I took last week off from blogging for family reasons which means I sat out a big wave of posts about Uber. Don’t worry, I am not going to rehash that particular discussion. Instead, I want to point out what I believe the big questions are that should be asked of all companies in this sector which includes two USV investments (Hailo and Sidecar). Here are two questions:
1. Are drivers genuinely independent contractors? A legitimate concern here should be that the level of control that comes from location monitoring and automated dispatch is turning drivers effectively into employees (but without any of the benefits). One way to counteract that would be to require that dispatch companies have a driver API. Sadly New York City is contemplating the opposite with a law that would require drivers to only associate with one service (“base” in New York lingo) at a time. Our two portfolio companies have taken different approaches here. Hailo works primarily with regulated drivers who have special rights and obligations governed by local governments (this has proven to be difficult) and Sidecar is taking a marketplace approach that gives drivers a larger degree of control and the potential for differentiation.
2. What is the trade-off between fairness and efficiency? As I pointed out in a post on Uber’s surge pricing, transportation is not a commodity market but rather a series of micro-markets. Demand and supply imbalances cannot be avoided simply through dynamic price adjustments without big implications. You cannot easily have enough supply capacity to satisfy peak demand (eg a rainy day like today in New York city) and yet pay that supply adequately at periods of lower demand. The traditional taxi systems have erred on the side of too little supply which created excess rents that were taken up by medallion owners. But it is equally possible to err on the other side where some group of drivers winds up systematically losing money. That is one reason why values matter a lot in this market.
That is true not just for the values of the individual companies but also what we value as society. We need to answer these questions in the context of what is happening in the labor market and how that is impacting inequality. I believe that as we use technology to expand the market for transportation – very much a good thing – we want to be careful to avoid the possible outcome of drivers as “meatware” – simply a human cog in a machine, threatened to be replaced by a computer.
