Improving Uber's Profitability
In January 2018, CEO Dara Khosrowshahi told Uber executives that he wanted the company to nearly break even by the end of the year and to be profitable in 2019, as a public company. As it turned out, Khosrowshahi’s expectations were off by a tad, which in Uber terms meant a few billion dollars. Uber’s operating losses accelerated throughout 2018, culminating in $1.05 billion of red ink in the fourth quarter. And Q1 2019 got off to an equally discouraging start, with losses of $1.03 billion. Why has the company been unable to find quick fixes to its profitability problem? The most obvious quick fixes are for Uber to raise prices, shrink driver pay, or acquire competitors to consolidate market power. But none of these initiatives address the root causes of Uber’s flawed business model, and thus they cannot and will not be effective.
There are, however, other reasons that led Uber to take this poor decision in the first place, and that is lack of corporate social responsibility. Uber has been trying to expand to as many countries as possible. Though extremely hard, it has been very successful in expanding its business, thereby operating in 81 countries worldwide. However, seeing that it started as a business in 2009, it just took Uber less than ten years to expand this much, which can lead to the conclusion that Uber might have over expanded. Instead of creating brand equity and finding creative ways to satisfy its customers, employees and the community as a whole, Uber has focused mainly on expansion rather than making strategic decisions for itself. Also, because there are excessive legal, advertisement and operational fees every time a company operates in a new country, most of Uber’s revenue goes towards these costs, and hence it does not have any money for taking social initiatives that might resonate with its target audience. Its lack of money for corporate social responsibility after these expansion costs is a huge reason for taking such poor decisions that counteracts the brand image it intends to make for itself. Its lack of taking any social initiatives firstly contradicts millennials’ views of helping the world be a better place, and it also makes it harder for people to believe that what they did was unintentional and there was no greed for financial gain. Its image of being constantly perceived as a revenue generator does not help Uber in this crisis since this goes against Uber’s value proposition. This doesn’t just show the unprofessional environment for its employees, but also the unfair treatment of women in 2017, a time when companies are trying strenuously to eradicate the discriminatory practices. The uproar against the blog was hard for Uber, though not at all surprising. Even though Uber has expanded enormously, it has not taken proper measures to keep a professional environment for its employees. In today’s competitive environment, a company this big should provide a proper HR facility to its employees; where their concerns can be heard and willing to take proper action be taken if any problem arises. Instead, it seems like no proper guidelines about how to behave in a workplace are given to its employees. Even if employees are told about them, no strict action is taken against those who break the rules. Hence, it motivates people like the manager to continue their unethical and illegal behaviour as the HR is doing nothing to show its employees the consequences of their actions. For a workplace of only 6% women, no new woman would want to even apply to such an organization, especially after reading this blog that is available for everyone to see worldwide. It won’t just defame Uber in America, but all around the world for practicing such sexist acts against women. Even the existing small percentage of women working there would also end up leaving, even for lower pay if they are given a comfortable environment to work in and more opportunities. Having only 3% engineers who are women is also quite disturbing as there is a huge gender disparity, leading to a discouragement of both men and women to work there. As a result, they may lose the chance of working with some of the best talent, who may end up going to work for Uber’s competitors. Moreover, not giving a promotion to employees when they are fully worthy of it, and then lying about it for manager’s personal gain of looking good as he has more female engineers working for him, shows political instability within the Uber environment, which can be demoralizing for all its employees, resulting in loss of motivation, reduced efficiency, and effectiveness. This can also highly increase the chances of lawsuits filed against them, which will not be helpful for Uber’s already weak situation. Uber is also highly likely to lose the lawsuits as many of its employees have records of what they did, just like Susan had. This will also lead to huge costs, which Uber cannot afford, with what so much going on. Furthermore, management’s failure to provide clear and concise goals will also lead to confusion among employees and a loss of commitment, not just to the task but to Uber as well. This event, hence, can also lead to the conclusion that Uber, as a team, is not working together towards improving the brand image and its brand equity; due to this, they end up making independent decisions that are not suitable for the whole company.
In litigation against ride-sharing companies Uber and Lyft, former drivers have alleged that they were misclassified as independent contractors and denied employment benefits. The companies have countered that they do not employ drivers but merely license access to a platform that matches those who need rides with nearby, available drivers. At stake are the prospects, not only for Uber and Lyft, but for a nascent, multi-billion dollar, “on-demand” economy (Richard Epstein, 2015). Unfortunately, existing laws fail to provide adequate guidance regarding the distinction between independent contractors and employees, especially when applied to the hybrid working arrangements common in a modern economy. Under the Fair Labor Standards Act and analogous state laws, courts consider several factors to assess the “economic reality” of a worker’s alleged employment status; yet, there is no objective basis for prioritizing those factors. How much flexibility do individuals have in determining the time, place, price, manner, and frequency of the work they perform? Those who select these variables are more independent than those who must accommodate themselves to a business owner’s schedule. Our approach is novel and would provide an objective basis for adjudicating classification disputes, especially those that arise in the context of the on-demand economy. One of the most controversial issues in labor and employment law concerns how workers should be categorized in “on-demand” businesses that rely more on smartphone applications and internet connections than hierarchical supervision within traditional brickand-mortar workplaces (Cotter v. Lyft, 2015). For example, (former) drivers for ridesharing companies Uber and Lyft have brought lawsuits alleging that they were improperly classified as independent contractors and denied employment benefits. The companies have countered that they do not employ drivers but instead license access to a platform that matches those who need rides with nearby available drivers.
In summary, on the other hand, taxis have never been profitable for operators or drivers in cities where they’ve been allowed to grow without regulation capping the number of allowable taxi permits. That almost guarantees that Uber can’t make money because the company and its competitors keep adding drivers, and it is ultimately is a race to the bottom. At some point Uber has to focus and show us that the business model does make sense because taxis have never been a very good business.
Editorial Bd., Defining ‘Employee’ in the Gig Economy, N.Y. TIMES (July 18, 2015), http://www.nytimes.com/2015/07/19/opinion/sunday/defining-employee-in-the-gigeconomy.html
Cotter v. Lyft, Inc., 60 F. Supp. 3d 1067, 1070 (N.D. Cal. 2015) (order denying summary judgment); O’Connor v. Uber Techs., Inc., 82 F. Supp. 3d 1133, 1135-38 (N.D. Cal. 2015)
Richard Epstein, Uber and Lyft in California: How to Use Employment Law to Wreck an Industry, FORBES (Mar. 16, 2015, 10:57 AM)
Myra H. Barron, Who’s an Independent Contractor? Who’s an Employee?, 14 LAB. LAW. 457, 457 (1999)