Uber’s Desperate Hope at a Tough Time: Forget Drivers, Use Robots
Drivers are too expensive for the business model. Self-driving robotic cars aren’t.
PHOTO CREDIT: Getty Images
Uber seems destined to stand tied to two pillars: one of apparently good news that's bad and another representing bad news that is actually worse. The good/bad news today for Uber is the deal to purchase up to 24,000 self-driving cars from Volvo. The "good" part is that self-driving cars would cut costs substantially and maybe let the company move toward profits. The bad news comes in two parts: drivers could find themselves without employment and the necessary regulatory and infrastructure framework that would enable autonomous cars still seems a long way off.
Uber had hoped that hiring Dara Khosrowshahi, late of Expedia, would end the major cultural, legal, and financial issues facing the company. A new investment from Softbank would help keep things running for a while longer as Uber continues to lose billions of dollars a year. Still, new issues dog the company, like the U.K. labor tribunal ruling that drivers there are employees, not independent contractors.
They might not be if if Uber had its technical druthers. The agreement to purchase up to 24,000 cars from Volvo, which appears to have been first reported by Fortune, would, in theory, help the company out of a quandary. Uber's business model requires low ride prices while presenting a perceived better degree of service to outdo competitors, including taxis and public transportation.
Claiming drivers are independent contractors has been one approach to managing the balance. The company avoids many costs of having employees. All Uber need do is pass along a large enough share of trip revenue so that drivers can afford their business expenses and still make something after them. It's not a tremendous living for most drivers and reported enormous turnover approaching 96 percent annually suggests relatively few people are happy with the arrangements.
Driving a cab -; essentially what driving for an Uber, Lyft, or other ridesharing service is -; can be tough work and not easy money. And Uber still regularly loses stunningly large sums. Higher fares could make drivers happier but put off riders. A paper says that higher rates boost driver pay, but only for a short period until more people, attracted by better compensation, drive more often. Fewer rides are split among more drivers and, as a result, hourly rates quickly return to what they once were.
Running self-driving vehicles would be almost miraculous from Uber's view. If it didn't have to pay drivers, it could save money and run its own fleets with massive economies of scale, and maybe make a profit.
Of course, that's bad news for the drivers. Automation means all those people trying to make some extra on the side, or who may have invested in a new vehicle and other equipment and services for their businesses, would be out of luck. Well, unless they could keep driving for another service like Lyft until it, too, automated.
The plan to acquire self-driving cars rests on many assumptions:
- Government bodies and regulators will be comfortable with automated vehicles.
- Traffic infrastructure will have the modifications necessary to allow self-driving cars to operate commercially.
- There will be no problems with self-driving vehicles that might scare consumers from using the technology.
- The technology itself will ready in time, meaning that it could reliably operate in any weather conditions.
- Insurance companies will cover the new devices.
- No future regulations will delay or redirect efforts to deploy the vehicles.
- Should issues delay the use of autonomous vehicles, drivers would be willing to return.
- Issues like confusion in navigation, recognition of passengers, and aid to passengers who need help to get bags into and out of vehicles won't anger consumers.
Uber is in a race, with a need to become profitable before the invested money supply runs out. Either it replaces drivers as quickly as possible with specialized robots or it sees the end of competition, which would open the door to much higher prices and the following greater number of drivers making at most no more than they do now. In either case, drivers probably aren't going to like the results.