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Saturday, April 20, 2024

Uber, Taxi Cabs, and the Limits of Digital Disruption

Late last month, Uber struck a deal with two New York City cab companies that will give the app’s users access to the city’s iconic yellow cabs. The announcement was a stunner, something as unlikely as a Staten Island pizza joint deciding to serve Chicago deep dish or a Yankees-Red Sox goodwill tour. After all, for the past decade, the two entities have been locked in a feud that has featured colorful insults, numerous lawsuits, and the country’s first slate of ride-hailing regulations.

In spite of the historic drama, the deal seems to make business sense. The pandemic gutted cab ridership in New York following years of traveler defections to the ride-hailing apps. Meanwhile, Uber, along with other gig economy businesses, has been battling a worker shortage spurred by Covid health risks, labor trends, and the industry’s notorious lack of benefits. “Are we going to have enough drivers to meet the demand that we're going to have?” Uber CEO Dara Khosrowshahi fretted as early as February 2021, when the end of the pandemic seemed to be in sight. He was right to worry. One recent analysis found that wait times for Uber and Lyft rides across 20 markets were 50 percent higher in March 2022 than in October 2021, pointing to a worsening driver supply problem. The recent pop in gas prices certainly hasn’t helped.

Of course, the roadblocks facing both Uber and taxicab fleets aren’t limited to the Big Apple. A few days after their deal was struck, a partnership between Uber and a taxi company in San Francisco was reported to be close to done, despite similar bad blood between those two parties. (At least one Bay Area cab driver offered an eloquent dissent.)

The linking of former competitors in an uneasy (and still unclear) alliance says a lot about what the pandemic has done to the business landscape. But it also reveals a more universal truth about startups and disruptors: They can only grow so much before they need to incorporate the very traditional formats and ideologies they so often spurn. In the case of Uber and its embrace of taxis, it’s a strategy shift that will have major consequences for everyone as cities and offices move to fully reopen. More broadly though, the perpetual whiplash around Uber and its dealings is indicative of a way of doing business that thrives in Silicon Valley ideation chambers—and then unleashes clumsy chaos in the real world.

Uber isn't the first or only Silicon Valley company to buck against its founding model. Even before the pandemic turned everyone’s parents into online shoppers and Zoom experts, digital disruptors needed to find new ways to maintain growth and stand out from the old guard. Luxury online-only brands like Away (suitcases) or Allbirds (sneakers) or Glossier (beauty products), once limited in how many customers they could attract and keep loyal, opened physical stores to give them credibility and visibility, act as distribution hubs, snatch up customer data, or offer the ease of in-person returns. In one of the earlier cases of URL to IRL, direct-to-consumer darling Warby Parker opened the doors of its first physical retail store in 2013, three years after its online launch captured the eyes and social media feeds of millions.

Other startups in pursuit of new audiences have fashioned stranger bedfellows than an Uber Pool—like when a direct-to-consumer mattress brand commissioned a 3,000-word manifesto by a trend forecaster, or made a side hustle out of renting out naps in high-traffic city centers. Or when a razor blade subscription company launched a branded magazine with a full-time editorial staff to serve up deeply esoteric content

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In other words, burgeoning “disruptors” can only burgeon so much before they tend to abandon their original models and identities, whether it’s in the service of market growth, shareholder happiness, or grabbing attention. In the same way that Uber’s taxi strategy (or its acquisitions of Drizly and Postmates) creates a way to keep users locked on their app, a telehealth outfit like Ro can only further entrench itself by partnering with platforms that connect patients with the kind of doctor appointments that need to happen in person. Meanwhile, online retailers that sell bigger-ticket items like couches or patio furniture ultimately benefit from having real-life showrooms, even if the purchases are ultimately made online. 

But the bigger a company grows—especially one fueled by messianic expectation, the promise of disruption, and eye-popping sums of VC money—the more problematic it gets when it must resort to these measures.

As we’ve seen in a growing genre of startup-themed docudramas, there is a toll to all of this hectic, fluttering havoc. The emphasis Silicon Valley places on furious growth often overshadows the sustainability of startups as businesses, responsible product builders, corporate citizens, and even reasonable places of work. In time, a founder may leave after burning through hundreds of millions of dollars or following accusations of a toxic work environment or a culture of sexual harassment. The brand lays off all the employees from its vanity magazine, the telehealth company gets accused of subverting basic medical norms.

The messiness is so common, in fact, it almost seems intentional. Baked into the sheen of innovation and foundation-shaking disruption is the promise of digital El Dorado; there’s not as much in the literature and sales decks about creating a stable—or even profitable—business. In a 2020 report by Silicon Valley Bank, a whopping 58 percent of American startup founders said that their ultimate goal was to be acquired. Another 17 percent want to go public by way of an IPO. And the current incentive structure motivates everything from expanding categories and challenging basic infrastructure to simply cutting headcount ahead of going public.

These may all seem like natural upshots of business, but the consequences of them are often not. They degrade trust in ways both small and large. When the upscale online menswear company Bonobos was acquired by Walmart, the world’s biggest and possibly most controversial retailer, a number of Bonobos’ faithful customers pledged to boycott the brand. The success of Airbnb’s disruption of the hotel industry in the name of global community has become, according to a number of researchers, the cause of rising rents in cities around the world and has even led to city-wide bans.

Uber remains a leading contender for poster child status in the “Move fast and break things” guiding credo. Its entrance into the New York market undercut an inflated taxi medallion system, ultimately bringing financial ruin to generations of drivers, many of whom had forked over their life savings for the right to drive in the city. According to The New York Times, nearly 1,000 taxi drivers filed for bankruptcy while facing loans they couldn’t repay; several died by suicide.

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Now, having alienated its own driver base, Uber’s new partnership with cabs brings more uncertainty to the equation. With taxi fares set to be determined by the UberX pricing model during slow times, it’s likely that taxi drivers will make less than their regular metered fares. And when the app’s infamous surge pricing kicks in, the new peak rates could deprive customers of one major thing that taxis had going for them—their tether to relatively predictable metered fares. Then there’s the question of who will regulate the myriad problems that tend to pop up with app-based riding.

The marriage between a system built for part-time work and fleets of workers that drive long shifts for their livelihood may be an unhappy one. But more than that, for a company with Uber’s history to become irrevocably enmeshed in the infrastructure of cities—with only one business quarter of recorded profit, no less—says something important about the dangers of disruptors growing big enough to become essential.

The deference and leeway afforded to business in the United States is the stuff of legend. Without trains, we’d be stuck traveling by boat or horse. Without cars and airplanes, we’d be stuck traveling by train. Left in the wake of all that innovation are the people and places that progress forgot. That’s a tragic yet broadly accepted part of the bargain.

But that’s not even what this generation of digital disruptors is doing. Many Silicon Valley companies, and the firms that prop them up, aren’t creating an exciting new future so much as further confusing an already confounding and dysfunctional present. Giving companies like Uber the right of way doesn’t necessarily make cities or industries innovative; in fact, it often turns them into gridlock-snarled experiments with little oversight and little thought for long-term consequences. There are no simple fixes to this problem, but a shift away from worshiping disruption—in culture, funding models, and tax laws—would be a good start. The world needs more functional businesses, and fewer roads paved with investors’ intentions.


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