Uber's liquid ride: why it's ignoring NZ laws

A car and a phone: All you need to be an Uber driver. But are the rewards shared?
CHRIS SKELTON/FAIRFAX NZ

A car and a phone: All you need to be an Uber driver. But are the rewards shared?

At first it seemed extraordinary. Uber, the ride-hailing phone app juggernaut moving in on taxi businesses everywhere, simply decided to ignore New Zealand's taxi licensing laws because they did not suit its business model.

In March, disappointed the Ministry of Transport failed to deliver changes under a promised regulatory review, Uber said it would just carry on and launch into the Christchurch market – its third city after Auckland and Wellington – using unlicensed drivers in uncertified cars.

Let the New Zealand Transport Authority (NZTA) and police do their worst. Let the fines and bans start. Uber was going to treat this as a public trial to show that its way of doing things was in fact OK.

Brad Kitschke, Uber's Sydney-based director of public policy for Australia and New Zealand, says New Zealand's politicians had said they wanted to see Uber's innovation and cost-cutting competition here.

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Last year, Transport Minister Simon Bridges talked of new regulation taking the "lightest touch" possible. But the officials doing the review did not seem to get the message, Kitschke says.

"They said they wanted to create a framework that establishes the opportunity for people to share rides in their own private cars. But the problem is that the bureaucracy has not worked out a way to deliver a licensing or screening regime that actually gets us there."

So flouting the law is a way of now "educating" the bureaucrats. And so also the fines and bans have indeed begun.

NZTA says to date there have been seven prohibition notices on Christchurch Uber drivers, another 11 infringement notices with penalties of $400 for failing to have a "P endorsement" passenger carrying licence, and $600 for not having a commercial vehicle Certificate of Fitness.

NZTA says 11 further cases are being pursued and some 750 prospective Uber drivers have been warned after getting in touch to ask about their legal position.

A $60b start-up: Uber boss Travis Kalanick at June's World Economic Forum in China.
REUTERS

A $60b start-up: Uber boss Travis Kalanick at June's World Economic Forum in China.

So it looks like a proper crack-down. Perhaps Uber – as a youthful and exuberant Californian start-up, expanding overseas only since 2012 – got briefly carried away with itself in an unfamiliar market and will see better sense? National laws are national laws.

However a check around how Uber is acting everywhere soon shows that is a grave misreading of the situation.

For a start, Uber is a sophisticated tech behemoth – now a US$60 billion business by market valuation. The investors bankrolling its march across the world include Google, Microsoft and the Saudi Arabian government.

Even if its entire 300 driver Christchurch workforce were fined $1000 every month for the next year, the total would be chicken-feed to Uber – especially if New Zealand eventually grants what it demands.

The reality, say international commentators, is that Uber represents the rather blunt end of a new kind of economic force in life.

Call it supercapitalism, disintermediation, tech disruption or whatever – and many are in fact now calling it Uberfication – but it is an expression of what economists know as the Matthew effect.

The biblical version, after the parable of the talents, is that to he who hath, more will be given, and to he who hath not, even that little shall be taken away.

Or the simpler modern version – familiar from the "1 per cent" inequality debate – the rich keep getting richer, while the rest get driven towards the minimum wage.

Information technology is proving to be a double-edged sword in this way. It disrupts traditional markets by injecting massive "liquidity" – dissolving any barriers between buyers and sellers of goods or services.

You want a ball gown or obscure book? Jump online and get the best deal on the widest choice. Order the dress from a sweatshop in Guangzhou, China, or the book from an Amazon "fulfilment centre" in Milton Keynes, England.

Technology creates super-competitive, super-open, marketplaces. But then look what happens. One winner emerges to scoop up the majority of the spoils.

The world is becoming dominated by a Big Five of tech firms – Apple, Google, Microsoft, Amazon, and Facebook – which have become so individually rich they can now gobble up any new competition.

Microsoft has just bought LinkedIn for US$26b. The pundits are wondering who will buy Twitter next. In the social media space – where the world's advertising budgets are the prize to be grabbed – this consolidation is unlikely to stop until everything practically hangs off a single tech platform.

Everywhere the backlash: Taxi drivers in Buenos Aires protesting the arrival of Uber in April.
REUTERS/ENRIQUE MARCARIAN

Everywhere the backlash: Taxi drivers in Buenos Aires protesting the arrival of Uber in April.

In New Zealand, Google now claims 37 per cent of online ad revenues, Facebook has 16 per cent, while the largest traditional media businesses trail behind at 6 per cent.

Hence the investor excitement surrounding Uber. For what it is doing is cracking open a whole new side of life – transportation – which has previously been sheltered from the tech assault.

Uber's business pitch is a single worldwide app that can conjure up cheaper rides anywhere, anytime, with a tap on your phone.

When Uber was founded by San Francisco entrepreneurs Garrett Camp and Travis Kalanick, it was aimed at high end limousine services. The idea was that there were a lot of big black chauffeured cars standing around whose drivers might like to earn some extra cash through a no fuss ride-hailing application.

Uber's software allowed both drivers and passengers to rate each other, creating a sense of security. Using automated credit card debits, it meant payments were guaranteed. Passengers couldn't walk off. And if they threw up in the back, a soilage charge could be deducted, no argument.

But quickly UberBlack evolved into UberX, a full-on assault on regular taxi services.

Uber added its algorithmic wrinkles like the surge charge – a local hike in fares where demand was high. It was tough on customers when they were caught, but also a clever feedback mechanism to attract drivers to service a busy corner of town.

So Uber positioned itself as the future universal platform for transport hire – the global ticket-clipper for public rides. It had the software and just needed to create the matching marketplace liquidity.

It needed a ton of signed-up drivers in every city in the world so as to dominate the market before any rival showed up. And from that came the aggressive policy which Uber watchers are calling the regulatory hack.

If national laws stand in the way of Uber's speedy market establishment, then getting those laws changed – or even ignoring them for a while – becomes a solid investment.

Uber has been going through just the same for even longer in Australia. It has weathered "periods of enforcement action" in Queensland and other Australian states while setting up shop and lobbying for various deregulation measures over the past three years.

Keep looking deeper into Uber's story and you can see how big the eventual prize may be – the reason why Google and Microsoft have their watching multi-billion stakes in Uber. Or why Apple, in May, raced off to stick US$1b into Chinese rival, Didi Chuxing.

Or indeed why all of them – Google, Microsoft, Apple and Uber – are now investing heavily in their own driverless car projects.

Future perfect: Transport Minister Simon Bridges tries Google's prototype driverless car on trip to California.
SUPPLIED

Future perfect: Transport Minister Simon Bridges tries Google's prototype driverless car on trip to California.

Roll forward 20 years and owning a private car may be ancient history if the streets are full of fleets of pay-as-you-go, robot-driven, electric-powered buggies. And that will be when being the world's standard ride-hailing platform makes a current company valuation of US$60b sound like peanuts.

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So in the really big scheme of things, Uber's regulatory skirmishes in Christchurch probably don't even count as a speed bump. Its eyes are already fixed on a destination much farther down the road.

★★★

Auckland Uber driver Ben Wilson, chair of the newly formed New Zealand Uber Drivers' Association, sounds conflicted. There he was thinking he was working for a really cool tech business.

Wilson says there is so much to like about the Uber app – the invisibility of the payments, the star rating system that works both ways for passenger and driver. All the software cleverness which deals with the normal hassle of taxi work.

"People are already account holders and so know you've got their credit card details. That puts a lot of constraints on how much they can take the piss. They know they can't run away from the ride at the end as you're just going to wave goodbye and take the money anyway.

"Or if they don't come out within five minutes for a pick-up, then you can charge a $10 cancellation fee. That's something an ordinary taxi driver can't do."

Wilson says because Uber drivers are using their own private cars with no signage, it all feels casual and matey – like giving a friend a lift. It is a social experience. At night, rides often invite you to come in and hang out after the party has got home.

And Uber driving has an addictive gaming aspect – earning your stars, catching a wave of surge charging, finding out where your next trip is about to take you once the passenger gets in and triggers the GPS co-ordinates.

Wilson says he works several part-time jobs and the "make your own hours" flexibility of Ubering suits his lifestyle.

Technically Uber doesn't employ drivers. They are merely self-employed "driver-partners" with a car to share. Wilson says you download the app and wait for it to generate leads.

But then step back and look at what is going on – especially since Uber threw away the rulebook requiring licensed drivers in commercially certificated vehicles – and Wilson says he is now caught up in the paradox of a global corporation apparently willing to operate a network of cowboy taxis.

Wilson says what many do not realise is that when Uber loosened its policies to launch in Christchurch, it also retrospectively did that in Auckland and Wellington. So suddenly in April, he and other legal drivers found themselves competing against anyone prepared to sign up under Uber's new terms.

"But it's not innovative to just break the law. Innovation's great, but that doesn't give you carte blanche to rewrite the entire rules of something that has got a lot of rules for a lot of good reasons."

Conflicted feelings: Uber driver Ben Wilson is setting up a national drivers' association.
FAIRFAX NZ

Conflicted feelings: Uber driver Ben Wilson is setting up a national drivers' association.

Wilson says it was a double blow for the existing Uber drivers because on the same day, Uber cut its hire rates across the country by 20 per cent. Another sudden move with no consultation or warning. Wilson says the first many drivers heard about it was in the middle of their shift.

Uber's explanation was that dropping tariffs would increase customer demand, so overall drivers should win. However Wilson says that is when the full reality of a very unequal business relationship dawned on him.

Economist talk abstractly about liquid markets and Matthew effects. But here it was in the flesh.

Uber had engineered a situation where it sat on one side, a technology company clipping the ticket for a 20 per cent commission on all rides. And on the other was a fleet of minimum wage drivers with no normal employment protections and carrying all the real world physical costs and risks.

Wilson says Uber has little visible organisation on the ground in New Zealand. To join as a driver, he went to a "green light" partner office in Parnell.

"If you were looking at the place from the street, you'd think wow, is this really a business? It was a single small room with a couple of tables, a few screens, and a lounge area where you could wait after you took a ticket to be seen."

Wilson says becoming a driver involved no signature on a printed contract. Instead there was the kind of software download licence where you click on a button to agree to the terms and conditions. "And it's a contract that pretty much removes all your rights anyway," Wilson says.

"It starts by saying how Uber is just a technology company providing leads, not a transport organisation at all. It goes on for four pages putting itself at arm's length – you are responsible for everything on the driver's side, blah, blah, blah.

"But then the next five pages contradicts that, saying you've got to go to every ride we tell you. If you drop rides regularly, or if your ratings fall below a certain level, we'll block you off the service. You never get to find out where you're going with the people, you can't set the price."

Wilson says the restrictions are such that they effectively force drivers to deliver exactly what anyone expects from a taxi service.

And then the reality of the earnings. Wilson says Uber talks about drivers averaging $25 an hour. But of course that has to take into account the fact drivers have to use their own cars and meet all the costs of fuel, insurance, vehicle depreciation and maintenance. GST needs to come off all trips.

Wilson calculates he is lucky if his take-home is $13 an hour. "Look at the numbers and you wonder why you're doing it in the end."

Wilson says those who are financing a car to get into Ubering – leasing something smart like a Prius to ensure good customer ratings – would struggle to clear $10 an hour.

And as Uber showed in April, it can make nonsense of your numbers at any time. It can unilaterally drop the rates and flood the roads with less qualified drivers. With no stake in the actual cars, no contractual responsibility for a driver's livelihood, Uber can act entirely in favour of its own corporate interests.

So Uber's business model is brilliant from the consumer's point of view, says Wilson – a way to create a five star transport service for the cost of one star employment conditions.

Drivers can't risk falling below a four star rating otherwise they may be canned. Wilson says that is why you have all the famed Uber extras like the breath mints and free bottled water. And Uber can easily afford to undercut regular taxis by a third.

Wilson says he is still with Uber because he does enjoy it and wants to make it work. This is why he has been involved in forming a New Zealand drivers' association.

Uber in Paris: The app began as a "black car" limousine service.
REUTERS/CHARLES PLATIAU

Uber in Paris: The app began as a "black car" limousine service.

It is probably a small step when facing a US$60b juggernaut. But perhaps Uber's driver-partners might be able to have some influence on its business practices, Wilson says optimistically.

★★★

It is the starkness of the divide between the technology platform and its workforce which is the striking thing.

Commentators in Europe have remarked on how the Uber staff they meet are all well-paid investment banker and consultant types. The drivers are immigrants hard up for a job. Two worlds quite literally.

In Christchurch, it is even unclear if Uber is stepping up to pay the fines now being incurred.

New Zealand Taxi Federation acting chief executive Tim Reddish says he expects Uber is reimbursing drivers for any penalties. "They paid the fines overseas, everywhere they've been."

However Uber itself has stuck staunchly to the formula that it is not legally responsible for its driver-partners' business expenses. There is not that relationship. So all it will say publicly is it "stands behind its drivers 100 per cent" – whatever you take that to mean.

Uber's Kitschke says the company's position is that what it is doing is so radically different it does require its own new rules.

Uber is not a taxi service at all but a ride-sharing application. So it is unfair to load it up with heavy-duty compliance when a typical Uber driver could be a solo mum putting in a few hours to earn extra pocket money while the kids are in school.

Kitschke says Uber is happy to be regulated. It spent 18 months in New Zealand waiting for the Government to draw up an appropriate system.

It was expecting the Ministry of Transport to drop outdated requirements like written logbooks, expensive background checks and warrant tests designed for full-time commercial vehicles.

"It takes three months and thousands of dollars to become an Uber driver at the moment," says Kitschke. Uber has instead designed its own corporate system of driver checks which, it claims, can answer all the public's safety concerns for a fraction of that time and price.

Kitschke says with the review's recommendations still to be enacted – a bill has to pass later this year – there remains an opportunity to get it right and create a framework which won't stifle technological advance and free market competition in New Zealand.

"We wanted to do [a trial] in partnership with NZTA so they could see how our processes worked out. In the end, they said no and obviously we chose to go ahead anyway. But there's nothing to say the Government can't jump onboard and still engage with us," Kitschke says.

Can ministers be seen to give into such pressure?

Taxi Federation's Reddish says overseas Uber has been good at mobilising its customer base in its favour. Uber claims 15,000 Christchurch users already. For good reason, politicians might fear the social media backlash of being seen to stand in the way of a cool new thing.

Yet Reddish says Uber has had its transport review and the claim of not being a taxi service just doesn't wash. It is a ride-hailing app, not a ride-sharing one. Uber drivers are for hire, not picking up fellow travellers for petrol money because they happen to be headed in the same direction.

Reddish says Uber did have the ear of the politicians a year ago. However since telling them "stuff you", the mood is very different. The deliberate law-breaking can't be let passed.

Yet when asked about NZTA now clamping down heavily in Christchurch, Kitschke responded enigmatically: "Well, they would tell you they are."

The line being taken by Uber staffers does suggest a little bit of legal push-back is nothing much to worry about. It is all part of the regulatory hack strategy, the removal of barriers to create the liquid markets that technology can then exploit.

So what might at first seem extraordinary is in fact all very ordinary corporate behaviour these days once you have understood the global winner-takes-all game being played.

 - Stuff

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