As we’re grabbing our pitchforks and torches, heading out in groups to find and kill the monster, we may need to take a moment and remember the part we played in creating it.
The majority of our industry thought they were being sly by arguing that chauffeurs should be classified as independent operators/contractors. By doing this, they saved on employee benefits, payroll costs, etc. The only sacrifice was that this allowed chauffeurs to work for other companies and refuse our orders. Though that would never happen, right?
Then Uber comes along with some slick technology and exploits the independent contractor model; the same one we argued for. They use our chauffeurs to compete against the taxi industry and tell chauffeurs that they can work whenever they wish, which we would never allow. They also suggest chauffeurs can earn money by “Ubering” when they had gaps in requests from their main provider.
Uber legally borrowed our chauffeurs to gain a huge advantage over the taxi industry, providing elite services at lower rates. Genius!
I’ve never met a chauffeur that wants us to lower our rates. Most don’t understand that if the rates keep climbing, volume decreases. If they don’t have any trips for a couple hours, they do know that turning on their Uber app can make some money, somehow foregoing the low rate argument.
What they fail to realize is that those low priced trips just allowed our potential customer to get the same level service at a rate that these chauffeurs would never want us to charge.
For so long, we heard industry leaders claim that Uber wasn’t a threat because they are “competitors of the taxi industry”. They were using our vehicles and chauffeurs at ridiculously low rates, but they weren’t our competitors?
Local operators decided that they could embrace the Uber model and sign up their vehicles to make money for their company during “off peak” times. They willingly enabled Uber to use their vehicles, their chauffeurs, their insurance and hijack their opportunities to grow their own customer base. Under the cloak of “opportunity”, Uber pirated all the hard work put in to building their company, labeling it “Uber”.
When your boat is taking on water, you can’t just bail. You must patch the hole first. We need to disengage from companies and independent operators that support or condone Uber. By supporting them, we are indirectly supporting Uber…….and our boat will continue to to take on water.
Worldwide Service Providers Slow to React
The largest companies in our industry, providing service throughout the world, used affiliates in many markets that supported and enabled Uber’s growth. In essence, our industry’s leading companies supported local affiliates that aided their largest competitor.
Cancer is a stupid disease because it ultimately kills its host. Local affiliates that support Uber are helping Uber kill their National network providers. Only recently has there been a move away from affiliates that support Uber.
Hijacking Our Support
Every one of us wish we had more chauffeurs and vehicles during peak periods, and less during lulls. So while some companies used Uber to supplement their income, Uber decided that wasn’t enough. They developed “surge” pricing. By doing this, your chauffeurs would rather work with Uber when you really needed them.
Your chauffeurs made more money during surge pricing with Uber, so you became the company that they used to supplement their Uber income during non-surge price periods, how ironic?
These independent contractors can now work 24/7. The chauffeur you thought was rested, was now dozing off at 65 mph down the highway. That sharp dressed chauffeur is now bedraggled. Their ability to deliver exceptional service is diminished. Our chauffeurs have become drivers.
The Death of Uber
The Uber model is broken, and the next few paragraphs will help explain their weaknesses, and what we need to do if we want to rid society of this monster.
The Dirty Little Secret
Uber can’t support a chauffeur that owns a late model luxury sedan like a 2015 XTS or MKT. The Uber model worked when the independent contractor depended on their primary provider to give enough revenue to cover their fixed costs like vehicle payments, maintenance, insurance, etc., supplementing their income. Uber can’t do this if they take the role as a primary provider.
That’s why some of you are seeing two things happen. Independent contractors are not turning over their vehicles and many of them are coming back to our companies with their tails between their legs, no different than the child that claims to be running away from home until they reach the end of the block.
We need to abandon the independent contractor model and embrace employees. We also need to make it policy that any chauffeur working for Uber is not welcome to work for us. By doing this, we will ultimately distance the service levels between us, and Uber.
An Uber Mistake
Why is it that none of us came up with this “surge” pricing concept? I remember saying that we should charge more during rush hour or bad weather. I remember wanting to charge higher rates on prom weekends. Many companies charge(d) for early morning or overnight service. It was more prevalent in the 90’s but many of us stopped this practice because it irritated our customers. Uber’s surge pricing is great for our industry. As Uber gouges their customers, more will migrate to traditional companies with set pricing. In addition, Uber will change the pricing landscape for the better. Customers will stop talking about the low Uber rate structure but focus on the ridiculously high surge price. This will make our rates appear a bargain! Most customers would rather pay more for consistent pricing than having to worry about traveling during a surge period.
Sooner than later, Uber will be forced to operate under the same rules as the companies in our industry. This will force Uber to find new pockets of revenue, pass these costs on to their independent contractors or raise their rates. This will breathe life into the taxi industry, and begin the downward spiral I don’t believe Uber can recover from.
We need to encourage and embrace regulation. This is our opportunity to pioneer regulation, using our strengths as pillars and exposing their weaknesses. If we write the policies and design the regulation, they will be forced to change their business model, not us. What’s great about our political system is that there is always a politician looking for a cause…..and who can argue against those of us fighting for safety in our industry?
Uber’s Pile of Money
So Travis et al sit atop this huge pile of money, right? We’ve seen this before with banks, the stock market and even in our fantasy drafts. When you hear the whisper of a bank struggling (true or false), the run on the bank can take a healthy company to bankruptcy. In the stock market, margin calls can force sales and trigger crashes or black days. Once someone drafts that first “tight end”, everybody else scrambles to make sure they get one before all the good ones are chosen.
Let’s look at what triggers the first match tossed at the bottom of their pile of money.
Flight to Consistency
As I wrote earlier, customers don’t like getting blindsided by surge pricing. Uber thinks they resolved this problem by making sure customers know they are going to be charged surge rates when placing the reservation. Unfortunately, telling us we need a root canal doesn’t make us okay with it. Are you starting to see the huge blemish on their model?
Let’s take a closer look. If I Uber a car and find out that there’s surge pricing in affect, I now have to find a taxi or call a car service. That’s a little inconvenient since I didn’t know about the “surge pricing” thing. Two choices: pay the additional costs or spend time trying to find an alternative. Either way, I won’t get caught in this situation again. Are you convinced, yet?
Let’s go back to that same customer. He/she will want to be better prepared the next time they need a ride. I’m thinking “pre arranged” service may be in store for this customer. What if Uber decided to offer pre arranged service? They can, but that wouldn’t solve the fact that those reservations may fall under surge pricing periods. What if they guaranteed pre-arranged service without surge pricing? Then they wouldn’t have enough chauffeurs to cover their requests. Surge pricing may be what enabled them to get chauffeurs during busy periods but it will be the reason for them to lose customers. Where does surge pricing go from here?
In 1995, every company in our market charged an additional fee between the hours of “11ish”pm and “5ish”am. So did we until we decided to grow our customer base. We stopped charging this additional fee and our overnight work exploded, followed by those same customers using us during regular hours. Ultimately, but not after the damage was done, that fee disappeared at most companies. History repeats itself, right?
Yes, but….Uber can’t eliminate this fee and be all that they promise their customers and investors. The model is broken, and surge pricing is one of their key building blocks.
Uber has gobs of money but Uber has gobs and gobs of litigation costs. They’ve spent an incredible amount of money on advertising and brand awareness initiatives. As more and more chauffeurs start realizing that their support of Uber has directly impacted the company they work for, it will force more chauffeurs to rely on Uber as their main provider of revenue. This is when some independent contractors will realize they can’t pay their bills. It may be too late to return to their former company, but it may force them out of the industry. Either way, Uber will experience a mass exodus, leading to fewer quality chauffeurs and vehicles, which will then lead to massive service issues and more surge pricing. They may be hoping that by the time the model breaks, they won’t need chauffeurs because their new technology will eliminate their biggest expense, the chauffeur. I’ll explain in a future post why that model is also theoretically flawed.
I’m pretty certain that most companies in our industry operate efficiently, for the most part. Our rates have a direct correlation to our costs. Uber investors may be some of the wealthiest people in the world, but they didn’t become wealthy by making bad investments. They also don’t expect small returns on their money, and favors. I believe that when their investors start looking into their earnings, they may not have the same return as Uber’s presentation promised. Any attempt to right the ship will alienate their customer base and their volume-based model will endure another body blow. I expect Uber will be the biggest “money grab” our generation has ever seen.
Overwhelming and Relentless
We need to stop reacting to every Uber announcement. Fact, fiction or otherwise, we get distracted each time we hear their name. They are much more susceptible than they want us to believe. By trying to put out every fire they start, we will exhaust our resources. By establishing industry standards, we engage Uber in the one fight they can’t win.
The Day After
Our industry’s landscape will be drastically different when Uber fades away. There will be fewer of us. The companies that leaned on Uber for support will be the first that perished. The Worldwide providers that reacted too late by holding on to affiliates entangled with Uber will find that they were unable to build partnerships with affiliates that stood firm in our industry. They will be smaller, and not as comprehensive as they once were. Rates will be much higher, and there will be a distinct line between taxi customers and private car customers. The taxi industry will be stronger and vibrant, more reliable and safe than ever before. Taxis will serve the purpose that ultimately had them come into existence, providing service for cost conscious travelers that can’t commit to a schedule.
We will have gone from an industry that thwarted regulation to one that embraces it. We will become more aware of trends so that we never get overrun again. We will have foresight and embrace partnerships; networking will take on a whole new meaning. We will learn to work together and adopt common principles, rather than working as individuals. The Day after Uber dies will not be the start of a new dawn for our industry but the culmination of all the tough decisions and hard work that begins when you reach for your pitchfork and torch. I believe that the killing of Uber will be the unifying of our industry against those companies that enabled the monster to exist.