about the wider sharing economy. That debate forces us to think about the disruptive effects of digital technology and the need for entrepreneurs in our society. And that’s what the Taxi protests are really about.

It is right that we feel sympathy for people who face big changes in their lives. Drivers need to feed their families and plan for the future - - but how can they if that future includes not only price competition from Uber, but also driverless cars? It can clearly be a tough profession to work in. Many are also locked into an expensive licensing system, where the license effectively forms part of their pension. So I don’t think it helps to be dismissive of real concerns that cab drivers have about new forms of competition. But we cannot run away from these debates either.

Whether it is about cabs, accommodation, music, flights, the news or whatever.  The fact is that digital technology is changing many aspects of our lives. We cannot address these challenges by ignoring them, by going on strike, or by trying to ban these innovations out of existence.

That is why a strike won’t work: rather than 'downing tools' what we need is a real dialogue where we talk about these disruptions caused by technology."

Before dealing with disruption, a remarkable positive from the US over the past decade is that American interest in driving is waning and this is not just related to the recession.

With more of the population living alone, interest in living in cities near services has grown.

The average age of an American car was 11 years in 2011, up from 9 in 2000; in 2010, the average age of a European car was 8 years, up from 7.5 in 2004 - - more than a third of cars are over 10 years old.

A service like Uber can reduce the need to have a second car or even one car.

The driverless car would have a huge impact on several sectors including insurance.

“What automation is going to allow is repurposing, both of spaces in cities, and of the car itself,” said Ryan Calo, an assistant professor at the University of Washington School of Law, who specialises in robotics and drones, according to The New York Times.

"Harvard University researchers note that as much as one-third of the land in some cities is devoted to parking spots. Some city planners expect that the cost of homes will fall as more space will become available in cities. If parking on city streets is reduced and other vehicles on roadways become smaller, homes and offices will take up that space."

A chart in Part 3 of this series shows huge jumps in US education and healthcare costs, and the potential for savings from new technologies.

On disruption, the community split in San Francisco and the rich Silicon Valley where white and Asian males dominate, is a foretaste of what's to come as routine jobs are nixed while at the bottom of the economic pyramid, demand grows for personal care aides, maids, food servers and security staff.

We reported in Part 2 that Apple, one of the world's most valuable listed companies and saving a huge amount of corporate tax each year with Ireland's help, pays the majority of its staff in the United States poorly: $25,000 was the average income of retail workers in 2012.

Finfacts: Women, African-Americans and Hispanics/ Latinos are unwanted in Silicon Valley 

George Packer, a writer on politics at the New Yorker, and a native of the Silicon Valley region, writes here:

Young people drawn to Silicon Valley can be more insular than those in other industries—they tend to come from educated families and top universities, and achieve success at a very early age. “They’re ignorant, because many of them don’t feel the need to educate themselves outside their little world, and they’re not rewarded for doing so,” the young start-up entrepreneur said. “If you’re an engineer in Silicon Valley, you have no incentive to read The Economist. It’s not brought up at parties, your friends aren’t going to talk about it, your employers don’t care.” He found that college friends who came out to the Valley to seek their fortune subsequently lost interest in the wider world. “People with whom I used to talk about politics or policy or the arts, they’re just not as into it anymore. They don’t read the Wall Street Journal or the New York Times. They read TechCrunch and VentureBeat, and maybe they happen to see something from the Times on somebody’s Facebook news feed.” He went on, “The divide among people in my generation is not as much between traditional liberals and libertarians. It’s a divide between people who are inward-facing and outward-facing.”]

Jill Lepore, also in The New Yorker, takes on Clayton Christensen, the Harvard Business School professor, who is the author of the celebrated 1997 book: 'The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.'

This was the genesis of the popular Silicon Valley term: "innovative disruption."

Lepore who is the David Woods Kemper ’41 professor of American History at Harvard University, says that the theory of “disruptive innovation” is founded on anxiety, fear, and shaky evidence.

Prof Lepore delivers a tour de force:

Every age has a theory of rising and falling, of growth and decay, of bloom and wilt: a theory of nature. Every age also has a theory about the past and the present, of what was and what is, a notion of time: a theory of history. Theories of history used to be supernatural: the divine ruled time; the hand of God, a special providence, lay behind the fall of each sparrow. If the present differed from the past, it was usually worse: supernatural theories of history tend to involve decline, a fall from grace, the loss of God’s favor, corruption. Beginning in the eighteenth century, as the intellectual historian Dorothy Ross once pointed out, theories of history became secular; then they started something new—historicism, the idea “that all events in historical time can be explained by prior events in historical time.” Things began looking up. First, there was that, then there was this, and this is better than that. The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence.

Most big ideas have loud critics. Not disruption. Disruptive innovation as the explanation for how change happens has been subject to little serious criticism, partly because it’s headlong, while critical inquiry is unhurried; partly because disrupters ridicule doubters by charging them with fogyism, as if to criticize a theory of change were identical to decrying change; and partly because, in its modern usage, innovation is the idea of progress jammed into a criticism-proof jack-in-the-box.]

Declining regular work; Rising low-paid freelancing in Ireland & elsewhere - Part 1

Knowledge workers in Ireland; Low-paid manufacturing grafters in China? - Part 2

The rich today work longer hours than the poor - Part 3

Part 5: final including implications for Ireland.

FT on  taxi wars -- Black cabs v Uber

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