(The Big Disrupt) Uber: Uber cuts its losses by @CNBCI

Check out this short but insightful video about the latest chapter in the Uber saga as the San Francisco based startup cuts it's losses and sells its Chinese operation to rival Didi Chixung. 

(The Big Disrupt) Uber: What Uber China's sale to Didi Chixung means

Uber, the undisputed king of the car hailing app market, has for years now waged a global campaign employing a highly successful scorched earth policy leaving a trail of rival car hailing apps, disgruntled taxi drivers and regulators in their wake severely upsetting the natural order of things in just about every country they've set up shop in. 

Uber phenomenal growth has earned the San Francisco startup a lot of enemies and in the face of its dominance globally, its rivals have teamed up and formed a loose coalition to counter or at least slow down Uber's aggressive global expansion and with Uber agreeing to sell it's China based operation to local rival Didi Chixung, it looks like the coalition is working. 

Cracking the Chinese market was always going to be tough for Uber to achieve as the Chinese government is notorious for backing local outfits over foreign competition and Didi Chixung already had strong position in the marketplace. Nonetheless, Uber spent billions to break Didi's local but unlike rivals just about everywhere else (maybe except for U.S. competitor Lyft and possibly India's Ola Cabs), Didi managed to match and even better Uber to defend its dominant position and eventually end the company's attempt to capture it's market leaving its infamous scorched earth policy in tatters. 

News of Uber's recent capitulation in China has given hope to just about every car hailing app service as Didi has provided a blueprint in how to resist Uber that other local players are almost definitely going to adapt. Uber's failure to capture or even gain a real foothold in Chinese market couldn't have come at a worst time as Google, its most important backer, competes directly with the company forcing the company to recently announce that it plans wean itself off Google and invest $500 million developing their own digital map. 

The importance of this decision cannot be understated as without Google Maps, Uber doesn't really have a business that works. The bigger play at hand is that Uber has for sometime planned to transition its fleet with driverless cars as while developing driverless cars has proved capital intensive, the tradeoff is that Uber can provide rides for its customer at a cheaper price and the company would like to do that with its own mapping technology. 

Should Uber pulls this off, Uber can deliver a cheaper service than its competitors using its own technology and data, two things driverless cars depend on and even capitalize opening their  technology to other services for a price. However, when Uber can start offering their customer rides in driverless cars is unclear given the high standard safety driverless cars have to reach to be road ready. What's certainly unambiguous is consecutive reverses the company is suffering in courtrooms across the US most recently with the company being caught red handed investigating Spencer Meyer, a environmental researcher accusing the firm of price fixing. 

For a company that's used to having its cake and eating it, recent events must be shock to the system. In sum, despite its failure to capture the Chinese market, the company is still dominant or competitive everywhere else  and are the world's number one car haling service by a country mile. However with Uber's Chinese operation acquistioned and regulatory battles mounting from every corner of the globe, the young company is finding out the hard way it isn't invincible. 

      

    

     

(The Big Disrupt) Uber: Uber’s Californian nightmare

With Uber closing down operations in France and two of its executives being held under arrest, it’s surely time for the Google backed car hailing company to review its ill-advised strategy of getting under the skin of governments and taxi drivers across the planet.

Uber has been harassed, harangued and protested by governments and taxi drivers against in just about every country it’s operates in as the company has launched operations in countries with the truly naïve notion that the disruptive and regulatory implications of their service wouldn’t garnered them the attention of both governments and taxi drivers despite the vitriol and legal drama the company has faced wherever it went.  

Governments and taxi drivers have been all over Uber like a hot rash for a number of reasons but the main contention has been over Uber’s reluctance to be pinned down as a taxi service and therefore avoid dealing with the burdensome regulations that come with it. Uber have consistently described themselves as an app service which largely doesn’t wash with either governments or taxi drivers who have to compete with a popular and cheaper service that’s not beholden to the regulations they are.

Taxi drivers everywhere have cried foul over Uber’s ability to flout regulations and have taken to the streets as the California based company represents an extinction level event to their industry. While characterizing Uber as an extinction level event for the taxi industry might sound hyperbolic, tell that to French taxi drivers whose protests against Uber turned violent as, according to The Hamilton Spectator, “100 Uber drivers ha(d) been attacked, sometimes while carrying customers”[1].

Taxi drivers and fleet around the globe would probably take Uber’s disruption on chin if Uber played but rules of the road but Uber, intent on arguing its status as merely an app service that simply connects consumers with drivers, have other ideas. The reason Uber make this argument beyond actually seeing themselves as an app service is that Uber don’t want to insure their drivers as doing so will make insurance costs one of the company’s largest expenditures and fast. It’s why Uber has had to brave legal battles, bans, and protests in every country it operates in and the bad press that comes with it as Uber simply doesn’t want to take on a very large liability.

So far, it’s been Uber’s drivers taking on the insurance liability forcing drivers to lie to their car insurance providers who’ll likely raise their rates or potentially drop them altogether. However, Uber will no longer be able to have their cake and eat it in California at least as thanks to recent changes in the law, Uber now have to cover their drivers from the moment they use Uber’s app to the moment drivers turn it off.

Insurance company executives must be jumping for joy in their boardrooms upon hearing the news of the California law change as it part of a growing trend of states in the US changing their laws to make sure that Uber insures their drivers. Uber executives however are likely to have their heads in their hands wondering why California of late has been tough on them as the Californian labor commission ruled that Uber drivers were employees as opposed to contractors.

It’s one thing that states are pushing to make Uber insure its drivers but recognizing their drivers as employees is literally Uber’s worst nightmare as insurance is merely a drop in the pool compared to the costs the company will incur if its drivers are ruled as employees as rulings like this “opens Uber up to higher costs, including Social Security, workers’ compensation and unemployment insurance”[2]. Should more states in the US and countries across the globe make similar rulings, Uber’s business model will be seriously hobbled by onerous obligations and raise driverless cars a rungs up Uber’s corporate agenda from a far flung ambition to the organizations top business priority.

In sum, Uber, despite the bad press, protests, and legal battle have largely had their own way but with the double whammy served up by their home state in making them cover their drivers and, more importantly, recognizing them as employees, Uber could find themselves in real trouble should other states and countries follow the Californian example.

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[1] The Hamilton Spectator, 2015, French taxis strike after weeks of rising tension over Uber, http://www.thespec.com/news-story/5695185-french-taxis-strike-after-weeks-of-rising-tension-over-uber/

[2] C. Johnson, 2015, Uber drivers are employees not contractors, California rules, http://www.theguardian.com/technology/2015/jun/17/uber-drivers-are-employees-not-contractors-in-california-ruling