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Uber over-kill?

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How Uber Has Shot Itself in the Foot and Damaged Sharing Economy

Uber has just paid $100M to get rid of some employee vs. contractors issues so they are paying through the nose to try to stop the employee movement--they will lose and they are losing.  But why is it so important to them to stop this employee trend?  Simply because with their current model they can never do it, they would lose even more money than the current drivers do and they would never be able to pay employees enough even if they could make it work.  Of course, they can make it work but they would have to at minimum double their fees per mile. 

At anything less than $2.50 per mile (in Miami) it would be impossible as there is not enough money to have employees.  Just needing to pay for the cost of running employees, the workers’ comp, insurance, employee taxes, etc. would crush them.  In other more expensive cities, there might not be the dramatic ~250% increase to make it work but there would have to be an increase.  So they are throwing away $100M and much more to fight raising the prices to a better level and a profitable level for everyone.  In fact, if they raised the prices to those levels which would still be a significant saving below taxis, they would get fewer riders but enough riders to get drivers out there and not so inclined to want to be an employee because it is more profitable to be an independent contractor because the cash flow would be even better!  They should of course offer help with filing self-employment taxes, get the between-ride miles info to file taxes (they do not show that because it would make them look bad with the drivers since it is so much more than the actual miles driven), getting free business tax upgrades at the end of the year for the filing software, etc.  If they just treated drivers decently most of them would be on their side.

Obviously, there are some sharing economy services that already have employees and they make it work, and so could Uber and Lyft.  Most people fear losing the “freedom” factor of working when they want but tech companies with their flex-time employees have shown us over and over again that employees need not have to be forced to work set hours so this fear they are creating is just that fear and not something that need be considered. The future of employment will surely not be 9-5 anymore anyway!  Since Uber is the most well-known sharing economy company their mistreatment of drivers and their refusal to either make them employees or treat them with respect and kindness, they are hurting the image of the sharing economy.  While others have made it work with employees and still be a sharing economy, they can too but Uber is all people hear about and they negatively affecting the perception of the sharing economy. By the time all lawsuits are over about $500M, and yes that is half-a-billion dollars; that could have been spent on being humane and building up the sharing economy instead of shredding it at the edges.

Founder and CEO at ReyNovation, Tech Startup Strategy and Product Development.


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